Did “agile” kill ING Bank in Central Europe?

The story: ING Bank has just announced that they will shut down their retail banking operations in Austria and the Czech Republic. 340 employees in Austria and 225 more in Czechia will lose their jobs. 550 thousand of their customers in Austria will be looking for a new home. 375 thousand in Czechia will be taken over by Raiffeisenbank. (source: www.ing.com, recent press releases)

The prelude: It was not that long ago that ING proudly proclaimed they were embracing ‘agile’ - which will result in “more for the customer”, “speed and efficiency” and “getting stronger together”. (source: also www.ing.com, a little earlier)

The ending: Obviously, it didn’t work.

After making their retail banks “more agile”, and after putting their employees through tremendous upheaval, just the opposite happened. So they have thrown in the towel and are shutting their businesses down. 

Why?
We have here a perfect case study of what NOT to do to your organization when you are facing a strategic challenge.

Rule #1: Don’t kill the patient to cure the disease.

The “body” of your company is its people, its human resource structure. When a crisis hits, you want to make sure your “body” is in a good shape to fight it. Destroying the fabric of your company, by sacrificing the mental well being of your employees on the altar of the latest management fad, will NOT help.

Rule #2: Don’t create a new crisis to to fight an old one.

When your company is facing a catastrophic situation, do NOT intentionally create another catastrophe. It will not help. Turning your organization upside down may be what consultants recommend. But they are not the ones who will have to live with the consequences, the additional stress created. Your people will be. And you, as their leader.

Rule #3: Agile is NOT a strategy.

It is merely a tool, an approach. It is there to help you execute your strategy, not to replace it. And beware: it is a very disruptive approach, it can do extreme damage. To your people. To your company. To your results. Remember the adage: “Do NOT take out a fence before
you understand why it was put there in the first place.” 

There is a reason why you have experts gathered in departments. For example, you lose a lot of efficiency and scrutiny when you eliminate test departments, like UAT teams, for the sake of an “agile” set up. Boeing already paid the price of this in human lives. (The Risks of Moving to Mature Agile Too Fast: A Cautionary Tale - Infosys Consulting - One hub. Many perspectives.(infosysconsultinginsights.com)) Try not to imitate them.

What happened at ING?

To understand this we have start at the basics of banking. Retail banks make money by taking in deposits, and lending out the money they took in, as loans. They give you a lower rate on your deposit than they charge on the same money as a loan. The difference is their margin. Part of the full margin comes from the lending products, another part from the deposit side. For this, banks manage the risk that people won’t pay back their loans - and guarantee that you will get your deposit money back, with interest, even if that happens.

ING Direct Bank, ING’s retail banking arm, had a “price advantage” strategy. They offered higher interest on deposits than the competition. But they did not offer any loans. So they were operating with a thinner margin than other banks. They made up for this with lower operating costs, by not having any branches. 

So far so good.

The trouble started after 2008, when central banks flooded the markets with cheap (free) money to avoid a global depression. This eliminated the part of the margin that comes from the deposit side. When money is ‘free’, nobody gives you any interest on your deposits. When there is no interest, there is no margin. The only way you can make profit is by lending out this free money and charge an interest for it. People who need a loan have no choice but pay for it, to get it.

Unfortunately, this was not an option for ING.

At first they did what their strategy suggested: they tried to reduce their operating costs further, by creating an efficient, multi-country IT platform.
But then disaster struck.

They embraced ‘agile’.

The resulting upheaval quickly put an end to their dreams of improved operational efficiency. It is easy to see (for an outsider) how they ignored the three rules listed at the beginning of this article. They abandoned their strategy and “replaced” it with ‘agile’. They added an internal crisis to the external one they were already facing. And this fatally weakened their organization, their people’s ability to focus on fighting the external crisis, to get the job done.

At the end, ING paid the price. But it was still mostly their employees who footed the bill. They are the ones who suffered through months of crises and still lost their jobs at the end. They deserve recognition. Their management does not.

So maybe I am wrong. Maybe those are profitable, wonderfully efficient, top-notch, agile organizations they are forced to shut down.

Or maybe there is a learning here too:

Only evaluate your success after you’ve seen the business results of your initiative.