6 minute read 26 May 2021
Upside down boy using his hands as binoculars

Why process is key for financial institutions’ operational excellence

By Mike Schank

Managing Director, Process Excellence, Financial Services, Ernst & Young LLP

Seasoned executive working in the banking, wealth management and insurance sectors. Financial services consultant.

6 minute read 26 May 2021

Creating a single view of the business through process enables operational changes needed to succeed in a challenging environment.

In brief
  • Putting process at the center of transformation efforts lets FIs enhance customer-centricity, operational efficiency, risk management and business resilience.
  • Creating integrated process repositories provides a common knowledge base that enhances innovation and empowers stakeholders.
  • Business process analysis (BPA) tools aid in integrating operational data so processes can be reimagined.

Achieving operational excellence has never been more important for financial institutions (FIs) facing disruption from every corner. Digital transformation, an evolving regulatory agenda, competition from non-traditional players and the impacts of COVID-19 all pose enormous challenges for established institutions trying to meet rapidly evolving customer needs. Nearly 70% of boards of directors have accelerated digital transformation in the wake of the pandemic, according to a Gartner survey.¹ FIs looking to compete successfully may need to pursue both rapid growth and aggressive cost reductions.

But complex, years-long transformation initiatives often prove costly in terms of dollars, frustrated stakeholders, high regulatory penalties and lost ground to competitors. Leaders hoping to achieve change quickly often underestimate what’s required and fail to deliver on their intended vision. All too often, change is driven by transformation practitioners operating from a siloed perspective, resulting in a lack of effective collaboration.

Increasingly, we are seeing that the path to operational excellence in financial services benefits from a single view of the business through process. Digitizing and reengineering end-to-end processes across business lines is a highly effective way to drive operational capabilities and goals. This process-centric framework brings disparate operational information together in an innovative way and allows FIs to transform how they run their business.

Delivering on a vision of operational excellence

A successful operational excellence initiative set an ambitious vision with four key goals:

  • Greater customer-centricity requires developing highly customized new products and services to specific client segments and designing processes around customer experiences to enhance interactions and value.
  • Enhanced operational efficiency enables businesses to reduce costs as they leverage new technologies and workflows to take complexity out of their operations and obtain greater value from their people and investments.
  • Better risk management focuses on creating a holistic understanding of regulatory, operational, cybersecurity and other risks, while assessing the effectiveness and costs of controls.
  • Stronger business resiliency demands a comprehensive understanding what is needed to support critical business processes during disruptive events such as the COVID-19 pandemic.

A process-centric framework can help FIs achieve these goals by providing a common language that the business understands, and other stakeholders can align to. It achieves this by documenting operations end-to-end at a level that clearly shows the impact of any change. Without this structured framework, a global institution with hundreds of processes spanning business lines and risk models will likely struggle to balance competing priorities and coordinate improvement across a diverse set of stakeholders. An initiative aimed at improving operations will be enhanced only for the function driving it, which means it may be less effective for other aspects of the business.

Placing process at the center of transformation efforts allows a company to connect end-to-end processes throughout and even beyond the enterprise, providing greater visibility into interdependencies and the impact of changes. This approach saves both time and money in a transformation initiative as it reduces the need for an exhaustive current state analysis every time a new problem is addressed.

This framework drills down from a high to a low level of detail, making operations traceable and transparent. Both internal and external stakeholders are clearly defined, giving them more control over changes and increasing the odds that leadership’s vision for operational excellence will be reached.

Process becomes the anchor point for operational information, creating a holistic model for improvement and innovation. This framework draws upon a deep understanding of each of the following:

  • Customer journeys capture the end-to-end touchpoints for a product or experience. Since most interactions, such as a loan request, involve many processes, it may be critical to document them all so that any issues or opportunities can be traced and addressed.
  • Business capabilities explain what an organization does in a comprehensively exhaustive model in which each capability is mutually exclusive of the other. The goal is to decompose an organization’s unique capabilities to arrive at the full inventory of processes that it executes.
  • Business processes show how an organization delivers products and services to customers and employees. This includes desired outcomes, end users and interdependencies.
  • Process metadata describes an organization’s operating environment using a variety of data systems. Metadata associated with all relevant aspects of a process (resources, controls, systems, etc.) allows operations to be viewed from a single business lens.
Process-centric framework of business strategy graphic image

Developing a transformational strategy around process may require clearly defining operational excellence goals and use cases offering the greatest benefits. These may include aligning project spend to a process-focused strategy, driving large transformational programs or orienting the organization’s internal operating model around end-to-end processes. It may also be critical to determine ownership for managing the accuracy and completeness of this data over time.

While this effort requires a strong level of commitment, the costs of not focusing on process may prove to be greater. For example, improving process and control alignment could greatly impact spending since nearly three-quarters of banks reported as much as 40% of their budgets go to compliance and cybersecurity, according to a CSI survey of US banking executives.²

Quick wins can be achieved by first focusing on the most critical processes that pose the highest risks. Organizations can also consider creating a process center of excellence to keep from falling back into siloed thinking.

Creating integrated repositories to drive change

BPA tools are playing an increasingly important role in process discovery, assessment and design. They integrate disparate operational data through the lens of process. This can enable very powerful slicing and dicing of data to understand the root causes of inefficiencies and unnecessary complexities, impacts of changes, and reporting on resource usage.

As shown in Figure 2, a BPA suite imports data from authoritative organizational sources to create a robust integrated repository which details how resources, systems and data are used to execute business processes. This repository can also align risks and controls, providing key insights for mitigation and cost reductions.

Business process analysis tool graphic image

This approach breaks down the business into individual processes through a single taxonomy, with process model diagrams identifying relationships and dependencies. This can enable stronger collaboration and may allow the organization to make more insightful, data-driven decisions as it pursues operational excellence.

Developing and maintaining a single source of truth gives all stakeholders ready access to how business processes are executed and what supports them. This provides a consistent, unified perspective as new challenges arise.

Summary

Using a process-based framework to achieve operational excellence requires a strong level of commitment, but the return can be well worth the investment. Financial institutions that take this approach may be able to reduce the time and costs of their transformation journeys.

About this article

By Mike Schank

Managing Director, Process Excellence, Financial Services, Ernst & Young LLP

Seasoned executive working in the banking, wealth management and insurance sectors. Financial services consultant.