Thoughts From The Global Back Office & Operational Efficiency Summit

We enjoyed the opportunity to sit on some of the panels at a recent back-office and operational efficiency summit in Barcelona. In attendance were a diverse mix of senior management from different financial institutions, who discussed a wide-range of topics from RPA/AI transformation across middle and back office through to some of the challenges around driving transformation change across legacy architecture. Whilst some of the themes were the traditional challenges such as cost management and regulatory compliance, emerging discussions about successful robotics and blockchain evolution created a progressive environment for discussion. So what did we learn around some of the key ingredients for success within middle and back office transformation within capital markets?

Five Key Takeaways

  1. ’Invest in execution’. Too many organisations continue to invest heavily in strategy definition and conceptual transformation, whilst failing to understand the need to invest in delivery to ensure successful execution. Simply put, senior leadership lack awareness of the complexity and associated skills required to deliver even low-level infrastructure change. Making the assumption that existing teams can deliver change alongside their day job ensures a lack of appropriate band-width is applied to focussed change execution……..usually ending in frustration and failure. A lack of appreciation of the importance of ‘spending to save’ undermines the objective and ultimately adds cost in the end, where reactive change management kicks in to salvage the project. As one delegate put it, ‘I don’t have a problem defining strategy, my problem is an execution one – ensuring I can secure buy-in to resource the change is fundamentally the cause of failure’
  2. ‘Is legacy IT truly a blocker?’. The more progressive organisations are being successful with transforming around the core of their infrastructure. Although not addressing the underlying legacy platform issue, pragmatic API development into core books and records systems is enabling information to be accessed to facilitate efficiency and flexibility – in the case of a large European corporate and retail bank, it has transformed efficiency and responsiveness through provision of access to data to drive workflow processing. Rather than project-driven data feeds from system to system, re-usable API’s are being utilised to allow partners to retrieve data from legacy systems. Avoiding point to point solutions for data transfer was a key ethos in the Jeff Bezos memo around strategy in 2002, by mandating API usage by all teams at Amazon‘Teams must communicate with each other through those interfaces……There will be no other form of inter-process communication allowed…Anyone who doesn’t do this will be fired’Seems like by 2018 banks have recognised this and taken it on board…..
  3. ‘The robots were coming…. now they have arrived’. Some of the well-known RPA tools are being embedded on a large scale across B2C businesses, with B2B business following on. Key areas of focus are potential applications within KYC, smarter exception management and working within logical, repeatable processes. RPA is still the dominant lever here, with process maturity being a key enabler (do we truly understand the process end to end?) for success. Examples of application of RPA to broken or poorly understood processes continues to be a theme within failed programmes, alongside organisations falling into the trap of making implementation an operational, not an IT-led (or at least with IT fully engaged), responsibility. Lack of discipline during implementation creates instability – robots falling over – and regulatory oversight failures if not executed correctly.As best practice embeds, expect to see the robots get smarter as cognitive capabilities emerge…. but as yet, this is some way off for many who need to get the basics right first.
  4. ‘DLT not Blockchain’. Early excitement in 2016 around leveraging the block-chain concept that underpinned bitcoin in a wave of POC’s has settled down in 2018 to practical application of distributed ledger technology for central bank, commercial bank and securitised assets. This is now a much smaller subset of the initial POC list, with credible use cases emerging around areas such as the ASX replacement for Chess, DTCC rewriting the CDS reporting infrastructure and the Universal Settlement Coin (USC) for real time payments projects, to name just a few. Emphasis now starts to shift to some of the more practical implications going into 2019 around technology integration, operating model design and the associated business process re-engineering required to maximise the value of the benefit case. Moving towards instantaneous settlement sounds a no-brainer in terms of benefit, but how do systems and processes elsewhere in the infrastructure need to adapt ? How will platforms inter-operate between ledger and asset types? More questions than answers at this point, but capital markets firms will increasingly need to think through this as we go into 2019
  5. ‘It’s People That Make The Difference In The End’. Much of the dialogue during the conference spoke to technology innovation, automation of jobs and enhancing the efficiency of operations through optimisation of process. But each success and failure always came back to reflection on the role of the human being within the organisation. Perhaps a cliché, but ultimately middle and back office operations is and will continue to be heavily dependent on the people around the process. Fanciful talk around ‘zero-touch-back offices’ have led to senior management taking an overly simplistic and value-destroying view of their organisations by driving ROI around automation solely through headcount reduction. Not to say this isn’t an important ingredient, but it’s not the only lens to view it through. Institutional knowledge in successful, progressive organisations is retained and re-purposed – thoughtfully recognising that nurturing this knowledge is essential to process enhancement, transformational change or creating a truly customer centric organisation that not only knows its customer’s business but knows how it processes its customer’s business. Success here is not by accident, there needs to be a considered approach to helping staff transfer their skills into new roles rather than just assuming operations staff will successfully transition to RPA implementors.

Organisations led by traditional revenue generators – often successful front office staff – rarely comprehend the complexity of the back office nor the value related with institutional knowledge within it. This not their fault, as their specialism and experience has been developed elsewhere but is a failure on the part of the organisation to ensure the fabric of the leadership team is diverse and balanced in terms of experience and content. It was no surprise that one of the credible success stories from the conference was from a global, wholesale institution whose COO’s grounding had come across business, technology and operations. Successful application of RPA strategies had been built on leveraging (and retaining) institutional knowledge, re-aligning technology skill-sets into operations to maintain implementation discipline and practically enabling cross-departmental working. An agile culture, but one that worked within the construct of regulatory compliance as opposed to outside it.


So some key considerations for senior leaders as thoughts turn towards planning for 2019 and beyond.   In summary:

  • Expect to spend to maximise likelihood of successful execution to gain touted benefits. If you’re not, ask the question why not – and if you don’t see a clear execution path it’s because there isn’t one!
  • New technology needs old-world discipline – traditional transformation tools such as project management, operating model design and implementation management don’t go away with new technology. And mixing the old with the new in terms of technology integration only increases this complexity (in the short term at least). Expect to fail if you think intelligent automation tools can operate without this discipline…..
  • Don’t jettison people without truly understanding your future value proposition for your business – if you do this properly, you’ll retain and nurture your institutional knowledge whilst still delivering efficiency. Strategic cost management considers cost/income ratios, time to market for product enhancement, customer retention rates etc alongside more simple metrics for cost of operations. Look through different lenses to truly extract value and you will find that simply looking at a cost per trade/cost per head model ultimately strangles your business. Institutional knowledge is exactly what it says – unique to your institution – so very hard to source on the open market and has a lot of value to your business.