Natalie Turner, Host of disruptive LIVE and Jochen Werne, CDO/CVO of Prosegur Cash Services, Germany in a lively discussion about the different aspects of change in companies and society. The interview touches aspects of fear and consciousness by giving examples reaching from Shakespeare to the Age of Enlightenment and our modern times of exponential technologies and artificial intelligence.
On Tuesday, November 5, 2019, Managing Director Dr. Stefan Hirschmann and his team from VÖB-Services organised an inspiring BANKENNETZWERK networking event “Digitisation and digital competence in banks” with an auditorium of 70 banking professionals.
Learning from history is crucial to understand the current societal changes triggered by technological progress. It‘s the basis to be able to make smart strategic decisions in a fundamentally changing business environment.
Some examples in the keynote referring to Professor Niall Ferguson‘s inspiring book „The Square and the Tower“. Enjoy some of his insights here
A crypto currency challenges technology, regulation and humans.
Author: Jochen Werne
“Money is perhaps the most concentrated and acute form and expression of trust in the social-state order.”
In this clarity, the German philosopher and sociologist Georg Simmel, born in 1858, formulated the value of a currency in his work “Philosophy of Money”. This clear and comprehensible insight also provides a simple basis for understanding why, for example, states rely on the independence of their central banks. And just as simply the question arises, which order do you trust when it comes to crypto currency?
Almost 4,000 of these currencies now exist worldwide. After Bitcoin, Ether, XRP, Litecoin and Co., Libra now wants to establish itself as a future heavyweight in the market – and with a noble goal. Libra is to become the cashless payment option “for mankind” and make international payment easier.
Libra Coin – the currency of the future?
No crypto currency received comparable media attention, triggered only by the announcement of the project. And the emotionality and toughness with which the discussion is already being conducted shows how seriously the topic is being taken. It’s about reputation, influence, control, responsibility and only in the last instance about technology. Central banks and government bodies are sceptical about the “currency of the future” on a broad basis, even though the advancing globalization could argue for a single currency in the long run. A currency that supports a consistent free exchange of goods and services. Also under discussion is whether Libra Coin could be the means of payment for the approximately 1.7 billion people who have no access to banking services and whether the familiarity and the large target group of Facebook, combined with the announced low transaction costs, could make it possible to reach billions of people worldwide.
Challenges at all levels
Technically, not all hurdles have been cleared yet: In order to make a stable coin possible, it is necessary to find the right technology. It is precisely this stability that is supposed to distinguish Libra Coin from other crypto currencies and thus also make it suitable for skeptical end consumers. Members such as Mastercard, Paypal or Ebay should also provide the Libra Association with their names and brand promises additional confidence for the end consumer. But already today the alliance is not as stable as the founding members had hoped and the exits of Mastercard, Visa and Paypal weakens the consortium.
The Libra Association has repeatedly emphasized that it wants to comply with all regulatory aspects, but there are voices at the political and banking levels that are extremely sceptical about the project. The new payment system raises many questions in monetary and legal terms. Central banks and supervisors want to keep an eye on the influence of the potentially new currency and usually share the view that whoever acts like a bank must be treated like a bank. In other words, comprehensive requirements must be met and regulations observed – especially at the international level. This is difficult because current regulations are designed for the classical financial system, with which the Libra system has largely no points of contact. The aim is to keep total regulatory influence and not to allow any possible loopholes.
Despite its American origin, the Libra Coin is to be administered from Geneva by the Libra Association. The idea here is to be regulated by the Swiss Financial Market Supervisory Authority FINMA. Although Facebook has paid a lot of attention to the underlying technology, the legal issues still need to be clarified. Especially with regard to money laundering, consumer protection and possible misuse of the currency for illegal activities. Within the Association, there will be no special treatment for the founder Facebook, but equal voting rights for all members.
Acceptance and European values
With regard to Germany, it can be said that its citizens are within the international average as far as their affinity for digital is concerned. However, a historical-cutlurell caution can certainly be observed with regard to the topic of money, which certainly explains the well-known love of cash. A more pronounced European awareness of data protection with the General Data Protection Regulation (GDPR) makes many people, especially in Germany, sceptical about the subject. The fact that Libra was launched by Facebook is hardly a confidence booster after the Cambridge Analytica scandal. The fear of the transparent customer meets with security concerns about one’s own savings. Every German knows the quote: “Friendship ends with money” and thus new things are always put test. Culturally different in Sweden, where sometimes it’s only possible to pay by card. The same in China, where WeChat Pay and Alipay are no longer just a trend.
As always, changes are taking place step by step. It remains to be seen whether Libra Coin in its current form has future prospects. In any case, any change can only work if it is accepted and used by the end consumer despite all skepticism.
And this stands and falls – also in the digital world – with what Georg Simmel already put in the centre in terms of money in the 19th century: CONFIDENCE.
The “cobra effect” is a prime example of failed incentive structures. Good governance in banks and savings banks must serve stability and flexibility at the same time. Compliance with four principles is indispensable.
Well-intentioned is not well done yet. Science calls this the cobra effect. It goes back to an event when India was still a British colony. In order to control a cobra plague, a British governor placed a bounty on every snake that he killed. With the result that enterprising Indians began to breed cobras to collect the bounty. When the governor learned of this practice, he had the program stopped and the breeders released the snakes. Result: The problem had multiplied.
The Kobra effect is regarded as a prime example of failed incentive structures – and thus of failed governance. This word, derived from the French “governance” for government, is often used today, and with its almost inflationary mention, the blur surrounding it is also growing.
So let us recall: governance refers to the structures and forms of governance that exist in a society. This refers to the interaction between the state, the private sector and interest groups. The aim is to improve the management of an organisation or a political or social unit in order to achieve better results.
Stability as an objective of governance
However, it has become common practice to use governance primarily when it is not a question of state structures. For example, the term plays an important role in practically all companies that deal with the public in the form of customers or stakeholders. As a result of the blurred use of the term, case studies from politics are often used today to explain economic frameworks.
Undoubtedly, there are many parallels between the governance of states and the governance of private companies, in their structure and processes and thus also in their form of governance. The decisive factor for both is first and foremost stability and thus the ability to cope with major crises. For states, the core of stability is the constitution, which enables leadership during the crisis and at the same time serves as the basis for a way out of the crisis. A current example of this is the national crisis in Austria. The government has failed; until the next elections a transitional government of experts will lead the country and thus guarantee stability. Around this core, however, a state structure must also have a certain flexibility in order to be able to react to developments.
Stability plus flexibility
And this is where the differences to the private sector begin. States are not in competition with the private sector and generally continue to exist even after crises, even if in extreme cases the political system and its fundamental form of governance may change. The situation is different for companies. Of course, they also need a stable core. But they must be extremely flexible and adapt to market situations in order to survive in the long term. Their stability is based on the flexibility of the process organisation. When it comes to flexibility, smaller companies often have an advantage over large, difficult-to-maneuver corporations. We see this in the financial services industry with the example of FinTechs and InsurTechs. However, these relatively small companies often lack the stability they need to survive when consolidating.
Let’s take the example of the banking industry: It faces clear challenges – digitization, new competing business models, exponential technology leaps and ever shorter product cycles with lower margins and increasing regulation. Sustainable answers and the resulting strategies will only be found by those houses that are stable in themselves on the one hand, but are also capable of a degree of flexibility that has never been demanded of them in history on the other.
Four principles of good governance
But how does a company obtain the necessary stability? There are four principles for good, i.e. successful, governance, which must always be present:
Accountability: There must be an organization that is controllable and controlled. Accountability: The company as a whole and each individual employee are accountable for their actions. Openness: Only when employees, customers and stakeholders understand what is happening is transparency actually lived out. Fairness: Ethical conduct is one of the foundations for long-term value creation.
Governance must be lived
In order to achieve a satisfactory situation for both sides, the four principles of governance are indispensable. However, it is not enough to lay them down in statutes; they must also be lived by each individual.
In addition, the current major transformation issues, which not only the banks but also the entire economy have seized, should be seen as an opportunity for companies with a consolidated governance structure and remind us of a statement by the Roman philosopher Seneca, who said: “Only the tree that has been constantly exposed to gusts of wind is firm and strong, because in battle its roots are consolidated and strengthened”.
Jochen Werne is full-time Director & Authorized Officer for Bankhaus August Lenz & Co. AG of the Mediolanum Banking Group and is responsible for Business Development, Marketing, Product Management, Treasury & B2B Payment Services. In addition, he is involved in the development of non-profit organizations and a member of the Learning Systems Platform of the Federal Ministry of Education and Research.
The initiative www.wegofive.net addresses the question of how a unit of man and machine can be created in the working world of tomorrow and how algorithms can be seamlessly integrated into the organization in order to supplement the capabilities of employees.
In this first, introductory part of our interview Jochen gives us an insight into what has changed for him in the last decades – and he finds out that “Hamburg is probably the most beautiful city in Germany” 😉
As an independent interim manager, profile and team coach, Sascha Adam supports people, decision-makers and companies in actively shaping digital change.
More at www.wegofive.net/mission/about or www.sascha-adam.net.
Many thanks to the coast by east Hamburg in the Hafencity Hamburg for the permission to film here. A very recommendable location with obliging service, extraordinary menu and good drinks. Apropos, the background noises also give you the feeling of sitting directly with us 😉
Jochen Werne ist hauptberuflich Director & Authorized Officer für das Bankhaus August Lenz & Co. AG der Mediolanum Banking Group und verantwortet dort die Bereiche Business Development, Marketing, Product Management, Treasury & B2B Payment Services. Darüberhinaus ist er am Aufbau gemeinnütziger Organisationen beteiligt und Mitglied der Plattform Lernende Systeme des Bundesministerium für Bildung und Forschung. Die Initiative www.wegofive.net geht der Frage nach wie in der Arbeitswelt von morgen eine Einheit aus Mensch & Maschine geschaffen werden kann und sich Algorithmen nahtlos in die Organisation integrieren, um die Fähigkeiten der Mitarbeiter zu ergänzen. In diesem ersten, einleitenden Teil unseres Interviews gibt uns Jochen einen Einblick was sich in den letzten Jahrzehnten für ihn verändert hat – und stellen fest, dass “Hamburg die wahrscheinlich schönste Stadt in Deutschland ist” 😉 Sascha Adam unterstützt als selbstständiger Interimsmanager, Profile- und Team-Coach Menschen, Entscheider und Unternehmen dabei den digitalen Wandel aktiv zu gestalten. Mehr unter www.wegofive.net/mission/about oder www.sascha-adam.net. Ganz herzlichen Dank an das coast by east Hamburg in der Hafencity Hamburg für die Genehmigung hier filmen zu dürfen. Eine sehr zu empfehlende Location mit zuvorkommender Bedienung, außergewöhnlicher Speisekarte und guten Drinks. Apropos, die Hintergrundgeräusche geben einem auch gleich das Gefühl direkt bei uns zu sitzen 😉
AI thought leaders met on the 21st and 22nd at the #HBAISummit not only to discuss the latest developments in machine and deep learning programming but especially real use-cases, trends in the start-up scene, the role of Germany and Europe in the AI race and the impact of AI on our society. Read more here
It has been a great pleasure discussing and being inspired by a highly engaged auditorium during two sessions:
“An analogy for business leaders in the financial industry that compares the challenging times of today’s technological enterprise transformation with the changes during the time of the industrial revolution when steam ships ended the centuries-long era of sailing ships.”
In 1971, the BBC began broadcasting a series on the history of James Onedin, who, as captain and later as shipowner, lived through the stormy times of industrialisation and the conversion of the entire industry from sailing to steam navigation. The series, which takes place in Victorian England in the second half of the 19th century, describes in a special way the subtleties of the interplay of a changing market. New technologies, new skills of market participants, increased conflict potential between entrepreneurs and managers and reorientation in an environment of shrinking margins – special challenges for those who tried to continue their business as before: with sailing ships.
The captain is responsible for bringing his ship, crew and cargo safely and within a specified time and financial framework to the port of destination. But what if the ship is no longer able to do this and the competition suddenly moves across the blue oceans with completely different ships? What if the shipowner does not have the capacity to trust the new technologies or simply does not have the financial resources to re-equip his fleet? And what about the crew? Does the crew has the necessary skills to sail on the new ships?
Many captains of banks and financial institutions seem to have this scenario all too present. E.g. due to declining customer traffic in bank branches, the high costs for a broad branch network are hardly to be paid today. Germany as a financial centre is “overbanked”, interest rates in the basement – the conditions in Germany for successful banking have never been as challenging as they are now. To this end, customers are continuing to drive change in the industry with their changing demands on digital tools.
Outwaiting a problem or tackling it
The complexity of economic changes has been enormous in every epoch, the difference to current upheavals lies in the temporal component. If companies do not react immediate to market changes today, they might loose their customers faster than ever before. In such disruptive times, all those involved want an “efficient” change process. The only problem is that the term “change” is so omnipresent that it is often perceived as stress and overload. As a result, many levels of management fall into one of the following situations: either they try to sit out the situation and leave change to their successors, or they push many, often less effective measures in an attack of blind actionism. Active, thoughtful and vital change management is often neglected.
More entrepreneurial thinking
Processes of change require both superiors and employees. If the existing situation cannot be improved or adapted at any vertical level, it must be questioned. Concluding, this means for all those involved that situations must always be reflected and corrective measures initiated at an early stage.
Understanding the corporate culture is vital for a successful transformation
In many companies, however, this need for action, which has a high potential for conflict, is often insufficiently communicated. In some places there is a lack of interest for employee issues, a lack of error and conflict culture and a minimal willingness to change. If banks neglect these issues, change processes threaten to fail on a broad basis. This means that managers in a disruptive environment have a natural need for action. The implementation of new strategies, systems and structures and early adaptation to changing market situations are vital factors for survival. A well-known quote by former US President Wodrow Wilson (1913-1921) is particularly valid for today’s highly competitive financial sector: “If you want to make enemies, try to change something.”
Those companies that create the change will share the large financial services market with the new market players and use instruments that did not exist in the classic banking of the past.
Just like James Onedin, who for the longest time was an advocate of classic sailing ships, finally added a modern steamship to his fleet. And to facilitate the change for himself personally, he named the ship after someone he loved.
Author: Angelika Breinich-Schilly interviewed Jochen Werne, Director Marketing, Business Development, Treasury & Payment Services at Bankhaus August Lenz.
Banks need to do a lot to keep pace in an increasingly digital world. In an interview with Springer Professional, Jochen Werne from Bankhaus August Lenz talks about the challenges they have to face and the right strategies.
Springer Professional: Mr. Werne, what do you see as the most important driver of change in banks that is being invoked everywhere? Is it just the ongoing digitalization or do you see other reasons that require a strategic change process of the institutes?
Jochen Werne: The industry is undergoing what is probably a historic upheaval. We live in times of exponential technologies and in addition to the cost-side necessity of digitizing a large part of the processes of the institutes, the rapid change in customer expectations associated with technology, poses great challenges to an industry which is not known for being greatly agile. This disruption will eclipse many things and later perhaps be judged as revolutionary as the invention of the steam engine. In recent weeks, this has hardly made anything as clear as the rise of the online payment processor Wirecard. Wirecard was not only able to outperform Commerzbank in the DAX in September. Founded in 1999, the company has already overtaken Deutsche Bank in terms of market capitalization. In addition to the ongoing digitalization, there are also other current challenges: The low interest rate phase, which has now already lasted for a long time, is putting massive pressure on the margins of traditional houses. Political crises, trade disputes, currency problems such as in Turkey and Brexit naturally also have a direct effect on the classic business models of banks: In the future, they will have to adapt more than ever and increasingly prove their agility. The exponential leaps in technology and ever shorter product cycles are forcing the global economy as a whole to change and adapt to changing circumstances more than ever before. Kodak is a good example. For the sake of simplification, the company has often been accused of not being far-sighted, but it has failed because of a culture that has allowed little change. Two letters are currently electrifying the economy: AI. After decades of disinterest, artificial intelligence is suddenly once again regarded as the decisive guarantor of a company’s future viability. The immediate integration of AI into one’s own business model seems indispensable, even vital for survival. Without smart software, you’d think you were dedicated to meaninglessness. Similar to Facebook, the financial industry holds very valuable data. The preparation and processing of this data will not only become easier with maturing AI systems, but also much faster, cheaper and more targeted. It is nevertheless private and sensitive data. In order to make this resource usable in conjunction with external data, the industry must at the same time ensure its long-term security. Data may only be used in the sense of the customer, the human being – an objective that certainly has to apply to all AI-based approaches. Artificial intelligence offers an enormous range of opportunities for companies to be closer to their customers. But it also has its limits and here we are not only talking about technical limits, but also about limits that arise when the customer’s mindset does not go hand in hand with what is technically possible. Technology will only prevail if people accept it. Too radical a step, without consideration for all three areas Human, Digital and Culture, is always counterproductive.
Springer Professional: You describe that many decision-makers in the banks are well aware of the necessary changes in the business model. At the same time, however, top management often does not seem to set a concrete course and have corresponding visions. Why do you think that is?
Jochen Werne:Digitization, technological advances and the acceleration of product cycles are forcing executives to reposition their businesses. The question is no longer whether and why companies should change and introduce a more flexible organizational form, but only: How quickly and sustainably can they do it? The need for successful Change Management is not new and digitization was not an unforeseeable event. What is new, however, is the sum of the technical innovations, the possibilities offered by the technological leaps and the resulting need for extremely high implementation speeds. This circumstance has far-reaching effects on the entire management of the company. This often leads to different change processes overlaying each other, individual change processes being interrupted, modified or restarted and the organization being in a state of continuous change. And this also applies to the manager.
Springer Professional: In order to become a driver of innovation as a bank, it is necessary to anticipate not only upcoming technological but also social changes, some of which still vary greatly from region to region. One example is the payment behaviour of customers, which looks different in Germany than in other European countries or even in Asia. Many financial service providers now have think tanks or innovation labs to take on this task. But does some good ideas go up in smoke due to poorly thought-out change management?
Jochen Werne:Every new innovative offering must be easy for the customer to understand, intuitive to use and as a bank, absolutely trustworthy in terms of data security. The customer relies on the security of the communication channels as well as the careful handling of his private data. The challenge is to ensure data protection while at the same time providing the highest possible level of customer convenience. The resources of traditional banks offer enormous advantages here. An established bank is perceived as a brand by its clients, who at best associate it with important values such as trustworthiness, competence, industry knowledge and personal service. This trust is enormously important to us and should definitely be used.
Springer Professional:Companies in other industries sometimes find it easier to cope with change processes because they are not subject to additional strict regulations, as is the case with banks. Nevertheless, financial service providers such as Wirecard have succeeded in clearly differentiating themselves from traditional banks with their business model. Recently, the share value of this Fintech has even overtaken Deutsche Bank, the industry leader, as the most valuable institution. What can the industry learn from this?
Jochen Werne:Laws and guidelines have a strong influence on the competitive situation. MIFID II and PSD II are prime examples of this. In the second case, industry experts predicted that the mere opening of the banking infrastructure to third parties would lead to a major shift in competition. This is a big advantage for FinTechs, but also the FinTech industry, which is already in the process of market consolidation, has to make considerable investments and adjustments, even if the new regulations now also open up new market opportunities. Non-adaptable service providers without sustainable and a viable business models will be driven out of the market, as will banks whose offerings do not meet the needs of customers in a digital world. The example shows not only the usefulness of cooperation, but also its necessity. The advantages of banks, such as routine handling of regulatory issues or cross-selling opportunities due to the existing customer base, will continue to exist even after the market consolidation of the FinTech industry and the introduction of new technological standards.
Springer Professional: In order to be a driver of innovation, a bank does not necessarily have to handle all tasks alone. Where and when do cooperations with Fintechs make sense from your point of view?
Jochen Werne: What some have, others lack. Banks have a solid customer base, greater financial resources and, most importantly, a banking licence and the necessary know-how to deal with the relevant regulatory authorities. In addition, traditional financial institutions with many years of market experience, expertise in customer business and their trust can score points. Fintechs, on the other hand, have business models that are geared precisely to bringing innovative, customer-centric digital tools to market in a short space of time. Strategic alliances make sense, because ultimately everyone benefits – especially the customers. Not only the young generation today has very high demands on innovative mobile banking, but all age groups have discovered the new mobile possibilities in a very short time. Personal access to customers, which has persisted despite all the financial crises to date, is a sign that banks have preserved their most important asset – the trust of their customers. In an increasingly transparent and open financial world, however, the extent to which the customer’s loyalty to his bank will remain, is open.