How will Financial Services operating systems and structures look in the future?

11:FS CEO David M. Brear reached out to his followers on LinkedIn to ask for their thoughts on the following conundrum: what do you think the future operating model looks like for financial services and why?

He goes on to say: “mostly we have seen product and business silos but recently we are seeing life stage groupings (e.g. millennials), thematic groupings and channel silos - but is this the way forward? David was inundated with replies; a summary of the contributions we present below. Thanks again to all who contributed, we really value your input!

One size doesn't fit all

Yoni Levy, Director at CIBC, kicks us off by stating that this is an incredibly difficult nut to crack, and hard to get right: “Setting a strategy and establishing a structure[...]that both supports continuous optimization of core business units, while also enabling large-scale corporate innovation, is a conundrum not many organizations have unravelled. The relationship between strategy and structure is inexplicably nuanced and one size does not fit all.”

"The relationship between strategy and structure is inexplicably nuanced and one size does not fit all.” - Yoni Levy

With that in mind we can reasonably infer that (so far) there is no wrong answer. Let’s take a look at the most common themes that were suggested:

New customer segmentation is needed

Almost everyone seemed to be in agreement that current segmentation of customers in financial services that are traditionally grouped around age ranges, is not effective and for the industry to move forward it must design new segmentation and demographics. Gary Fegan, CIO, Johnston Fuels: "[it is not] as if everyone born within a decade somehow exhibits the same behaviours. What is common to all is life events and aspirations."

Gary Fegan, CIO, Johnston Fuels: "[it is not] as if everyone born within a decade somehow exhibits the same behaviours. What is common to all is life events and aspirations."

The suggestion here being that customers should be segmented more closely related to their behaviour and life stages and what this means for their finances, beyond just their age. Examples of new segments that Gary suggests include: Social life and friendships, employment, holidays, shopping, accommodation, retirement planning and child care. Tanvir Shah, MD of the Partnerships Consulting gives us a Middle East and Dubai perspective and tells us that in this region a lot of focus is around millennial segmentation: “We are seeing silos developing around Millennials for sure, and we are surprisingly still continuing to see demographic segment based silos - based on income nationality and life stage.” Interestingly he goes onto say there is a lot of behavioural segmentation over customers’ international travel habits in this market, in the same way that traditional banks used to market and target to certain customers with air miles and frequent flyer cards and promotions. However many disagree and say that customer segmentation of the kind that Gary and Tanvir refer to is still too simplistic, as business intelligence and the arrival of big data will give business and financial services the opportunity for greater customization and even personalisation with their products and solutions, meaning that enforced segmentation is not required. Is there a third way? Michael Buffham-Wade Head of Client Experience, HSBC, suggests that financial services should organise themselves around their customers’ personas - based on their needs and emotions, not demographics - and have teams of colleagues dedicated to innovation for each one: “It is no longer enough to measure what your FS peers are doing but to build for customer personas (segments of needs and emotions). We need colleague cohorts to innovate for customer cohorts. Not shoehorn both into a tired status quo.”

Customer aligned org structure

Work backwards from solutions to discover structure

Many commentators were of the opinion that financial services companies should organise themselves around their customer’s needs and the products they can provide. In the words of Mike Kelly, founder of Curl, they should put their customers' needs at the forefront of their strategy, and work backwards from the idealised outcome to devise the organisation structure to get them there. The companies that succeed will completely restructure into feature teams that are focused entirely on producing measurable end-customer outcomes.

Strong emphasis on UX

In parallel with customer focused solutions comes customer user experience and journey. This therefore puts a lot of emphasis on UX as a majorly impactful department of organisational structure in the future. "Ensuring that UX is optimised means that the customer journey must come front and centre." - Elise Nobileau Forget

"Ensuring that UX is optimised means that the customer journey must come front and centre." - Elise Nobileau Forget

Alexei Kapkin, a senior investment analyst, supports the idea of focus on UX, and goes further to suggest that FS companies should use data and the IoT to create the answers to customer solutions without them having to consciously look for it: "People do not want to search anymore for products, services and solutions. Big data generated by people themselves by mobiles devices and IoT together with AI should provide the answers for humans' needs. [A] financial service company should become such a trusted provided in the form of a digital ecosystem."

Going back to basics

“A successful financial services firm in the future will be one which goes back to the basics, and helps its customers not just keep to track of their money, but also gives them an easy way to spend the money. The systems required for this already exist, but are used discretely. The firm which leverages its scale to integrate the data systems of banks, fintechs, e-commerce portals and neighbourhood stores will create a deep moat, virtually impossible to cross by competitors. The only question then is, will a bank be able to do this before Amazon does?” - Harsh Mody, co-founder of Findamental.

Agile structuring - responsive, speedy able to innovate quickly and at scale.

It is commonly believed that financial services should learn from fintechs - “For FS to compete, the successful org structures will need to mimic their nimbler cousins.” - James Lynn, co-founder of Jamatto. This means they should be able to innovate, be reactive and also be scalable, something that fintechs often achieve with ease because they’re smaller; incumbents find it much harder, as Richard Davies (Global Head of Propositions, HSBC) notes: 'the more dimensions there are to the firm (client types, branches, products, countries, etc) the harder it becomes to create truly cross functional agile/empowered teams.'

"The more dimensions there are to the firm (client types, branches, products, countries, etc) the harder it becomes to create truly cross functional agile/empowered teams." Richard Davies, Global Head of Propositions, HSBC

Whatever the size of the company, many agree that agility is key, and aspire to follow the lead of music streaming provider Spotify, renowned for being a prominently agile driven company. Some believe that as some financial services companies and fintechs are becoming more niche to specific customer segments or needs, they will run leaner, need less staff and therefore less structure overall as they will all be following the same plan and subscribing to the same ethos.

On the flipside...Is a specific org structure even required?

Some commentators were of the opinion that it is not the org structure that is important in driving forward change in financial services. Some believed that focusing on trying to innovate via restructuring is missing the point, and is part of the problem of the industry being stuck in the past. “The idea that FS require some kind of special organisational pattern is just another symptom of the underlying problem. - Per Olausson, Director of Caxa Ltd.

“The idea that FS require some kind of special organisational pattern is just another symptom of the underlying problem. - Per Olausson, Director of Caxa Ltd.

“We do we think that financial services require some special organisational pattern? How is Pepsi organised? How is Amazon organised? Maybe FS thinking that they are special is part of the problem and why it's still largely stuck in 1983”. - Howard Crisp, Domain architect, HSBC. Olausson also goes onto to make the point that it’s not always clear what is and isn’t working in an industry until a new competitor comes along and blows all the others away, giving the example of how Borders looked to be thriving up to about 10 years ago until Amazon completely annihilated it and other independent bookstores. It has not been reported that Borders had a particularly poor org structure, it was just not doing the same innovative and market-challenging things that Amazon was, and it ultimately lost out. In conclusion, this topic is clearly quite divisive, and at present there is not a clear right or wrong way to develop an organisational structure - only that change is definitely required for financial services companies to be able to innovate and move forward nimbly, quickly and at scale if they want to stay on top of the pending competition from fintechs - and even other financial services companies - who are able to do all of the above, but quicker and better.

Thanks again to all who contributed!

For more from David M. Brear: follow him on Twitter, connect with him on LinkedIn, listen to Fintech Insider where he is a regular host, or book him to speak at your event. To learn more about 11:FS, please check out our services pages, follow us on Twitter, or download our podcast Fintech Insider.