Capital Markets Operating Models: The Time for Structural Change Has Come

Accenture currently sees the rise of a multi-polar world with multiple centers of economic power and activity, including potential new customers, increasing and multi-directional capital flows as well as new competitors entering the marketplace. Companies need to respond to this ongoing trend of advancing globalization.

The current credit turmoil demonstrates a new dimension of the impact such a development has on market participants all over the world. The crisis spread both faster and more intensely than crises did before due to a combination of the sub-prime crisis, credit crunch and a global liquidity shortage.

In this point of view, Accenture describes how companies need a consolidated global operating model to meet the challenges of a multi-polar world. This means seeking individual answers to what a company should do, how and where.

The Accenture High Performance Capital Markets Initiative has collected several perspectives on how high-performing investment banks and wealth and asset managers operate their business and how this is likely to change in the future. We examined the four key dimensions defining an operating model from our perspective: the service model, the location model, the organization model and the IT model.

The findings of our research suggest three major trends:
 

1. Put focus on market proximity and customer-centricity to realize growth opportunities. New growth opportunities are expected from increased institutional customers’ demand for tailored and regional offerings, leading to financial service providers’ investments in enhanced market proximity. We believe that those developments will be accompanied by increased standardization efforts in the front office to balance the additional investments through simplification of internal processes and IT.
   
   
2. Standardization and centralization stretch out to front office processes—break up silo structures. Mid- and back-office departments are focus areas to standardize and centralize processes. While the search for initiatives to improve efficiency and lower costs has been an area of continuous attention in the past, and is expected to remain a hot topic for these departments, standardization and centralization is a relatively new trend for the front office.
   
   Especially in today’s financial markets, product silo structures are, or will be, broken up. This means substituting established product-oriented IT platforms, organizational and/or reward structures—especially regarding P&L responsibility—by cross-product structures.
   
   Additionally, the organizational boundaries between different business divisions (or organizational silos) like "investment banking" and "asset management" in large global banking groups are getting more permeable (again). This trend can be leveraged by intelligent operating model setups, which realize group-wide synergies.
   
   
3. Strive for execution excellence as prerequisite to handle intensified globalization. Execution excellence in both "run the bank" and "change the bank" activities is required to achieve the benefits strived for when increasing market proximity and standardization/centralization of processes. For example, to meet challenges related to time zones or intensified competition. If the goal of achieving execution excellence implies increasing offshoring activities, an often preferred solution is the setup of captive offshore centers.

To set up and shape a truly global operating model, the three trends identified and the changes in all dimensions of the operating models have to be addressed.

Next to these, we believe that companies should make special efforts in keeping and/or recruiting the appropriate talent when defining their operating model setups, especially regarding the organization model. This is particularly important as human capital largely determines the competitiveness of a company in the financial services industry. In addition, firms should reintegrate or outsource captives not meeting their original expectations.