Risk is opportunity

28-Jun-2012 - This great depression could become known as the great spring clean, says Mick James, Top-Consultant.com’s management consultancy columnist.

Risk is opportunity

I love the feeling of being wired into the zeitgeist. A week ago, I was having a heated agreement over a very pleasant lunch about the importance of IT as a strategic issue. Why, for example, did banks put so low a priority on something so vital to their businesses?

Within a few hours, stories of payment problems were beginning to emerge at NatWest/RBS, which soon blossomed into a full-scale crisis and a few more nails in the coffin of the brand (particularly, as up to that point the great British public had not twigged that NatWest and RBS were the same bank).

All bad news, particularly, if, like me and everybody else in the UK, you happen to own the thing. But it was hardly surprising or in many ways unexpected. RBS have been unlucky to be singled out but everyone knows that if the IT systems of banks were buildings, they’d be great Gormenghast-like palaces, incorporating every architectural style from Sixties Brutalism to Neolithic Earthworks. You’d send someone to fix the drains in the West Wing and he’d never be seen again.

The problems were repeatedly described as a “glitch”, which is a bit like saying the coast of Japan is prone to rising damp. A more sophisticated explanation was that this was a result of a “routine maintenance patch”, or a “CA7 upgrade”. I’m sure the explanation goes a bit deeper: these are systems you don’t, in general, touch unless really something serious happens, like a kitten getting trapped inside one of the servers.

Of course this raises the question of why so many ordinary people were dependent on such a vast and unwieldy system. We’ve grown accustomed to the idea that a global bank is such a complicated thing that a man like Stephen Hester has actually had to have his forehead extended to accommodate all the extra brains needed to run it. But this is scant comfort to the lad whose idea of financial planning is to take all his money out on Friday night and spend it on beer, but now has to watch the England match on the sofa with his mum.

Why do we need these global behemoths to deal with this trivial transaction? It’s like Darth Vader using the Death Star to zap the mosquitoes on his veranda.

The truth is that it’s our fault. We don’t want to pay for our banking, so we accept the loss leader that exposes us to the full portfolio of financial services. Only a very big bank can afford to do this, let alone profit from it. If I was NatWest, I might be tempted to take the high ground with all its whinging personal customers and say when you start paying for this service, then you can start complaining.

I’m as bad as anyone: my financial affairs could easily be handled by a small partnership, but they’d have to charge me a modest fee for that. Like the local butchers, it can’t compete with Tesco.

In fact I’ve already moved my business account twice to avoid fees, and, my bank having been swallowed up by Santander, am now effectively in the position of one of the non-military personnel on the Death Star. A catering assistant perhaps, or the bloke fitting the curtains in Grand Moff Tarkin’s stateroom perhaps, who nevertheless gets vaporised along with all the stormtroopers when the smart bomb comes down the chimney.

The problem with this analogy is that while on a good day the real Death Star was at least capable of blowing up planets, our banking Death Stars don’t seem to be up to much at all.

As soon as the financial crisis struck, the commanders of these engines of mass destruction should have appeared, robed in black and intoning in their best James Earl Jones voices: “Fear not, puny national governments: with our mighty balance sheets and towering financial acumen we will crush this crisis as if it were a mere rebel solar system.”

Instead they just imploded. And now they can’t even zap the mosquitoes. Being big turned out not to be so clever: something that Mother Nature worked out a long time ago, which is why animals have been getting smaller and smaller down the years and the most successful ones are beetles. Too big to fail is too big not to fail, and I doubt this lesson applies exclusively to banks.

Curiously, I see this as a potentially positive sign. We are now coming to realise that the crisis has mutated into one of confidence, rather than credit. We are told we need hope rather than stimulus: building a bridge isn’t going to convince an entrepreneur to expand his chain of dry cleaners. And certainly not to take out a loan to do it.

Where this hope is coming from is a bit less clear. But if hope is in short supply, fear is a fear-acceptable substitute. Many businesses are apparently cash-rich but risk-averse. But risk, like rust, never sleeps. If you can’t live with risk, risk will come and live with you. As the NatWest debacle demonstrates, 99% of accidents happen in the home.

If they won’t look at external opportunities, clients should be talking to their consultants about the hidden dangers that lurk inside their businesses (and which can, in fact, often turn into opportunities that will improve the bottom line). FDs may balk at the expense, but the magic words “CA7 upgrade” should shut them up.

The economy may be becalmed but there’s no reason for businesses to be becalmed: this great depression could become known as the great spring clean. We could refresh our systems, overhaul our processes, get to know our customers. We could even, whisper it not, train our staff.

That would, as the Chinese say, require some effort. But at the moment, what else is there to do?

All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.

Contact Mick with your views or suggestions at: mick.james@top-consultant.com.