Two Charts That Show Behaving Like Outsiders Are Keys To Reinvention: Interactive

When congressional hearing happens, it usually exposes certain peculiar logic of an industry. Overdraft fee, essentially a fixed charge that borrowers get charged on top of interest rates, exploded during the pandemic. JP Morgan Chase alone was raking $1.46 billion in overdraft fee in 2020. Such is a windfall for large bank that Senator Elizabeth Warren predictably went to war.

Warren said of CEO Jamie Dimon the way he talked about helping customers during the pandemic, “It’s a bunch baloney. ”

JP Morgan is hardly alone. Bank of America, Citigroup, and Wells Fargo do the same. Together, the big four collected some $4 billion in such fees last year.

What’s striking is, collectively, these banks are so willing to profit from customers’ anguish. After all, it was the Blockbuster who routinely charge late fee on rented VHS tape. An angry customer called Reed Hasting decided to founded Netflix.

Here’s the bigger question. Why do big banks all think alike? Or in any given sector, how strong is the pull of an industry norm? How do innovators depart from their peers?

The world needs innovators who rebel against industry norms. Those who are determined to decarbonize, to fight injustice, to reimagine capitalism.

Birds of a Feather

At IMD’s Center For Future Readiness, we tracked companies’ behavior. We measure how they behave from different industries. We rely not on interviews. We use hard data, lots of it.

We downloaded every report published in the last 10 years by the standard-bearers of business news. The Wall Street Journal. CNBC. The Financial Times. We included all the corporate press releases circulated during this period. Ten years of data were all fed into an algorithm.

In this blog, we’ve decided to make part of this data available for you to explore. You can play with them. The graphs in this link contain several interactive charts. You can investigate the data behind our visualizations. Try it out. It works best on a desktop/laptop.

Here is the initial question we asked ourselves. “Do companies fall into clusters in their behaviors because of the industries they are in?” To explore this idea, we look at how digitally obsessed companies are across sectors. After all, retailers, consumer brands, car makers, banks are all talking about digital transformation. But to what extent leaders can relate their companies to digital technologies? And more importantly, how business journalists and the public come to understand them.

Of course, talking is not the same as doing. To become digitally savvy, a company needs to do it with speed. Or more appropriately perhaps, velocity, which measures both speed and direction. Velocity matters in business. Amazon stated high velocity as one of its leadership principles. “Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.” With all other things being equal, a company that moves faster will innovate more. That’s because a high velocity company can conduct more experiments within the same period of time. It learns faster than others.

Below is the graph when we combine the measure of velocity and digital technology on a two-by-two grid. What you see is the industry average.

This result shouldn’t be surprising. The technology sector, almost by definition, is by far the most digitally oriented. Trailing second is retail. That’s a sector been disrupted by e-commerce over the past decade. E-commence then went in full rage during the Covid lock down. Media, similarly, has been threatened by Facebook, Google, Netflix, and Spotify. It is following tightly in the third spot.

Perhaps more interesting is to look also at speed in decision-making. There appear to be a correlation between one’s ability to act fast, and to become digital. Finance, being regulated by government, and subject to scrutiny of watchdogs, tend to act slow. No one blinks when Amazon launched one‑click checkout. The same can’t be said if JP Morgan were to launch a brand-new digital currency in New York State.

Then inside these big banks, managers find themselves struggling against their own bureaucratic drag. Every project requires layer upon layer of permission. Project ownership is dispersed, accountability unclear. All these work against fast, decisive action. Whether it is to course correct past mistakes or to innovate something new, banks just don’t move fast.

You can click this link to play with the interactive graph. It works best on a laptop/desktop.

Sectors exhibit a tendency of herd behaviors. This is what you are seeing at the high level. Companies of the same kind looks alike and then mimic each other. When a manager with a reputation for brilliance tackles a business with a reputation for bad economics, Warren Buffet wrote, it’s the reputation of the business remains intact.

In other words, the industry dynamics is beyond what executives can personally control. It is casting so long of a shadow. Managers often converge toward the industry norm.

Except there are always outliers.

Those Who Rebel

My research team decided to run a second analysis. We’ve located three of the most “future ready” financial companies in the same 2-by-2 grid. This is based on another study where we’ve ranked companies’ future readiness. You can read the full 2021 ranking here. The ranking measure several drivers that fuel innovation. They include the performance of company’s core business, the diversity of its workforce and of its board members, investor’s expectation, and its speed of product launches.

It turns out Visa and Mastercard look more like the technology sector. They are less similar to the financial sector. We also added Ant Group, China’s biggest payments provider, into the picture. What the analysis shows, Ant Group really behaves as if it’s a technology company, that just happens to be in finance.

There are many reasons on how Ant, Visa and Mastercard become high velocity organizations. No doubt the organizational culture have encouraged employees to act fast. But it’s also how these companies organize decision making by its governance structure. Then it’s also the type of data infrastructure that enable managers to make things happen on their own.

What we see is the following. Financial companies that are most future ready have drew in practices from the technology sectors. Yet, that’s counter intuitive for most people. I remember discussing the topic of innovation with executives from heavy industrial companies. During the discussion, participants are most eager to hear from how other peer groups are doing. The moment we wander into observations in other sectors, executives would stonewall. “But that doesn’t apply to us,” they would say.

We all harbor biases because of our prior experience. And from that bias we end up seeking confirmation to our existing beliefs. Or we discount counter evidence. That’s why learning how to learn is the most important. Sometimes, behaving like outsiders are keys to reinvention.

Thanks for reading — and be well.

P.S., The interactive charts are also new to us. If there are functionalities that you would like to see in the future, please let us know below by joining the discussion. We are happy to increase features as the project continues to evolve.

This article has been co-authored with Angelo Boutalikakis, a Research Associate at IMD’s Center For Future Readiness

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