Dual Paradigms
Financial service providers can reduce complexity by using dual organiza-tional structures
Through the industrialization of their business, financial service providers have been able to standardize a fair share of their processes. At the same time the need for their companies to adapt creatively to the market and the competition means that they must use project-oriented value creation to be spontaneous and fast in the development of differentiation. The trick is to set up an ideal duet of standardization and creativity. Five instruments should help companies to achieve this balance.
For some years now financial service providers have been standardizing their products for the mass markets. They have broken their value chains down into individual components and are increasingly using work division and specialization in their ‘production processes’. An example of this is the introduction of credit factories for the fast and low-cost administration of standard loans with automated credit checks and fixed guidelines for loan award.
Banks and insurance companies are in the middle of their industrial revolution
Banks and insurance companies are still in the process of reducing their production depth further through the use of outsourcing. Here they are rapidly catching up with other industries. The functions being outsourced include IT infrastructure, IT application development, and business processes such as accounting or stock trading.
The results are significantly leaner organizations and a substantial reduction in IT and operational costs, particularly through the elimination of most of the “special cases” in products and their processing. Using standardized processes low-price products can be provided at much lower cost than was possible just a few years ago. This was a generally necessary and right move: for example cost cuts of 30-50 percent can result from a standardized credit award process
(Detecon Spotlight "Factory Concepts for banks and insurance companies", p. 12).
Globalization and the increasing range of sales channels have made the world more complicated
Industrialization hasn’t made the world simpler. There are now standards, but globalization, increasing compliance demands, more choosy customers, and new technologies and sales channels have all contributed to making the system ‘bank’ or ‘insurance’ much more complicated. The number of individual products offered by a bank is just the starting point for a complex system of relationships between products, sales channels, customer groups and communication channels. A Detecon Spotlight Paper (Detecon Spotlight “Back to the customer“, p. 18) identified more than 20 sales channels for banks. At one English bank for example the combination of just three customer classification dimensions – source of income, behavioral parameters, life stage – resulted in 48 customer segments (Detecon Spotlight “Back to the customer“, p. 24). Overall this development has led to a dramatic increase in the complexity of the financial service provider’s organization.
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