Simple best practices are often overlooked
Working with a number of founders and having experienced numerous leadership teams and regimes across a career in Information Services, I thought I would share some of the most searing lessons. CEO of any company is hard, so this isn’t an ad hominem attack on individuals, teams or firms, rather it is a reminder that some corporate rules are often overlooked, some topics simply deprioritized as teams attempt to meet challenging objectives with compressed timeframes and always limited bandwidth.
Consistent, aligned incentives
Incentives might seem a counter intuitive place to start. After all, sales teams have growth targets, product have launch targets and roadmaps, HR monitor DEI, turnover metrics, etc. Yet incentives need careful monitoring…where the incentive system causes enormous friction is when you give growth focused targets (by which I normally mean increases in sales or revenue) while other parts of the organisation have been asked to belt-tighten.
In organizations with shared services, such as a horizontal technology team supporting vertical businesses or products, or legal teams supporting sales negotiations, this causes chaos, it is hugely frictional and the upper echelons / can be oblivious to the challenges created.
The organization must have a shared sense for where the business is today, or the CEO and executive team (and even board) need to be satisfied that the executive mandates as designed are going to pull teams together, not drive them apart. Such strategies can work near term, and some degree of revenue optimization is completely normal business behavior.
Beyond a certain point, any customer-centric leadership team needs to be clear on the trade offs and the long term implications of such an approach, which I’d characterize as comparable to steaming a large, single hulled passenger ship through an ice field at 22 knots.
Be the trend, do not follow it.
Anticipation and strategic foresight are critical. It feels like a lifetime ago when S&P acquired Kensho in 2018. Quoting from the press release: “a leading edge provider of next-generation analytics, artificial intelligence, machine learning, and data visualization systems” I don’t work there so can’t speak directly to the advantage it gave the firm (nor the $550M price point) but as we look at the path technology has taken in recent years, this was obviously an astute acquisition capturing early industry trends. Their acquisition of Visible Alpha also gets a call out, as it showed a perceptive understanding of where the estimates space is going.
Whether just coincidental or causative, it is noteworthy S&P Global’s share price has not suffered the “AI Shock” that other large content / analytics players have suffered in the last 12 months.
In the same vein, Morningstar’s 2016 acquisition of Pitchbook gave them significant, early exposure to private markets, positioning them in an industry that has grown enormously in the last 9 years. Credit to them for the early moves and shareholder value created.
Avoiding ice hockey analogies.
The flip side of this is allowing your agenda to be set by the “Davos crowd” and their focus on long term mega trends. Whether the topic du jour is ESG, the China market opportunity, climate change, big data, or more recently, private markets and AI, the crowdsourcing of key board priorities like this (and the easy seduction of associated media hype) can be lethal.
This isn’t a single firm criticism, industry valuations of whatever is the new, new thing always sky rocket, credit to the bankers and their hype-cycles. However, that is why the math on acquisitions often doesn’t work out. Some of the revenue models constructed to justify these things look ridiculous. You will be far better served by skating to where the puck will be thinking through “OK, this year’s focus is on private credit, AI or whatever. What will be on the agenda next year, or in three years?”
So, what does come next?
We know the key trends today, we know the market is bidding up capabilities areas such as AI or private markets. At the same time, the core content franchises are down significantly (see chart). I would rather build out a broader content franchise, since proprietary, moated content appears underpriced to me today.
Clearlake’s acquisition of Dun & Bradstreet is a good example of finding content assets priced on business revenue (flatlining), not the scarcity value of the assets. Clearlake will perform the normal operational surgery on the bloated cost base of a previously public firm, but I hope they also look at the opportunity for new analytics on top of private company data. CB Insights is a great example of the types of predictive insights you can build when you understand your market and customer workflow.
If I was building a new content or analytics business, one opportunity is the financial markets implications of [ever] increasing, surging sovereign debt levels (which is also a chance for a Titanic image). The catalysts are impossible to know, but predictive analytics on sovereign fragility are barely an afterthought today, as is sovereign CDS pricing. Markets are no more pricing or accounting for these risks than they are the implications of a rise in mean sea level.
It is hard to imagine this recklessness (almost malice aforethought) can proceed through the next economic cycle without a sustained outbreak of bond vigilanteism. A point will come where we stop thinking of US treasury bonds as “risk-free”, there’s going to be a large market for clever bond and fiscal analytics.
Take that a step further, thinking about second order effects, which sectors lose when US and Western European fiscal policy does tighten? Surely, that an enormous challenge for the defense industry? Healthcare? These longer term risks are surely a counter-balance to the current new Cold War narrative (and bullish defense valuations). While Germany’s fiscal situation implies it can afford another arms race, the US, UK, France, Japan are going to need a massive productivity boost from AI to do so. I’d love to see these risks ranked and quantified.
The vicious cycle of a bad senior hire
Earlier in my career I watched a senior leader join the organization from an adjacent industry, but not one with a SaaS sales model, nor where the value of accurate and differentiated content drove their success. That leader’s tenure at the organization was only 2 years. Yet that business’ leadership team was rebuilt, and numerous changes were made to the sales teams supporting it.
The value destruction and opportunity cost to shareholders from this scenario was in the tens of millions, far beyond the compensation cost of one senior stakeholder. My point here is that leadership must, in the main, be sourced from within the industry.
Consulting is not a panacea
I struggle with this transferrable skills argument that the challenges in our industry are so reductive that you can just wheel in a consultant or an MBA and all will be solved. You want to be led by people who know more than you, not those that want to try a solution because it worked in a business case in consumer staples.
Leaders who lack SME and a deep understanding of the business rarely hire well, it’s depressing how rarely they hire to plug their own capability or knowledge gaps. Instead they bring in more people with their own background. Every consultant I’ve ever worked with hires more ex-consultants, this is human nature. However, in organizations where strategy and sales execution require strong SME, a sudden influx of people without industry acumen is damaging, reducing execution, performance and, perhaps most insidiously, morale. There is absolutely value to external, dispassionate experts who can evaluate problems without the baggage of having lived them daily, but there is a limit to how much a complex issue can be neatly solved with a 7 step framework, the real world is messier.
There is no substitute for understanding the customer
In many larger firms there is longstanding debate as to whether shared services, such as learning, marketing, platform technology, legal and executive leadership need to understand the financial markets, assets, workflows and personas that their firms support. 5 years ago I would simply have said yes. Today, I think the point is more nuanced, you cannot always find that talent at the right price point. I don’t think it’s debatable though, that the better your internal understanding of firms, industries, personas, workflows and incentives the better your product, marketing, commercials and customer narrative.
If you want to build something special, start with a shared passion for understanding the customer.
I was at an event in 2018 in London, just after Blackstone had acquired Refinitiv from Thomson Reuters. The event was a large affair for Refinitiv leadership at the O2, and was called Leadershift as we were going to shift our leadership mindset (get it?).
I remember the event clearly because the previous weekend (being an Australian male of a certain age) I had visited the WW1 battlefields around Ypres; the juxtaposition between the poignant weekend of introspection and the self-congratulatory | humblebrag onstage was stark. What sticks out to me was an on-stage “fireside chat” where the Refinitiv CEO, David Craig, interviewed Lance Uggla who was at that point CEO / Founder of the standalone Markit business, before IHS, before S&P.
Lance spoke passionately and with great conviction about customers needing to meet dedicated product/SME and I reflected on the sales model we had adopted, which structurally inhibited that type of CX. It was hard to listen to wisdom from an impressive competitor while knowing your organisation was (then) moving in a different direction. Financial engineering only gets you so far.
Anytime you marry limited knowledge with a culture of rudimentary intellectual curiosity, you start to create a problem, the shape of a pear starts to appear. The firm runs a risk of becoming inarticulate about its own core franchise. Whether in learning, enablement, UX, marketing, technology, research, data science or executive leadership – you must have either strong subject matter expertise or a culture and appetite to learn, without either, you have a path to oblivion.
Not asking is the mistake.
I’ve seen managers, even senior executives, with such poor knowledge of the business they reminded me of the witticism of the Israeli diplomat and politician, Abba Eban, “his ignorance is encyclopedic”.
I never understood how CEOs or boards accepted this, but if your intent is to build something special, start with a shared passion for understanding the customer. Every staff member arrives with a different background, at a different point in their careers. If you encourage constant learning: questions, curiosity and you drive customer conversation intelligence throughout the firm, you can create something truly special.
