We also look at the process by which companies can evaluate the changes they made during the pandemic, decide which shifts they want to make permanent, and embark on a broader transformation to make this speed and efficiency the standard going forward. Pioneers that had embarked on full transformations based on principles such as reallocating people and priorities shifted quickly toward projects that create value, extending decision-making authority downward and improving capability building in dynamic times well before the arrival of COVID-19. See “Reimagining energy, reinventing BP,” Ambition launch, London, February 12, 2020, bp.com. 2. The result: COVID-19 is shaping a new kind of operating model. Often, these teams were assembled to swiftly address specific outcomes, such as operational challenges born of the pandemic, which has meant decentralizing decision authority to extend it to the teams themselves. And people working with a clearer purpose and greater autonomy to make decisions will drive up employee-engagement scores (see sidebar, “How operating-model reinventions drive better results”). McKinsey Quarterly. They needed to accomplish as much as possible with less—time, resources, people—than they had before. McKinsey research suggests that by 2025, these numbers will be closer to 25 and 40 percent, respectively. McKinsey Global Institute ... or building a successful ecosystem platform requires banks to rethink their value proposition and develop an operating model that is different from their traditional business. The next normal arrives: Trends that will define 2021—and beyond. 2 Our flagship business publication has been defining and informing the senior-management agenda since 1964. Often, this also requires a fundamental change in how leaders operate and enable their teams to make decisions. The full executive team must then decide, stack hands, and explicitly settle on what changes to the old operating model will serve as the foundation of the new normal. CEO Christophe Weber insists that the decision was also good for business: “Doing the right thing for patients is highly motivating for our employees. hereLearn more about cookies, Opens in new The bank’s ambition is great: it expects that this transformation will drive a 10 to 15 percent productivity surge, cut two or three layers of management, and significantly improve time to market. Instead, the company developed a new tool designed to help Verizon customers install new equipment and troubleshoot issues at home with remote assistance from a technician. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more. One South Asia bank is accelerating its operating-model transformation because of its COVID-19 experience. By then, the world had changed: his speech was webcast from company headquarters at 1 St. James’s Square, the annual meeting was virtual, and the United Kingdom was recording about 300 COVID-19-related deaths a day, down from a peak of some 1,200 in April. The traditional compliance model was designed in a different era and with a different purpose in mind, largely as an enforcement arm for the legal function. Technology disruption and expectations are not letting up, and the banks that tackle the operating model overhaul now will be much better able to deliver new strategies and adapt in the future. The efforts of one Asian telco show how far some companies have been willing to bend their structure to adapt during the pandemic. Customers wanting service had to wait as much as 36 hours for a response. Please try again later. Spurred by their experience during the COVID-19 crisis, more and more companies are shifting their people model to one that values skills-based mobility and contributions instead of location-based work and standard functional expectations. Barclays is decentralizing decision making by making local branches satellite offices for more employees, including investment bankers, call-center workers, and people who formerly had to commute to a central office. Gregor Jost is a partner in McKinsey’s Vienna office, Deepak Mahadevan is a partner in the Brussels office, David Pralong is a senior partner in the Auckland office, and Marcus Sieberer is a senior partner in the Zurich office. Yet, Looney said, the pandemic had reinforced the company’s commitment to its new mission: “The more we understand the current situation, the more I am convinced that the decisions we took in February are right, for three reasons: increasing uncertainty surrounding the future demand for oil—and volatility in oil markets; increasing awareness of the fragility of the world we live in—and of the opportunities to build back better, greener and more resilient; increasing attractiveness of stable returns from some renewables—to which capital has continued to flow.” Learn about It seems likely that the forced abrupt shift to remote working will have profound long-term implications on key banking operating-model dimensions, such as location strategy, outsourcing, offshoring, and employee value proposition—for example, flexible hours, job sharing, and accessing new talent pools. Mumbai: Indian banks are starring at a combined lost revenues and increased costs of ₹12 lakh crore by fiscal 2024 because of credit losses and operating challenges posed by the Covid-19 pandemic, consultancy firm McKinsey & Co said in its annual banking review. Something went wrong. A new model: Digital-only banking businesses. Faster decisions require more empowerment of the frontline team. 1 No one can draw a blueprint of what a bank’s risk function will look like in 2025—or predict all forthcoming disruptions, be they technological advances, macroeconomic shocks, or banking … Climate change was a reality, Looney said, and the world would soon invest “trillions of dollars” in “replumbing and rewiring the global energy system.” To lead in this huge opportunity, BP would have to change and would need to become leaner and faster-moving to do so quickly. The core of the transformation is a shift to product-focused lines of business. Those companies with a clearly defined and clearly lived purpose had an easier time with this than those with missions ill-defined or unmatched to the reality of the business. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. endstream endobj startxref This article was edited by Rick Tetzeli, the editorial director of the McKinsey Quarterly. The company restructured its P&Ls and introduced new management rhythms, such as quarterly business reviews. Faced with the pandemic, companies quickly abandoned their standard process of addressing and balancing multiple competing priorities and instead zeroed in on their most critical objectives. They fast-forward historical processes.”. ... Sonia Barquin is a consultant in McKinsey’s Kuala Lumpur office, and Vinayak HV is a principal in the Singapore office. Matyas Fekete, a consultant at KAE, explores some of the main similarities and differences in digi-bank business and operating models. Some were minor adjustments, while others were radical changes to the way companies operate. At that point, companies will be making a series of what we believe are ten to 20 critical design decisions across their operating models. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. On February 12, 2020, just two weeks into his tenure and before there were even a dozen reported cases of COVID-19 in the United Kingdom, BP CEO Bernard Looney spoke to a live audience at London’s Royal Lancaster Hotel and laid out an ambitious reframing of the energy giant’s mission as “Reimagining energy for people and our planet.” This kind of fundamental reset has been happening at many companies, with some having started before COVID-19 and others spurred by the pandemic. If you would like information about this content we will be happy to work with you. Banking Digital Operating Model Post-login Customer Experience. The 2020 McKinsey Global Payments Report 27 A burning platform: Revamping bank operating models for payments The payments segment is performing well for banking—but not for banks. We'll email you when new articles are published on this topic. The clearest evidence of the pandemic’s impact on business has been remote working, the dislocation of people that occurred at virtually every company. The authors wish to thank Jonathan Green, Alberto Montagner, Charlotte Relyea, Guilherme Riederer, Daniel Rona, Lars Schor, and Patrick Simon for their contributions to this article. McKinsey and Company in a report stated that digitalisation will enable Nigerian banks to achieve between 25 and 40 per cent cost-reduction. Business leaders looking to lock in COVID-19-era speed and adaptability would be wise to follow a simple process: reflect, decide, and deploy at scale. We strive to provide individuals with disabilities equal access to our website. But much of the redeployment has been accompanied by retraining that gives employees more options in the long run. Leading CEOs have taken note of all this and have decided that there is no going back. Takeda gave up some ownership potential by doing so but accelerated its ability to deliver on its mission. Under pressure from multiple forces, successful banks will develop a new operating model better suited to changing times. But by forcing them into new, more urgent modes of work, the pandemic has given many companies a glimpse of how they might operate better, faster, and more adaptably in the future. %%EOF A Latin American bank reduced the number of customer complaints by 25 percent while achieving an equivalent saving of 30 percent of total employees. Across a wide range of industries, we see companies now trying to make some or all of these operating-model shifts permanent. Payments remains among the best-performing Subscribed to {PRACTICE_NAME} email alerts. Finally, deploying at scale is typically unleashed by a deep transformation in one area (a frontrunner that is a good representation of what’s possible at scale), followed swiftly by company-wide transformation. One reason: when CEO Kristin Peck gave local leaders in 45 countries greater latitude than ever, she also had a dashboard of leading indicators created to allow her and other leaders to monitor dynamic shifts in all those markets more closely. Finally, it enabled a new chatbot service for all customers. But it’s important to think about the capabilities required to execute, as much as the strategy. FINANCIAL SERVICES Optimizing banking operating models From strategy to implementation September 2012 kpmg.com KPMG INTERNATIONAL 0 A global oil and gas company cut the time required to plan wells by 50 percent, increased overall gas production by 5 to 10 percent, and increased gas production per employee by 70 to 80 percent. Companies that seek to turn their COVID-19 shifts to speed into broader reinventions of their operating models are probably on a good path. As historian Yuval Noah Harari puts it: “That is the nature of emergencies. IT is a key driver of costs and of the ecosystem design and business model. The McKinsey honeycomb’s outer ring broadly aligns with the other elements of the Operating Model Canvas: The Suppliers box in the Canvas has already been covered in the value chain The Organisation box is covered by “Organisation” and “Capabilities and Culture” To enable this, it has invested in an at-scale, fully remote capability-building program for nearly 1,000 employees. Lean management has already played a significant role in putting in place processes, capabilities, and tools to improve how businesses operate. McKinsey estimates that the top 15 US banks spend approximately $3 billion each year, combined, on disputes processing. Reflection is a crucial first step because so many COVID-19 crisis changes were fueled by adrenaline rather than careful planning. [And] a good reputation is good business in the long term.”. The very strongest companies are already acting on this opportunity to reinvent themselves with deliberation and speed. For many, there is simply no justification for returning to the old ways of doing business. In this article, we highlight four key pandemic accelerations that are now being incorporated into the emerging operating models of leading companies. The core of the transformation is a shift to product-focused lines of business. McKinsey uses cookies to improve site functionality, provide you with a better browsing experience, and to enable our partners to advertise to you. Please email us at: McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Looking across a wide landscape of companies, we see that these COVID-19-driven changes fell into four broad categories, which can serve as useful pillars of an operating model built for adaptability and speed in the face of uncertainty. They are actively taking advantage of this particularly malleable moment, where new ideas are becoming the foundation of new ways of doing business, to reinvent their companies in ways that simply make more sense for today’s—and tomorrow’s—economy. ... however, mask the wide variation of performance at the individual bank level. To capture this opportunity, banks must take a strategic, rather than tactical, approach. Purpose, above all else, enables forthright decision making at speed. These shifts occurred at all kinds of companies across many different industries. 77 0 obj <>stream What about the profit? Please click "Accept" to help us improve its usefulness with additional cookies. People create and sustain change. McKinsey in its review titled “A test of resilience: Banking through the crisis, and beyond,” said banks globally were questioning their business models largely on account of the prevalence of low or negative interest rates, as well as FinTechs encroaching the core banking business. An international bank reskilled and redeployed hundreds of employees from advisory jobs to customer-experience roles. Practical Guide to the Digital Operating Model Determining the most effective operating model for your business can prove challenging. In a previous study, we analyzed 22 organizations from a range of sectors that had embarked on such journeys. Banking business models of the future Dr. Daniel Kobler Partner Banking Innovation Leader Deloitte Dr. Stefan Bucherer Senior Manager Consulting Deloitte When challenged by the pandemic, and by a world of “uncertainty,” “volatility,” and “fragility,” many companies have chosen to lead from purpose, whatever it takes. Technology is a key element in ensuring the success of this kind of empowerment and extension of authority to customer-facing teams. A large European bank has embarked on a fundamental rethink of the way relationships and behaviors are managed both for business-to-business clients and among colleagues. But when it saw how critical the need was, it delivered the strengthened digital product in record time. During the COVID-19 crisis, technology resources have been steered toward two main goals: solving customer needs quickly and facilitating the work of customer-facing teams. Much effort and money today goes into operating legacy processes and dealing with regulatory requirements to keep the bank running; Gartner estimates that banks on average spend roughly 60% of their IT budgets to maintain legacy IT systems vs. just 24% to grow the business and 16% to transform it. Clear, commonly understood processes help ensure that the flat, decentralized structure doesn’t spin out of control. Their results clearly suggest that such models are the sturdiest for uncertain times. Select topics and stay current with our latest insights, How COVID-19 is redefining the next-normal operating model, How operating-model reinventions drive better results. Press enter to select and open the results on a new page. The spread of empowerment throughout the company, born of necessity, has created a new set of potential leaders. Reinvent your business. The company quickly pulled in retail staff to help with calls. The exigencies of the pandemic have given many companies a tangible experience of operating at unprecedented speed (exhibit). The model was developed in the late 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company. Unlike in the UK, in most of continental Europe, bank accounts and corresponding banking services are historically paid-for services. the traditional banking business model. 1. Throughout the pandemic, Johnson & Johnson has been able to keep production flowing for its medical devices and consumer products by relying on technology. These decisions will determine the full extent of the shift, and no single company will make all the decisions in the same way—there is no such thing as a one-size-fits-all operating model. The experience of the COVID-19 crisis is accelerating the transformation upon which it had already embarked. In 2014, a major European bank announced a multiyear plan to revamp its operating model to improve customer satisfaction and reduce overall costs by up to 35 percent. For example, before the pandemic the company would often fly scientists and engineers to different locations for equipment maintenance. At the same time, they have installed a new performance and change-management system to create incentives for the new way of working. In the crunch of the pandemic, a singular purpose became more important than ever. During the COVID-19 crisis, technology resources have been steered toward two main goals: solving customer needs quickly and facilitatingthe work of customer-facing teams. By using this Site or clicking on “OK”, you consent to the use of cookies. Remote work itself is the tip of the iceberg. Flip the odds. This bank kicked its digitalization efforts into high gear and launched fully redigitalized offerings online in just eight weeks. When that option seemed unsafe, the company quickly leveraged smart glass technology that allows an expert in a remote location to tap into a piece of equipment, pull data from it, and change the settings as needed. Never miss an insight. Read the Bain Brief: New Bank Strategies Require New Operating Models The operating model of the future combines digital technologies and process-improvement capabilities in an integrated, sequenced way to drastically improve customer journeys and internal processes. Than tactical, approach pandemic is over make some or all of these operating-model shifts permanent companies a tangible of..., before the pandemic is over smaller, more focused banks are delivering respectable growth, others continue to in! Are the sturdiest for uncertain times of hourly staffers now take at-home customer-service bank operating model mckinsey roles. Thousands of hourly staffers now take at-home customer-service and sales roles as historian Yuval Noah puts! 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