Friday,
June 28, 2019 12:59 PM / By PwC Nigeria
A variety of forces have put tremendous pressure on
the financial services industry in recent years, leaving many institutions with
unsustainable cost–income ratios. And several of these challenging trends —
from new regulatory mandates to augmented capital requirements to aggressive
fintech competitors — are strengthening. This paper presents excerpts of a
larger publication with the same title, which detailed the results of PwC's
2018 Productivity in the Financial Services Sector Survey. It's part of a
series of thought leadership pieces about important issues and opportunities
facing the financial services industry and the ways in which senior executives
at the most innovative and successful institutions are responding. Some
Nigerian senior level executives were part of the 150 surveys completed from
the 36 territories represented in the survey.
Moving forward with a focus on
productivity
Typical cost-cutting measures – reducing personnel cost, automating, offshoring and introducing new technology- haven't done enough to address the impact of the current downturn, which has been uniquely severe. Most institutions have seen whole businesses jettisoned, geographic footprints reduced, and clients 'fired' to the point where the financial services industry has, in essence, de-globalised and become regional and national in nature.
The industry is recognising that it has nearly
exhausted its arsenal of conventional cost-reduction tools and that further
cutbacks in many businesses are likely to be counterproductive to long-term
profitability and sustainability. Organisations also realise that the onslaught
of competitive threats and cost pressure is likely to continue, even for
institutions that are performing well at the moment. Our clients are asking
themselves where to go from here.
As the introduction of new regulatory mandates
diminishes and management concentrates on bringing financial institutions'
performance in line with investor expectations, organisations increasingly have
sufficient capacity and motivation to tackle the productivity challenge — and
many of our clients understand that they should. Institutions tend to need
help, though, in acquiring the skills and tools needed to boost productivity.
We at PwC have identified six areas where clients are
focusing their productivity efforts. In this report, we'll outline the actions
you can take within each area to achieve positive results.
1. Better understanding the workforce
2. Rethinking change functions
3. Embracing the platform economy
4. Improving workforce digital IQ
5. Bringing an agile mind-set to the mainstream
6. Mastering digital labour
Outstanding execution and transformation capabilities are critical to overcoming the challenges involved in increasing productivity. And urgency is growing daily as the consequences of inaction become clear.
Better understanding the workforce
The current situation Most institutions have limited knowledge of what their employees actually do on a daily basis. They understand broad job responsibilities and activities in most cases, but if asked how long it takes to process a trade or how much time a certain employee spent in meetings last month, they typically can't tell you. In our productivity survey, only 27% of respondents said they tracked any employees by task on an hourly basis. For those who did track, the following areas reaped the most productivity benefits from the process (see Figure 1).
What needs to happen
The financial services industry is beginning to
recognise, though, that some form of consistent time tracking and workflow
analysis is needed to better identify productivity opportunities and execute
necessary changes. Of the organisations in PwC's survey that didn't track work
by hours and tasks, 62% believed such tracking would yield productivity
benefits. And change is coming, with 52% of respondents noting that new
productivitybased measurements and initiatives would be implemented in their
organisations in the coming year. Our experience indicates that by simply
tracking hours by task, organisations can improve productivity by 15% to 20%,
and the implementation of service catalogues and multi-tier sourcing can bring
another 20% improvement.
Steps to take
Creating a 'task catalogue' of key responsibilities
specific to particular roles and positions can facilitate disciplined time
tracking in areas beyond IT, allow for comparability across employees and
locations, and enable financial institutions to better examine the nature of
work inherent in various roles and divide work into more efficient bundles.
This often makes it possible for institutions to use lower-cost or less
experienced workers to accomplish certain tasks. Also, companies need to
address the privacy issues and cultural challenges associated with this type of
tracking. This requires a combination of clear communication and a suitable
system of rewards for desired behaviour. In addition, companies need to ensure
compliance with appropriate laws and regulations.
Rethinking Change functions
The current situation
From our survey, more than 41% of financial
institutions are spending, on average, 20% of their entire budget on so-called
'change-the-institution' efforts that are outside of business-as-usual
activities. This work includes implementation of new technology and business
processes, creation of new products, and mergers and spin-offs. Unfortunately,
many financial institutions struggle with change management. Only 15%
respondents said they were satisfied with their ability to execute change.
Projects often go over budget, fail to meet timelines and milestones, and leave
both regulators and shareholders disappointed. Many organisations respond by
relying too extensively on contractors and consultants to fix the problem.
Others fail to leverage the assets those third parties bring, such as tools and
methodologies that can improve performance across the organisation. What needs
to happen As with business as-usual functions, organisations typically need to
better understand the important tasks involved in change efforts, the
composition of the workforce required to execute change and the available
sourcing options. Finally, workforce performance should be comprehensively
measured and managed.
Steps to take
The first step is to recognise the importance of the
change function and treat the individuals involved with it as people whose
roles are critical to the success of the institution. Secondly, it's typically
necessary to perform an in-depth skills analysis, comparing the backgrounds and
experience of the current team (including contractors and other external
resources) to those needed to drive not only the specific projects on the
docket but also successful transformations in the modern age. Do you have
enough architects and data scientists? Do you need to add people with
analytical skill sets or product-specific or other specialist skills in areas
such as new regulation, cyber and digital? After doing this evaluation, it's
possible to develop a strategy to bridge the skills gap in a cost-effective
way. Finally, leveraging technology for time tracking and adding the
appropriate program management elements will enable a more efficient and
effective change function to support the execution of the organisation's goals.
Embracing the platform economy
The current situation
Airbnb and Uber are two of the most valuable companies
on the planet, yet neither owns the primary physical assets used in their
businesses. Embracing the platform economy has huge productivity benefits for
financial institutions, too. Mutual fund marketplaces have shattered the myth
that asset managers have to manufacture all of their own funds. And
peer-to-peer lenders have taught us that financial institutions can create
effective business models without owning the financial capital as deposits. These
businesses derive their value primarily through what PwC calls BeCoN, or
behavioural, cognitive and network capital. As technological innovation
accelerates, these three new forms of capital have become critical to creating
value. Behavioural capital is developed by tracking ongoing activity, cognitive
capital is the value inherent in algorithms, and network capital is made up of
the connection points, with people and machines, that an organisation can
deploy. Each compounds itself exponentially and reinforces the others' growth.
What needs to happen
One thing organisations can do is use crowdsourcing to
innovate. Several platforms are now available that can be used to run
challenges that tap the collective brainpower and resources of a crowd, driven
by a sense of competition to develop the best response. Institutions also need
to start engaging with the gig economy. According to research firm Wonder, the
global gig economy is 77m people strong and growing. One reason the gig economy
has gotten so big is the proliferation of platforms such as Wonolo, Fiverr and
PwC's own Talent Exchange, which have connected workers with tasks to be
completed.
Steps to take
It's critically important to do some basic research to
understand what talent and solutions platforms are applicable to your business,
and to periodically update this research. Next, choose an area or a handful of
areas where you can make the most of crowdsourcing. Are you looking for a new
product design? A logo? Are you planning to improve an existing algorithm or
process? Run a challenge and include the crowd. On the resource side, explore
solutions to better acquire talent and apply that talent to specific gigs or
tasks that you would normally assign to fulltime employees or contractors.
Improving workforce digital IQ
The current situation
Digitisation is an important aspect of improving
productivity. And as people live longer and work longer, and unemployment rates
remain low, training and retraining of existing workforces is particularly
crucial. Despite its importance, research shows that current training and
re-skilling efforts are not achieving the desired results. Of the financial
services leaders polled in PwC's 2018 CEO Survey, 75% reported they were
concerned about shortages of digital skills within the industry. Digital skills
go well beyond just technical aspects, too. Soft skills such as creativity,
emotional intelligence, adaptability and the ability to influence and innovate
should be developed in tandem with technical know-how.
What needs to happen
To motivate the workforce to up-skill, we have found
it's important to not let anyone opt out of developing digital skill sets. Make
it a two-way trade. For those who train hard, offer specific rewards. We'd also
say it's crucial to focus on not just the tech side of the equation, but also
the interplay between business, experience and technology, which we call BXT.
The ability to drive digital transformation depends on understanding new
business models, appreciating the art of the possible from a customer
experience perspective and integrating both with leading-edge technology. It's
also important that this be made to feel easy and fun. Gamification as well as
testing and scoring create a competitive dynamic that drives both individual
and group behaviours. As with video game scoreboards and personal health apps,
people compare scores and set specific goals, putting organisations on the path
to a real workforce transformation.
Steps to take
Getting leadership support is the foundation of any
successful workforce digitising effort. The transformation approach must be
appropriately tailored to suit the institution's culture and workforce
characteristics. For example, lifetime employment–based workforces are not
motivated by the fear of losing their jobs, so gamification and other positive
aspects of becoming digital must carry the day. Another important step is to
put in place a management process and technology infrastructure, along with
discipline and clear metrics. Lastly, creating a sense of momentum and
accomplishment, including the publishing of 'success stories' that show how
improved digital skills result in important achievements (e.g., new clients and
better customer experience), is critical to reinforcing desired learning
behaviours.
Bringing an agile mind-set to the
mainstream
The current situation
To be competitive in tomorrow's financial services
industry, banks and insurers must be able to rapidly deliver a simple, seamless
and instant customer experience at a competitive cost. Financial institutions
also have to confront new disruptive technologies that are developing at an
exponential pace, new forms of regulation, the continuous rise of fintechs and
the threat of 'bigtechs.' To keep up with leading incumbents and digital-only
competitors, institutions recognise that they should employ
productivity-boosting agile techniques, with 77% of survey participants saying
they use agile in some way throughout their organisations. The agile management
approach, draws from a broad set of practices, including; scrum, extreme programming,
DevsecOps, lean, humancentered design and continuous improvement. And when
organisations employ these techniques across the company, we call it
'enterprise agility.’
What needs to happen
Most organisations don't have a lot of enterprise
agility. They concentrate their agile efforts in IT and Operations departments
and not including other parts of the institution (see Figure 2).
Interestingly, though, survey respondents who were
using agile methods in other areas reported the most benefits from using the
techniques in the front office (81%) (see Figure 3). We're not surprised to see
benefits in business areas that might not normally be associated with agile
techniques. And we've found that organisations with a high level of enterprise
agility tend to demonstrate a time-to-market advantage over their peers, have
clients who love their brand and have become ambassadors, continuously disrupt
their own business model and can attract the best digital talent from the
market. They are also flexible and cost-efficient. Institutions need more
enterprise agility to adapt quickly, move fast, learn rapidly, embrace dynamic
career demands from the workforce of the future and continuously reinvent
themselves.
Steps to take
As we've stated, agile is best implemented in
financial institutions when it's viewed from the enterprise level versus from
the perspective of a single business or support area. It is critical, that this
implementation be a C-suite-level (preferably CEO) issue and have the full
support of the management team. Having said that, agile is a journey that can
and should be divided into parts. The best way to do this is to identify the
key end-to-end processes in an institution and determine those that would most
benefit your customers by adopting the agile approach. Is it new product
development? Customer service? Underwriting? System development? Whichever it
is, it's best to prepare for the long term, because these transformations
typically take several years to complete.
Mastering Digital Labour
The current situation
Robotic process automation (RPA) is a common first
step for most of our clients in incorporating digital labour into their
businesses. But most institutions haven't moved forward from RPA. On the other
end of the digital labour scale, artificial intelligence (AI) — which
organisations typically explore after implementing simpler technologies like
RPA — has been called the most important development in computing since the
creation of the Internet. It also has unprecedented potential to improve
productivity by not only further automating tasks performed today by humans but
also performing tasks that no human could conceive of executing. Leading
institutions are now rapidly incorporating AI into business functions such as
robo-advising, credit scoring and customer support. Leveraging AI has
substantially improved client experience, reduced cost and, in some cases,
created new products and services. Regulators have begun to take notice.
Increasingly, there are concerns that AI is creating new 'black boxes,' where
humans are unable to understand the nature of the algorithms and their implications.
What needs to happen
Organisations should start with a system to classify
various types of digital labour and understand the unique benefits and
challenges of each.
Steps to take
The first step is to understand what's out in the
market and familiarise yourself with relevant use cases. A technology such as
RPA is pretty well understood, and there are a few leading vendors now in the
market, but something like deep learning is nascent and some would say
unproven. Creating a COE (Center of excellence) within an organisation is an
important next step. Why? Because things like tool selection, maintenance of
case studies, methodologies and models should be handled in one place and
accessible to the rest of the organisation. Insight can be more easily shared,
and each subsequent deployment of digital labour benefits from the experiences
that preceded it. Otherwise, knowledge tends to be diffused, and multiple
tools, technologies and methodologies typically lead to a suboptimal
implementation experience. Lastly, taking the time and effort to model
end-to-end processes allows for sophisticated 'what if' analyses, which, in
turn, facilitate the optimal placement of digital labour.
Final thoughts
Sustainable productivity improvement is imperative for
the financial services industry, but it will be difficult to implement. The
transformation will require technology and humans to work together in a
fundamentally new relationship, one in which machines take over routine manual
tasks but also assist humans in better executing their roles, creating new
opportunities for institutions and their employees. To do this, the employees
themselves must be 'digital,' and organisations must better leverage the crowd.
There's no one right way to approach the productivity challenge, but
concentrating on these six areas is a great place to start the journey. To get
things rolling, CEOs should ask themselves whether they are taking productivity
seriously or if they are just cutting costs to meet quarterly earnings goals.
What are they doing in these six areas? And maybe, just maybe, we've arrived at
the moment when it's time for the naming of chief productivity officers to
drive the productivity agenda for the industry.
Download Here – Financial
Focus: Journal of Financial Services in Nigeria
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