Before Embracing Digital Transformation in FSI: Stop the Stupid Stuff First
Also in this issue: Is Your FSI Full of Barrel Executives or Resume Harvesters?
Before Embracing Digital Transformation in FSI: Stop the Stupid Stuff First
Our newsletter often emphasizes that digital transformation isn’t necessary for FSIs unless the goal is to accelerate market share capture. Many FSIs can sustain healthy growth in both top-line revenue and earnings by maintaining traditional silos and delivering digital capabilities through targeted IT projects. The key is simple: stop doing stupid stuff.
In traditional FSIs, two-thirds of middle managers spend time in meetings without clear output. Rather than reshuffling titles to create squad leaders and scrum masters, a more effective approach is to reduce unnecessary roles and eliminate standing discussion meetings. Since 2010, U.S. banks have reported zero productivity gains despite significant technological investment increases. Empowering IT to pilot GenAI or expand the tech stack won’t drive cost reductions. To add immediate value, ensure every business-centric initiative has a constantly engaged champion, and focus IT-centric initiatives on delivering short-term productivity gains.
One of the most straightforward hiring practices is to recruit people who are more capable than their bosses for a target role and fire them if that expectation seems unrealistic within a few months. There's no need for elaborate agile routines to figure this out. Yet many financial services executives prefer to complain about their direct reports, sometimes even publicly, years after hiring or promoting them. At a recent town hall, JPMorgan CEO Jamie Dimon famously boasted that he could do his reports' jobs much better:
“If I were running a department with 100 people, I could run it with 90 and be more efficient. I guarantee you. I could do it in my sleep."
Finn, Viva, and Frank's massive public failures weren't due to technology budget constraints but to JPMC's repeated rookie mistakes. The ongoing Frank trial has exposed the sheer incompetence of the due diligence team. In one glaring instance, they sent Acxiom an encrypted file to verify Frank’s customer count without aligning on how the verification would be conducted. The WSJ recently reported that "Ryan MacDonald, a JPMorgan exec, even testified that he assumed Acxiom was doing more than just counting rows in a spreadsheet."
There is no need for advanced digital transformation maturity to know that offering home insurance products in price-controlled, incompetent, and extortionist jurisdictions like California is bad for business. Suppose your P&C carrier isn't allowed to implement heavy price discrimination based on those factors and continues writing policies. In that case, no amount of morning stand-ups or LLM tools will save you from guaranteed losses. It took too long for P&C carriers to begin their exodus from the state, costing them $40 billion in the recent LA fires.
When FSI prioritizes fluff, they get fluffy results. Citi’s 2.5 years of “leading with empathy” coincided with massive underperformance compared to peers. CEO Jane Fraser completely changed her tone in September 2023:
“Get on board. We have incredibly high ambitions for this bank and, the train, it’s gonna move fast,” Fraser told employees at a town hall meeting last week, according to people who heard the remarks. “So lean in, help us win with clients, help us deliver the changes, or get off the train.”
Citi then implemented the most traditional business simplification playbook by divesting non-core businesses, removing management layers, and consolidating responsibilities. As a result, the stock price halving was wholly reversed in a year and a half. How did Fraser recently explain this success? There was no pretense of digital transformation: “We shifted our priority to improving returns.” Amazing things can happen when FSI starts caring about good old ROI.
Since 2022, TD’s Personal Bank has been pursuing a genuinely agile, business-led transformation of its operating model. Yet, its stock dropped 30% as TD Bank was found to have tolerated money laundering for a decade, with the same individuals routinely bringing bags of cash for deposits, Scarface-style. At least in 1980s Florida, laundering would cost 5-10%. After four decades of efficiencies, the current customary fee is 4-5%. However, from top to bottom, TD cared so little about money laundering that criminals only had to pay 1-2%.
Next time a new digital transformation initiative is discussed in an executive meeting, suggest stopping the stupid stuff first. Shutting down low-impact endeavors and markets, minimizing fintech partnerships and acquisitions, cutting middle management ranks, and keeping the franchise clean will go a long way toward creating space for digital transformation’s necessary leveling-up efforts.
Is Your FSI Full of Barrel Executives or Resume Harvesters?
Digital transformation is meant to accelerate business value capture by maximizing the leverage of digital capabilities through a more sophisticated operating model. Sophistication increases dramatically from IT project-based initiatives to IT products, to value streams and platforms, and finally to KPI-based outcomes. Only a small portion of FSI executives grasp this directionally or have learned it at some point. In a recent letter to shareholders, Chubb CEO Evan G. Greenberg offered a quick version of the required digital transformation shift from IT products to value streams:
“We are well advanced in our strategy to transform our businesses into digital or digitally enabled enterprises over the next few years, an effort that permeates virtually everything we do. Underwriters and claims professionals work more and more in teams with engineers and data analysts in operating the different functional aspects of our businesses.”
Notice how Chubb avoids the common mistake of rapidly switching all FSI to a more advanced operating model. In contrast, BNY Mellon, with 20% of revenue spent on technology—one of the highest among FSIs worldwide—is the most explicit in its transformation into a platform business. The bank recognizes that a platform-based business model requires a fundamental shift in the operating model, but look at how rapidly it is pushing employee transition:
Moving all employees to the target-state model shouldn't be the goal with a specific timeline—the key is maximizing effectiveness, not efficiency. Transitioning 20-40% of the organization annually to entirely new ways of working seems more like a PR exercise than a deliberate prioritization that assesses where digital transformation is critical and where traditional silos remain effective.
But even if digital transformation is critical, the speed of operating model evolution depends on whether management is mostly “barrels” or “resume harvesters.” Keith Rabois, of PayPal Mafia fame, describes barrels as those who rapidly break through walls to achieve North Star objectives. They do this by getting into the weeds, motivating, and leveling up people to a much higher quality bar.
Each barrel executive in a traditional FSI needs to be protected at all costs and should be empowered to hire their own replacements. I was blown away by an advanced division within a sleepy $50 billion global FSI. Its head was joining cross-functional product teams, launching MVPs with customers before rapid scaling, and using a few high-end contractors instead of an army of integrators. But once that executive left to lead a different region, HQ appointed a resume harvester, and within a few months, the division reverted to a 20th-century plan/build/operate silo model.
Barrel executives and their apprentices often seem rude to regular staff. They can be too direct, constantly questioning how long-standing processes help accelerate profit growth or why standing meetings don’t add value. It’s like if part of the company ran like Chicago or Napoli and parts like Singapore or Dubai.
On the other hand, resume harvesters have all the right qualifications on paper, but they’ve never actually broken through walls to achieve a significant victory on their own. Depending on your FSI digital operating maturity, 50-90% of executives are likely to be such resume harvesters. Giving them the most capable employees (aka “ammo” in Rabois' analogy) won’t transform that group and might even push those star employees to look for a job elsewhere.
Resume harvesters are well-liked since they personify Aristotle's wheel paradox. Everyone seems to travel the same distance in digital transformation and can claim to have led the effort. In reality, only barrel executives go the full distance while their peers ride along, helping at best and sabotaging at worst.
If your FSI has too many resume harvesters for the next evolution in digital transformation, ask them to opt in before replacing some with barrel executives. If they raise their hand, ask if they are willing to level up their personal ownership by learning to code in Python, building a model in Excel, setting up initiatives in Confluence, and leading a morning stand-up on a top initiative for a couple of months. Most will be offended, but hopefully, not everyone.
The only complication with barrel executives in a traditional FSI is that their incentives must be true North Stars. They are too capable to be unleashed toward conventional outcomes. An excellent scalability-driven divisional CIO at a large U.S. FSI complained profusely about nonsensical centralization initiatives from the enterprise group. Six months later, he was promoted to enterprise CIO and pressured his successor to shift half of the IT staff to enterprise groups, moving them to southern states afterward. His OKRs changed from business NPS and scalability to IT cost reductions and limiting the enterprise-wide tech stack.
Notice the only example of success by 2027 on the previously shared BNY slide: tech platform consolidation. If platform monetization—like BlackRock’s Aladdin, which contributes a significant portion of revenue—is not the North Star, then such a massive operating model transformation is unnecessary. Tech consolidation could be achieved with a 20th-century operating model, primarily driven by resume harvesters.
