Innovation and Collaboration at Merrill Lynch

Although Peter Drucker rarely discussed the concept of collaboration directly, it is without doubt that he discussed the concept quite frequently indirectly. "The modern organization cannot be an organization of a boss and subordinate. It must be organized as a team," said Drucker when indirectly speaking to the concept of collaboration. Collaboration plays a major part in organizations today, and is essential to the evolution of any corporate entity.

Candace Browning is the head of global securities research at Merrill Lynch, and has been contemplating the role of collaboration in her department's future strategy. Browning oversees approximately 500 analysts worldwide, and the majority of those analysts work amongst themselves in their own silos. Browning believed the concept of collaboration was being underutilized at Merrill Lynch, and believed the organization needed to pursue collaboration in her department's strategy. Moving forward Browning was unsure where collaboration was applicable, how it could be incentivized, and how should the collaboration process be structured.

Currently Merrill Lynch has programs in place to help promote collaboration. These programs include departmental newsletters, training seminars, revamping performance-management systems, and encouraging global research, cross-sector research, and cross-asset research. These programs were designed in a fashion that would make no one analyst feel bigger or smaller than another. Jerry Labowitz, director of equity research for the Americas believed that, "You've got to learn to collaborate. You can't be an expert at everything." With the notion of collaboration at hand, Merrill Lynch pursued the concept of collaboration through three capital-structure reports with primary focus upon the U.S. cable industry, U.S. utilities, and autos.

Merrill Lynch and most other large brokerages in 2002 had all the necessary expertise in-house to collaborate effectively, however they lacked experience in working together. As explained by convertibles analyst, Yaw Debrah, "People tended to work in silos. People did not do much cross-asset-class research because it was very difficult to communicate." This end goal however is crucial because comprehensive collaborative reports lead to higher rankings as a research division amongst competitors.

The first attempt to collaborate was through the capital-structure report that focused upon the U.S. cable industry. The report took nearly three months as most analysts were not enthusiastic with the concept of collaboration nor did analysts have much down time to focus on the report. One of the major roadblocks faced in completing the report was getting all the information together and presenting it in a synchronized fashion. At the end of the three month period clients were grateful of the report, however they wanted more. In the financial industry three months can be a long time and unfortunately the report didn't really produce anything new. It also detracted from the analysts' personal time dedicated to research--this time serves as a major driver for potential bonuses.

Once again the concept of collaboration was revisited in a capital-structure report that focused on U.S. utilities. Equity analyst Jonathan Arnold was asked to take the lead in coordinating the report. After learning from the first capital-structure report, the group needed someone that would ensure that all the pieces were coming together correctly. The project had much more direction than the initial report, which helped immensely when trying to get individuals to collaborate and reach an end goal. There was a lot of positive feedback when the report was released which ultimately generated lots of calls, questions, and interactions with clients. Although the report was viewed as a success many of the participants were not convinced that there was a notable return on the collaboration. Arnold noted, "I personally devoted an enormous amount of time to just driving people to get it done. It will only happen if you push people, because everyone's got other stuff they're trying to work on."

Using the two previous capital-structure reports as learning tools on how to collaborate effectively, Merrill Lynch pursued yet another capital-structure report with focus on autos. This report was done on a global scale which involved even more collaboration, however the majority of the participants were motivated to cooperate and pursue the report. Employees began to work more efficiently, and the report was the most comprehensive project the analysts had ever worked on. Although the report was not viewed as perfect it did however create several trade ideas that would have not otherwise been uncovered had the group not worked collaboratively. Moving forward most of the participants in the reports believed that working across sectors, regions, and asset classes was highly valuable and will help to make future collaborative endeavors more valuable, profitable, and efficient.

Recommendation

It is crucial to recognize the fact that despite the strides Merrill Lynch's research department has taken to collaborate across departments, the lack of distinct oversight significantly hinders progress. Specifically, Merrill's collaborative efforts place zero emphasis on 'What Did We Learn' sessions. How can the research department grow and develop between equity analysts, high-grade bond analysts, high-yield bond analysts, and convertible bond researcherswithout a program to evaluate the latest collaborative projects? We propose a long-term collaborative strategy that will ensure a more structured program to produce capital reports. This strategy involves a 'Collaboration Manager' to distinctly oversee the year-round integration progress both during and in between projects. The integration process should involve both formal and informal collaboration between departments. Collective compensation for the collaborative project will resolve many of the issues related to the silo-effect of individual research. Finally, a balanced scorecard to evaluate performance will allow for future improvements and rewards for deserving teams.

Capital structure reports, according to the case are content-heavy and take months to complete. The return