by Katharina Mohr
Our previous article Adapt to survive – What does the future hold for wealth managers outlined how an organisation’s success will be determined by its effectiveness in surfing the ‘outsourced innovation paradox’. This paradox explores how agility in leveraging digital innovation can be at odds with leveraging outsourcing opportunities: Wealth Managers must adapt their strategic vision to create value across both traditional and new offerings, while fostering a change culture which enables the future business model to be the central decision criteria for investments and innovation.
For most firms today, new propositions differ significantly from traditional offerings and cannot be delivered by simply enhancing existing operating models, therefore calling for deeper business model transformation. The critical success factor in such a transformation is choosing the right sequence and nature of (smaller) changes in order to already deliver benefits during the transition. As newer models are more efficient, their operating costs can be funded by the optimisation opportunities they unlock within the continued traditional models.
Such a journey requires a bivariant approach to change that not only focuses on new outcomes, but how these outcomes can benefit current models.
This allows the creation of transient states where the organisation continuously improves traditional and newer offerings through a succession of delivery models that become more and more seamless and lean. Other initiatives to improve traditional processes are still likely to exist for short-term outcomes, but they are no longer deemed strategic and must therefore align to and ultimately leverage innovation (e.g. digitalisation).
The graphic illustrates how such transient states allow the integration of new capabilities to progressively augment traditional channels, legacy platforms and products. On the one hand, by balancing traditional and innovated propositions, the core offering is optimised. On the other hand, mature secondary or partner offerings that are part of the revisited offering are outsourced (e.g. IT infrastructure, non-core business processes) while still retaining the ability to be integrated in a digital banking layer. Emerging IT system architecture leverages the potential of a digital layer to both unify customer propositions and (partially) replace traditional systems.
Through the concept of transient states, business excellence can be evaluated in the way stable business model changes are prioritised, sequenced and continuously delivered.
It is characterised by:
Achieving business excellence, however, implies that a firm’s change journey comes to an end. It must therefore be understood as a moving target, an aspiration organisations strive for but never reach.
When defining change initiatives and striving for business excellence, key principles are often still ignored.
For example, Wealth Managers rarely build front-to-front1) business management frameworks to benefit their traditional processes. The majority rather digitise existing processes, creating digital silos on top of legacy frameworks and multiplying back-to-front digital integration layers. This in turn, increases the embedded operational risk, as such frameworks are neither smart nor fast enough to keep up with the digital pace and the need for seamlessly interconnected journeys.
Looking at the wealth management industry today, firms face unprecedented market disruption and they need to transform their businesses to remain relevant. An organisation-wide change culture for innovation adoption with central governance and a stronger, more agile change management have emerged as key pre-requisites to survive in such conditions. They enable firms to find a timely and evolutive balance between their digital and traditional offering. They also propel a holistic and intelligent transformation approach that forces organisations to synchronise the innovation of their offering with the required operational and organisational optimisation to support and deliver it.
In this context, the ultimate objective to achieve business excellence can be defined as an organisation’s ability to successfully evolve through a continuum of transient business models and to optimally operate traditional, outsourced and innovative offerings within the appropriate risk, revenue and cost targets.
In comparison to the traditionally used term ‘operational excellence’, business excellence strives further, enabling real C-level change journeys and is critical to navigating and managing change for the future.
Having described the essence of strategic business transformation, the next installment of this series will explore the components required to activate the vision. Namely defining what digitalisation is beyond technology, illustrating elements of a digital transformation program and outlining how functional optimalisation (often called user experience design) is key for the success of digital change programs.
1) Front-to-front processes: A set of processes that do not interact with legacy or core systems to communicate, allowing quicker decisioning and accelerated innovation.