Tim Howarth, Head of Risk Consulting at KPMG in the UK, looks at company transformations and their abilities to thrive, and survive in the future.
Over the past few weeks I have spent a lot of time talking to my KPMG Consulting colleagues about the challenges facing our clients. Having recently been appointed to lead our Risk Consulting practice, I wanted to compare the situation of a range of sectors with that of financial services – the industry where I have the greatest personal experience.
So what have I learned? Strikingly, it is that all our clients have something in common. They face an incredibly fluid operating environment, and feel they have no choice but to adapt. In fact many are not merely altering their business models, but are radically transforming themselves.
In my mind, the challenges facing business are three-fold.
First, a fast evolving geo-political and regulatory picture. This ranges from global themes such as nationalism, populism and fragmentation to the regulatory details that are so vital to day-to-day operations. Furthermore, the macro themes show increasing signs of influencing the micro ones, via politicised regulation.
Second, technological disruption. It is becoming increasingly clear that every company in every industry needs to embrace technology if it is not to be weakened by it. But that will take many companies far beyond their comfort zone.
And third, the changing expectations of customers, investors and other stakeholders. These are not only hard to satisfy in isolation. They can be difficult to reconcile, and may even seem mutually exclusive. To retain their support, each stakeholder group demands nothing less than total trust.
I can illustrate these themes through the prism of a sector I know well – banking.
At face value, the FCA’s declining use of enforcement tools may imply that banks are under less regulatory pressure than they were two years ago. But pressure is being applied in other ways, such as the Senior Managers and Certification Regime. And the costs of compliance keep climbing as post-crisis reforms advance. In reality, there is little prospect of regulatory burdens easing – at least until the post-Brexit landscape becomes clear.
Furthermore, the banks’ need to address regulation is intimately connected with the other challenges they face. To retain the trust of their customers, they also need to invest in new technology. But spending on regulation and technology threaten to push their returns below a level that investors view as sustainable.
In my view, banks need to respond to these connected challenges in a connected way. Instead of running separate change programmes, they must join up their initiatives across every activity from technology investment to stakeholder communications.
That will not only address the key challenges banks face. It will also prevent additional risks, such as fraud, from arising. But it will require banks to break down silos and improve collaboration; to work more closely with external partners; and to match human talent with innovative technology.
Of course, some might say that banking is an extreme example of an industry under stress. But today, all industries are affected by geo-politics. All sectors are shaped by regulation. And all companies face technological disruption and demanding stakeholder groups.
In the circumstances, it’s no wonder that so many companies see transformation as crucial to their ability to thrive, or even to survive, in future. As I take on my new role, I look forward to seeing that transformation up close – in whatever form it takes.