Four dimensions set to change the world of banking

1.    New ways of sensing
2.    New ways of knowing (from learning)
3.    New ways of instructing
4.    New ways of responding

New ways of sensing
Divided into three key domains of human, machine and environment, the number and sophistication of sensors has exploded over the past ten years. This has profoundly changed the way we view the world, and now enriches our general understanding of almost everything.

With the mass adoption of the smart phone, combined with the proliferation of wearables, along with cheap but powerful sensors, we now have the ability to sense the world at a much more granular level, something considered impossible, or cost prohibitive in the past.

From a bank’s perspective, the sensing of community sentiment and advocacy has become a major part of value creation and management. Whilst customer surveys can be excellent tools, they are often limited in their usefulness due to such challenges as representative sample size and reflecting only conscious points of view.

With the power of digital tools and the ability to infer customer sentiment via financial, social and geolocation data, banks now have an opportunity to become more customer centric than ever before.

In the workplace context, specifically in measuring service delivery performance, channel effectiveness, product competitiveness and other business performance metrics, we can now sense and measure all these factors with a much sharper focus and at a fraction of the previous cost.

The key question then, is how does this new way of sensing inform and challenge the way we learn and create knowledge in the business context, and hence guide the way we respond to deeper insights?

New ways of knowing
In the past, knowledge of historical performance and best practice were the preferred tools to shape strategic plans and investment direction. In the absence of richer, more accurate and timely information, we used lag indicators as predictors of the future.

Times have changed, and the use of historical trends alone is no longer adequate. Market uncertainty now fluctuates with greater amplitude and frequency. The speed of wealth creation, and in some cases erosion, has accelerated to unprecedented rates. Further, the shift in the demographic mix, together with technology advancements in areas such as artificial intelligence, are combining to drive a step change in the way we understand everything.

From a bank’s perspective, previous ways of calculating financial risk and return, total financial footing, cash flow and business volume, all contained various levels of estimate and assumption due to lack of information, or incomplete information, sometimes delivered in untimely ways.

The ease by which we can now access, gather, and wrangle diverse datasets, and create meaning from near real-time data, is setting new standards in the way we learn about our customers, business operations, markets and risk (potentially edging us closer to a financial singularity).

In this context, the old approach of best practice is giving way to an emerging trend toward appropriate practices where the knowledge of methods and contexts are combined to support a richer and more appropriate engagement.

In the workplace, this has impacted two main areas: the way we manage knowledge (information), and the way we learn from this knowledge based on market, operational and customer engagement at specific moments in time.

The question then becomes, how does a company coordinate and respond to a deeper level of understanding gained from a new way of knowing?

New ways of instructing
Financial services commentators have remarked that the industry has organised itself in the form of either hierarchies or networks. Hierarchies being the method of choice for industrialised organisations, designed to maximise economies of scale, accelerate production rates and reduce output variance, whilst networks have been the method of choice to support greater levels of agility and influence. More specifically, that it is networks which have been crucial to coordinate and effect changes during moments of destabilising uncertainty.

It has also been noted that protracted uncertainty in modern conflict requires a more dynamic form of engagement. Whereas hierarchies were excellent for facing opponents on clearly defined battlefields with clear tactical objectives, they are often too slow and inadequate in modern-day engagements.

In the same way, companies with rapidly changing markets now face the same challenges. That is, traditional methods of planning and delivery are important for projects with clear objectives and long change cycles, whilst agile methods are necessary for less well known and changing conditions. More importantly, agility is crucial to counter more nimble and unencumbered technology startups.

In these conditions, the extended enterprise (which may include partnerships with fintechs), requires a level of agile coordination beyond the traditional boundaries of an organisation, in a way that is flexible and supportive of business needs.

The traditional way of instructing is giving way to new ways of delivery via coordination, coaching and leading collectively. For example, blockchain and cloud-based technologies are set to pave the way for the next wave of straight through processing by automating execution instructions based on set thresholds and events.

The key question however, is how does a company provide the necessary freedom to support innovation and agility, whilst ensuring objectives, values and purposes are retained to ensure the company is not pulled apart from divergent goals?

More importantly, how do companies manage governance, regulatory compliance and risk with such a fast moving and ever-changing landscape of initiatives?

New ways of responding
Since the industrial revolution, automation has been the primary method for companies to reduce unit cost, scale effectively, and outperform the market. Whilst these fundamentals of wealth creation have not changed, the technology startup movement has fundamentally changed the way companies view competition and the necessary rate of innovation.

Powerful and accessible technologies, combined with readily available capital, fuelled by a diverse and flexible labour force, is causing an explosion in the number of technology startups. In turn, these startups are setting the new standard for customer experience to be simple, cheap and relevant.

More importantly, these same customer expectations have spilt over into the real world, setting service expectations that honour the inferred mountain of customer information companies have collected about them.

For these reasons, successful companies have focused their attention on three key enablers: automation engineering, methods for rapid cycles of innovation development and adoption, and the ability to readily extend enterprise capabilities via partnerships, acquisitions and subsequent integration.

Having studied the business of digital disruptors such as Amazon, Uber and Netflix and how they have managed to aggregate customers, I have found four common themes or what I have termed the 4 Ps:

•    Platform: a powerful but open platform (to support rapid capability acquisitions)
•    Partnerships: an effective commercial, governance and operating model (to accelerate the acquisition of capabilities)
•    People: an effective means of identifying and acquiring teams of capabilities (to support a deeper and richer level of engagement for emerging needs)
•    Pace: a culture and method of developing and delivering based on a rapid cycle of innovation and the ability to industrialise successful innovations

Combined with the knowledge that many tier-one companies grow via acquisitions, this ability to rapidly acquire and integrate capabilities whilst delivering positive benefits, is now more important for sustainable growth and success than ever before.

Whilst Agile and DevOps methods are not new, many companies remain challenged in their ability to understand how innovations can be effectively fostered and integrated into a production environment.

Epilogue
For a company to last and outperform the market, they must actively destroy parts of their portfolio to create space for the new. Over recent times, each of the four major banks in Australia have embarked on their respective transformation journeys of creative destruction. Whilst there is now a real potential to change our banking landscape, these institutions, leveraging their new ways of working, are on the cusp of changing the nature of banking as we know it.