Are your foundations solid enough to be truly Agile?

Over the past few years, our banking and insurance clients have been gaining a lot of insights on how they can approach the digital disruption initiated by FinTechs. This has put innovation high on the strategic agenda of the board rooms. Top-of-mind examples are mobile-first customer journeys, robo-advisory, and the blockchain. But, given their existing foundations, are incumbents truly capable of applying these new innovations in a fast and efficient way? Will this lack of speed limit them in their ability to compete with new emerging models? This might just be the key issue for them to solve if they are to remain competitive in the coming years…

Looking at the traditional player in Financial Services, one might wonder how ready they are for the digital disruption. Actually, important questions arise for these incumbents:

• Are they able to implement these innovations whilst ensuring continuity within their operations?
• How can they see the priorities and focus on them when those are changing so fast?
• Are they Agile enough to handle this amount of change?

A lot of incumbents are paralyzed by their “legacy foundations”. Where these legacy foundations are a set of processes, policies and decision bodies inspired around the old command and control spirit. In order to deliver true customer value (read: be innovative), traditional banks and insurance companies should focus on transforming these legacy foundations by changing the way of doing. As soon as they can make their core more Agile, they will be able to create tangible customer value much faster.

A recent 11:FS Podcast gave the enlighting example of a UK challenger bank called Monzo. It only took them 27 resources and one year to build a core banking platform from scratch. Everybody agrees an incumbent would never manage this, given their current set-up. Wouldn’t it be interesting to understand why that is?

In the 90s, Oxford economist Paul David introduced the concept “modern productivity paradox”: investments in new technologies often lead to an overall decrease in productivity Why? Because, when implementing new technologies to move from one technological paradigm to the next, organizations apply those to existing infrastructures and foundations, which are not easily adaptable. In fact, looking at banks and insurance companies today, this phenomenon is obvious. Their foundations are everything but Agile: they are layered as an onion and infused with very rigid waterfall-oriented processes.

An interesting parallel can be made with the automotive industry at the start of the 20th century. The horse carriage manufacturers were at that time renowned for their handcrafted production of vessels. Pioneering automotive companies largely copied this production method, which made car assembly cumbersome, slow and expensive. As a result, it was only available to the wealthy few, therefore not reaching its true productivity potential. New technology was being applied to old infrastructure. The real automotive disruption only took place when Henry Ford introduced the assembly line and re-engineered the delivery of the automotive product delivering true customer value.

So far, what Financial Service player has been focusing on finding its new assembly model?

Tech companies like Spotify, Amazon, PayPal, Google, and Zappos have a relentless focus on making their organizations as Agile to change as possible. They are not afraid to question their “how”, which naturally leads them to innovation and operational excellence. Today, in the Financial Services space, we see some banks pioneering by fundamentally changing its customer delivery through a scaled Agile framework. So far, the feedback has been extremely positive. Quoting one senior executive: “Working with a FinTech and having an Agile organization helped us to deliver an online platform in 3 months rather than 12”. This is what happens when you prioritize the “how to deliver” over the “what to deliver”.

Looking ahead…

Change in terms of regulations, customer expectations and technological evolutions will keep increasing exponentially (cf. Moore’s law). Financial Services incumbents will thus have no other choice than to comply with this change. On top of that, FinTechs and non-banking players will keep identifying customer value before incumbents. Digital leaders will have to react, adapt and develop value in months rather than years. In this context, changing the way of doing is a must.

Through supporting our clients in becoming a truly digital organization and helping them implement Agile ways of working, we have come across a variety of hurdles, questions, and issues. But also solutions, ideas and best practices. What approach could you follow? What bottlenecks might you face?