The opportunity cost is high, particularly when inflexible operating models reduce speed to market and the ability to realize the full potential benefits from scale or acquisitions. Achieving full potential benefits is not a small challenge and there are many examples of failure, particularly when large ‘big bang’ transformation initiatives have been applied. Those who have been successful have adopted a progressive transformation approach at the business and technology levels. Such an approach is based on: A clear understanding of existing value drivers and constraints A componentized view of the bank’s business and technology environment in order to have common building blocks that can be reused across product and business silos Defined and sustainable interim states which provide measurable benefits and flexible path to the end goal Strong governance to manage and deliver the change
Technology developments such as the increasing use of open standards and the industry acceptance of these standards have made it possible for banks to move towards the Component Business Model (CBM)* built on a Service Oriented Architecture (SOA)* foundation. These flexible business and technology models are the building blocks for the progressive transformation journey. The size of the opportunity in terms of business value is very significant and for some banks, if the complexity and inflexibility of their operating model are not dealt with, the issue becomes one of survival. BM outlines in this paper some of the key decisions and actions that banks need to take in their progressive transformation journey illustrated by banking industry examples. By undertaking such a journey, banks will ensure that today’s investments are adding value towards a long term vision rather than adding to the complexity of their current operating environment. The problem facing banks today
After years of concerted cost-cutting, sustained and consistent revenue growth has returned to the agenda of many banks. However, new products, channels and geographies have made operating models too complex. For many banks, products, channels and lines of business are only partially integrated, and organizations continue to be structured along product or geographic lines rather than customer segments. Investment budgets are often driven by this organization structure. The result is increased complexity and a lack of horizontal leverage across the enterprise. In fact, during the past decade complexity has increased dramatically, to the point that hidden costs have begun to limit the benefits of economic scale. Banks suffer from significant duplication of process activities across products, which often lead to replicated IT applications and infrastructure. This happens even after process optimization initiatives as these initiatives are often uncoordinated. The result is increased costs associated with people, processes and technologies, as well as limited flexibility. | 
