Driving Operational Transformation in Asset Servicing

Many asset servicers are critically evaluating their operational models and efficiency. Do you know why? Because the need for operational transformation has never been more pressing. In this article, drawing on our experience advising CFOs and senior management of large companies based in Luxembourg, we will elaborate on the strategies, technologies, and governance necessary to facilitate an effective operational transformation journey.

The evolution of organizations

Large organizations typically evolve over time, expanding their activities, diversifying business lines, and engaging in mergers and acquisitions. However, with each phase of growth, historical challenges often arise, particularly concerning systems, personnel, and processes. Management tends to prioritize immediate business opportunities over long-term operational efficiency. Consequently, as companies undergo multiple transformations, they may find themselves grappling with a myriad of operational issues, including disparate systems that fail to integrate seamlessly, convoluted workflows that hinder task analysis and assessment, and complex communication and validation processes across finance, governance, and operations.

A strategic approach to transformation

To effectively navigate this transformation, companies should consider three key timeframes: short-term, mid-term, and long-term. 

This approach requires a comprehensive analysis of existing operating models, a willingness to challenge established ways of working, and a comparison with market trends. Companies must also explore digital solutions that can enhance centralization, strengthen controls, improve performance, and eliminate redundant tasks.

For instance, when a company seeks to improve operational workflows—such as financial controlling, reporting, or payment reconciliation—the CFO should begin by identifying the primary pain points and distinguishing between short term improvements and more structural, long term enhancements. The expected impact should be assessed in terms of cost savings, efficiency gains, and quality improvements. Developing a clear decision matrix enables management to objectively compare scenarios and select the option that delivers the strongest, most sustainable benefits.

System integration and centralization

Organizations often find themselves using multiple systems for the same functions, differing between locations, business lines, and subsidiaries. This raises critical questions: Should we centralize these systems into one major platform? What are the costs involved? What is the ROI? By when can we expect results?

In Luxembourg, tax reductions for technology implementation may motivate some companies to opt for high-cost technology solutions. However, it is vital to compare solutions based on specific needs, culture, and environment.  

To assess which system and technology is the best fit for your organization, you can start by asking the following questions: How adaptable is the system for future changes? How dependent are we on the technology provider? Is it more beneficial to choose a fit-to-standard solution or a personalized one? Should we consider cloud-based options? What are the security costs associated with these solutions?  

Summarizing these considerations in business cases can help management understand different options and scenarios, leading to the selection of the best solution that fits their current and future structure.

Leveraging AI solution and its governance

Today, innovative solutions exist in the market, particularly those leveraging artificial intelligence (AI). These technologies offer organizations the opportunity to implement rapid, cost-effective solutions as opposed to traditional technologies that often require years of implementation and adjustment. The choice ultimately hinges on the company's priorities and budget. How much are they willing to invest in change and the anticipated return on investment, which should be evaluated in terms of sustainable savings.

In this new era of AI adoption, companies should follow several key principles:

First, it is essential to clarify the AI governance model—whether centralized or decentralized—and to clearly define responsibilities across business functions, finance, risk, compliance, and IT. Establishing a minimum common framework of policies, standards, and approvals is critical, while also allowing teams the flexibility to innovate and experiment.

Second, implementing controls that are proportionate to risk is crucial. This involves considering use cases, criticality, client impact, and regulatory materiality. Ensuring comprehensive traceability of data, models, versions, decisions, and suppliers, along with maintaining auditable documentation, enhances accountability and transparency.

Moreover, integrating AI into existing risk management frameworks—rather than creating isolated silos—strengthens overall risk governance. It is also vital to manage third-party risks associated with AI solutions, model providers, and cloud services through robust contractual requirements and thorough due diligence.

Finally, establishing effective production monitoring, performance tracking, and incident management processes, along with mechanisms for rollback, ensures a resilient operational environment. By embracing these strategies, organizations can effectively leverage AI and innovative solutions to foster sustainable growth and achieve operational excellence.

The human factor in transformation

It is vital to recognize the human factor in these transformations. While technology and processes are critical, employee satisfaction is paramount for fostering sustainable growth in a positive environment. A successful operational transformation not only enhances efficiency but also cultivates a culture where employees feel valued and engaged. Ultimately, human judgment remains indispensable. Employees bring creativity, reliability, and commitment, qualities that technology cannot replicate. Ensuring that people feel valued and empowered, rather than threatened by technology, is essential to maintaining engagement and motivation. By embedding human centric values into operational policies and procedures, organizations strengthen the resilience of their operating model. When technology encounters limitations—such as system failures or AI related errors—skilled professionals are the ones who step in, resolve issues, and safeguard continuity.

Balancing efficiency, regulatory compliance and locations

Asset servicers operate through multiple departments and business units, such as depositary companies, funds management companies, and operations companies. It is crucial to find the right balance between these entities, maintaining high efficiency while respecting regulatory controls.

Many large companies also expand their teams into low-cost locations, primarily in Asia or India. However, the efficiency of these teams must be regularly reviewed. Just because these locations are deemed low-cost does not mean they have access to unlimited recruitment; this could create complexity rather than alleviate it.

Regulators must ensure that companies in Luxembourg maintain proper oversight, keeping control of operations within the country to ensure high quality and security. Controlling offshore locations presents more challenges than onshore ones. One significant issue in offshore locations is employee turnover; companies invest substantial effort in training and retraining personnel, which diminishes the cost benefits associated with these locations. Therefore, it is essential to establish strong processes, procedures, policies, and workflows to ensure continuity in operations, quality reviews, and a comprehensive understanding of the business while balancing offshore and onshore locations.

And how about operational transformation?

Experts have the privilege of assessing these business cases across various industries. Many companies, particularly those owned by private equity firms, are under pressure to optimize costs by enhancing operational processes and efficiencies.

For organizations contemplating a sale, improving the Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) is crucial, achieved by increasing revenues and reducing costs. Conversely, for those looking to acquire another company, it is essential to evaluate the operational model of the target organization, integrate it into their existing framework, and enhance efficiencies by streamlining costs.

While each business presents its unique complexities and specificities, the overarching narrative remains one of efficiency.

Timing and responsibility in transformation

The question of who will undertake this transformation and when it should occur ultimately determines its effectiveness. The experience shows that the earlier a company controls, tracks, and governs its operational costs, the better it is for its future. Preparing for growth is advisable, rather than growing and then fixing issues, as it is often more expensive and complex to address problems later.

Our consulting experience shows that to achieve the best impact on these projects, having the right knowledge and skills is key. Understanding local and international business models, having industry experience, and being familiar with key market players, along with insights from other sectors, will provide the best experience for companies, allowing management access to best market practices.

Conclusion: the path forward

Our advice is clear: act sooner rather than later, prepare for growth, and choose your strategic partners wisely. Operational excellence is not merely an operational issue; it is a strategic one that opens doors to better growth and opportunities.

Consulting firms today must possess expertise in technology, operations, strategy, finance, and management, both locally and internationally. Combining these skills is essential to provide the best services to clients. Fortunately, a good Business Consulting Team has the right experience and access to international specialists when needed, ensuring that we can guide organizations through their operational transformation journey effectively.

By embracing operational transformation, CFOs and Senior Management can navigate change and position themselves for sustainable growth in an ever-evolving business environment.