X-Teams, Revised and Updated by Deborah Ancona

Author:Deborah Ancona
Language: eng
Format: epub
Publisher: Harvard Business Review Press
Published: 2023-08-08T00:00:00+00:00

Exploration

A team of equity traders from Merrill with eight to ten years of experience at the firm was charged with designing a new product. The goal was to use cutting-edge ideas about financial risk as outlined by Professor Andrew Lo in an investments course taught at Merrill by MIT Sloan School of Management faculty.

Coached by one of us to take an x-team approach, team members began by sensemaking about their industry. At the time, financial services was going through a tough period: margins were getting compressed and the business was getting more automated, resulting in increased cost-cutting. In both equities (stocks) and debt (bonds), markets had become too efficient. If word got out that something good was going on at Coca-Cola or Citigroup, everyone joined the feeding frenzy, and there was no way to make money. The Merrill team determined that it wanted to find a place where the market was not so efficient—where there was not so much coverage on Wall Street in terms of research and information.

With this goal in mind, the team went into intense sensemaking, looking for ideas and buy-in for a new product. One team member organized his colleagues to engage in exploration, saying that the team had to divide and conquer to get things done. He identified a series of tasks: (1) interview customers about their interests, (2) look at research, (3) explore technology and compliance issues, and (4) network within Merrill to find interest, support, and ideas inside the company itself. With the tasks organized and spread out before them, team members volunteered for the things they wanted to do, from tapping connections in departments like technology and compliance, to gathering information at Merrill’s New York headquarters, to organizing all the data the team was gathering.

Soon the team’s queries brought in lots of ideas. The energy in the team heightened as members began reaching out to others in the company. For example, a team member and a senior desk analyst brainstormed several ideas, but the one that seemed to stick was the notion of trading distressed equities—that is, trading stocks of companies that were coming out of bankruptcy. But they pushed beyond just having their own side of Merrill—equity—involved. Top management had been stressing the importance of getting the debt and equity groups to work together more. The team’s idea did this and presented a real opportunity: it was something new where Merrill had a competitive advantage, an answer to one of top management’s needs, and something that the team would have real interest and energy to pursue. And it presented the possibility of financial gain.

Trading distressed equities was only one of three ideas that team members were considering, but they agreed that it was the best. Now their exploration took a more focused turn to learn more by involving both debt and equity. At this point, they were already ahead of the ProPrint team mentioned earlier in the chapter. The Merrill team was able to collect lots of ideas but also to figure out a way to winnow those ideas down and move ahead.

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