Banking Industrialization

2007-11-14 17:23:39 Source: http://www.accenture.com

Complexity is the enemy of speed and efficiency, and few industries are as beset by it as banking. Strong pursuit of growth over the past 20 years has left most banks' performance pinned beneath too many products, technology silos and the unnecessary costs of supporting such non-integrated, repetitive systems and services. To remain competitive and deliver growth and value in an ever-challenging global financial services marketplace, banks need to start thinking like other industries.

If banks want to get serious about simplifying their operations, Accenture believes the best route to follow is that of industrialization: consolidating common organizational capabilities onto shared platforms to reduce the number of stand-alone or unique processes, procedures and systems. By embracing industrialization, banks can achieve greater economies of scale, lower costs, operational flexibility and market agility.

Six Degrees of Effective Execution
Based on its work with the world's leading banks, Accenture has developed an execution approach framework designed to help chief executives overcome the roadblocks en route to operational transformation. The six key dimensions within the framework are designed to help the CEO identify existing complexities and redundancies and then design and implement the right industrialization program to eliminate them, all without rocking the day-to-day business.

1) Leadership and Governance
The most basic issue a bank must deal with is aligning top management around common objectives for both running and changing the bank. While this sounds obvious, in practice it is often the largest barrier to execution. By carefully weighing all options and selecting what will work best for a given bank in the current environment, the likelihood of success is increased greatly. For example, take leadership and governance for a "change the bank" program. There are four main alternatives a bank can pursue, depending on its culture and organization structure:
Command and control—the CEO initiates, owns and drives the program.
Delegated command and control—the COO or CFO takes on this role; the CEO is the chief sponsor. Consensus-building—the CEO initiates the program; the bank leadership team sponsors it; the business unit managers buy in, own and drive it.
"Empowered" or "demand from within"—the program is initiated and run by the business unit managers; senior executives are limited to approval and sponsorship.

2) Financing
There are three principal financing models for funding an industrialization program. The first is structured corporate finance, a model that has a significant and highly visible short- to medium-term cost impact with large-scale funding required. An alternative is treating the program as a capital expense—an avenue that also has significant short- to medium-term cost impact but has limited visibility among investors. A third option is treating the program as part of the business's operational budget. The chief advantages here are low short- to medium-term cost impact and reduced investor visibility.

3) Stakeholder Management and Communication
An industrialization program requires paying attention to the company's key stakeholders to ensure program support, deliver regular progress updates and manage realistic expectations for return on investment. Internal and external stakeholders do not react well to surprises; on the flip side, the market responds positively when results meet or exceed expectations. There are two basic approaches to achieve this—one internal, the other holistic. Under the former, a comprehensive communication plan must be developed around managing employee expectations, behavior and gaining buy-in across the change cycle and phased in over time. With the holistic model, the challenge is communicating the industrialization story strategically and proactively to all stakeholders across divergent agendas, from employees and customers to investors and media and analysts.

4) Business Optimization
Perhaps the biggest challenge in executing a successful industrialization program is minimizing disruptions to business as usual and employees' ability to function normally. Depending on the internal culture, banks may opt for the "deep integration" approach characterized by line management accountability for results and high program visibility and transparency. Others may find "matrix management" preferable, where line management is involved but to a much lesser extent. Still others may prefer "ring fencing," which isolates line management from the change cycle and overall program, leaving a small group of executives to make the day-to-day decisions.

5) Performance Management
The fifth dimension of the execution framework hinges on management's ability and accountability for developing or updating employee skills as required by the new model and ensuring they know what to do to drive that strategy forward each day. This is often a case of paying attention to "doing the basics" well. These include:
A balanced scorecard—aligns management performance objectives with change benefits and outcomes and provides incentives that help ensure performance and its sustainability.

Coaching and development—emphasizes leading indicators, such as values and culture, and seeks to create employee buy-in and internalization of the new ways of working.

Continuous reinforcement—top-down approach to drive performance that features extensive communication from senior leadership about what is expected of employees.

For the most effective and efficient performance management, banks can strike an appropriate balance among the three options, depending on their leadership style and culture.

6) Sequencing and Rollout
Finally, a bank must determine the right order and timing for program implementation. This should be demand-led, with supply acting as a constraint. Demand considerations include speed and scale of benefit realization; external pressures from customers, regulators, competitors and investors; the company's overall strategic vision; and internal and external momentum for change. Supply considerations span execution risk; resource and technology constraints; management's dedication to the program; tradeoffs with other concurrent change programs (i.e., regulatory compliance mandates); and the bank's capacity to absorb change. Balancing demand and supply considerations is crucial to execution success and achieving desired program results.

Whether such balance can be achieved—as with all of the steps in the execution framework—begins and ends with the CEO and the bank's leadership. If they embrace the intrinsic and strategic value of industrialization and can make that case with conviction to all their stakeholders, they stand to create a far more flexible, cost-efficient organization that can respond to and capitalize on marketplace opportunities faster and avoid getting stuck in the low-performance tar pits.