BankerVision

Lift and shift

Since I started working on Future-proofing, my book on innovation methods  due out next year, something interesting has started to happen.

I am getting calls from institutions around the world (or consultants retained by them), asking about the experiences we've had building out our innovation systems and processes. Apparently, even in these times of trouble, wanting to get more innovative is still a key imperative.

The other day, for example, I was on this call with a major European bank. I always take those sorts of calls by the way, especially when my own institution is not competitive. The fact of the matter is I get just as much from it as they do, and our innovation group is improved as a result.

Anyway, I was on this call, and they said to me: “we have lots of money, we are ready to invest, we know innovation is the future of our business. But we don't want to waste money. And we don't want to have to discover how not to ourselves”.

I told them about my five capability model of innovation programmes, and suggested they should prepare themselves for a multi-year journey. Cultures don't change all that quickly.

Now as far as I could tell, this institution was crying out for what I'd style a “lift-and-shift” innovation process. That's where someone with tried and proven methods is retained to create the environment in which innovation can flourish. Those things take a long time to build well independently, sometimes years.

This institution needed a short-cut. Why wait years to get it all right if you can buy it in working already?

The thing is, I take such calls several times or more a month. Everyone is always after the same thing: tell us how we can build an innovation programme without the expensive mistakes along the way. And how we can do it quick-smart.

I'd make two interesting observations about this.

The first is that everyone I'm talking to realises that the competitive advantage from innovation never comes from the way you do innovation, but rather, from the people that are actualised by the innovation process. That, by the way, is the reason I am usually delighted to share details of how we do what we do: it is the people that we have that make it work, not the process itself.

Here is my second observation: There is clearly a significant opportunity here for someone. But all the major vendors have no offering.  Oh, I know there are lots of innovation consultancies around, but they offer high level advice. Where is the innovation service that can install all this stuff in an institution without all the bother?

The opportunity to do this must be massive. The opportunity for an institution that were to buy such a service must, similarly be massive.

Imagine the model: the institution doesn't pay for anything up front. Because the process is lift-and-shift, the vendor knows it can make windfall returns for its client, and therefore is delighted to do a risk and reward pricing scheme. Decent innovation science will usually make innovation the preferred investment activity compared to practically all other opportunities. That's especially true where the programme is supported by senior people who are believers.

So where is this service? Perhaps I've failed to examine the market sufficiently and it does, in fact, exist somewhere. But if that's true, there are lots of other institutions out there that have also failed to find the lift-and-shift innovation process.

And I only know about the demand in banking. What about all those other industries that face the same problem?

Lock-down negatives

One of the biggest contentions I get into here at the bank is, for any given system or tool,  the amount of lock-down required. The tendency of any institution, left unchecked, is to lock down things to such a degree that nothing can be done without appropriate authorities, governance waivers, and architectural oversight.

The thing is, organisations today almost always have a lot of clever people who can get around any lockdown, if they choose to.  This renders whatever controls happen to be in place porous at best.

Now, I don't want to suggest for a minute that strict controls aren't necessary for some systems. Customer data, for example, needs to be locked down routinely. We all know what happens when that kind of thing is let slide.

But what about the tools of end user computing? Mobile devices? Productivity and collaboration applications?

These are examples, in my view, where less control can have very positive benefits for everyone.

The real question is whether an institution works better when people can find out anything they are interested in. Compared to the default state of most banks, where everyone is siloed, and information is on a need-to-know basis only.

If a bright young spark in corporate banking can see the high level strategy for, say, the payments business, does that not open up the opportunity for a potential collaboration of business interest?

Or the case where a senior manager can, with a few button clicks, find out that her colleagues team has started work developing a capability which she, also, is about to create.

Banks, with their focus on fiduciary responsibility, have elevated security and information control to an art form.

Luckily, though, we appear to be in the early stages of a phase-change.

I've written here before of the steps my own institution is taking with internal work on social media and employee collaboration, and its so very interesting to see the cultural change that's resulting.

A request for information is now often answered with “oh, just go to my site to get that”. More and more, teams are exposing the internal workings of their processes on the Intranet. And individuals have begun to realise that transparency enhances, rather than reduces, their organisational footprint.

But the key message is one that seems to reverberating around all organisations: when you trust your employees and let them operate with lattitude, magical things can happen. Individuals acting rationally form groups with emergent behaviour – behaviour that wasn't preprogrammed or oversighted.

My experience is that these kinds of emergent behaviours are almost always exceptionally positive for the organisations that they are part of.

And you won't be surprised to discover that you don't get any emergent behaviours at all when you lock things down.

That magic business document

There is a magic document that is almost always associated with practically every business decision. It is a document filled with mystical powers, such as the ability to foretell the future. It is able to shape the way things happen in the present. And even when things go wrong, it has the power to provide a universal get-out-of-jail-free card.

I'm referring, of course, to the Business Case, that tool much loved by MBAs and practically everyone else.

I was put in mind of this as a result of a conversation with one of the people in my team yesterday. He was wondering where he could get examples of some excellent business cases, This, of course, led us to a discussion of what actually constitutes such a document.

Actually, the business case document is an exercise in the suspension of disbelief, rather like you see on those reality talent shows. Thousand and thousands of applicants who think they can sing, and only one winner. All judged by three or four successful industry professionals.

Just where did they get all that time?

The business case is similar. It makes predictions about specific future states, when the rest of the time, we accept that such predictions are hard or impossible. But in he context of an official business case document, this kind of crystal ball gazing is not only accepted, it is expected. About the only feedback one gets with respect to this oracular vision is “hmmm, those numbers look high to me”, or “um, don't those numbers seem low to you?”.

This illustrates another powerful effect this fascinating document has. It can infect anyone who reads it with the ability to read the future as well.

It is hardly surprising, really, that most of the time the actual set of circumstances predicted in any given business case do not come to pass. I've yet to see such a document that was a completely accurate reflection of the way something actually got done, once all the money was approved. That's because during implementation, you learn a lot which you didn't know when you make your forecasts and all this new information changes the shape of the thing you're doing.

During the process of building something out, it is not unusual to see it morph completely. In the start-up community, in fact, people are starting to offer advice which reflects this: you might have to try two or three business models before you find one that works.

Pity the poor investors who made their funding decisions based on the first business plan (a business case, in everything but name).

All this brings me to the main point I want to make on business cases. Since they don't usually reflect the actual reality of what gets implemented, why do we persist in creating them?

The answer is obvious when you think about it. A business case is a sales document. It is a collection of statements about some future possibilities framed in a such a way that it attracts the interest of those with resources to invest.

What are stakeholders looking for in a business case?

They want to understand the value proposition to them, and how much it will cost. What will they look like if it is successful? In the overall scheme of things, what are the implications for the organisation of which they are a part? And, in the end, what assurances do they have that in the event of a failure, they won't go down with it?

Let me put that differently: even if it is only subconsciously, budget holders make an assessment of the business case in terms of how well they think the document might work as that get-out-of-jail-free card when it is later found that the investment didn't go the way it was expected.

Accepting the true purpose of the business case lets you target the messages within it much more effectively. A focus on benefits rather than costs is helpful. Creating custom business cases for specific audiences can be powerful.

And, whilst you need the numbers to be there, they themselves don't communicate the actual message one needs: this is the investment opportunity you've been waiting for, and it is the most attractive you have available at present.

It is impossible to do without a fully featured business case for any significant decision, since we've all been fully conditioned to expect the document these days. Since we're stuck with writing them anyway, it makes a great deal of sense to optimse the business case for the real audience need.

An update on my alternative operating system

A few weeks ago I posted that I was getting rid of Windows, and I thought you might all like an update on where I am with that.

The biggest change for me is that I've started to run Linux under the hood on my principle work laptop. I'm using Suse 11, for those who are interested in technical things.

Originally, years ago, I had a Macintosh. It was the original 128k version, with a single floppy disk, and I loved it. I continued with Macintosh for the next decade or so, way before it had its resurgence to popularity in recent times.

I gave it up and switched to Windows in order to be more aligned with what most corporates were using at the time. Over time I became pretty convinced that Windows was the future, and even wound up working at Microsoft eventually.

I've now realised that Windows isn't cutting it very well any more for me. The realisation came when I couldn't get the thing to go to sleep when I wanted it to. Neither could I get it undock without a restart. Couldn't connect to any of the printers at work. Couldn't even reliably sustain a connection to my printers at home. Had to beg it to make a connection to a wireless network. And the integrated Internet Explorer was crashing at the drop of a hat.

I realised I was spending a lot of time fighting with it before I even got any of my applications to open.

Yes, I know these are all signs that it's time to reinstall. But stop for a moment. When did we all get into the habit of reinstalling operating systems because they started to degrade?

It was the high water mark of inconvenience that made me jump ship.

Of course, I still run Windows for those key applications which I can't do without. For example, I can't live without ClearContext, which helps me manage email. And I still need Windows to access the corporate resources at the bank.

So I run it in a Virtual Machine on top of Linux.

Here's the surprising thing. Windows runs better inside a Virtual Machine than without it. Even from a performance perspective (although my laptop is a relatively new one and has that new Intel virtualisation gadget in its processor, so maybe that is the reason).

Even my Microsoft Office applications seem to crash less frequently. I still use them, having tried and failed to convert my brain the OpenOffice things that came with my new operating system.

I now have a copy of Windows which I run every single day, and I haven't had to restart it in over two weeks. Unheard of. Neither is it degrading with time. Bliss.

And guess what?

When you undock the laptop, it undocks. When you ask to sleep, it does so in seconds. And comes back to life without hassles.

Now let me not paint a picture that all this was simple to achieve in the first place. I had quite a lot of bother getting everything the way I like it and went through two Linux distributions before finding Suse 11.

But, and I have to say this, I'd evaluate the bother as about the same as making Windows work perfectly, all the time. Especially when you factor in the several times a year reinstall.

For me, the switch to Linux is paying off. I am actually more productive (at least now it is all working) than I ever was when I had to fight with Windows every day.

Counting up the minutes wasted by operating systems is an illustrative exercise for everyone. Keep a wasted minutes diary for a week. You'll be shocked at what you find out.

On pilots and prototypes

I found another bank innovation team the other day that spends its life doing pilots. Now, don't get me wrong. That is a perfectly good way to make innovation investments. Pilots are an important outcome of the innovation process because they let an institution “suck it and see” before they take whatever-it-is to a broad base of customers.

But I was struck, when talking with this group of innovators, by the fact that they were confusing the terms pilot and prototype. It is a mistake that so many people make.

There is only one reason to run a pilot: to get learnings about how to operate an innovation before you put it in the hands of customers or end users. Pilots are about trying the innovation for real and making sure that everything works. They are about preparing to scale up to production.

However,  a pilot is not a technology experiment to see if people will “like” the service.

A pilot is not a proof point that whatever-it-is can be made to work in the first place.

Neither is it a sales tool used to help win funding.

These are the roles of a prototype, which is a small demonstration of the doability of a new innovation.

Prototypes are good for resolving technical and political ambiguity. They are small, hardly functional, demonstrations of what something could look like if it were built. Or they are experiments that show that the process or technology involved can work in this new, novel way.

And, of course, they are entirely throw-away, since they don't do anything very useful, other than illustrate one, specific point.

The mistake that some innovators make when they confuse a pilot and a prototype is they commit significant resources to building something for real before they have achieved agreement that whatever-it-is will go ahead.

This point seems not to be obvious, and I have to admit I've made the mistake myself. I continue to do it whenever I let my excitement with something new run away with me.

But in the end, asking a simple diagnostic question is helpful. In order to win this funding, what is the minimum I have to do?

Most often, the answer is provide a few static screen shots or a proof point that whatever it is that's novel works.

Since, most of the time, things will not go ahead, spending as little as possible up front results in far more innovation being possible in the long run.

LinkedIn rather than the corporate directory

Something interesting happened to me the other day.

A newly appointed director of the bank, apparently, was Googling for a particular topic and found my name. She then worked out that I worked at the same institution, and then, rather than log into the corporate directory, used LinkedIn to reach out to me.

This is an individual with powerful resources for connecting at her command.

She could, for example, have instructed her assistant to get me on the phone. Or sent an email, since my name would have come up immediately. Or, even, should she have been so motivated, connected through one of the many people we know in common.

When I called her after, she said that she found this new way of connecting much less intrusive and far quicker than what she'd done previously.

I find it significant that, for the first time, an externally open directory of people was the first port of call for making this initial connection. Instead of the internal directory which, supposedly, should be far more accurate and have much more detailed information.

The thing is, it doesn't. And the fact of the matter is, people who would never have used a social network before are beginning to notice the advantages they get when they start using one.

It is indicative, I think, that walled gardens, even in banks, are becoming a thing of the past. The fact of the matter is that there is a lot more information about me and what I do available outside our institution than on networks inside it.

And that, it seems, is increasingly true for many people. At least, it is true for enough people that going outside for information about the inside is a good first bet for finding something out.

Ten bits of wisdom in banking innovation

Wisdom in banking innovation is knowing that in times of trouble you don't want to be seen as the cause of trouble yourself. Instead, focus on value enhancement through small, but significant steps forward that don't cost too much.

Wisdom in banking innovation is making sure that everyone possible is included as part of the process. Ivory tower innovators are not only disconnected from the real business, they have no leg to stand on when troubled times make their programmes subject to cost cutting.

Wisdom in banking innovation is knowing that if you have to break a rule, and it is in the best interests of the bank, it is better to ask for forgiveness than permission. Banking innovators should be the light that illuminates rules that need to be revised and updated.

Wisdom in banking innovation is knowing that breaking one rule means you have to obey 100 before you can break another. Avoiding the cowboy effect should be a mantra that bank innovators live by.

Wisdom in banking innovation is accepting that programmes you've shed blood for are going to be cancelled for no other reason than it is expeditious in the present climate. And knowing that the average length of a recession in the post-war years is only 10 months.

Wisdom in banking innovation is understanding that when people cost cut, they will look first at innovation programmes. Deal with the fact that doing change gets harder the less money there is, and move on to providing thought leadership and insight that is the unique product of a team that only concentrates on looking forward.

Wisdom is understanding that going back to “traditional banking” doesn't mean doing new things is off the agenda. On the contrary: with everyone being traditional, the need for doing things in new ways has never been greater.

Wisdom in banking innovation is believing  you are a part of the business process that will be the primary driver of value creation in the next few decades. And making sure  you create the right systems and cultures now to ensure the coming innovation renaissance doesn't pass your institution by.

Wisdom in banking innovation is knowing that to a significant degree the innovators are the canaries in the coal mine. Because they look forward all the time, rather than focussing on day to day operations and the objectives of the present reporting period, they are the ones most likely to spot future disruptive things and bring them to the attention of the rest of the business. And wisdom is accepting that even when operational pressures make it hard to get the attention of senior people, there is a duty to do so.

Wisdom in banking innovation is knowing that you can substitute influence for money in order to get things done. Influence and money share the same relationship as energy and matter in physics: they are the same things in different forms. And wisdom is knowing that the process to convert one to the other isn't rocket science, but is about people.

Self organising and optimising business process

I've spoken here often of the democratisation of the tools of production, something that is happening across so many technological and business domains. We are entering an age where anyone with the will to do something has the tools to do so. Talent becomes the key differentiator rather than access to capital and resources.

Anyway, yesterday I was talking with a group of people here at the bank about this kind of future, and we got into a discussion about what happens when we put the tools needed to created business processes into the hands of anyone at all, something we are just starting to do here, by the way.

In a command and control organisation, of course, such a concept is intolerable. For every given process, there must be one true way of doing things. Because it is the one true way, every single eventuality has to be understood up front, and a rigorous change process applied to make sure things don't break.

But when anyone can create a process, you get proliferation of different ways to do the same thing. Holiday leave applications and tracking? Everyone can build a way of doing it, and continue to use it whilst ever it is convenient to do so.

The thing is, business processes of this kind can be considered to be social media as much as a blog or wiki page. They attract audiences (users) and the ones with the greatest numbers are, ipso facto, the ones that an institution uses to move forwards. By attrition from lack of use, bad processes go away by themselves.

In other words, the set of business processes that make up an institution comprise a self organising, evolutionary system. In nature, such systems respond very flexibility to changes in their environments, moving immediately to the most optimised use of resources available.

Let there be multiple ways of doing the same thing, and let the end-users decided with their feet which ones they like to use! Its how open-source has worked for years now.

That's quite a contrast to a monolithic process established on behalf of users by some faceless re-engineering entity, with little or no consideration of whether the process is actually convenient and works. And God forbid if something changes, because then its necessary to get a budget, start a project, and engage a (probably) overworked IT team.

Now I am not suggesting that major customer facing business processes should be self-evolving and user generated, at least not yet.  But the fact of the matter is that around the edges of any major business processes, there are already lots of different ways of doing things, all dreamed up by workers to make their jobs easier.

How does a paper based customer record get from the fax machine to the computer system in the branch? Probably via a folder marked “for entry” in some branches and done in batch, and carried immediate it arrives to a terminal for keying in others. Individuals and work groups create processes for themselves all the time which are optimised for the work, and styles of working, they prefer.

The democratisation of the tools of production of business processes adds to what is already going on in one simple way: it makes it possible for any worker to publish their way of working to others.

That's a fundamental new ability, because it means that the best workers can replicate what makes them successful. Its a capability that will give any organisation who cracks the code of doing it a significant competitive advantage.

Broken models and the new world order

The last two days of the week just gone, I was in Barcelona at an event called Smart Banking Forum, run by IBM. The speaker that stood out most in my mind was Shankar Ramamurthy, a senior IBM thinker in their Financial Services consulting practice.

Shankar was commenting on the current state of financial markets, and made a number of (probably) contentious statements, which nonetheless got me thinking.

His first was that it is reasonable to expect an increasing frequency of globally significant market events (such as the present crisis we are experiencing). He describes these as “six sigma” events, and suggests that our existing models for (amongst other things) catalouging and pricing risk, are out of kilter with this new reality.

He went on to suggest that the Efficient Market Hypothesis is now bankrupt and that the underlying assumptions of a normal distribution in all our risk models are breaking down in the face of all this.

Shankar went on to say that markets are increasingly described by a “fat tail” rather than a standard normal distribution, and that the maths involved in this description are presently not well understood by banks, or anyone else for that matter.

Now this, if it is all true, is quite bad news.

Let us put aside the suggestion that everyone is tied to normal distributions for a moment and concentrate on some of these other points.

If we assume the basic maths that underpin much of what we do is now invalid (or at least, or at least an incomplete description of what might happen), there is a huge threat that in this new world, we'll keep getting hit by crisis after crisis, and the whole system will collapse. In Shankar's typology, there will be an increasing frequency of “six sigma” events, and noone will be able to see them coming in time to do anything about them.

This, of course, also presents a significant opportunity. Banks with back rooms filled with mathematical experts have a very new, and very big challenge on their hands. Those who crack the maths first will be able to play at the very edge and make windfall gains. But, lets face it, if Shankar is correct,  the fundamental research to exploit the opportunity has presently not been done.

But the question in my mind is whether the scenario being painted by Shankar is, in actuality, an artefact of too narrow a focus on specific markets. As he says, markets have memories, and furthermore, are interconnected to an increasing degree as a result of globalisation. Might we, therefore, expect that models with historically limited scope might fail to capture new, emergent effects resulting from the new world order?

Expanding existing models, rather than abandoning them altogether seems a more likely prospect for most institutions, as far as I am concerned. That seems a project that single bank could undertake without tearing itself apart.

All of this is predicated, of course, on the view that something is actually broken at present. And to this last point, I am somewhat unconvinced. There have banking failures before, and there have been significant (and unexplainable by Efficient Market Hypothesis) events before.

What is going on here which is so astoundingly new in the overall tapestry of the history of financial services? Granted the specifics of the current situation might be novel, but is this crash really any different to the ones that precede it?

My suspicion is that there is no new world order after all, and that things will move forward in the ordinary way again relatively soon.

The democratisation of statistics

I’ve spoken here often of the democratisation of the tools of banking. Anyone can be a banker, thanks to Peer to Peer lending. Anyone can do payments cross boarder, thanks to PayPal and similar. And anyone can do customer service, thanks to account aggregation and financial advice sites.

But the democratisation of tools is not limited to banking. And one example which I think many people have missed is the democratisation of the tools of statistics.

“There are lies, damned lies and then there are statistics”  said Benjamin Disraeli in a particularly famous diatribe about the misuse of mathematical statements to bolster weak arguments. Disraeli was twice the Prime Minister of the United Kingdom, and it were his words which were then popularised by Mark Twain in his 1907 work Chapters from my Autobiography.

Disraeli’s words are increasingly relevant today. Who, for example, has not naively used Excel to create a trend line to support a business case and then wondered why the real world result didn’t match the projection? 

One thing I’m always surprised about, though, is that people don’t spend a little more time understanding the statistical tools which are available to them easily these days. When one is an innovator, for example, you are dealing with phenomena that are amenable to statistical treatment. The arrival of new ideas, when captured in a structured manager, is eminently describable in a statistical sense, for example. 

So having a grip on statistics is something you almost certainly want to do. Because of democratisation, anyone can do statistics, whether they are educated in it or not.

At the level of an individual business case, I regularly see methods which are unnecessarily simplistic, given the tools available today. When one needs to forecast the likely take up of a new product, for example, it is de rigour to provide base, optimistic and pessimistic cases. One makes three point guesses and then crosses fingers.

But Monte-Carlo methods, for example, can take us much further. Monte-Carlo is a technique that lets you simulate a business case thousands of time (if you like) and then aggregate the results. With Monte-Carlo, you can make statements such as “it is less than 10% likely we will make a loss of greater than X”, or “it is 90% likely that we will make a profit of at least Y”. 

Such statements are powerful when you want to convince stakeholders to buy. At least they are, as soon as stakeholder realise that you’ve used a rigorous process to get to your predictions.

When I was doing my doctoral work on forecasting innovation curves, I used a Monte Carlo method to get my results. I had to code a cluster of machines to make it work. But that was then.

Today, dong stuff like Monte Carlo is simplicity itself. There are plug-ins for Excel that take your current models you’d have used anyway and Monte-Carlo them. All you have to do is specify a few extra parameters and out pop the results. Don’t believe me? Do a search for Crystal Ball, now owned by Oracle.

The point of all this is that there is now the opportunity for more sophistication in the methods we use than ever before.

Here’s my advice. The next time you want to do a business case or any other kinds of analysis of unpredictable phenomena, try something different. Don’t guess three times and cross you fingers.

Try a simulation, do a Monte-Carlo, or run a Delphi survey, or any one of hundreds of other techniques that used to be out of reach.

If nothing else, people will marvel at your brilliance and sophistication. But most importantly, you’ll be showing everyone that it is possible to raise the bar on the way we run our businesses, and you’ll be doing it without much effort.