Thursday, August 11, 2011

Layoffs, Banks and the Blond: A radical approach to reacting to bad results

The scene: A college bar. A group of young men are sitting around a table when a group of young women, led by an especially attractive (blond) young lady enters the room. The men, all budding economists, start planning their strategies to win the attention of the blond - 'remember Adam Smith! Every man for himself and every actor acting in his own best interests (and the losers drink with their friends)!'

One of the young men, John Forbes Nash, realized that every-man-for-himself is suboptimal. The best strategy, the strategy in which each of the young men has the best outcome, is achieved when the group members work both in their own and in their collective best interests. His strategy: "Ignore the Blond!"

Governing Dynamics - "Ignore the Blonde"

Long bicycle races, like the Tour de France, may look like an individual sport, but actually cycling is a team sport. Even though there is a single winner, an individual without a team has no chance. A corporate career is treated like a individual sport, but actually it's a team sport as well.

Last month, both UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) announced layoffs. Together, they only made 1.6 Billion CHF last quarter, so they need to lay off up to 7'000 employees -- between 4 and 7% of the total staff worldwide.

What's happening now as a result of the layoffs?

Everybody is scrambling to maintain their position. People are worried about their own careers, not about the issues of the bank, are certainly not the wishes of the customers. Some people will get laid off, taking their know-how with them. Management is moving people around, teams are getting split up, and Know-how is getting lost.

Even those who stay are afraid of making mistakes, so raising issues is dangerous, decisions get postponed, and innovation has no chance. (Bonus question: How is this different from the situation before the latest round of layoffs?) Result: stagnation at best.

What does stagnation mean? You can see it in the stock price. Except for the bad profits generated by investment banking leading up to the financial meltdown and which were destroyed in 2008-2009 meltdown, these stocks have gone nowhere for the last 10 years (even ignoring the tremors of the last few days).

UBS and CS New York relative Share Prices, 2001-2010

This latest move is nothing they haven't already done before. It will provide short term benefit (maybe), but does not really solve their problems.

What should UBS and CS be doing? Radically managed companies have an open flow of information with quick feedback loops. They have a climate of trust, not fear, so that problems can be identified and rapidly addressed. And mostly, they are focused on the their customers, not on themselves. (People experienced with Agile, Scrum or genuine Lean will recognize these characteristics!)

What do UBS and CS need to do to get back on track? A partial answer is people in these banks need to think like a team, not just a collection of individuals. They need to transform their organization into a team sport so people can work to a common goal with pleasure,  enthusiasm and confidence in the future. They need to eliminate the climate of fear.

How can they do this? Here are a couple of places to start:
  1. Commit to keeping their staff on board and create an atmosphere of confidence.
  2. Change their bonus to systems to reward not personal success (and infighting) but rather team success (and customer delight), especially at the top. More than anyone else, top management needs to work as a team.
  3. Update their concept of management by the numbers to focus not on financial success but rather on customer delight.

P.S. Does this situation resemble your company? What to make it better?  Join us for the Zurich Gathering For C-Suite Leaders with Steve Denning and myself: Zurich, Sep 12, 2011


Paulo said...

Sweet! The best systemic analysis I read in a long time. Congrats!!!