How collaboration is transforming the relationship between sell-side and buy-side financial markets

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One of the most important dynamics in almost all industries today is how value creation is increasingly shifting to be between organizations rather than within organizations.

Most notably, the nature of client-supplier relationships have dramatically shifted over the years.

This is not new. I have spent considerable time working with the institutional financial services sector, and seen major changes over the years. I recently recalled a White Paper I wrote years ago, How Collaborative Technologies are Transforming Financial Services, in the wake of a Collaboration in Financial Services conference I co-organized and chaired in New York.

Here is an excerpt from the White Paper. The same issues are still playing out today.

At the highest level, there is no question that collaborative technologies will impact the structure of the financial services industry. The implications may take some time to be visible, however the shifts in power and value creation between industry participants are already evident.

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How Luxembourg is playing to become a technology hub

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A few weeks ago I gave the keynote at the IT Nation Golden i Gala and Awards and earlier in the day ran a CIO workshop on Creating the Organisation of the Future.

In my brief time in Luxembourg I learned about some of the many things that are happening in the tech scene in nation. As a tiny country of half a million people, it has the highest GDP per capita in the world, currently based primarily on its strong financial services industry, facilitated by its strong banking secrecy laws. Luxembourg is the second largest funds management market in the world after the US. However an economy dependent on financial services is not necessarily the best position to be today. As such the government and business sectors are seeking to build Luxembourg into a technology hub, with ICT named by the government as the third of five pillars for national development.
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The future of high-value relationships

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Last week I spoke at the annual meeting of a division of a major bank. It was a one-hour event, with a live audience of several hundred, and a few thousand who worked in other locations watching via a live webcast. Given the pace of change in their business and their overt focus on innovation, they had me speak for 20 minutes on the future, followed by the top two divisional executives for 10 minutes each on what they expect in the business moving forward, then the entire leadership team plus myself up for 20 minutes of Q&A. It was a first for them to use an external speaker for the event, though given the success of the format they will undoubtedly do it again. Bringing external perspectives can be invaluable in stimulating new thoughts on the business and where it can go.

My presentation quickly skimmed through the implications of shifting demographics, work dynamics, social expectations, financial and economic structures, and technology, framed in terms of how to think more openly about possibilities, challenges, and opportunities.

However in the final Q&A session I was asked about the future of business relationships. Given commoditization and competitive pressures, what would happen in relationships?
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Latest: Equity crowdfunding coming shortly? Congress offers bipartisan support

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Continuing my ongoing coverage of the state of equity crowdfunding, news is just out that a Republican bill proposing that crowdfunding be allowed will get support from the White House. This is not too surprising given the White House recently explicitly supported crowdfunding in the context of the Obama Jobs bill, but is still a relief given there is not much Congress seems to be able to agree on these days.

The bill summary says:
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Why diverse viewpoints are critical in dealing with complexity

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The September issue of Harvard Business Review focused on complexity, with several excellent articles.

One of the pieces was an interview with Michael J. Mauboussin, the chief investment strategist at Legg Mason Capital Management, whose investment approach is fundamentally based on understanding complexity.

His answer to the last question in the interview was very interesting:

What are some of the rules of thumb for getting yourself into the right mind-set to deal with complexity?
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Why reputation, influence, and attention are becoming central to economies but are not currencies

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This morning I gave the opening keynote for an internal future strategy session at a large insurance company. A group of 40 executives from across the organization, as part of a six month program, are spending two days immersing themselves in thinking about how the structure of the economy could change in the years and decades ahead, and the implications for their business.

My presentation gave a very big picture view of selected elements of the economic landscape that could result in a substantially different business environment.

One of the topics I covered was alternative currencies, including virtual currencies, Bitcoin and other anonymous currencies (more on that another time), and the idea of attention, reputation, and other intangibles as currencies.

Over the last years I have certainly frequently discussed the reputation economy, influence economy, and also the economics of attention.

However the idea of intangibles such as these acting as currencies is a step further, suggesting they can replace financial transactions. Is this a valid idea?
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Research: The acceleration of Australian banks’ use of social media

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Financial services is one of the most industries in which the use of social media is the most relevant, not least because customer service is a critical differentiator between highly commoditized offerings. While financial services and banking were traditionally highly relationship-based, the shift to online has significantly eroded those relationships. Social media, used well, provides an opportunity to build relationships in a world in which most financial services are executed online.

In a global context, Australian banks were fairly slow to adopt the use of social media, however more recently a number have become a lot more active as they recognize its fundamental importance to their future.

Vindaya Senadheera, Prof. Matthew Warren, and Dr. Shona Leitch from Deakin University have done some interesting research in their paper A study on how Australian banks use social media.

To analyze the banks’ activity they use the Honeycomb framework of social media which was presented by Kietzmann et al in their paper Social media? Get serious! Understanding the functional building blocks of social media, which points to the key elements of social media engagement as Identity, Groups, Relationships, Presence, Sharing, Conversations, and Reputation.

Here are a few key points from the research

Twitter:

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Applying scenario planning to portfolio and financial risk: 6 steps to better risk management

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Back in the late 1990s I did considerable work applying scenario planning to financial risk management, using qualitative approaches to managing risk as a complement to quantitative methodologies such as Value at Risk. However financial institutions were generally very slow to acknowledge the value of anything not fully quantified, so I shifted my attention to broader strategic issues. I wonder if the finance industry is now more ready for these kinds of approaches.

Here is an article I wrote in 1998 in Corporate Treasurer magazine in the wake of the Asian financial crisis of 1997. The article has not dated, and remains completely relevant today. Just replace Asia crisis with the recent financial crisis of your choice.

Did You Forecast Asia? Scenarios In Portfolio And Risk Management

Did you forecast and respond effectively to the ongoing impact of the Asian crisis? The debate continues on whether or not the crisis was predictable, however the reality is that it was not effectively predicted. One of the major reasons is the strong bias in financial markets to making single-point forecasts. By their nature these cannot encompass anything except what is perceived as the most likely outcome, and thus blind us to the unexpected rather than help us to prepare for it.
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US equities: zero gains over the last 12 years, how about the next 12 years?

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In my misspent youth I worked in international equities sales for Merrill Lynch. That was when I was first introduced to the Capital Asset Pricing Model that still underpins investment analysis today. Aong other things the model suggests that the return on an investment needs to be commensurate with its risk to attract investors.

Through the last century the empirical evidence on equity market investment was that its returns relative to other asset classes was broadly in line with its volatility.

As shown in the chart below, for the last 12 years, since 1998 or 1999 depending on the index, there have been zero gains in US equity markets. It is important to note that this does not account for dividends, which currently yield approximately 2% annually for S&P 500. However there is an important psychological issue in zero gains in the index. And it is clear that dividend yields do not justify the exceptional volatility of equity markets over the last decade or so.


Click on the image for full size
Source: Google Finance
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Futurist conversation: Ross Dawson and Gerd Leonhard on the future of money

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My friend and fellow futurist Gerd Leonhard, who runs The Futures Agency (which I am part of), was recently in Sydney for a speaking engagement. We took the opportunity to record a series of conversations on the future. Here is our conversation on the future of money.

The key points we make are:
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