Collective Intelligence as a ‘Killer App.’: Goldman Sachs
A few years back I read an unauthorised article on Goldman Sachs that highlighted one of their core strengths as their management information systems. I’ve been a little obsessed by them ever since, and was delighted to read the Sunday Times magazine 8/11/9 feature article ‘Inside the goldmine’. Of particular interest was the journalist, John Arlidge’s, observations on how the people inside Goldmans work together.
The importance of all specialist and management information systems to the firm is undoubted from a review of the Technology section of their corporate site. ‘We think we make better decisions’, Liz Beshel Goldman’s Global Treasurer is quoted as saying ….. with $1 trillion a day flowing across the balance sheet. The “mark to market” pricing of the bank’s assets on a daily basis highlighted a trend that led to the decision by the bank to reduce its exposure to the housing and mortgage markets in advance of most other players. Its losses from the mortgage sector following the credit crunch were $1.7bn – lower than any other investment bank.
Arlidge notes however that Goldman is not about individual benefit: “it’s a team effort”. ‘When Goldman gets behind something, everyone in the giant hive wants a piece of the action’.
This reference to giant hive led me to Dušan Teodorović and Mauro Dell’ Orco’s paper on ‘Bee colony optimization – a cooperative learning approach…’ where they note that ‘various natural systems teach us that very simple individual organisms can create systems able to perform highly complex tasks by dynamically interacting with each other’, contrary to ‘a great number of traditional engineering models and algorithms used to solve complex problems [that] are based on control and centralisation.’
Obviously not composed of simple individual organisms, the conclusion that ‘these communication systems between individual insects contribute to the formation of the “collective intelligence” of the social insect colonies’, seemed to tie in to Arlidge’s observations.
The time and effort commitments of the staff are as you would expect. As well as a 24/7 culture and few people taking their full holiday allowance, Chief Accountant Sarah Smith is quoted, ‘When you’re needed, you’re here. And if you’re needed and you’re not answering your phone, you won’t be needed very long’. The use of language from someone quoted as a veteran Goldman banker is also revealing: ‘You are programmed at an early stage to go out more than the other guy, to see more people – clients, hedge funds or private equity guys’
The collective intelligence of the colony is well articulated in the article: ‘Goldman staffers are… trained to “brain pick” contacts and clients harder than the other guy…”you offer something in return , but you always come back with something. Then you feed it to colleagues who go to work on trying to use the information to make money”. The underpinning culture and structures support this: ‘The bosses work hard to foster a “we’re in this together”, family-style approach. Others say it feels more like a cult, but they mean it as a compliment’. The bonuses are based on the performance of the firm as a whole, rather than the individual effort recognition seen in other areas of banking.
That this information and communication are the ultimate drivers of GS’ success is perhaps sealed by the nature of their ‘dynamic interaction’: ‘Goldmanites are forced to check their secure voicemail morning, noon and night… Goldman is the biggest user of voicemail in the world…”mind bullets” consist of anything from the latest profit and loss figures, to reports of what the chief executives of key clients have told Blankfein and his top team over lunch’
The importance of the whole, and the enduring protection of the hive – and its inhabitants ongoing – is brought home by two of the article’s final observations: ‘Goldmanites, curiously, question their ability. “there is a deep and constant paranoia about everything we do”…it applies to an individual’s performance and the prospects for the firm as a whole. Insecurity is hard-wired into the system..once hired, each staff member is constantly and confidentially reviewed by those they work with… the bottom 3-5% every year [about 1,500 people]’ are let go. Its survival and compound growth at a global level, its ‘killer app. ….. [is] its extraordinary networking ability. The firm is the greatest talent network in the world’. ‘Top performers are encouraged to get on, make all the money they will ever need in their thirties, then get out….. getting top jobs in treasuries, central banks and stock exchanges around the world’
That this “collective intelligence” of the colony is also ‘the front-end of our client franchise‘, with their M&A advisory capacity having #1 rankings 2004-2009 across all major deal levels, completes the system. I said I was a little obsessed before. Now I’m fascinated.