In previous blog posts on the Digital Target Operating Model, we discussed the need for change in Finance. Not only should the function change, but leadership should recognize its responsibility in fostering a change environment, and providing vision and sponsorship. The goal? To adopt a Digital Target Operating Model that can boost Finance’s effectiveness and efficiency, now and in the future.
Feedback from finance and risk practitioners we work with is optimistic—but also realistic—about the problems they face. For some practitioners, new technologies and digital capabilities are not yet a possibility as they continue to cope with basic functionality, while facing added complexity in many processes. Others do not have access to the funding needed to evolve to a Digital Target Operating Model.
Impact of change. Whether in response to regulatory demands, cost, Brexit or business-driven concerns, change continues to drive the agenda across Financial Services as businesses work to accommodate customer demands and accelerate front office capabilities. Some banking functions seem better able to cope with the impact of change on their operating model. This may be down to the front office business case being more compelling, regulatory pressure focusing finite investments in specific areas or just a culture that believes “Finance will make it work.” Finance & Risk, however is in constant change mode, dealing with aging technology and creating “tactical” workarounds to support the next change. This mode of operation is not acceptable or sustainable for a function responsible for delivering results to regulatory bodies and global financial markets.
Driving the change agenda. In many cases, the Finance & Risk function is not driving its own agenda. For example, if you take Brexit and banks establishing new or enhanced capability outside the United Kingdom and across single or multiple European sites, Finance & Risk is at the end of the data pipeline. Yet, the function is responsible for defining requirements for a significant number of product changes, envisioning new risk models, engaging with regulators and redefining reporting by March 2019 (targeting a Hard Brexit). In short, Finance & Risk’s operating model is impacted at every point, while the function copes with important time constraint pressures, a myriad of stakeholders and the business’s most diverse change demands to manage. Overlay this with all the other initiatives driven by regulation, regulator requests, business product change, among others, and you can appreciate why Finance & Risk struggles to manage externally-driven change while also building a coherent strategy to deliver a Digital Target Operating Model.
Historical change: Finance has been at the forefront of offshoring transactional activities, achieving significant cost reductions without impacting performance or quality. However, at times processes have become fragmented and accountability is less clear, while governance, knowledge and ownership have become siloed. As a result, processes sometimes are not executed on time or accurately, and the detailed knowledge required to understand the financial position and add insight is divorced from production, eventually undermining Finance’s credibility.
One of the impacts felt acutely by the Finance function: We’ve observed that resource turnover increases as more and higher quality output is demanded in less time and with less investment. Finance change projects are largely staffed through contractors, delivering to time and budget. This is not necessarily the best solution for aligning with the Finance operating model. Morale often declines as complexity increases.
Historical underinvestment, combined with the delaying and descoping of technical functionality, has led to workarounds and continuous undermining of data quality. Meanwhile, layering of specialist technology is adding to, rather than alleviating, complexity, as decommissioning of legacy technology has been limited.
None of these issues are new or insurmountable. In fact, they illustrate the need to re-establish a Digital Target Operating Model. The onus is on the Chief Financial Officer and Chief Risk Officer to drive the case for change, re-visit the basics and challenge what the function should do—as well as how it can best leverage new and emerging technologies—so Finance & Risk can reach its potential.