Why do dinosaurs become extinct? History is littered with iconic and innovative giants that were stalwarts of their field. Remember Atari, Kodak, Blockbuster, Commodore, Compaq, RIM/Blackberry? These companies were leaders in the field and now they’re no more than a footnote in history.
Why, when there is all of this history and numerous case studies that have been published and studied in business schools around the world does this still keep happening over and over again? How is it that large organizations with all their resources don’t recognize the signs that its time to pivot and never seem to find a way to truly transform in order to compete with new and emerging challengers.
In financial services where I am from, large multinational banks were often considered ‘too big to fail’. Often they were dismissive of challengers or new technology as ‘existential threats’. Unfortunately, these ‘existential’ threats are becoming real threats and they’re coming from everywhere to disrupt the stranglehold of large, global banks. From the East, technology companies like Tencent and Alibaba have entered financial services. Initially starting with payments these companies and have been able to scale up to material levels quickly and eat into the margins, the market share and the negotiating power of large financial institutions. Similarly to the West companies like Apple, Facebook, Google, e-bay and Amazon have begun to enter financial services starting with payments. Add to the hundreds of fintechs and challengers around the world including Revolut, TransferWise and Tradeshift that are further exacerbating margin compression and market share loss for large financial institutions. These start-up firms are able to build new infrastructure with the latest technologies, often leveraging open source frameworks and they are able to shape new and more unique product offerings for clients.
So what has been the biggest barrier to change for these dinosaur like corporations? Why have they not been able to leverage their might, size and history to innovate and evolve? It all comes down to: Culture, Culture, Culture…
When you have too many people who have been in the same company for 20 years or more it is celebrated as culture. In actual fact that’s a trap...its a celebration of inertia. This organizational inertia leads to the development of what I call the ‘permafrost’. I’m sure you have all seen the signs of permafrost in many large organizations that you have dealt with, the telltale signs being:
- Layers and layers of redundant senior and middle management who have no delivery responsibilities, no clear measureable metrics of their performance, no fresh ideas that they are bringing to the table and for whom a discussion of new technology makes their eyes glaze over as if it’s a foreign language.
- The permafrost spend their days in endless committees being ‘management’ where hundreds of wasted hours are spent and trees are sacrificed putting together pages and pages of PowerPoint. The permafrost is superficially briefed on a matter, no real discussion of any sufficient depth occurs on the issues or solutions and no clear decisions are made.
- Governance is weaponized and endless new committees and templates are created in which the permafrost argues that its purpose is to protect the firm. Make no mistake, this is not governance or risk management - this is bureaucracy. Hundreds and even thousands of employees hide behind it and do not have the technical skills or the diligence to actually ensure that they are proactively managing all the risks that they need to.
- The permafrost sit in established in tribes. They measure their importance by how many people report to them and are never motivated to reduce their tribe or mix with other tribes. They enjoy the trappings of being a tribal leader versus being a contributing member of the tribe.
- For the last decade new generations were hired offshore whilst all the permafrost stayed in the hubs and the permafrost layer continued to grow. The permafrost would visit rather than reside in these services centers/offshore locations and when they arrived they behaved like tribal leaders visiting the colonies…
- There is no co-mingling with the permafrost and the junior tribe members and heaven forbid that the permafrost should learn from juniors
- When it was time to make reductions, junior ranks or new to the tribe were the first to be cut whilst the permafrost protected themselves. This resulted in no new fresh ideas, an even less motivated workforce and productivity diminishing. The tribal leaders complain that productivity has diminished. Of course it has: who’s left to do the work…?
A toxic culture becomes created where there is no innovation, new ideas never get incubated long enough to see the light of day and talented people leave because they can never penetrate or rise above the permafrost. Instead the culture rewards loyalty, obedience and adherence to company culture.
Sadly, the picture I paint about the permafrost is not unique to one company, industry or even country, it’s happens all around the world. So what can be done about this?
Organizations need to take drastic action in order to address the deeply entrenched cultural issues that have developed over decades.
They need to start by addressing organizational structure. A reverse pyramid develops in bureaucratic organization where management starts to outnumber the workers. You can’t make a dent in permafrost if you’re not willing to scrape off the top layers. You need to scrape off not only the top layer, but the middle layers as well. You need to go as far as removing an entire generation of management. Too often, organizations try to dance around the fringes of this by making cuts around the edges rather than taking a buzz saw and cutting right into the bone. On other occasions you see them automating teams whilst keeping the permafrost in place.
However, cutting alone is not the answer. How many organizations have you seen where departments keep getting downsized and the remaining employees just try to get by with existing processes and habits? The big mistake organizations make is firing without hiring fresh blood. How can an organization transform itself with more of the same…but just fewer?! Organizations need new employees who will do things differently, have fresh ideas and aren’t saddled with legacy culture and practices.
If it makes it sound like I’m saying that in order for a large corporation to reinvent themselves they almost need to rebuild themselves from ground-up in order to survive, that is exactly what I am saying. A company can’t just change their brand or their product offering, they need to also change their people, processes and platforms. It is often cheaper and more efficient to scrap a piece of legacy infrastructure and build from scratch with new people, who do things in a new way with the latest technology.
Once you have tackled the rank mix and which resources work in the firm, the next thing you have to tackle is breaking down the silos and tribes and getting people to work together. Some firms have tried by creating agile scrums, others have created Pods, regardless of which mechanism you choose, what is required is that teams of client-facing staff working (and ideally co-locating) with developers and operations staff to build new products and deliver them seamlessly and efficiently to clients. If the argument is that there are too many operations staff to co-locate with client facing staff then chances are you have too many broken processes and too many operations staff doing low value tasks.
In order to shake up the culture some element of tension, disruption and competition needs to be embedded into the system. Set measurable targets and metrics for all employees and teams. Make those metrics and targets available to everyone within the organization. There should transparency about who the lower productivity teams and individuals are. People who are making the biggest improvements should be recognized.
Reward mechanisms need to also drastically change. People should be rewarded for ideas that are put into action and that lead to an impact on the organization. They should NOT be rewarded for their seniority or tenure at the organization. And yes, that means if a 20 year-old develops a game changing new product or process that saves substantial time and costs they should rewarded much more than a 40 year-old middle manager that spends their days in committee meetings.
Like the dinosaur when organizations don’t see that the permafrost is growing and slowly taking all the ground up, they may find that its too late to turn around and avoid extinction….
Richard James is the pseudonym of a global technology head who's worked at major investment banks
Photo by Matt Artz on Unsplash
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