There is still a good deal of bank bashing going on at the moment. Excessive profits, excessive bonuses – you know the stuff. However the main criticism being levelled at them at present Fleet St, politicians and society generally is that they are “not lending” most notably to small businesses. Now, far be it for me to defend the banks. I have a well known and very vocal disregard for most of those institutions but….I do think some of this is a bit tough and unfair at present. The reason for my unlikely defence of the banks lies in the idea that maybe, just maybe, they have woken up to what I have been telling them for the last few years. And that is that much of the financial crisis and the exposure of the banks was a result of the failure to understand the nature of knowledge in their business. Could it be that they have finally realised this?
Anyone that has attended one of my “Let me explain KM” presentations for the past few years are familiar with one of the metaphorical examples I use involving banks and my experience of using them over the past 40 years. I use samples of my correspondence with my banks to demonstrate how my relationship with these institutions has changed over that time and how their knowledge of me has declined to a point where it is simply not possible for them to:
a) offer a decent service and more importantly in this context
b) judge my potential as a risk.
In brief I demonstrate how the retail bank has sought to commoditise the relationship and reduce it to a simple transactional based relationship where the aim is to systematise and drive down cost as if the banking industry were some kind of Taylorist dream of simple causality.
My contention is that this is fundamentally un sound as this industry, and our interaction with it is, if I use the Cynefin framework, a Complex relationship. My early correspondence with the bank showed a real bank manager in place at my branch who knew me, knew my circumstances and could make decisions on my credit worthiness and how the bank could build loyalty by responding to me specific and individual needs. Fast forward to a point where I have no branch, the staff there are administrators with little or no autonomy to act, and so are left with blunt un satisfactory and in flexible transactional based interfaces. They don’t know me, can’t offer a service and, most importantly, can’t judge my risk.
The model can be extended to the commercial banks – with systematised lightning fast trading that is not intelligent enough to cope with the unexpected, and credit rating methods that are both flawed mechanistic tools run by organisations with very conflicted business models.
All a recipe for disaster and disaster naturally struck. Add to this an environment where personal debt was outright encouraged to fuel an artificial boom through consumer spend, and a business environment still foolishly wedded to the “wisdom” of running businesses on geared debt it is a potent mix.
Now that these models have been shown to be flawed and frankly dangerous we should hope that one outcome of the financial crisis would be a return to more human cognition in the banks when judging the risk profile of borrowers as a minimum.
But reintroducing a knowledge led environment in a bank – that is to say one routed in the intervention and application of the Mk1 brain - cannot be done quickly. Whilst proper KM practitioners can help here, developing the intuition, heuristics, and experience necessary to make this effective takes time. So perhaps caution being shown on the part of the banks is a good sign. Perhaps they have recognised that caution is a good thing and that they do need to develop more sophisticated approaches and that the process of doing that will take time. Weaning businesses with poor debt demanding business models will take a bit longer, but requirements on the banks to be less exposed and have greater capital seems also to be having an effect.
Reflective learning is all part of KM as well so I could even be encouraged to think that perhaps these mighty “masters of the universe” might have the humility to acknowledge their mistake and learn from it.
Perhaps I am just being naïve. Leopards rarely change their spots but can we not be hopeful that this caution on lending is actually a good sign?