Pouring Money Into Change Programs
Financial institutions are upping their investments in change programs, and experts say credit unions that ignore this trend could be left in the competitive dust.
According to a recent study from professional services company Accenture, more than half of financial institutions (53%) expect to invest more in change programs over the next 12 months. The big priorities: Efficiency and cost control, customer service, compliance and technology.
So-called change leaders — financial institutions that especially embrace change and get good at it — are at a particular advantage, according to the data.
“The most important finding is that there is a small group of banks that are more committed than their peers to change, are better at it, and are achieving significantly better change outcomes and commercial performance,” Accenture reported.
“Like in a long-distance cycle race, as the race speeds up the disruption initiated by these front-runners will eventually cause the chasing peloton to break up. Those not able to adapt and keep pace will slip off the back and out of contention,” the report stated.
Financial institutions that become change leaders are often significantly more successful than their peers when it comes to achieving desired results from their change programs, according to the survey, which included 787 senior financial services executives from large banking groups, insurers and wealth and asset managers.
“Thirty-three percent of leaders achieved 76% to 100% of benefits and the remainder achieved 51% to 75%. This compares to 14% and 35%, respectively, of their peers, 41% of whom said they had achieved 50% or less of the targeted benefits,” it said.
The Changing World of Change Programs
Mark Woollen, who is the founder and director of management consulting for Hayden Technology in Charlotte, N.C., said change programs are really an evolution of enterprise programs and project management office functions that large organizations have used in varying degrees for years.
“I believe that the emphasis has been expedited recently due to fintech evolution and capital investments in fintech creating numerous disruptions and challenges for financial institutions. Not to mention the rapid evolution of technology, digital services and individuals’ general acceptance and comfort with alternative financial solutions, and continuous regulatory changes,” he noted.
Financial institutions are also expediting their ROI expectations for their change programs, according to Accenture's survey.
“One of the most striking findings regarding banks’ change investments is the demand for more rapid payback: 79% of respondents said their shareholders expect change programs to deliver the targeted benefits within 18 months or less. Clearly, the days of elongated multi-year programs with back-loaded benefits are long gone, a fact which change leaders appreciate more than other players,” it said.
Many change programs revolve around shifting to digital methods of cost reduction, regulatory management, and customer- and growth-focused strategies.
“The upshot of all this is that most banks are exploring – or shifting toward – new business and operating models that are more fragmented and have more of the features of an ecosystem than the traditional vertically integrated bank that seeks to capture the full value chain and be all things to all customers,” it said.
Change programs can be expensive and time-consuming, especially when technology is involved, but credit unions don't get a pass just because they may be smaller, said Jay Fitzhugh, an executive consultant and partner at financial institution consulting firm CMPG. In fact, they may have one up on banks — especially big public banks.
“Some of the credit unions have the advantage because they may not need to look at such a near-term payback period with members and board members if, in fact, it's an investment that improves the experience for their members,” he said. “It's not what you invest, it's that you invest intelligently. And that's the hard part.”
That members-versus-investors difference is a big reason credit unions should be wary of blindly making exact copies of bank change programs, according to Dennis Dollar, who is a credit union industry consultant in Birmingham, Ala.
“The uniqueness of the not-for-profit credit union structure, plus the required regulatory standardization of credit union bylaws that somewhat mandate organizational and governance structure consistency, makes many of the ‘change programs’ being modeled in the for-profit world less of a fit for credit unions,” he said.
“No doubt that credit unions still benefit from greater efficiencies, more accountability and a willingness to revisit their internal and external delivery model from both a management and board perspective,” he added. “But the goal at credit unions, being member-owned institutions, is more toward how any organizational change impacts the quality of what is provided to the member-owner.”
Having a well-defined change strategy and a leadership team committed to change are common characteristics of financial institutions that are regarded as change leaders, Accenture said.
Change leaders are more likely to identify a “challenger” bank — 67% of them do this versus 43% of their peers, according to the study. Almost all (92%) of change leaders have been especially successful in spreading their digital capabilities throughout the organization, compared to just 54% of their peers.
One obstacle many credit unions face is that member expectations are fueling cost pressures and regulatory pressures to add new service-delivery mechanisms, but old, analog mechanisms still need to stay up and running, Fitzhugh noted. Still, financial institutions that are change leaders aren't experimental, “digital on the side” types — they’re “digital at the core,” according to Accenture.
Change leaders are also more likely to foster cultures that embrace change. Accenture found that 84% of change leaders’ employees were optimistic or engaged and motivated about change versus 62% for their peers.
“These banks handle more change and achieve better results – 75% of change leaders say their organization thrives on fast-paced change (vs. 48% for peers),” the survey said.
Almost all change leaders in the survey had a dedicated change function and were developing professional change capabilities and disciplines. The vast majority (86%) also had a wide range of “professional change skills and capabilities,” compared to 60% of their peers. Most (81%) had consistent change-management methods and tools; just 61% of their peers said the same. Strong governance and transparency existed among 83% of change leaders versus 62% of their peers.
Ultimately, who or what financial institutions are changing may be less relevant than whether they’re doing it at all.
“There are some banks that are now accelerating away from the pack. Their ability to manage change effectively is a key differentiator, allowing them to put space between themselves and their rivals,” the Accenture survey said.