Hi there. I'm a Partner at Undercurrent, where I lead a team focused on helping ambitious organizations operate in ways that are beneficial to all their users.


Nine to one

The first five years of the twenty-first century saw a renewed wave of innovation and investment, this time less focused on computer hardware and more focused on a diversified set of applications and process innovations. For instance…CVS found that their prescription drug ordering process was a source of customer frustration, so they redesigned and simplified it. By embedding the steps in an enterprise-wide software system, they were able to replicate the drug ordering process in over four thousand locations, dramatically boosting customer satisfaction and ultimately profits. CVS was not atypical. In a statistical analysis of over six hundred firms that Erik [Brynjolfsson] did with Lorin Hitt, he found it takes an average five to seven years before full productivity benefits of computers are visible in the productivity of the firms making the investments. This reflects the time and effort required to make the other complementary investments that bring a computerization effort success. In fact, for every dollar of investment in computer hardware, companies need to invest up to another nine dollars in software, training, and business process redesign.

I think the bolded bit is a pretty intuitive point, but it’s worth noting that most of this investment happens either in individual functions (like IT, legal, etc. – shared services) or at the edges of the organization. The decision-making portions of legacy organizations – central management – have largely missed this boat. Yes, they’re using technology to do some of their work: their communications, document exchange, and analysis processes are computerized. Unfortunately, their decision-making processes, governance, and change management methods haven’t made any progress out of PPT slides.

From pp. 104-105 of The Second Machine Age.

The Inflexible Org

Yet even short-sighted or embarrassed managers should react when the threat from upstart technologies becomes clear. They do not, economists reckon, because of organisational rigidities. Ms Henderson suggests firms can be seen as giant information-processing organisations that evolve a structure and personnel to fit their respective business. Information on sales or production is efficiently filtered to decision-makers, who can then direct new research. When new technologies are no more than tweaks to old ones, this set-up is a competitive advantage. When innovations are more radical, however, the old networks are a hindrance.

This (and the papers linked here) are *everything*. I’ll be writing more on this later, but in general, everything we’re working toward today is the ability for an organization to be flexible even as they are orderly.

Read more: Pardon the disruption

New Governance Models

I am not the first person to worry about the joint-stock company. Adam Smith, founder of modern economics, argued: “Negligence and profusion . . . must always prevail, more or less, in the management of the affairs of such a company.” His concern is over what we call the “agency problem” – the difficulty of monitoring management. Others complain that companies behave like psychopaths: a company aiming at maximising shareholder value might conclude it would be profitable – and so perhaps even its duty – to pollute the air and water if allowed to do so. It might also use its resources to obstruct an appropriate regulatory response to such (mis)behaviour.

I *very much* enjoyed this article from the FT.

The point: the core structures undergirding public companies are broken, as they push companies away from any real purpose, and toward an abstract one – shareholder value – over which they all compete.

Prof Mayer’s suggested solution is what he calls a “trust company”, one with explicit values and a board designed to oversee them. He justifies such a radical switch with his scepticism about the feasibility and effectiveness of regulation. Less radical would be to encourage companies to consider divergent structures of control. One might be to vest voting rights in shares whose ownership can be transferred only after a holding period of years, not hours. In that way, control would be married to commitment. One could also vest limited control rights in some groups of workers. Yet this is not to argue that committed long-term ownership is always preferable. Family control, for example, has both weaknesses and strengths.

The right way to approach governance is to recognise the big trade-offs in managing and governing these complex, vital and long-lived institutions. We should let 100 governance flowers bloom. But the canonical academic model of the past few decades will rarely be the best.

Preach!

Read more: Opportunist shareholders must embrace commitment

Handelsbanken: Responsive Banking

Handelsbanken is different in many ways. It has developed a model that provides a blueprint for other banks emerging from the financial crisis and seeking ways to regain customers’ trust and profitable growth.

Its first point of difference is that it has embraced the Swedish “church-spire principle” – meaning each branch manager is given total autonomy to decide how to deal with clients in the vicinity. Most of these managers, such as Anthony Fogden in St Albans, are bankers with decades of experience in a local area. Unlike other UK lenders – where decisions are handed down from head office to branch managers whom customers rarely see – Handelsbanken allows its bosses to decide on loans and interest rates.

There are no call centres. Customers in St Albans are given Mr Fogden’s mobile phone number and call it when they have questions – even at weekends. The bank does not advertise in the UK – relying on word of mouth to win clients – and has no national offers. The terms of all products are tailored to suit each customer. Anders Bouvin, UK chief executive, says his role is not to tell Mr Fogden what to do but “to support him by providing the infrastructure he needs”.

Case study alert: pushing autonomy close-to-customer is good for everyone. The FT article linked below and quoted above highlights the growth of Handelsbanken, a Swedish bank, in the UK.

Read more: UK account holders flock to Swedish bank’s ‘church spire’

Bank as Platform, Banking as Verb

Mobile Money also offers the latest example in a larger story of how brick-and-mortar continues to fade into the banking background for some consumers. “Banking is a verb rather than a noun,” says Barbella. “It’s a shift that we are starting to see. …Go where it’s most convenient for me. …I may have a cell account but not a banking account so I go there. … If I have both: do I move one to another?”

I like this perspective. First: banks of the future will be platforms for banking across multiple interfaces, and will handle the stuff that stays difficult after the industry fully accepts digital (see this article about Deutsche Bank for more). Second: start downmarket, move upstream.

Read more: Bancorp Bank Exec Sees T-Mobile Deal as Springboard to Masses

The Podular Company

Here’s a few excerpts from a longish post with predictably great illustrations from Dave Gray.

The challenge in aligning incentives is threefold: First, incentives must be real and tangible enough that people can see the impact they have on the business as a whole; second, they should balance long-term and short-term thinking; and third, they should balance rewards so they reward people for things that make the business as a whole healthier and more successful.

Good cheat-sheet for incentives, this. A bit broad, but it’s the intro to the post, so…yeah. There’s also this bit:

Stock-option and profit-sharing plans reward employees when the company does well, but the larger the company, the more difficult it becomes for people to feel that their efforts have an impact on the stock price.

Which leads to this:

In a podular organization, you divide labor into “businesses within the business,” each of which can function as a complete service in its own right. Since each pod functions as a small business, its focus remains outside the pod, on its customers.

Stay focused, friends. And I’ll get to this another day, but stay small(ish), too.

Read more: The Podular Company

Peer-to-Peer Insurance?

Peer to peer lending is about managing several one time low implication relationships (loan agreements), peer to peer insurance is about managing one high implication relationship with many people. Failure in peer to peer lending is on an individual basis, failure on peer to peer insurance is on global basis.

I think we’ll see more of this in the future (if it has been tried at all, at least in insurance) – where big-enough cohorts of people get together to underwrite each other in a variety of ways. I imagine if the scale is tuned *just right*, you’d be able to avoid a significant amount of regulation, and thus a significant amount of cost (and resulting interface shittiness).

Read more: Disrupting Insurance: The Other Financial Services Opportunity

More Regulatory Capture

As the debate reminds us, large companies enjoy power as lobbyists. When they are monopolists, the incentive to lobby increases because the gains from because the gains from convenient new rules and laws accrue solely to them. Monopolies are no friend of a healthy democracy.

They are, alas, often the friend of government bureaucracies. This is not just a case of corruption but also about what is convenient and comprehensible to a politician or civil servant. If they want something done about climate change, they have a chat with the oil companies. Obesity is a problem to be discussed with the likes of McDonald’s. If anything on the internet makes a politician feel sad, from alleged copyright infringement to “the right to be forgotten”, there is now a one-stop shop to sort it all out: Google.

I hadn’t really thought of this point – that monopolies are easier for a government to deal with. Or at least, they were until the internet came around. Now, with an increased focus on interoperability, APIs, working with smaller vendors, etc., at least the tech-savvy parts of government are starting to realize that a panoply of partners is in fact the easier thing to manage. Again, because Internet.

No policy can guarantee innovation, financial stability, sharper focus on social problems, healthier democracies, higher quality and lower prices. But assertive competition policy would improve our odds, whether through helping consumers to make empowered choices, splitting up large corporations or blocking megamergers. Such structural approaches are more effective than looking over the shoulders of giant corporations and nagging them; they should be a trusted tool of government rather than a last resort.

So much this. Our regulated things – banks, car dealerships, whatever – are crappy because the regulations are crappy on purpose.

Anyway.

Read more: Monopoly is a bureaucrat’s friend but a democrat’s foe

What’s Your Purpose?

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For more, go here.

John Willshire: Progress Checklist Idea

John Willshire over at Smithery has a nice set of questions that could serve as a fantastic checklist or facilitation guide for mentors – imagine setting down with a colleague or a group of colleagues and running through this list (ideally without much discussion until everyone’s shared, what we’re calling a “Context Round” at Undercurrent these days):

ACTIONS: What have you done in the last day to help get something done

COMMERCE: What have you done this week to help hit our targets more quickly?

CUSTOMER: What have you done this month to benefit customers?

LEADERSHIP: What have you done this quarter to help others work in a new way?

ORGANISATION: What have you done this year to improve our organisation’s culture?

Read more: 3.16 – Basic Units