Handelsbanken has for several decades been Sweden’s most profitable bank. What makes The Handelsbanken Way so successful?
Volumes have been written in Sweden about Toyota and The Toyota Way. Employees at Japanese Toyota have developed interesting methods to handle uncertainty. However, Handelsbanken in Sweden has developed its own method: The Handelsbanken Way.
Jan Wallander was headhunted by Handelsbanken in 1970 and appointed CEO. When he first joined the bank it was facing big problems. The problems were so great that Wallander’s task was to save the bank.
Wallander’s background was as a researcher and he was used to formulating theories, performing experiments to test his theories and drawing conclusions from the results. You have to be able to prove that the theory works in practice or the theory falls apart. There’s nothing strange about this but this kind of science-based approached is uncommon in business management. Instead, companies often copy each other because they believe that what everyone else does can’t be wrong. What Wallander realized is that everyone else can be wrong.
The Handelsbanken Way
Wallander and Handelsbanken developed an approach that in many ways differs from what is seen as the “correct” way to lead and manage a business. “Real” businesses have a budget but this is not the case at Handelsbanken. “Real” businesses have organization schedules yet Handelsbanken doesn’t. Furthermore, “real” businesses have a long-term strategy; Handelsbanken doesn’t.
In the book titled Decentralisation: The Why and How to Make it Work: The Handelsbanken Way, Wallanders writes about how he developed his own unique way to work. Budgets and long-term planning are just forecasts, Wallander explains. A forecast is built on projecting historical patterns into the future. The only thing that can accomplish is encouraging your employees to continue with the same work they are already doing. However, reaching that conclusion has entailed a lot of unnecessary work. Wallander reaches the conclusion that you should instead use the time and work on actions that create value for the business and the employees agree. To quote Wallander, “Now one could finally put this to the side with a sigh of relief and return to working the same way one always has.” What would be really helpful would be to foresee major changes and events such as the real estate crisis in the 90’s or the financial crisis that followed 20 years later but this isn’t possible.
The argument Wallander proposes regarding uncertainty is the same that practitioners such as Karl von Clasuwitz and Taichi Ohno have proposed and the same as scientist and meteorologist Edward Lorentz studied and explained: it’s not possible to create forecasts that are both useful and long-term (read more in my previous post).
Wallander provides an interesting discussion on organization charts. At Handelsbanken everyone has a clear understanding of who their boss is as well as what responsibilities and authority one has. The problem with drawing up an organization chart, according to Wallander, is that when the chart changes the whole company is informed about someone’s promotion, demotion or transfer and this makes changes in the organization unnecessarily painful. Additionally, organization charts don’t fully describe how the work is done, as it would be to complicated. Therefore Handelsbanken found out that it’s better to not have an organization chart. If you need to know where someone works you can just look it up in the company phone-book.
Wallander’s guiding principle is decentralization. He writes that it’s easy to centralize but difficult to decentralize because of the many pitfalls. In order to decentralize an operation it’s necessary to have an infrastructure with resources that pull the whole operation in the same direction. To develop this infrastructure for a business is a challenge and requires stamina. Wallander mentions that some measures took almost 20 years to develop at Handelsbanken. Handelsbanken wasn’t the first company to develop semi-autonomous units; in fact, Wallander points out GM and DuPont as predecessors. These companies invented the concept of coordination of decentralized units as early as the 1920’s.
There are plenty of examples of decentralized companies being more successful than centralized ones. Wallander mentions ICA and Konsum as examples. Decentralized ICA, with the individual store manager in control, is very profitable while the centralized Konsum loses money year after year.
I can warmly recommend Jan Wallander’s book about the Handelsbanken Way to anyone interested in leadership and organization. Wallander’s ideas might seem radical but they are in line with today’s research.