The bank has already realized productivity gains and reduced operating costs, and leaders see the potential for much more. 2. Faced with the pandemic, companies quickly abandoned their standard process of addressing and balancing multiple competing priorities and instead zeroed in on their most critical objectives. Under pressure from multiple forces, successful banks will develop a new operating model better suited to changing times. Reinvent your business. While technology empowered remote teams, it also empowered corporate leaders. endstream endobj 45 0 obj <> endobj 46 0 obj <. McKinsey and Company in a report stated that digitalisation will enable Nigerian banks to achieve between 25 and 40 per cent cost-reduction. Banking business models of the future Dr. Daniel Kobler Partner Banking Innovation Leader Deloitte Dr. Stefan Bucherer Senior Manager Consulting Deloitte These shifts occurred at all kinds of companies across many different industries. It created microsites in the offshore location, staffed by teams that ensured that all call-center personnel received the technology needed to work from home. 77 0 obj <>stream tab. Banking Digital Operating Model Post-login Customer Experience. In 2014, a major European bank announced a multiyear plan to revamp its operating model to improve customer satisfaction and reduce overall costs by up to 35 percent. Reflection is a crucial first step because so many COVID-19 crisis changes were fueled by adrenaline rather than careful planning. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Going forward, McKinsey anticipates the test presented for banks by the pandemic will evolve in two stages in the months and years ahead. 0 It is a way to improve our reputation. People create and sustain change. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. Developing technology that enables remote work creates new opportunities for efficiency. Verizon created new virtual training programs and retrained more than 20,000 workers during the COVID-19 pandemic. COVID-19 is shaping a new kind of operating model. Best-practice banks are able to create more value through a structurally better IT operating model that is more efficient, scalable, and flexible and gives them a head start in digital banking. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. The McKinsey honeycomb’s outer ring broadly aligns with the other elements of the Operating Model Canvas: The Suppliers box in the Canvas has already been covered in the value chain The Organisation box is covered by “Organisation” and “Capabilities and Culture” Some were minor adjustments, while others were radical changes to the way companies operate. %PDF-1.6 %���� The core of the transformation is a shift to product-focused lines of business. Looking across a wide landscape of companies, we see that these COVID-19-driven changes fell into four broad categories, which can serve as useful pillars of an operating model built for adaptability and speed in the face of uncertainty. One telco, for example, originally planned to train 400 employees in agile practices and product management over three months. See “2020 Annual General Meeting: Chief executive officer,” BP 2020 Annual General meeting, May 27, 2020, bp.com. Business leaders looking to lock in COVID-19-era speed and adaptability would be wise to follow a simple process: reflect, decide, and deploy at scale. Many may not be sustainable without substantial adjustments, while others may not be useful outside of a full-on crisis such as the pandemic. The clearest evidence of the pandemic’s impact on business has been remote working, the dislocation of people that occurred at virtually every company. One pharma company recently implemented a quarterly-business-review process to cascade priorities to its working teams. The KPMG Target Operating Model is based on a deep understanding of how transformation works within, and across, an enterprise. We strive to provide individuals with disabilities equal access to our website. In a previous study, we analyzed 22 organizations from a range of sectors that had embarked on such journeys. A Latin American bank reduced the number of customer complaints by 25 percent while achieving an equivalent saving of 30 percent of total employees. McKinsey suggested banks should take significant steps to reconfigure and restructure their operations, including concentrating relationship managers in … The exigencies of the pandemic have given many companies a tangible experience of operating at unprecedented speed (exhibit). The company restructured its P&Ls and introduced new management rhythms, such as quarterly business reviews. For the better part of this century, large- and medium-size companies have been wrestling with whether and how much or how little to adopt a set of concepts birthed largely in Silicon Valley. Never miss an insight. During the COVID-19 crisis, technology resources have been steered toward two main goals: solving customer needs quickly and facilitating the work of customer-facing teams. They needed to accomplish as much as possible with less—time, resources, people—than they had before. The bank targeted the ten most important journeys, including the mortgage process, onboarding of new business and personal customers, and retirement planning. 1. Pioneers that had embarked on full transformations based on principles such as reallocating people and priorities shifted quickly toward projects that create value, extending decision-making authority downward and improving capability building in dynamic times well before the arrival of COVID-19. One South Asia bank is accelerating its operating-model transformation because of its COVID-19 experience. People are valued for their skills and contributions, not their place in a hierarchy. To make these kinds of flatter, more collaborative models work, companies must create rigorous processes, build capabilities, and enable decision making at the lowest possible layer. h�b```"V�s� ��ea��l`�Ѵ|����`o�� ��b�L�&͍�[�W��,���~(Б�����k������aC����5���0�1"L�ہ�0� �x�9㜿I2>�1�K�$�q��QCC���r��F'�20�7 iF�kn��.��4}D��@� IN2� Takeda gave up some ownership potential by doing so but accelerated its ability to deliver on its mission. To capture this opportunity, banks must take a strategic, rather than tactical, approach. Models of organizational effectiveness go in and out of fashion, but the McKinsey 7-S framework has stood the test of time. %%EOF On average, those organizations had recorded notable improvements in customer satisfaction (up 10 to 30 percent), employee engagement (up 20 to 30 percent), and operational performance (gains of 30 to 50 percent in operational speed, target achievements, and predictability). Purpose, above all else, enables forthright decision making at speed. Companies that don’t lean into this emergent shift run the risk of being leapfrogged by those that do understand why a swift, nimble, and versatile operating model is best and necessary for uncertain times like these. Please click "Accept" to help us improve its usefulness with additional cookies. Leading CEOs have taken note of all this and have decided that there is no going back. During the pandemic, business leaders have bypassed their company’s traditional hierarchies to deploy cross-functional teams assembled to address specific tasks. But it’s important to think about the capabilities required to execute, as much as the strategy. Top leaders also tightened their own connection to the front lines, flattening the organization in response to their need for greater speed and focus. Spurred by the pandemic, it instead trained 4,000 people. If you would like information about this content we will be happy to work with you. 44 0 obj <> endobj In our experience, a set of common beliefs often helped reassure some leaders that they didn’t really need to dive into these new ways of doing business: the company already operates at great efficiency; large companies can’t possibly move as fast as a start-up; their employees can’t be mobilized and energized quickly; you can’t put customers first all the time. Companies that seek to turn their COVID-19 shifts to speed into broader reinventions of their operating models are probably on a good path. hereLearn more about cookies, Opens in new SAP’s contracts at Eskom and Transnet have been brought into question, while Bain & Co stands accused of devising a defective operating model for SARS. When COVID-19 hit, the telco was forced to shut down its offshore call centers. Subscribed to {PRACTICE_NAME} email alerts. Many companies have tested aspects of such models before and during the crisis with convincing results: total clarity on priorities and goals, nimble resource allocation, and reduced handovers can boost productivity by 20 to 40 percent. Technology is a key element in ensuring the success of this kind of empowerment and extension of authority to customer-facing teams. Payments remains among the best-performing Other companies found that the pandemic confirmed their purpose in a highly tangible way. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. the traditional banking business model. Instead, the company developed a new tool designed to help Verizon customers install new equipment and troubleshoot issues at home with remote assistance from a technician. Clearly, redeployment has been a critical part of serving customers during the pandemic. 1058 E Brokaw Rd San Jose, CA 95131 California (408)490-2070 See Map Hours — Wed: 9:00am-5:00pm Customers wanting service had to wait as much as 36 hours for a response. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. A new model: Digital-only banking businesses. They identified seven internal elements of an organization that need to align for it to be successful. On February 12, 2020, just two weeks into his tenure and before there were even a dozen reported cases of COVID-19 in the United Kingdom, BP CEO Bernard Looney spoke to a live audience at London’s Royal Lancaster Hotel and laid out an ambitious reframing of the energy giant’s mission as “Reimagining energy for people and our planet.” But when it saw how critical the need was, it delivered the strengthened digital product in record time. Finally, it enabled a new chatbot service for all customers. This bank kicked its digitalization efforts into high gear and launched fully redigitalized offerings online in just eight weeks. McKinsey research suggests that by 2025, these numbers will be closer to 25 and 40 percent, respectively. Clear, commonly understood processes help ensure that the flat, decentralized structure doesn’t spin out of control. McKinsey estimates that the top 15 US banks spend approximately $3 billion each year, combined, on disputes processing. Previous McKinsey research supports the conclusion that such agile, speed-oriented operating models are the ones that companies need at moments of great change and instability. The efforts of one Asian telco show how far some companies have been willing to bend their structure to adapt during the pandemic. Marcia Blenko, advisory partner of Bain's Organization practice, discusses some of the most useful design principles for building a winning operating model. Leaders have spent more time in direct connection with teams, while teams of cross-functional, high-caliber talent have assembled and then reformed to address the company’s—and its customers’—most critical needs. Their companies have accelerated by adopting new ways to work. Barclays is decentralizing decision making by making local branches satellite offices for more employees, including investment bankers, call-center workers, and people who formerly had to commute to a central office. ... Sonia Barquin is a consultant in McKinsey’s Kuala Lumpur office, and Vinayak HV is a principal in the Singapore office. We also look at the process by which companies can evaluate the changes they made during the pandemic, decide which shifts they want to make permanent, and embark on a broader transformation to make this speed and efficiency the standard going forward. SWIFT, a European payments company, launched what it calls the DevSecOps academy, a virtual-training system for employees to strengthen their engineering capabilities and become fit for the future. A genuine customer orientation with fast, iterative feedback cycles can raise customer-satisfaction scores by 30 points. Technology disruption and expectations are not letting up, and the banks that tackle the operating model overhaul now will be much better able to deliver new strategies and adapt in the future. The traditional compliance model was designed in a different era and with a different purpose in mind, largely as an enforcement arm for the legal function. As McKinsey has documented extensively, the success, and in some cases the survival, of many companies has depended on the willingness and ability of leaders to quickly shift to and adopt behaviors and practices that best suit the new reality. But remote work itself is the tip of the iceberg. For many, there is simply no justification for returning to the old ways of doing business. 1 Climate change was a reality, Looney said, and the world would soon invest “trillions of dollars” in “replumbing and rewiring the global energy system.” To lead in this huge opportunity, BP would have to change and would need to become leaner and faster-moving to do so quickly. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. Spurred by their experience during the COVID-19 crisis, more and more companies are shifting their people model to one that values skills-based mobility and contributions instead of location-based work and standard functional expectations. The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. These decisions will determine the full extent of the shift, and no single company will make all the decisions in the same way—there is no such thing as a one-size-fits-all operating model. McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. Please try again later. The revised employee value proposition (such as more flexibility and less commuting) has given HR the ability to cast a wider net on talent. Read the Bain Brief: New Bank Strategies Require New Operating Models Press enter to select and open the results on a new page. Business leaders looking to lock in COVID-19-era speed and adaptability would be wise to follow a simple process: reflect, decide, and deploy at scale. We use cookies essential for this site to function well. McKinsey Global Institute. The company quickly pulled in retail staff to help with calls. These concepts upended traditional operating models and drove the success of companies as disparate as Netflix and Amazon. Build a two-speed IT operating model. By using this Site or clicking on “OK”, you consent to the use of cookies. Leaders have seen for themselves what McKinsey’s own recent research has been showing: the various elements of truly agile operating models can deliver meaningful business gains. When COVID-19 hit, this backbone process allowed the company to realign the entire organization to a new set of priorities in matter of days. The core of the transformation is a shift to product-focused lines of business. CEOs are actively taking advantage of this particularly malleable moment, where new ideas are becoming the foundation of new ways of doing business, to reinvent their companies in ways that simply make more sense for today’s—and tomorrow’s—economy. As part of these efforts, the bank reset its target services and its operating model by digitalizing product offerings, reinforcing remote services, and pushing more management power to remote workers. At the same time, they have installed a new performance and change-management system to create incentives for the new way of working. Then along came COVID-19, which exploded all those long-held assumptions. As historian Yuval Noah Harari puts it: “That is the nature of emergencies. No one can draw a blueprint of what a bank’s risk function will look like in 2025—or predict all forthcoming disruptions, be they technological advances, macroeconomic shocks, or banking … By the end of a month, wait times on service calls were down to a few minutes. A global oil and gas company cut the time required to plan wells by 50 percent, increased overall gas production by 5 to 10 percent, and increased gas production per employee by 70 to 80 percent. The spread of empowerment throughout the company, born of necessity, has created a new set of potential leaders. If the source of trust in payments is wrung away from the traditional banking system, the results will be Why banks need advanced operating models? Their results clearly suggest that such models are the sturdiest for uncertain times. Beliefs such as these made the need for a nimbler operating model seem optional and perhaps unnecessary. The report also urged banks to plan for another round of consolidation in order to thrive beyond the crisis by growing their capital base faster than the rates of inflation and devaluation of the naira. It seems likely that the forced abrupt shift to remote working will have profound long-term implications on key banking operating-model dimensions, such as location strategy, outsourcing, offshoring, and employee value proposition—for example, flexible hours, job sharing, and accessing new talent pools. The next normal arrives: Trends that will define 2021—and beyond. An international bank reskilled and redeployed hundreds of employees from advisory jobs to customer-experience roles. Matyas Fekete, a consultant at KAE, explores some of the main similarities and differences in digi-bank business and operating models. Lean management has already played a significant role in putting in place processes, capabilities, and tools to improve how businesses operate. The experience of the COVID-19 crisis is accelerating the transformation upon which it had already embarked. Technology is used to create efficiency on the back end and delight the customer on the front end. But by forcing them into new, more urgent modes of work, the pandemic has given many companies a glimpse of how they might operate better, faster, and more adaptably in the future. 65 0 obj <>/Filter/FlateDecode/ID[<3718A3685D553F45BDB074F7C524E688><927B3391B50E5147899AAB174CEB5E1D>]/Index[44 34]/Info 43 0 R/Length 99/Prev 170127/Root 45 0 R/Size 78/Type/XRef/W[1 2 1]>>stream Operating as one U.S. Bank is not a fancy business model or a new centralization strategy — it is merely a crisp expression of the culture we are building across our enterprise. Digital upends old models. The real question for bank executives now is, how much time do we have? Reflection may take the form of a systematic review of the current state (“dispassionate assessment”), a blueprint for the new model, a value sizing, and a road map of value capture. A large European bank has embarked on a fundamental rethink of the way relationships and behaviors are managed both for business-to-business clients and among colleagues. IT is a key driver of costs and of the ecosystem design and business model. The company restructured its P&Ls and introduced new management rhythms, such as quarterly business reviews. Perhaps even more tellingly, telcos and banks that adopted these operating models before COVID-19 were able to respond to the pandemic significantly faster, on average, than their peers. Covid-19 pandemic and more or clicking on “ OK ”, you consent to the use cookies! Our flagship business publication has been defining and informing the senior-management agenda since 1964 less—time, resources people—than! Clearly suggest that such a full conversion would take years companies operate virtual training programs and retrained more 20,000. Not be useful outside of a full-on crisis such as quarterly business reviews transformation! 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