How will the banks ever recover our trust?

How will the banks ever recover our trust?

May 7, 2018 | Customers, Governance, Leadership

Over the last decade, banks, and other financial institutions have spent billions, I have no idea how many, but guess multiples,  on telling us they are our friends, there for us, reliable, trustworthy, yada, yada, yada.

That investment has gone.

Poof.

Billions gone in a puff of Royal Commission smoke.

Then the stinky smell of the smoke is intensified by the APRA report into the CBA, released on April 30th, which is critical of the internal management and governance of the CBA.  While the CBA has been in APRA’s gun, there is now no reason to believe that the others are not similarly tainted. Just look at that doyen of financial rectitude, AMP for evidence of that.

I am not sure how much we all knew before all this came about, as most of us seemed to know at some level we were being screwed by the financial institutions, but the extent has come as a surprise, even to the most cynical amongst us.

If the boards of all financial institutions are not deeply concerned with these issues, they should be, in fact I would contend they are not doing their job if they are not.

Which opens two key questions:

  1.  How they can possibly recover the trust of their customers and the community?
  2.  In the absence of that trust, what alternatives do we as customers have?

So what is it that the financial institutions need to do to earn back our trust, and once earned, keep it. Trust has to be earned, it is never just given.

  • Transparency. Until we are able to see all the squalid details of the financial business model, be able to make informed choices, and have the current bunch of directors acknowledge their individual and collective failures, we will never trust them again. Probably the only way forward is increased regulation, or perhaps a more meaningful application of the existing regulations. A change to mandatory fee for service rather than commissions throughout the industry would remove the cause of much of the dishonesty at an operating level. Trust is impossible without transparency.

 

  • Communicate relentlessly. Having something of value to say, and saying it consistently, in many different ways is essential. This does not mean more fluffy advertising, and competitive product pitches attacking us from every angle. It means that we, the customers, have to be able to understand the value that is added by our financial institutions, and the cost of that value.

 

  • Measure the right things. Every business has financial objectives to meet, but confusing those financial objectives with the behaviour that delivers them is a bad mistake. In the end, the financial results are the outcome of a whole range of activity and behaviour, which when right will deliver the results. The old adage that you get what you measure almost always applies, and the financial institutions have been measuring the wrong things.

 

  • Manage behaviour and build a new culture of service.  Ensuring that behaviour is consistent with a revised set of values that will apply is essential. These should evolve from the Royal Commission report and the need for every business to be able to define its purpose. The boards have a big task in front of them to change the cultural norms that drive behaviour.

 

  • Be prepared to  be wrong. When a mistake is made, and we all make them, admit it openly, while adding what you have learnt from the experience, and what you will do in the future as a result. The sight of various board members setting out to absolve themselves of responsibility is a very bad ‘look’ and should not be tolerated by us as consumers, or the regulators.

 

  • Take responsibility. Responsibility and accountability seem to be sadly lacking at present, and this needs to be reversed. Hopefully, it will evolve as part of the cultural renewal I optimistically forecast.

 

  • Be human. The pace of change has outrun our collective ability to absorb it. Automation in the name of efficiency is fine, until the automation removes people from the equation. People deal with people they know like and trust, so there is a real challenge for  the banks. Be known, liked and trusted again.

 

One of the structural problems the industry has to face is a very human one. We all want something for nothing, and nothing usually means we would rather pay more, but not see the payment to avoid feeling the pain. The result of this is the generation of hidden commissions, and sliding scale charges, rather than fee for service.  Commissions wherever I see them change behaviour, create a short term financial incentive, that is their purpose, and usually become a part of the status quo. In most cases, and certainly in the financial services industry, this practice is not in the best interests of  those who ultimately fund the commissions. The whole financial services business model is based on commissions, which is like building a skyscraper on quicksand, bound to unravel at some point.

Oops, I think it is unravelling!!

To the second question, the options we have as consumers: currently none. There are many alternatives, many touted differentiators, but in essence they are pretty much the same, it is just the details of the business models that vary a bit. However, malfeasance such as we are seeing has a way of adding fuel to the innovation fire, and I suspect there will be options opening up very quickly that deliver some if not all of the characteristics that will build trust from outside the traditional financial services industry. This will certainly give the regulators a headache, and boards something beyond their current horizons to think about.

I wonder if many of the legacy businesses will still be around in their current form in a decade? I doubt it very much. However, the point should also be made that it is the people who run and govern these businesses that are to blame, not the institutions themselves. The financial institutions play a vital role in our economic and social lives, and are indispensable, unlike those running them, many of whom should be dispensed with forthwith, without any form of golden handshake.  Indeed, many should be thankful they will not be measured for striped suit and a modestly furnished suite at Silverwater.

 

Cartoon credit once again to the great Hugh McLeod at Gapingvoid.com

6 essential questions from the devil

6 essential questions from the devil

May 4, 2018 | Governance, Leadership, Management

Having a ‘devils advocate’ around you is one of the most productive relationships you can have in a complicated enterprise. Such a relationship enables the stripping of any position held back to its core, removing the bias, preconceptions, and power of the status quo, but leaving room for intuition born of domain knowledge, experience, and most importantly, data.

You should seek out and nurture such relationships.

The most successful commercial relationship I have had was with a bloke to whom I reported for a long time, in two different businesses. Vigorous ‘conversations’ took place as a natural part of determining the best course of action to take, the best allocation of limited resources, with each testing the positions taken by the other.

The eventual outcome was more often than not, one that would not have emerged without such a process, although we both knew who held the power of veto, and from time to time, it was used.

I was reminded of this relationship recently in a conversation with a client who had reached a conclusion I thought was absolutely wrong. It was based on flimsy information, the opinion of someone whose opinion in this matter was in my view skewed by some unfortunate and irrelevant bias, and a reverence for the status quo which appears to me to be destructive.

I went through my standard list of  ‘Devils questions’ to no avail. Tell me what questions I should have asked on top of those below in an effort to help him consider the real merits of the decision he was about to make.

  • What is the source of the data you are quoting? Without a reliable, robust and repeatable data source that stands up to scrutiny, an ‘insight’ based on it is just another opinion.
  • How did you get from the ‘data’ quoted to the ‘insight’ you appear committed to? I like to see logic chains, definable cause and effect, when gathering insights from data, and am wary of leaps of faith that do not have the authority of logic and experience.
  • What biases have you have built in from your background and experience? Nobody is immune from some level of built in bias, a good devils advocate holds up a mirror to them.
  • What other options could there be based on the same data? In most situations, there is more than one way to interpret and leverage data, opinion, experience, and outside knowledge. Playing the ‘options game’ as a part of a conversation is a very useful tool.
  • How do we test the insight without betting the farm? These days the ability to test has been multiplied a thousand fold by the digitisation of everything, it is no longer wise (if it ever was) to bet the farm. The scientific method rules!
  • What will you do if you are wrong? Learning from mistakes, and applying the learning is the basis of improvement, and without an inclination to learn from mistakes, you will be destined to repeat  them, usually for  the same reason they were made in the first place.  In addition, answering this question almost inevitably opens up other options for consideration that may not have been adequately considered, or completely missed in the conversation.

Devils can be very helpful when used well, but they also have the power to be destructive, so be careful with whom you dance.

 

Is marketing’s greatest failure in the boardroom?

Is marketing’s greatest failure in the boardroom?

Apr 23, 2018 | Change, Governance, Leadership

There have been libraries written about strategy, and particularly marketing strategy. There are now multitudes of tools and templates available to develop and implement, but the gap between the development and successful implementation of marketing strategy is huge, and hard to navigate.

Marketing is a functional silo on an organisation chart, as is Sales, Operations, Finance, HR, but unlike the others, marketing deals with unknowns, the future, whereas all the other functions deal with the past, or what is immediately in front of them.

Marketing is about the future, long term commercial sustainability, and its effectiveness is really hard to measure, other than in hindsight. There are lots of measures for things that have happened, which are the result of often many combinations of actions taken some time ago, so the measures are unable to change anything, just give insights to what worked and what did not.

As the senior marketing person in a very large business 30 years ago, I found myself often talking about advertising, segmentation, positioning, graphic design, and all the rest, around the board table, which either put others to sleep, or elicited opinions, usually uninformed, about the detail. However, when I talked revenue I had their attention.

Marketing is all about revenue, particularly future revenue. The other stuff is the paddling under the surface that enables the generation of the revenue, but the real measure of marketing effectiveness is revenue and margins over time.

In every business I have ever had anything to do with, marketing expenditure is treated as an item in the P&L. By definition, items in the P&L are expenses or past sales revenue. This is inconsistent with the notion of marketing being about building the foundations of future revenue.

The closest analogy is a piece of capital equipment, they are always purchased to fill one of two roles, sometimes both:

  • Increase the volumes available too be sold,
  • Increase the productivity of the processes.

Those purchases are recorded in the journals, posted to the appropriate ledger account and reported in the cash flow statements, and the balance sheet, not the P&L. The greater irony is that capital items are depreciating assets, whereas marketing  investments, when done well are appreciating assets, unrecorded anywhere except the P&L as an expense until the business is sold, when the accountants start talking about ‘Goodwill’ being the difference between the realisable value of the physical assets, and the liabilities on the books.

There is a structural paradox here. We treat a potentially appreciating asset differently to one that can only depreciate, just because it is hard to measure.

This challenge of measurement is the biggest one marketing people have to hurdle. The turnover of marketers in senior roles is the fastest amongst the functional heads in large corporations because we generally do not recognise the essential long term business building nature of marketing investments. We treat it as an expense to be cut at the slightest cloud on the profitability horizon, and the marketing people with it.

One of the challenges here is that to achieve these long term outcomes, marketing requires the co-operation and  collaboration of all the other functions, without the organisational authority to direct. The CMO has to be a leader across functions. He/she has to build the respect and co-operation of other functional leaders, often at odds with their short term function specific performance measures.

25 years ago, I and my marketing team, failed to convince the board of the then Dairy Farmers Co-Operative to invest the required capital in new equipment to launch a new brand of flavoured milk. It was to be packaged in plastic bottles, with a screw cap, to be sold at a very considerable premium to the products then only available in the gable top cartons, and we proposed to sell it to different consumers. Nobody had done this before, we were banking on tapping into a market completely under-serviced by existing packaging and branding. The Operations Manager at the time believed in the project, and put his neck on the line by committing  his R&M budget to refurbish some older gear in the absence of capital approval, and I ‘stole’ the required advertising funds from another brand.  We launched Dare Flavoured milk, and it delivered the fastest return on investment I have ever seen, and 25 years later, it is still going strong, delivering revenue and margins to the now overseas owners of the business.

If marketers started talking about revenue generation, rather than the more common ‘marketing-speak’ like positioning, segmentation, and all the insider jargon generated by digital, they will be taken much more seriously around the board table. Building support amongst other functions to acknowledge the long term impacts of intelligent marketing, is necessary for long term prosperity, and the only real measure of marketing effectiveness.

The management task is all about getting the most out of the assets and capabilities of your business, and it is marketing management that carries the usually unarticulated responsibility to drive the collaboration necessary to achieve the best outcomes.

This task has four dimensions:

Operational management, strategic management, Financial management, and performance ,management.

Strategic management is all about the manner in which you address your market opportunities and challenges, and has a long term focus on commercial sustainability.

Operational management is the manner in which you deploy and utilise the assets of the business on a day to day basis to add value that customers are prepared to pay for.

The financial management of a business provides the basis for the assessment of success, or failure. It is a scorecard that is capable of comparison, across activities, business functions and timeframes.

Lack of a good financial management framework is a bit like walking blindfolded into a minefield, you might be lucky for a while, but eventually you get blown up.

Financial management is far more than just running the numbers, and ensuring compliance with the tax and corporate rules, it is about being in a position to make the choices that need to be made across the business every day, that shape not just today, but build the resilience necessary for commercial longevity. Understanding the numbers is a core part of every management job, not just of the financial people.

Performance management. Performance management is all about getting the most out of the assets and capabilities your business has, and can purchase in, maximising the productivity of the assets of all types you have deployed.

Manufacturing is the backbone of the economy, and is not taken sufficiently seriously by current national leadership. While we migrate to an economy whose GDP is less dependent on ‘hard’ assets, to one that emphasises ‘services’ we fail to adequately factor in the foundations that manufacturing delivers. In our age of ‘digitisation’ the value coming from increasing productivity is ill defined by the measures employed in the past. We need a new suite of measures, based on the old, but adapted to reflect the reality of a changed world. This is particularly as it is now an international race, without the protection of geography, and less of the artificial protection of regulation, despite the regular hiccups that result from populist politics, and just keeping up requires a substantial effort and investment.

 

 

 

Have we reached a moral watershed with private data?

Have we reached a moral watershed with private data?

Apr 20, 2018 | Governance, Leadership

Privacy has been a question on the table for some time, pretty much since the dawn of the digital age. However, there has always been a deep paradox between what was generally said, indeed legislated for, and what we did.

The aspect rarely considered is the moral one.

For a moral stance to be effective, it must be proactive, rather than  reactive.

Legislation is reactive, protecting us against ourselves, usually because we are unable or too stupid to protect ourselves, and in this country  we have a library of laws just about discrimination, just a small sector of the regulation of how we live our lives.

This is the case with the digital privacy conundrum. Well meaning, clogging the system with legislative plaque, much of which is ineffective, and getting in the way of people having to make moral and usually sensible decisions,

Where is the moral line in the sand as regards our personal data and the social platforms we all use?

There is a difference between selling data, which none of the better known platforms like Facebook would do, and enabling that data to be used in a manner that you have at least tacitly agreed to by its provision. It may be a fine line to some, but the line is there, as the choice to give the data is yours, only you can make it.

Most do  not seem to realise, or choose to ignore the fact that the free platforms they use are not really free. The price is access to their personal data which the platform uses to target advertising, which they need to make it free.

While we struggle to share potentially life saving information in domains like healthcare, in case our friends found out we had a cold, we lavished personal and often highly sensitive information onto digital platforms, for use as a way to attract advertisers, so they can blast us with specific and personalised messages to buy their stuff. The first situation is as stupid as the second.

When faced with a problem of Gordian proportions, never trust the guy with a simple answer, especially when they have something to sell you. Unravelling the knot we have got ourselves into with privacy is such a Gordian knot.

The many data breaches and sheer commercialisation of our data, highlighted with the Facebook/Cambridge analytica fiasco recently have perhaps brought things to  a head, but it just keeps on coming. Grindr’s problems over the past week with data security and just plain lying, are just another in a long line, that will keep on coming as long as we post stuff.

Corporations, and their directors have to navigate a way through this maze of inconsistency, public good Vs individual rights, and the primal urge to legislate that seems to drive what passes for political discourse.

A  simple test for individuals: If you would not want to see it on the front page of the Sydney Morning Herald (showing my age there) do not post it!

 

Photo credit: Angelo DeSantis via Flikr

 

Is your mentor asking you these 8 key questions?

Is your mentor asking you these 8 key questions?

Apr 9, 2018 | Governance, Leadership, Uncategorized

Successful people can always point to one, or a few people who over the years have contributed to their success. A great mentor does not tell you what to do, or how to do it, rather they examine motivations, objectives and options to help you determine which path you will follow, then provide feedback and suggested options for consideration.

The tool of an effective mentor is searching, challenging, and enlightening questions.

What does success look like?

This is a question that adapts itself from the little tactical things, to the big strategic challenges that need to be defined and faced. Creating a conversation where the goals are articulated by the mentee  creates ownership in their minds. ‘Owning’ a challenging  goal is the first essential step in achieving it.

What do you want to be different in 3 years?

This question is a follow up and supporting question to  the first one, and it gives a time frame, a powerful motivator to action, as it requires commitment. Together these two questions add up to what I call ‘hindsight planning‘.

What are the major obstacles being faced.

The obstacles we face are a mix of personal, and commercial, identifying the shape of them is the first step to developing strategies to overcome them. Like any problem, and obstacle undefined is never addressed in an optimum manner.

How do we measure progress?

Having defined what success looks like, and identified the major roadblocks, you have to at some point act, and measure progress towards the goal. Fine words without the actions to achieve them are just hot air.

What can you control, and what is outside your control?

Focused effort on leveraging the variables under your control that deliver the outcomes you want,  is essential. However, ignoring the things you cannot control, is a huge mistake. The best you can do is see, and have a deep understanding of how these uncontrollable factors may impact on the performance of your businesses and achievement of key objectives. Then you should  plan to enable the leveraging of potential opportunities that may emerge, while mitigating the potential negatives.

What are the options available?.

Encouraging wide and analytical thinking is necessary in the face of complex problems. This is a question to be asked every day, in relation to every action. Dealing with any uncertainty is always helped by understanding the options available, and only committing when they have been analysed, and then only when you need to progress. The danger of course is that there is an over-consideration, which becomes procrastination.

What would you do next time?

Explicitly learning from experience separates the successful from the rest.  Conducting a formal ‘After Action review’, a term that evolved from  the US army learning processes is common in large businesses after a capital expenditure project is completed. Critical review of actual outcomes compared to the plan is far less common in non-financial areas than it should be. The discipline is a crucial one, from the major strategic decisions to the tactical and team based projects on a shop floor. Those familiar with process improvement often use the term  ‘Plan Do Check Act’ which is a core discipline of process improvement.

Tell me more.

This is always a question to apply in any situation where you are trying to uncover the motivations, cause and effect, and implications inherent in any situation. The simple act of asking the question  ensures that the one being questioned has another look at their preconceptions, and barriers.

When you think you might benefit from this kind of collaborative performance management, give me a call. After 40 years of doing it, I have learned a bit that may be of value yo you.

What do Mark Zuckerberg and Steve Smith have in common?

What do Mark Zuckerberg and Steve Smith have in common?

Apr 5, 2018 | Governance, Leadership

It seems on the surface little, but when you look at it more closely, a lot.

Both are (or were) leaders, who found themselves in that place through performance, and the promise of more to come.

Both are young, and you cannot put an old head on young shoulders, no matter how much you would like to, and how smart they might be.

Both are in the public spotlight, and have been for some time, without any real preparation.

Both are leading organisations in  which many of us have a lot of emotion invested.

Both are paid outrageous amounts of money. OK, Zuck is a multi billionaire, and Smith just has a lazy 10 mill or so in his accounts, but how much does one person really need?

Both have made unbelievably stupid decisions that have destroyed the trust most had in them and their institutions.

This led me to think about the questions a leader should ask themselves in their quiet moments, those  they have available for a bit of introspection.

How should we make smarter decisions?

What is the best way to get the job done?

What do we have to change?

What does success look like?

How will we prosper?

What disciplines need to be in place?

How do we attract customers?

How do we innovate and differentiate?

What really gets the job done?

What sacrifices do we need to make?

What does leadership mean to me?

How do we become the best we can be?

How do I want others to see me?

Pity they both did not subject themselves to these questions, and perhaps many others, before they forever dumped on themselves.

They did however ask themselves one of the key questions left, but came up with the wrong answer.

How will we win?

Mark of course can afford to retire, and do anything he likes, any time. I assume Steve can as well, should he choose to, although early retirement may not be what he planned, and the comfort of it may be compromised. I personally hope he does not, but waits out the ban, then regains his place in the test team on performance. I question however his right to ever again be captain, but the wisdom gained from current experience will be valuable to whoever may be so honoured.