Financial service executives know they need to get serious about transformation if they want their organizations to survive. Now they just need the organizational fortitude to make it happen.
As an industry, we have spent years talking about the need for radical transformation. Yet, notwithstanding a handful of truly innovative leaders, the reality is that little has actually changed in the way most financial services firms operate.
Sure, over the past decade, many key processes have been digitized and automated; some exciting new channels and innovative tools have been added; new business models and operating models have also been adopted.
What we have not yet seen, however, is widespread appetite — or, more importantly, competition — around full-scale transformation programs. Instead, we have seen smaller-scale efforts and initiatives, largely aimed at achieving cost cutting and efficiency objectives.
The reality is that, until today, few executives have seemed willing to risk their careers on a wholesale organizational transformation. Yet my conversations with banking, insurance and asset management leaders around the world suggests that the mood is starting to shift. Execs and organizations are starting to find the intestinal fortitude to do what they know they must.
Consider this: in KPMG International's recent global survey of financial services CEOs, 22 percent of respondents admitted they were primarily driven by short-term growth pressures. But 47 percent said they were more motivated by much longer-term objectives such as upholding the values of customers, making an environmental and socio-economic impact or innovating the business model.
In part, this reinvigorated commitment to transformation is being driven by concerns around competition. Executives are starting to realize that the more innovative brands are starting to look and act quite unlike a traditional bank. They also understand their customers no longer want the same types of financial services they did just a few years ago. And that is leading many financial services executives to reconsider where they want to position themselves in the go-forward economy.
While most executives recognize that transformation is now an absolute imperative, my discussions suggest that many are worried they may not have the people, processes or organizational agility to be able to do what is necessary to compete. They want to progress but they are concerned they may not have the right foundations for success.
My view of the banking, insurance and asset management industries suggests there are five key areas where financial services executives will need to focus on if they hope to have the organizational capabilities, capacity and fortitude required for sustainable change.
Talent: One of my greatest concerns is whether today’s financial services workforce has the skills and capabilities required to be successful as the workforce of tomorrow. Financial services firms are full of people with really good production capabilities; what they often lack are innovative thinkers at the operational level. The leading firms are reorienting their workforces to focus on recruiting and developing employees who are data-driven, analytically-inclined, attuned to the technological change in the marketplace and keenly aware of the shifting needs of their customers.
Culture: Financial services firms will need to start delivering the types of products and services their customers require. And CEOs recognize they will need to foster a much more innovative and entrepreneurial culture in order to achieve that. In fact, in our survey of financial services CEOs, 84 percent said it was critical to ensure their employees feel empowered to innovate without worrying about the negative consequences; just 56 percent believe their organization has a culture where failing in pursuit of innovation is tolerated. Cleary, more must be done to create an innovative culture.
Security: In today’s financial services industry, providing a safe and secure environment is often seen as table-stakes by customers. But that does not make it any less of a priority. It is no longer good enough to manage cyber events when they occur. Cybersecurity needs to be a core competency within the organization — one that customers can trust. Our survey of financial services CEOs indicates that almost seven in 10 organizations see information security as a strategic function and a potential source of competitive advantage.
Customer focus: Perhaps not surprisingly, around two-thirds of financial services CEOs agreed they will need to significantly improve their understanding of customers going forward. The problem is that today’s customers lack filial loyalty to historical institutions. They want what they want, when they want it, and they don’t really care who they get it from. That makes it extraordinarily difficult to retain customer loyalty and deliver on customer needs on a consistent basis. The leading brands are applying a wide range of technologies, partnerships and models to improve their understanding of their customers. And they are communicating with their customers in ways that enhance convenience, build loyalty and inspire trust.
Efficiency: Building a new organization on top of inefficient foundations is not the key to successful transformation, particularly in a time of increased market volatility and uncertainty. While many banks are currently focused on cutting out costs and improving bottom-line financial performance, the leading brands are those that are using the opportunity to also improve organizational agility, encourage flexibility and enhance overall resilience. They view large-scale transformation as a way to reduce the day-to-day managerial burden of the organization so that decision-makers and employees can focus on creating value.
As this edition of Frontiers in Finance clearly illustrates, the path to transformation need not be fraught with risk. Indeed, this publication is filled with stories of banks, insurers and asset management organizations that are taking transformation head-on and finding ways to turn their risks into opportunities for competitive advantage.
What differentiates the leaders in this publication from the rest of the industry? In my opinion, it’s that they had the intestinal fortitude to take the first step on the road to fundamental transformation.