Haordic Organization Visa (Part 1)

Today I know: in whatever country I may be, in front of whatever audience I speak, if I show a Visa credit card and ask: “Who among you knows what it is?”, A forest of hands will rise in response. But if I ask, “Tell me who owns Visa, how it is managed and where you can buy its shares?” And there will be a deathly silence in the hall. We are dealing with something completely incomprehensible. With what exactly? And how did it all begin?

Di Hoke - founder and former CEO of Visa

Dear reader, this article is based on the book by the founder of the world's largest business structure, Visa Di Hoke, “One from Many: VISA and the Rise of Chaordic Organization”. Italicized quotes from the book. I decided to split the article into two parts, since the amount of information is very large. The article will tell how Visa was created and how it is managed, and what its creator regrets.
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As Di Hoke himself writes, for 2 years he created an organization of a new type, and another 14 years brought his brainchild to mind. After 16 years as Visa CEO, Di Hoke leaves his position as CEO and leaves the business world to spend almost ten years in relative isolation, working on a 200-acre site on the Pacific coast west of Silicon Valley.

A strong gust of wind and ice drops of rain return me to reality. While Monkey and I wandered through the wilds of thought, the sky was clouded, the wind rose, the sun hid. Soon will begin heavy rain. It is necessary to finish faster: soon the earth will swell from the rain, and it will become impossible to work. I cut in the ignition, and the piece of iron, roaring, comes to life. We slowly crawl across the field, push a huge pile of branches into a ravine. Now I don’t care about the beauty of nature: you need to hurry. We make one run, then the second, the third. After 15 minutes have to finish. And then there is a rattle of metal on metal. Zhelezyaka stops abruptly. You can hear the track chain jumping off the sprocket wheel. A curse! What a fool I am! Moron! I must have wanted to control the situation and loaded the piece of iron too much, more than he could handle. I turn off the engine and sit silently. Rain is gushing in the cab, anger gradually recedes. I sit and smile slyly. Well, the old piece of iron, 1: 0 in your favor, your old master lost!

(Monkey - internal interlocutor, Zhelezyaka - old crawler tractor).

After three years, the air and the sun will do their work, and the argillite, disturbed by the rippers of Zhelezyaki, will turn into clay. Clay will begin to absorb nitrogen from the roots of the grass, mixing with rotting stems. Thousands of gophers, mice and moles are already working hard, dragging dead grass under the ground, raking up the humus to the surface.

Billions of worms, ants, beetles and other insects steal the earth day and night with their bodies. Trillions of microscopic creatures live in the land that I walk: they feed, excrete feces, live and die. In time, larger birds and animals will appear here, and they will also contribute to the cycle of life. The wet land will drink rain moisture, and for excess water there is a drainage ditch. Every year, grass, flowers, shrubs and trees will become higher, thicker, more diverse and stronger.

Di Hoke is an ardent opponent of modern hierarchical organizations (centralization of power and authoritarian management methods). Interestingly, thinking outside the box is causing a string of layoffs from companies where Hawke worked.

Almost 40 years ago, in continuous dialogue with my Wise Monkey, I ran into three questions. Then they seemed to me funny, but now they do not give rest. These three questions prompted me to create a Visa. But they get up again and again, demanding more and more new answers.

Why are political, commercial and public organizations around the world becoming more and more helpless? Why are contradictions sharpening around the world and the estrangement between organizations and people working in them is growing? Why is antagonism growing between society and the biosphere?

Today it is already obvious that we live in an era of global decline of organizations. This decline does not happen as the destruction of dilapidated buildings or the ruin of companies. It is more radical and comprehensive: organizations no longer serve the goals for which they were created, but continue to grow, devour resources, corrupt people, and destroy the environment.

Each system must be controlled by someone, and change requires a strong leader. Meanwhile, in a healthy natural system, control is evenly distributed, and changes occur continuously.

National Bank of Commerce

In 1965, Di Hoke finally settled in the National Bank of Commerce (NBC) - one of the local banks of Seattle, where Dee performs “one-time orders” because at that time “the Bank did not have vacancies of its level”.

Bank of America launches the BankAmericard credit card franchise program. NBC is becoming one of six licensee-banks of this program and is going to enter it in just three months. NBC Bank President Maxwell Carlson appoints Bob Cummings as program manager and invites Di Hawk to “borrow” him temporarily to help Bob.

Two weeks later, Bob and Di came along with representatives of 5 other licensee banks to attend a briefing in San Francisco, at Service Corporation, a division of Bank of America (BofA). It turned out that the relationship between the Credit Card Department and the licensed department of BofA was poorly established - the departments were subordinate to different departments of the bank. Moreover, the BankAmericard credit card department was not able to act according to the rules set forth in the license agreements. NBC has already publicly announced its entry into the BankAmericard program, because it had a 40-year history of correspondent relations with BofA, and the founders of both banks were friends. Dee and Bob could not cancel the decision taken by the bank NBC, and remained in horror of this.

Dee and Bob had to create the NBC program for working with BankAmericard credit cards, drawing on their own experience, their own knowledge of the market, as well as using fragmentary information that was obtained from other people. Almost all the material extracted at the briefing in Bank of America, was sent to the basket.

To solve the problems, 1 thousand imprinters were ordered by phone for $ 35 per piece, as well as 200 thousand plastic blanks and several expensive embossing machines. The team was located in the assembly hall near the cafeteria, and “borrowed” from the bank all the free employees, all who could tear themselves away from the business for three months. The newspaper gave an announcement of vacancies for the positions of specialists in loans, in relations with trade and service enterprises, collectors, etc.

We advertised in the newspaper about vacancies for the positions of credit specialists, for relations with trade enterprises and services, cash collectors, etc. Of course, we did not act on the principle of bezrybe and cancer fish, but were very close to this.

A month later, at a meeting at NBC, it was decided to offer credit cards to 120,000 NBC customers. The field workers organized the entire selection process, and a month later 120,000 customers received offers of using credit cards.

Solving problems and creating a program of credit cards from scratch, at the end of 1966 the program was launched, and 100 thousand customers received the promised credit cards.

At first, plastic cards did not have a magnetic strip, and in retail outlets there were no electronic readers. A credit card with the requisites stamped on it was inserted into the imprinter, a check was placed on top in four copies, then it was lowered and the lever was raised, and the requisites were imprinted on the check. These devices were called “zip-zapy”. Banks bought them for a few dollars apiece and lend them to sellers for a very decent monthly fee. Banks lost their temper when sellers pledged plastic cards of competitors in their zip-zaps.

A year after the program was launched in NBC, Di Hoke headed the credit card department.

Problems

Meanwhile, commercial banks, which had already received remuneration and hardly coped with operations on their own cards, had no incentive to process the accounts of other banks and send them to the issuing bank, which paid the cardholders' accounts. And since every bank at that time served the merchants and issued its own cards, the whole procedure turned into complete insanity. Offices of banks were overwhelmed with unprocessed bills, payment of customer bills was delayed, and in banks — card issuers, piles of bills grew, waiting for their turn to be paid. It was a complete nightmare.

The system of interbank payments on credit cards was very primitive and time consuming. At that time there were no electronic data entry and settlement systems. Banks that worked with merchants accepting credit cards, took to pay bills on the cards of all issuing banks, providing a loan to a merchant. The bank then manually selected the accounts payable by the card issuing bank and received a reward by passing them through the Federal Reserve System. Further, these accounts were sent to the issuing bank and were paid only after the bank servicing the trading company sent by mail invoices confirming the transaction.

It was enough just a few months of such a bank orgy so that the criminal element would understand: here it is, the goldmine! A huge amount of plastic blanks were stolen from the warehouses of the producers of raw materials, transport companies and banks, where the names of the cardholders and other details had not yet been stamped. It was enough to spend several thousand dollars on embossing devices, then peek at the card numbers from a pile of bills - and it was possible to establish a criminal business.

Along with the manufacture of fake cards, real ones were also stolen: during shipment, from the mailboxes, from the pockets of citizens. Some scammers distracted the client, and he “forgot” the credit card in the store. Soon thousands of fake and stolen credit cards appeared on the black market, for only $ 50 each. With the help of these cards, goods that cost thousands of dollars were quickly bought and resold, and the cards themselves were thrown away.

Were opened and fake trade enterprises. They charged a huge amount of fake bills. Banks spent weeks processing fakes, and fraudsters got paid and disappeared.

At that time, there were no electronic transaction authorization systems. Each trade or service enterprise established a certain limit, and if the card holder did not leave it, no authorization was required. Having easily figured out the size of the limit, the criminals knew exactly how much they risk. If the operations exceeded the agreed amount, the seller had to call the bank servicing his shop. A commercial bank, in turn, called the issuing bank in another city. An employee of this bank manually found the client’s account on huge computer printouts to determine if the credit was exceeded. He reported the data to a commercial bank, and he passed the information to the store. All this time, the buyer stood and was angry, waiting to deal with him, or left on his way. The issuing bank fixed the amount of the purchase on the client’s account in order to withdraw it after receiving the purchase invoice, which could come weeks or even months later.

Stores, in turn, quickly realized that it was better to authorize each potential transaction in advance, even if the chance of its accomplishment is negligible. Credit lines of buyers were “eaten up” because of the retention of funds for transactions that were never committed, and people could not use the loan to which they were entitled. Authorization costs grew, since, unlike stores that made local calls, commercial banks and issuing banks called other banks on long-distance lines.

There was no internet, no computers, no monitors to enter data or view bills. Information (each letter and number) was entered onto punched cards — on a huge, box-sized machine, a piece of cardboard measuring 10 by 15 cm was punched. The read information was recorded on a magnetic tape. Then a truck-sized computer would transfer information to customer accounts. After that, the data was again recorded on tape and finally transferred to a giant mechanical printer that made cumbersome printouts of customer accounts.

The whole system was primitive and cumbersome, but it worked flawlessly, and soon credit cards were recognized among customers and among trade enterprises. But the number of interbank operations continued to grow, and under their cargo the system of mutual settlements began to fail.
Only very few financiers had experience working with unsecured consumer loans, and even more so with credit cards. Specialists from the outside did not want to come to us: they were frightened by a small salary and extravagance of industry players. But in the unskilled and inexperienced workers there was no shortage - they poured us a shaft, and the new business easily swallowed them without chewing.

However, the banks themselves were rather contemptuous of the new business, considering it as an occupation not much more worthy than the car trade. Banks were reluctant to deal with credit cards, and it was difficult to recruit people to work in the relevant units, which, moreover, were located in the poorest premises. People were “banished” there to people who turned out to be unfit for anything else.

The problems grew and the situation went out of control of Bank of America ...

>> Visa Haordic Organization (Part 2)