I got some lovely feedback on my social networking sites on the last article I wrote and two of them are from people I reckon are among the nicest and most intelligent blokes I have ever had the privilege to know and work with Vish and Bob this is a request to both of you, your thoughts need to be shared with all the readers, can you please comment here in this site please? Atul, my friend, this goes for you too. Thanking all of you in advance.
In the last article, I was discussing innovation. Simplicity being a key component of innovation, newer products and newer services and complex derivatives dont necessarily mean great innovation. Simplicity often is as important if not more important in todays complex financial services landscape.
Now it is an interesting point to discuss why dont financial services institutions just remain simple? After all, the earliest logic of banking was simplicity itself lend money to need at a certain interest, keep money safe for a distant need at a certain expense. Simplicity itself, one would think. Now, over a period of time, the range of product offerings increased exponentially, increasing complexity, service offerings had to be different to meet the increasing Red ocean challenges. Customers became more knowledgeable, leading to increased clamour for value addition and the institutions needed to change or streamline the way they did business. Additionally, such institutions came to be regulated by agencies in power simply because they were too powerful and influential to be left alone otherwise.
Thus we can clearly see five key drivers for change and funny enough, they remain the same after centuries. These are in particular order:
- Product strategy
- Service excellence
- Sales effectiveness
- Operational effectiveness
- Regulatory environment
When one peruses the above list, the competitive tension within the financial systems becomes clear. Product strategy and sales effectiveness demand investments in newer products, customer acquisition strategies, cross selling and up-selling tactics, increasing the geographic and demographic reach, increasing the service offerings, increasing channels of reaching out to prospects and customers and thus furthering cross linkages between channels, customer, product and service.
Each of the factors has the potential to increase complexity exponentially. With all coming together over the past couple of decades, there has been a veritable explosion of products, services, strategies and systems increasing the complexity to an extent that operational risk and service effectiveness are now as critical to the success of an institution as traditional competitive differentiators like product offerings. The back end systems would obviously then try and limit such increasing complexity simply because of increased cost, decreasing focus, management bandwidth and people limitations.
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