We are seeing explosive growth in the emergence of new technology disruptors impacting financial services. The challenge C-suites face is to successfully manage their business through these unprecedented rates of change.
However, the pace of transformation in banking today is not nearly fast enough to survive. By the time banks realize what is pertinent, it was pertinent.
The hindrance is that a bank’s ability to transform evolves in a linear manner, while the number and complexity of disruptive events is increasing exponentially.
While institutions can adapt to change, current structures and strategies in large institutions create a significant lag between disruption and transformation.
Digital competitors in this environment put significant pressure on revenue – and they are successfully competing in the typical strongholds of banks.
32% of banking revenues will be at risk by 2020.
Banking’s response
The main challenge for banks is to become frictionless digital companies that provide banking services versus utility providers offering banking accounts, treasury services, and commercial loans. Artificial intelligence, machine learning, and the automation of processes are more than a next-generation strategy – they are the current state of competition and the keys to a bank’s very survival.
A roadmap for modernization
If the need to transform is no surprise to executives in the banking C-Suite, why is there a constant struggle to move the needle on some of even the most seemingly simplistic changes necessary to establish and execute a converged ecosystem? We believe the answers lie in the inherent challenge in transforming banking’s existing business model, organizational structure, culture, and technology infrastructure.
In order for banks to thrive, we see the need to focus on four core areas – Customer Experience, Organizational Design, and Diversified Talent, all supported by a next-generation Ecosystem.
The ability to solve this CODE is in the hands of the C-Suite executives and their one- and two-down teams. Banking’s senior leaders must possess a variety of technical skills complemented with personal drive and political fortitude in order to guide their banks through continuous innovation and disruption.
All four action areas are interconnected, requiring a commitment to aggressive strategies that involve more than increases in funding and agile development. It will take the soft skills of leadership to break down silos and create clear ownership of decisions accompanied by a culture of speed and true accountability for results – all focused on the end game of becoming an organization obsessed with the customer experience.
Customers are not at the top of the pyramid in a traditional bank. They are instead at the end of a product and service development lifecycle that, by its very nature, compromises customer experience.
Customers’ expectations keep rising as they grow accustomed to simple and convenient digital channels.
However, banks still have a competitive advantage in consumer trust.
Readiness
Assessing your readiness
Moving to a customer-centric model can be a significant and complex undertaking. A clear understanding of the bank’s readiness for such a transition can help it successfully navigate its way through.
Do we have a clear roadmap for the journey towards a customer-centric organization?
Are we making leadership across the bank aware that this is a strategic imperative?
Are we focused on rigorously identifying and removing barriers to change?
Have we communicated an energizing vision of change (and success) to the organization?
Design around episodes
Ensure your universe revolves around the "I want to...."
For instance - "...open an account"
Branches are key to a successfully integrated frictionless experience
According to the J.D. Power 2018 U.S. Retail Banking Satisfaction Study, 28% of retail bank customers are now digital-only, but they are the least satisfied. Leveraging branches in combination with contact centers and digital apps is the key to delivering a banking experience that should maximize customer loyalty.
Highest satisfaction
Branch-dependent digital customers used the branch two or more times in the past three months and also used online or mobile banking - 823/1000
Middle ground
Digital-centric branch-using customers who used the branch once in the past three months and used online or mobile banking - 808/1000
Lowest satisfaction
Retail bank customers who exclusively used online or mobile banking channels during the past three months - 791/1000
Growth brings complexity
Traditional banking structures have evolved organically as the bank has grown – and are not conducive to efficiency, agile innovation, and a frictionless customer experience.
The Bank of Today
Digital is layered and distributed independently across different functional departments.
Siloed nature makes uniform delivery and experience nearly impossible, frustrating customers.
Ad hoc digital solutions provide quick fixes, but this structure inherently blocks holistic progress around frictionless experiences.
Tear down to build up
Dismantle traditional hierarchical infrastructure; redesign to improve the customer experience, improve efficiency and allocate work based on interconnected and flexible executive teams. This will allow for a more agile, customer-focused approach.
The Goal
Design episodes through small, cross-functional teams that own and improve each individual episode. Use agile methods to determine product/service, gather and bake feedback from customers into newer versions, then execute across the enterprise.
The Bank of Tomorrow
This structure inherently redefines legacy organizations as a forward-leaning digital architecture that drives an agile work environment.
All-in-one digital; eliminate any friction and design an organization that is digitally ubiquitous.
Product development and distribution outcomes ensure seamless experiences across all touchpoints.
Executive talent is heavily skewed toward traditional veteran bankers with limited diversity in race, gender, and experience.
Lack of diversity affects all functions and outputs
The direction and culture set from the top affect product development, distribution and marketing, all of which intersect with the overall customer experience.
Grow the bottom line
Companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians. Companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians. (McKinsey1) Companies with the most women board directors outperformed those with the least on return on sales by 16% and return on invested capital by 26%. (Catalyst2)
Attract and retain the best talent
When employees feel part of a diverse and inclusive workforce, turnover decreases by up to 20% and employee effort increases 12%. (CEB3)
Employees with the highest level of engagement perform 20% better and are 87% less likely to leave the organization. (Diversity Inc.4)
Ensure a sustainable workforce
By the year 2050, there will no longer be a clear racial or ethnic majority in America. And over the next 40 years, immigrants and their children will account for 83% of workforce growth in the US. (Center for American Progress5)
Stay competitive
80% improvement in business performance among firms with high diversity levels (Deloitte6) Work teams with high levels of inclusion outperform others by 8:1. (Deloitte7)
Capture new opportunity
70% higher likelihood of capturing a new market among firms with high gender and ethnic diversity. (HBR8) Employees in a “speak up” culture are 3.5 times more likely to contribute their full innovative potential. (HBR9)
Create investor value
Investors would have been better off, on average, investing in companies with women on their management boards than in those without. (Credit Suisse10)
1 Adapted from “Why Diversity Matters,” by Vivian Hunt, Dennis Layton & Sara Prince, 2015
2 Adapted from “Why Diversity Matters,” 2013 ©2013 Catalyst
3 Adapted from “Creating Competitive Advantage Through Workforce Diversity,” 2012 ©2012 The Corporate Executive Board Company
4 Adapted from “Driving Performance and Retention Through Employee Engagement,” 2004 ©2004 Corporate Executive Board
5 Adapted from “The State of Diversity in Today’s Workforce,” by Crosby Burns, Kimberly Barton, & Sophia Kerby, 2012
6 Adapted from “Waiter, is that inclusion in my soup? A new recipe to improve business performance,” by Giam Swiegers & Karen Toohey, 2013 © 2013 Deloitte
7 Adapted from “The Rise of the Social Enterprise,” 2018 ©2018 Deloitte Global Human Capital Trends
8 Adapted from “How Diversity Can Drive Innovation,” by Sylvia Ann Hewlett, Melinda Marshall & Laura Sherbin, 2013 ©2013 Harvard Business Review
9 Adapted from “How Diversity Can Drive Innovation,” by Sylvia Ann Hewlett, Melinda Marshall & Laura Sherbin, 2013 ©2013 Harvard Business Review
10 Adapted from “Higher Returns with Women in Decision-Making Positions,” by Mark Misercola, 2016 ©2016 Credit Suisse Group AG
Hurdles in your ecosystem
The solutions to the first three challenges - Customer Experience, Organizational Design, and Diversified Talent - will fall apart without an enterprise-wide ecosystem to support their growth. Gartner's Financial Services Innovation Survey found:
Banks still possess the size and scope, resources, funding, and customer base to attract top leaders in all businesses and functional support roles. So why is it such a challenge to build a world-class ecosystem?
Decisions take too long; agile is a catchphrase, not a culture philosophy.
An outdated board unable to challenge and ask the right questions.
Lack of role clarity that leads to competing agendas, mainly from a matrixed model.
Inflexible hiring/retention strategies; expanded work locations.
Human Resources that is transactional vs. strategic.
Technology unwilling or unable to partner and afraid to fail.
Agile is a philosophy, not a buzzword. Lead from the top by increasing the speed of decisions. Fear of failure is paralyzing - challenge senior teams to redefine processes.
Update the board with skills that meet the needs of the future that are on your doorstep today - e.g. AI, ML, and Information Security. push beyond the comfort zone.
Be brave - kill the matrix and replace it with clear channels of decision making and accountability.
Expand employee footprints in geographies where talent resides, offer sabbaticals/community service at 5/10/15 etc., redesign talent acquisition to identify talent vs. spec.
Break traditional HR molds, focus on teammate experience, cross-train business leaders through HR roles, insist on continually updated LD/OD and succession plans.
Agile development, continual investment in training (Stanford D School, IDEO), aggressive external partnerships.
It is imperative that the C-suite create a culture conducive to innovation and growth and willing to challenge the status quo. The world’s most successful companies consistently question themselves and have parted ways with outdated hierarchies and sacrosanct decision and communication paths that block innovation and progress.