Part 2 of 3: engines of innovation
In our first post, we discussed the importance of developing a customer-centric operating model-not just modernizing it, but transforming it, as well. This mandate should be properly understood against the backdrop of the Digital Revolution, in which we have already begun to go beyond adopting the cloud to the next phase: harnessing artificial intelligence. If you are still wondering when you should go to the cloud, or even whether you should go at all, it may already be too late to catch up with your competition.
‘Whole bank’ transformation
Many banks underestimate the scale of disruption bearing down on them. Many see digital as an initiative in one part of the organization or a project in another. Rarely do they see it in the broad context of transforming the entire enterprise.
Digital promises to connect people, devices, and physical objects instantly, seamlessly, and without friction anywhere. The result is the unleashing of huge amounts of data. Mining this data gives analytics the ability to transform business and operating models. This leads to higher levels of automation of processes and activities-and, ultimately, to faster decision-making and better decisions.
The new bank digital operating model must be seen in this context. It is not a stand-alone project, but rather an integrated part of the transformation of the whole bank and, further, the marketplace in which it operates. It changes the way we engage with customers, empower employees, operate the business, and transform products.
Many banks and financial intermediaries will either disappear or transform completely. New forms of trust-such as those engendered by blockchain-challenge the very idea of centralized institutions. Artificial intelligence automates processes, eliminates jobs and businesses, while at the same time, creating new ones-enabling Davids to overpower Goliaths with a single shot.
Within banking, the following seismic shifts are underway:
- From product-centric to customer-centric. In digital, the customer is king. For years, banks have built their operations, technologies, and even datacenters around product empires. A customer-centric approach simplifies operations, reduces costs, and eliminates processes not directly contributing to customer outcomes.
- From datacenters to data-centric. Banks find themselves with duplicate systems and isolated pools of data complicating their management of customers, risk, compliance, and operations. Banks need to get out of the datacenter business and into the data business to create a single version of the truth as a foundation for analytics and, ultimately, contextual and cognitive insight.
- From products to platforms. Shifting to a data-centric model reinforces the importance of platforms rather than products. Platforms allow data to flow to where it is most needed. Products reinforce separation, fragmentation, and complexity.
- From upgrades to updates. Cloud-based platforms are easy to maintain, update, and manage. Open APIs allow faster-paced, fintech innovators to become partners rather than competitors. Rather than having to undertake occasional, large-scale upgrades, the cloud affords incremental, but regular improvements, keeping the bank in a state of constant transformation-resulting in much greater impact with far less risk and cost over time.
- From operational efficiency to operational performance. Many banks are laser-focused on improving their efficiency ratio (the ratio of cost to revenue). This typically involves a tradeoff between cost and capability. Digital eliminates this tradeoff by allowing banks to pay for the technology they actually use (rather than own), thus reducing costs and increasing performance.
- From muscle power to digital power. Banks have had to resort to manual or semi-automated processes as their outside world has changed faster than their inside world. This is a losing game. Digital allows banks to access a treasure trove of digital assets vastly more powerful than anything they maintain on premises today.
- From banking as a closed system to a banking ecosystem. The days when banks only need to trust their own business operations and on-premises technologies are numbered. Now the imperative is to embrace secure networks and open APIs from innovative providers of digital financial and non-financial services. Advanced interconnectivity and security make possible a vibrant financial services ecosystem that is rapidly redefining the very nature and boundaries of banking.
A future beyond legacy
Banks have made great progress recovering from the financial crisis. But they continue to live in a world of legacy pain. The new digital operating model for the bank is customer-centric, not product-centric. It is, moreover, about platform, not product. It relies on updates, not upgrades. It is fed by agile, not waterfall, development. It enjoys open APIs to encourage fintech partnerships. It embraces micro-wins for rapid innovation. It reimagines the concept of operational efficiency by allowing banks to pay for what they use rather than what they own.
It is fundamentally different from the operating model in most banks today. Banks must stop investing in a Ford Model T when they need a Tesla Model 3 (as it were) to drive into the future. The new bank operating model demands a complete, customer-centric redesign, a new data architecture, and an analytics framework that protects the organization from the many threats it faces, whether in the marketplace or in the antiquated systems of the workplace. These are the engines of innovation and future growth.
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