It has been fascinating to study this book at the same time as “Banker to the Poor”.  The insights are profound, and explain many seemingly inexplicable things such as:

• why eBay paid $2.4 billion for Skype
• why Google is leading the internet charge with nor apparent business model, beyond advertising
• why ING is blowing the doors off banking around the world
• why the US is incapable of beating Al quada (dangerous ground here!)
• why Microsoft, despite best efforts, cannot quite seem to “get it”
• why Toyota is #1, and why GM is going/ as gone down the tubes
• why music sharing just gets bigger and bigger

Enough examples – you get the idea.  The world is changing, and the changes are permanent.  We are not going back to the old way.  This is the fundamental premise of Brafman and Beckstrom. 

They base the premise on the power of the starfish organisation versus the spider organisation.

• starfish;  it has no head.  Cut off a leg, and it grows another one or two
• spider;  cut off a leg and it is slowed down, cut off its head and it dies

Some principles:

1. when attacked, a decentralised organisation tends to become even more open and decentralised
2. its easy to mistake starfish for spiders
3. an open system doesn’t have central intelligence; the intelligence is spread throughout the system (Information and knowledge naturally filter in at the edges, close to where the action is)
4. Open systems can easily mutate
5. the decentralised organisation sneaks up on you
6. as industries become decentralised, overall profits decrease
7. put people into an open system and they’ll automatically want to contribute

These are awkward principles for traditional banks.  Number 6 in particular.  But then as we think this through, the principle actually means, ‘profits from traditional sources’.  If you are a recording organisation, profits from sale of CD’s are gone forever.  That train has left the station, at least to the degree that you used to make profits. 

So when you are hit with a Starfish (Kazaa, emule, P2P du jour) you are wasting your time fighting it.  The book follows the timeline, about the legal attacks on teenagers and their families as one prong, and the other legal fight against the Napsters, Kazaas etc.  The result was that others sprung up, which led to one of the Starfish principles. 

beware of the hydra response; attack a starfish organisation, and it will grow more heads

But the principle that really resonates for me, is number 3 – gathering of information.  Command and control organisations result in information as a commodity of value to be traded for career gain.  While this may generate value in individual careers (mine included), the open question is whether is the most effective means to drive overall business value. 

The Starfish principle says information is free.  Value is derived from creativity, not raw data.  This makes eminent sense.  How many laptops and confidential documents have been lost over the years, yet has that ever brought down a bank? 

Lets talk about Toyota, now the largest most successful car company in the world.  An no, its now some secret Japanese mythical secret sauce.  Its the starfish principle.  Quality on the production line is driven by those on the line.  They use the wiki principle – here is my note from that point in the book:

Toyota – if production line is stopped its a quiet reflective moment – to understand why? Staff suggestions – 100% implemented – sometimes to correct incorrect ones – the wiki principle

Contrast that with one Banks implementation of ‘staff suggestions’.  Here were the ‘rules’:

1. there are four levels of suggestions each with their own rules
2. suggestions are to be submitted to Head Office for consideration, and you will hear in due course
3. most common answer:  that suggestion has already been made, and is therefore not eligible

That review is deliberately sarcastic and harsh, because that is how people in the branches felt about it.  Needless to say it failed, and was discontinued, or at least I think it was it may have just died – not sure about that.

To wrap up, here are the ‘rules’ for the starfish world:

1. diseconomies of scale; Skype, WordPress. Craigslist – big value, low cost infrastructure
2. the network effect; increase of the overall value of the network with the addition of each new member
3. the power of chaos; to free creativity
4. knowledge at the edge; in starfish organisations, the best knowledge is often at the fringe
5. everyone wants to contribute;
6. beware of the hydra response; attack a starfish organisation, and it will grow more heads – example al quada
7. catalysts rule; talk to the Nant’ans (the spiritual heads within the Apache’s – the reason the Spanish failed to conquest the Apaches – read the book!!)
8. the values are the organisation; the roots are the ideology
   measure, monitor, and manage; circles, membership, activity level, distribution – vaguely right, not precisely wrong
9. flatten or be flattened; decentralisation is a powerful force to compete against new non-standard competition

Relevance to Bankwatch:

Banks are being disintermediated.  We know that either intuitively or overtly, but we all know that.  The fundamental premise of living on the spread between deposits and loans is under challenge from exceptionally low cost providers that have different belief systems. 

Its a great read, and I recommend to all!