IBS Journal July 2018 EDITOR’S NOTE IF YOU’RE GONNA DO IT, DO IT LIKE AN OUTLIER
THE FUTURE IS COMING, BUT FEW OF THE BIG PLAYERS SEEM TO HAVE A CONCRETE STRATEGY FOR DEALING WITH THE CHANGES THAT COME WITH IT. MAYBE THEY SHOULD TAKE A LEAF OUT OF THE FINTECHS’ BOOKS.
Bill Boyle Senior Editor
billb@ibsintelligence.com
05
C
orporate history is strewn with the corpses of organisations that were too late to adapt to changing conditions. Some you will know, some you may not.
They include General Foods (1990), Pan American World Airways (1991), Arthur Anderson (2002), Rover (2005), Marconi Corporation (2006), Lehman Brothers (2008), British Home Stores (2016), and Toys R Us (2018).
When Mark J Perry of the American Enterprise Institute investigated this in 2014 he discovered that 88% of the Fortune 500 companies in 1955 – the year the list was first compiled – had since gone out of existence. Only 12% of the 1955 list still existed. To put it sharply, 88% of the companies that made the list in 1955 had gone bankrupt, been bought, merged or had dropped out of the Fortune 500.
I have always presumed that most big corporations were reasonably well run and had some type of strategy that planned for the future. But when it comes to bank mergers and acquisitions, the past landscape looks little better than the history of the Fortune 500. If you want to transform your company you can either do the hard job of transforming it from within or you can try the easy way and bolt on another company to boost your size and gain customers, scale and make efficiency savings. It doesn’t always work out, as Fred ‘The Shred’ Goodwin, CEO of the Royal Bank of Scotland, found out when he paid €71bn for part-ownership of Dutch bank ABN Amro in 2007 just as the international financial crisis worsened.
It is interesting to look at the multiple possible futures of the banking industry in view of the perceived dangers of the fintechs and the Amazons, Google and Apple threats. They are much discussed generally but at the many industry events I
attend I get few concrete answers to the question: “How are you strategically preparing for the varied changes in the market and the shape-shifting that your most serious competitors are engaged in?”
In her survey of the outlier companies, Rita Gunther McGrath tells in her book, The End of Competitive Advantage, how she first expected to find that firms that were able to survive in spite of ephemeral advantages would have great processes for downsizing, restructuring and otherwise getting out of declining areas in a big way. It turned out that this is not the case. They still follow the old habit of lax management that allows whole departments to be producing research without their findings being analysed and used. This is what happened at Xerox Parc when the compeny leaders had no idea that their own staff had developed the mouse, the GUI and much more, which Steve Jobs famously stole during a visit with cataclysmic consequences for the entire computer industry, and particularly Xerox.
Instead, the outlier firms, relative to their competitors, embed the process of change into their daily routines. They reallocate and move resources flexibly and on a constant basis, McGrath details, so rather than going through sudden divestitures or restructuring they are constantly changing. Rather than disposals or divestitures they choose to upgrade in order to move up the value chain. Rapid upgrading, she says, is a common feature among all of the companies they studied, including Infosys, HDFC Bank and FactSet.
The question also going unanswered as the big banks continue to march into the future with crumbling Core Banking systems is: how are you learning from the fintechs? The answer to that question would be very enlightening.
www.ibsintelligence.com
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