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BANKTHINK

New Year's Resolution: Rethink Your New Year's Resolutions

Your institution most likely enters 2013 with approved budgets for each unit, and plans and action priorities for achieving budgeted performance.  These plans and priorities typically include unconditional commitments of resources that leave little room to add or substitute further, opportunistic initiatives later. 

Any challenge to one of the approved priorities would be bad news, implying blame and waste. You'd have to show the board or the boss that you hadn't been careless the first time around—that unlikely, unpredictable external events had supervened. "We were already smart, but now we're smarter" won't quite do.

Now close the feedback loop by looking a year back. Chances are many or most of the committed 2012 initiatives were not completed, or did not attain targeted results.

And without big changes in management, bad or mediocre ideas don't die quick, painless deaths. They linger for years, as with Citi's 2G Card by Dynamics. Likewise, HSBC persisted for years with its Premier Branch strategy, acquiring millions of customers at excessive cost.  It took a new CEO to admit defeat.

Even after death, unsound ideas are resurrected.  Last month a bank told me about a program to enter a new market that had been turned down by its CEO.  "Most of the rest of us still want to do it."  It'll be born again.

In fact, it's a terrible idea: the targeted market is over-competitive and under-profitable, and this bank lacks even a clue to competitive advantage.  But although the bank is large, the information and experience—not to mention objectivity—needed to evaluate the proposal aren't there.

If the bank were willing to spend a seven-figure amount, a large consulting firm could enumerate everything needed to make this venture succeed: "how to do it." Would anyone in the bank then have the wit to read between the lines and see that their organization couldn't mobilize the resources and meet the conditions stated as prerequisite to success?  I've never seen any management decipher a McKinsey report to reach that conclusion.

Apart from the ingrown, circular thinking, unrecognized ignorance and unjustified optimism, why did half the priorities for 2012 typically gain little or no ground—leaving no rational basis to expect better from a similar process in 2013? 

Usually there's no inclination to analyze and answer that question within the institution, in order to improve future decisions.  Here's what I've seen:

Too much is attempted, much of it unjustified and inflexible. A bank division head showed me her nine priorities for 2013.  If she succeeded with just three of these, the value of her business would double.  But two of the three appear infeasible. Better not to commit to completing nine.  Yahoo was an inveterate devotee of scattershot development.

Don't commit unconditionally to completing substantial, resource-consuming activities, such as a product launch, repricing, new platform or new market. Instead, condition each step on successive elimination of key uncertainties by testing and stepwise implementation. An example is new infrastructure that can lead to technology failure.  Years before Square, Amex marketed a personal card reader—which never worked. 

Every product, every cog in the machine, is tested before it's deployed.  But testing frequently is inadequate or biased.  A bank was sure its new checking account pricing would sell because they "tested" it verbally on a panel of customers before announcing it. That's not a test, and no focus group is a test. Yet, a validly predictive test typically doesn't require more than a tiny fraction of the resources needed to begin full live operation.

Instagram's change in terms on photo ownership is a recent example.  Site usage is reported to have quickly fallen 25% after the announcement.  Surely they thought they had tested it—somehow or other.  A social media setting doesn't just accelerate customer reactions, it can exponentiate them virally, brutally.  Welcome to Twitter.   

The purpose of testing is not to see if something works, it's to figure out how to make it work best—as quickly as possible—while minimizing the cost, risk and delay from any failure.  Your plan for 2013 is sound only if every business initiative is expressed contingently rather than unconditionally, with criteria and target dates for resolution of uncertainties and identified fallback steps and alternative reallocation of resources. Expose these plans to a fresh look explicitly aimed at   threshing out the chaff, rather than on co-opting one more sign-off.  Aim to eliminate half the initiatives, leaving room for more timely opportunities.

Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was the founding chief executive of First Deposit, later known as Providian.

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