Asset managers need to dismantle hierarchies and promote diversity of thought if they are to future-proof their businesses. They can learn valuable lessons from tech companies, military leaders and even ancient philosophers, writes Apiramy Jeyarajah.
“It’s laughable to say: ‘Tell me what to do!’ What advice could I possibly give? No, a far better request is, ‘Train my mind to adapt to any circumstance.’ In this way, if circumstances take you off script, you won’t be desperate for a new prompting.”1
The Stoics teach us it is better to be adaptable and flexible
These words belong to Epictetus, a Stoic philosopher of the first century AD. But they are strikingly relevant to life in a modern, globalised economy, where sticking rigidly to a predetermined plan can lead to disaster. When faced with the irreducible complexity and uncertainty of the world, the Stoics teach us it is better to be adaptable and flexible; or agile in business management speak.
Organisations are relearning this ancient wisdom. Most notably, technology companies have incorporated agile principles into their business structures. Take music streaming giant Spotify: the firm is split into small, interdisciplinary teams, known as ‘squads’, which operate as part as larger ‘tribes’. Individuals maintain connections with members of other squads who share their areas of expertise, forming ‘chapters’ and ‘guilds’.
By arranging teams in this way, Spotify is seeking to ensure information flows seamlessly across different parts of the business. Long-term projects are divided into smaller ‘sprints’, allowing squads to continuously take on feedback from customers and other stakeholders, responding to challenges as they arise. Each team member is empowered to find their own solutions to problems, alone or with others.
From hierarchy to squads
Because agile organisations respond quickly to change, this helps them be productive and resilient: a recent McKinsey study found agile businesses have a 70 per cent chance of being in the top quartile for organisational health, one of the best indicators of long-term performance.2 No wonder Spotify’s approach has proved highly influential among tech start-ups.
But for companies in more established industries, including finance, it can be difficult to put agility into practice. While 83 per cent of large businesses have sought to implement agile structures in recent years, only 23 per cent have succeeded.3
These companies may be hampered by a mode of organisational thinking that dates back more than a century. Following managerial ideas coined by Henry Ford and Frederick Taylor in the wake of the Industrial Revolution (and later solidified by Alfred Sloan), many businesses were structured in a vertical fashion, with information flowing one way: from top to bottom. Employees were based in departmental silos and functioned as little more than cogs in a machine. Uniformity and efficiency took precedence over diversity and flexibility. Free association between staff was discouraged.
Modern versions of these methods linger today – and hold us back. Hierarchical, factory-like organisations might have been good at churning out widgets, but they are pitifully inadequate to the challenges of a world characterised by rapid flux, dense interconnectivity and the eruption of sudden crises like the coronavirus pandemic. It is no longer workable for executives to hoard information and dispense commands from on high.
Responding to a shifting environment
In recent decades, the US military – perhaps the quintessential hierarchical organisation – has tried to take these lessons on board. In his book Team of Teams, General Stanley McChrystal described how he was forced to rethink traditional command procedures when leading the US Joint Special Operations Task Force in Iraq in the mid-2000s.
Faced with small groups of mobile, networked insurgents, McChrystal created a new, decentralised structure, whereby forces were split into flexible units that could respond dynamically to enemy movements. The stakes were extremely high; deadly attacks against civilians were becoming increasingly common in Iraq. But McChrystal persisted with his agile approach, which enabled the capture of terrorist leaders.4
Being effective is less a question of optimising for a known set of variables than responding to a constantly shifting environment
“Being effective in today’s world is less a question of optimising for a known set of variables than responding to a constantly shifting environment,” McChrystal observed. His new structure took the form of “webs and nodes” rather than “tiers and silos”, anticipating Spotify’s squads model.
Two concepts were key to the success of this approach. The first was shared consciousness, a sense of coordination brought about by transparency and openness – the Task Force held daily briefings at which teams were expected to pool their information with the wider group, disregarding traditional silos. The second was empowered execution, with managerial authority delegated to units in the field, who were allowed to make tactical decisions based on new information without waiting for approval from the higher-ups.
Figure 1: From tiers and silos to webs and nodes5
Source: McKinsey & Co, December 2017
Agility in asset management: A deal team approach
There are lessons for companies struggling to break free of their own organisational constraints.
Take finance. In recent years, some asset managers have recognised the need to do away with strict asset-class silos among their investment teams to respond quicker to market shifts. The rise of responsible investment has played a role in this: environmental, social and governance (ESG) factors cut across asset classes, necessitating better information-sharing between specialists.
Many firms remain wedded to old-fashioned methods of communication and divisions of labour
But when it comes to client engagement, many firms remain wedded to old-fashioned methods of communication and divisions of labour – even as clients begin to demand intuitive technology and responsive, customised services.
To give an example, asset managers would traditionally allocate clients a single point of contact within the organisation. We recently implemented a more agile, teams-based approach, reorganising sales and client-relations employees into small, flexible groups comprising both front-office and back-office personnel. We have found these deal teams are better able to determine clients’ needs, respond quickly and effectively to their requests with personalised solutions, and identify problems before they arise.
Quite rightly, clients now expect timely data on investment performance and market conditions; they also want informed discussions about how portfolios are constructed and ESG factors are integrated into the investment process so they can engage on these issues with their own stakeholders. Working in deal teams enables us to deliver on these requirements more effectively.
Because the teams are small, the personal touch is retained from the old model; each member can build relationships with clients, offering a partnership based on trust and credibility while drawing on the expertise of the wider group.
A strong culture is a prerequisite
For this approach to work, it is important to keep the key concepts of empowered autonomy and shared consciousness in mind; teams must be able to assimilate new information and make rapid decisions when interacting with clients. (Leaders in customer service have long been aware of this: at retail chain Nordstrom, new recruits are issued with a business card that outlines the company’s single rule for employees: “Use good judgement in all situations.”6)
A collective focus on customer outcomes lends coherence to the agile structure
A strong culture is another prerequisite. An inclusive working environment characterised by trust and transparency enables information-sharing and rapid learning cycles based on instant feedback. Meanwhile, a collective focus on customer outcomes lends coherence to the agile structure, freeing teams to solve problems as they see fit while keeping this principal objective in mind.
Diversity of thought is another crucial aspect of the agile approach. It makes no sense to assemble teams whose members look and think alike – far better to identify talent that spans the spectrum of race, gender, social class, sexual orientation and neurodiversity. The presence of different skills and perspectives fosters creative thinking and productive discussion. Diverse teams are also better placed to recognise and satisfy the needs and expectations of an increasingly diverse client base.
A new kind of leadership: Add, not fit
Agile approaches require a different kind of leader. Under the old hierarchical, patriarchal model, managers often saw themselves as strategists, rather like grandmasters overseeing a chessboard, with employees reduced to pawns in the game. By contrast, McChrystal likens the leaders of agile organisations to “gardeners”, tending an environment in which talent is permitted to grow and flourish.
It is an apt metaphor. One cause of frustration throughout my career is the way I have observed executives practice a one-size-fits-all management style. Everyone is different, each an individual with contrasting backstories and motivations, varying strengths and weaknesses; we are all the sum of our parts. Managers need to understand this if they are to retain talented people and encourage them to give their best.
Managers need to encourage the interplay of different points of view if they are to build happy, productive teams
In the same way we seek to customise our services to suit different clients, we need to treat people as individuals, allowing them the freedom to express themselves and find creative solutions. The key concept here is ‘add’, rather than ‘fit’; managers need to encourage the interplay of different points of view if they are to build happy, productive teams.
This change in style can, in turn, help bring about a wider shift in mindset across the organisation, so that we begin to reject hierarchies and embrace inclusive, flexible networks. It is the best way to ensure our businesses are primed for the challenges of the future. The old ways are stubbornly persistent, and revising traditional practices requires bravery and patience – but the rewards are worth it. Like a Stoic philosopher, an agile organisation will be primed and ready to adapt to any circumstance.