The CIO’s Guide to Aligning IT Strategy with the Business

Publié le par hanswillertbleuazurconsultingeu

SITUATION OVERVIEW

Aligning IT strategies with business strategies has been a mantra for CIOs for quite a few years. Yet, despite the apparent straightforward nature of the endeavor, many CIOs struggle to achieve that alignment. The rapid rise of digital technologies and transformation has significantly raised the bar — now, CIOs must find synergies and multiplier effects, not just business alignment, and that has a big impact on the creation of IT strategies.

IT strategy logically flows from the enterprise business vision, mission, goals, and strategies — especially digital business strategies. Collectively, they should anchor and guide IT strategy development. Yet IT strategy should also inform business strategy by presenting new and unexpected opportunities and capabilities. CIOs and strategy development stakeholders must cycle back and forth between business and IT strategies to maximize synergies.

CIOs need to find new process-driven approaches to formulating strategy in the new world where technology is found in every aspect of the business. An effective strategy development process is inclusive of all stakeholders,

reliably identifies the most critical business needs and opportunities,

objectively assesses the current state of IT and the enterprise,

surfaces and vets all salient IT strategic initiatives and opportunities,

explains how business and IT success will be measured,

and engages and motivates all those who must embrace, support, and execute the strategy.


This study lays out a process for creating IT strategy. It explains how CIOs can envision and develop new IT strategies, identifies key activities and actions for each step, and provides advice on ensuring effectiveness and adoption of an IT strategy.

Stage 1: Lay Groundwork for New IT Strategy Development
Under the duress of executive pressure to transform IT, CIOs may be tempted to jump into formulating new IT strategies without laying the proper groundwork. Like IT itself, however, IT strategy development must extend beyond the boundaries of the IT organization as digital business concerns pervade all aspects of the business, its partners, and its customers. That means that a diverse set of organizations and stakeholders will necessarily be involved in creating new IT strategies. Taking the time to prepare and get all necessary stakeholders onboard, will, however, reduce friction and lead to a faster effort with better results. The groundwork stage is intended to set the stage for all subsequent strategy work.

Key Activities

  • Identify, contact, and recruit all salient stakeholders. F. Edward Freeman’s work on the Stakeholder Theory lists employees, environmentalists, suppliers, governments, community organizations, owners, media, customers, and competitors. Additional stakeholders would include LOB executives, CIO direct reports, and key partner representatives. Team members must be willing and able to devote the necessary time for the duration of their involvement.
  • Build trusting relationships among all stakeholders, and gain support for the strategy effort.
  • Educate nontechnical stakeholders on essentials of digital technologies and digital business and operating models.
  • Conduct workshops to learn about and select key tools and practices, such as agile, design thinking, value streams, and lean start-up, that can help create a structured framework.
  • Agree on a strategy development process and governance and oversight for the process.
  • Define the purpose and desired outcomes for the IT strategy development process.
  • Review existing IT and enterprise vision, mission, strategy, and goals.
  • Review IT spend across the entire enterprise.
  • Create/adopt an agile approach to formulating the IT strategy.

One of the biggest mistakes CIOs can make in formulating an IT strategy is to use ad hoc, nonsystematic approaches that attempt to match technology solutions with highly visible problems.

Modern IT strategies are complex, have multitudes of interdependencies and diverse and powerful stakeholders, and have a material impact on the success or failure of the business. Strategy development is one of the most critical responsibilities — one that requires rigor and a structured approach and processes.

Above all, the IT strategy formulation process needs to be agile, as business environments are continually shifting. A strategy that only adjusts on an annual basis runs the risk at any point in time of being mistargeted. The process needs to continually sense changes in the business ecosystem and prompt decisions about possible changes to the strategy.

Stage 2: Determine Key Business Drivers and Forces
IT strategies are intended to move businesses forward by

  • creating new products and services,
  • attracting and retaining customers,
  • entering new markets,
  • and solving business problems.

In that context, key issues and business drivers are those that constrain the business from moving forward or present opportunities to grow and succeed.

Business and IT strategies exist in a messy world of shifting business, social, technological, economic, and geopolitical forces. Those forces and dynamics make up the business context in which the IT strategy must function and succeed and form the basis for identifying key drivers that will shape and help decide what key initiatives need to be prioritized.

Key drivers are quite individualized to a given business. But they can include

  • technology emergence and evolution;
  • global competition and challenges;
  • competition in the form of new business and/or operating models;
  • shifting customer and market dynamics — personal, social, and cultural;
  • geopolitical and regulatory shifts and uncertainties;
  • environmental and climate impacts;
  • and threats to privacy and security.


Key Activities

  • Compile and review trends, disruptions, and forecasts in business, technology, environmental, geopolitical, social, regulatory, and other salient arenas.
  • Identify the most important forces and drivers that will impact the enterprise and IT.
  • Describe how the selected drivers will help define the desired future state of the enterprise.
  • Prioritize and map drivers to time frames in which drivers are expected to be active.
  • Describe responses that will be needed from the enterprise and IT.
  • Time phase responses based on projected time frames.

While there may be a multitude of key issues, CIOs need to work with business leaders to select only those that truly move the needle for the business. It’s been said that, when everything is a priority, nothing is a priority and that is true when it comes to IT strategy. IT and LOB executives will have to subordinate the agendas of their own organizations to focus on the drivers that offer the most potential for business benefit to the enterprise. Selecting the most important drivers is critical, as the selected set will define the focus of successive stages of strategy development and the strategy itself.

Stage 3: Assess Current State of the Enterprise, IT, and Business Ecosystem
This stage requires an objective assessment of the IT organization, the enterprise, and its ecosystem for attributes and characteristics that could positively or negatively impact the formulation and execution of IT strategies. IT and LOB executives need to have frank discussions about « the good, the bad, and the ugly » aspects of IT and the enterprise. Business leaders can ill afford to launch into implementing strategies that their organizations, markets, and customers are not ready for. The following table provides key facets of IT, enterprises, and ecosystems that should be assessed.

Note that some of the attributes are more germane and important to the IT strategy and others are less so — the goal is not an exhaustive assessment but one that captures the current states that are most important to strategy development. The current state assessment is critical as it is the basis for identifying work that’s needed to reach the desired future state. A flawed or incomplete assessment will result in missed opportunities, failed initiatives, and potential derailment of IT transformation.

Key Activities

  • Assemble necessary data, market and customer intelligence, and ecosystem intelligence to underpin analysis and decision making.
  • Identify the most salient and important attributes for assessment.
  • Create an assessment framework and scoring system.
  • Describe the current states of the business and IT, using SWOT or other frameworks to assess relative competitiveness and readiness to execute business and IT strategies.
  • Assess the viability and currency of the existing business strategy.

The current state assessment requires at least a basic framework that identifies the most salient attributes to keep stakeholders from getting too far down in the weeds. The intent is not to put every aspect of IT and the business under a microscope but instead to select attributes of both organizations that need to be addressed by the IT strategy. In support of that aim, the assessment should include a simple scoring system to measure importance (high, medium, low) of each selected attribute and the relative current state (strength, weakness, neutral). And the current state assessment should reflect the viewpoints of employees, managers, customers, partners, and the business’ ecosystem.

Step 4: Define the Future State and Key Initiatives
This stage focuses on defining what IT and the enterprise need to look like in the future over one-, two and three-year time frames and the strategic initiatives that will help IT assist the business in achieving that state. In describing the future state and initiatives, it’s critical to find the balance between pragmatic business problem-solving and innovative, aspirational efforts that will engage and motivate stakeholders.

As we noted previously, an agile approach that emphasizes learning and refinement in an iterative staged approach will create more adaptive strategies. Design thinking is another discipline that helps the strategy team frame (or reframe) problems and their solutions from the customers’ perspective to make sure that a prospective initiative and its outcome are important for the target audience. Finally, value streams can be used to help in understanding how a given strategy or initiative creates value and what components are necessary to construct the streams.

Collectively, the tools and practices should be employed in a series of workshops that distill the drivers, issues, and needs identified in the earlier stages of work into prioritized strategic initiatives comprising the IT strategy. Each workshop should focus on one initiative and involve only the stakeholders that are germane to that initiative.

In defining strategic initiatives, the strategy teams should start with a desired business outcome and initiative and then work through the value streams that produce that outcome. Supporting the value streams are IT capabilities:

  • data,
  • technology,
  • talent,
  • processes,
  • and governance

necessary to deliver a given outcome. For example, a desired outcome or initiative focused on generating new revenue from appliance service data would require new IT capabilities (sub-initiatives) in data/analytics, product development, digital platforms, and new business model development.

Key Activities

  • Distill drivers and issues into focused business problems, challenges, and opportunities.
  • Create and run workshops to brainstorm initiatives and solutions that can address identified business drivers, problems, and needs. Start with divergent thinking to create a wide assortment of potential solutions, moving to convergent thinking to winnow down the solution set.
  • Evaluate solutions based on constraints including budgets, financial viability, legacy culture and processes, talent availability, and other factors that may obviate some solutions.
  • « Test » the top solution initiatives with those who will implement or be affected by the initiatives.
  • Refine based on feedback or reexamine the original drivers and issues to ensure that they are relevant and important.

As powerful digital technologies have become core to business success, IT strategy development has become a « chicken and egg question »: technology or business — which comes first? The answer is « both. » Business needs, strategies, and models obviously drive technology strategies and adoption and will always be the dominant force in setting IT strategy at large enterprises. Yet, without cloud, data/analytics, and machine learning technologies, new business and operating models such as those employed by Uber, Lyft, Google, and others simply could not exist. Business strategies need to be the starting point and anchor for IT strategies, but at times, they will be shaped, if not driven, by new and emerging technologies.

Stage 5: Determine Metrics and KPI Success Measures
In the spirit of the old saying that « you can’t manage what you don’t measure, » this stage focuses on identifying key metrics and KPIs to measure the success (or lack thereof) of the IT strategy and specific strategic initiatives. Embedding top-level KPIs and metrics in the strategy is a means to ensure they become integral to the execution of the strategy — not an afterthought. It also helps ensure that the same stakeholders that define the strategy and initiatives identify the most meaningful metrics. And the metrics themselves are important to help fine-tune initiatives and target those that aren’t succeeding.

Key Activities

  • Discuss how metrics and KPIs will be used and who will manage them.
  • Discuss what strategy success looks like and whether there are thresholds of attainment.
  • Start with desired business outcomes for each initiative, and identify key dimensions that measure performance.
  • Identify metrics and KPIs that measure the outcomes in terms that will be useful to the CIO and LOB executives to fix problems or sunset initiatives that aren’t effective.

It’s important to favor outcome or impact measures (e.g., sales growth, process cost reduction) over activity measures (e.g., website visits, projects completed) as the former measure the health and the viability of IT and the business while the latter often turn into vanity metrics. Also important is creating metrics that help assess the success of IT strategy implementation and the business outcomes that result from execution.

Step 6: Package and Communicate the IT Strategy
Having formulated their IT strategy, it’s easy for CIOs and key stakeholders to think that the heavy lifting is done — all that’s left is to tell the rest of the company what the strategy is and then let the execution begin. Unfortunately, that is a surefire recipe for creating an IT strategy that is ignored, discounted, or unmoored. There are many possible reasons for nonsupport, including

  • lack of understanding of the strategy and why it’s important,
  • competing or conflicting interests and objectives on the part of executives,
  • and failure to embrace and take ownership of execution.

Another simple reason is that the strategy lacks « stickiness » — it isn’t memorable and hence is quickly forgotten. Strategies can be made stickier by using themes to describe initiatives. Instead of « digitally transforming CX, » think « creating memorable customer moments, » or instead of « improving business intelligence capabilities, » think « uncovering insights that score business success. » Finally, IT strategy must be presented in the context of the enterprise business strategy and should clearly flow from and support that strategy.

Key Activities

  • Identify all target audiences for the strategy and their top-level interests.
  • Create a communication strategy and plan.
  • Craft stories for each theme and initiative that tie IT initiatives to enterprise vision, mission, goals, and strategies.
  • Clearly identify the roles each target audience will play — enactor, supporter, contributor, or beneficiary.

CIOs and strategy team members should create different versions of documents and presentations for each significant target audience. Viewers should feel like their unique interests and needs were considered and addressed in the formulation of strategies. Also important is to create stories that explain the strategy using « day in the life » or similar narratives instead of dry descriptive material.

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How To Build a CX Program And Transform Your Business

Publié le par hanswillertbleuazurconsultingeu

Customer Experience (CX) is a catchy business term that has been used for decades, and until recently, measuring and managing it was not possible. Now, with the evolution of technology, a company can build and operationalize a true CX program.

For years, companies championed NPS surveys, CSAT scores, web feedback, and other sources of data as the drivers of “Customer Experience” – however, these singular sources of data don’t give a true, comprehensive view of how customers feel, think, and act. Unfortunately, most companies aren’t capitalizing on the benefits of a CX program. Less than 10% of companies have a CX executive and of those companies, only 14% believe Customer Experience, as a program, is the aggregation and analysis of all customer interactions with the objective of uncovering and disseminating insights across the company in order to improve the experience. In a time where the customer experience separates the winners from the losers, CX must be more of a priority for ALL businesses.

This not only includes the analysis of typical channels in which customers directly interact with your company (calls, chats, emails, feedback, surveys, etc.) but all the channels in which customers may not be interacting directly with you – social, reviews, blogs, comment boards, media, etc.

CX1

In order to understand the purpose of a CX team and how it operates, you first need to understand how most businesses organize, manage, and carry out their customer experiences today.

Essentially, a company’s customer experience is owned and managed by a handful of teams. This includes, but is not limited to:

  • digital,
  • brand,
  • strategy,
  • UX,
  • retail,
  • design,
  • pricing,
  • membership,
  • logistics,
  • marketing,
  • and customer service.

All of these teams have a hand in customer experience.

In order to affirm that they are working towards a common goal, they must

  1. communicate in a timely manner,
  2. meet and discuss upcoming initiatives and projects,
  3. and discuss results along with future objectives.

In a perfect world, every team has the time and passion to accomplish these tasks to ensure the customer experience is in sync with their work. In reality, teams end up scrambling for information and understanding of how each business function is impacting the customer experience – sometimes after the CX program has already launched.

CX2

This process is extremely inefficient and can lead to serious problems across the customer experience. These problems can lead to irreparable financial losses. If business functions are not on the same page when launching an experience, it creates a broken one for customers. Siloed teams create siloed experiences.

There are plenty of companies that operate in a semi-siloed manner and feel it is successful. What these companies don’t understand is that customer experience issues often occur between the ownership of these silos, in what some refer to as the “customer experience abyss,” where no business function claims ownership. Customers react to these broken experiences by communicating their frustration through different communication channels (chats, surveys, reviews, calls, tweets, posts etc.).

For example, if a company launches a new subscription service and customers are confused about the pricing model, is it the job of customer service to explain it to customers?  What about those customers that don’t contact the business at all? Does marketing need to modify their campaigns? Maybe digital needs to edit the nomenclature online… It could be all of these things. The key is determining which will solve the poor customer experience.

The objective of a CX program is to focus deeply on what customers are saying and shift business teams to become advocates for what they say. Once advocacy is achieved, the customer experience can be improved at scale with speed and precision. A premium customer experience is the key to company growth and customer retention. How important is the customer experience?

You may be saying to yourself, “We already have teams examining our customer data, no
need to establish a new team to look at it.” While this may be true, the teams are likely taking a siloed approach to analyzing customer data by only investigating the portion of the data they own.

For example, the social team looks at social data, the digital team analyzes web feedback and analytics, the marketing team reviews surveys and performs studies, etc. Seldom do these teams come together and combine their data to get a holistic view of the customer. Furthermore, when it comes to prioritizing CX improvements, they do so based on an incomplete view of the customer.

Consolidating all customer data gives a unified view of your customers while lessening the workload and increasing the rate at which insights are generated. The experience customers have with marketing, digital, and customer service, all lead to different interactions. Breaking these interactions into different, separate components is the reason companies struggle with understanding the true customer experience and miss the big picture on how to improve it.

The CX team, once established, will be responsible for creating a unified view of the customer which will provide the company with an unbiased understanding of how customers feel about their experiences as well as their expectations of the industry. These insights will provide awareness, knowledge, and curiosity that will empower business functions to improve the end-to-end customer experience.

CX programs are disruptive. A successful CX program will uncover insights that align with current business objectives and some insights that don’t at all. So, what do you do when you run into that stone wall? How do you move forward when a business function refuses to adopt the voice of the customer? Call in back-up from an executive who understands the value of the voice of the customer and why it needs to be top-of mind for every function.

When creating a disruptive program like CX, an executive owner is needed to overcome business hurdles along the way. Ideally, this executive owner will support the program and promote it to the broader business functions. In order to scale and become more widely adopted, it is also helpful to have executive support when the program begins.

The best candidates for initial ownership are typically marketing, analytics or operations executives. Along with understanding the value a CX program can offer, they should also understand the business’ current data landscape and help provide access to these data sets. Once the CX team has access to all the available customer data, it will be able to aggregate all necessary interactions.

Executive sponsors will help dramatically in regard to CX program adoption and eventual scaling. Executive sponsors

  • can provide the funding to secure the initial success,
  • promote the program to ensure other business functions work closer to the program,
  • and remove roadblocks that may otherwise take weeks to get over.

Although an executive sponsor is not necessary, it can make your life exponentially easier while you build, launch, and execute your CX program. Your customers don’t always tell you what you want to hear, and that can be difficult for some business functions to handle. When this is the case, some business functions will try to discredit insights altogether if they don’t align with their goals.

Data grows exponentially every year, faster than any company can manage. In 2016, 90% of the world’s data had been created in the previous two years. 80% of that data was unstructured language. The hype of “Big Data” has passed and the focus is now on “Big Insights” – how to manage all the data and make it useful. A company should not be allocating resources to collecting more data through expensive surveys or market research – instead, they should be focused on doing a better job of listening and reacting to what customers are already saying, by unifying the voice of the customer with data that is already readily available.

It’s critical to identify all the available customer interactions and determine value and richness. Be sure to think about all forms of direct and indirect interactions customers have. This includes:

CX3

These channels are just a handful of the most popular avenues customers use to engage with brands. Your company may have more, less, or none of these. Regardless, the focus should be on aggregating as many as possible to create a holistic view of the customer. This does not mean only aggregating your phone calls and chats; this includes every channel where your customers talk with, at, or about your company. You can’t be selective when it comes to analyzing your customers by channel. All customers are important, and they may have different ways of communicating with you.

Imagine if someone only listened to their significant other in the two rooms where they spend the most time, say the family room and kitchen. They would probably have a good understanding of the overall conversations (similar to a company only reviewing calls, chats, and social). However, ignoring them in the dining room, bedroom, kids’ rooms, and backyard, would inevitably lead to serious communication problems.

It’s true that phone, chat, and social data is extremely rich, accessible, and popular, but that doesn’t mean you should ignore other customers. Every channel is important. Each is used by a different customer, in a different manner, and serves a different purpose, some providing more context than others.

You may find your most important customers aren’t always the loudest and may be interacting with you through an obscure channel you never thought about. You need every customer channel to fully understand their experience.

Click here to access Topbox’s detailed study

Four elements that top performers include in their digital-strategy operating model

Publié le par hanswillertbleuazurconsultingeu

For many companies, the process of building and executing strategy in the digital age seems to generate more questions than answers. Despite digital’s dramatic effects on global business—the disruptions that have upended industries and the radically increasing speed at which business is done—the latest McKinsey Global Survey on the topic suggests that companies are making little progress in their efforts to digitalize the business model. Respondents who participated in this year’s and last year’s surveys report a roughly equal degree of digitalization as they did one year ago, suggesting that companies are getting stuck in their efforts to digitally transform their business.

The need for an agile digital strategy is clear, yet it eludes many—and there are plenty of pitfalls that we know result in failure. McKinsey has looked at how some companies are reinventing themselves in response to digital, not only to avoid failure but also to thrive.

In this survey, McKinsey explored which specific practices organizations must have in place to shape a winning strategy for digital—in essence, what the operating model looks like for a successful digital strategy of reinvention. Based on the responses, there are four areas of marked difference in how companies with the best economic performance approach digital strategy, compared with all others :

  • The best performers have increased the agility of their digital-strategy practices, which enables firstmover opportunities.

McK1

  • They have taken advantage of digital platforms to access broader ecosystems and to innovate new digital products and business models.

McK2

McK3

  • They have used M&A to build new digital capabilities and digital businesses.

McK4

  • They have invested ahead of their peers in digital talent.

McK5

Click here to access McKinsey’s survey results

Transform Your Business With Operational Decision Automation

Publié le par hanswillertbleuazurconsultingeu

Decisioning Applications Bring The Value Of Operational Decisions To Light

Businesses face the imperative to transform business from analog to digital due to intense competition for increasingly demanding and digitally connected customers. The imperative to transform has ushered in a new era of decisioning applications in which every operational decision an organization makes can be considered a business asset. New applications inform and advance customer experience and drive operational actions in real time through automation. These applications are at the forefront of the effort to streamline operations and help organizations take the right action at the right time near-instantaneously.

Achieve Digital Goals With Automated Operational Decision Making

Automating decision life cycles allows firms to manage the fast changes required in increasingly digitized business processes. Automation of operational decisions is crucial to meeting digital goals: More than three-quarters of decision makers say it is important to their digital strategy —and close to half say it is very important.

« The Share of Decisions that are Automated will Increase Markedly in two Years »

The importance of automated operational decision making to digital strategy will lead to a sharp increase of automation in the near term. Today, about one-third of respondents say they have the majority of their operational decisions fully or partially automated. In two years, that group will double.

Use Cases For Automated Decisions Span The Customer Lifecycle But Current Focus Is On Early Stages

To improve the operational aspects of customer experience —and to reap the business benefits that come with delighting customers — firms align automated decision use cases to the customer lifecycle. At least some firms have expanded their share of automated operational decision making to include touchpoints across the customer lifecycle, from the discover phase all the way to the engage phase. However, our survey found that the majority have yet to implement automated decisions as fully in later stages.

Top Challenges Will Intensify With Rapid Expansion Of New Decisioning Tools

Firms are experiencing middling success with current decision automation tools. Only 22% are very satisfied with their decisioning software today. Misgivings with today’s tools include inability to integrate with current systems or platforms, high cost, and lack of consistency across channels and processes.

The growth of real-time automation use cases and the number of technologies brought on to handle them will exacerbate existing challenges with complexity and cost.

Decision Makers Recognize High Value In Decisioning Platforms That Work In Real Time

Decision makers face significant implementation and cost challenges on their path to automated operational decisions. As a result, getting the greatest business value for the power of their automation tools is top of mind.

« Eighty-one percent of Decision Makers say a Platform with Real-Time Decision-to-Action Cycles would be Valuable or Very Valuable to Achieving Digital Transformation Goals. »

With better, targeted decisions based on real-time analytics, companies have the potential to acquire better customers, improve the operations that serve them, and retain them longer.

decision automatization

click here to access forresters’s research report

How to seize the Open Banking opportunity

Publié le par hanswillertbleuazurconsultingeu

What is Open Banking and why does it matter?

The UK has long been recognised as a global leader in banking. The industry plays a critical role domestically, enabling the day-to-day flow of money and management of risk that are essential for individuals and businesses.

It is also the most internationally competitive industry in the UK, providing the greatest trade surplus of any exporting industry. The UK has a mature and sophisticated banking market with leading Banks, FinTechs and Regulators. However, with fundamental technological, demographic, societal and political changes underway, the industry needs to transform itself in order to effectively serve society and remain globally relevant.

The industry faces a number of challenges. These include the fact that banking still suffers from a poor reputation and relatively low levels of trust when compared to other industries. Many of the incumbents are still struggling to modernise their IT platforms and to embrace digital in a way that fundamentally changes the cost base and the way customers are served.

There are also growing service gaps in the industry, with 16m people trapped in the finance advice gap. In the face of these challenges, Open Banking provides an opportunity to

  • open up the banking industry,
  • ignite innovation to tackle some of these issues
  • and radically enhance the public’s interaction and experience with the financial services industry.

A wave of new challenger banks have entered the market with these opportunities at the heart of their propositions. However, increased competition is no longer the only objective of Open Banking.

Open Banking regulation has evolved from the original intent

The UK started introducing an Open Banking Standard in 2016 to make the banking sector work harder for the benefit of consumers. The implementation of the standard was guided by recommendations from the Open Banking Working Group, made up of banks and industry groups and co-chaired by the Open Data Institute and Barclays. It had a focus on how data could be used to “help people to transact, save, borrow, lend and
invest their money”. The standard’s framework sets out how to develop a set of standards, tools, techniques and processes that will stimulate competition and innovation in the country’s financial sector.

While the UK was developing Open Banking, the European Parliament adopted the revised payment services directive (PSD2) to make it easier, faster, and less expensive for customers to pay for goods and services, by promoting innovation (especially by third-party providers). PSD2 acknowledges the rise of payment-related FinTechs and aims to create a level playing field for all payment service providers while ensuring enhanced security and strong customer protection. PSD2 requires all payment account providers across the EU to provide third-party access.

open banking 1

While this does not require an open standard, PSD2 does provide the legal framework within which the Open Banking standard in the UK and future efforts at creating other national Open Banking standards in Europe will have to operate. The common theme within these initiatives is the recognition that individual customers have the right to provide third parties with access to their financial data. This is usually done in the name of

  • increased competition,
  • accelerating technology development of new products and services,
  • reducing fraud
  • and bringing more people into a financially inclusive environment.

Although the initial objectives of the Open Banking standards were to increase competition in banking and increase current account switching, the intent is continuingly evolving with a broader focus on areas including:

  • reduced overdraft fees,
  • improved customer service,
  • greater control of data
  • and increased financial inclusion.

Whilst there is little argument that the UK leads the way in Open Banking, it is by no means doing so alone. Many other countries are looking carefully at the UK experience to understand how a local implementation might benefit from some of the issues experienced during the UK’s preparation and ‘soft launch’ in January 2018. There are many informal networks around the world, which link regulators, FinTechs and banks to facilitate the sharing of information from one market to another. Countries around the world are at various stages of maturity in implementing Open Banking. The UK leads as the only country to have legislated and built a development framework to support the regulations, enabling it to be advanced in bringing new products and services to market as a result. However, a number of other countries are progressing rapidly towards their own development of Open Banking. In a second group sit the EU, Australia and Mexico, which have taken significant steps in legislation and implementation. Canada, Hong Kong, India, Japan, New Zealand, Singapore, and the US are all making progress in preparing their respective markets for Open Banking initiatives.

open banking 2

One danger in any international shift in thinking, such as Open Banking, is that technology overtakes the original intention. The ‘core technology’ here is open APIs and they feature in all the international programmes, even when an explicit ‘Open Banking’ label is not applied. In a post-PSD2 environment, the primary responsibility for security risks will lie with payment service providers. Vulnerability to data security breaches may increase in line with the number of partners interacting via the APIs.

The new EU General Data Protection Regulation (GDPR) requires protecting customer data privacy as well as capturing and evidencing customer consent, with potentially steep penalties for breaches. Payment service providers must therefore ensure that comprehensive security measures are in place to protect the confidentiality and integrity of customers’ security credentials, assets and data.

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click here to access pwc’s detailed report

Overcome Digital Transformation Distress

Publié le par hanswillertbleuazurconsultingeu

Digital has become one of the most over-loaded words in the English language, meaning very different things in different contexts. Insurers have been digital since the first policy was recorded on magnetic drum or tape in the 1960s. Oddly enough, insurers now lag considerably behind other industries in their digital maturity and stage of adoption.

Why insurers lag in digital strategy

So many factors go into understanding why insurers trail in developing and implementing a modern digital strategy. At this point, most insurers have developed a digital footprint and deliver varying levels of engagement with their customers and partners, including some direct access to policy information and service. The transactional nature of some Personal and Commercial (P&C) lines make this process more straightforward. However, for Life, Accident and Health (LA&H) carriers, especially those providing Group Employee Benefits, it’s a more complex problem with additional parties involved and customization of product and service at the plan level, requiring more detailed policy information and flexibility requirements in service options. Combined with the legacy technology platforms most carriers still employ, this makes direct self-service options more difficult to implement requiring more manual intervention which ultimately erodes customer satisfaction. Ironically, the prevalent underlying key stumbling block to implementing a next generation digital strategy is insurers’ digital legacy.

Digital Transformation Distress

According to McKinsey, Insurtechs are focusing more on P&C than LA&H but there is significant activity in distribution and new business-related activities, which falls squarely in the digital arena. In a recent multi-country study by Couchbase across multiple industries including insurance,

  • 64% of respondents say if they can’t keep up with digital innovation they will go out of business or be absorbed;
  • 95% say digital transformation seems an insurmountable task and
  • 83% felt they would face being fired if such a project failed.

Despite the challenges, LA&H insurers are putting more comprehensive digital strategies into place and technology vendors servicing this market must think beyond providing basic digital engagement capabilities to supporting a more complete vision of digitally-enabled business.

Digital Enagement and Flexibility

Leading SaaS core insurance system providers believe insurance business leaders need a platform that can provide a level of digital engagement and service equal to their customers’ expectations for all service providers. To enable this, there must be an underlying OpenCore system that can ensure accurate, open and flexible product development, deployment and service to serve a rapidly changing market.

  • Digital Engagement is a critical element of a complete strategy and the most visible. In the Group and Employee Benefits market, there are multiple stakeholders in the value chain with differing roles and digital engagement should be role-based, whether it is transactional or purely informational.
  • Flexibility is required within the business model. The chain of carrier(s), brokers, benefit administration companies (ben admin), enrollment vendors, employers, and employees must provide rapid and accurate straight through processing and be flexible enough to change out any given player in the chain, based on the deal.

Legacy systems are proving inadequate

The traditional approach to support these two key needs of the value chain is

  • either to provide an end-to-end portal solution driven from the core system architecture
  • or a standardized data feed interface between the core system and the next link in the value chain.

The problem with these two approaches is that they are inadequate. Why?

The first approach of end-to-end portal solution is not feasible given current and future insurance market directions around multi-carrier plans and value-added services from benefit admin providers. The standardized data feed interface can work but invariably leads to a great deal of custom IT interface work, even when employing industry standards like the emerging LIMRA-backed Workplace Benefits standard. This proves especially difficult when there are broad systems of engagement in play from companies like Salesforce.com that are used in call centers and broad community portals.

An Engagement Model that Works

Leading insurance technology vendors are proving that OpenCore is the best approach applying a role-based scenario to defining digital engagement requirements for the core system. This tactic provides a layered architecture to suit those roles and the engagement path needed for the particular customer. The way that might evolve could include a large carrier that uses a system of engagement for their customer service reps (CSR) and works with a broker, enrollment vendor and larger employer in the following scenarios:

  • The insurance specialist who installs and manages the details of a case works directly with the core system interface, designed for experts.
  • The CSR who works for the carrier and answers basic questions about the case for the employer or employee and who interacts with the system of engagement, which is tied to the core system in real-time via an app written by the core system vendor specifically for that platform.
  • The broker who does case and member inquiries and updates through a broker portal provided by the carrier with role-based access into the core system.
  • The enrollment vendor uses industry standard real time APIs and batch file transfers to exchange data directly with the carrier’s core system. The larger employer exchanges transactions through API or data feed to the HCM system and has direct access to the carrier’s core system through a role-based portal designed for the exchange process.
  • The employee has access to the employers Human Capital Management (HCM) employee portal and the option to go directly to the carrier for deeper interactions such as claims or absences, or portability issues. The interaction with the carrier is via portal, mobile, voice or SMS depending on the employee’s preference or circumstance.

Insurance technology companies that provide a layered digital engagement architecture, with core systems capabilities supporting role-based APIs sets that support both digital engagement applications and are available for customers and partner DIY projects, enables the insurer to achieve the most flexible, stable and modern digital experience.

OpenCore

Click here to access Fineos’ White Paper

Les besoins verticaux définissent la marche à suivre pour les transformations de produits numériques et les stratégies

Publié le par hanswillertbleuazurconsultingeu

Les initiatives de transformation numérique se déroulent différemment selon les secteurs verticaux et les entreprises, en fonction des besoins métiers en jeu. Lorsque les entreprises subissent des transformations numériques, elles se concentrent souvent sur

  • les processus informatiques,
  • les ventes et le marketing

avant le développement des produits. Cependant, ce rapport expliquera aux DSI et aux directeurs de la technologie comment les entreprises de différents secteurs verticaux utilisent l’organisation produits comme catalyseur de leur transformation numérique, et comment cette décision améliore leurs relations avec les clients.

Principales conclusions

Les sociétés de produits physiques se concentrent sur l’IoT

Pour les organisations produits physiques, l’étape évidente vers une entreprise numérique consiste souvent à connecter des produits et des actifs. Il s’agit d’une tâche complexe qui nécessite

  • une infrastructure technologique intégrée,
  • une grande compétence dans la connectivité et l’Internet des objets (IoT),
  • ainsi qu’une logique claire sur la façon dont les produits connectés répondront aux besoins de leurs clients.

Les sociétés de services construisent des plates-formes numériques orientées client

Les entreprises du secteur des services basculeront vers le commerce numérique grâce à des plateformes numériques axées sur la clientèle. Ces projets doivent être

  • faciles à utiliser,
  • évolutifs
  • et intégrés aux partenaires de l’écosystème

afin de créer de la valeur pour les clients.

Diapositive1

Cliquez ici pour accéder à l’analyse détaillée de Forrester

Taking Digital Regulatory Reporting from Concept to Reality

Publié le par hanswillertbleuazurconsultingeu

In its Digital Regulatory Reporting (DRR) project, the U.K. Financial Conduct Authority (FCA), in conjunction with the Bank of England, has invited financial institutions to explore ways to work smarter on these activities by delegating much of the hard work to technology. Success in the endeavour, as the FCA put it, “opens up the possibility of a model driven and machine readable regulatory environment that could transform and fundamentally change how the financial services industry understands, interprets and then reports regulatory information.”

Part of the project’s work program was a twoweek “TechSprint,” held in November 2017, that was intended to test the feasibility of fully automated regulatory reporting with straightthrough processing of regulatory submissions. Among the anticipated benefits, accruing to financial institutions and regulators alike, are

  • greater accuracy in data submissions
  • and reduced time, cost and overall effort in generating them.

The TechSprint demonstrated that DRR could be accomplished under such controlled testing conditions and provided a proof of concept. Since then the program has held an extended pilot, as well as industry-led roundtable discussions bringing industry experts together, to try to determine whether and how DRR could be scaled up and put into practice in the real world.

The chief aim of the roundtables is to go over issues – legal, technological and regulatory – that could facilitate or impede the introduction of DRR. Participants in the latest and final one, held in London in June and hosted by Wolters Kluwer, seemed intent on contemplating the limitations of the concept: attempting to identify what a system might be able to do by acknowledging what it most likely will not be able to do.

One thorny matter that was highlighted involves a potential conflict between DRR, which participants generally agreed would be most effective following hard and fast rules – ideally by using a standardized model encompassing many supervisory frameworks employed across multiple jurisdictions – and the principles-based supervisory architecture that has evolved since the global financial crisis. If a substantial portion of the reporting process is handed over to machines, will management judgment be forced to take a back seat in matters of risk management, compliance and overall governance? Put another way, how compatible would DRR be with postcrisis supervisory architecture if interpretation of regulations by bankers is deemed a feature of the latter and a bug of the former?

Diapositive1

Click here to access Wolters Kluwers detailed analysis

 

Accelerated evolution – M&A, transformation and innovation in the insurance industry

Publié le par hanswillertbleuazurconsultingeu

Strong appetite for deal activity

Today’s insurers know that maintaining the ‘status quo’ is not a recipe for sustainable growth. They feel the pressure of disruption in the market from

  • new competitors,
  • new technologies,
  • new customer demands
  • and new sources of capital.

They feel the pain of

  • continued low interest rates,
  • volatility in underwriting losses
  • and pressure on profitability,

as investment portfolio yields continue to decline.

Organic growth has been challenging across most of the mature insurance markets. Consider this: Since the start of this decade to 2016, global gross domestic product (GDP) increased by more than 20 percent. Yet the global premium market grew by just 9 percent over the same period. Insurers recognize that things must change if they want to maintain or grow their market share.

“In an era of anticipated disruption of legacy business and operating models, global insurance executives realize that their strategy cannot be about pursuing growth for growth’s sake. When it comes to growth strategy, more of the same is not necessarily the best answer. What may have been a core business in the past may not be in the future,” notes Ram Menon, KPMG’s Global Insurance Deal Advisory Leader.

Today’s insurance leaders are taking a more strategic view of the value of M&A. According to a recent global survey of 115 insurance CEOs conducted by KPMG International, more than 60 percent of insurers now see disruption as more of an opportunity for growth than a threat. And they are using their capital and their M&A capabilities to maximize those opportunities — often by strategically deploying capital towards emerging technology as a competitive advantage to

  • engage customers,
  • generate cash flows
  • and enhance enterprise value.

The good news is that — for the most part — capital and surplus levels are at record highs across life, non-life and reinsurance markets. And most insurers plan to tap into that capital to make deals. In fact, our survey suggests that close to three-quarters of insurers expect to conduct an acquisition and two-thirds expect to seek partnership opportunities over the next 3 years. Eighty-one percent say they will conduct up to three acquisitions or partnerships in the same period. More than 70 percent said they are hoping their deals will help transform their organization in some way. As a top priority,

  • 37 percent hope to transform their business models,
  • 24 percent want to transform their operating models,
  • and 10 percent are looking to acquire new innovation capabilities and emerging technologies

through their acquisitions.

“Insurers increasingly recognize their days of operating business-as-usual numbered. And it’s not small changes market going to be undoing — big ones,” says Thomas Gross with KPMG Germany. Auto insurers, for example, looking at rapid adoption of mobility models and wondering how they add value when car manufacturers or leasers own relationship customer.”

On their path to transformation, insurance companies expect to strategically deploy capital against a range of specific inorganic growth opportunities:

  • transforming their business models for sustainable growth;
  • modernizing their operating models for profitable growth;
  • enhancing customer engagement;
  • and gaining access to innovation and emerging technologies.

“The top factor that will drive insurance acquisitions will be the need for emerging technologies. Insurance companies are all looking at how to put their operations on digital platforms in order to save time and resources both for the company and the customers,” notes the Head of Finance at a China-based property and casualty (P&C) insurer. At the same time, a significant number of insurers also hope to rebalance their portfolio of businesses. Many plan to evaluate whether they should fix or exit businesses that are struggling to achieve returns in excess of their longterm capital rates. This should allow them to remain focused on transforming businesses they consider core for the future while freeing up additional capital for reinvestment into new lines of business and technology capabilities.

As the director of finance at a UK-based non-life insurer notes, “Units that are consistently performing poorly will be segregated to further analyze their positions and whether or not they still fit in the company’s planned structure. We discourage force-fitting any product or company unless it has great potential for generating revenue. If it does not, we look for suitable buyers for the business.”

Our data indicates, insurance executives expect to exit non-core businesses, enter new markets and gain access to new technology infrastructure and operating capabilities via M&A and partnerships, as a way to further diversify their global risks and earnings profile.

Looking beyond the borders

Our survey suggests that the majority of insurers will be involved in some sort of non-domestic deal: 68 percent say they expect to conduct a cross-border acquisition, partnership or divestiture over the next 3 years. Just 32 percent say their top priority will be on domestic activity.

“Over a period of 3 years, we expect to see a lot of M&A transactions overseas. We are looking to expand into regions that are new for us and with acquisitions, you can get going without having to set up a base from scratch or encounter a lot of unforeseen risks,” notes the senior VP for M&A at a global insurance brokerage firm. Perhaps not surprisingly, our data suggests that insurers expect to see the most activity in North America — the US in particular. Given that the US is still the largest insurance market in the world with around 30 percent of the global premium market share, many insurers see the US as a source of steady market growth and relative premium stability.

“The volume of M&A in North America will increase the most in the coming years. With the new tax reforms, insurance companies will pay lower taxes — these new regulations will provide insurers opportunities to grow. Companies from other markets will also want to take advantage of the lower tax rate and will look for ways to expand into the US market,” suggested the CFO at a Bermuda-based reinsurer. Changes to US tax laws will certainly create significant disruption and opportunity for insurers both onshore and offshore. “The reduction in the corporate tax rate to 21 percent makes US assets much more compelling,” notes Philip Jacobs, leader of the Insurance Tax practice with KPMG in the US. “The lower US tax rate has also eliminated some of the offshore tax advantage; the large Bermuda players may still be operating with relatively low effective rates, but the tax differential between operating in the US versus Bermuda has narrowed.”

Latin America, however, expects relatively lower levels of deal activity. “It’s a sellers’ market in Latin America,” notes David Bunce, Senior Client Partner with KPMG in Brazil. “Lots of international insurers want to get into certain Latin American markets, but nobody is really ready to sell.”

At the other end of the spectrum — and the other side of the world — Asia-Pacific is widely viewed as a region of massive growth potential and innovation. China has already become the world’s second largest insurance market (with around 10 percent of
global premium market share) and premiums have more than doubled since 2010. Singapore and Hong Kong have long been key centers of insurance innovation growth.

Asia-Pacific was identified as the geographic region where insurers would most likely seek partnership opportunities. “As insurers seek to expand outside of their traditional distribution networks in Asia, digital partnerships are emerging as a fairly quick way to tap into new customer segments without significant upfront capital investment,” adds Joan Wong with KPMG China. “A digital partnership could unlock significant new growth, which would tip the balance for those making a ‘go or grow’ decision about their businesses.”

The director of investment at a Korea-based international insurer agrees. “Asia has become one of the biggest markets for insurers, and the region’s growing population along with changes in capital regulations will give insurers the backing they need to grow. In China alone we have seen a major increase in the number of companies seeking out new ventures in the insurance sector.”

While the majority of our respondents say they are looking across their borders for growth, those in Asia-Pacific are much more likely to be focused on domestic acquisitions instead. “Most of the markets in Asia are still fairly domestically oriented and there is still significant fragmentation and inefficiency that could be eliminated,” adds Stephen Bates with KPMG in Singapore. “Given the growth potential across the region, it’s not surprising that Asian insurers are thinking about taking advantage of opportunities at home before investing further into foreign markets.”

Somewhat tellingly, insurers expect most of the divestiture activity to originate from Western Europe. As the head of finance and investments at a large French insurer argues, “The persistent compression in global interest rates continues to be a challenge for the insurance industry, and many companies in Europe are aiming to divest in part to cope with this. When you add in the factors of changing regulation and customer demographics, it means that insurance business models have evolved and companies are reshaping themselves accordingly.”

“Insurers in Europe are very interested in diversifying their risk and see adjacent markets as an opportunity to do just that,” notes Giuseppe Rossano Latorre, Head of Corporate Finance at KPMG in Italy. “There are a number of life insurers that are looking at the asset management business, for example, as a potential growth opportunity in the future.”

Our data indicates that in the Life sector, acquisitions will likely focus on finding lower-risk, higher-growth, higher-return assets, particularly around capital-light retirement, investment management and group benefits businesses. However, greater levels of activity should be expected in the Nonlife sector, driven by a growing appetite for more profitable specialty risks and commercial risks, with a preference for commercial risk in the small- and medium-sized enterprise (SME) sector.

What this survey makes clear is that global insurance companies recognize they now have a window of opportunity to strategically allocate their capital across the globe towards achieving and accelerating their transformation strategy.

MandA_Innovation

Click here to access KPMG’s detailed study

The automation journey: types and benefits

Publié le par hanswillertbleuazurconsultingeu

Intelligent automation is set to transform our lives. For business services, it promises huge gains, including lower costs along with better market insight into customer experiences.

As a result, many organizations are already using basic robotic process automation (RPA) to carry out simple, rules-based tasks to become more productive.

To realize intelligent automation benefits faster, many organizations want to accelerate the automation journey. In our experience, seeking this goal requires planning that should follow four principles:

  1. Business led; technology enabled
  2. Start small, execute well and scale up rapidly
  3. Develop an internal automation capability to sustain progress
  4. Use RPA to achieve greater productivity and as a stepping stone for enhanced process and cognitive automation that can lead to transformational change

The next step is to introduce more sophisticated intelligent automation classes that have the potential to lead to transformational change.
KPMG2

Rethinking Automation Myths

Misconceptions about intelligent automation can delay the automation journey or dilute potential benefits. Following are five common myths along with our views on the truth.

  • “ Implementing a bot will significantly improve productivity.” – Yes, but boosting productivity is often more complex than expected. For example, implementing a new process and managing change simultaneously can dilute savings.
  • “We need to transform our processes before adding RPA. »– Ideally yes, but you can incorporate process transformation into your RPA journey, either before or after automation. RPA is another lever that can be combined with more traditional transformation tools.
  • “We can deploy our first bot quickly.” – The pilot can take longer than expected. This is because you need to build the right infrastructure, capabilities and sponsorship. The cost per bot will decrease significantly as you scale up and accelerate your execution speed.
  • “We need to build lots of bots.” – Don’t get mesmerized by volume. Utilization per bot is a better measure for understanding automation effectiveness and efficiency.
  • “We can move straight to cognitive solutions.” – Evaluate your needs and capabilities. While some organizations begin with small cognitive pilots, RPA can also be a stepping stone in your automation journey.

See the bigger picture – Implementing intelligent automation is more than just technological change. It affects components across your operating model.

KPMG3

Click here to access KPMG’s discussion paper