‘Uberisation’ and what banks need to do

  • Banking being disrupted by startups in mobile payments, P2P lending, etc.
  • They push ahead whilst larger companies contemplate and study outcomes

‘Uberisation’ and what banks need to doSTANDARD Chartered Bank chief executive officer (CEO) Bill Winters took up the position in June 2015 and a month later, unveiled a plan to axe 1,000 of the 4,000 top management jobs.
The eight geographic regions were cut down to four, which meant layoffs at the regional centres. In total StanChart expects to cut 15,000 jobs from its current 90,000.
Cost-cutting at StanChart is not new as Winters’ predecessor, Peter Sands, in January 2015 announced 4,000 job cuts and an exit from unprofitable business sectors.
These were small initiatives, apparently in response to pressure from two major shareholders, Aberdeen Asset Management and Temasek Holdings, to improve profitability.
Analysts rightly considered the measures as ‘too little too late,’ a sentiment which must have been shared by the board as it announced Winters’ appointment in February.
StanChart stock, which hit a high of 1,800 pence in March 2013, recently completed a rights issue, raising £3.4 billion (US$4.9 billion) at 505 pence a share, on the open market. Relative to Citibank and HSBC Group, StanChart stock has performed dismally.
Sands, once the darling of the banking industry, committed StanChart to an aggressive growth plan, expanding loans in emerging markets like India, Indonesia and South Korea.
The economic slowdown, falling commodity prices and poor loan quality left StanChart with a damaged balance sheet and an expensive cost structure, which according to some reports, might even lead to a sale of the bank.
StanChart is also again in trouble with US authorities who are investigating alleged breaches of a 2012 settlement with the Department of Justice for which it paid a US$667-million fine.
In 2014, StanChart paid a US$300-million fine for not having an adequate functional anti-money laundering system in place, seemingly quite a subjective claim that upset StanChart Asia CEO Jaspal Bindra.
Jaspal, in interview with Reuters, said, “We are supposed to police that our counterparties and clients are not money-laundering, and if when we are policing we have a lapse, we don’t get treated like a policeman who’s had a lapse, we are treated like a criminal.”
Sands responded by saying this statement did not represent the bank’s view, perhaps not wanting to inflame the relationship further.
Lessons from entrepreneurs

‘Uberisation’ and what banks need to do

Winters is trying to make StanChart more efficient, and link responsibility to performance, something which entrepreneurs do quite naturally.
Entrepreneurs typically have the bulk of their wealth in common stock and are therefore committed and aligned with the long-term profitability and success of the company – no taking on risky loans in order to pick up short-term bonus payments for themselves!
In its statement of July 19, 2015, StanChart said the group “will simplify its geographic and client segment structure to reduce costs and bureaucracy and speed up decision making.”
Winters said, “The Group needs to kick-start performance, reduce its cost base and bureaucracy, improve accountability, and speed up decision making.”
In a memo to the staff announcing the 1,000 layoffs, he wrote of the need for “streamlining … eliminating management layers and duplication of roles.”
Contrast Winters’ efforts with that of Citibank CEO Michael Corbat, who continues to cut jobs to improve operational efficiencies.
Citibank recently announced 2,000 cuts, primarily in the middle and back office, presumably through implementation of better technologies.
With 230,000-plus employees, the Citibank job cuts are not significant but reflect the leadership’s continuing efforts to build a more productive and efficient operation.
It is this ongoing quest to improve operating performance that has allowed it to recover from the financial crisis, hence its stock is trading at a premium to both HSBC, and of course, StanChart.
Old world industry threatened
Banking, like other ‘old world’ industries, has expanded its services well behind the initial core offering.
Customers who once came knocking at their door, have started shopping around. Many bank offerings are not suited for their operating structure, and now some are struggling as they find the bundle they offer is not competitive.
Newer players focused on discrete pieces of the offering are able to offer better value, both in terms of cost and ease of use.
Barclays Bank CEO (2012-2015) Anthony Jenkins, speaking at a Chatham House event on Approaching the Uber moment in financial services, warned of the potential loss of 50% of banking jobs in 10 years, and the struggle that smaller banks will face in adopting technology at the same pace of the larger banks.
The changing business environment

The financial technology sector of the 21st century, or fintech, is led by entrepreneurs seeking opportunities in mobile payments, money transfers, peer-to-peer lending, and even alternative currencies.

Nandan Nilekani, at the TiE Leap Frog event in Bangalore in September 2015, related the phenomenal success of free messaging by WhatsApp, which started in 2009 and handles 30 billion messages a day, 50% more than all the traditional telcos combined.
He also spoke of the potential for WhatsApp and other new platform providers to offer money transfers, and other services that will operate outside of the ambit of traditional banking systems.
This disruption, which is also an attempt to democratise financial services, is reflective of the VUCA-H (volatility, uncertainty, complexity, ambiguity and hyper-connected) world we live in today.
Whilst this is disturbing to many, entrepreneurs with a sharp focus, deep understanding of customer needs, and super-efficient platforms are able to see opportunities and nibble away at the business of traditional high street banks.
‘Uberisation’ and what banks need to doIt is in these turbulent times that entrepreneurs thrive, seeing opportunity with the shifting tides and pushing ahead, whilst larger companies contemplate and study outcomes.
Malaysia’s own ‘rock star’ entrepreneur Tony Fernandes (pic) has often spoken of his journey in buying AirAsia from DRB-Hicom for RM1 in 2001 (with RM40 million of debt) in the midst of a financial crisis.
Fernandes had the insight to recognise that the pricing of air-fares could be unbundled, so that costs could be better attributed to the consumer – meals, seat selection, near travel dates, etc.
Each element had a price that customers were willing to pay for, on a supply-and-demand basis, and he allowed the market to set the price.
Fernandes famously made the ‘everyone can fly’ dream come true, and sparked a revolution in air travel, setting a record for having the lowest cost for Available Seat Kilometres (ASK). For the year ended Dec 31, 2014, cost per ASK was 13.2 sen, or 6.7 sen, excluding fuel, lower than the 6.9 sen recorded in 2010.
This reflects a remarkable cost management discipline at AirAsia and the ability to drive costs down. [RM1 = US$0.23 at current rates]
Corporatisms and entrepreneurisms
In our research for Beyond Corporate Entrepreneurship: Entrepreneurship as a Management Practice, due out early 2016, we found that companies start off being entrepreneurial but, over time, develop what we call ‘corporatisms.’
These are debilitating behaviours that include knowledge held in silos, low trust, ‘CYA’ (cover your ass) attitudes, bureaucracy, reluctance to adopt technology, poor understanding of customer needs, slow to change, etc.
Most of these problems are the result of growth, the consequent control issues, and the creation of a large head-office function staffed with managers who manage other managers, who in turn manage people. Winters referenced this issue in his letter to his staff.
It is not by the evil design of scheming bosses that once entrepreneurial companies slowly degenerate into bureaucracies.
There are plenty of natural and logical reasons for the loss of entrepreneurship, but organisations that are not on their guard do become fossilised.
People do not resist change!
What we find strange is that leadership often complain that the rank-and-file resist changes. Our findings are actually quite to the contrary – people don’t resist change. Ask any baby in a wet diaper!
What they do resist is being changed when there is no rationale for the change or an explanation of ‘what’s in it for me.’ Address this question adequately and there will be no resistance to change.
Unfortunately, management has for far too long, conveniently blamed employees rather than accept responsibility for the problem.
And this is precisely why Winters’ strategy seems so déjà vu! Axing jobs and reshuffling departments and regions have been tried and tested a million times – and may even said to be the classic kneejerk reaction of every CEO who is at the helm of a sinking company.
Does Winters have what it takes to make real changes to make StanChart a truly entrepreneurial company? Time will tell.
Entrepreneurship and entrepreneurisms?

‘Uberisation’ and what banks need to do

It’s interesting to know that ‘ism’ was picked by Merriam-Webster as the word of 2015. We recently coined ‘entrepreneurisms’ as key traits of successful entrepreneurs, and identified the nine entrepreneurisms (9Es) as: Self-efficacy, risk-taking, passion, learning, realism, persuasiveness, opportunism, innovation and energy-action-bias.
Perhaps coincidentally, as it was pointed out to us, just as cats have nine lives, it seems that entrepreneurs also have nine entrepreneurisms.
Whilst cats presumably use the nine lives sequentially, entrepreneurs, on the other hand, can’t have all the 9Es at the same time. This is because there are natural tensions that exist in the 9Es making it impossible to adopt all at any given time.
Why do we say you “can’t have a full house”? Well, there is an interplay of the entrepreneurisms that prevents one from having a full house.
Risk-taking, for example, works well with self-efficacy, opportunism, innovation and an action-bias, but can work against realism.
Organisations are formed from teams, who after evaluating their particular situation, will need to adopt the correct set 9Es – the ones that work for them and address their particular weaknesses.
Adoption of entrepreneurship as a management practice should not be confused with corporate entrepreneurship and intrapreneurship, which are narrowly-focussed initiatives.
What we are advocating is a complete reworking of the organisational structure, which includes the way the company hires and operates.
Do be warned that the ride of adopting entrepreneurship will get uncomfortable for management (and the board), but it’s better to be uncomfortable and get ahead, rather than being comfortably dead!
Anwar Jumabhoy & Srikrishna Vadrevu are passionate about bringing entrepreneurship into large companies through the adoption of the ‘nine entrepreneurisms’ which they have identified. Their book, Beyond Corporate Entrepreneurship, is due to be released in 2016. #9entrepreneurisms
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What’s Next: Disruptors will not kill off banking incumbents
Surviving transformational shifts: Patience and recycling failures
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