November 30, 2018 | Written by: Lee Kroll
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Now, more than ever, banks must be smarter and faster. Operational innovation is vital in a highly competitive financial services sector, with a new community of digital banks and other firms vying for market share.
CFOs in financial organizations are not taking this challenge lightly. In 2016, the IBM Institute for Business Value teamed up with the Economist Intelligence Unit to interview global bankers. Two-thirds said that their traditional value chains were being replaced, and 57 percent noted a blurring of the boundaries between banking and other industries, including retail and telecommunications. More than six in 10 also identified emerging competition from new, unexpected areas. In this context, improving efficiency is mandatory.
Drivers for Operational Innovation
Ongoing conversations between IBM and CFOs over the years have identified key activities that can help progress operational efficiency. These include driving growth, reducing costs and managing financial risks in a volatile business environment.
These terms look good on paper, but what do they mean in practice for operational innovation? Financial services companies can look to three main areas to improve efficiency: people, process and technology.
People: Improve Efficiency With Executive Buy-In
People are at the heart of any financial operation. One example of operational innovation is to analyze how a financial services company uses its labor to determine whether it has the right people in the right place doing the right thing. That could drive a shift to geographically targeted labor in offshore or nearshore arrangements, cutting costs and helping to scale an operation.
Any corporate transformation involves a cultural shift that relies on people to make it work. This doesn’t simply mean realigning labor on the operations side, though — it means getting buy-in throughout the company. To effect a cultural shift, a company needs senior executive involvement to drive change from the top.
Process: Institute Effective Change Management
From a process perspective, companies can test the existing ways that finance and accounting people or risk managers handle operations. Some of these processes may have existed for decades. Do they still make sense in the current environment? If not, then they need to change.
Creating the right change management structure involves putting the right communication channels in place to ensure that employees understand what they can expect and what the company expects from them.
Companies must dedicate resources to this change management process, involving executives who understand what good communication practice looks like. That leads to the third important aspect of operational efficiency in finance: a project management office (PMO).
Technology: Create a Project Management Office
Operational innovation in financial services is a wide-ranging project that requires expert orchestration across many departments and disciplines. The PMO is the conductor of that orchestra. The staff in that office must be qualified in the project management certifications for their region and must have full visibility into how the transformation is progressing in all areas. They will articulate company-wide standards for defining and measuring change and formalizing how all departments report on that change.
Data is also a key tool in measuring outcomes from transformation projects and financial operations. Companies must measure key performance indicators to see how well their transformation in these three areas is improving. One of the key metrics is cost. Monitoring the cost of serving customers, both external and internal, should be a key aim in any transformation project for financial operations.
Another, trickier task is measuring the impact on people. CFOs must keep a watchful eye on the impact of operational changes, both internally and externally. Good CFOs overcommunicate the strategic vision and work to ensure organizational goals are aligned.
These measures all rely on data-driven decision-making, which leans on analytics. This means supporting financial operations with robust, accurate and easily available data from the rest of the organization.
Financial services organizations excel at technological innovation. Banks may face unprecedented levels of competition as a mixture of fintech firms and other innovators shoulder into the market, but long-standing financial services companies have the advantage of decades of expertise. They’ve been at the head of the knowledge economy for years and are in a unique position to drive new efficiencies into their business models using technology and process change.
When is the right time to begin? The best time was yesterday. The second-best time is right now.
Learn more about IBM’s change management consulting services.