In 2021, banks are facing special challenges, as a wave of consolidation has fundamentally changed the German banking industry. Rising costs and increasing competition from new providers are leading to more and more divisional closures or takeovers and mergers of institutions. Nevertheless, the banking sector is still considered “overbanked”. The many cooperatives and savings banks have greatly increased the number of institutions in Germany. At the same time, FinTechs are entering the market in large numbers, attracting clients with highly innovative offers and fast service. The result is increased pressure on the banking industry. The challenges for the banks particularly lie in increasing their flexibility and agility in order to act on the market in a fast – and especially client-centric – way, utilizing all the possibilities of digitization. This is precisely what constitutes the added value behind agile organizations.
The risks involved in agility are worth taking. In free market economies, banks, just like other companies, must act in a client-focused and especially fast way. It’s not about options or jumping on the “hype train”; it’s a mandatory requirement for the further development of client-oriented business models. Evolution into an agile mode of thinking can proceed in a planned and structured way.
Not only has the agility concept from systems theory been around since 2016 – it actually originated in the 1950s. American sociologist Talcott Parsons identified four functions that keep a system running. The name of the well-known AGIL paradigm is derived from the initial letters of the four defined functions:
The primary characteristics of a bank, such as stability and reliability, must never be jeopardized on the way to becoming an agile and flexible organizational unit. For this reason, stability continues to provide the basis for a successful business model in the long term. Moreover, agility guarantees the innovative strength and future viability of a bank. Accordingly, only a hybrid approach of stability and agility can yield sustainable success.
Stability within the framework of standardized customer processes and compliance with regulatory requirements can be ensured via a core banking system in which operational processes continue to be organized in a linear fashion. Beyond the regulatory argument, it generally makes sense to make existing processes transparent and to transform existing sets of rules into process representations. Processes have long since become a prerequisite, and digitization is by no means an end in itself. Banks will be successful if they know and understand customers’ needs and offer the products and services to meet them. Documenting end-to-end processes can empower employees to think and make decisions across departmental boundaries. A customer-centric orientation then becomes much easier to implement, and pre-existing barriers can be dissolved (see Figure 1 on Process Organization 2.0). Transparency about processes, the organization’s new focus on services and the subsequent opportunities for digitization thus jointly form the basis for a successful path to an agile banking organization.
For agility when responding to the aforementioned market trends, the organization must consider the following question: How must the team be positioned so as to evolve from a reactive support unit to an active innovator for change? The model for implementation is above all agile software engineering. Innovation within the bank should be promoted through more active co-design. The point is to dissolve mental hierarchies and increasingly break away from implementation thinking focused on release deadlines and from the constant attention paid to legal developments. Not only the gradations in hierarchies, but also the tension between generalists and specialists plays a role here. Agile workspaces can promote innovativeness and free and entrepreneurial thinking within the organization. Organizationally, added value can be achieved if innovation hubs are not anchored as a staff function within the organization. Instead, line employees need to be made aware of current trends: Digitization, FinTechs, lean management, agile methods, artificial intelligence – there are no limits on the matters to be considered. At regular jour fixes, or through the working-out-loud method, employees can share the latest developments with one another and hold open-ended discussions to initiate the future framework for action.
The organization can continue to serve as a matrix, but the pathways and communication between the departments proceed differently due to networking (created by agile methods) (see figure). In the diagram, the gray circle represents the customer-centric processes and the blue circle the internal banking processes. Structuring in terms of internal and external processes (rather than management, support and core processes) helps us to think about processes in a more customer-centric way.
Over time, this approach can promote a willingness to try out things as well as a more agile mindset among employees through the independent organization of team members. Possible tools include in particular those from SCRUM: planning in sprints, daily short meetings, graphic displays of project progress and retrospectives. A department governed by line management can develop, on its own steam, into an organization with a BarCamp character.
Management support is essential in the evolution towards an agile organization. Division managers should therefore in any event participate in the change processes. Moreover, capacities from the line organization should be utilized for change projects. Especially in the case of transformation to a self-organized, decentralized structure, it is essential to engage employees in the change process transparently and at an early stage. Employees often do not fully participate in the transformation to an agile organization.
Agile methods can be only one aspect of the evolution to a customer-centric bank. It is therefore important especially to internalize the goals of agile working methods and to anchor them in the corporate culture. Only then will agile methods not become ends in themselves. Only if the attitude and mindset of employees and management are also focused on customer needs can banks position themselves for the future.
But we should also stress that no single agile organizational model can serve as a universal blueprint. Each business model is different and each bank must therefore find its own organizational framework and appropriate transformation path. A hybrid model with transparent processes and agile workspaces to drive innovation offers a useful approach.
Author: Stefanie Peiler
Your contact person
Frank KuhlmeierExpert Financial Services
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