Why the world needs more clueless bankers

Oct 22 2008 by Nic Paton Print This Article

Given the events of the past few weeks, it takes some guts to stand up and argue that bankers are at their best when they don't have a clear idea what they're doing. But that is what a Californian academic is suggesting.

In a study of two major U.S investment banks, A Alexandra Michel of the University of Southern California Marshall School of Business, has argued that the smartest bankers who produce the best results are those who are overwhelmed by uncertainty – and therefore more likely to notice changes in the market and adapt to them.

In her book, Bullish on Uncertainty: How Organizational Cultures Transform Participants, Michel's has suggested that, counter-intuitively, banks that amplified uncertainty produced better overall results than those that went out of their way to reduced uncertainty.

Michel looked at one bank that pursued a conventional "clear and concise" management approach, including articulating a clear strategy and ensuring that bankers had explicit roles and revenue goals.

New bankers were therefore trained carefully to fill roles, assigned work based on their relevant expertise, given targeted feedback and so on.

But the other bank intentionally decided to turn this conventional thinking on its head.

Instead of outlining received goals and roles, new bankers were deluged with statistics about the consequences of their actions, ranging from the cost of colour copies to deals lost to the competition.

What's more, projects were staffed based on the availability of bankers rather than not expertise.

Junior bankers sometimes did the work of vice-presidents and often worked on deals for which they no training.

Surprisingly, it was the second bank that performed better. Where uncertainty was reduced it created a culture where bankers became too confident and unquestioning in their abilities and so did not notice when situations were changing or where certain knowledge was no longer applicable, Michel concluded.

"In our society, we tend to believe that knowledge workers can better cope with complexity when we decrease their uncertainty and give them the tools they need to become experts," she said.

"This research, in contrast, shows that people are often better at complex jobs when they know less. This gives them the incentive to question assumptions and collaborate with others," she added.

By contrast, investment banks that amplified uncertainty through information overload produced a corporate culture of "organisation".

In such a culture, overwhelmed bankers needed to draw on others to do their work and so there was much consequently much more collective questioning and general collaboration.

In fact, argued Michel, it was the unquestioning culture that had built up in many banks that contributed to the current parlous state of the financial system, not the other way round.

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