Having invigorated the banking sector with First Direct and Egg, Mike Harris is an industry legend. He tells Director about the thrill of the start-up, the joy of independence and the ongoing satisfaction of success
How do you best sum up Mike Harris? Banking entrepreneur? Intrapreneur, maybe? As the creator of banking pioneers First Direct and Egg, perhaps consumer champion seems an apt title. Both start-ups became billion-pound businesses by focusing on putting the customer first—a concept previously alien to the banking community.
Harris himself prefers "innovation enthusiast", sidestepping any claim to entrepreneurial attributes. But is Harris an entrepreneur? He showed "flair and spark", according to the former Midland Bank chairman Sir Kit McMahon, but Harris is no entrepreneur in the bootstrap sense of the word. First Direct was backed by Midland Bank and then HSBC, while Egg was backed by Prudential. What's more, neither of these innovative spin-offs was actually Harris's idea. He may have been the founding chief executive of both, but in each case the original invention was someone else's.
Harris isn't too concerned where the ideas come from—or the money. His skills lie in value creation, in allowing innovation to breed. Now he's written Find your Lightbulb, a book about turning ideas into successful businesses. The book is a partly autobiographical account of his struggle to succeed in the banking sector and elsewhere against a backdrop of negative peers, cynical hacks and unfavourable focus groups. Harris follows his instincts throughout, bombarding ideas with energy and enthusiasm. But these entrepreneurial traits are balanced by a commercial sensibility. If you could bottle innovation, Harris would be the cork.
"He is only interested in innovation that can be executed in the real world, so he wants it fundable [and] deliverable," says technology entrepreneur Tom Ilube, who worked with Harris at Egg. "The sorts of questions Mike is interested in wrestling with are 'will anyone buy it and will regulators permit it?'."
Despite this approach and the financial security—and credibility—that a large parent company can provide, Harris says he prefers the unpredictability of a traditional start-up environment. It's why he ditched a seat on the board of his beloved Egg in favour of rejoining Ilube to found Garlik, an internet start-up that helps the consumer keep control of his or her online identity. "The thing about a venture-funded start-up is that it's much more fun," says Harris. "It's much more exciting; there's much more freedom."
Perhaps the minutiae of corporate life have taken their toll? "Most of business is a hard slog," he says. "Not much drama in it, not much fun, not much room for expression. Start-ups, on the other hand, are tough, but there's fun, excitement and a lot of drama. To me there's nothing more satisfying than to see an idea that emerged merely as somebody saying something, then suddenly seeing a brand created, and consumers buying it."
All of which he achieved when Midland Bank recruited him to lead its foray into phone banking, back in pre-internet 1989. First Direct, which started life rather more obliquely as Raincloud, was initially dismissed by rival banks, who largely failed to understand why any customer would want 24-hour access to their account. The media also made fun of it; the Independent dubbing it "a service for bored insomniacs". That was before customers began signing up in droves—100,000 in the first two years.
The project broke even in year five, an extraordinary accomplishment for an "invisible" brand with no high-street presence. According to Sir Kit, Midland's chairman at the time, Harris was the driving force behind First Direct's customer-centric approach. "He showed good leadership," recalls Sir Kit, "inspiring the staff to make this totally new organisation work and to give high customer satisfaction. He made it a total success."
Two years after the launch, Harris was headhunted by Cable & Wireless to lead the expansion of the group's consumer business, through its Mercury brand. Mercury Communications had enjoyed some success in the business-to-business sector, but the company wanted to expand its scope to eat into BT's market dominance. Purely on results, Harris's tenure was a success—the business was merged with three UK cable operators five years later, creating a £2.5bn windfall for shareholders.
But his leadership methods were the subject of some debate, not least the intense, motivational "ignition" sessions, which he held in huge "domes" in the car park of Birmingham's NEC. Mercury employees were encouraged to share the company vision through methods "that are standard fare" in "many American-style cults", according to a report in The Sunday Times. Harris prefers to call it "bold innovation", and indeed, many of the prototypes he experimented with were in retrospect remarkably prescient. Nokia's N95 smartphone, he says, is similar in concept and design to a product Mercury trialled 14 years ago.
Many of Harris's innovations were perhaps too ahead of their time, and when he switched the focus to more profitable, short-term projects, the Cable & Wireless board sensed a loss of direction and Harris was asked to step down. In his book, he marks this failure with a dose of healthy advice: "Change your approach by all means, but stay committed to getting to that last chapter. If you are destined to fail, it's better to fail because others stopped you—not because you stopped yourself." Four months later, he joined Prudential as CEO of its banking division.
At Prudential, Harris once again felt the urge to create. He wanted his new employer to fund an interesting little spin-off project: a mass-market, customer-focused, internet-enabled bank, to be called Egg. Pitching the idea was bold enough. That Harris managed to persuade Prudential—a huge, conservative-minded corporation—that a mass-market internet brand would fly, pre-boom, was pretty remarkable. But in 1998, year one on the Google calendar, it launched. In pure marketing terms, Egg was an instant, riotous success. Within six months, the start-up had achieved its five-year target for customer growth. It wasn't yet profitable, of course, but that didn't stop analysts valuing the fledgling operation at anything up to £4.5bn.
By 2000, the stockmarket was white hot. An Egg flotation would add more credibility to a growing brand and provide cash for much-needed expansion. But there was another reason for a share issue: Harris and his team were beginning to pull in a different direction to the Prudential board. He won't go as far as saying there was a falling out—"it wasn't fractious," he insists—but it's clear that in Harris's eyes, the Prudential board could never match the original Egg team's intense emotional attachment to the brand.
He had one ally on the board, chief executive Sir Peter Davies. According to Harris, Sir Peter agreed that "Prudential would eventually kill Egg". Sir Peter suggested floating the internet spin-off in order to protect it. Harris says the intention was to "institutionalise [Egg's] independence at a time when Egg was quite small and vulnerable to parental interference".
Harris says that at the time he was happy for Prudential to gradually "sell down" its stake, but he adds that with a flotation, "you are accountable to the market and shareholders, and you are then definitely independent". More independent from outside interference as a public company? Parental control was clearly beginning to irk the founders. "There was some interference," he recalls. "I spent a lot of time stopping that interference getting in the way, and ultimately that interference kills. It just keeps coming at you..."
There is the suggestion that after the flotation, Prudential was never entirely comfortable with Egg. A bungled expansion into France, when as Harris points out, the US might have proved a more valuable market, hardly helped. Neither did a falling share price. Prudential finally sold Egg to Citigroup last year—after several attempts to offload it—for £575m, representing a loss of £255m.
At the time, Prudential chief executive Mark Tucker argued the sale maximised shareholder value. But the charge of parental interference requires further analysis. Why does Harris think Prudential was destined to "kill" Egg? What follows is a torrential stream of consciousness that's difficult to follow. "You can protect against corporate policy for so long," he says, "but in the end it's: 'Why are they different? Why are they paying everybody differently? Why don't they use the same rules and systems we're using? Wouldn't there be shareholder value in integrating these two? Why aren't they selling our products? Why are they so independent?'"
Harris says it's sad that the founders' original intensity and drive often become diluted. "The danger is when the founders start to fade away," he says. "The new people coming in are less powerful in a sense: they don't have the founders' moral authority, they are less able to argue for its independence." He says this happened at First Direct, too. "Amazingly, First Direct has managed to retain its high levels of customer service, its brand distinction, under HSBC of all people, which is among the most integrated, single-branded, centralised operation you could think of in banking."
He says Royal Bank of Scotland (RBS), where he now works part-time as chairman of innovation, is far more flexible in its approach, although he is limited by how much he can actually talk about his achievements. Pressed for an explanation of what a chairman of innovation actually does, he reveals one current scheme for an "emergency cash" product, which provides customers who have reported cards lost or stolen with a new six-digit pin that they can use to withdraw cash from any ATM within three hours.
Harris, with his invigorating, nothing-is-impossible approach to product innovation, appears well cast at RBS, but his role is consumer based. Innovation of the sort that has left the banking sector so desperately short of liquidity is another matter entirely. Harris has his own theory on that. "The best innovations need to have a purpose that isn't totally about money," he says. "An innovation that works meets a human need in a way that generates economic value. Where you get into trouble is where an innovation is focused solely on leveraging profit—and that's what's happened with the current credit crunch. Innovations have been squeezing in ways that don't meet any other need than making more money. Businesses that have no other purpose than to make money—think Enron—get into trouble."
But isn't a bank's sole purpose to make money from money? "The question you have to ask yourself is: what would happen if that company didn't exist?" he replies. "Would it be missed? There are very few individual banks that would be missed," he adds quickly, answering the question before it is asked. "I think First Direct would be missed. I think in its golden years, Egg would be missed. But would Barclays be missed if all your money was magically moved to RBS? Probably not—they are undifferentiated. But banks as a whole would be missed. They provide a whole bunch of human needs: the need for security, credit, investment, advice—they all have a purpose that meets human needs."
Which seems to sum up Harris's creations perfectly. But how do you sum up Mike Harris? Interestingly enough, it's the photographer who gets the closest. Interview almost over, he sticks his head around the door to see if his subject is ready for a few portrait shots. "Have you got a tie?" he asks. "I haven't worn a tie for years," replies Harris, mock-offended. "You gotta wear a tie," insists the photographer, "you're a banker." Harris looks a little bemused, before settling on his answer: "I'm no ordinary banker," he says.