Why Sailors Rule the Waves

The letters R, O, and, I, when used together, can be the three most powerful letters in our business alphabet. A business case that clearly articulates a 'Return on Investment' is our benchmark for sanity and a prerequisite for anyone crazy enough to challenge business-as-usual. As an industry we've learned how to demand a business case and ROI for bringing in new systems, but we've often overlooked the importance of calculating the business case for doing nothing.

To illustrate the point, consider the two schools of thought and corporate cultures when it comes to building a business case for technology investments-what I call "Bailers and Sailors."

Bailers are analytical and generally more risk-averse. Their strategy is designed to keep the ship afloat and avoid the unwanted attention associated with challenging the status quo. They allocate large percentages of their IT budget to plug the holes in aging systems rather than attempting the dangerous process of migrating to modern technology. Bailers are experts in managing complex operations, including the intricate bucket brigades designed to keep the enterprise above water. They have grown comfortable with the status quo and consider high maintenance costs as a simple reality and cost of doing business. Fixing bigger issues can be risky, so Bailers have found it easier to build new layers on top of legacy systems. They appreciate fast ROI and tactical responses to every challenge presnted by regulators, customers and competitors.

Bailers are experts in assessing the risks and costs associated with building new systems. In contrast, Sailors believe bailing is ultimately futile and merely a tactic to delay the obvious. Sailors would rather invest in a faster boat than bail for the next five years. They come from a school of thought that focuses on harnessing technology to transform their ability to respond to whatever they might find beyond the immediate horizon. Sailors are capable of thinking beyond the obvious and are as skilled in seeing value as they are in seeing cost. The Sailor ROI extends beyond the performance of this quarter and can justify expenditures with long-term results in mind. Rather than always taking the expedient and tactical route, they look to challenge the status quo and question historical assumptions and limitations.

Sailors are experts in assessing the costs associated with doing nothing.

While the case for transformation involves many costs, value is much harder to calculate. What is the monetary benefit associated with accurate credit risk calculations? How much value should you attach to the ability to cross-sell customers across product silos? How much better will your decisions be if you had reliable and timely reports? What is the value of avoiding a compliance failure?

It must be accepted that any business case for change is laden with predictions of the future and compiled from imperfect information. It is often impractical to prove ROI beyond a reasonable doubt. Lack of reliable metrics and clarity around the business decision can lead to the situation where the analysis actually takes longer than the project under consideration. Bailers wait for the perfect business case and become paralyzed by uncertainty. Sailors don't rely solely on a spreadsheet to make critical decisions. They depend on senior management with imagination, courage and experience. This is not to say that metrics and methodology aren't important; they're just not a substitute for business judgment. The vision of senior management and the culture of the firm are the most important ingredients of every business case for change.

The inflection point for the investment comes with the realization that the current infrastructure is ultimately an impediment to business ambitions. Strategic visions are not possible without investments in core technology, and are incompatible with short-term tactics designed to survive quarter to quarter. Fortunately, the desire for a sustainable technology infrastructure, aligned to longer-term strategic business goals, is slowly coming back in vogue in the securities industry.

In the final analysis it is not the technology that stands in the way of business transformation. Navigating the political waters and corporate culture that rewards a Bailer mentality is the real albatross we have to overcome. Even when the economic case for change is made successfully and the ship starts to turn, reorganizations can bring new leaders that feel obligated to question all the decisions taken by previous management. Business sponsors are known to mutiny at the first signs of trouble, which causes many executives to consider bailing as the safest route for their own career.

Sailors sometimes find a better passage and other times may find nothing but false hope, but they always make discoveries that lead to new innovation and value. Maybe it's time to challenge the business-as-usual culture, and encourage innovation by embracing Sailors instead of shooting them.