BankerVision

The covers showed up yesterday

Those of you who've been following the progress of Innovation and the Future-proof Bank will be interested to hear that yesterday the cover art showed up in my inbox. That was very exciting, of course, and lots of people dropped by to help me choose the one I liked.

I'd post them all here, except I doubt I'd be allowed.

Anyway, I'd previously said to my publisher that I'd prefer if they had a nice conservative cover for the book, preferably in black. I really, truly, hate innovation books with covers like circuses. All flashing colours and gimmicky pictures of iphones and things. The message I'm trying to get across in Future-proofing is that innovation is a business process like any other, and that it can be as conservative as those that operate the rest of banks.

(Ironical eyelift is deliberately omitted at this last).

So they've come back with two iterations – one that is basically black, with simple graphics of banky things, and another that is blue with interesting banking pictures tastefully arranged all over it.

I've taken the blue option.

And I also have the first batch of comments from the editorial reviewers back. The feedback seems positive so far, though I do have some work to do. Apparently there is a need for more signposts in the content, because with 500 pages of manuscript, people keep getting lost. This weekend I'm going to add those.

Unknown reviewer: thank you for taking the trouble to work on my book even though you have a day job taking up your time as well.

Workatainment

Mary Poppins was remarkably prophetic when she sang "a spoonful of sugar helps the medicine go down" to her young charges. In so doing, she signalled the forecoming of a generational shift in attitudes to work.

Our rollout of Innovation Market has focussed our attention on this shift, since its growing success seems to be a result of blurring work and play.

Innovation Market is workatainment, rather than something you are forced to do to earn a living.

In our Innovation Market, you buy and sell stocks in ideas. If you get into an idea early enough, with any luck by the time it goes live, you'll have made a bit of a profit in Bank Beanz. Bank Beanz are the virtual currency we created internally, and we pay people in Beanz for participation in the market. They earn a few Beanz for handing over their ideas, but can only make decent profits by working on the ideas, or by speculating in other people's ones.

The funny thing is, this is all quite like a game. Its fun to do, and although the actual cash amounts involved aren't very high, people are very, very competitive. We have this internal leaderboard, you see, and people would much rather be wealthy in Beanz (and therefore visible to everyone else) than cash out for the real money.

Anyway, when we started showing Innovation Market internally, one of the key questions we often got was "what if my staff play with Innovation Market all day instead of working?". The thing is, you see, Innovation Market is fun. We even have people using it from home.

But the fact that its fun doesn't detract from the main point: people are using a tool to improve our business. The fun is just a bonus.

Now, as you'll know if you've been reading here for a while, I am of the view that we have a generational change coming in our workforces. Those people born after 1980 – the Gen-Y people – are just about coming into positions where they are beginning their management careers. But Gen-Yers are as different to the people coming before them as the modern city-dweller is to the caveman.

When you have Gen-Y in charge, the fundamental attitude to the way work is conducted changes.

For a start, Gen-Yers works because they choose to. They work on things because they are interested in, not because they are directed to do so. There's pretty much no regard for what management says or does. And when management does provide robust direction, they go out of their way to look as if they are complying whilst behind the scenes doing what they were going to do the first place.

The fact of the matter is that Gen-Yers have long enough to recover from any minor career mis-steps that the downside of not doing as they please is pretty insignificant.

Now, in such an environment, the hard slog up the career ladder hardly seems such a meaningful activity. Only things that are interesting get done well. Workatainment, by definition, is interesting and fun.

So we face this generational change in our workforces, and workatainment is one way of getting good outcomes from the new talent.

It follows from the argument I've just outlined that the more entertaining you make your work environment, the more likely you are to get those key people that can make a difference. In fact, I wouldn't be surprised to see a time coming when all the new young guns don't even care so much about the money, so long as they are having a good time.

In any event, Gen-Y hasn't had the time to learn to rely on a big income.

My point, in the end, is this. Gen-Y is going to make work fun, or choose not to work in a particular organisation. We, as the current generation of managers, have a choice: either harness this new work ethic, or see the best people slip away to more enlightened organisations. One way to do so is, as Mary Poppins rightly said, put the sugar in the medicine.

The sugar is workatainment, and Mary, were she around today, would hardly have had to use her clever magic to get the best people to work for her.

Entrepreneurs or not

Here is a key question for banks looking to start an innovation programme. Do you put an entrepreneur in charge, someone with a proven capability to start and run small ventures? The kind of person who knows everything about working on a shoestring and matching limited resources to big problems?

Or, instead, do you hire someone with lots of experience managing portfolios of projects, who knows how to start-stop-continue things, but doesn't have much depth in the intricacies of running anything very much? In other words, a person who thinks like an investor, like a VC.

Most people, given the choice, I'd imagine, would go for the former. It is the easy choice: choose someone you know will at least make the few things they choose to focus on succeed.

But the easy choice is not the best choice. And here's the reason why.

When you are a bank, or indeed any established business, the real name of the game is about distributing risk in your innovation investments. You want to have a portfolio of things going on, because you know that most of them will fail. Spreading the risk is the only way to make certain you have something come out at the end.

An entrepreneur, on the other hand has quite a different perspective. They know that to be successful, their focus has to be laser-sharp on one or two things only. Doing anything else ensures their ventures will probably fail. They take all their risk up-front, and then through force of will make something happen. Most of the time they fail anyway, but sooner or later, with enough attempts, they find a way to success.

Here is the fundamental difference. An entrepreneur spreads risk by accepting serial failures. An institution, on the other hand, spreads it risk by accepting them in parallel. The latter case means that innovation is a scalable activity, one that delivers greater returns with more substantial investments.

But the former case depends absolutely on the commitment and talent of the entrepreneur. In other words, success or failure depends on the quality of the individuals involved. And a bit of luck.

Both luck and talent are in very short supply. Relying on either makes it almost certain that at very best innovation efforts are unpredictable, and at worst are predictable failures. If 80% of new innovations fail (and they do!) and all the eggs are in one basket, quite a lot has to go very, very right for anything to come out the end.

Trust me on this: if you are starting an innovation programme in a bank (is anyone doing that right now?), you want your innovators to be more like venture capitalists than entrepreneurs. You can always hire some competent managers to run new ventures. But the kind of mindset that's needed to make new investment decisions – and to terminate old ones – is quite different.

 

 

 

What kind of innovation does your bank do?

Now, I know that we're all in a bit of an innovation vacuum at the moment, since the financial crisis seems to have sucked all the life out of most innovators I know. They are all lying low, hoping their programmes won't get too much notice, for fear that they'll be cost-cut out of existence. And you can understand why- attempting to invest for speculative returns in the future when there is trouble paying for the bills of today just seems like folly.

Considering the news of the hour, the fact of the matter is that even successful programmes have to deliver more with way, way less if they want to keep breathing. I know that my own team and I have been cutting back as much as possible to ensure we have enough runway to get through the current situation. Innovation teams are rather like startups in that respect, except instead of money, the key currency is influence. The more you have, the more likely it is you can get through the present circumstances. If you do silly things, you burn influence at a greater rate than you earn it. And a team without influence is cut almost immediately.

But this has led me to consideration of the sorts of innovation that can be done when influence is high, but money is tight. And that led me think about innovation strategy in the context of banks.

Really, when you boil it down, there are only three possible strategies available to bank innovators.

The first is obvious: don't do innovation at all. Rely on what worked in the past. Expect that with "back to basics banking" is it possible resurrect practices appropriate two decades ago and hope for the best. Some banks have, indeed adopted this strategy, and it's a valid option, especially if what you need to do is keep on living during the next two years. Having no innovators at all is the cheapest option in the short term, but also condemns the long term to more of the same.

At the other end of the scale, however, is Play to Win innovation. This is the kind of innovation strategy you have when you can say, with no disagreement, that innovation is going to be the source of all competitive advantage for an institution in the future. This is the kind of innovation that most innovators really want to be involved in. They have their labs, and their corporate incubators, and all the miasma of a startup. Innovators doing Play to Win are expensive in the short term, but (if they are any good) highly profitable in the long term.

I rather suspect the innovation programmes which are under threat right now are in this category. Their strategies are all about a planning horizon beyond the present vision of institutions which are struggling to keep their heads above water. No matter how good the innovation portfolio, the lack of financial contribution now is their chief problem.

Which brings me to the third kind of innovation strategy that's possible: play not to lose. Play not to lose accepts that maintaining parity with competitors is the primary reason to have an innovation function. You may not get the market windfalls that accompany a big breakthrough in the future, but you do get some kind of return in the short term. The innovators doing this strategy have the ability to balance their costs right now with returns right now.

At my own bank, our strategy has always been play not to lose. We are not the sort of institution that seeks out big breakthroughs in the hope of some spectacular future return. Small, gradual improvements in the way we do things is something that just seems to work better for us, at least from an innovation perspective.

Now, when I've talked about this in public, and with my fellow innovators at other banks, one thing always surprises me. They seem to think that if you're not doing Play to Win, you aren't really innovating. To them, I ask this question: with budgets drying up and influence burning at a great rate, isn't it better to be doing small, incremental innovation, rather than doing no innovation at all?

The two-faced banker

Last night I was at an event hosted by Adobe and IDC. The theme was whether innovation, differentiation and competition would last in the current financial climate. Now, as usual, bloggers aren't supposed to talk about the substantive points that were made by attendees, so I'm not going to repeat anything meaty here.

But I do feel I have to comment on something disturbing which I noticed last night, and have been noticing more and more lately.

There seems to be this body of people in our industry – usually people employed in retail banks, it seems to me – that are getting vocal in their condemnation of our industry as a whole. There is nothing wrong with this, of course, but what is bothering to me is that quite often they don't seem to have a grasp of the fundamental issues which have led us to the present situation.

When you have a banker parrot the popular misconceptions that are published daily in the press, you know there is a problem.

Now, I know that some parts of the banking business don't necessarily have the same level of knowledge about the way things work as others. You often find, for example, that IT people don't really understand the underlying things that their systems are actually doing. They know the technology, but the revenue flows are processes to them, not the specific incarnations of market forces in which their institutions operate.

Specialists have always had such a narrow view.

My point, however, is that if you get up and make pronouncements from the pulpit of "expertise" as someone who works in a bank, please accept that other bankers in the room are going to be horrified when you sound like a talk radio show.

Now, I'm not denying for a moment that the industry is challenged on many fronts at present. But it hardly shows we're in control and know what to do next when the people in charge seem to have about the same grasp of the challenges as people who have never worked in a bank ever.

Note to bankers: make sure you are credible in front of your peers, have a clue about what is going on at present and how we got here, or else keep your mouth shut. You make us all look terrible.

Innovation market most innovative of 2008

You can imagine how thrilled my team and I were when we discovered that FinExtra, in its newly launched Innovation Showcase, has decided that our Innovation Market was one of the most innovative developments in financial services in 2008.

At a future time, I'll write a more comprehensive post about Innovation Market, much more detailed than the one where I leaked it. It wasn't really a leak, of course, and I use that term for dramatic effect. We actually told everyone about it a month or two before at the Financial Innovation Awards, where it won Most Innovative IT Project.

Innovation Market isn't really about IT, of course. Its about people, and motivating them to do innovation without relying on a core team to do things for them. As long as you have a central function that does innovation, your capacity to try new things will necessarily be limited by budgets and bandwidth. With thousands of new ideas arriving every month, there was no way my team and I were ever going to be able to do everything that we wanted.

Innovation Market, we hope, will change that. What we're trying to achieve is the set of circumstances that will empower people with the ideas to implement them themselves.

So far, it appears to be working.

Transparency about the current market

I've often wondered, as I sit here on my train every morning writing a blog post or doing email, whether readers find my lack of comment on the current financial situation surprising. Obviously, there are few things more important at present than the happenings in the market, yet not once have I made any substantive statement on the matter. You'd think, since I am relatively outspoken on other matters, such as the business practice of analysts, or the various antics of vendors, that I might, at least, make some effort to offer critical insight or commentary from the perspective of a bank.

I thought it might be appropriate, at this point, to clarify the reasons why I've been reticent on this subject. Obviously I have my own very strong views, and Isometimes I sit on my hands when I read what else people say in the blogosphere on this subject in order to prevent myself throwing caution aside.

But those of you who work in banks will know how very difficult it is for an employee to be seen, and heard in public. My own bank allows me very great latitude in this regard. But I doubt that would continue if I added to the public debate on various subjects presently at the fore. We are presently not at the stage where unbridled comment on sensitive matters would be seen as a positive contribution to the debate, and I doubt very many bank employees anywhere are in such a position.

That's why you don't see much comment from the few bankers who have blogs and can be traced back to their institutions.

Now, there is nothing much wrong with this. As I've said before, we are on a social media journey, all of us in the financial services industry. The kinds of openness about corporate affairs pioneered by Robert Scoble at Microsoft might be an aspirational place to get to one day, but I can assure you we are a long way from that place right now. One can't change cultures overnight. Indeed, the traditionalists in banks would be horrified to discover anyone had such aspirations at all.

The key question is whether opening up a public debate via social media at this particular difficult time from the perspective of an insider – which I have no doubt at all would be lively, interesting, and good reading – would actually be worth the risk of putting social media in banks back years or not. My own view is that it is not.

This, of course, is frustrating. I don't like the fact that I can't share what I'd like. But I also know that there will be plenty of corporate-relations type things in the future to comment on, and I am patient. I am confident that caution now provides a solid platform for other more revealing posts in the future.

In the meantime, I am interested in the experiences of others. Colin Henderson, who writes BankWatch, used to be a banker and is a source of very critical insight into the current situation. Colin – would you have been so forward were you still with your former institution?

Over at Bank of America, the Future Banking blog has lots to say about the work of the innovators there, but I'm not seeing a great deal of commentary or analysis of our market conditions at present. Jeff and Co, do you feel, as I do, that its inadvisable for bankers to get into the public arena on these subjects right now if we want to keep blogging?

About the closest I've seen anyone associated with a bank come close to commentary on this stuff is Rob Findlay at NAB in his BankChannel blog. But even he is reserved? Any comments Rob?

I think, in the end, that banks will get to complete transparency in the medium term. The current crisis may even speed that along. But in the meantime, I'm quite certain that small, careful, baby steps towards that goal are much, much better than an all out race to the finish line.

So where is the magic?

The other night, I was out for dinner with a senior figure from one of my favourite vendors, and we somehow got into a discussion about the merits of various tech firm business models.

Now, I have been a saying that pure licensing, if not dead already, is shortly to be so. Why, I argued, would we want to spend all this money on technology, which will likely sit on a shelf gathering dust? We don't know how to deploy the new stuff, and it costs a huge amount of money to build the skill base internally. In fact, the most expensive way to build a skill base is to try and build it from the ground up with no help at all. Its like learning to read without the benefit of schools, books, or the power of speech. That's what you get when you buy licenses.

(A certain reader will likely chime in here with arguments that Software as Service is really what I need, but of course, that's just a new way of spreading the license payment, coupled with renting space of some servers to make it all work).

This is why I argue that companies which lead with people-based services, with the technology wrapped in as an enabler of course, are the future. The overall price tag for a services led offer is way, way, higher, but at the end of it, you at least have something that can do useful work. People led offers usually get pretty quickly to the specific problem that must be solved. Technology-led ones, on the other hand, start out by searching for an appropriate problem they can reasonably address that will justify their price tag.

This is a tired old argument, of course, and one on which everyone will no doubt have their own views.

But this brought our discussion to another, more interesting point.

My software vendor colleague stated he believed the people-led offers to customers were a less "smart" business model, because they scale in linear fashion. If you add more people, you add more cost. Sooner or later, you either run out of people, or your customers run out of money. The license model, on the other hand, scales quite differently. You make a sizeable initial investment in the technology, and then it can be resold as much as you like. Everything is upside.

The key differentiator, he went on to argue, was how much magic could be incorporated in the technology. "Magic" in this case, means that essential thing from which all the value-add derives. For licenses, jamming as much functionality into the technology in a scatter-gun approach creates the highest likelihood of that lucky intersection where value-add can be created.

This all crystallised something for me. And that is that my own view is the magic is in the people, not the technology. It is people that mould a particular business problem in such a way that it can even have a technology solution. It is they that create the circumstances that led to the opportunity in the first place. And in the end, it is the unique application of their expertise that results in a successful conclusion. The technology is a shortcut only. Not the end itself.

The difference between the people led technology offer, and the license led one is the same as that between a home cooked meal and MacDonalds burger. The former is made with love, specific to the unique circumstances of the household. It is more healthy, and likely to be highly customised. The MacDonalds burger, on the other hand, has none of these positive attributes. Its only redeeming feature is that it scales well: you can buy one in any country of the world, and it will be totally, exactly, the same. Perfect for Macdonalds Corporation, of course, but hardly an optimum arrangement for the customer.

I don't expect to find much magic in a Macdonalds burger. Neither do I expect it very often in a software license.

But a custom people-led solution that solves our unique problem, and that happens to use technology? Now, there is magic.

Personal responsibility for business continuity

Here in London, we are experiencing the heaviest snow falls for almost 20 years.  It is causing havoc everywhere. Yesterday, there was no possibility of travelling inside or outside the capital. And today, as I write this sitting in a waiting room on a station, only slightly warmer than the temperature outside where additional snow is falling, the train service I ordinarily catch has been reduced from 8 to 4 cars, and everything else is operating on a reduced timetable.

The amazing thing is that anything is working at all in a city which is simply not optimized for such extreme weather.

The point of this post, however, is to reflect on the fact that even now, whilst everything is seaming to grind to a halt, it is possible to continue the business of the bank.

Yesterday, I worked from home, thankful that I had mobile phone connections and virtual private network access into the office. Most of my staff, similarly stranded, did the same.

Some, however, were forced to go into the office anyway. They’d failed to take the right precautions to enable them to work remotely. Their alternative course was not to work at all, and surprisingly few took that option.

Working remotely in business continuity situations requires that you have prepared in advance. You need to have all your security tokens up to date and working.  A fast network connection to transport your office data. And decent phone service. As well as access to all your passwords and  credential data.

For those in the habit of home working, none of this presents a difficulty at all. But in a large institution, one that is just beginning to take its first steps to habitual remote workers, all this takes preparation. It needs to be practiced and debugged.

My point is that whilst most institutions have mature business continuity plans for key staff, you simply can’t expect those to work without taking some personal accountability to make sure it all operates in your personal situation. My staff that hadn’t prepared were clearly disadvantaged yesterday as we made critical decisions without their input.

And here’s something else. Although everyone has a business continuity programme, they can never be comprehensive enough to consider every single thing that needs to happen.  Not every resource needed to continue work will likely have been provided in advance by some central authority. Who could plan such a thing anyway? The complexity involved is monstrous.

Taking personal accountability for business continuity means that sometimes, you’re going to have to use personal resources temporarily to make things work. I had to use my personal broadband yesterday, even though I am provided with a 3G data card by the bank.

The lucky thing, I suppose about all this is the next generation of workers, all those Gen-Yers who are just starting their careers with the bank, would never have the difficulties that some of our more experienced people had yesterday. They are permanently connected to the digital world anyway, and largely location independent.

In fact, the only reason they come to the office at all, most of the time, is their Gen-X and Traditionalist managers like to see their faces to reassure themselves that work is actually being done. An antiquated perspective on things, I suspect, but cultures do not change overnight.

From a business continuity perspective, however, Gen-Y workers represent the future. Our planning will become much less complex when we can rely on the fact that our people will be connected to us, and will be personally certain to make sure they are. Massive centralized planning for continuity will focus not on individuals, but on the vestiges of the centralized infrastructures that remain.

In this new world, business continuity is not a massive discipline that must be planned and practiced.

It is, instead, the way that everyone works ordinarily.