BankerVision

Travel plans

In case you're interested, I'll be in Australia from the 23^rd through 26^th of June. Mainly in Sydney. Most of the time, I'll be attending Amplify, but am free for other meetings as well if anyone is interested.

Let me know by email.

You have to work in a bank to know how to work a bank

I've think I've learned a very valuable lesson: no matter how specialised in financial services you are, you have to have worked in a bank – as an employee – before you have any idea of how to "work" a bank.

I write this, because it has struck me recently (and especially on the vendor side) that there is often a lack of understanding some core things we have to go through to make anything happen. I'm so regularly asked why banks aren't innovative, for example, to which my response is that I don't believe we are either more or less innovative than anyone else. We may look less innovative, but that's a function of internal configuration rather than any lack of basic creativity.

So let me give you some examples of popular misconceptions I've had from vendors.

"You can implement this quickly and get a payback this year".

We can't implement anything quickly. There are too many moving parts in a bank for anyone to be anything but deliberate with what we do. There is testing, testing, testing. We need back-out plans. We have to implement the right processes and systems to support whatever it is. And, of course, we have to schedule the change in against all other changes from everyone else. Fast and dirty only works when what you have around you are people who regularly perform individual heroics to make something work. You might have that luxury in a small start-up, but you don't in a bank. Neither do you want it. Everything has to work despite individuals.

" The productivity improvements here will pay for themselves"

Productivity improvements hardly ever pay for themselves, because in order to make them do so, you'd have to reduce the number of workers you have. Or else give them way more work than they were doing before. Agreements with the labour market make both complicated, though not impossible, of course. But frankly, the problem is not so much that people can do more work, but that you can't quantify how much more work they can do. Social media internally? You know that it has a benefits case, but trying to put a number of it, one that will stick, is pretty hard.

"We have shown you a real business case and the numbers stack up. But you still say no"

Something that lots of people don't get is that no matter how good a business case is from a numbers perspective, we still might not be able to do anything. There are several reasons. The first is financial. We have limited investment budgets, and you can only spend what you have. Even if you have the most amazing numbers anywhere, if there is no money, there is no money. I sometimes wonder if people imagine that a bank is different to any other business in this regard. But we might not do something with good numbers and money in the budget for another reason: we might not be able to absorb the amount of change it entails. This is a big problem for most institutions.

The amount of change we can accept in any given period is finite if we want to preserve the stability of our services to customers. You can't just have people "doing things" to systems. I mean, lets face it, we are entrusted with people's financial lives in a bank, and stuff just has to work. So we have a limited number of change slots, and there is often significant contention for them. There is also a prioritisation applied: if your change is regulatory or critical to service, you'll get a slot. If your change is anything else, you can wait in the queue.

"All I have to do is get a meeting with <C-suite executive> to unblock this deal".

The reality of those kinds of meetings is that C-Suite executives are not stupid. They realise that with their big responsibilities, they can't possibly have every detail of their operations in their heads. So they ask for advice. The idea that they make critical decisions in isolation is really quite bizarre. On the other hand, if despite everything someone goes and sets up one of those meetings in order to "unblock" something, you can guarantee that everyone else will be very annoyed. Annoyed enough, in fact, to probably never take a meeting again.

"I will only meet with <insert senior management level> due to <status/time/preference>"

You'd be amazed at how often deals go south because someone with a year or two of experience – apparently far away from decisions – has decided that something is too hard to do. The fact of the matter is that as in any organisation, the people at the coalface have significant influence on what goes on. Projects can run late, over budget and get cancelled altogether if the coalface people don't like what is happening. Then too, their line managers are likely to be someone removed from the day-to-day tech anyway, so guess who it is they go to get their advice? You got it: the apparently junior people working at the coalface.

I suppose, when you think about it, all of this seems relatively obvious. Still it is amazing to me how many people sail through our bank with notions that the quality of their solution can overcome these kinds of barriers. Practically speaking, technical competence is no longer the differentiator it once was anyway.

Hire people that have worked in a bank to work the bank. Not individuals that have worked "for" the bank as part of a contract. Ones that have had to deal with the realities day to day from the inside.

I'd be surprised if the sales success rate didn't jump quite a bit, if nothing else because stuff that would never get up will simply not get presented.

Lost my iPhone

No doubt, my friends at Microsoft will be ever so delighted to hear that I have misplaced my iPhone and am forced back to Windows Mobile temporarily. This probably happened when I was out with them last night, so no doubt it is a conspiracy.

Lorraine, my ever indispensible assistant, is calling everyone madly to try and find it, however. Since her investigatory powers rival those of the legendary Sherlock, I am certain the iPhone will resurface.

But in the meantime, I am experiencing an 80s style level of disconnection. No mail, and certainly no calls, when on the move.

Not that that's a bad thing, but takes some getting used to.

Update: The phone has been found. The colleague I was with in the cab last night found it after I got out and has returned it to me this morning.

What is this “disruption”?

After "innovation", the next most divisive word you can use in the context of doing new things is "disruptive". I hate this word, and avoid it myself like the plague. My problem is that practically everyone I talk to thinks it means something different.

I borrow my definition from Christensen, who, I think, offers the most cogent definition and explanation of disruptive processes in business generally. Disruptive innovations, in that typology, are ones which address currently over served customers (providing a better value proposition) or which target new customers that incumbents can't reach (for cost or other reasons). I won't go further into the details of that definition here, because I suspect many people who follow here will at least have read "The Innovators Dilemma" and are well versed in the theory.

But let me give you some other examples of the use of the word "disruption".

In one meeting I was at, a consultant in the propositions development area suggested that "disruptive" was really code for doing something brand new, something that competitors weren't yet doing. The key aspect of this kind of disruptive, it seems, would be that competitors would be forced to react. In that definition, of course, you can classify banks doing Twitter as disruptive, since at least the first ones got quite a bit of attention and lots of other rushed in to copy.

The same consultant said, when I asked what he thought of my definition of disruption ("Hey! Yeah, let's double-click on that for a moment, James" – ugh!) that theories of "company killers" were hardly likely to affect a bank. Well, it was a year and a half ago.

More recently, I was in another meeting, this time with a vendor. They were talking about their desire to work with the bank to create "disruptive" new things that would grow our business. All very laudable, of course, but what they were actually talking about was giving us new stuff that would enable us to better serve a particular customer segment we have. Of course that's interesting, but its also extremely replicable by other competitors. In the customer service and experience space, we are, in fact, in an arms race with everyone else in the market. Every little improvement one makes, we all copy. When this particular vendor offers us an improvement of this kind, you know you have a few months, or perhaps a year, before the residual competitive advantage is eroded.

So not much disruption there.

The most challenging use of the word "disruptive", however, comes from the technologists, especially the ones in innovation groups. What typically happens is that someone spots a new gadget – which may have been disruptive in its own market – and assumes it will instantly disrupt our own.

There are few better examples than the iPhone. Depending on your point of view, that device has changed the way mobile phones are designed and used. It is disruptive because it serves a new customer segment (mobile phone users who previously weren't tech-savvy enough to use a Smartphone) and has taken a dominant market position as a result. Everyone wants an iPhone, and people are talking about features which were pure geekery before. Answer this question: who ever knew how to install new applications on a mobile before iPhone?

So perhaps the iPhone is disruptive to current handset manufacturers. That does not mean it is disruptive to banks.

Does anyone really think now that having an iPhone internet banking application first is going to have a major bottom line implication? Or that having such an app is going to do anything significant at all to damage competitors? Of course not, because let's face it, iPhone apps are as replicable as improving customer service. As replicable as starting a Twitter account.

The thing is the technologists clouded the judgement of their colleagues by pointing out how "disruptive" the iPhone was to mobile phone manufacturers. But disruption does not often industry boundaries cross.

These days, when anyone uses the "disruption" word, I instantly ask them what they mean, and the answer is always along the lines of the three examples I've just given. In other words, disruption equals distracting competitors, or it equals beating competitors for a little while, or it means copying real disruption from somewhere else and hoping for a usable translation.

All three are pretty short term from an advantage perspective (and the last offers no advantage at all most of the time).

Wouldn't you expect long term differences in the playing field if something was truly "disruptive"?

Definitions of…

Last night I was at an innovation event where the thorny issue of definitions came up. That is, definitions of innovation.

Now, as you've probably seen in your own organisations, dare to utter the word "innovation" and no one will be able to agree on what it is, much less how to achieve it. So too it was last night at this dinner.

One bright spark suggested that it was pointless to try to define innovation since no agreement would ever be reached ever. Far better, he thought, to let people have their own opinion and just move on.

I, however, disagree, and the reason is this: multiple divergent opinions on what you're trying to achieve with an innovation programme generally lead you to achieving nothing at all.

Here is our definition at the bank: innovation is anything that we might do which would not have been achieved through ordinary business as usual processes. It is a convenient definition because it tightly defines our area of responsibility, and also our scope for what can reasonably be done.

We don't, for example, tweak interest rates, terms and conditions, or product marketing. All of those things have very good processes surrounding them already. There are quite a few Lean and Six Sigma groups running around which have the goal of improving those, anyway.

On the other hand, we do often make changes to specific business processes in unusual ways. The other day, for example, we spent a while considering how we could put a left-field administrative process on an ATM. This is not something that would ordinary have come up through the ATM team, but was a suggestion made internally by someone. We're dumping that, by the way. Too hard, too expensive, and would likely create the longest queues ever seen.

My point in all of this, however, is that our definition of innovation allows us to touch anything truly new whilst not interfering in places which are already well established, and have their own improvement processes in place. It is also convenient that it doesn't place any limits on how small or how large the innovations must be to count. We can go from incremental to radical without modifying anything at all.

I've often said that the foundation of an innovation programme is the means of collecting ideas and doing things with them, but last night's discussion has made me rethink that. The true foundation is getting a definition – doesn't really matter if not everyone likes it – and sticking with it. Then, at least, you have something to aim for, and won't kill yourself trying to please everyone.

 

    

A letter to Architecture

Dear Architect,

Thank you so much for reviewing the initial designs for our latest proposition. As you know, we need to be in the market with it as soon as possible, because DownTheRoad bank is taking share from us. In fact, their latest offer is so compelling that our rate of churn has gone through the roof. Everyone agrees that our proposition will reverse that trend, so we're pretty excited about getting it out the door. In fact, getting it out the door is pretty much a mission-critical thing for us, right now, if we want to stay in business.

So we were surprised to discover that you'd rejected the design as "not strategic". Yes, we know we're wanting to use technology that's not on your roadmap, but your strategic platforms are too expensive and destroy our business case. Actually, we don't really understand how a technology platform could be strategic anyway, because it is all just pipes and wires to us. We thought strategic things had more to do with market level outcomes for our business than technology sourcing decisions.

Thank you for your comments and recommendations on what we should do to get your approval, by the way. They were illuminating, but illustrate a fundamental disconnect between your objectives and ours. For example, we don't think we should have to pay for a "business process management" platform or implement "service orientation" so that future propositions that might come along have lower costs. If you want to build out "cool" architecture, you must find your own way to fund the bits and pieces that you need, rather than loading us up with costs.

Actually, we're still burned from the last time you did that to us, when you told us that "multichannel integration" would give us all the competitive advantage that we needed. It didn't give us anything very much, but we suppose you got some "cool" bits or architecture. Anyway, once bitten, twice shy.

But even more surprising than all this was the discovery that even if we agreed to everything you want, we will then have to face an Architectural Council who have the power to overturn everything and send us back to the drawing board. Considering the constitution of this "council" is anyone who has a view on anything, we've heard on the grapevine pretty much no decisions get made ever. Apparently you all argue for hours over definitions of things such as TOGAFs and whether your "strategic" statements are correct or not. Its all so very ivory tower. Herds of elephants must have been destroyed in the process.

You'll forgive us, I hope, for ignoring Architecture for now. Our need is so very urgent that we don't feel we have a lot of choice. Actually, we do have a choice, because our vendor says they'll host the entire thing for us, for much less cost that we're forecasting ourselves. We've decided to ask them to do that, because it seems easier and quicker.

We therefore assume that as we will not be touching anything that uses internal IT, we are not subject to architectural sanction. All you have to do is provide us a bit of an internet connection, and we'll be fine.

Thank you so much for your consideration our proposition, and we look forward to working with you again when you have caught up with business reality.

Best Regards

New Propositions Team.

The Emergent Enterprise

Two of our initiatives at the bank (widely available internal social media, and Innovation Market) have the interesting ramification that individual staff members in our institution now have an ability to broadcast their opinions to large groups of people, largely without much management-level control of the messages they're putting out.

As you'd expect, there was initially very great resistance to this, especially from managers. "Why", they wanted to know, "would we allow anyone to write just anything? What if they are negative or derogatory about our bank? About me?".

Unsurprisingly, a year on, none of the doomsday scenarios hypothesised when we made it possible for staff to create their own internal communities have come to pass. Of course, such a fortuitous outcome would largely be expected by everyone who participates in broad web based communities externally. It was not, however, to long term traditionalist used to iron control, but they have largely been mollified by the lack of significant negative consequences.

But now we are beginning to see a new phenomenon. I call it the Emergent Enterprise: staff are not only having their say, they are actually changing the way things work in material ways.

You see, along with social media, we gave our people the ability to create rudimentary business process and publish those as well. The idea was that workgroups would be able to automate things they did on a day to day basis easily, and without any input from the central IT function.

Interestingly, in such an environment, a business process is rather like a piece of media. Its success is determined entirely by how many users it has, just as a blog is successful if it has many readers. Where several choices exist, the process that has most chance of becoming the "one true way" is the one which is used by the most people. A process has an audience, and big audiences give the process owner significant say in how things are done.

We are beginning to see situations where workgroups have defined their own little workflows, and these are being adopted by other groups as well. Popular processes that help get work done spread relatively quickly.

Now, as a trend, workgroups sharing clever ways to doing things is nothing new. In the past, though, such sharing did not actually change things. When you add a bit of a social business process to that mix, however, real change can easily be the result.

I'll give you an example. In my team, we have a little business process we made that lets us send a small gift to anyone who has gone out of their way to help make our jobs easier. The gift is only a box of chocolates or similar, but you can go to this web page, request it with a personal message, and a few days later, it arrives. It has been a useful tool to encourage people to say "thankyou" when someone has gone above and beyond. It is also inexpensive.

I've now seen similar processes duplicated in other places in the bank, with minor local variations, of course. It seems the practice of minor gift giving may spread through word of mouth and ease-of-implementation.

Now, gift giving does not have significant strategic ramifications for our institution. But the Emergent Enterprise does, because very large changes are often brought about through very small incremental steps. It is not hard to imagine that a decade from now, socially chosen business processes will be the thing that defines how well an institution performs in the market. They are fast and responsive, not governed at the pace that large strategic decisions must be. Market-appropriate behaviour "emerges" as the result of lots of people adding their ideas for improvement.

My real interest in this "emergence", however, does have to do with the strategic questions which face us going forward. As innovators, we know the biggest long-term threats to institutions rarely come from large, established competitors. No, it is the start-up crowd, with their nimbleness in responding to boutique opportunities and niche segments which are the competitive issue here. The problem is there are so many of them that a strategic level response is neither possible nor appropriate.

But an "emergent" response, forming and norming by itself is just what is needed. Then, when a competitor becomes strategic, our own response will have grown to the point where it can be strategic as well.

Now, going from gift-giving, or workgroup level travel authorities, or team level content approval to an emergent-led response to a market threat is somewhat further than we've gone at present, and no doubt our ability to respond in this way will be an emergent behaviour in itself, something that will likely take years to develop.

What I don't doubt, though, is that emergent behaviours in enterprises – especially banks – will be one of the most powerful competitive weapons we'll have in the future. You see, everyone always says that "people are the most important resource" and that "the war for talent" will be one of the great competitive battlegrounds in the coming years. The thing about the Emergent Enterprise is that it allows all that great resource to actually make a difference.

How much money is enough?

Another week, and another call with an institution that’s in the process of building out its innovation programme (on a side note, I also took a call from a very major global institution that is ending its programme, but my feeling is the starters are presently outweighing the enders).

Anyway, this institution has been working for a while on its innovation capabilities, following the traditional collect-ideas-then-present-to-management approach. Like most programmes doing this, they have a mandate to "be innovative" but were given few resources, if any, with which do it.

This is a perennial problem for innovators. People imagine the mere fact of having someone around with accountability for innovation is enough to cause innovation to happen.

I’m yet to see such a programme survive more than 18 months. That’s about the maximum amount of time a business sponsor will commit to something without seeing results before trying something else.

Anyway, these innovators are now facing the question that always gets asked around about this point: "show me the money".

It is paradoxical, of course, that the leaders asking this are the same ones who understand that returns are not magically produced anywhere else in the business without adequate investment. But once the "innovation" word is mentioned, corporate rationality goes out the window. Apparently, in the sole case of innovators, it is reasonable to expect institution-level outcomes with individual-level efforts.

Anyway, this leads me to the point of this post, which is the determination of how much money an innovation programme needs in order to get started. And how much money it needs in order to continue its work on an ongoing basis.

Here is the basic yardstick: investment in a programme, if it is to be truly lasting and sustaining, needs to deliver returns which are comparable to or better than, investment opportunities which are available to an institution elsewhere.

There is no point moaning about how difficult it is to quantify returns from innovation, or complain that some innovations don’t translate easily to cash. For "sustainable and lasting" an innovation programme needs to be able to justify its access to capital, and compete for that capital against all other uses.

An innovation programme that doesn’t have to do this is living in a distortion field created by an executive sponsor that has suspended the rules. Most such executives change jobs every few years, and take their distortion fields with them.

Here is a second yardstick: an innovation capability develops its ability to produce returns slowly, probably taking some years to do so. And it is easier to make, say 20% on £1 million than £100 million when you are a new innovation programme. The former case requires a few good decisions and a small team. The latter, though, requires the ability to do it 100 times as often as the former, still making good decisions, of course.

£100 million means having a big capability, and making sure to deliver big returns to justify the access to it.

Generally, a year 1 programme will fail if it tries, if not from volume of ideas, then lack of bandwidth to execute in sufficient volume.

The real question, when determining how much money to invest in innovation is determining how much cash you can reasonably generate. You then compare this to the returns that other investments an institution might make, and from this, work backwards to the amount of capital you can reasonably accept for "sustainable and lasting"

In year 1, that’s going to be not very much, but as I say, innovation capabilities do not happen overnight. Time brings with it the ability to support more investment.

Now, I recognise that such an approach does not rest well with those who think innovation is about doing disruptive, game-changing things. And I don’t for a minute suggest that those things ought not be done.

But what I am saying is innovation programmes must bootstrap themselves into the position when they can take on game-changing things that cost a lot of money and get away with it.

Start small, and grow big. How is that different to any other very new thing an institution tries?