In an age of unprecedented innovation and an ever-increasing pace of change, is it necessary for a financial institution (FI) to become a technology firm to compete?
Historically, technology has taken a back seat to the business and its defined strategy – be that sales, product, or operations. Technology has been viewed primarily as a service provider, adapting accordingly to business decisions with little engagement between business and technology leaders. This pattern is costly, results in disparate and unorganized solution development, and creates scalability and sustainability challenges around infrastructure and technology architecture. Today, operating as a single unit has emerged as a clear solution to these challenges.
Identifying the Target
So, what does it mean to “become a technology firm”? Across the industry, customer outcomes rather than physical products are becoming primary drivers of change with technology as the core rather than an enabler of a human-based approach. FIs can no longer apply digital facades to broken processes; to truly compete they need to rethink their model in the wake of new market entrants.
This change in customer expectations is exemplified through the proliferation of mobile device capabilities and the availability of information. With customers seeking to make more real-time decisions regarding their financial health, the volume of self-serve financial data processed through mobile applications has increased dramatically. According to Lynn Martin, ICE Data Services, ‘Mobile usage on our own technologies, such as mobile trading and similar apps, increased 161% in the last three years; transaction activity generated by mobile devices increased by almost 25% in the last year alone.’1
As demand for interconnected data and digital first service offerings increase, FIs need to respond proactively to these technological innovations and new customer demands. One primary enabler is a modern approach to technology delivery and product development. Compared to traditional delivery methods, these models deliver value incrementally and quickly, allowing for alignment and change over time to meet evolving business needs. Rather than managing segregated business units, teams are encouraged and incentivized to develop cohesive, singular, and adaptive solutions, with constant communication between legacy business and technology stakeholders.
In 2018, Capco partnered with a large regional commercial bank ($85 billion in assets) through their technology-centric transformation. To centrally drive this change, our partner established a foundational portfolio management and delivery framework that was both scalable and enabled real-time re-prioritization to meet continuously refined business objectives.
To begin, we assessed our partner’s technology organization across multiple dimensions, noting opportunities in both organizational structure and culture. First and foremost, it was necessary to change the organization’s definition of product, incorporating technology in a more inclusive and holistic approach. In the target state, the product was no longer specific to the technology application or financial service but rather about the customer-driven value or outcome.
Second, the partner adapted to this new mindset and approach by:
• Shifting the focus to aggregate business outcomes and capabilities, driving prioritization against a set of enterprise objectives and KPI’s.
• Organizing teams around products, recognizing that technology was no longer a black box organization.
• Building a ‘Shadow Hierarchy’ around products, not applications. Within the formal organizational structure, a separate vertical alignment drives prioritization and consolidated delivery of product outcomes. Application owners continue to managers resources from a human resources and technical leadership perspective, but not day-to-day execution and the book of work are now vertically aligned and owned by the product manager.
• Syncing executive planning and funding processes to the target state delivery model. This required embracing a new mentality bringing work to people, not people to work. Under this highly scalable structure, fixed capacity teams are funded annually and evaluated against explicit product outcomes.
Finally, our partner needed to proactively eliminate duplication of work to deliver solutions more quickly to the market. The customer experience value chain is now aligned to a collaborative operating model, allowing the Technology organization to:
• Get work done faster and minimize misalignment, getting involved at the point of strategy creation through execution.
• Promote industry-leading and forward-thinking practices aligned with business strategy.
• Increase communication between the teams through socialization of shared goals.
• Drive consistency across the organization, utilizing best practices to standardize and scale capabilities for long-term efficiency.
Through these approaches and other efforts, the bank has seen significant growth in the last three years.
Organizing Around Change
So, does an FI need to become a technology firm to compete in financial services today? Yes, but of course it isn’t simple. But working as one unit delivers truly differentiated end user outcomes and value. As new technologies become available and the consumer becomes savvier, FIs like our partner must become technology firms, bringing technology enablers to the forefront and with a mindset to champion these changes.