If there is one recurring complaint (maybe even a whine) that has come out of the Wall Street crisis, it is that the largest banks were given preferential treatment because they were deemed too big to fail. The Street wisdom is that we would have all been devastated by the undertow. Exhibit A in the ‘too big to fail’ category is Citigroup, which continues to struggle not only operationally, but to even find the right path forward. [Full disclosure: I am a Citi alum, and maintain keen interest and best wishes for the place. My experience draws from a long time ago, and the bank has morphed into a business barely recognizable from the relatively quaint place where I cut my management teeth.]
As Citi struggled before the crisis with the now mundane matter of plain-old profitability, many analysts and pundits hypothesized that Citi was too big to manage. An enterprise of that scope, scale, and complexity was considered beyond the ability of anyone or any team to lead. If your mental-model of enterprise management is the traditional hierarchical model, then I completely agree: Citi was too big to manage. And Citi has hierarchy alright: I am always stunned by the number of levels the bank used to run the place. Perhaps the fundamental lesson to be learned from Citi’s sad experience is that while hierarchy has no mathematical limit, it has a practical limit. And our largest corporations are crossing it.
Yeah, I understand about LOBs, divisions, subsidiaries, etc., and have a preference to see large companies decentralize into autonomous but integrated units. But the hierarchical model still holds that direction and decisions are made at the top. Given its dimensions, that’s why Citi failed, save for the government’s rescue.
For me, Citi is Exhibit A in ‘Too Big To Manage’, given that a dated management system was used. Citi leadership is taking action to restructure the bank, and many of those moves may indeed be the right moves to make. But I suspect that if the sclerotic management system survives, we’ve not seen the last scary front page headline about Citigroup. Citi should be more motivated than most to consider a different framework for managing.
They have the perfect opportunity to innovate. It must start with clarity about what they want to be [hint: the answer can’t be just about making more money], a question that was never asked in an organization that presumed the answer was to be more of everything. With the entire financial sector being remade, this is a great time to generate value propositions for customers and employees that can attract those expecting more. The bank also has some heavy lifting ahead of it. Financial services is not about money; it’s about managing the information about the money (former Citi CEO Walt Wriston taught me that). Recent (not current) leadership focus on current period earnings motivated under-investment in the people, processes, and technology that might very well had made a material impact in the bank’s ability to weather the storm. Pretty ironic since Citi was a technology leader a generation ago. [Pop quiz: what Citi CEO was famous for constantly telling his managers that ‘this is the most important quarter’?] [Extra credit: where else in the corporate world is that same message being blasted?] And most importantly, Citi must tap the (badly depleted) energy and imagination of its over 300,000 people. Even accepting that the first rats to jump ship were the best swimmers, the bank is still blessed with tons of talent, but the leadership has not created the clearing or the conditions of success for those folks. A bold initiative to transform the place will attract the best and the brightest, get them pulling in the same direction, and yield dramatic results.
Or Citi could continue to view the world through the same lens it has been using. In that case, walk into your nearest Citibank and instruct them to buy ‘C’ puts.