The foundations of the capital markets sector are shifting. A range of external pressures is forcing already-stretched operational environments to the breaking point. Leading firms are realizing the growing need to transform their operations to defend their market share and position themselves for the competitive battle ahead.
The capital markets environment continues to evolve with unprecedented speed. Complexity is on the rise, even as firms struggle with downward pressure on margins. The industry, still dealing with the fallout from the financial crisis, is struggling to stay abreast of a wave of regulatory change. Revenues from once-lucrative areas such as securities lending have fallen off. Tried and true operating models are exhibiting signs of age and obsolescence. And even as the landscape continues to shift, competition between firms remains fierce.
Firms will cling to the status quo at their peril. The business landscape is strewn with once-dominant companies that chose to dismiss similar warning signs in their respective industries. The financial services sector is no exception. Players of all sizes are rethinking their operating models in response to a wide range of external forces.
The rules are changing. Against a backdrop of change, pressure and uncertainty, many financial services firms are facing a simple choice: transform or perish.
Organizational transformation is nothing new. The scale of the change facing the industry has been seen before, many times over. What is different this time, however, is the fact that an increasing number of firms are assessing the organizational transformation exercise through the eyes of their customers and in relation to the business model those customers want in the future. This represents a significant shift from the manner in which financial services organizations have tended to approach such transformation exercises in the past.
Increasingly, successful providers will be those that are able to modify their processes in a manner that enables them to optimize customer benefit. Enhancing these processes will, in many instances, influence changes in the overall design of the product portfolio. In this new operating environment, those firms able to offer a differentiated product portfolio, supported by an operational infrastructure that can be easily scaled up or down to mirror market trends and client needs, will be the providers that will dominate, stealing valuable market share from the competition.
This brand of transformation necessarily requires specialization and horizontally integrated operations, a model that other industries have been following for many years. In these cases, it is common to see dramatic systems-retooling processes, aimed at improving performance and standardizing and simplifying technologies.
An increasing number of financial services firms are looking to consolidate, diversify their product portfolios and enter into new, strategic, technology-focused alliances, both to help gain entry into new markets and as a defensive necessity. For example:
Deciding to transform the business model to adapt to market and client needs is the responsibility of the executive leadership team. Based on the particular firm’s business strategy and unique market dynamics, the target operating model, which will serve as the cornerstone of the new operating model, should encompass the following guiding principles:
Major transformation programs entail a certain degree of risk. In order to maximize the prospects for long-term success, these complex and wide-reaching exercises must be managed with an eye toward controlling risk. Among the more prevalent threats to success are leadership teams that underestimate the intensity of the effort or the resources required, a lack of clarity regarding the proposed future state and insufficient internal motivation to change.
Leading successful operational change hinges on a clear understanding of the business imperatives and operational requirements, while it simultaneously involves shifting the firm’s focus to a strict process improvement agenda. Among other things, putting the transformational plan into action requires the establishing of a set of guiding principles, the identification and addressing of any potential barriers to implementation and an analysis of business impacts, with an eye toward quantifiable benefits.
Leaders need to think differently about their organizations and challenge the status quo in order to effectively reinvent their operations and position themselves for long-term growth and profitability.
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