Beruflich Dokumente
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Reinventing
FINANCIAL SERVICES
Succeeding With Corporate Transformation
■ LendingTree Inc. has become the best-known online lending Web site,
processing more than four million loan requests and consistently exceeding
analyst revenue expectations.
TABLE OF CONTENTS
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Reinvention Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
I
n today’s hyper-competitive financial services
environment, incremental improvement is no longer they perform poorly, while rewarding them richly when they take the
enough. To be successful, firms need to undertake massive steps necessary to stay ahead of the competition.
Reports on the financial services industry inevitably begin by significantly. In any case, growth through acquisition is now less
saying that competition is tougher than ever before, but this time it’s feasible since many of the attractive acquisition targets are gone.
However, investors have become more discriminating when the industry. The six case histories describe the successful
valuing financial services firms. An analysis by Morgan Stanley of the transformation projects that each of these firms have undertaken,
P/E ratios for the 30 largest U.S. banks that comprise the Morgan the key elements to their success, and the concrete results they
Stanley Bank Index shows that the spread between the higher-valued have generated.
and the lower-valued banks has widened dramatically since the end
REDESIGN BUSINESS PROCESSES. Firms can achieve enormous improvements in efficiency and
1 customer satisfaction by streamlining business processes to eliminate elements that do not add value.
Bank of America redesigned its process for telephone mortgage lending by eliminating hand-offs, ensuring
lending decisions are made by professionals in direct contact with customers, and creating end-to-end measures
to track progress. (See page 11)
2
CREATE A CUSTOMER-CENTRIC ORGANIZATION. Firms are integrating customer information
across products and channels to create a consolidated view of customer relationships to assess profitability
and meet customer needs.
Allmerica Financial allows brokers to access information or resolve problems about a variety of products and
customers by calling just one toll-free number. (See page 15)
3
e-ENABLE THE ENTERPRISE. Innovative financial services firms are moving more transactions
online and integrating the Internet throughout their organizations.
Abbey National implemented an online strategy that is ‘device agnostic,’ allowing customers to interact with the
bank through their choice of PCs, mobile telephones, or digital TVs. (See page 17)
2
4 projects allow firms to execute at Internet speed.
By creating an entrepreneurial environment within Bank One and delegating decision making,Bank One was able
to launch its service offering in just 123 days and then rapidly implement upgrades in response to customer
feedback. (See page 19)
5
DEVELOP AN EXTENDED ENTERPRISE. By turning vendors into strategic partners, financial
services firms are extending their capabilities and penetrating new lines of business.
By forming a strategic alliance with TradeCard, MasterCard International gained a proven technology platform that
has allowed MasterCard members to offer their business customers an a online alternative to a traditional letter of
credit for international transactions at substantially lower costs than traditional financing alternatives.(See page 23)
6
RECREATE THE BUSINESS MODEL. Rethinking the bedrock assumptions of a firm’s business model
is often required to place it on a path of renewed growth.
LendingTree pioneered a fundamentally new business model in consumer lending by allowing consumers to receive
multiple offers from over 120 participating lenders through completing one online loan request. (See page 25)
Reinvention Decision Framework is a tool that can help firms craft larger commitment of time and resources than do conventional
a strategy. The framework helps firms assess their current improvement projects. But given more rigorous investor standards
situation, identify their weaknesses, and pinpoint those initiatives and fiercer competition, reinvention is no longer optional. Financial
that promise to deliver the greatest impact on performance. services firms that can successfully reinvent themselves will exceed
Using this tool, firms can design a portfolio of initiatives tailored the expectations of everyone they touch – customers, employees,
to their unique situation. and investors. Firms that don’t will not survive.
landscape than they have for decades. The strategic challenges banks, securities firms, and insurance companies – is feeling the
• Increased Competition. Financial services firms today Commercial Banks. The economic slowdown has caused
confront entirely new competitors.Banks,insurance companies, problem loans to rise and venture capital profits to decline.
and securities firms are offering each other’s products. Global Meanwhile, median deposit growth for the 30 largest U.S. banks
financial services players are competing across borders, most comprising the Morgan Stanley Bank Index was just 2.8 percent in
notably in securities and asset management.And nontraditional 1999 and 3.3 percent in 2000, compared to a range of 6.2 percent to
competitors, such as manufacturing and retail firms, are 6.7 percent in 1996-1998. The median growth in earnings per share
providing financial products. for the banks in the Morgan Stanley Bank Index dropped sharply
from 13.2 percent in 1999 to 5.6 percent in 2000. Although P/E ratios
• Impact of the Internet. While many start-ups have not
improved in early 2001, for the past 10 years the average P/E ratio for
survived, competition over the Internet has made prices
U.S. commercial banks has generally ranged between 50 percent
more transparent, increasing the cost of attracting consumer
and 80 percent of the average P/E ratio for the market as a whole.
assets and putting downward pressure on margins.
both life and non-life companies have significantly lagged the P/E 50
ratio for the S&P 500 for most of the last 10 years, even dipping
45
below 0.5 at the beginning of 2000.
in the Morgan Stanley Bank Index as a percent of the mean P/E ratio
25
for banks in the index. A higher percentage means that there is a
wider gap between the banks with high P/E ratios and those with 20
low P/E ratios. Morgan Stanley found that while this percentage
end of 2000. The view of investors is clear – firms that take the 10
1/1/95 11/29/96 10/30/98 12/8/00
difficult steps required to outperform the competition have been Morgan(2)Stanley Bank Index
MSBI
rewarded with premium valuations, while those that lag behind
Source: Morgan Stanley
have seen their valuations tumble.
become experts at acquisition now need to learn how to grow fundamental shift in the business. Reinvention is not a single event,
organically through delighting customers with better service and an but instead a series of changes to the business that need to be
improved value proposition. Firms need to rethink their service planned and coordinated.
relatively easy to attain. What are far harder to achieve, however, are
The journey to reinvention is long and difficult, and no financial
the fundamental changes required to survive in today’s more
services firm has yet completed it by implementing the six
competitive environment. Yet the results can be dramatic –
transformations throughout its enterprise. The firm that does
reductions in cycle time of 87 percent, first-call resolution in call
achieve reinvention will reap enormous benefits, but its work will
centers of 80 percent, an entirely new business launched in just 123
not be over. A reinvented firm will need to continually reassess its
days, and 10 percent of a bank’s transactions moved online in a year
situation and take the necessary steps to remain competitive with
6 and a half.These are some of the actual performance improvements
new technologies, customer expectations, and best practices. The
that have been achieved by the firms described in the case studies
journey to higher levels of performance is continuous.
in the following pages.
Build Rapid
Deployment
Capability
Develop an
Extended
Enterprise
Recreate
the Business
Model
1
The goal of redesigning business processes is to become best in change? What revisions to business rules and procedures
class, retaining only those elements that truly add value for the will be implemented? Aggressive, stretch targets are then
customer. Financial services institutions redesigning their set to track progress (e.g., reductions in cycle time,
business processes must ask themselves if their processes are improvements in customer satisfaction, or elimination of
If a financial services firm cannot answer “yes” to each of these levels of required approvals, and whether to centralize or
questions, then it should seriously consider redesigning its business decentralize the process. Though each situation is unique,
processes. Redesign projects entail several basic components: successful projects typically employ piloting and
become more difficult to attract and retain skilled • Build and Implement — This phase entails testing,
professionals? Firms need to establish a burning platform – a piloting,and building the necessary infrastructure to support
compelling need among customers that redesigning implementation. Firms will need to create new business
10
business processes will satisfy – and then focus narrowly the procedures and rules to govern the redesigned process.They
priorities of the initiative. This phase will also establish a must also think broadly about the impact on operations
baseline against which the redesign effort can be measured. (e.g., the need for physical facilities or for employee training).
• Set Vision and Targets — Based on the need for change, • Continue to Improve — In a sense, the Build and
a firm must set a clear vision that aligns with the company’s Implement component is ongoing since a successful project
strategy and then articulate that vision throughout the includes a systematic strategy for continuous learning and
errors. Finally, the process lacked end-to-end measures that tracked Key Results
what was actually delivered to customers.
1st Quarter 3rd Quarter
Bank of America streamlined its telephone mortgage lending 1999 2000
process. Most important, the number of hand-offs between Booking Rate 56% 73%
Decision Time 2.4 days 0.3 days
departments was reduced from five to two, increasing efficiency and
Total Cycle Time
reducing errors. For example, the loan center associate who makes the (application to booking) 36 days 19 days
loan decision now notifies the customer directly,rather than passing the Customer Satisfaction with
decision back to the sales associate to do so.Measures were developed Process Overall 91.9% 95.3%
2
In most financial services firms, departments have responsibility for firm to target marketing efforts to the most profitable
products, regions, delivery channels (like branches), or functional customers.This deeper customer knowledge will also allow a
areas (like human resources or legal). While all these departments firm to personalize interactions with its customers, offering
touch the customer, either directly or indirectly, no one of them is services and pricing targeted to both current and future
responsible for the customer’s total relationship with the institution. needs and profitability of each customer.
Although individual departments may seem to function • Present a Unified Face — Clients should enjoy seamless
efficiently, they are usually not properly coordinated across the interactions with financial services firms, receiving the same
enterprise. These uncoordinated efforts create numerous problems information and a consistent image no matter which delivery
that plague financial services institutions. Customers may receive channel they may choose. Then incentives can be used to
inconsistent information across channels. A long-time customer migrate customer interactions to the appropriate channels.
may contact the institution through the Internet or a call center and Sales of complex products to the most profitable customers
not be recognized. When a firm calls a customer about a product should be migrated to in-person channels, such as branches,
offering, it may not know the products the customer already has. while routine transactions and sales of less complex
on customers who simply want information provided and problems • Build a Customer-Centric Culture — The greatest
solved. For example, a customer may call their financial services challenge and the greatest benefits come from infusing a
institution with questions or problems concerning two products.For customer focus into the culture of the organization so that it
12
many institutions, one call is not enough. Customers have to place a affects everything from training and compensation to
second call to a different department. technology and product development.Too often, firms focus
New Peer Influence Inflow Processes Continually Create New Value Grow
A trusted advisor shows the Use interactive … learn from growing knowledge of the customer’s changing goals, Workers sustain life-
customer how to use online mediums to empower results, needs, and wants long relationships by
service to better achieve customers to assess … proactively design, test, and demonstrate new total solutions that continually delivering
their personal goals their interests and better achieve customer’s target outcomes better customer
goals, to monitor … maximize ability to deliver a virtual enterprise designed for one: a outcomes
progress against unique set of virtual partners that deliver lifetime experience
those goals, and to
continually improve
their outcomes
Experience Brands Life Aspirations Solution and Service Reinvention Emerging Shifts
Brand promotes what Use empowerment Workers focus on customer outcomes Innovates to satisfy
customers can be tools to understand Workers continually monitor research and breakthroughs – in traditional new customer
Company customers’ goals and and nontraditional industries – to improve outcomes in new and demands as soon as
… segments customers by results to date unexpected ways they appear
life experience and goals Innovate and Technology infrastructure enables workers to reinvent services – through
… organizes by customer recommend brand digitally partnering – as new products, services, competencies, and
segment new solutions to infrastructures emerge
achieve better
… innovates by customer outcomes
segment
among the top 20 providers of variable annuities and life products when a customer calls. The process for handling calls and
and among the top 30 providers of property and casualty insurance. transactions is being upgrading quarterly.
Allmerica determined that it was not resources required for these improvements and
providing consistent service to its principal then faced the need to justify committing resources
customers, the brokers who sell its products to of this magnitude. They solved the problem by
consumers. Brokers with questions about several dividing the project into discrete phases, each
products had to make more than one phone call. Information for requiring more modest funding and generating concrete benefits
different products was maintained by different databases, and that would justify the next phase of funding.
Allmerica identified the problem as the organization of their IT first-call resolution to 80 percent, compared to an industry
systems and call centers around products, rather than around benchmark of 50-70 percent. The training period for customer
customers. But rather than scrap their legacy IT systems, Allmerica service representatives has been reduced from three to one and
chose a different route. They left their legacy systems in place and one-half weeks, while service has improved. Over the longer term,
added two new systems between the back-end systems and the Allmerica believes that these changes will yield an improved
customer: a Universal Channel Integrator – which handles DALBAR rating and create more satisfied, loyal customers.
3
Leveraging the Internet’s capabilities has become one of the most While most financial services firms have now used the Internet
common business initiatives over the last several years.Almost every either for a Basic Presence or Prospecting, most firms will face
company is examining how it can use the Internet to add value. difficulties in going beyond these levels. But to remain competitive,
over time financial services firms will need to achieve Level IV:
However, too many companies are investing large sums on the
Business Transformation, where the Internet is integrated fully into
Internet without first clarifying their objectives. Is it to lure new
operations and business processes.
customers? Retain existing customers? Cut costs? Share information
16
Level III: Business Integration — At this level, profiles, and interactive selling that helps to
firms integrate the Internet into their sales, identify the appropriate product for a customer’s
operations, and customer relationships. Among the specific situation. Firms at Level III also develop
capabilities that firms achieve at this level are strategies to migrate transactions to the appropriate
advanced search capabilities, creation of online channel,depending on the nature of the transaction
communities, EDI, personalization with customer and the customer’s profitability to the institution.
Level IV: Business Transformation — The final level is enterprise. The Internet can also provide end-to-end supply
where a firm integrates the Internet into all its operations. chain integration – from suppliers to buyers and the
Firms at Level IV have implemented such capabilities as the marketplace in between. The Internet ceases to be a delivery
sales of all products online, the ability for customers to make channel or a marketing device and instead becomes an
bill payments online, and linking employees throughout the integral part of every aspect of the organization.
Abbey National —
Banking Services over PCs, Mobile Telephones, and Digital TVs
Abbey National is one of the leading banks in the United Kingdom, To expand the bank’s capabilities, it quickly established 25
with assets of $300 billion and 16 million customers. The firm has partnerships with firms providing digital TV, mobile phone service,
generated total shareholder returns of 30 percent annually from and technology integration, as well as with portal content providers.
1997 to 2000 and an average profit before tax of 13.5 percent from Recognizing that their client base was not technologically
predominantly middle-income and not comfortable with systems that did not employ Internet protocols. But rather than
technology, the bank decided that it needed to provide electronic build or buy new systems, Abbey National instead built their
capabilities as another aspect of quality service. Abbey National Internet service offering on their existing ATM systems together
created a strategy that was device agnostic, that is, customers with middleware.
could interact with the bank through PCs, mobile phones, or digital
The Web site was launched in April 2000, providing information
TVs, which are popular in the United Kingdom.
and the ability to purchase products or conduct transactions in 26
Realizing the importance of senior leadership, the strategy product areas. For example, e-banking is available across the Internet,
was driven by senior management at the board level.They realized digital TV,and WAP mobile,all in real time,with consistent look and feel,
that to be successful they would have to execute at a much faster and all achieved with just one set of log on credentials.
pace than was typical for the bank and delegated design and
In the first year, 800,000 customers registered to use the online
implementation to a product team. Only top-performing staff
site and 10 percent of all the bank’s transactions were conducted
were chosen for the product team, and they were committed to
online. Customers who conduct transactions online have twice as
the effort full-time. Once team members have completed their
many Abbey National products as the average customer. The new
tour of duty on the e-commerce project, they have been
electronic capabilities have proved to be an important ingredient in
reintroduced into the bank to serve as missionaries for
retaining the bank’s most valuable customers.
e-commerce and have been given greater responsibility.
4
Financial services firms are learning that speed provides a Learning from customers and partners is essential to
competitive advantage all its own. Today, it is better to implement a implement this model effectively. Firms must create effective
solution within 30 days that meets only the critical requirements, feedback mechanisms to quickly capture information from
than it is to take a year to implement a solution that met all the customers and markets and then use it to continually upgrade
requirements when designed, but has since become irrelevant. their service offerings.
To build a rapid deployment capability requires shedding the New forms of organization are also required. Firms often create
traditional approach of progressing through lengthy phases of small, self-directed teams that are drawn from key executives across
analysis, design, and deployment. Firms accelerating their many functions.These teams are freed from the reporting structures
deployment capability are employing a new model, where the focus and time frames that are common in the organization and create an
is on quickly introducing products or services to the market, entrepreneurial esprit de corps that encourages rapid decision-
learning from experience with customers, and then improving and making and implementation.
18
5
Developing an extended enterprise is about taking control of a firm’s • Manage the relationship portfolio. Rather than look
value chain. Large financial services organizations can find themselves at each relationship individually, firms must manage their set
working with 100 vendors for a particular service, creating serious of relationships as a portfolio. They need to weigh
problems in managing the vendor process and monitoring quality.The interdependencies among strategic relationships, allocate
normal response is to create a layer of the organization with ample their resources strategically, and review performance
staff to manage contracts with vendors and monitor performance. regularly. Finally, they must act when necessary, either to
Seeing the inefficiencies created, many firms have changed to a recombine relationships or to eliminate unproductive ones.
preferred vendor model – departments can buy from the venders they
In an extended enterprise, a financial services firm and its
want as long as the firm is on the preferred vendor list.
partners perform as one interconnected system. Each party suggests
Forward-looking firms are now going further. They have new business developments and shares benchmark findings with the
recognized that they cannot provide by themselves all the capabilities other. They work cooperatively to generate new revenues and cut
required to offer world-class products and services to their customers. costs, and then share revenue increases and cost savings achieved.
According to a recent study by Deloitte Consulting, The Relationship The new approach requires a degree of trust that does not come
Portfolio, firms are relying less on the ad hoc process that often serves naturally to organizations that are more accustomed to seeing their
in the absence of a more deliberate approach to partnering. Instead, vendors as simple suppliers of services.Even more important,financial
firms are increasingly treating their strategic partnerships as a services firms that have adopted this approach gain the ability to do
portfolio of relationships based on three principles: things – offer new products, introduce new services, enter new
traditional boundaries.
Inconsistently defined metrics, milestones, and processes Consistently defined metrics, milestones, and processes
Source: Deloitte Consulting, The Relationship Portfolio: Intelligent Partnering in the New Global Economy, 2001.
Preferred Strategic
Vendor Vendor Alliance Partnership
22
MasterCard International —
A Strategic Alliance to Automate Cross-Border Trade
MasterCard International has developed an innovative online payment banks about the program, they expressed interest, but declined to
system with TradeCard, the MasterCard Global Trading Program™, to participate. Helped by its alliance with MasterCard International,
take advantage of a significant opportunity in business-to-business e- however, 13 commercial banks have now joined the program.
commerce for international transactions. B2B over the Internet is
Through this alliance, MasterCard members can offer their
projected to post annual growth rates of 61 percent until 2004,when it
business customers an online alternative to a traditional letter of credit
is expected to total $2.6 trillion in the United States.
for international transactions at substantially lower
While global trade today is $6.7 trillion, costs than traditional financing alternatives. For
international transactions require a complex example, MasterCard’s B2B payment method for
people and paper intensive process. Both buyers cross-border trades for a $100,000 transaction may
and sellers want assurance that the other party cost $150 to $200,compared to $2,000 to $2,500 for
will honor their part of the transaction. Firms have traditionally a traditional letter of credit. Customers also have the ability to
turned to banks to act as intermediaries, providing letters of credit. negotiate the details of international transaction online,either through
However, for mid-market firms executing smaller transactions, the www.mastercard.com/gtp, TradeCard’s Web site, or their own issuers.
complexity and cost of securing a letter of credit are major barriers. Reporting on international trading transactions is provided along with
the customer’s card transactions information via MasterCard’s
Online letters of credit offer the promise of streamlining the
Management Information reporting tool, Smart Data OnLine™. The
process of international trade.Today,letters of credit-type transactions
MasterCard Global Trading Program™ powered by TradeCard was
through e-marketplaces are estimated to total $200 million, but
launched in April 2001.
projections are that they will grow to $100 billion by 2004.
The two organizations work hand in hand as partners, rather
To provide its members with the ability to offer online letters of
than as a traditional vendor and purchaser.For example,they market
credit to their business customers, MasterCard International decided
the program jointly through presentations to MasterCard members,
that it needed to partner with a firm with specific expertise in this area.
and work in cooperation with members to explain the program and
MasterCard International entered into a strategic alliance with
resolve any concerns that potential customers may have.
TradeCard, a financial-supply-chain provider that uses the Internet to
streamline domestic and international trade.TradeCard was launched in Of course, the creation of The MasterCard Global Trading
2000 by the Association of World Trade Centers to stimulate Program™ has not been without the challenges of two very different
international trade by providing an online alternative to the traditional organizations learning to work together. As a start-up, TradeCard
letter of credit. operated in a less formal manner than MasterCard International, an
established global corporation. Both firms have learned to find a
From this alliance, MasterCard International gained a proven
middle ground, as well as bringing in a third party to help manage
technology platform for facilitating complex large ticket, cross-
the program. By working as one interconnected entity, rather than as
border transactions. TradeCard received the benefits of MasterCard
separate organizations,MasterCard International and TradeCard have
International’s worldwide brand, critical mass of customers, and
been able to bring to market an innovative offering that neither had
relationships with major banks. When TradeCard first approached
the capability to launch on its own.
6
The projects discussed so far have largely concerned how a firm The second strategic path is to become a product specialist,
executes its strategy. For example, are business processes efficient? striving to provide a limited suite of best-of-breed products and
Can the firm execute quickly? services. Product specialists focus on producing excellent products,
excellence in select products, and expanding globally, among others. Financial services firms can be successful pursuing either of
these strategic directions. But many firms are caught in the middle,
While firms face a broad range of options, there are two broad
which is a recipe for failure. They strive to be trusted financial
strategic directions that firms must choose between. The first path
advisers, but are not comfortable in recommending world-class
that financial services firms can take is to become a solutions
products from other firms.They manufacture financial products, but
provider. A solutions provider focuses its energies on managing
don’t distribute them through third parties. Financial services firms
customer relationships by understanding customer financial needs,
need to think hard about their core competencies and how they
offering disinterested advice, and providing total financial solutions.
should choose between the solutions provider and product
Firms that choose this approach will offer customers the highest
specialist strategies.
quality products wherever they can be found, not just their own
with a fundamentally new business model.LendingTree decided that and reduce their cost of sales. The LendingTree technology, Lend-X,
instead of underwriting consumer loans, it would specialize in being allows banks to specify the type of customers they are seeking by
a lending exchange and solutions provider, allowing consumers to location, credit score, or other factors. LendingTree can automatically
use the Internet to receive offers send loan requests that meet the
Mortgage lending is complex, with numerous players. There are now also provides its private-label Lend-X technology to a number of
mortgage brokers, correspondent banks, and mortgage lenders. banking industry leaders and other e-commerce providers to power
Then there are Fannie Mae,Freddie Mac,and the Wall Street securities their Web sites, for which LendingTree receives licensing fees and a
firms that play a role in securitizing the mortgage loans issued. share of transaction revenue.
LendingTree, launched in 1998, provides an online lending LendingTree has now processed more than four million loan
marketplace where consumers can receive multiple loan offers from request forms and is the best-known online lending Web site.A survey
the more than 120 participating lenders on the exchange by conducted by an independent research firm for the company found
completing one online loan request. LendingTree receives fees for that LendingTree was the clear leader in mind share in online lending
transmitting loan requests to lenders and when loans close as a compared with its competitors. Although as an Internet start-up
result of a match made through the exchange. LendingTree continues to face challenges to achieve profitability, to
date its performance has been impressive – total revenue grew from
Consumers benefit by easily accessing loan offers from multiple
$4.5 million in the first quarter of 2000 to $12.3 million in the first
lenders and also from the competition among lenders. In addition,
quarter of 2001, exceeding the expectations of analysts.
by streamlining the lending process, LendingTree has significantly
reduced customer acquisition costs for the lender, who is then able
firms have been sorely disappointed when the results of their success. Senior management needs to support the initiative with
initiatives did not measure up to their expectations. Why do so adequate resources, authority, and their personal involvement.
many firms fail to achieve the results that they anticipated? Senior management must also communicate to employees a clear
most often as important barriers to success concern the people in an How can a firm determine if it’s ready to engage in fundamental
organization, which is consistent with our experience. In change? To be ready, senior executives need to be able to answer
organizations, people are comfortable with their current way of “yes” to the following questions:
doing business. It’s what they were hired to do, what they have
• Do the most senior executives within the organization
learned to do well, and how they are compensated. Employees may
champion the change effort?
also not take the effort seriously, thinking it is just another
management fad that will be gone tomorrow. • Does the organization have a clear, compelling business case
• Unclear Case for Change: 46% • Does the organization understand the risks of not changing?
also choose the right time in its development for an initiative to forward (e.g., to attempt transformation while in the expansion
have the greatest chance for success. Business life cycle models phase). While not impossible, this is extremely difficult to
often divide the organizational development of a firm into four accomplish. Given the demands of developing the business
distinct phases: birth, expansion, leadership, and decline.1 Of course, infrastructure and managing growth during the expansion phase,
the dividing lines between these phases are less clear-cut in reality firms usually don’t have the senior management focus, or the
than they appear when illustrated. In addition, individual companies required capital, to launch a successful change initiative.
and even individual lines of business can progress through the life
By the time a firm reaches the inflection point, it needs to have
cycle model at different speeds. But the four phases of the life cycle
a plan for the series of critical transformations that will move it up
model provide a useful framework for thinking about when firms
the path to continued growth. But transformation is not a
can best engage in transformation:
spontaneous event; it doesn’t just happen. Firms must nurture
• Birth. Entrepreneurs are inventing themselves for the first moments of truth – catalysts that can trigger fundamental change.
shareholder value.
1
There are a number of models describing the life cycle of a firm.We have used the life cycle model described in “Predators and Prey: A New Ecology of Competition,”by James F. Moore,
Harvard Business Review, May-June 1993.
Reinvention Decision Framework is a tool that firms can use to answer “no”or “maybe”tomorrow. Firms need to continually reassess
design a portfolio of initiatives that fits their situation. The their position. Once a portfolio of transformations has been
framework provides a series of questions that help firms assess their implemented successfully in an area (e.g., building a rapid
current situation and identify their weaknesses. It can help firms deployment capability), a firm needs to immediately use the
focus on the key issues when they are attempting to prioritize framework again to design its next portfolio of projects, (e.g.,
Some firms will find that they need to focus on a single type of Implementing a transformation project is difficult since it aims
project, such as becoming customer-centric. More often, however, to produce a fundamental change in the business. But the dramatic
firms will identify several types of projects that need to be results from successful initiatives are worth the effort involved.To be
implemented jointly in a specific area of the business. For example, successful, financial services firms need to make the fundamental
a firm may find that for a particular product it needs to execute more strategic, structural, and cultural changes in their business necessary
quickly, become more customer-centric, and leverage the Internet. to win in the years ahead.
Is customer information
integrated across products and
Are business processes delivery channels to assess
best in class (i.e., efficient needs and lifetime
and high quality)? profitability?
e-Enable the
Recreate the Enterprise
Business Model
Reinvention
Is the business model viable in the Does the firm fully leveraging the
current competitive context given Internet to interact with
the firm’s core capabilities? customers, suppliers, and
employees?
Build Rapid
Develop an Deployment Capability
Extended Enterprise
look like? Over time, successful financial services organizations will efficient operations, increased revenues, loyal customers, and
continually reassess their competitive position and implement a satisfied investors will be enormous. How will these firms be
series of fundamental changes in their operations and strategy. For different from most financial services firms today?
Today Tomorrow
Let’s first start with a typical financial services firm today: In contrast, the financial services institution of tomorrow that
• The organization is organized around products, channels, profitability of customers, anticipate their needs,
and geography. No one has a consolidated view of a develop customized solutions and pricing, and
• When a new capability is needed, the assumption is that • It will act as a trusted financial adviser and offer total
30
it will be developed in house.
products and services offered by the firm. No • Customers will be able to access the firm through any
substitutions or special orders are allowed.
channel they wish, but require only a single point of
• The firm introduces new products or services on a contact for whatever questions or problems arise.
will exceed the expectations of everyone they touch. Customers will Successfully implementing fundamental change places
be delighted after every interaction with the firm. Employees will be extraordinary demands on everyone in the organization, especially
energized about their work and inspired about what they are senior management. But the financial services firms that can make
achieving together in serving customers. Investors will see an transformation a way of life will be the firms that survive and
organization with solid earnings growth and strong prospects, prosper in the years ahead.
valuing it more highly than other financial services firms and in line
technical issues that are changing the dynamics of business. It Tel: 212.492.4942
E-mail: agrubb@dc.com
focuses on leading-edge industry-specific issues and global trends,
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ISBN 1-892383-83-7
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