3 Important digital strategy lessons learned from the SVB collapse

Last weekend, Twitter and the business news media exploded. The collapse of the Silicon Valley Bank was the talk of the town, and people feared this would be the start of a new financial crisis. Luckily, it didn’t get that far because of the swift reaction of the US federal government, preventing a domino effect. Case closed? I don’t think so. I strongly believe that we can learn important digital strategy lessons from this event than can be applied to virtually every organization. 

Let’s start from the conclusion of Prof. Clifford Rossi (University of Maryland) in Newswise: ”SVB’s stunning collapse is a reminder that despite our best efforts to regulate the banking sector following the 2008 financial crisis, banks can and will fail from time to time. In the case of SVB, an unusual confluence of events; over-concentration in a volatile sector, poor investment strategy, risk management practices and board risk oversight ultimately doomed this bank.”

In this statement, several open doors are mentioned. But the case of SVB underlines the difficulties to put diversification, risk management and active portfolio monitoring to work.

Many organizations have implemented portfolio management, risk management and investment evaluation as separate processes and as such have failed to integrate the data, information, and outcomes at board level. In addition, most are only able to periodically provide an update on the different key domains. Scattered data is often presented in PowerPoints, summarizing preliminary conclusions or spreadsheets once every month to C-level executives.

In the process of consolidation and summarization, the nitty-gritty details of reality disappear unwantedly, and, more importantly, the delay between the occurrence of seemingly independent events and the consolidated reporting is a major risk that prevents CEOs from reacting quickly [1] when needed.

To take this one step further, I asked myself: what do organizations need to prevent what happened at SVB? What can we learn from it from a digital strategy perspective? I believe the following:

Ensure real-time integration of management information

Real-time integration of management information from different sources in a single place enables leadership teams to consume vital data in an interconnected and accurate way. A CEO dashboard that includes KPIs, OKRs, Risk Indicators and other consolidated metrics is a starting point but needs to be enriched with the possibility for leaders to drill down to fully understand the information behind the numbers.

In addition, that information should not only contain actuals, but also historical trends, future predictions, and the ability to drill down to specific elements in the portfolio, without pre-filtering by intermediate officers. These information layers combined will enable that gut feeling that fosters deep-diving and understanding the complexity of intertwined disciplines.

Beware of the side effects of the principal-agent problem

The principal–agent problem typically arises when two parties have different interests and asymmetric information levels (the agent having more information). This leads to situations where the principal cannot guarantee the agent is always acting in their (the principal’s) best interest, particularly when activities that are useful to the principal are costly to the agent, and where elements of what the agent does are costly for the principal to monitor.

Many western organizations are organized around the concept of efficiency, leading to work clusters in specialized units that all deliver a part of the production or service chain. The concepts of Taylor [2] are often preferred over more advanced economic organization principles like Agile management, Lean Management or Adhocracy, just to name a few. Taylorism often leads to hierarchical structures, fostering bureaucracy.

In a hierarchy, the principal-agent problem can easily emerge, and the chances increase in volatile environments, where the drivers for incentives can change rapidly. Having said this, it’s not only important for C-level executives to have sound dashboards, but ALL levels in the organization should have the same (subset) of information available in real time to avoid information asymmetry. If disregarded, the principle-agent problem becomes a ticking time bomb.

Manage your portfolio actively

Active portfolio management is super important. In one of the companies that I was advising, the CFO observed that only 45% of projects that were included in year plans were executed as predicted. The other 55% was emerging throughout the year, as a result from changes in the competitive environment. He made the statement that “unfortunately, the velocity of change in our portfolio is not synchronized with the time the earth revolves around the sun”. I will always remember this statement, as it underlines the irrelevance of the financial calendar when it comes to sound business investment and divestment decisions. Too often, projects are started and then vanish into the organization with their budget, deliverables, and timelines. The investment portfolio should not only contain funding decisions, but a follow-through of the complete project and product life cycle. In addition, risk profiles of individual projects and existing products should be reconciled in real time and fed into the portfolio.

This portfolio should not only contain new products and innovations, but also consider the existing product and services portfolio. These should both be managed actively alongside one another. Because we all know that a VUCA (Volatile, Uncertain, Complex and Ambiguous) environment needs continuous evaluation.

I hope you’ve found my view useful on what we can take away from the Silicon Valley Bank collapse regarding digital strategy. Feel free to reach out to me to discuss any of the above-mentioned topics further.

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[1] See also L. J. Bourgeois III and Kathleen M. Eisenhardt, “Strategic Decision Processes in High Velocity Environments”, 1988.
[2] F. W. Taylor, “The Principles of Scientific Management,” Harper, New York, 1914.