The causes of the
world economic downturn remind us of some key principles about
innovation,
regulation and organisation, and what happens if you try to
ignore them, writes Chris Potts, corporate IT strategist at Dominic
Barrow. As everyone struggles with the effects of the credit
crunch, we need to use the lessons it has already taught us to
validate our company's strategy for IT.
Here are three such principles:
• Innovations are inherently a bit crazy. This is both their
strength and potential risk. To innovate, we need to set aside the
existing boundaries. A major cause of the credit crunch was lenders
inverting the 1970s innovation that was securitisation of loans.
Rather than using securities prudently to lend more money, the new
innovation was to lend more money so as to issue more securities.
The boundary that the recipient of the loan should be able to pay
it back was set aside. Crazy, but true.
• Regulations and governance help to stop us making mistakes,
but cannot always foresee what we are going to do. How much they
can help depends on the extent to which they can predict potential
pitfalls. The more we innovate, the less the existing rules and
processes notice the new, potentially crazy, risks we are taking.
If regulation and governance are not tuned-in to innovations that
are - as seems to have happened in the credit crunch - by the time
they are it may be too late.
• Organisationally, you can't outsource core competencies, but
you can always try. The management of risk is at the very core of a
bank's operating model. Yet we've seen banks try to outsource this
competency to someone else. For a while, it seemed to work. But if
you outsource a core competency and don't notice in time to bring
it back in-house, you can expect things to go wrong.
It looks likely the regulatory regime for banking will be
overhauled. Learning from the causes and consequences of mistakes
that have been made,
the boundaries in which banks can innovate will be narrowed. In
particular, it is hard to see how banks will be left as free to
outsource the management of risk, or be allowed to
lend money to people beyond what they can prudently be expected to
repay.
Meanwhile there are two lessons we can take from the banking
crisis to validate our organisation's corporate strategies,
including for IT. Firstly, while we free people of the normal
boundaries to have crazy thoughts, to innovate, our governance
processes and rules must equally stay ahead of the game. Secondly,
if our businesses are trying to outsource core IT-related
competencies - such as making IT investment decisions, creating
value by exploiting IT, and managing IT-related risks - to either
external or internal suppliers, then those competencies will come
back to bite them one day.
So take the opportunity now to review how your organisation
applies key principles for IT-related innovation, regulation and
organisation - while the lessons of the credit crunch are still
fresh in the mind.
Chris Potts is author of the business novel
"fruITion: creating the ultimate corporate strategy for Information
Technology". Click here
to e-mail him at cdpotts@dominicbarrow.com.