Consolidation and business restructuring, shifting priorities, increased regulatory requirements and scrutiny, alterations in tax rates, and changes in consumer and corporate preferences have all impacted the evolving economic environment. Defined customer segments, products and approaches may all require a refresh. Legacy technology solutions may no longer be cost-effective. Internal business silos may create redundancy and waste.
At the same time, boards and shareholders demand stringent risk management in tandem with profitable operations. There is an increased need for effective governance and informed decision making, for new operational strategies and revised capabilities – in some cases, demand for entirely new business models exist.
our market place has experienced significant growth in terms of product diversity and volume since the early 90’s enabled by rapid developments in technology. Commoditisation of products we once considered exotic has led to significant margin compression across majority of asset classes.
the speed of volume growth and the commoditisation of derivatives lead markets to extreme levels of leverage. Post GFC, ‘leverage’ was a word whispered and not shouted and the derivatives markets are now under scrutiny.
Technology solutions remain one of the keys to enabling competitive advantage and financial institutions have spent the last 15 years implementing system after system and ultimately creating highly complex and not always well architected technology landscapes. Support costs escalated, data integration points (internal and external) spawned, trends and standards evolved quickly and technology budgets bloated. In an effort to translate business requirements into operational solutions; architectural disciplines (such as data definition, standards, support cost estimation release management etc.) played second fiddle to speed of delivery.
Leverage gave way to instability when the interconnectedness of the global financial machine was demonstrated in 2008 when ‘too big to fail’ was tested and market turmoil erupted. Governments and regulators have responded quickly announcing numerous changes to legislation and market regulation. The Dodd Frank Act provides the most sweeping overhaul of the US financial services industry and since the Great Depression. The extra-territorial implications of these reforms will have a significant impact on the way markets and its participants operate globally.
First to market has changed to ‘operational efficiency’ in terms of the competitive landscape. We are at the point of introspective consideration of our organisations’ ‘match fitness’. Compliance with emerging regulation requires financial institutions (FIs) to assess risk (credit, market, liquidity and operational) and report upon it at an enterprise level. Liquidity, asset liability management and file transfer protocol drivers further necessitate the need to integrate data across the enterprise.
The ability for FIs to achieve this is dependent on how well technology and data assets are integrated and how well managed processes are across the operation. This has lead to an industry wide recognition that enterprise level review of the operating model and a well considered view of the target state is key to aligning business aspiration with the implementation of change and operational optimisation.
An assessment of an organisation’s efficiency requires well managed analysis of the end to end operating model. The existence of a well defined TOM ensures that there is alignment between influencing factors (such as regulatory requirements, business strategy, economic cycle) and the manner in which a business is organised (such as processes, people, data and technology) - collectively referred to as architecture.
If the vast majority of current state operating models and the architecture that supports them are complex, then it is safe to conclude that simplification will lead to improvements in efficiency and ultimately operating cost reductions. In fact, apart from regulatory requirements, the ability to reduce costs and to redeploy resources to value adding activities are the primary drivers behind most TOM initiatives being launched.
KPMG’s Financial Services advisors understand how to view performance enhancement through a risk lens to drive sustainable business value. We assist banks to build target operating models designed to improve performance while considering and managing risk components.