The Bold War

Vertical Structures, Horizontal Growth

I have previously written about the challenges banks are having innovating because of their scale.  The larger an organisation is, the harder it is to get things moving.  Unfortunately, traditional corporate structures and the sheer volume of employees has become a huge impediment to the banking industry.  Vertical structures that ring fence teams to channels or products are leading to flat growth trends.  Roles are unclear, accountability is low, and silos have become more common in banking than the agriculture industry. Employees and management are simply stuck in a rut.  Could flatter company structures be the key to a turn around?

In banking today, it is very difficult to find an employee who can clearly articulate their area of accountability.  Employee responsibility is diluted to the point that most workers are not responsible for anything more than reading and responding to their own emails.  If a new product goes to market and does not succeed, there is no clear way to understand what went wrong.  Finger-pointing is prominent – if you can at least see over the fence - and nothing ever improves because culpability lies somewhere between here and the middle of nowhere.

I have observed a leading bank launch its brand new multi-million pound digital banking offering to terrible reviews.  People in the development team reasoned that they had merely delivered the requirements; the business analysts believed they had captured what the product management team had requested.  The product managers felt the integrity of the design was ruined by the snap decisions of senior management.  The product had failed dismally, no one maintained an overarching vision, there was no team, just process handing over to process.  Millions of pounds and thousands of hours wasted. 

If you could imagine for a second what this bank would be like if it was a football team.  The Goalkeeper would report into the Goalkeeping coach.  He would work on his own during the week and occasionally have a chat to the Defenders department.  The Defenders would report into the Defensive coach and likewise the Forwards would report into the Attacking coach.  The Goalkeeper would never speak to the Attacking team as their processes hardly ever interacted.  The Forwards would know little about what the Defenders did because they were in separate teams.  Sounds crazy right?

From the outset the vertical structure deployed by banks divides the organisation into two main parts; business and technology.    Further divisions are then created around a function such as marketing or operations and then a product or service line.  The organisation is built on great divides.  Because of these divides a bank is fundamentally based on the management of conflict.  Think about it.  How often do you strategise, prepare presentations and have meetings for the sole basis of negotiating through areas of disagreement? It could be conflict about resources, conflict about people or conflict about strategic direction.

Instead imagine the organisation was based on the creation of collaborative partnerships and open communication.  Imagine the organisation was only structured around its customers and not a traditional form or function.  Imagine the information in your company didn’t just flow up and down.  Imagine it flowed around and through and in and between.  Frank Ostroff, the award winning author of 'The Horizontal Organization', argues that companies that are more horizontal can meet customer demands faster because there is inherently less red tape and decision making bodies. 

In vertical structures employees spend a significant amount of time just talking to get decisions made, hence the need for 100 email days and lengthy presentation packs – the bane of every bank employee’s day.  These delays in decision making lead to delays in change execution.  Horizontal companies, or those that promote flatter hierarchies and more local decision making authority, are more on the front font and able to respond to changing customer demands.  Problems are often better understood and better handled when made by those closest to the issue.

Moving to a horizontal structure is not simply about cutting head count or removing middle-management.  It also doesn’t start and end with just changing the company structure here and there.  It’s a cultural change coupled with smarter alignment of working group.  Above everything it relies on strong leadership. With customer experience commonly agreed as the next corporate battleground, banks can no longer afford to have senior positions filled by bankers who only think in pounds and pence.  The adoption of a customer’s first attitude is of primary importance and must sit at the heart of a horizontal organisational change.

New technology advancements can also assist the organisation in becoming more efficient.  It can assist banks in the reduction of its head count by automating long-held manual processes ranging for form filling and collection, to data entry and obviously the movement of money.  New insight tools can make it easier for banks to understand and engage with their customers than ever before.  Technology can also ensure it is easier to distribute information to where it needs to go, not just up and down the corporate ladder. 

For those working in the industry, it has become apparent that something needs to change.  Claiming to be customer focused whilst having a structure and culture focused towards vertical product lines and hierarchical decision making is holding the sector back.  Events such as the LIBOR scandal, PPI claims and Government bailouts should not be ignored.  They are not setbacks – they have become the norm.  Albert Einstein once said that the definition of insanity was doing the same thing over and over again and expecting different results.  If so, it might just be time to move standard bank dress code from suit jackets to straight jackets.

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