You are investing considerable time and effort into transforming your organization. But are you confident that you are transforming towards the right target operating model?
Across all geographies and sectors — asset management, insurance and banking — transformation programs and initiatives are underway. In fact, we aren’t aware of a single firm that isn’t currently in the midst of a ‘transformation’ program of some sort.
Yet, in our recent survey of financial services CEOs, a full 70 percent feel the lead time to achieve significant progress on their transformation programs overwhelming. Moreover, working with executives around the world few know what, exactly, they are transforming towards; their vision for the ‘next generation’ target operating model is unclear. And that has left many organizations focusing on piecemeal modernization programs.
The future is connected
The future is very clear, our view of the market suggests that it is dominated by ‘connected enterprises’ — organizations that are able to integrate a pure customer focus into their day-to-day operations; those where siloes have been broken down to connect the entire customer journey from the front office to the back office; organizations that are deeply entwined into dynamic ecosystems and partnerships; those that forsake traditional models and roles to radically rethink the value they provide to their customers. These are the characteristics of the ‘next-gen’ financial services firm.
If you’re not convinced, just look around at the changes already underway across the financial services industry. In Asset Management, lines are already being blurred between manufacturers, distributors and advisors. Insurers are using technology and customer data to move from protection to prevention which, in turn, is creating new models and inspiring new relationships. Most banks have now achieved a single view of their customers and are using their data to delight their customers with more than just competitive rates.
What these organizations are doing is putting the customer at the center of their next-gen operating model, taking the time to understand what their customers will want in the future and then redesigning their organizations around those needs and expectations. It isn’t easy. And there will be significant challenges along the road.
Above almost everything else, customers are looking for simple, efficient and effective services. The more simplified the processes that support these services, the better.
Focus on the customer
The first big challenge is in understanding what the customer of the future will want. What role will financial services firms play in the life of the consumer? How will consumers interact with brands, humans and machines? What will they expect from the experience? What will they value from their banks, asset managers and insurers?
The next challenge is to translate that vision into a new target operating model. And the key here is to focus on simplification. Above almost everything else, customers are looking for simple, efficient and effective services. The more simplified the processes that support those services, the better.
Once again, that means connecting the enterprise: connecting processes from the front office through the middle and back office; connecting the customer vision with the operating model and business models; connecting the traditional business with new and innovative capabilities; and connecting with customers in ways that drive value for all stakeholders.
The road to the connected enterprise
At KPMG, our network of professionals has worked with many of the most (and some of the least) connected financial services firms in the world. Our experience has led us to identify eight fundamental capabilities that are key to creating a more connected financial services enterprise. These include things like product, pricing and customer strategy; technology architecture and enablement; and organizational alignment and people capabilities.
Improved capabilities around partnerships, alliances and vendors — in particular — will be key. Indeed, if a connected target operating model is the destination to be reached, then third-party collaboration is the vehicle and customer data is the fuel.
In a connected next-gen operating model, financial services firms will need to rely on the technical and operational capabilities of countless other partners in the value chain — from cloud service providers and outsourced process specialists through to finech/insurtech startups and even competitors. Balancing the need for control and oversight against the desire for simplification will be an ongoing challenge.
At the same time, the ability to leverage technology and data analytics to effectively and efficiently deliver cross-channel experiences, provide employees with enabling tools and act on forward-looking data-enabled insights will be key to achieving the next-gen target operating model for financial services. More often than not, that will require firms to adopt an enterprise-wide connected and controlled intelligent automation strategy that underpins the next generation operating model across all functions.
Financial services executives will need to remember that, while partnerships may be the vehicle and data the fuel, it’s still people that are driving the transformation. This means that financial services organizations will need to rethink their current capability sets, talent management approaches, incentive programs and skill development. Being able to proactively identify and fill talent gaps (either by hiring, developing or partnering) will be critical to ensuring the operating model remains agile, customer-centric and effective.
Get connected or get left behind
In today’s financial services environment, organizations need to transform if they hope to survive. But first they need to have a clear understanding of what they are transforming towards and how they plan to get there.
Our experience and research suggests that the future will be dominated by the most connected and customer-centric enterprises. If that doesn’t sound like your next-gen target operating model, you may want to stop and reconsider your transformation program.
Other articles in Frontiers in Finance - October 2019
- Frontiers in Finance - October 2019
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- Paytm: Solving problems to create opportunity
- What ails European banks?
- Capturing the benefits of simplification
- Accelerating transformation: Beyond signing the deal
- Voices on 2030: The Future of Financial Services
- Agility with discipline: Transforming MUFG's Transaction Banking business
- Financial services CEO Outlook 2019
- Does banking's future outweigh its past?
- Spotlight: Goldman Sachs breaking new ground with Marcus
- Flexibility for growth: Operational excellence in an era of digital disruption
- Next-generation banking technology and tax implications
- Global Tax Benchmarking in Financial Services
- AI offers the smartest solution for transition to RFRs
- Tax, transfer pricing and transformation: What Asset Managers may be forgetting
- When opportunity comes calling: Using the deferral of IFRS 17