There's no denying that many aspects of the corporate banking environment have evolved with the rise of digitisation. This is particularly evident in the significant changes made to traditional operating models. Indeed, digitalisation is now expected to transform target operating models (TOMs) within the banking sphere as we move towards a completely digitised future.
Moving from reactivity to proactivity
Traditionally, TOMs in the banking sector have focused on providing high-quality service and the right products for the right segments, while ensuring that the right people are in the right positions. As such, banks' operating models are usually built around responding to customers' demands rather than pre-empting them, assuming a somewhat reactive position.
However, with the digitalisation movement, banks are finding themselves having to adapt their TOMs and adopt a much more proactive stance. It's no longer about finding out what the customer wants and then delivering it; now, the focus is on banks having the knowledge and expertise to 'tell' customers what they want and then deliver in an optimum way for both parties.
Alternate responses to digitalisation
So far, there have been two clear responses to the digitisation movement. Firstly, there are the banks that embrace it by taking a fresh look at how they can implement digitisation to improve their operational efficiency and processes. This approach leads to a better end result, with processes becoming more streamlined and operating costs being reduced. FinTechs are a prime example of this, having started from a blank canvas to determine how digitalisation could help them operate in a more effective and efficient manner.
On the other hand, there are banks that are turning to quick-fix solutions and simply 'adding' digitisation to their existing operating models. More often than not, the 'addition' is made to the front-end consumer-facing systems, constituting more of a facelift than real corrective surgery. This strategy often disregards the internal processes that are the root of many operational inefficiencies, thereby adding to a bank's operational complexity.
Digitalisation tactics to avoid
The piecemeal evolution of a TOM as part of an incremental approach is a common pitfall when banks are digitising their TOM. The effect of such an approach is normally a patchwork of workarounds that may allow banks to deliver in the short term, but then result in a burdening web of systems and processes and an ultimately unsustainable solution.
For example, one of our global banking clients saw first-hand how digitalising the Relationship Management experience initially had a detrimental impact on the productivity of the front office rather than improving it. The operating costs of the bank remained the same, while the digital experience fell off a cliff, as middle- and back-office processes and systems were not updated. This ultimately led to the addition of more workarounds and an even more fragmented architecture, as the bank felt unable to greenlight costly, large-scale architecture programmes, especially with regulatory pressures still filling the IT order books.
Reaping the rewards of digitalisation
Digitalisation is most effective in the banking sector if used to improve the sources of a bank's core operating costs, namely the middle and back offices. It is through this approach that digitalisation will help to reduce costs and increase competitiveness. In order to achieve the greatest effectiveness and efficiency, TOMs should also be aimed at harmonising the various digitalisation channels adopted, such as e-banking, telephone banking, relationship managers and other consumer-facing interactions. In this way, banks will be able to strike a balance between avoiding unnecessarily large project costs while consolidating the operating model in order to optimise process rationalisation and achieve strong programme governance within a comprehensive enterprise architecture.