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The superannuation and wealth management sector we have been using as a case study is a perfect example of different approaches and a proliferation of choice.
Large retail funds and wealth arms of big banks have historically been biased towards an in-house model with large IT and digital marketing teams and variety of bespoke front and back-end systems.
Most industry and public sector funds on the other hand have evolved from small trustee offices with most digital functions outsourced to an administrator. These days as funds are consolidating and digital solutions are maturing retail and not-for-profit parts of the industry are gradually converging on what we call a digital 'orchestration' model.
Simply put, this model seeks to develop 'spike' capabilities (see previous article for details) in-house and maintain good control over non-spike capabilities via strong in-house product, project and vendor management.
Previously most industry and public funds relied on their administrators to deliver a basic set of digital services. Now as superannuation has become an increasingly sophisticated digitally enabled industry, integration is king.
The funds can broaden offerings by integrating third party products such as direct equities or annuities and services such as algorithmic advice or financial information aggregation. The funds are demanding flexibility to decouple public and self-service portals from core platforms to develop their own differentiated online tools, utilising vendors of choice rather than relying solely on their administrator.
STEP BY STEP
At Strategy&, when looking to get a digital operating model right, we go through a number of steps.
First we define functional capabilities with sufficient granularity to make choices. For example, just deciding to develop business intelligence (BI) capability in-house is not particularly helpful.
A good sourcing model should provide clarity on such elements of BI as data warehouse infrastructure, data management and governance, analysis tools, data scientists, analysts and other business users that in some companies are dispersed across multiple functions.
The next step is to determine an optimal way to deliver the capabilities based on strategic priorities, market considerations and cost, service and risk trade-offs.
In making these decisions the companies must not assess each capability in isolation but rather view those as a portfolio which in the target state must form a coherent model delivering outcomes and not just executing tasks.
Finally the company needs to develop structures, processes, governance and incentive models that will ensure “all instruments" are playing in concert. This is easier said than done, particularly when it comes to managing a mix of in-house and externally sourced capabilities.
For instance, if the mobile app vendor's pay cheque is mainly tied to churning quickly through as many 'tickets' as possible, one should not assume they will put best effort in advising on the best architecture to minimise change over the long term.
The success of the digital model (regardless of whether it leans in-house or externally), depends heavily on three orchestration capabilities: project (i.e. change), product (i.e. run) and vendor management. If the client cannot formulate what the “true good looks like" and hold vendors to account delivering it, they will almost certainly only get “good enough".
For some companies which do not see digitally enabled products and services as a differentiator this 'good enough' may suffice. However, in a highly digitised financial services industry, gaps in these three capabilities will almost certainly undermine any digital strategy and ultimately an ability to successfully compete.
Coming back to our superannuation case study, we see that self-managing retail and industry funds are in a better starting position than those outsourcing all of their administration.
To be 'fit for the future' and have ability to deliver a truly differentiated customer value proposition the funds that are operating as lean trustee offices will need to rapidly catch up to the retail and self-managed peers in establishing effective future proof sourcing and governance models and building digital orchestration capabilities. The 'wait and see' tactic will not work as the widening digital experience gap may deem many of them obsolete from the customer perspective.
Maxim Sharshun is Engagement Manager at Strategy&
The next article in this series will outline how to bring the digital strategy together and put it to action.