By Mark P. Dangelo
Another week has come and gone – more failed institutions, more lost jobs, and more botched policies. A circus-like atmosphere has been the backdrop to the largest bank failure in American history, as the perverse “fundamentals” of prior operations and judgment underscoring the folly of the industry “acceptable practices.” What strikes me as very peculiar is what was being measured? What were the risk-driven “levy stages” and when were they breached? Did innovation and technology provide a false sense of security, or did we completely miss what was important, their interdependencies, and the complexity of the “real markets?” It seems the only thing missing was Emperor Nero. It is past time to move forward with new ideas and leaders.
Since 2004, the ability of our industry specialists to measure and integrate disparate data sources has exponentially increased. We are able to use highly complex, GUI, web-based software that provides unprecedented analysis of both static, transactional, and summarized databases and repositories. Our industry has been focused on standards, registration, and storage – all requirements for robust and comprehensive assessments and projections. Holistically, these process and technical components, if used properly, can lead to decision innovation and market insights previously unattainable. Super job to the visionaries and technologist who provided these abilities!
However, if we had these disruptive innovations at our fingertips, then why weren’t they telling us of impending value destruction? Where was the fundamental nexus between business and competitive needs versus operation performance and risks — mentioning just a few of the potential key indicators (e.g., performance, management, and industry)? Like the financial plans being bantered in Washington, the understanding of the issues and their solutions are neither trivial nor commonplace. But, unlike some, I decided a picture may be the best method to frame discussions, improve our situation, and make our future environment just a little better.
When I completed the macro model above, it became apparent that the simplistic and siloed world that previously provided noted pundits and vendors with their “claims to fame” were no longer extraordinary or, dare I say, innovatively relevant. So let’s leave the yelling and screaming to the politicians and see if we can determine where we go from here. Consequently what is the environment that must be measured and how has it appreciably changed?
There is no singular prescription or one size that fits all for everyone. Each must be tailored to the organization and their business model. Yet, convergence of ideals and practices can be reached if we ask the proper questions allowing a focusing of energy and organizational resources.
- Is the mere pontification of measurements and monitoring mechanisms sufficient? What are the various, multi-level indicators that must be interconnected to promote improved understanding at many, distinct levels?
- Is the organization able to quickly act upon the measures and associated indictors before the circumstances are unavoidable? What is the cause-to-effect correlation and significance? What are the typical false-positives that must be factored out objectively and subjectively?
- How can the discipline of Knowledge Orchestration benefit the linkage of “old school sources and uses” with new databases and techniques needed for complex interdependencies? Are there one-time indicators and aggregation demands that can be both historical and proactive? How will orchestration help with conflicts, divergent standards, multiple dashboards, and multi-dimensional analytics?
- What are the techniques and methods that must be organizationally internalized to ensure action and adaptability? What are the key categories that must be measured not just in isolation but in collaboration with various new data sources all with vast degrees of statistical confidence and completeness?
- How will the investor issued financial instruments (e.g., covered bonds) be managed operationally as these products require a complete linkage of e-assets (e.g., origination, servicing, securitization, market pricing, ratings, et al)? Who will be responsible for creating these visionary solutions and where will they get the skills needed for assembly and adaptability?
- With the regulatory oversight pendulum set to swing to the extreme part of the behavioral and psychological continuum, how will singular compliance data sources be integrated? How can multiple competitive repositories be proactively and efficiently linked to meet local, state, and federal requirements?
And the list above goes on. As I said earlier, the availability of tools and methods to help organizations have rapidly improved and will continue to expand with new delivery methods and mathematical understanding. Templates, models and advanced dashboards have been a great assistance since 2000 in providing insight into operational and governance processes. Now, we must move beyond the singular innovation of common dashboards and BI (business intelligence) solution sets into a more thorough and adaptable series of measurement layers that can aid more than one group at a time. The innovation is available – we only have to reach out and embrace it.
In closing, as the echoes of thunder reverberate across the sky shaking the ground and its inhabitants to their core. Industry rain turns into sleet. Sleet gives way to a blizzard. The piles of frozen assets and illiquid lubrication for the financial machines have turned off the spigots of funds for both Wall Street and Main Street. “Financial Nuclear Winter” has demonstrated its cleansing, brutal wrath. Nevertheless, unlike poetry and the movies, our story doesn’t end here – it is just beginning.
If we are to believe in our American future and the future of our workforces and jobs, our measurements and the associated monitoring of business and operating practices must be fundamentally different. We cannot allow the so called industry pundits and leaders of the past to permanently taint our future. They, like the toxic assets they left, must be jettisoned. If not, the cold and brutal silence of Nuclear Winter will remain for a long time.