Prime legacy blogs

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Commonwealth Bank of Australia and the APRA report – a Requisite Failing

APRA, Australia’s prudential regulator, recently released a scathing report on the Commonwealth Bank of Australia.  Coming in the midst of a Royal Commission into the Financial Sector, that has seen many in the financial services industry stumble, after the spotlight has been shone into their internal workings. The Australian Financial Review commenting on this report, said:

“The senior management were highly intelligent and collaborative (1) while the institution itself delivered financial success. By most measures, from return on equity to customer satisfaction it outscored its peers. Yet somehow this complex, but high-performing institution, has found itself the subject of one of the most scathing assessments of a corporation ever compiled.”

I want to dwell on the CBA and this report, as there are some important lessons to be learnt from an organisational design, operating model and leadership perspective. In the mid nineties CBA introduced Requisite Organisation – a meta model for structuring, organising and leading goal directed enterprises.  Requisite (as required by the nature of things) is the name given by Dr Elliott Jaques to a powerful set of models, constructs and practices for creating sustainable, transparent, goal directed (and felt fair) organisations.  This body of work has been supported by sound research and the work of many eminent scholars and public and private leaders.

Requisite has evolved over more then a half century, developing through theoretical changes and best practices usage globally.   That said, application is a different matter, and one needs to consider the culture into which it is being applied. If the principles become perceived as inflexible rules, and the practices and principles the domain of select specialists (when it is aimed at empowering managerial leaders),  the basics of felt fair and transparent leadership quickly become subverted into power politics and personal goals.  This has led to a poor image and damaged reputation, noticeable by publicized failures.  CBA was one of them(2).

In the mid 1990’s CBA introduced Requisite and this was used for a number of years, before being discarded.  I recall being on a plane to New Zealand with a senior executive from CBA who spoke about the autocratic, hierarchical style of management Requisite had created in the bank, while another person, could not bring themselves to mention the name because of the pain it has caused.  In contrast another employee at the time complained how the good work they had been doing had been curtailed, because it was seen as dismantling power fiefdoms.  Whatever the reasons, Requisite was dropped and its legacy was sadly tarnished.

Back to the APRA report and its findings; key issues identified at the CBA were the very issues that Requisite is designed to address. Requisite (or what we in WJ refer to as Requisite Enterprise) is about designing effective structure.  Firstly it needs the working spine – a vertical hierarchy of unique value adding work themes (or levels).  Consider this from APRA –

“Within CBA, the vertical lines of accountability that travel down business lines are generally well understood.”

Understanding a vertical reporting structure is very different from one that adds value in a unique way. Most vertical structure do not do this and this is validated by APRA’s comments re;

” a federated organisational structure that required but did not have clear roles and responsibilities for issues that spanned business units and a lack of collective and end- to-end accountability (Senior Leadership Oversight chapter)”

In Requisite, intent informs strategy which leads to structure. The complexity of the intent determines the number of work themes.  A quick glance at the graphic on proportion of staff in seniority in the AFR report, shows immediately one level too many.  This increases risk, blurs accountability, creates confusion, builds bureaucracy and results in a non value adding hierarchy.
Once structure and function is clear, role clarity becomes paramount; its what makes work fun, challenging, allows for ‘flow’ and delivers the intent. Coupled with role clarity is the commensurate authority to deliver on accountability and to make decisions.  This is where Requisite excels, it has the tools to do it well, individually or collaboratively. Consider the following from the APRA report:
“In the panel’s view, the focus on empowerment of individuals was not balanced with a corresponding focus on collective accountability”

If the vertical spine represents the skeleton, then the muscles, tendons and organs represent the functions, projects, teams and the systems of work.  They provide the ability to operate cross functionality, allowing coordinated goal directed actions, thus enabling value chains to work effectively.  Understanding how to make cross functionality work is well understood in the Requisite tool-set. Nowadays all organisation’s work cross functionally in flat agile structures, which require more then ever, for clear decision making authority and accountability to be spelt out. This is clearly a major fault at CBA as the APRA report makes clear;

“The Panel’s assessment, however, is that collective accountability across business lines has been poor. As a result, accountability in CBA has been, at best, opaque….The desire to move away from a past combative culture has led to some over-compensation in pursuit of collaboration. The result has been pockets of excessive consultation or consensus- driven activity, leading to slower decision making, lengthier processes and slippage of focus on outcomes. Referred to multiple times particularly by risk function staff, this type of behaviour has been at the expense of constructive challenge and cross-examination across the three lines of defence.”

Doing cross functional work correctly means risk management is build into the process.

Pendulums don’t stop midpoint.  Collaboration is necessary, as is the funding of purpose (via profit in private institutions) and these social memes of culture need to be understood and balanced.  Financial institutions appear by and large according to the Royal Commission of having done an appalling job in this regard.  CBA jumped from the blue and orange memes of culture(3) to those of internal green, (no one want to make a decision, everyone has to be consulted, collaboration on everything, trust in good intentions) while other parts of the business were low orange (unscrupulous profit drive). Healthy blue memes are needed for risk management (clarity around process, decision making rights, structure, accountability etc), while the yellow meme allows for discernment, balance and selecting what works with integrity.

” a cultural ‘mentality of trust’ and ‘over- consulting’, manifested in a lack of constructive challenge throughout the senior management levels and at the Board, and in bureaucracy diluting accountability” (highlighted in the Culture and Leadership chapter – a perfect example of the green meme);

Finally I see that leadership represents both the neural network and the brain, activating structure and function. It creates the culture and drives goal directed work.  Requisite offers an effective language to give meaning, leadership tools and practices that ensure a structure is fit for purpose and inhabited by people in flow. In other words, a healthy organisation.

In conclusion, I would like to leave you with the question, what might have been the outcome of this review if CBA had remained requisite? Perhaps by now it would be evolved into Requisite 3.0?  Evidence shows that once embedded, this operating model has supported companies for four or more decades, with regular refreshers and updates.  Like any sustainable operating system.(4)

Notes

(1) Requisite has three integrated strands; structure, leadership and people. Being highly intelligent and collaborative  is no recipe for success, but certainly an essential building block. What is also needed is understanding how to be an effective leader, being competent in the tools of the trade and  clear on what works needs to be done.

(2) Recently, when an executive team in an ASX top 100 was considering introducing Requisite for its 15,000 strong workforce, some of the team members cited the CBA failure as a reason not to do so.  Luckily this view did not prevail and this organisation, three years later, has hit many records, including employee engagement, market perception and share price performance.

(3) Memes are packets of culture, like genes. Memes represent dominant societal values and these are reflected in organisational cultures.  First articulated by Dr Clare Graves and called Spiral Dynamics by Dr Don Beck, they have recently been made popular by Frederick Laloux in this book ‘Teal Organisations’

(4) The fact that the CBA had a Group CEO leadership change during implementation may also have been problematic. Research has shown that for Requisite to deliver long term benefits, it needs to survive the first CEO transition successfully. This happens through culture, systems of work and daily practices.

 

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The mind once enlightened, cannot again become dark

During our lifetime we may be fortunate enough to receive lenses that provide deep understandings of how things work. Those insights provide models of continuous learning that inform, nourish and sustain us. As a Noble Peace Prize winner said, “It felt like god had revealed a small part of how the universe worked’ adding he was not a religious man.

The point is what has been seen cannot be unseen.  Such meta understandings help us on our pathway towards enlightenment.  Of course, humility and openness are key ingredients to ensure ongoing learning, otherwise we run the risk of becoming dogmatic zealots.

The meta model of understanding human capability, work and the evolution of human value systems were such lenses. What a fantastic journey that has proven to be –  it led me to interview and analyse the most interesting people, and allowed me to assist many and diverse enterprises.  These lenses have stood me instead over multiple decades.

I also know that those lenses have been shared when I hear others encouraging their teams saying these lenses will alter their worldview and help their careers.  Mark Milliner, Ian Stone and Jacki Johnson were the most recent. Thank you for the affirmation in understanding.  Now as Billy Boyd says, I must bid you farewell and in closing I would like to offer you the following insights;

  • Work is a treadmill, but with different and exciting carrots on offer. Fast, fun and challenging.  Our work journey is driven by our deep need to actualize.

    Our need to be of value is enduring.

  • Work can be very satisfying, but while our capability is the driver, our current mode of transport is an old outdated dinosaur called capitalism. There are no free rides, and no one is exempt from travel. It is not a felt fair system and is a value detractor. As Muhammad Yunus says, future business will need a social license to operate.
  • A consultant is a role with accountability and no authority.
  • Work that detracts from planetary, regional and local sustainability cannot be tolerated or supported.  Irreversible damage is caused by companies and governments that have lost their ability to regulate for the common good of all -we need right work.
  • Consulting has allowed me to travel and work in many different and exotic places.
  • As a road warrior I have been equipped with the latest tools of the trade as they evolved… but the problem is my e-wastage mound grows. Full value chain accountability is needed.
  • Consulting has given me time to lead a personally rich lifestyle and get to know my kids – a real blessing… there was a financial sacrifice, but it was worth it.

    “My partner (also a consultant) and I agreed that one parent would always be fully present for the kids (we now have three beautiful adults).  We took it in turns.”

  • It has allowed me to write and publish two books, the third an adventure which sits on the cusp of the new journey and provides a segue to the new future.
  • The right mentors come when the pupil is ready for them.  Gillian Stamp, Don Beck, Malcolm Hollick, Robin Mills – thank you for believing in me.
  • It has led me to renounce the “short-termism” of the free market system, especially greed.

     The word ENOUGH does not exist in business vocabulary.  There can never be ENOUGH!

  • I have lost faith in accountability. I see too many overwhelmed, overpaid and incompetent leaders escaping censure.
  • I am grateful to all my clients who believe in us and were willing to experiment with us.
  • Relationships are frail and need constant tending, trusting and sometimes clear tasking.
  • Look after your networks, friends and family.  Also members of the same family are often not born under the same roof.
  • Thank you to my current team, I am privileged to work with Adam Thompson, Tim Levett, Verena MacLean, Bruce Whitby, Samantha MacDonald, Tanya Brockmeier, Amanda Johnson , Brent Sheridan and Sam Wilkinson.
  • In retrospect, although it did not feel like it at the time, I have learnt more when I have failed or been in conflict.
  • My corporate consulting journey has driven my need to understand other ways we could better organise, for fairer and more just outcomes for all, not just a select few.

 The transition beckons.

I have seen a different world, running on a different operating system and that is now my Call to Adventure. What is seen, cannot be unseen.

Aluta Continua!!

 

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My Defining Moments

Defining Moments. My friend has a blog called defining moments. They are profound words.  To me  they mean “a sharp,shaping event; one that alters your view of the world – an unforgettable learning experience”  It can be for good or bad. I have been thinking about some of my defining events and what I learnt;

1. Sunrise and a New Day – as a young officer, I remember sun rise after a long and harrowing night in enemy territory. It was a defining moment.  I promised myself to celebrate each new day, acknowledging it as an opportunity to live fully. I sometimes think of the words of John Cougar Mellencamp describing how life becomes grey, blurred, slipping past – same old, same old; – “life goes on but the joy of living is gone” An extract from my journal was “If it will not kill or wound – fear not, be brave.” LIVE while you have LIFE. WELCOME EACH DAY.

2. Physical Well-Being – I had a quadriplegic girlfriend. She broke her neck diving into a wave and had not ventured back into the sea until one morning, I took her out on my surfboard – a calm, glassy day and we surfed together. It was a tremendously emotional and a healing time. That relationship was a defining moment because being physically healthy is as good as it gets. There should be nothing else to complain about. Being really sick or physically challenged puts trivial worries into perspective. HEALTH IS NO 1.

3. I CAN do it – in 1997 my company turned over its first million. That was a defining moment. Many said I was mad to go it alone, and yes, the economy was shrinking, the country in revolt and hey, as the naysayers said; what did I know about business? Being successful is great, but it involves trade offs and a never ending commitment. My diary at that time had a note –  “Funny, the harder I work the luckier I get”   COMMIT FULLY TO WHAT YOU VALUE AND DREAM, BE BOLD.

4. Shit, this is NOT as good as it gets – in 2009 I discovered a completely different way to live life. It was a struggle for me to embrace at first, being diametrically opposed to how I have been programmed from birth to live – A defining moment. I realised another much finer world exists and I am moving fully into it.  What that defining moment taught me? BE INQUISITIVE, TAKE RISKS. DON’T LIMIT YOURSELF… as Mulder said in the X Files;  “The truth (for you) is out there”.

5. Betrayal – A strong, trusting business relationship shattered some years ago, almost landing in court. It cost me my company, dear friendships and almost my marriage. I was bitter and trusted no one for many years. A defining moment for me, although it shaped a dark journey. Time is a great healer.  TRUST IN YOURSELF. ALWAYS. 

6. Manifestation – you get what you wish and the clearer your wish is – the better your chance of getting it. I have been practicing this for years without realising it.  When I twigged that this stuff ACTUALLY works; it was a defining movement.  I learnt to be mindful in its practice – if your wish  is unclear, you get an unclear outcome; sort of, not quite, often with unwelcome and unexpected side effects.  If  it is a dark picture; beware. My first manifestation was dark and shook me to my core. BEWARE WHAT YOU WISH FOR and DO NO HARM IN YOUR WISHES.

What are your defining moments and what did you learn?