Operating models are an integral part of building a digital bank and if not properly designed, a bank can suffer critical consequences such as high operational cost,increased time-to-market cycles, elevated compliance risk and slowed decision making.
In this blog article, we want to help you better understand how to avoid these pitfalls and show what it takes to design a comprehensive and successful operating model.
What is an Operating Model
An operating model is essentially a document that explains how value is created by an organization and by whom it is created within the organization. In other words, we can think of it as a blueprint that helps an organization convert strategy into operational decisions.
Based on our experience a complete Target Operating Model (TOM) will consist of 5 building blocks:
What entities and lines of business will I need and how are they structured
What key procedures and process flows will be necessary to run the organization
What technology and IT architecture will be needed to support and enable the organization
What key roles, responsibilities, types of people and skillsets will be needed in the organization
Strategy determines the TOM
The design of an operating model starts by describing the strategy. An operating model helps an organization and its management to translate strategic objectives into operational executable actions. Since the operating model bridges the gap between strategy and execution, it is fair to say, that the strategy ultimately determines the main building blocks of which the operating model consists.
Let’s take the example of an online lender whose strategic goal is offering loans to retail customers seamlessly and efficiently by leveraging technology and alternative credit scoring. Instead of siloed teams responsible for the loan creation that uses traditional data sources for pre-approval and loan decisions, the strategic goals require multiple cross-functional teams working closely together.
In addition to typical teams handling the customer acquisition, loan approval and underwriting process, a modern lender also will need teams responsible for the Data Platform or Machine Learning capabilities to support the new credit scoring models using alternative data sources. Such a team might also intervene across several functions and processes like loan monitoring or general customer servicing and with so many intertwined processes and teams, the organization will have a variety of subsequent requirements. These include teams who manage the necessary technology such as the cloud infrastructure but at the same time people with cross-functional abilities and ways of working across the entire organization.
Hence, before defining the Operating Model, a company should firstly create a clear strategic vision around the market, product and customer segments it will compete in, a differentiated value proposition and a well-defined business model. All these aspects should be detailed sufficiently since they directly influence the operating model design.
Steps in defining the Operating Model
Once the company has defined its strategic vision, so-called design principles should be established explaining how the operating model will support strategic objectives and determining key requirements and capabilities that must be supported by the target operating model. Building on the design principles, a high-level design can be defined that outlines the construct of the operating model from front to back. This could include rough sketches of the org chart, key roles and responsibilities of the main entities or an initial description of cultural guidelines for how people work together across the organization.
With the high-level operating model design set in place, a more detailed blueprint can follow. Next to basing the operating model on the overarching strategy, a second crucial aspect is to design an operating model around the end-to-end user journeys of customers. Therefore, we typically advise customers to move from high-level functions to detailed processes and organization design by identifying key user journeys.
Lastly, it is important to point out that as strategic priorities and objectives of a company change over time, so should certain elements of the operating model be adjusted to allow for consistently smooth operations.
How Fincog can help
The choices made when designing your operating model depend on a variety of factors and from our experience, there is no single, perfect target operating model that suits any type of organization. This is why Fincog puts its expertise and experience in designing modern operating models to work to help its clients design, build and scale digital banks.
Fincog is a leading strategy consultancy specializing in fintech and banking. We enable our clients with end-to-end consulting support in designing, building and scaling digital banks as well as transforming legacy organizations.