In the late 1990s and into the early 2000s, operations functions went through a paradigm shift. Concepts of centralization, offshoring, standardization, consolidation, process re-engineering and outsourcing abounded. This shift created large operations centers housing tens of thousands of employees across the globe, all performing interconnected tasks that together completed a transaction. The focus was on employee productivity, labor arbitrage, and managing down error rates.
Fast forward to today, and operations has changed once again. An emphasis on large labor forces conducting manual tasks has been superseded by the need to reduce headcount and provide value-additive services to customers. Automating key parts of the value chain – especially repetitive tasks – has become a focus, and technology has been critical in enabling this shift. Operations has become “smarter.”
Despite significant advances, many promising technologies – such as artificial intelligence, machine learning and robotics – have only been sporadically adopted. Operations remains an area where there is tremendous opportunity to drive efficiency, reduce costs, and, at the same time, enhance customer experience. The technology exists to make that happen.
The “missing link” is a modern operations leader: an executive who understands both the core business and the technologies that can drive transformation and who has the change management capabilities to implement these technologies as solutions.
Through interviews with operations leaders involved in large-scale transformation and extensive research on the market and its key executives, this paper explores the drivers behind this, and the implications for financial services firms.
Operations transformation has never been more important than now, and there are several critical drivers that underpin this – lower revenue growth, shifting customer expectations, greater regulatory pressures and increased scrutiny, and economic uncertainty – particularly in the COVID-19 environment.
Leaders highlight how these drivers affect the entire financial services ecosystem, demand urgent attention, and provide clear impetus for change in the way that financial services organizations operate.
In each of these three key areas – reducing headcount, improving customer experience, and increasing profitability – technology has a fundamental role to play.
The exact technologies deployed vary – including applications as diverse as AI, microservice architecture, API, bigdata, cloud, and blockchain – but all can be used to achieve these outcomes, alone or in combination.
There are a plethora of examples, from across banking and financial services, where organizations have started to improve in these areas by leveraging these tools – and many more – across different parts of the operational value chain.
Many financial services organizations have historically relied on large human workforces to manually complete the processes that underpin their business – often adding no real value to the end customer.
Even within customer-facing parts of organizations, time is spent on answering basic queries (such as a customer’s current balance) that could be answered with an automated process, a chatbot, or a sophisticated IVR.
Technology exists to reduce inefficiencies and allow smaller human workforces to add much more value, reducing one of the major cost bases of every business.
Technology can drastically improve customer-facing operations across financial services – whether through adding value in new ways, simplifying processes involved in making applications or claims, allowing existing customer support networks to provide faster, better advice.
These can be achieved in a wide variety of ways – but all contribute to enhanced customer loyalty and build brands, enabling organizations to better compete with high-touch digital products.
Outside of reducing workforce costs and enhancing customer experience, technology operations can dramatically improve the profitability of existing products.
This can include using data to improve cross-selling, creating new channels through which products can be provided, and improve largescale processes like claims handling or document storage.
Operations leaders consistently highlight that technology is not a silver bullet. It will not instantly fix every problem that confronts an organization. What really matters is the way in which it is applied. Making a bad process happen faster will not result in long-term value creation if it doesn’t address the root cause of inefficiencies, even with the best available technology applied to it.
The application of robotic process automation (“RPA”) has been a good example of this. In some cases, robotic processes have replaced manual processes like-for-like – software is used to input data in exactly the same way that a human would. While this has generated incremental improvement, it has often resulted in process breaks – where a single activity passes between two parts of an organization persisting. While individual parts of the process become faster, the root cause of the issue is not addressed.
Modern operations leaders therefore need a much more strategic lens on the function, one which carefully considers where improvements can be effected, and aligns process flows with long term business requirements rather than making piecemeal changes to the way that existing tasks are undertaken.
The difficulty that this presents is that the role of the operations leader, as traditionally understood, does not necessarily align with the requirements of a successful technology-driven transformation.
Operations leaders today need a deeper understanding of advanced technology and the talent that they will require, rather than a career managing tens of thousands of customer service and operations agents across outsourcing / offshoring centers. Much more important to a successful transformation is the ability of operations leaders to be the liaison between the needs of the business and the technology function – to understand fully what is technologically possible, and to match that against what is required to effect real, productive change.
Equally, a new degree of change management capability is required. Operations transformation means making serious, large-scale changes to many aspects of the way that a business is run – and operations leaders need to be able to communicate this effectively, ensuring that projects are not waylaid by nervousness or resistance to change in the organization. There is also a fundamental business angle to this – many applications of transformative technology run the risk of cannibalizing internal revenue if applied thoughtlessly, and the operations leader needs sufficient business leadership experience to understand and mitigate this.
The traditional skill set of the operations leader will not go away. Operations will continue to lead teams at scale and handle budgets that, in many cases, form a significant part of overall cost base. The capabilities that make this possible will be vital to a best-in-class operations leader for the foreseeable future – but these capabilities are now necessary, but not sufficient.
In addition to the core skill-set, the pace of change in the application of technology to operations means that the modern operations leader will also be:
- a strategist who can clearly see and shape the organization’s vision on how it intends to differentiate itself in a competitive and ever-changing landscape, and articulate this compellingly to internal and external stakeholders;
- a technologist who understands emerging technology trends and what it means to his business, and who knows the limits of the possible in the context of the organization;
- a product manager who can deploy these technologies by building software and digital products, whether for internal use or customer facing, which are created across the business and meet real needs;
- a change agent who can work collaboratively with business unit leaders, risk and credit heads to ensure that the pace of change does not disrupt core revenue flows or create internal tensions; and
- a business savvy, commercial leader and not just a back-office operator; a leader who comprehensively understands the impact of each decision on the core revenue lines of the business and can take a “big picture” approach to avoid excessive internal cannibalization.
Given these new requirements, we anticipate that the operations leader will require new skills that span emerging technology, operations, data and change management.
Not only are the requirements themselves broader – often requiring a more diverse background for the operations leader, as opposed to a “pure” operations career – but the skill sets required are in higher demand than ever. Technology, product, and change management talent is always at a significant premium, and this extends beyond financial services and into consumer, digital, and technology. Banks, insurers, and asset managers can anticipate competing directly with scaled technology organizations, including Google, Amazon, and Facebook, for senior operations talent. Equally, strategic and commercial leadership are inherently valuable in any part of a business – deploying this talent in operations will, necessarily, mean not deploying it elsewhere.
In short, there has never been a more difficult time to source truly best-in-class operations leaders – or a time where the potential pay-off from doing so correctly is so high.