Fintech Financial Services

‘Yellow Vest’ Protests and the Rise of the Agile Competitor

Written by Jeremy Behrmann, EMEA Client Director

On the 17th of November the Gilets Jaunes or “Yellow Vest” protests began to wreak havoc across the French capital and beyond. The leaderless movement has been able to frustrate authorities by mobilising at lightning speed to riot, build barricades and commit large scale arson. More than 2000 people have been arrested to date, but interestingly, the movement is yet to reveal a typical hierarchical structure.

General Stanley McChrystal told a similar story in his landmark book, “Teams of Teams – The new rules of engagement in a complex world”. He explores how the might of the American military were completely, and unexpectedly, dominated by Al Qaeda in the first stages of the Iraqi and Afghan campaigns.

Whether it’s political, military, economic or social, the rise of agile, flatter movements and organisations are changing the world in which we live and work.

For financial institutions the learnings from such agile movements could not be more pertinent.

Financial institutions all over the world and the professionals who shape their talent pool, are going to have to emulate the agile organising principles of the Gilets Jaunes if they are going tackle a potentially game-changing challenge – that of Fintech.

According to the 2019 Deloitte Centre for Financial Services report, “Firms are too inward focused, too big and complex to manage, and lack a “house view” on the impacts technology will have on their firms. Any efforts at change are only attempts to make the current business more efficient, which is merely buying time, because Fintechs and others are showing them—and their customers—the art of the possible. So, the fundamental ways in which financial services firms make money and the assumptions that leaders have about their competitive advantages must change”.

McChrystal went into the Middle East with the same assumptions yet as he looked at the charred remains of his soldiers and his tactical whiteboards where sporadic networks were confronting and outflanking their strategy at every turn, he realised that something had changed. In the military they have a term for one element or factor that holds you back – a LIMFAC (limiting factor). McChrystal considered the environment, soldiers, firepower, tactics and even the enemy itself yet as they dug deeper they realised it was something more ingrained into the Task Force’s organisational DNA, the LIMFAC lay in the art of management. Yet how did management need to change and what can financial institutions learn as they combat a more agile competitor?

According to McChrystal, most organisations subscribe to management doctrines informed by Fredrick Taylor’s “Scientific management” a system for achieving highly efficient execution of known, repeatable processes at scale. The American military had become exceedingly good at solving complicated problems in a linear fashion yet through the rise of global interconnected networks and rapid uptake of viral technologies, complex problems were becoming increasingly difficult to solve, never mind predict.

Innovation and leadership in a complex world

The financial world has become equally, if not more, complex. According to a “Beyond Fintech” report by the World Economic Forum, large scale technology companies such as Amazon host many of the largest banks cloud based systems but have the ability to diversify into finance without the regulatory oversight put on traditional financial institutions. The disruption also springs from new entrants who face significantly lower technological barriers to entering financial services, with potential long‐term implications for the competitive landscape. The accelerating tempo of the innovation cycle in financial services means that a financial institution’s success is predicated on business model agility and the ability to rapidly deploy partnerships, neither of which are traditional core competencies of these institutions.

Trust, co-creation and discovery

So what does this mean for leaders within financial institutions? Extrapolating feedback from the AchieveForum annual research survey, the key capabilities include the ability to build trust, influence, co-creation and infuse bold discovery into traditionally conservative strategic processes.

In financial terms leaders and even their direct reports need to be able to proactively seek out partnerships with other divisions, suppliers and even potential competitors to iterate new offerings at pace under significant pressure of regulatory and competitive pressure. This dynamic impacts several key contexts and role players.

According to the Future of Fintech report many banks just wait to see which start-ups or technologies rise out of the competitive fracas and then make acquisitions. Yet the yield on these investments is often very poor because the companies being bought represent such a different culture and high level of technological specialisation that making the most of the investment is as hard as trying to grow it organically yourself. Leaders need to be equipped with trust, influence and co-creation skills and be able to apply them through the lens of M&A.

Second is high performing finance leaders. Key to disrupting your own business model in a proactive way is giving people the freedom to experiment. This has to be a base line activity in all leaders but it will be a particularly hard journey for finance teams in financial institutions. The two ratios that have become almost sacred in evaluating how well companies are growing are return on net assets and internal rate of return. The former leads to huge drives to outsource as it is easier to strip out the asset base than it is to make more profit. This will bring efficiency but will not bring genuine disruption.

The latter, internal rate of return focuses on how quickly you can get money out after putting it in and how that relates to different scenarios for profitability. What this means is that because IRR will be higher when the company invests in projects that bring money in quicker, they tend not to invest in the initiatives that can bring genuine disruption but which take longer to achieve.  As a result working with finance leaders is definitely an important focus because they need to provide the resources to enable much needed experimentation over time.

More than anything leaders have to create a culture of trust that gives the rest of the organisation the freedom to bring their very diverse talents and fresh perspectives to current challenges. Working in diverse and agile cross-functional teams that have true autonomy to experiment gives banks the best chance of fighting off the threat of Fintech. It is a journey, however, and like the American military and the Police Nationale in France, who had to veer away from hundred year old management approaches in order to compete, it is a journey well worth taking.

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