DISQUS

Dominic Sayers · 8 months ago

Of course there are processes in banking where a six-sigma level of failure is appropriate (anything commoditised for example), but there are also bleeding edge processes where it is unrealistic to expect such a low failure rate, and probably counter-productive to try to achieve it - it would be a significant drag on innovation.

If you're making family saloons then go for six sigma. If you're designing and building an F1 car then you probably aim to finish around 95% of the races. Banks do both.

parkparadigm · 8 months ago

Well yes, but... Whenever I did hear a cogent argument against my suggestions it was always along these lines. Banks are special: we're Formula 1s. Only they're not. They might run a Formula 1 team, but 95% of what they do is "building saloons". And I'd suggest that the Formula 1 parts are probably better off run as boutiques rather than as 'factory teams'.

I spent a lot of time in the industry talking about the innovation/commoditization curve and how it needed to be managed: Y-axis was increasing complexity and novelty, x-axis was increasing volume and lower margins. Formula 1 was the top left (high complexity/high margins/low volume/low industrialization); saloons was bottom right (low or mastered complexity/low margins/high industrialization); in the middle was the "Death Zone". I saw it as management's job to optimize the two extremes and try as hard as hell to have as little business in the Death Zone as possible and when unavoidable (ie during migration from Formula 1 to saloon) to focus on minimizing cost and speeding transition. Certain executives got very upset when I said at one offsite that GS was mainly positioned in these two extremes while most of DrKW's business was nicely positioned in the middle of the Death Zone. I think I have been vindicated.

The danger inherent in your point is not that it is wrong, but that it is a red herring that many many more banks/bankers will glom onto to justify their lack of discipline and skill in industrializing their businesses: "Oh but we're a Formula 1..." when clearly they are in fact a Corsa. I think banks are thousands of miles away from the risk that the pendulum has swung too far the other way "stifling innovation".

Dominic Sayers · 8 months ago

Totally agree, and of course it's the pace at which processes can be pushed from the top left to the bottom right that determines your success. Things cannot live in the top left indefinitely and the journey through the Death Zone needs to be rapid.

cfarley · 8 months ago

A trader in Chicago, who deals in soymash and is somewhat self-loathing, once told me "Commodities kill people." He is talking about the feedback from (say) an attempted cornering of corn futures into higher real prices for mere mortals, for whom the marginal cost of food is very high (i.e. emerging markets). So yeah, I'm not quite sure banking and trading decisions can't kill people.