Disturbing Trends in the Financial Industry

Several trends in the financial industry are contributing to how we perceive Wall Street.

  1. CNBC reports, fewer individuals are participating in the markets, most likely due to the belief that large traders and high frequency trading are rigging the markets against the individual.
  2. In his blog, Matthew Yglesias, reports: “In a survey of 500 senior executives in the United States and the UK, 24 percent of respondents said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.”
  3. The Dodd-Frank bill, along with other legislation has been created to minimize the impact of the actions of large investment banks and trading organizations on the world economy.  This legislation often clumsily restricts the actions of the whole industry in order to protect our interests from unethical practices.

John G. Taft, in his blog How to Fix Financial Capitalism? Focus on Ethics, believes that the only way to restore public trust and confidence is to have each bank and trading house commit to and invest in professional and business ethics as a core principle and value for the company and each employee.  Many companies outside of the financial industry have done this resulting in excellent results with building trust with their customers and stakeholders.

Two more articles on corporate corruption and the need for ethical conduct with consulting:

The Spreading Scourge of Corporate Corruption,

Shared Ethical Responsibilities of Consultants and Clients

Finally, Susan Snyder describes a detailed process and critical steps to creating an ethical culture in her blog:

Creating an Ethical Culture: A CEO’s Checklist

Is an ethical approach to business and the community part of your company’s core principles?  What does it mean to your stakeholders, employees and customers to have an ethics first approach?

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Viewpoint: The Big 8 Reasons You Shouldn’t Use a Large Consulting Firm

David Fields writes in his article, Viewpoint: The Big 8 Reasons You Shouldn’t Use a Large Consulting Firm that he has become convinced that large consulting companies are no longer the best solutions to most clients problems.

The large consulting companies generally provide sound work and feature excellent processes and are smart, conscientious professionals.

In most cases, however, a company will achieve better results by turning to a small consulting firm.  He gives 8 reasons that a small firm will give better results.

  1. Larger staff does not equate to more efficacy.  Five hundred mediocre strategists just means reaching more people with mediocre ideas
  2. Big Ideas emanate from small collaborators.  Many of the new ideas are being published by members of small consulting firms.
  3. Increased personnel drive decreased efficiency.  Having your project handled by a consultant stamping out identical solutions with efficient precision is not beneficial for your company.  Thus extra capabilities only results in increased overhead.
  4. “We’re right where you need us” holds little sway.  In the current age of internet communications and efficient travel, having a consultant located closely to the assignment has little value.
  5. Entrepreneurial thinking is found in small companies. Small consultancies understand being flexible, nimble, cost conscience, and the value of disruptive thinking.  You are less likely to find this thinking in large, bureaucratic organizations.
  6. The big thinker won’t be working on your project.  When you engage a breakthrough thinker in a small consultancy, you most likely will be working with that key person.
  7. Large consultancies are slow to adopt new ideas.  Momentum is a fact of life in a large organization.  Small organizations are more nimble and able to adapt to new information.
  8. The consultant’s success is not aligned fully with your outcome.  When you work with a boutique consulting group, there is little doubt who the customer is and that the consultant’s success is closely linked to the success of the customer.

There are times, such as projects that requires a large resource pool, that a large consultancy is more advantageous, but in many cases a smaller company will be more responsive and the outcome will be better aligned with the company’s needs.

Review – 7 Ways to Disrupt Your Industry

Review – 7 Ways to Disrupt Your Industry,

Bruce Kasanoff & Michael Hinshaw, Fast Company, June 4th, 2012

Messrs Kasanoff and Hinshaw’s thesis in 7 Ways to Disrupt Your Industry is that disruption is coming and every firm is going to feel the effects.  They offer 7 ways to lead the disruption vs. fall victim to it.

I want to explore 3 of the recommendations:

1) Totally eliminate your industry’s persistent customer pain points.

Practices exist that drive your customers crazy.  Most companies interface with their customers are stupid and cause considerable bad feelings.

The best comparison of this is how you are treated by Microsoft vs. Apple.  Microsoft continually changes how you interact with their products, with frequent failures and freezes.  Apple just works well.  Try buying something on Itunes to see how simple it is.

Their recommendation is to look at your interface through the customers’ eyes.  If it is complicated, just fix it.

Unfortunately, this is not terribly disruptive.  Most market leaders already have extensively redesigned their interfaces.  If you still have difficulty here, you are way behind.

2) Dramatically reduce complexity.

Stripping out complexity is the new mantra. The more complex any process or practice in your company, the more hidden wastes exist that result in huge cost to the business.  Take out the complexity and you will be much more competitive.

This includes your product.  Customers don’t want to pay for features that they don’t want.  Start simple and add only the features they will pay for.  This takes huge efforts, but puts your company in a leading product position.  Complexity impacts the customer interface.   Simplicity equals less errors with the customer.

Again, Apple’s sleek designs are simple to interface with, are flexible but are not overly stuffed with features that people don’t want.

3) Cut prices by 90 percent (or more)

You don’t cut prices by 90 percent through marginal improvements.

You need to look at what is the customers’ problem that needs to be solved and innovate how to solve it with the lowest input of energy.  This will also help to focus on reducing complexity with your product and interface.  All costs must be looked at and eliminated if they don’t add value by directly solving the customers’ problem.

By putting the investment into making your product and company easy to work with a sleek, low cost product will help to greatly insulate you from the disruptive marketplace.

Invest in Simplicity

Many manufactures are installing complex MRP programs to manage complex manufacturing strategies.

The quest to squeeze the last penny out of shop floor costs drive managers to increase efficiency by scheduling bottleneck operation to assure continued operation, increase batch sizes to distribute changeover costs across the maximum number of units and to interlink unit operations to remove non value added processing steps.  This requires a production scheduling and cost management system to manage the additional complexity imposed by changes to the operation.

What this also does is require production plans that diverge from the normal flow of orders from the customer and increase the production cycle, thus requiring investment in more raw, in process and finished product inventory along with training and controls to handle the complexity. These costs may exceed the original improvement savings.

What happens if the manufacturer, instead, invests in simplicity?  What is the most direct way the product can be produced as close to the order flow and the customer as possible.  Concentrate, instead on removing change over time and costs so that the line can be cycled more rapidly.

The results will be inventories will decrease, issues will be more apparent, training will be easier and lead times will shorten.

Planning will be simpler; maybe to the point that material and cost tracking will be the only requirements from you management system.  Reduced complexity = reduced costs and happier customers.

Adapting to a Rapidly Changing Environment

With the pace of change being extreme in today’s business world, people who can adapt rapidly are usually the most successful. You can’t afford to lag your competitors.

To be successful with change, you must gain new skills.

Jeff Haden in his article: “How To Master Any Skill (No Talent Required)”, talks about not only applying the hard work to learn a skill but the need to get out there and make mistakes to really master a skill.  Jeff goes on to show several examples about how this works.

You can’t be timid and wait until you master a skill, you need to go ahead and make mistakes.  You need to also learn how to minimize the impact of those mistakes, however.

The Importance of Selling Yourself

Be it project management, business or consulting, selling yourself is essential.

As a Project Manager, you market confidence. You lead your team, giving them clear direction toward achieving the end goal of the project. You sell confidence to your sponsors, showing them that you know where the project is and where it is going. If an issue comes up, you communicate not only the issue but the contingency and the impact both short and long term.

In your own business, not only are you selling a product but you also are selling the experience. With the interface between you and the customer, it is the relationship that is developed that is critical to get the business long term. If you are using sales people to interface with the customer, you need to establish the overall approach so that the relationship is established and nurtured.

With consulting, you must establish from the beginning that the purpose of the interaction is to solve problems that will add value to the client.

Before the next interaction, think about how you will come across in a positive, helpful, way that will establish a valuable relationship for the customer.

Don’t Give Away the Family Jewels

INC. Magazine,  in the latest issue, ran an article about a small online customer billing website that decided to change its pricing structure to increase revenues.  This was met by lots of bad publicity and negative internet comment because they had the nerve to start to charge their smaller customers….at all!  They had hoped that by giving away the service, as their customers grew, they would convert to paying customers.  This is a model that is being used with some online web publishing companies among others.

Here is the issue:  What is being given away is the most valuable part of the company’s offering.  Why pay for it if you can get it for free?

Instead of giving away the family jewels, the company might have considered giving away the service for a period of time with the understanding that after say, 90 days, there would be a small fee to continue.  Here you are able to get the customer to sample the offering, and get used to paying if they found value in it.

Another way to establish trust with a potential customer is to give away good information that potentially helps the customer improve their business  for free,.  Once the customer sees the value and gains trust, there is a good chance that they will sign up for a paying account out of loyalty.

So, it’s tempting to give away the family jewels to build a customer base, but be careful!  Look to other ways to gain trust and loyalty, but keep the most valuable parts of your offering protected.