Three Part Harmony

Prelude
Do you ever watch a group of jazz musicians play and wonder how they can produce such amazing music out of what at times seems like organized chaos? The band leader has to compile a group who are all able to play together with subtle coordination. Each player has an opportunity to showcase their talents in turn as well as produce harmony to support each other. Without someone with an ear for how the composition should sound, a group of otherwise very talented musicians would end up producing noise, but maybe not music.

Even before the era of playlists, consumers figured out ways to make their own mixtapes. Then we compiled our own unique albums from our favorite songs by our favorite artists. Burned CDs for roadtrips or special occasions. Companies race to adapt to consumer demands and changes in technology. Some have developed their own finance arms which lend money to their clients to buy their own products. Others compiled an increasingly eclectic mix of products resulting in larger portfolio companies. As businesses grew vertically and horizontally, some created an environment which fostered competition amongst business units for resources and corporate political influence.

It seems inherent in human nature that when groups grow to a significant size they will create factions that are skeptical or combative with one another. While a measure of healthy competition can help inspire advancement and ensure optimal allocation of resources, an unhealthy level of competition can change harmony into calamity. Businesses must always keep an eye on the future to ensure they are investing, not only in the businesses that are doing well today, but in the businesses they will need to strengthen for the future.

How we conducted businesses in the past to keep up with the rapid changes of the latter half of the last century may not be the optimal way to compose a business today. Taking a fresh approach to organizational framework could optimize both business management and client experience.

The Big Business Crescendo

Anytime people bring together their talents, there is the risk that rather than producing something greater than themselves, their individual interests drown out the broader composition. As global enterprises grew in both size and number over the past century, these increasingly complex businesses became organized into distinct business units. These business units, like band sections, were divided further into products, a company’s instruments. Some of these companies added segments as a result of acquisitions while others created divisions as they grew organically. This resulted increasingly in businesses that were compilations rather than single compositions.

Companies have had to evolve quickly, especially over the past half century, to keep up with their competition. Figuring out ways to operate at scale across time zones without some of our modern technical conveniences made fragmentation essential. They began to deliver wider ranges of products. To support this breadth of growth, well-defined verticals allowed large businesses to be more nimble within each unit; however, new technology has made management and communication from an enterprise level more attainable without sacrificing adaptability. This enterprise, if organized effectively, can bring to market a more comprehensive solution to clients in a way that produces something greater than the sum of its parts.

Amplifying Talent

The synthesizer was invented in the 1950s to produce sounds that mimic multiple instruments (Encyclopedia Britannica). Corporations require fewer people to produce the same revenues across more products than 70 years ago as well (US Bureau of Labor Statistics). Decades of rapid technological changes made organizations have to adapt in realtime in order to survive. Now, many companies are taking a beat to compose themselves so that they are ready for what is to come. Today’s technology is increasing the productivity of some roles while, in some cases, eliminating other jobs all together. Some jobs that are, or soon will be, replicable by technology would have seemed impossible to not be done by a team of people as little as a decade ago. A major reason for strict business segmentation in the past was the need to manage large numbers of people effectively. Now fewer people can deliver a wider variety of services for the same or more revenue. From an operational perspective, the current level of rigid segmentation may not be necessary in the future as technology increases productivity and facilitates efficient communication. Furthermore, technology companies are working to deliver broader end-to-end solutions. These services are designed to support a wider variety of functions rather than simply providing individual products. More uniform underlying infrastructure leads to fewer issues resulting from fragmented infrastructure. It also saves cost by removing multiple layers of hierarchy that existed purely to harmonize data from varying sources. This enables more real time enterprise level decision making by senior leadership supported by more accurate data.   

Another phenomenon that occurs within large complex organizations is when one part of the company views another as a client rather than a colleague. Constantly negotiating with one another for the resources required rather than solving for their common goal can be an unfortunate byproduct of this dynamic. One of the essential paradigms of a provider-client relationship is that the client can take their business elsewhere. Oftentimes this is not possible when it is an internal dynamic. This monopolistic framework removes one of the key checks and balances essential to a balance working relationship. Also, one side may “win” because they did not give into the other’s demands; however, this “win” for one may turn out to be a loss for both if it hampers the organization’s overall success.

Being in Tune with Your Client

Like musical tastes, consumption patterns have changed across many sectors over time. We increasingly look to purchase solutions rather than products or single services. We used to have butchers, bakers, green grocers, dry goods stores, etc. then the grocery store put all the products in a single edifice. We are now gravitating towards meal kits with pre-portioned ingredients required for a specific meal delivered together in a single box. Just like we are looking for more efficient solutions than walking down individual aisles collecting products to construct a meal, we are looking for our business relationships to deliver solutions to meet our end goals more efficiently and with less waste. We not only see this in our food consumption, but also in our consumer technology. The mobile phone made communicating anywhere at all times more feasible (probably too feasible, but let’s save that for another day). Despite the name, our "phones” today are more often used as a browser, newspaper, mailbox, calendar, camera, or telegraph than a traditional telephone. These have become communication devices not just untethered telephones. We see how companies have evolved to meet consumer demands even faster than we are able to change the name of the products. As the world becomes more complex, companies need to be aligned to efficiently deliver solutions to their clients.

One of the most common discussions I have with large organizations and a phenomena I have lived in prior roles, is that customers often see a business more monolithically than the business sees itself. Sometimes compliance requirements necessitate strict division between business units limiting communication and coordination. However, putting those instances aside, too often companies have put their operational efficiency above their client experience. It is not that focusing on building the best products or most efficient business is a bad thing, but how many times have you had to call a business only to be transferred at least three times, repeating the same information more than once for the call to either drop or finally be connected with the person who was able to solve your need? Would you pay more or get the second best product if it meant it was easier to use or that issues were remedied more efficiently? This is not unique to financial services. Our industry is always by nature an exchange of trust for assets: a promise of repayment for access to capital; the prospect of a return for an investment; the safeguarding and exchanging of securities for a nominal fee; being entrusted with preserving and growing accumulated wealth for a client, also for fee; etc… A relationship with this level of trust means that analogue connections at the end of the day can never be completely replaced by technology (see previously published work on how Analogue is the new digital or connect with me directly for more on that).

A company playing in time is not just good for client experience or effective for growing revenue, it can also help mitigate risk. Fragmented client coverage and taxonomy has led to unexpected concentrations of risk that have undone major corporations. As often as overlapping risk may occur, gaps between realized and potential revenue are even more frequent. This occurs when businesses or products within a business have too narrow a focus. If an individual or team are empowered to see a client across their relationship they can better identify gaps and risks.

Ironically, the smallest and largest clients are often those with the most holistic coverage. The top decile clients often have a relationship manager or at least a small group of account captains that have a strong grasp of all or most of the client’s relationship across the entire organization. Smaller clients may do a limited amount of business across a wide cross section of products/services or they may be highly concentrated. A small highly specialized firm (e.g. a sector focused hedge fund) may only need to be covered by one or two specialized product desks. While a firm like a wealth management boutique requires efficient coverage for a variety of products/services. Firms likely have the largest addressable gaps with their second and third decile clients. These clients are often complex enough to straddle multiple products and business units; however, their current revenue does not put them in a category where they have access to someone empowered with an enterprise level remit. A gap not only presents an opportunity cost but, if not closed, also presents a weak point for a competitor to start taking additional share from other products/services. Sometimes a firm could be a significant client across several products/business units, but may not do as much business in one category as in several others. This can create dislocations in client experience with the client looking at their overall relationship with a company, but that company not always factoring in the larger elements of the relationship when dealing with the smaller elements covered by a different product team/business unit. Some clients are not in that top decile, but are growing and soon have the potential to become a first decile client. Identifying these growth clients or industry segments ahead of this growth and proactively enhancing coverage is more effective than being reactionary.

Composing a More Modern Matrix

“Flatter” organizations are not without divisions. While compressing layers of management and widening segments can be an improvement over steeper delineation, optimal segmentation looks more like a hub and spoke rather than parallel verticals supporting an executive pyramid on top. Executive management and enterprise functions comprise the center of a hub divided into business segments which align to products with business development and relationship management functions constituting the outer rings which is divided into solutions sets. Rather than forcing sales to be aligned to products and segments that make sense from a business operations perspective, this model allows coverage functions to be positioned across products/segments to ensure optimal alignment with the client’s needs. This results in a business that can operate efficiently internally while optimizing client experience externally. Client coverage functions may appear far from executive management at the center; however, these sales sections and relationship management units have dynamic matrix reporting to products/segments as well as their own representation at the executive level to ensure the unfiltered real time voice of the client is heard clearly in the boardroom. When decision are cascaded down a long management cliff a cohesive strategy can start to veer off in different directions and, at times, result in implementation that is aligned at cross purposes. Architecting a matrix where all parts are aligned to a central direction rather than parallel organizations which only coalesces at the executive level on top, means an organization has less of a chance of opportunity gaps, redundancy, or diametrically opposed mandates.

Coda
The emergence of conglomerates led to verticals because organizations needed a framework which could quickly adapt as the world transformed. New technology and changes in consumption patterns have turned the divisions which once empowered segments with the autonomy to adapt into obstacles for growth. There are two different steps leadership can take to solve for coverage gaps and operate an enterprise more cohesively. One, a company can have fewer, but wider segments with a shared taxonomy and cooperation across the remaining segments (a flatter organization).Two, broaden business development coverage and add high-level relationship managers empowered to act across segments to deliver comprehensive solution to clients. Better still, realign business around a strong center to conduct a unified vision, ensure that vision is articulated and adopted across the organization, and align a go-to-market strategy to demonstrate that value to clients. What sounds better than an ensemble properly tuned and sufficiently motivated to play in harmony?