With just a quarter of executives believing their company’s operating model has evolved quickly enough to align to their strategy  we find ourselves asking why so many firms are simply tinkering around the edges, instead of taking bolder steps to revolutionise their structures, governance, processes and ways of working for the future.
The past decade has seen unprecedented disruption to the financial services marketplace, led primarily by the digital revolution, changing the way customers access products and services, and rapidly increasing speed to market. The onset of Covid-19 has further propelled organisations into the digital future, resulting in a pace of operating model change across the industry that is faster than ever before. With the reward for making the strategic leap to the next generation operating model being as high as 25% growth , those who fail to be bolder, braver and more agile risk falling behind.
Our experience and thought leadership in the financial services sector has allowed us to develop valuable insights into how organisations will need to shift their design and operations for future success. In this short blog we outline the 3 critical success factors we believe are pivotal to defining the target operating model (TOM) of the future.
1. Clarifying the fundamental strategic principle upon which the TOM is built
For many, there is an assumption that becoming ‘customer obsessed’ is the only way to be. If this is indeed the strategic principle upon which the TOM is built then all strategic objectives, design decisions and operational practices should be geared towards serving the customer. This ‘service’ mindset should be a fundamental component of organisational culture, reinforced throughout the lifecycle and coupled with a self-service first model.
Given the current levels of disruption, we challenge Executives to be braver and consider whether being Product-, Data- or Infrastructure-led is a more valid principle for their organisation.
Whatever the decision, it is critical that all stakeholders are aligned and that an independent design authority is established to challenge and validate decisions, ensuring all layers of the TOM design and subsequent implementation reinforce this fundamental strategic principle.
2. Designing the operating model to facilitate simplicity, agility and digitisation
The organisation of the future is based around networks, constant adaptability, and continuous learning. As a result, there are three key design considerations for firms redefining their TOMs; simplicity, agility and digitisation.
- Simplicity; Historically complex and often bespoke product sets have resulted in convoluted operational processes, increased costs and greater risk exposure. As organisations shift to simpler and more flexible product portfolios, it is fundamental that the operating model mirrors this shift to simplicity. Consider flatter hierarchies, streamlined processes, simplified technology platforms and less cumbersome governance structures. Be bolder by using zero-based organisation design to reimagine the structure you need from the bare bones, free from the constraints of the way things are done today.
- Agility; Gone are the days of defining an operating model fit for a moment in time. Those who stay ahead of the competition will treat their operating model as a living, breathing organism that constantly adapts to changes in the marketplace. This can be achieved through focusing on a modular approach by identifying capability building blocks that can be ‘plugged and played’ as required, as well as leveraging partnerships and technologies such as RPA and machine learning to create processes that constantly evolve. Focus on enterprise-wide agility by considering your organisation as a whole; give cross-business line teams specific missions aligned by a common purpose and selected on competency not role. This must be underpinned by a culture that allows you to reconfigure teams quickly in response to changes in the marketplace.
- Digitisation; For firms to retain competitive advantage the digital agenda must be front and centre of their operating model. Leveraging cloud technologies or partnering with others to develop improved products, reduce release time and engage with customers in a more meaningful way is just the start. For most banks, there is a seismic shift required in their culture and ways of working to realise the full potential of new technologies. Critical capabilities need to be redefined and acquired, leaders need to develop a digital mindset, and collaboration and collective intelligence must become part of their DNA to drive innovation. To increase the success of your digital transformation, be braver and focus on relationship transformation (RTx)  centred on accelerating human-connections through digital.
3. Putting data and insights at the heart of the operating model
With data traditionally the domain of the technology, risk and compliance departments; many banks are only now realising the unique position that access to this level of information puts them in. Further propelled by Open Banking regulation, the key is understanding not only how to harness this big data, but to create an operating model that joins the dots between multiple sources and puts data and insights at the centre of strategic decision making, product & service development and operations design.
Central to this is creating a multi skilled data science and analytics team that partners with the business to create an end-to-end view of the customer, personalise services, inform new revenue streams and predict behaviours to reduce risk. Be bolder by embedding data scientists in the business team with whom they work and insisting all decisions are anchored in data and insights
One thing is for certain, the financial services landscape is continuing to change at pace. To coin a well-used phrase; ‘change is the only constant’. Whilst revisiting products, services, structures and technologies will undoubtedly start a move in the right direction, only those who make bolder, braver moves will accelerate their success. This will inevitably involve some tough decisions about where and where not to operate but, focusing on these three critical success factors will set your target operating model programme up for success.
At WhartonBC we work with organisations across the financial services landscape to reimagine and optimise their operating models. Our approach focuses on challenging your existing thinking across all layers of the operating model, resulting in a cost-efficient, adaptable model which is directly aligned to your strategy. Contact us to understand more about how we can support you to take that bold step into the future.
 ‘Zeroing out the Past’, Accenture 2018
 ‘Turbocharging the Next Generation Operating Model’, McKinsey Apr 2019
 ‘When digital transformation fails, focus on the why and how of change, not just technology and transactions’, Brian Solis, ZD Net, 24 Aug 2020
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