How digitalization enables a new operating model
The Challenge
As the pandemic recession shifts into a pandemic recovery, financial services companies face their biggest challenge: how to address the massive pent-up demand for new digital and automation solutions.
Many companies piled up cash reserves last year to weather the uncertainty of what lay ahead. Having underinvested in digital assets for a year, and sometimes even before the pandemic, many companies are feeling a sense of urgency to catch up. That urgency has been intensified by the massive shift to remote work, and the challenges that came with it. As employees and customers relied more than ever on digital interactions, many systems fell short of needs and expectations.
What does your company need to know and do now to ensure that digital and automation investments help achieve strategic goals and meet future challenges? In short, they need to enable your operating model—better yet, your target operating model (TOM), if you have one. (For more on TOMs, see our Insights piece, “How Financial Services Model the Future”).
Point B’s Perspective
Companies are understandably eager to move quickly on needed investments. But this is a time to go slow to go fast. It’s critical to step back, ask some fundamental questions about your strategic goals, and make sure your new investments enable a forward-looking and adaptive operating model.
Be deliberate. What business outcomes are you trying to drive? What capabilities are you trying to build? How far could today’s technology be leveraged to actualize its potential?
Migrating to a new core, implementing a new loan origination system, or installing a new employee desktop are all examples of opportunities to transform your organization by rethinking its business architecture, routine, and yes, even culture. Even a relatively minor maintenance issue or routine upgrade to a new version of an enterprise system is a potential moment to consider how you might use it to advance your organization’s vision.
Yet companies seldom take the time to fully contextualize these large initiatives, which is why many fail to meet expectations. Making the next wave of IT investments without articulating how it will enable your operating model is like starting to build a house before it’s been designed.
Companies that take the time to align their IT spend with a target operating model are positioned to leapfrog the competition, grow market share, and increase competitive advantage.
Don’t Pave the Cow Path
When companies invest in new technology, they run the risk of “paving the cow path,” as the saying goes. That is, they risk digitizing or automating the way business is done today without identifying new ways to organize and deliver value. Why apply sophisticated new technology to the same old cow path when it could give you a light rail system instead?
We suggest asking three simple but illuminating questions any time you invest in new technology:
- What is the “job” that a given process is accomplishing today? What’s the value add? And, most important, should we keep doing it? (If we eliminate it, what is our process for removing it?)
- How should this process be done? If it’s a manual process now, is it truly a good candidate for automation or is there a deeper benefit to human intervention? (If the latter, how should the process be re-engineered?)
- Who should do this process? What is its impact on our operating model? What skill sets are required to do it?
Make sure you are intentional about defining the business processes and outcomes and organizational goals (“design the house”) before you design and implement the technology.
Determine Your “Scope of the Firm”
As you build out your digital capabilities, you don’t have to change everything about your organization. The world is filled with opportunities to outsource or partner in areas that go beyond the boundaries of what you actually want or need to own. Establishing those boundaries may require shaking off old assumptions and looking at your company through a fresh lens. What business do you want to be in? How should you best allocate capital? What makes sense to outsource? What synergies can be gained by partnering?
Paradoxically, challenging the existing the scope of your company takes a strong sense of who you are. What are your non-negotiables? In our previous Insights piece on TOMs, we emphasized the importance of sticking to your north star and letting it light your path. This equips you to stay true to guiding principles while being flexible about changes that will serve you well.
Adapt and Advance. Then Keep Doing It.
Companies tend to bite off more than they can chew when they embark on big projects. We were recently called in after a $70 billion+ client tried and failed to launch an ambitious new multi-channel online platform. Twice.
Trying to jump directly to end-to-end automation delays the delivery of value and vastly increases risk. Instead, we brought a flexible, iterative approach to accelerate speed-to-value and deliver tangible improvements in phases while also reducing risk.
This more agile approach will change the dynamics of your operating model and how it interacts. Rather than go from today’s static model to tomorrow’s static model, your operating model needs the flexibility to adapt and adjust to change. It needs to be in sync with the continuous agile deployment of technology tools and features. It should support bi-directional feedback, in which strategic goals inform technology spend and, conversely, new technology informs business strategy. This means your entire organization will be continuously probing, testing, and refining your strategy throughout the year and marrying it with agile tools and technology.
The Bottom Line
Digital platforms are recognized as central to a company’s identity and success. The recent disruptions we’ve experienced have created an imperative to move quickly and implement new technologies. That said, it’s essential to think through digital and automation efforts as deliberate enablers of your target operating model. Dedicating a modest amount of your overall technology budget to align and inform your strategic goals, organizational design and business processes will pay off in a swifter journey to the future state you have in mind.
Learn more about how to make the right technology investments.