I recently read the book “Great by Choice: Uncertainty, Chaos, and Luck–Why Some Thrive Despite Them All” by Jim Collins and Morten T. Hansen. Jim Collins is the acclaimed author of “Good to Great” that received a lot of attention, especially in Banking where rumors has it that Annika Falkengren, CEO at SEB, distributed a copy to each of her managers. This new book resembles “Good to Great” but with a stronger focus on companies that have succeeded in outperforming their peers in turbulent industries. Given the turmoil that we have seen lately in the financial industry, I would have liked to seen some more cases from the financial sector in the book. But, alas, the authors focus on the “usual suspects”, e.g. Southwest Airlines, Microsoft and Amgen.
I will try to apply the concepts from the book on the big four banks in Sweden in this blog post, but it would be foolish to claim that my observations are statistically proven. They are my personal reflections from working in the industry for 15 years.
It is evident when looking at the development of the stock prices for the Big Four during the last 10 years that none of them would qualify as a 10X, i.e. a company that outperforms its industry peers at least tenfold. But, the differences in volatility between Handelsbanken and SEB may prove that there is some validity to the concepts in the book. But first, let me stress that I am not implying that Handelsbanken is a greater bank than SEB due to a stronger adherence to the concepts in the book.
I will focus on three themes that characterize the 10Xs in comparison to their peers according to the authors:
a) 20 Mile March. The concept with a 20 Miles March is an analogy from Roald Amundsen that beat Robert Scott to the South Pole. He pushed his team to do 20 Miles per day on bad days and argued that they should rest when they had done their 20 on good days. The authors claim that this discipline builds confidence and it helps in exerting self-control in an out-of-control environment. The value of this discipline can be illustrated by looking at the divergence between SEB and Handelsbanken in their Interest Net Income. In 2005, their Interest Net Incomes were roughly the same. Then, SEB posted a record result and reported that their loan portfolio in Eastern Europe had grown with an impressive 58% through acquisitions and an aggressive expansion of the branch network. Meanwhile, Handelsbanken reported solid profitability and that they had established 16 new branches (one in Russia). They have kept their steady “20 Mile March” since, through the financial crisis that erupted when Lehman Brothers filed for Chapter 11 in 2008 and have succeeded in growing their Interest Net Income with 58% since 2005 compared to a 36% growth for SEB.
b) SMaC. The acronym stands for Specific, Methodical and Consistent. It is an operating code that is very clear on concrete procedures to build on the business strategy. Handelsbanken is the perfect illustration to the SMaC concept with consistent execution of the following recipe of success.
- Focus on mature markets and grow organically (primarily)
- Invest surplus from established branches to establish new ones
- Provide local presence to build relationships with satisfied customers
- Ensure local responsibility in the branches
The same recipe has endured several CEOs and even the eBusiness trend during the DotCom-era. Handelsbanken still claim that the branch is the bank even when competitors close branches and aggressively promote their self-service channels. SEB has not shown the same consistency, at least not externally, in anything that qualifies as a SMaC.
c) Leading above the Death Line. According to the authors, 10xs are more risk averse than their industry peers. They show an ability to both zoom out and zoom in on risks. Pär Boman, CEO at Handelsbanken, is a perfect illustration of this ability. He zoomed out when he questioned the subprime market and then zoomed in on how to mitigate the risks. We all know that they succeeded and were one of the few banks that didn’t need any support from the government when the bubble burst.
I hope that this shallow attempt to apply the concepts from the book will not offend any of my readers or, for that matter, defer any of you from reading the book. It is really good.
And finally, I sincerely hope that I will never have to apply the concept from Jim Collins latest book on any bank. It is called “How the Mighty Fall” ;-).