Implementing the next-generation operating model can reduce these operating expenses by 25 to 40 percent. Then along came COVID-19, which exploded all those long-held assumptions. The authors wish to thank Jonathan Green, Alberto Montagner, Charlotte Relyea, Guilherme Riederer, Daniel Rona, Lars Schor, and Patrick Simon for their contributions to this article. In a previous study, we analyzed 22 organizations from a range of sectors that had embarked on such journeys. McKinsey and Company in a report stated that digitalisation will enable Nigerian banks to achieve between 25 and 40 per cent cost-reduction. IT is a key driver of costs and of the ecosystem design and business model. See “2020 Annual General Meeting: Chief executive officer,” BP 2020 Annual General meeting, May 27, 2020, bp.com. Detailed information on the use of cookies on this Site, and how you can decline them, is provided in our cookie policy. 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. For instance, an Asian telco provider increased its customer-satisfaction score by 30 points, scored operating-expenditure savings of 20 percent, and speeded up time to market tenfold. 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. Reflection is a crucial first step because so many COVID-19 crisis changes were fueled by adrenaline rather than careful planning. 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. Banking business models of the future Dr. Daniel Kobler Partner Banking Innovation Leader Deloitte Dr. Stefan Bucherer Senior Manager Consulting Deloitte 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. Companies reacting with less urgency are soon likely to find themselves outpaced. For instance, they are providing employees with the IT infrastructure required to work remotely in an effective way. We use cookies essential for this site to function well. The experience of the COVID-19 crisis is accelerating the transformation upon which it had already embarked. The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. Whether a bank can pull off a deal or not, McKinsey’s Nadeau said that banks have a number of ways to boost revenue while cutting expenses, including improving digital experiences for customers and rewiring outdated internal technology in order to launch products faster and reduce IT costs. %%EOF 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. FINANCIAL SERVICES Optimizing banking operating models From strategy to implementation September 2012 kpmg.com KPMG INTERNATIONAL The revised employee value proposition (such as more flexibility and less commuting) has given HR the ability to cast a wider net on talent. Yet, Looney said, the pandemic had reinforced the company’s commitment to its new mission: “The more we understand the current situation, the more I am convinced that the decisions we took in February are right, for three reasons: increasing uncertainty surrounding the future demand for oil—and volatility in oil markets; increasing awareness of the fragility of the world we live in—and of the opportunities to build back better, greener and more resilient; increasing attractiveness of stable returns from some renewables—to which capital has continued to flow.” It is a way to improve our reputation. The company restructured its P&Ls and introduced new management rhythms, such as quarterly business reviews. One South Asia bank is accelerating its operating-model transformation because of its COVID-19 experience. CEO Christophe Weber insists that the decision was also good for business: “Doing the right thing for patients is highly motivating for our employees. Technology is a key element in ensuring the success of this kind of empowerment and extension of authority to customer-facing teams. Before the pandemic, it believed that such a full conversion would take years. h�bbd``b`�$�A,f �& b�LF@�%D��M�J@�n�H H1�)kȔE n6�/M@�q6�XZ���Ȱ����4�?�o 6< Purpose, above all else, enables forthright decision making at speed. Payments remains among the best-performing India’s Tata Consultancy Services (TCS) believes that its new hybrid model, which frees associates from any need to spend more than 25 percent of their time in a TCS office, could improve velocity by about 25 percent, thanks to productivity gains. Small, empowered teams come together to address a specific task (or a set of tasks) and then disband. The bank’s ambition is great: it expects that this transformation will drive a 10 to 15 percent productivity surge, cut two or three layers of management, and significantly improve time to market. For example, before the pandemic the company would often fly scientists and engineers to different locations for equipment maintenance. 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). ... (a Dutch bank), TDC (a Danish telecommunications company), Spotify, Entel ... All operating-model design must be grounded in an understanding of how value is created in the industry and how the individual organization creates value. See “2020 Annual General Meeting: Chief executive officer,” BP 2020 Annual General meeting, May 27, 2020, bp.com. An insurer in the United Kingdom recently shifted its delivery operating model and moved its product, pricing, underwriting, data, and technology functions into a series of purpose-driven cross-functional teams. 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.” (About 50 million to 100 million disputes occur annually in the US, with a cost per dispute ranging from $10 to $50.) Thanks to the pandemic, many companies have embarked on experiments in which they’ve organized around outcomes, in flattened structures that replace physical colocation with hybrid models. Under pressure from multiple forces, successful banks will develop a new operating model better suited to changing times. Learn about Some were minor adjustments, while others were radical changes to the way companies operate. This bank kicked its digitalization efforts into high gear and launched fully redigitalized offerings online in just eight weeks. The company restructured its P&Ls and introduced new management rhythms, such as quarterly business reviews. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. Gregor Jost is a partner in McKinsey’s Vienna office, Deepak Mahadevan is a partner in the Brussels office, David Pralong is a senior partner in the Auckland office, and Marcus Sieberer is a senior partner in the Zurich office. The company quickly pulled in retail staff to help with calls. At the same time, they have installed a new performance and change-management system to create incentives for the new way of working. The KPMG Target Operating Model is based on a deep understanding of how transformation works within, and across, an enterprise. Models of organizational effectiveness go in and out of fashion, but the McKinsey 7-S framework has stood the test of time. Operating model design. People are valued for their skills and contributions, not their place in a hierarchy. Practical Guide to the Digital Operating Model Determining the most effective operating model for your business can prove challenging. Much effort and money today goes into operating legacy processes and dealing with regulatory requirements to keep the bank running; Gartner estimates that banks on average spend roughly 60% of their IT budgets to maintain legacy IT systems vs. just 24% to grow the business and 16% to transform it. Faster decisions require more empowerment of the frontline team. An international bank reskilled and redeployed hundreds of employees from advisory jobs to customer-experience roles. McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. 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. The clearest evidence of the pandemic’s impact on business has been remote working, the dislocation of people that occurred at virtually every company. 2. Remote work itself is the tip of the iceberg. Many may not be sustainable without substantial adjustments, while others may not be useful outside of a full-on crisis such as the pandemic. 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 McKinsey in its review titled “A test of resilience: Banking through the crisis, and beyond,” said banks globally were questioning their business models largely on account of the prevalence of low or negative interest rates, as well as FinTechs encroaching the core banking business. 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. Beliefs such as these made the need for a nimbler operating model seem optional and perhaps unnecessary. 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� Verizon created new virtual training programs and retrained more than 20,000 workers during the COVID-19 pandemic. We strive to provide individuals with disabilities equal access to our website. 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. To ensure that this transition is a company-wide effort, they have put a number of “hard” and “soft” enablers in place. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Compliance organizations used to promulgate regulations and internal bank policy largely in an advisory capacity with a limited focus on actual risk identification and management. For many, there is simply no justification for returning to the old ways of doing business. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. ... however, mask the wide variation of performance at the individual level... 2025, these numbers will be closer to 25 and 40 per cent cost-reduction our cookie policy company implemented. Operating-Model transformation because of its COVID-19 experience article was edited by Rick,. Closer to 25 and 40 percent crunch of the pandemic confirmed their purpose a! Critical the need was, it delivered the strengthened Digital product in record time, how much time do have! An equivalent saving of 30 percent of total employees happy to work remotely in an at-scale fully. 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