Some have benchmarked against their most admired competitors - Capital International, Fidelity, Pimco and T. Rowe Price, to name a few - only to realise that these icons have unique corporate DNA that is hard to replicate. In any event, they offer few insights to those who are attempting to build resilient businesses in today's pressure cooker environment.

Business transformation

The task is challenging because, for most fund managers, culture is not just about 'how we do things'; it is also about 'what we do'. For most fund managers, it has meant focusing on core capabilities by:
- Streamlining the product range
- Putting core activities onto fewer platforms
- Outsourcing non-core activities
- Developing new distribution channels
- Linking pay and bonus to stellar performance

What happened at General Electric and Asea Brown Bowery is instructive in this context. Both implemented roughly similar sets of actions in the 1990s. Yet, today, one is far more robust than the other. GE was a lot smarter at how it did them. It recognised that there are no set recipes or formulae that constitute best practices; nor can any practices be easily grafted into any environment. What mattered was how senior executives engaged with others and events.

Indeed, most fund managers now find themselves in the situation that European banks and insurance companies were in the aftermath of the1990-92 recession. They had to restructure on an unprecedented scale in order to achieve differentiation in an unforgiving marketplace. So it is instructive to revisit the lessons learnt.

Some nine years later, when I audited the results, the scorecard looked dismal: only 7 per cent of the transformation programmes had succeeded. The rest were long on intentions and short on deliverables; rescued only by a long economic recovery.

I can't help replaying a conversation that I once had with the European CEO of a global bank that nearly went bust due to massive losses on sovereign debt. It responded by a root and branch culture change, starting in 1990.

I asked him "How would you describe his bank's culture before rationalisation?"
"Then, it was dog eat dog" he replied graphically.
"And now?" I asked.
"It's the other way round" he replied succinctly.

It was clear that the more things changed, the more they had remained the same. In fact, five lessons were learnt which today's fund managers may find useful.

First, focus on outputs, not inputs. Many of these programmes ended up putting undue emphasis on corporate values and mission statements, and not enough on actions and outcomes. In contrast, successful institutions like Barclays, Deutsche Bank and ING reshaped managers' behaviours by setting clear performance targets, providing the necessary support and rewarding their success.

Second, recognise that corporate culture is like a giant jelly: unless one shakes it hard, it wobbles back into its original position. It is unwise to under-estimate the magnetism of the past; or to assume that change management is smooth and painless. If it ain't hurting, then it ain't working. The unexpected always happens.

Third, mindset change is about engagement of staff members. It is vital for senior executives to be proactive and have convincing answers to the four most frequently asked questions by their employees in any business transformation:
- Direction: what are our goals and why?
- Deliverables: do we have the leadership to deliver them?
- Impacts: how will the goals affect individual teams?
- Motivation: what's in it for me?

Fourth, promise only what you can deliver. The history of change programmes is littered with clever words that say a lot about nothing. Hype that ended up promising far more than can be delivered in a climate of hyper competition. Worse than that, it created corrosive cynicism that frustrated every sensible action.

Finally, remember that the genius of strategy lies in its execution, not design. Clarity of thinking leads to clarity of actions. That means all new ideas about business growth need to be put through a reality check. Ideas that are implemented need to be clearly prioritised properly resourced, closely monitored and regularly evaluated; taking into account the local environment.

Successful banks also had a strategic process that produced base, stretch and super-stretch targets for business growth as a part of scenario planning. It enabled the top executives to think through the actions that were needed to achieve breakthrough performance and its resourcing implications. These banks worked on the principle that if few business plan survive reality, then it is essential to thrive on strategic opportunism that relies on a series of short-term measures that exploit business opportunities that emerge randomly.

The history of business transformation is littered with failures inside and outside the finance sector. But that is not because there is anything inherently wrong with the concept, but because of the absence of common sense in its implementation. Changing the employee mindset requires deep insight into human nature and the ability to respond convincingly to frequently-asked questions.

Equally, it is worth emphasising that the changes described above constitute a 'first stage' rocket; necessary but not sufficient. Their success rests critically on a huge mindset shift.

Why are mindset shifts essential?

In fund management worldwide, culture changes have implied distinct shifts in the operating model from rigidity to agility (see figure). In turn, this has involved two mindset shifts:
- From paternalism to performance, putting more emphasis on outcomes than inputs; clients than self
- From entitlement mindset to self employment mindset, putting more emphasis on accountability than position; meritocracy than longevity

These shifts amount to promoting a small company mentality in a large company environment. In this context, progress has been notably slow: such behavioural shifts in people businesses require time, passion and persistence on the part of business leaders. So far, they have yet to be embedded in the cultural fabric of the majority of investment managers. This is because seemingly desirable changes have produced unintended consequences, not least in the area of compensation.

The task is daunting when it is realised that people in the front office - like knowledge workers in other industries - are like mini-Einsteins. They have a high individualism and sense of self-worth; and they are intrepid job hoppers, as we saw in the precious article in this series. They are difficult to motivate, retain and deploy.

In particular, their success depends upon a 'nuts and bolts' leadership style from their senior executives: one that is stronger on deeds than words; blending a light touch with intensive communication; challenging complacency via restless curiosity.

Concluding remarks

At any rate, the craft nature of the fund industry requires a strategic performance process that sets clear business goals, de-personalises the issues in their delivery and allocates clear accountability of the pre-set performance targets. Such frameworks are evolving, albeit very slowly.

Unless they do, the cultural changes risk being as durable as the crisis that provoked them. After all, experience in other industries shows that business re-engineering takes time and persistence: the required mindset shifts have often required more than one crisis.

""The person who moved a mountain started by taking away the small stones" goes an ancient Chinese saying. In the global fund management industry, the cultural changes attempted so far are in earnest: however, so far, they amount to taking away a number of small stones as a precursor to moving the mountain."

Download the original published article (in Swedish)