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The Wheel of Disruption: Knowing where you are can make all the difference

Jay Biancamano

Jay Biancamano

A 25 year plus financial services veteran and managing director of Digital Assets and Blockchain in Capital Markets at State Street.
I’m sure most of you are familiar with Clayton M. Christensen, who has authored numerous books on innovation and the like. One of my favorites is

“Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change”. It’s been practically a bible for me as I have charted my career over the last decade or so. While it’s certainly no “What Color is your Parachute?” , it is a useful tool to guide you making the right choices for your career. Lately it has been especially helpful in allowing me to understand WHERE we are in the Capital Markets and Asset Management Industry.

I am not going to synopsize the whole book but I do want to focus on one specific insight. That is in order to understand where you need to focus your resources, you have to how understanding where you, as a firm are on the Wheel of Disruption. Here is the actual “Wheel” 

Copyright 2004 Harvard Business School Publishing Corporation

You should be able to look at it and make a determination where your firm is rather quickly, right? Not so fast, because it’s a WHEEL, and wheels spin. 

INSIGHT is the key

Recently I was consulting with a small firm in the management and execution space. The engagement was for me to look at their product suite and offer advice on what opportunities from a product perspective they needed to focus on. On the second day we got to discussing the topic of the “Wheel”. I brought up a slide and asked where they think their firm is on the Wheel. It was very enlightening and the with 3 executives in the room, none of them could agree on where they think they are. So I asked where would they LIKE to be, that quickly led to all of them stating that they’d want to be right around where “Growth Occurs” (It’s about at one o’clock on the illustration above).

I wasn’t surprised, EVERY company wants to be there. Everyone wants to grow, Revenue increases, shareholders and employees are happy, and things are great. Then I asked where they DON’T want to be, the consensus again was almost the same, they didn’t want to be where Growth Stalled, the next iteration on the wheel. Like every other firm they want to grow until they can’t and then they want to start to grow again, in other words they wanted to ignore the rest of the Wheel. 

This unfortunately is the story at almost EVERY firm in Capital Markets and Asset Management over the last 10-15 years. They have focused on only TWO areas, growing as fast as they can and when growth stalls, figure out what they can do to start to grow again and do it fast. If you look very closely at Capital Markets and Asset Management space, you’ll notice ONE thing: Growth has stagnated for more than a decade, it just hasn’t happened. There are many reasons BUT I think a lot of the reasons has been there has been very little in terms of innovation. You could do a case study on the shrinking buy side wallet, the aging of the population, decimalization, regulation, and so on, but to me, it’s simply that there has been no REAL INNOVATION in Capital Markets and Asset Management for more than a decade……….

……..but that’s changing quickly…..very quickly………

DISRUPTION is accelerating

Blockchain, Big Data, Crypto Currency, Artificial Intelligence, Machine Learning, I could go on but you get the idea. This will effect every part of the capital market ecosystem. Reg NMS and MiFID II are going to nothing more than blips on the screen compared to what is going to occur to our industry over the next 5 years. 

Which leads me back to the Wheel, As I explained it to my clients, while many firms are worried about growth, the smart ones are evaluating the entire Wheel. At the presentation to management meeting discussing my recommendations we started to talk about the Wheel again. One of the C Level audience members asked me what parts SHOULD they be focused on. The answer they were expecting was probably for me to say “ALL of it” . But what I said kind of caught them by surprise. Here’s what I said, Ok I’ll paraphrase: While they are in a very good market position, and I think we arrived at a very good conclusion about what they need to build, sunset and refine, they are on the part of the wheel that most firms tend to ignore the most critical part, the part of the Wheel where Managers LEAVE….

As I explained further, while the firm had a solid foundation to build on, my conversations with many of their employees led me to wonder whether they’d still have the resources to accomplish this. To be clear, this wasn’t because they had disgruntled employees, quite the opposite. They liked the company and management and even appreciate me coming in to give them a third party perspective. Most of them saw the same opportunities I did and Management to their credit encouraged this type of thinking. It wasn’t a young work force either, these were well seasoned people who saw the digital revolution as a chance to move into new areas, have their own businesses or even change careers. 

TALENT is at a Premium

Christensen made it so very clear as to why this was happening when he came up with the ” Factors that Power the Wheel”. Factor ONE is a market for Talent, and that market is blossoming along with the new technologies. These employees saw the same thing. For example one employee was going back to school to get his Ph.d in data science because a hedge fund told him they’d hire him the day he graduated for 5 times his current salary. This shouldn’t surprise anyone, it didn’t surprise me as I have heard from many recruiters how difficult it is to find talent in some of the areas above. 

My clients seemed taken back, but they weren’t surprised. They understood the conundrum because they built their firm on an idea and needed to recruit and retain their human capital. What they also understood was that for the last 10 years it wasn’t hard for them to do that as mobility in the industry was difficult and their revenues remained competitive. It was a fairly transparent organization, not Ray Dalio/Bridgewater transparent but enough that people didn’t feel they were left out.  

I was asked if I could make recommendations about how they might engage the staffing/Talent issue for them. I am not in the business of HR and staffing but I told them to give me day or two and thought about it. I called a friend in HR { first asked for a job :)} discussed the issue and got her insight. I then called a few ex-colleagues and then thought about it myself. To be clear, in none of the responses did anyone say give them more money. While there was no consensus, all the answers seemed to point to the same solution: empowerment.

EMPOWERMENT is the solution

Companies and the workforce are changing. People have some great ideas and just want to be able to pursue them. Employees in many firms find that they have to make a choice and many times the choice is to leave. At one company I worked at we had an annual Hackathon that led to many, many very good and valid ideas. It occurred over a weekend and despite many great ideas, when it was over that’s where the ideas ended. There was no incentive to pursue them because the winners were chosen and come Monday morning, it was business as usual. 

These people got it and genuinely wanted to hear what I had to say. The solution I came up with wasn’t unique, and it certainly wasn’t my own. I love ideas and designing new and innovative products around them, but I know that without great talent, even the best ideas will fall flat. I will spare you the 10 page detailed report, but what I recommended is already what many other firms are doing. What they want to do is to create Intrapreneurs, some ideas included:

  • Create a “virtual lab” so employees could use their technology and resources to test ideas
  • Make “virtual investments” in their employees ideas, such as allowing time off to build a POC or MVP
  • Allow start ups to use your resources, something as small as giving them a desks and use of wifi
  • Incentivize your employees to invest as well, perhaps even match those investments which will allow you to explore new firms and technologies. 
  • Create a C level or just below C Level Innovation Officer
  • Create an open forum for ideas to be socialized in the organization, and incubate those ideas

There were quite a few others and none of the recommendations were designed to have any effect on their P/L. They were designed to do one thing: RETAIN THE TALENT THEY NEED TO GROW THEIR BUSINESS. We didn’t discuss recruitment, but many of these same recommendations can be used to attract talent. While I don’t know how many of these they will ultimately implement, they were genuine in their willingness to address this issue.

The point to all of this is that Disruption is taking place, and it will not be easy to transform your business. Harder still will be doing so without the right people, people who will have the ideas to carry your business back to the Growth stage of the Wheel of Disruption.

I apologize for the length of this article, but I hope you found some value in it. If you did, please share, like or even drop me a line. 

Jay Biancamano

Jay Biancamano

A 25 year plus financial services veteran and managing director of Digital Assets and Blockchain in Capital Markets at State Street.