Financial services digital intelligence: Time to transform the transformation office

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As the potential for mergers heats up and technology accelerates the rate of change, organizations must evolve their capabilities to help define and drive a new transformation agenda.

Companies of all kinds must regularly reinvent themselves to stay relevant and keep a competitive edge. Some focus on improving how they deliver a product, others focus on changing the product itself.

However, it is not so easy within financial services given the additional variable from regulation. Over the last 10 years, most financial institutions have been so structurally focused on surviving in a restrictive regulatory and uninspiring growth environment that they have set up dedicated internal transformation offices (TOs) to comply and execute lean organizational changes.

However, in some cases, these TO initiatives have actually defeated their purpose by preventing firms from adapting to other changes in the market. They’ve essentially put some financial services firms on the defensive, when they may be better served operating more offensively toward growth.

Many of these TOs are now becoming outdated. Some were intended to be temporary to improve productivity or reduce costs, while others were designed for specific project work. But now, most of these offices are no longer useful in their current state. As the financial services industry moves beyond its post-financial crisis shadow, where security and low risk was key, it faces greater demand for growth. So, financial organizations should rethink the composition and role of TOs.

To reconstruct TOs, financial services firms can focus on a different set of capabilities that prioritize strategic creativity more than process optimization. That way, they can fill gaps and reposition the transformational model toward a more growth-oriented agenda.

The changed landscape: Achieving greater share of wallet by leveraging emerging technologies

Among financial services companies, the ability to leverage emerging technology is arguably the greatest differentiator between leaders and laggards. Further, this disparity will only widen, and laggards are likely to suffer more customer attrition, declining wallet share or lower valuations.

In our experience, we are seeing a growing number of cases where operational changes are based on technology. Some regional banks, for example, aim to achieve the scale of national banks with digital channels that can earn deposit growth from outside their physical footprint and expand product offering through API integration. In fact, consumers who once favored visiting branches in person are now so comfortable with digital channels that banks are seeing higher retainment. Growth in digital-only customers is so strong that they are reevaluating their branch divestiture strategies.

Given this reality, organizations that want to remain relevant must change what their transformation teams do and how they operate. Essentially, TO programs have a defensive and project-like operating culture which may have once been valuable. But in the growth-driven environment that many organizations have committed to, this defensive culture is a complete mismatch.

To transition, financial services firms need a new set of transformation capabilities. Increasingly, TOs will need to span the entire model from what organizations offer customers, how they deliver that value, and then address other opportunities that come from reframing the value proposition.

For example, a transformation of the front office with digitally-assisted advice could leverage the standardized data from the customer interaction toward marketing initiatives. That way, customer experience and marketing opportunities can be redesigned to help increase wallet share. Or, back-office services can be redesigned to meet new customer preferences.

Project to end-to-end: Evolving the transformation office operating model

In some cases, TOs’ roles may become even more important as organizations look for these teams to add value as business partners to their internal stakeholders by being innovators, problem solvers and strategic advisors. These new roles would be far more active than the traditional TO role.

Financial services firms making changes have several factors to consider, depending on their goals. A starting point will be to identify the level of current and anticipated change in these three ways:

  • Scope: What is the degree of transformation across the business? How many parts of the business need to change? Is change within one or many lines (e.g., business segment, geography, operating infrastructure, etc.)?
  • Scale: What is the degree of change compared to the current state? Is this incremental or structural change? Will this be gradual, conditional or wholesale change?
  • Cadence: What is the pace of change? What is the frequency of change in the near- and mid-term? Will this be an agile approach or multiple short-burst concurrent projects?

These factors will have implications on the evolving TO operating model. For example, broad transformations may require a more general engagement, talent, and organizational model for the transformation office to support ideation, planning, prioritization and execution across multiple domains. Whereas narrow transformations may be better enabled by a more specialized transformation center.

Another critical element is anticipating the implications of change downstream. This will be more critical as technology plays a greater role in the strategy. That’s especially true as digital data is now key to understanding customer relationships, where personal relationships and paper-based knowledge were once the main source.

What this means is that to truly leverage technology to become a digitally-connected organization, financial services firms must make end-to-end transformations. Investments to automate customer onboarding or to offer personalized advice will fall short if middle- and back-office servicing and support are also not included. For example, customers who follow up as to why certain recommendations or decisions were made may not like being greeted by full automation or generic messages.

The bottom line: Updating an outdated transformation office

Transforming the business model to drive growth represents the greatest area of anticipated investment amongst large corporations. With new market forces driving competitive change, organizations should take a look at the role of their TO office and consider whether it’s now outdated. If so, they should consider redesigning the mandate, structure, functions, roles, talent and governance models.

In evolving to better support an organization’s strategic objectives, a future TO can leverage change-the-business capabilities while keeping pace with the broader market.

Contact us

Julien Courbe

Financial Services Leader, PwC US

Scott Evoy

Financial Services Advisory Digital Leader, PwC US

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