BankerVision

2009: A personal review

Well, I’m back from Austria, and I can tell you, the skiing there was awesome. And I know those of you with families will probably be horrified to know this, but I have to say that taking oneself off during Christmas and not having to do more than calling a few people back home was just an amazing relief. You know how stressful all that Christmas stuff can be. We even skipped Christmas lunch, opting instead for a nice Goulash in a ski-in cafe on the slopes.

Anyway, now that I’m back, I’ve been thinking about 2009, and some of the highs and lows. Mostly, its been a great year.

At the start of the year, I was pretty sure interesting things would be happening. At Lloyds Banking Group, we were just gearing up for the big integration exercise, and no-one was certain what would be happening from one month to next.

The innovation team and I were still trying to work out how to adapt the innovation strategy given the number one priority for everyone was going to be incrementalism for the foreseeable future. Luckily, that was the strategy we’d already been pursuing, even during the boom times. For some institutions, and Lloyds is one of them, you simply can’t have a play-to-win innovation strategy and get away with it. So, as it turned out, there weren’t that many changes there for us. We just kept going on with Innovation Market and all the other things we’d started. I think we managed to achieve some valuable things for the bank.

Nonetheless, I knew that I’d be leaving the bank in 2009, but didn’t know where I’d be going yet. Sometimes, you just know that the time is right. Anyway, I’m firmly of the belief that when you’re an innovation guy, you really want to make sure that you turn your people over every couple of years or so. You want that fresh perspective, that new way of looking at things. Why should it be any different for the person in charge of the innovation programme?

By the end of January I was in a bit of a panic, because I was months late with the manuscript of Futureproofing and just didn’t see how I was going to get it done. So I started getting up at 3AM every morning to write, and now that’s a habit I just can’t shake. Lucky, actually, because my next book is now also months overdue, so the 3AM writing is back on again.

One of the highlights of the first part of the year for me was a trip to Australia, to attend Annalie’s AMPlify festival. I’ve written about it here before, and its a case study in my book. Now, the content of the event was interesting, of course, but it taught me a major lesson: you can’t overlook design in anything you do. Fit and finish is everything, and once you have that right, everything else flows naturally.

My current team are pretty sick of hearing me rant on about this, actually, and they also keep reminding me that just because Annalie had butterflies hatching out of chrysalides at the exact moment people were coming into her event on the last day, does not translate into appropriate expenditure in a non-corporate environment. Actually, I already knew that, but adjusting to the sometimes arcane rules of the public sector has been eye-opening.

When I joined the Department for Work and Pensions in August, it was a bit of a relief, actually. The bank had become increasingly difficult. Although most of us were confirmed in roles by that stage, there were constant announcements of reorganisations, teams being shut down, people being transferred, and of course, the “death by a thousand cuts” as we kept announcing round after round of layoffs due to integration. Everyone was on edge. 

Leaving was neither a simple decision, nor was it done in haste. After all, what would I know about working in the public sector?

Many of my colleagues in banking were somewhat surprised that I joined the civil service (“What on earth would you do that for?”), but it has worked out to be a rather pleasant surprise.

The fact of the matter is that there are few bigger IT environments anywhere. Neither is the innovation upside larger than here. To that, add the challenge of designing innovation systems and processes where profit is not the driving motive, and I think you can get an idea of why this move was so attractive to me.

I’ve been in post now for about 4 months, and I’m really looking forward to talking about some of the things we’ve been up to in that time. There’s really a lot that’s very exciting going on.

The other big thing for me in 2009 was the release of my first book, Innovation and the Future Proof Bank. I have really been overwhelmed by the response to this. I recall at the time I was sending it out for the last time to the publisher, I did it with complete trepidation, knowing that there would be nothing i could do it bombed.

Apparently, that is the normal fear of writers before they send things out.

Anyway, sales of the title are good, and my publisher is pleased. And word is spreading, so month on month sales seem to be growing at a reasonable rate in every country that the book’s avaialble in. Since the book is so ultra-niche, it is much more than I expected.

Anyway, that leads me to the end of the year, and my current projects. One of them, The Little Innovation Book, is an online set of essays based on my writings here in the last four years. Publishers – particularly mine – don’t like to sell things that are already in the public domain, so they aren’t very interested in books based on blogs.

But Future Proof Bank is pretty text-booky, to be honest, and I wanted to have something much more approachable. The Little Innovation Book will hopefully fill that need. I’m hoping to have it done and online in a month or so.

The other, much bigger, project I have on, though, is my second real book. Its tentatively called One Big Thing, and its about single innovations. In particular, based on a set of observations from history and more recently, I’m making the argument that radical innovation isn’t where the money is.

Neither is it in incrementalism, by the way, to those of you who know I am fan of small, sharp innovations done at scale.

Anyway, I won’t say much more about that right now, but will certainly keep you apprised of progress throughout the year.

So, for me, 2009 has been an exciting, and very impactful year. I am very confident that 2010 will be equally exciting. There is just so much going on, and I love it when its busy.

I’ll be back tomorrow with my top 10 predictions for 2010. I am quite often wrong, mind you, but I can’t resist joining in with everyone who always makes their forecasts at this time.

Actually, my boss at the Department has this down to an art. At every Christmas-do he has, he asks everyone their predictions, notes them down, and reads them out the next year.

I forgot to make predictions on the blog last year, but the year before I was pretty much wrong, wrong, wrong. Its much more fun to read back and realise how wrong you were than be right anyway.

The best of the season to you.

Future-proofing is now available

Finally, you can now get copies of Innovation and the Future-proof Bank. Last time I looked, Amazon was out of stock, but some of its associate retailers had copies ready for dispatch.

I’m also told that at least a few London City book stores will actually be stocking the book on their shelves. I’ll be rushing to the first one to take pictures and buy a copy for myself. I’ll post the happy pictures here.

In the meantime, I’ve established a support community for discussion about the book on this site. I’ll be answering questions and providing errata there, and hope that others will share their experiences as well.

To those of you who have signed up as reviewers, I’d expect that your copies will arrive shortly.

And finally, thank you everyone for your support and encouragement during the process of writing this first work. It is almost time for me to start writing my next one, at least, it will be if this book doesn’t bomb completely!

Goodbye and Hello

Today is my last day with Lloyds Banking Group. Its been an interesting couple of years, and in that time, we've built what I'd call a "pretty good" innovation group. Its done some really leading things, like Innovation Market which now has a couple of copies in other institutions around the world. And of course, it has provided a fertile ground for material for Future-proofing, which is out next week.

Whilst most things come to an end eventually, innovation at the bank is not one of them. There is a highly competent team in place, one more than able to carry on the work we've started. Of course, in the context of the major merger presently under way, the kinds of innovation one can do is necessarily different than if you had a clear playing field. The team, however, will add their contribution of uniqueness to that process as they have always done.

This is also my last day as a card carrying banker, as I've accepted a role with the UK's largest government department, the DWP. I'm not entirely leaving financial services, though, as the department is one of the biggest makers of payments in the country, as well as being accountable for pensions. In the department, I'll have innovation, strategy and architecture responsibilities.

I'll be continuing this blog, and retaining the Bankervision title. I'll continue to comment on banking related matters as well, but you can expect to hear much more on innovation and technology. It should be an interesting transition.

Anyway, so I start with the department on Monday. I'd anticipate at least a week of no blogging from me while I get the lay of the land sorted out and work out what I can and can't say here. When you start a new job, that's always something that can be tricky. Every organisation has different boundaries, but rest assured I'll be back shortly.

In the meantime, thank you everyone whose been reading for the last three years, and I hope you'll continue to read me for a few more years to come. I can promise some interesting discussions, and, now that I am no longer employed directly by a bank, much broader commentary on things I felt constrained to avoid before.

See you in a week, or perhaps a bit less.

Followup: Zopa isn’t disruptive

My last post has caused some controversy, and an especially vehement reply from Chris Skinner. I suggest you read his post, actually, before you read this one.

Now, the basic premise of my argument was this: Zopa has the potential to be a disruptive player, but isn't because it is behaving exactly like a bank. It is going after exactly the same customers as banks, using the same means of working out whether they are credit worthy or not, and then pricing loans in pretty much the same way a bank would do. Actually, Zopa loans are often more expensive than bank loans, because they have to make deposits attractive to people with money to lend compared to more traditional investment options.

Let me start by clarifying what I mean when I use that charged word "disruption". It is a word that has become much overused and much misunderstood, in my view. I use the Claytonesque definition which is this (thanks to Wikipedia):

disruptive innovation is a term used in business and technology literature to describe innovations that improves a product or service in ways that the market does not expect, typically by being lower priced or designed for a different set of consumers.

Disruptive innovations can be broadly classified into low-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption (i.e., consumers who would not have used the products already on the market), whereas a lower-end disruptive innovation is aimed at mainstream customers for whom price is more important than quality.

Using this definition, Zopa is not disruptive on either count. They are targeting existing customers of banks who want a loan, firstly. To be a new market disruption, they would have to go after customers who wouldn't consider a traditional bank product, or who would not ordinarily be able to get one. And their loan pricing is certainly not that different from banks, and, indeed, cannot be so given they have to attract depositors from banking products to fund their loans.

Ergo, not disruptive. Note that I don't say cannot be disruptive. Only that they aren't right now.

Chris' chief argument against this is:

…most of these new businesses are based upon a model of social connection first, with finance second. This, to my mind, is the same as First Direct and PayPal, both of which are sustainable. First Direct was built upon a model of being a bank without branches built for the telephone channel. They were targeting the same customers as traditional banks but using a new channel for reach.

Chris introduces a new term here: sustainable. By which he means, I think, that these are businesses which have a future beyond the immediate short term. Now, I have to be clear, I have never once said that Zopa wasn't sustainable. I do believe it has a future, and in fact, I believe most of the new technologically driven banking things that are happening have a future.

What Zopa has, however, is a very thin line to walk. It can grow its business to a certain point, after which it will become material to the business of banks. Competitive pressure will force banks to respond, and that response will be on price. With the ability to cross-subsidise products, they will be able to compete on price far longer than the Zopa monoline will be able to do.

The penultimate point of my argument was that Zopa must know this, and therefore their strategy, in going head-to-head with banks, must be to grow to a certain size, and then no further. This, I admit is provocative, and I know no one really expects that Zopa has this in their brains. Actually, what I'm saying here is that Zopa's present strategy is focussed on the short term, and fails the more successful they get.

Chris then points out that Zopa passed the £50 million loans milestone, and that 40% of that has been this year alone. He suggests that this implies that Zopa is "taking off", and that the pace of growth is "quite remarkable".

It is amazing to me that everyone thinks this a remarkable performance when the big banks are turning away customers. Wouldn't you expect decent growth when incumbents stop supplying product? Actually, why isn't Zopa's performance hundreds of percent up from last year? Considering the pent up demand for lending, there surely must be some reason why everyone isn't flocking to Zopa. Could it be – wait for it – that the Zopa deal isn't all that different from a bank deal? If you can't get a loan from a bank, you can't get one from Zopa either.

Anyway, Chris then goes on to introduce another innovation-technical term: critical mass. That's the time, by the way, that a new idea becomes well enough adopted that you don't have to do anything to sustain further adoption. Usually, the evidence is that you get a period of exponential growth in usage, which quickly peaks somewhere short of 100% penetration over a period of years. Because the rate of change continues to accelerate, the number of years until critical mass occurs has tended to reduce.

As an average across categories, critical mass usually occurs when somewhere between 2.5% and 16% of a particular target market have adopted an innovation. Now lets examine again how ludicrous Chris's statements about critical mass are in the light of what Zopa would need to do in order to achieve it, thereby having a chance of damaging the banks in a way that could not be countered simply by competing on price.

Using Bank of England data, I compute that consumer credit excluding credit cards from May 2008 – May 2009 was about £2.5 Billion. Let's take the easiest case for critical mass first, where Zopa achieves just 2.5% of that, or in other words, writes £62.5 million pounds of loans in the last year. Their actual achievement is 80% of that in their whole lifetime. Some time to go before "critical mass" is reached, I think. But Chris hypothesises that Zopa could achieve that in two years, by 2011. The fact is, they haven't, even when being in the centre of a perfect storm for the incumbents making their business the most viable it could ever hope to be.

Now finally, let me finish off this post by clarifying one last thing. No group of banks is going to band together to "kill off" Zopa. But competitively, they will respond, and they'll make the battleground price if they start to lose significant share. This will be an automatic reaction and part of business as usual. Zopa cannot compete on price, because it is a monoline, firstly, and doesn't control the price of the capital it lends to the same degree that a bank does secondly. Therefore, if Zopa is forced into a price war on rates, it will lose.

Chris argues that it can win a price war because it has "razor thin margins". That's a stupid argument because it assumes that Zopa makes money through interest income, which it doesn't. It is a fee based business. Consumers care about fees, but firstly they buy on the basis of the interest rate. Zopa has control of fees, whereas banks have control of fees and the interest rates they charge.

Chris makes a few final parting shots at me by suggesting I am a luddite banker, and uses my previous suggestion that "twitter is a stunt for banks", whilst pointing out that I have adopted it personally as evidence that I have to be shown the wood for the trees before I'll support anything. I haven't changed my position on Twitter, by the way.

But I do have this to say, Chris. For someone who is retained regularly as an expert commentator on our industry your failure to see beyond banking-techno-gadgetry to reality is surprising to me. In fact, as you say, it is evidence that "Zopa Zealots and Smartypig Saints caught up in the church of the Internet" are alive and well.

Update: Chris corrects my maths, and I've changed my post to correct the error. But the change in the numbers doesn't have any effect on the argument, in my view.

Zopa’s strategy is to be immaterial to banks

Over at the Zopa blog, Martin says the following:

Could Zopa become the first real competitive pressure banks feel to put their customers more at the centre of what they do? I think so. And that would be good for all of us – even ultimately the banks themselves. Imagine a world in which people liked their bank…

But when I have suggested this to one or two bankers in charge of strategy for a couple of the big banks, they laugh – out loud.

They are amused because in their eyes, peer-to-peer finance is so small, they think it doesn't even warrant thinking about. When I made the point that P2P finance is growing fast and that every new phenomena had to start somewhere (iPods etc) there is a chilling response. In hushed, conspiratorial tones they say, "If Zopa ever gets big enough to matter, we will just undercut it on price for as long as it takes to kill it off, then get back to normal. Simple."

I don't question his statements here, and neither do I question the fact that some strategy people in banks may have made the remarks they're supposed to have made. Indeed, I suspect that the ordinary forces of competition would cause banks to behave in just the way described: the same way they do when anyone attempts to take share. Banking is a commodity business, and the chief battleground is price.

I am not trying to be arrogant here, but the simple fact is this: If Zopa were to have a material effect on bank lending, and its competitive differentiation is price, it will not win. It does not have pockets deep enough to win a price war with a major bank, let along the whole market. This much is simple market forces at play. The only reason this isn't happening now is that, as Martin says, Zopa is not having a material effect on the market at present.

But this, of course, reveals the long term flaw in Zopa strategy: entering an unwinnable battle which brings defeat just at the moment of success.

I have said for some time that Zopa needs to be lending where banks cannot compete in order to be successful. They need to be lending to niches where traditional banking operations prevent bankers from going. Now obviously that includes less prime customers, but really, it is any niche in which the social lending model provides an insight into riskiness that banks can't get themselves. But Zopa rely on credit scoring, just the same as banks do.

Zopa, if it is to be disruptive, needs to be creating lending to new customer segments either underserved or not served by traditional banks. From that bastion, it would have the opportunity to expand its product into more traditional lending and there would be very little banks could do about it. Bankers wouldn't have the infrastructures or the cost bases to compete in the Zopa niche, but Zopa would be able to use its infrastructures and cost base to compete in the banks mainline business.

This is the classic disruptive strategy that PayPal, iPod, and all those other things that people hold out as examples of new entrants upsetting existing ones have used.

However insensitive bank strategists might be about the prospects of a Zopa-Big Bank price war, they are probably calling it correctly. A material impact to mainline lending will be vigorously defended.

But perhaps the Zopa strategy isn't to be material? Maybe they know all the above, and have determined themselves that they'll get big enough to generate decent returns for themselves, but not so big they actually have an impact on the market?

If so, it would be a pity. I return to Martin's first paragraph, because quite clearly, none of the good he mentions will come to pass unless non-traditional lenders actually do become material to big banks.

Update: Chris Skinner posts a relatively scathing attack on this post in which he remarks variously that I am a tooth puller, a luddite, and decended from criminal transportees. It is humouros reading, and I suggest you read it in full. I intend to respond to Chris's substantive points tomorrow.

Does the business case for IT Security stack up?

I've not yet come across an organisation that doesn't have some kind of group that focuses on IT Security. And, frankly, its hard to imagine any organisation that could get by without one, either.

But am I the only person who wonders whether the cost to remediate IT security issues is actually worth it?

Apparently, there are very few IT security people who ask that question. I was at this event the other day, and I was talking to a security person, someone quite senior. During the course of the conversation, I was informed that the strategy was to remediate every potential vulnerability, no matter how small and how theoretical. When I asked him how he paid for all this, he told me that finding the money wasn't his problem. Going on further, he said that when he issued a security directive, he expected it to be followed, and if it wasn't able to be, the workstream or project got closed down.

I shut my mouth at this point, knowing I was speaking with that most invidious of creatures, the professional security specialist. You know the type: they spend all their days dreaming up the reasons you can't do something, rather than helping you find out how you can. Theirs is the right to kill any change for any reason, so long as it is related to a "potential security issue".

The lack of business-centred thinking amongst security specialist is endemic in financial services.

Let us, for example, force employees to have multiple logins that change all the time. It is so very easy to write a policy and implement technology that enforces various levels of password rules, but it isn't so simple to find the money to pay for the helpdesk calls that result from escalating numbers of password resets.

In one bank I know, the response to this was to implement a complex automated system for self-service password unblock. Wouldn't business centred thinking have suggested that a better way would be to relax the password change rules? Since when is a password the only control on business systems anyway?

Anyway, the cost of all those passwords was shown to be way, way higher than the potential costs of any reasonable incident. Didn't matter to the security people involved though, because they were security professionals. Remediating threats was their business. Finding the money to do so wasn't.

Now, obviously, it is impossible to remediate every single potential threat to any large organisation running IT systems. And quite clearly, some threats are larger than others. The problem, of course, is working out which matter and which don't. Spending millions extra on a helpdesk to reset passwords for systems that have multiple lines of defence is clearly somewhat less urgent that dealing with the latest internet banking threat vector.

Security people, for the most part, don't care because they don't have to justify the financial consequences of what they do.

But what would the effect on an organisation be if the security folk had money? And if they were accountable for paying for remediations they decided they had to have?

I bet the first thing that would go would be the self-service password reset system, and the millions extra on helpdesk calls. Objective assessment of those costs in the light of financial constraints would make both an expensive luxury.

I suspect there are already forward thinking organisations that have worked out that the business case for IT security often doesn't stack up. And I rather hope that I'll be meeting fewer professional security people in the future. Instead, I'll be meeting business people who know security, and will be trying to add up the numbers for what they do.

I am certain, when that day comes, we will not only have more agility in IT, we'll also have a much smaller security bill.

And no increase in incidents either, since all that will be remediated are those issues that matter.

Book now available for pre-order

My new book, Innovation and the Future-proof Bank, is now available for pre-order on Amazon. Publication date is 29^th August.

I will have a certain number of review copies to give away. If you've got a blog or are otherwise social-media connected, and would be willing to write a review, please email me. I'll ask my publisher to send you a copy, though I haven't yet checked how many copies I'll be allowed to give out. But email me anyway, and I'll see what I can do.

In the meantime, when I posted the availability message on Twitter, @seankain asked for a table of contents be made available. I'm told it will be available in the next week or so as well as "look inside" on Amazon, but I can't explain why it isn't there already. Publishing seems to operate on a timeframe rather more protracted than that we've become familiar with in this real-time world.

Anyway, here's the table of contents:

1 Introduction

What you will find in this chapter

1.1 What is innovation anyway?

1.2 What happens when you don't futureproof

1.3 Five things that innovation is not

1.4 150 years of innovation in banks

1.5 The innovation downside

1.6 An overview of the futureproofing process

1.7 Where to go now

 

2 Innovation Theories and Models

What you will find in this chapter

2.1 The innovation adoption decision process

2.2 Personal innovativeness

2.3 Innovation from the perspective of the market

2.4 Characteristics of innovations

2.5 Innovation from the perspective of the firm

2.6 Case Study: The internal adoption of social media

2.7 Theory of disruption

2.8 Case Study: PayPal's continuing disruption of the payments market

2.9 Thoughts before going further

 

3 Innovating in Banks

What you will find in this chapter

3.1 The innovation pentagram in banks

3.2 The Five Capability Model of a successful innovation function

3.3 Case Study: Innovation at Bank of America

3.4 Building out the futureproofing process

3.5 Technology, business, and innovation

3.6 Autonomic innovation

3.7 Case Study: ChangeEverything, a project by Vancity in Canada

3.8 The banking innovation challenge

 

4 Futurecasting

What you will find in this chapter

4.1 The purpose of futurecasting

4.2 An overview of futurecasting

4.3 What futurecasts should innovators be doing?

4.4 An example

4.5 Constructing the futurecast with scenario planning methods

4.6 Prediction methods

4.7 Case Study: AMP Innovation Festival

4.8 Some final words about futurecasting

 

5 Managing Ideation

What you will find in this chapter

5.1 An overview of the ideation phase

5.2 Campaign and create

5.3 Collect, catalogue, and compare

5.4 Scoring

5.5 Customer insight

5.6 Customer co-creation

5.7 Case Study: Royal Bank of Canada's Next Great Innovator Challenge

5.8 Concluding remarks

 

6 The Innovation Phase

What you will find in this chapter

6.1 Should we? Can we? When?

6.2 The innovation portfolio

6.3 What happens next?

6.4 Tools for 'Should we?'

6.5 Tools for 'Can we?'

6.6 Tools for 'When?'

6.7 Selling innovations

6.8 Case Study: Bank of America and the Centre for Future Banking

6.9 Wrapping up the innovation phase

 

7 Execution

What you will find in this chapter

7.1 Ways to manage execution

7.2 Building the new thing

7.3 The launch

7.4 Operations post-launch

7.5 Signals for futurecasting

7.6 Case Study: Innovation Market

7.7 The end of futureproofing

 

8 Leading Innovation Teams

What you will find in this chapter

8.1 Leadership styles

8.2 Things the leaders should do

8.3 Signs of a bad innovation leader

8.4 What next?

 

9 The Innovation Team

What you will find in this chapter

9.1 The changing shape of the innovation workforce

9.2 Creators, embellishers, perfectors, and implementers

9.3 Team working

9.4 When innovators go bad

9.5 A last word about innovation teams

 

10 Processes and Controls

What you will find in this chapter

10.1 Oversight

10.2 Metrics

10.3 Rewards and recognition

10.4 Innovation and the organisation

10.5 Funding innovation

10.6 The visible face of innovation

10.7 And finally . . .

 

11 Making Futureproofing Work in Your Institution

What you will find in this chapter

11.1 Case Study: Civic banking at Caja Navarra

11.2 Starting your innovation programme

11.3 Making ideation work

11.4 The innovation stage

11.5 Execution

11.6 Doing futurecasting

11.7 Innovation leaders and teams

AMPlify09

Today I want to write about something amazing, and that amazing thing was Amplify09, the corporate innovation festival organised by financial services company AMP in Australia last week.

Corporate innovation festival, I hear you ask? Well, yes indeed, and when I first heard about it, I was impressed, but couldn't for life of me see how anyone could possibly get a business case together to support such a thing.

Let me paint you a picture: get your Head of Innovation to go around the world and find the most interesting people she can. Doctors, political advisers, new media people, web psychologists, and, yes, even a banker. Then bring them all to Australia and let them talk about their work to the whole institution. See if it inspires new and creative thinking in your people.

But don't just stop at internal. Have an event in a pub where local ph.d students can pitch their research on a mic in two minutes of less, and give prizes to the best as voted by the crowd. And then have your CIO decide that everyone deserves a prize and give each struggling student $1000 to roaring applause.

And since you're not just doing internal, how about you broadcast the whole event, including all these expensive internal guest speakers, so that the world can share the inspiration. Do this even though traditional thinking would suggest that allowing just anyone, including competitors, to participate, would reduce any potential competitive advantage you might generate from the investment.

And just as icing on the cake, bring all your top customers and investor in to meet all these interesting people. Don't just stop at confronting traditional thinking in your staff, make sure your most valuable customers get their thinking challenged as well.

Finally, finish it all off with a staff expo where everyone gets to show how off their work in new and creative ways. Have, for example, a mock cave complete with cavemen to explain how your legacy systems have evolved to their present state.

You can understand, being somewhat a traditionalist myself, that when I looked at all this, I couldn't understand the business case. That's because the results aren't obvious when you just look at the numbers. I'm very busy running an innovation function that tries to get all these nice predictable returns from investments, so doing a festival hardly seems a great use of money.

But then I realised this: Amplify09 is the most magnificent ideation campaign I've ever seen. It makes the ones my team and I run internally at the bank look ridiculous in comparison, and we know how to turn our little attempts into money predictably.

Can you just imagine how much differentiation AMP will have as it actualises all that out-of-band thinking it generated from this event?

But the more important point is this one: quite obviously, AMP is an institution that's realised that the real competitive advantage it has is the people who choose to work there. Who cares about technology and products and processes, when you have the ability to invent uniqueness whenever you want?

Meanwhile, the rest of the industry is very busy with dark ages thinking about the nature of competitive advantage. They're all still doing trade secrets and patents, and trying to close down the ability of their staff to collaborate in, and outside, their institutions.

Want to bet which institution I think will really differentiate in the long term?

The death of experience

As you know, I spent last week at Amplfy09, an innovation festival hosted by AMP of Australia. At one of the events, I had the chance to sit with some financial planners and their clients. The question I posed was this:

Which do you think has more brain power: 25 twenty-three olds (i.e., brand new graduates) with a year's experience each, of one 65 year old with 25 years of experience?

The obvious answer, of course, is that the crowd of 23 year olds has more brainpower, but the real question is whether the value of experience outweighs the obvious advantage in mental watts of the group.

My thinking is it does not, and here is why.

Experience is a result of the formation of mental models about the way things work. Essentially, one observes that certain actions produce certain effects, and over time one learns to generalise so that even actions which are only marginally related to those previously observed can result in reasonable predictions of outcomes. Because the mind has limited abilities to accept information and process it, developing experience is something that takes a large number of years.

This is why you generally reserve very accountable positions in organisations for those who have lots of experience.

But try this experiment. Get a group of new graduates together, and confront them with a crisis. You will be amazed when you watch what happens: instead of some alpha-male/female attempting to take control of the situation, the group optimises itself, using rapid fire burst of communication, to solve the problem synergistically. It looks like chaos, and you wonder whether or not anything will ever come of it, but invariably very good outcomes do. And the order that emerges from all this chaos tends to be a highly optimised resolution of the problem at hand.

I know this, because I've had lots of time to study our new workforce at the bank, and they do things in quite different ways to those that my peers and I do things. We try to take control, to lead. They don't bother with any of that, and self organise into a non-structure that produces results, which are often unexpected.

Coming back to my original question, then, the value of experience as a differentiator in this case is very much reduced. Because you have 25 minds processing things in parallel, the amount of information that can be involved in a mental model is incomparably greater than that for a 65 year old with experience. 25 minds working together can accept all the evidence a 65 year old accumulates over their career in hours or days, and Instead of building models over time, they do it in real-time. The result will tend to approximate the best available outcome given a much broader analysis of data.

Here's another experiment you can try if you don't believe me: talk with a group of twenty-somethings about a project they've been working on, and ask them for detail of things they didn't work on personally. They'll have no clue at all what their peers are doing, and will refer you onwards. They don't care what their peers in the crowd are doing, because they have self-optimised their handoffs and interactions so they don't have to care.

That's quite different to the way that I, for example, would approach something. I need to know that the whole outcome is under control. I need to know the detail is in hand. And I must certainly feel able to explain the whole project to anyone who asks me. I am accountable; therefore, I must know what is going on.

In other words, I am unable to harness the power of multiple minds in any way which makes the whole greater than the parts.

Now, before I leave this topic, I want to make one last point, and it is this: the communications and collaborations technologies in the hands of our new workforce already let them collaborate at lightning speed. But these are not technologies that one expects in any way to slow down their advance. The power of crowds of young people to do things previously reserved for only older, more experienced people will continue to grow, probably in an exponential fashion.

Consequently, I predict the death of experience as the defining decision factor in who gets what job in our workforce within the next 10-15 years. That's the timeframe, by the way, that significant numbers of these collaborating crowds of young people will start to win their first senior jobs away from the old guard non-collaborators who presently rule the roost.

I'll close this post with another discussion I had at Amplify last week, and it was with a senior executive I'd made these points to. He wanted to know, if the end of experience was nigh, what would happen to all the older workers out there? Now, I don't have a convenient answer to that, because I don't know. But what I have observed so far is that collaborating groups in this age band tend to make collectively moral decisions which include the social best interests of most players.

The probable result? Our experienced workforce will get taken care of, whilst at the same time, they are pushed to the edges of major decision making. They will be reference encyclopaedias that can be called on for historical facts quickly and easily, but won't be core to the actual process of creating substantial change.

The death of experience

As you know, I spent last week at Amplfy09, an innovation festival hosted by AMP of Australia. At one of the events, I had the chance to sit with some financial planners and their clients. The question I posed was this:

Which do you think has more brain power: 25 twenty-three olds (i.e., brand new graduates) with a year's experience each, of one 65 year old with 25 years of experience?

The obvious answer, of course, is that the crowd of 23 year olds has more brainpower, but the real question is whether the value of experience outweighs the obvious advantage in mental watts of the group.

My thinking is it does not, and here is why.

Experience is a result of the formation of mental models about the way things work. Essentially, one observes that certain actions produce certain effects, and over time one learns to generalise so that even actions which are only marginally related to those previously observed can result in reasonable predictions of outcomes. Because the mind has limited abilities to accept information and process it, developing experience is something that takes a large number of years.

This is why you generally reserve very accountable positions in organisations for those who have lots of experience.

But try this experiment. Get a group of new graduates together, and confront them with a crisis. You will be amazed when you watch what happens: instead of some alpha-male/female attempting to take control of the situation, the group optimises itself, using rapid fire burst of communication, to solve the problem synergistically. It looks like chaos, and you wonder whether or not anything will ever come of it, but invariably very good outcomes do. And the order that emerges from all this chaos tends to be a highly optimised resolution of the problem at hand.

I know this, because I've had lots of time to study our new workforce at the bank, and they do things in quite different ways to those that my peers and I do things. We try to take control, to lead. They don't bother with any of that, and self organise into a non-structure that produces results, which are often unexpected.

Coming back to my original question, then, the value of experience as a differentiator in this case is very much reduced. Because you have 25 minds processing things in parallel, the amount of information that can be involved in a mental model is incomparably greater than that for a 65 year old with experience. 25 minds working together can accept all the evidence a 65 year old accumulates over their career in hours or days, and Instead of building models over time, they do it in real-time. The result will tend to approximate the best available outcome given a much broader analysis of data.

Here's another experiment you can try if you don't believe me: talk with a group of twenty-somethings about a project they've been working on, and ask them for detail of things they didn't work on personally. They'll have no clue at all what their peers are doing, and will refer you onwards. They don't care what their peers in the crowd are doing, because they have self-optimised their handoffs and interactions so they don't have to care.

That's quite different to the way that I, for example, would approach something. I need to know that the whole outcome is under control. I need to know the detail is in hand. And I must certainly feel able to explain the whole project to anyone who asks me. I am accountable; therefore, I must know what is going on.

In other words, I am unable to harness the power of multiple minds in any way which makes the whole greater than the parts.

Now, before I leave this topic, I want to make one last point, and it is this: the communications and collaborations technologies in the hands of our new workforce already let them collaborate at lightning speed. But these are not technologies that one expects in any way to slow down their advance. The power of crowds of young people to do things previously reserved for only older, more experienced people will continue to grow, probably in an exponential fashion.

Consequently, I predict the death of experience as the defining decision factor in who gets what job in our workforce within the next 10-15 years. That's the timeframe, by the way, that significant numbers of these collaborating crowds of young people will start to win their first senior jobs away from the old guard non-collaborators who presently rule the roost.

I'll close this post with another discussion I had at Amplify last week, and it was with a senior executive I'd made these points to. He wanted to know, if the end of experience was nigh, what would happen to all the older workers out there? Now, I don't have a convenient answer to that, because I don't know. But what I have observed so far is that collaborating groups in this age band tend to make collectively moral decisions which include the social best interests of most players.

The probable result? Our experienced workforce will get taken care of, whilst at the same time, they are pushed to the edges of major decision making. They will be reference encyclopaedias that can be called on for historical facts quickly and easily, but won't be core to the actual process of creating substantial change.