No financial services firm has yet developed a silver bullet for the competitive challenges looming in this highly competitive industry. Though innovation exists, minimal product differentiation remains, and no offering has delivered an overwhelming edge in some time.
Firms primarily outgun their competitors by devising sustainable methods to serve more customers with existing capabilities. Whether a firm wins customers away from competitors or attracts customers who previously were too expensive to acquire, success currently is defined by efficiency; organizations succeed not by product differentiation, but through process differentiation and process innovation.
That exigency explains the growth of business process management (BPM) over the past four years and, more intensely and with greater sophistication, in the past 12 months to 18 months. At its core, BPM enables companies to transform business strategy into business processes by fully integrating the work people do with the information systems employed to optimize business performance. A common characteristic of most approaches to BPM is that it helps companies to leverage existing IT investments more efficiently.
The 'Black Hole' Between Process Steps
Examine an important business process within the financial services industry and there's a good chance that it recently has become more efficient thanks to an introductory dose of BPM, though there remains considerable room for improvement. When customers direct their brokers to make trades, for example, many firms now can see each major processing step. The problem is that few firms can see into the black hole of what occurs - the system-to-system connections and manual handoffs - between processing steps.
A broker may initiate a customer's order in a trading system in Japan. The data then zips electronically to North America where the order is validated, run through a pricing computation, subjected to a compliance check, entered into the accounting system and then stored in a data warehouse.
This vital business process - one that may be repeated thousands of times a day - raises several important questions: Did the trade take place? Was it completed on time? Did the trade's terms, as they were executed, match with the terms that the broker communicated to the customer? If something went wrong, where and when did it go wrong? Is it being addressed, and who is responsible for rectifying the error?
Currently, few companies possess the line of sight into the business process' execution to answer those questions before problems arise. The process may falter or, worse, grind to a halt because the system or person responsible for a crucial step was unavailable. Of course, the most expensive time to discover that a trade did not execute as promised is after the fact. Customer dissatisfaction is a painful cost to stomach at a time when firms need to differentiate themselves on the quality of their service and support.
Shedding Light on Business Processes
Financial services companies have sought to make many of their processes - particularly those with a potentially material effect on financial reporting - more transparent. In the post-Sarbanes-Oxley era, visibility into key processes represents both a major risk and a potential reward. U.S. public companies that cannot see the dark spaces between systems and manual handoffs within processes that influence financial reporting run the risk of unsavory opinions from external auditors, or even a call from the SEC's division of enforcement and investigations. Companies that enhance their insight can limit the scope and cost of their external audits.
But, due to the financial services industry's heavy reliance on highly distributed and complex information technology systems, providing that capability is a major challenge. Those complex webs need to be untangled if companies are to reduce costs, broaden their market spectrum, and improve the effectiveness and efficiency of their compliance processes.