While working with many different financial institutions, we noticed an interesting trend on how banks were organized to handle their analytics. Some would direct their resources to building a single model that all employees used for their analyses, while others pursued training their talent so they could use and adapt various models. We call the former the Swiss Army Knife approach, as one is trying to add many features into one object that tries to control and anticipate every situation. The latter we call The Brain approach, simply because it requires educating many people to adapt to varying situations.
Given Enstruct is a training company, there could be the obvious bias of one over the other, however we have trained Swiss Army Knife Approach companies and found some of their merits. The foremost benefit of the Swiss Army Knife Approach is control. Large banks deal with hundreds, if not thousands of professionals working on various projects. Ensuring that the models they are using are correct can be challenging. In many cases, banks that take this approach employ development teams that are constantly revising and adding features to the model. The bank is essentially using a computer programming strategy on an entity level: control and refine the code at the top and push updates through.
The issue though is that modern corporate, structured, infrastructure investments, etc. have generally required adaptation, customization, and unique solutions; and they are needed quickly. This is often what differentiates one bank from another during a pitch. Any seasoned banker will tell you that given the ever-decreasing timelines, you have to be smart, creative, and nimble. Waiting for a development team to build that next new feature could be fruitless, if the business is lost. This isn’t to say that under The Brain approach you give free reign to professionals to start from scratch each time. Some of the best set-ups have standardized models that can be adapted and when used frequently are audited by an independent credit risk group. The key is that under The Brain approach you devolve some of the development to the deal teams that are closest to the client needs.
We won’t dance around the topic too much as it’s clear we believe The Brain approach is better (otherwise Enstruct would be building Swiss Army like models for clients rather than testing and training their employees). The world is evolving rapidly and successful professionals need to be equipped with the skills and ability to not just adapt to it, but drive the evolution.