People
How financial institutions handle the next 12 months will create sharp distinctions between those that thrive and those that struggle
Disruption in Financial Services is nothing new, often standing out as the most severely impacted sector during times of macroeconomic volatility. AlixPartners has been monitoring the impact of disruption on industries around the world for several years. Each year has thrown up interesting data points and Financial Services has consistently been the industry most exposed to disruption. After all, money makes the world go round and we are increasingly reminded of the necessity of a properly functioning financial services sector. Now, more than ever.
On the one hand, this current wave of disruption is creating opportunities. Interest rate movements will create more opportunities for growth in margins at the top line. While the continued digitalisation of processes is reducing the cost to serve for those that can deliver digital transformation effectively.
On the other hand, the cost-of-living crisis and the increasing likelihood of recession will create significant challenges. Not least creating a greater risk of defaults on consumer and business loans, but also for example the increasing risk of financial crime which can go hand-in-hand with periods of economic downturn. All the while the continued focus on compliance is a prerequisite, for example adapting to new guidelines from the FCA on managing customer vulnerability announced in July this year.
Those that can be nimble enough to navigate through these challenges and opportunities will thrive. There is no one-size-fits-all solution for the sector. As we see across many industries, each situation is unique even within a sector. However, as a starting point, there are some principles that can underpin effective transformation:
- Build the burning platform for change. Prioritise the most pressing, highest valuation areas for transformation. Wholescale revolution, or even evolution, is beyond most organisations and excess ambition has set too many programmes up to fail.
- Pace and pragmatism over perfection. All too often the perfect solution is the aim. This just doesn’t work. Perfection leads to complexity, which leads to lengthy programme times. Obsolescence is your enemy, and enacting a pragmatic response quickly is imperative.
- Can you optimise within current constraints. What are you able to do with what you have today? Don’t always wait for long-term technology systems. Experience shows you can often optimise the process and ways of working to generate 15-20% productivity in a short-term horizon.
- Establish and evolve KPIs that drive the right outcomes. What you need to measure may change over time. You must always ensure that what you are measuring is reflective of what you need to get done. (Peter Drucker wasn’t wrong.)
- Bring your people along with you. Retaining talent and holding onto the hearts and minds of your teams during this challenging period will be paramount. Too many programmes fail due to poor engagement strategies, lack of or poorly-timed communication, inadequate training, and an absence of simple articulations of ‘what’s in it for me?’ for employees.
The financial institutions that embrace these principles and move swiftly with agility will fare far better than those that fail to learn the lessons of the past. So, to take the maxim – ‘in the midst of every crisis lies great opportunity’ – consider the strategies above to turn this period in to one of opportunity.
