While some progress has been made, such as digitising customer journeys and automating back-office tasks, the core business of financial services has remained unchanged for decades.
The financial services industry is often criticised for being conservative and slow-paced when it comes to adopting new technologies.
Having done a lot of work in the industry, we believe this leisurely modernisation is down to a few things that are particular to financial services:
Over the years, however, threats have started to creep in that industry leaders have needed to respond to. New regulations, such as the Second Payments Service Directive, General Data Protection Regulation and Second Markets in Financial Instruments Directive, have created new opportunities to generate value through more open value chains and more transparent services. FinTech and RegTech startups, and the arrival of major players from other industries, inspire change with innovative solutions. And customers demanding more convenience will force the industry to deliver services in new ways.
While these threats are already on the top of the agenda for most industry leaders, finding the right strategic response is hard. Conventional thinking has been focused on developing long term plans based on industry analysis and market experience. But the blurred future and rapid market movements make this an almost impossible task.
How can we tackle these challenges?
We believe that the winners will be the companies that react swiftly, accurately assessing market demands. Predicting future demands are becoming increasingly challenging, and building an organisation prepared for continuous change is essential. This will require flexibility, scalability and agility to a wider extent than previous. Rather than focussing on developing the optimal operating model in five years' time, leaders need to invest in change capabilities.
But there will be challenges to implementing such changes in financial services. By working with clients in the industry, PA has experienced several common roadblocks to change across the incumbents.
Removing these roadblocks takes significant effort. But we've seen how market-leading companies in other industries have successfully transformed their business models and believe there are three key themes to focus on in financial services going forward:
Drive change management to the top of the agenda
Make sure change doesn't happen in silos by setting a company-wide vision. Change is a top-down process – you need to clearly set the direction, steer initiatives and track progress. You must support the direction with confidence. Leaders must "walk the talk" and support the outlined direction with confidence, regardless of their personal stance. You can't expect your organisation to adopt behaviours and values that you don't promote yourself as a leader.
Build change capabilities at all levels
Train your mid-level leaders in change management. Leading change processes is significantly different from leading business as usual and needs a raft of new skills. Continuously expose your organisation to changes – allowing for behaviour and working methods to stick decreases the organisational abilities to successfully adopt new changes.
Implement agile working and engage employees in finding the solutions
Agile working methods let you fail faster, be more responsive to market changes, and continuously create small success stories. Encourage your people to run pilots and engage in improvement initiatives to create a stronger understanding of, and commitment to, the change.
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