Organisational Agility Is Critical to Financial Services Performance

By James Reid, Financial Services Expert at PA Consulting 

Successful businesses have always adapted to developments in the world around them and financial services companies are no different. Recent PA research has shown that leaders in the sector are acutely aware that they need to do things differently to keep up with changes in the market, in technology, and in customers’ demands and expectations. It also showed that they are struggling to embrace the organisational agility that is necessary to drive that change.

We found 70 per cent of financial services leaders believe their competitors will take significant market share from them by 2023 if they do not reinvent their company’s business model. They know that the stakes are high, with two thirds of those we surveyed expecting prominent companies to fail because they are unable to keep pace with change.

The good news is that they know what needs to be done. They need to get products or services to market faster and that means better decision-making in key areas of their strategy. All that has to be underpinned by effective assessment of customer needs through fast feedback loops and an ability to adopt technologies that support efficiency or innovation.

Creating customer intimacy is another fundamental issue for the sector with 69 per cent of respondents in our research saying they believe failure to truly understand their customer’ needs is significantly slowing their business down, and that is almost ten per cent higher than their peers in other sectors.

Addressing this requires a focus on three areas. The first is to reduce the time from idea to value from months (sometimes years) to days (and even hours), by delivering small, incremental improvements. The second is to measure customers’ response to these improvements to understand to what degree their evolving needs are being met and what needs to be done to maximise the value for the customer. Finally, firms should create a direct link between customers and development teams to instil a stronger sense of ownership of that relationship and improve decision making at a point when it can have the biggest impact on customer experience.

All this underlines that it is customer relationships that drive real value in financial services. Those relationships are with ever more demanding customers who are expecting the same levels of service they receive from other industries, such as online retail.  The threat to traditional firms is that they will lose those relationships to smaller, more agile competitors unless they adapt their systems and processes to allow them to keep up with those rising expectations.

This can be seen in the account opening process which traditionally required customers to send ID documents in the post or spend time going into a branch to deal with the paperwork.Digital banks such as Monzo and Atom have used technology to provide a way to open accounts at a time and in a place that suits customers. Incumbents are now racing to catch up, with NatWest recently launching a service to enable customers to open a current account by taking a picture with their smartphone and uploading one piece of photographic identification.

The bad news is that many financial services businesses are struggling to implement these kinds of changes.They are just not showing the organisational agility that is required to keep up with the pace of change. Part of this is about leadership to inspire and drive transformational change. In particular, the sector needs to find ways of embedding new ways of working that will allow them to respond more quickly to their customers’ needs.

A further challenge for insurance firms and banks is the need to unpick complex operating systems and infrastructure, the foundations of which were put in place over 40 years ago.Technology development practices which support agile ways of working and are common practice within other industries, such as DevOps and automated testing, are proving harder to implement in this environment slowing progress and frustrating development teams. Just at the time when teams are being asked to take ownership for their continuous improvement, they bump up against significant issues at the enterprise level.

The answer to this is to set aside a proportion of the team’s capacity and budget to deal with the technical challenges and prioritising them alongside development work. That will help to create a holistic view of the work required. At the same time, firms need to ensure there is accurate and timely communication across the organisation of both the problems and potential solutions. Leaders should also make better use of standard team activities to understand the issues first-hand and bring the right people together.

Adopting an agile mindset and practices to work through legacy technology issues, does not necessarily reduce the challenge or work involved.However, those firms that set out a bold vision for the future and adopt agile ways of working will be best placed to succeed.