Just got out from the Federal Reserve of Chicago’s annual payments conference, where I was fortunate enough not just to attend, but to moderate a panel on Innovative Business Strategies. The panel had four great speakers, representing PayPal, the National Branded Prepaid Card Association, Best Buy, and the National Association of Convenience Stores.
I didn’t really give a presentation per se, but attempted to set the stage with a few opening remarks, and thought I’d share those comments here. I didn’t really have my remarks scripted, so what I write here will be a recreation, and I might take a liberty or two to add or edit something I actually said:
We have a great panel assembled here to talk about innovative business strategies in the retail payments world, but since none of our speakers are from a financial institution, I thought I would set the stage by making some comments about innovative business strategies from the FI perspective.
But before I do, I’d like to tell you about hedgehogs.
Cute little feller, ain’t he?
Although there are a lot of hedgehogs out there, they’re dying off at a alarming rate. I know this because the FHIC, the Federal Hedgehog Insurance Corporation, reports on the number of hedgehog deaths each week.
I thought that I would do a little research and find out why hedgehogs are dying. I found that there are three leading causes of death among hedgehogs.
Number three is cars. That’s right — our poor little friends are often road kill. Do you know what a hedgehog does when it sees a car coming towards it? It curls up in a ball, and sticks its needles out.
In other words, it doesn’t recognize that the foreign, unknown threat coming at is any different from any other predator or danger it faces. So it responds in the same way that it responds to other threats. Needless to say, it doesn’t succeed.
The number two cause is insecticide. This is pretty interesting because it reflects hedgehogs’ greed. Hedgehogs are fond of certain kinds of plants and fruits, and when it finds a fruit or plant it likes, it can’t stop eating it. But many farmers spray these plants and fruits with insecticides, which are harmful to the hedgehogs. If hedgehogs weren’t so greedy — that is, if they knew when they’d had enough of a good thing — perhaps fewer of them would be dying off.
But the number one cause of death among hedgehogs is hibernation. What happens is that as soon as the temperature gets down to a certain point, a hedgehog goes into hibernation. It crawls into its nest, curls up into a ball, and hibernates for the winter.
Or what it thinks is the winter. Because what often happens is that hedgehogs prematurely react to a change in the environment and go into hibernation. And because they have haven’t made an appropriate investment in the thing it needs to last the winter — namely, fat — they don’t survive the cold, and they die.
But enough about hedgehogs. Let’s talk about financial institutions.
Ron, amazing analysis and analogy. Couldn’t be further from the truth!
Ok, so if Hedgehog = financial institution, then
A) cars = ?
B) insecticide = ?
C) hibernation = ?
My best guess is cars = non-financial institution players like Wal-Mart, or online players like ING.
And in order to successfully “hibernate”, FIs need cash, so fat= cash, but are FI’s really hibernating prematurely?
Does insecticide = Courtesy Pay, and FIs are addicted to generating revenue that way, and now Congress is shutting that down?
Perhaps we can switch animals, and go with ostriches hiding their head in the sand in the face of external threat?
Ok, so maybe these three causes of death don’t have real world equivalents. Fun to try to figure out if they did. 🙂
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So since we can see that hedgehogs react inappropriately to these external events, what can FI’s learn from this?
1.) When you see a car coming, don’t curl up, get the hell out of there.
2.) When you main source of food is contaminated, don’t continue eating there, move somewhere else and find something else yummy to eat.
3.) Don’t hibernate prematurely. If things get cold, it might not really be winter, so before hunkering down, check other sources to see if this temperature fluctuation is really signaling that it’s time to baton the hatches.
Ok, I really hadn’t thought through this before, but if I had to construct parallels to the hedgehog causes… The “car” would be new innovations and new firms that have been launched. FI often think that these new innovations are passing fads that won’t materially affect them (e.g., P2P lending). “Insecticide” is mortgage lending circa 2003. Too many banks made too many bad loans — which pumped up their short term results, but for some had disastrous long term effects. And hibernation is simply the FIs inability to make investments in certain technologies/capabilities that ultimately crimp their ability to compete….maybe like p2p payments.
Sorry, let me correct my comment. I totally agree with Ron. He is spot on!
One more thing that insecticide could equal = indirect auto lending. It can look good in the short term because of the loans being booked, but if they are going bad, can cause huge problems very quickly.
Another great post Ron. It amazes me every time I see the flurry and excitement around the Finovate events and the complete lack of incumbent players. I suppose that it’s typical of every legacy industry that had it good (newspapers, record companies). There is always something around the corner ready to blindside the status quo.
So, what does your analogy say about the Good to Great Hedgehog Concept. Are you saying Jim Collins is out to lunch? 🙂
Tim: If the question is: Should you be like a hedgehog (a la Good To Great) or not like a hedgehog (a la Shevlin blog post)? Then, I think the reader needs to decide for him/herself.
However, to perhaps influence those readers, may I just remind them that Fannie Mae is one of the “Good to Great” firms. Do you want your firm to be like Fannie Mae? Your call. 🙂
I think one of the main problem with hedgehogs is that they don’t really “get” the Internet 😉
Is that true about hedgehogs and if so, how do you KNOW that?
What a great opener for a panel. Well played.
Shari: It’s true. I tweeted “what are the leading causes of death among hedgehogs” and my Twitter bitches fell over each other in a rush to provide the answers.
See – twitter > google.
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I took hibernation to mean lack of risk-taking. Too often if things get tight, many financial institutions are reactionary (cut marketing and training expenses). In other wrods, they hibernate. Eventually that hibernation will kill them.
Mark: Hibernation is a good analogy, I think, because it can be interpreted in a number of ways. Hibernation is “doing nothing” (kind of), so “not taking risks”, “not making adequate investments” all apply. As does “doing nothing”. 🙂
While I’m not sure that additional analogous references are necessary, somehow I can’t help but add this little tidbit that I found: “Hedgehogs snuffle and snort as they forage, and can scream like a banshee when in distress”. Probably should have posted that under “anonymous” –
MB: Well, with all the “scalping” that went on, maybe “banshee” is a good analogy. 🙂
Great analogy! I really like it!
Recently I started posting interestnig analogies I found on the web on blog.ygolana.com. I thought it could be a good idea to create a place where people can share useful analogies such as yours.