Wednesday, October 19, 2011

Agile will never work in Investment Banking

In the past I’ve worked for banks, as an employee, as a contractor and as a consultant. And I’ve worked for companies that supply banks in one way or another. And I have lots of friends who work for banks and tell me stories. While I’m not an expert on banks and banking I know a little....

One of the things I know is that modern banking - in all its forms - is highly dependent on IT. Banks spend a lot of money on IT and develop a lot of their own software. As a result they have a lot of software developers. And I also know that quite a few of these developers and their teams have been, and are, experimenting with Agile working in one way or another.

It seems every bank has pockets of Agile, a team here, a team there. And not very often joined up.

Some of these teams are successful, some are less so. They often find themselves battling against big company / bank culture. The banks seem to be very good at killing their Agile teams: they get disbanded, forced bank to traditional (pseudo-Waterfall) approaches by bank procedures, or constrained by “the way we do things here.”

It also seems - notice we get further and further from fact and more into conjecture as I build this argument - that many banks have cottoned on that Agile is good and can help them. To this end many banks (and this is fact) have established Agile support programmes of one form or another. There are people at many banks who are trying to make the bank Agile - at least in software development. For many of them it is an uphill struggle.

At this point we should differentiate between retail banking - what you do on the high street with your bank - and investment banking - or casino banking if you prefer. (Yes there are other divisions but lets limit ourselves to two.)

In retail banking I think there are grounds to be a little optimistic. The stories aI hear are that Agile pockets are having success and things are gradually, slowly, improving and the efforts to link things up are slowly bearing fruit.

In investment banking I’m very pessimistic. I have come to the conclusion that while individual development teams may be successful at Agile for a while inside an investment bank all such teams are ultimately doomed. Your team might be Agile for a few weeks or months or even a year or to, but it will eventually be killed by the bank antibodies.

I have come to the conclusion that investment banking culture is polar to Agile culture. My reasoning is thus:
  • Investment banks are extremely hierarchical in nature; Agile is not. Agile can live with some hierarchy but not investment banking extreme.
  • Short-term in outlook: investment banks are short-term in the extreme - microseconds in some instances. Agile teams can react in the short-term but only by taking a long term view of engineering and quality.
  • Investment bankers are not engineers and do not understand engineering. Nobody from IT ever got to run an investment bank, you don’t get up the ladder from a support function, you get there from selling and banking. A large part of the Agile story is about returning to good engineering principles. The lack of engineering skills, thinking and culture in investment banks undermines Agile.
  • Investment bankers think you can solve every problem with money. Throwing money at Agile can work in pockets (by the best team) but doesn’t last or scale.
  • Investment banks are individual focused: individual bonuses, the power of the one trader to make money or break the bank (from Kweku Adoboli to Nick Leeson and before.) Agile is team focused.
  • Investment bankers think applying more pressure is the way to get results; Agile people now that applying pressure breaks things. A little pressure can help but apply too much and things snap, bankers don’t get engineering so don’t get this.
  • Risk aversion: yes, investment banks are highly risk averse when it comes to IT. Perhaps because they take so much “risk” directly with money they very risk averse in their operations.
  • Investment banks are contradictory: they say they embrace and manage risk but actually they are risk averse (at least in operations); they say they value the team but their actions say otherwise; they call themselves “financial engineers” but they no nothing about engineering; and so on. Agile is about honesty, facing up to truth and acting on it. Investment banks recent track record shows that honesty is sometimes questionable, to say the least.
I’m sure many of you reading this will say “Rubbish, I know at team at ....”. I am sure you do. While that team might be successful for a while the investment bank culture will eventually kill the team.

So how can we help investment banks overcome this problem?

We can’t. Its the way it is. Take the money, and run, or keep you head down and hope for some more.

Eventually new financial institutions will emerge which get Agile, not just at the software level but elsewhere. These institutions - which might be banks or might take some other form - will eventually replace the investment banks.

This is going to take time. Investment banks are fundamentally a broken business model which are propped up by Government support and market failure. This means normal economic logic does not hold for these institutions.


  1. Spot on, Alan. This is (more or less) why I retired from contracting in the Banking Sector.

    There is a growing awareness in the Financial community that we must find a better way to do the useful things that Investment Banks are supposed to do. But the Turkeys won't vote for Christmas, and they wield a lot of power. I don't expect a solution anytime soon.

  2. Alan. I have no experience of banks at all and I'm reading your thoughts with some concern. I have certainly seen many of the symptoms you describe in large organisations. Some perhaps less extreme than you suggest, others on par. There are many failed agile initiatives. What you describe however, apart from the problems on the technical level, has little to do with Agile specifically and is simply an astounding lack of respect for people. So perhaps you could simply say: investment banks will never work.
    So my question would be, what can we do, to help people stand up to bullying and abuse, see beyond the financial incentives and demand respect?
    I hope the answer give us some hope of braking the tyranny and creating humane working environments in banks and elsewhere.

  3. I think "Short-term in outlook" and "Risk aversion" are the main (not to say the only) reasons agile is not working in invesment banking. And this is because usually the first time you go agile, you fail (even if you do not fail, when you adopt something new, there is a period with lower productivity, but I don't think this is a problem). Failing to deliver what was expected first time is the reason imediately to revet to the known way of working, saying something like "You see - it's not better at all - it fails as well". I've tried to implement agile in a small team (less than 10 people), and the first time we failed to deliver there was already pressure to go back.
    I would add another reason - there are a lot of money in Investment banking, so there is no enough pressure to persecute more effective way of working - just throw enough money at something you can understand and can deliver software and do not bother if it can be faster, cheaper or better.

  4. I agree with Marcin.

    The symptoms you talk about aren't so much around agile, but more around culture.

  5. The phrase often said to my team is "We are a bank. Our prime objective is to make money, NOT quality software." ... I think that says a lot, really.

  6. I've worked with an investment bank division and I think we were effective but it didn't stick (too much manager turnover due to maternity leave and GFC) and is mostly dead now. However, I'm not inclined to claim that it's impossible as I'll always be trying to work out how to win. I wonder if there is more hope in central shared services divisions?

  7. Investment banks = classic Analytic mindset archetype (or even Ad-hoc, in extreme cases)

  8. Hi Allan,

    I hate to tell you this, but things work the other way around. My experience is that retail banks are slow in uptake of Agile, have limited idea of how it can translate into benefit ( longer gestation period) and constrained by existing policies.

    On the other hand, Investment Banks are by nature opportunistic and hence more open to Agile. I am not suggesting that all Agile projects in all investment banks are successful, but the main hindrance to their success comes not from their desire to change and adapt, but by the unwillingness of the "Group", which includes retail banking to facilitate that change.

    If you know someone from DrKW, they would be able to validate how things changed for worse when it was absorbed by Allianz Bank in Germany.


  9. Allan, I've seen a lot of what you describe at investment banks. But I don't think they are special - just large, centrally controlled organisations. In part this is a reaction to risk - especially regulatory risk. Being clustered in a few centres around the world also means they have high turnover at all staff levels. This has the unfortunate effect that being seen to put out fires is more effective than not being seen lighting them.
    So while I agree with your conclusion, I suspect it applies to more than the investment banks.

  10. I really agree with your blog.I have certainly seen many of the symptoms you describe in large organizations.So keep it up..Thanks!!

  11. EBIT Associates, aka "Investment bankers", I have published your post although I believe it is probably spam generated by an automated system to get you a link.

    I have published it for two reasons:
    a) if it is real then you are condemning your own industry, which is very interesting
    b) if it is not real then it is proof that people in your industry will say anything to further their own ends

    OK maybe I'm wrong, please prove me wrong by answering the points in my post.

  12. All the bad things you said are true: definitely they have a broken business model.
    Actually also large consultancy firms working for investment banks are a broken model too. They are adopting the same philosophy.
    Also the purpose of a consultancy firm is to deliver the contract and then, get another one, and another one. So, like drugs, create addiction, not solving problem. I am wondering how banks can get good software this way. Also internal IT, they are never long-living team.

    Nevertheless, I guess this is a wonderful opportunity for smart and agile software engineers and entrepreneurs in this space. If you start "productizing" from these projects, building your agile teams at home and selling them the actual software (version 1, 2, 3 ...) this would really be a big deal. Few companies are already making profits in this way, but there is still huge space (I guess 90% of their sw is still internally made, but this is going to disappear like in many other industries happened in the past)....

    we might write a book together about this ;)

  13. By 'Investment Banks' do you mean 'Large Investment Banks' (JP Morgan, UBS and the like). Have you worked with or looked at the any of the thousands of 'mid-tier' IBs? None of these are too big to fail and some of the smaller ones have successfully adopted agile and lean practices and are comfortable with agile engineering. It seems more like a problem with being large - the argument could equally be applied to companies like Philips, Tesco, Vodafone, GalaCoral and their like - than being banks.

  14. Paul, I agree with you on all points

    Yes, I am primarily thinking of "Large Investment Banks"
    Some of the functions these institutions provide continue to be needed. Smaller investment banks, new investment banks, and what the FT likes to call "boutique" investment banks will take their place. I expect some of these will be able to do Agile. I'm glad you've seen it!

    And Yes, I think many of these points can be applied elsewhere, primarily to other large companies.

  15. This is a great post. I feel like pretty much every business could improve if they gave more credit to IT and the "background" people. They keep things moving smoothly! Even when my company was working with investment bankers at J.S. Oliver Capital Management SEC, they were much more on top of staying connected with us than the other way.


Note: only a member of this blog may post a comment.