Which management consultancy for banks is particularly in demand now in the digital transformation

Which management consultancy for banks is particularly in demand now in the digital transformation...

Since the 2008 financial crisis, negative headlines are no longer a rarity; in fact, a habituation effect has probably set in. Nevertheless, new negative headlines about the banking sector continue to attract public interest. Just a few weeks ago, the delisting of two former flagship banks (Deutsche Bank and Credit Suisse) from the Eurostoxx 50 dominated events. This was followed in the days that followed by a spectacular debate about how many billions Deutsche Bank had to pay as a result of its dealings with bad mortgage securities. This news pushed Deutsche Bank's share price to its lowest level in the company's history [1].

These types of headlines about major banks can be compared to volcanic eruptions: They always bring to mind how strongly it is bubbling under the surface. The situation is similar in the world of financial service providers as a whole. There too, things are bubbling up. Of course, the upheavals do not only affect the financial service providers that are the focus of public attention, such as major banks, but financial service providers of all kinds.

Given these market dynamics and the resulting pressure to act, it is not surprising that financial service providers are relying on external support to overcome the challenges. The financial sector has been one of the strongest consumers of consulting services for years and contributes a considerable proportion of the consulting industry's turnover. Expectations of consultants are correspondingly high. What kind of consulting should banks, insurance companies, leasing companies, factoring providers and other financial service providers rely on in order to meet expectations?

1. Banks and insurance Companies remain the most important Buyers oof management consulting Services

Consulting market continues to grow considerably

The management consultancy market in Germany continues to grow at a considerable rate. Even though double-digit growth rates have not been achieved for a long time, the sector has recorded growth of around 6-7% in the last three years. This is revealed by a glance at the facts & figures published annually by the BDU (German Association of Management Consultants) [2].

Banks and insurance companies remain important customers

Consulting for banks and insurance companies has a long tradition: The BDU's facts & figures also make it clear that the financial services sector, which is made up of banks and insurance companies in the BDU survey, has a strong share in the growth of the consulting industry. In the last three years, the financial services sector has been in second place with a share of around 24% of the consulting sector's total turnover. The extent of the financial services sector's need for consulting is reflected in the following figure: companies in the banking and insurance sector purchased consulting services worth EUR 6.14 billion in 2015. According to the BDU survey, growth is even expected to increase to a growth rate of over 8% in the future [3].

2. What does the ideal consultant Profile look like from the Perspective of Financial Service providers?

Changing requirements for management consultants - general trends

For years now, the consulting industry has been emphasizing efficient implementation reality instead of academic thought models in consulting approaches. To put it simply, consultants are less concerned with showing their clients the right path, but rather with paving the way, accompanying the client on this path and averting dangers that threaten along the way.

This is a result of the fact that increasing market saturation is increasing competitive pressure in the markets and therefore also the demands on market participants at all levels: from strategy development and strategy implementation to the implementation and automation of processes. Against this backdrop, the demands on consulting companies are obvious: traditional consulting approaches, in which a strategy is derived after a comprehensive analysis and then implemented by the client, are enjoying less and less trust from consulting clients. According to their clients' wishes, consultants should no longer spend a long time analyzing the current situation. They are expected to work with their clients to create the target state straight away. Today, management consultants have to arrive at the pitch meeting with a solution (e.g. based on best practices) in their luggage.

Requirements for management consultants from the perspective of financial service providers

What does this change mean for the financial services sector? It can be said with a clear conscience that what applies to other sectors applies even more to the financial services sector in this case. The crisis-ridden financial sector is known for its pressure to change, cost pressure, margin erosion and need for reform. Consequently, what was said in the previous paragraph applies in particular. The formula applies: advise, implement, support.

The ideal advisor profile from the perspective of financial service providers

This bold formula "advise, implement, support" should be concretized in consulting practice as follows: The ideal advisor for financial service providers today shines through outstanding customer centricity. The customer, their core processes and their culture are at the heart of the cycle of innovation, strategy, process optimization, IT solution, services and change management. The consultant provides the individual components, ensures their smooth interaction and develops them further in constant interaction with the customer. Graphically illustrated:

The components are briefly explained below.

• Innovation: In the financial services sector, too, the innovation factor has received a great deal of attention as one of the most important strategic cornerstones of the last decade. The challenge that financial service providers with their heterogeneous distribution structures and high regulatory requirements face in bringing innovation to the customer in a timely manner is worth emphasizing in this regard. The ideal consultant is already involved in the innovation process and always has an eye on the rollout: Is the innovation realistic? Can it be mapped using the existing IT solution or are adjustments necessary?

• Strategy: The role of the strategy consulting component results from the cycle shown in the diagram above: it is integrated into the cycle instead of being "enthroned" at the top of a consulting process as in the past. This change is also manifesting itself on the part of the providers of strategy consulting. Dr. Christoph Treichler, Partner at Zurich-based consulting market experts Cardea AG, states: "Strategy consulting is no longer limited to pure strategy development or strategy concepts. Nowadays, strategy consultants must also demonstrate a high level of expertise in strategy implementation. Today, strategy consulting requires solutions that are very specifically tailored to the company's situation and that can be demonstrably implemented." [4]

• Process optimization: The same applies here as for the strategy phase. Clients are very familiar with the problems and solutions themselves. On the customer side, there is no need for extensive analysis or for consultants to come up with ingenious solutions. Implementation experience and, above all, cost efficiency can be emphasized for the process optimization component. It is often no longer just a question of "how" alone, but rather "how quickly" a change can be implemented. In this way, companies want to secure a speed advantage and stay ahead of the competition.

• IT solution: Financial service providers recognized the need for high-performance IT systems at an early stage. Accordingly, IT outsourcing and, building on this, business process outsourcing (BPO) have a long tradition. Today, it should be noted that overcoming challenges at the IT level in the past usually led to major projects lasting several years. This is particularly true for established financial service providers, which include the industry giants from the banking and insurance sectors. Complex IT systems may still be necessary for many areas of application today. But there are also many problems where this is no longer appropriate. The demand side (i.e. the customers of financial service providers) is demanding new solutions ever faster, which can simply no longer be met in the context of large-scale IT projects. This calls for a new level of IT evolution. Financial service providers must master two-speed IT management with the help of their consultants. Consulting firms that already offer this new level of IT evolution, such as afb with its Fast Integration Business Services, are therefore in demand.

• Services: The need for services arises automatically in such a complex environment as in the consulting process described above, so they should be taken for granted. Particularly good consulting companies therefore have two essential basic building blocks: extensive customer orientation and targeted solution orientation! This turns seemingly interchangeable services into a real competitive advantage for the customer. For example, digitization in the area of document management offers a high potential for optimization in the form of shorter throughput and processing times. Nowadays, companies usually already have documents electronically, but the quality of the data generated by OCR and scanning processes does not usually meet regulatory and economic requirements and must be prepared for further processing. In this context, afb offers a post-capture service that enhances the quality of electronic data, e.g. from ID cards or payslips. This service supports customers with allocation, classification, plausibility checks and checks for recognizable security features or anomalies. As a result, customers benefit from improved data quality, greater efficiency and increased customer satisfaction.

• Change: It has long been recognized in consulting that it is not the "what" but the "how" that matters in a consulting process. Especially in a dynamic market such as the financial services market, it is important to "take along" those involved in the change processes: the people. In this respect, the change management component is particularly important for far-reaching changes in extensive consulting projects.

Summary of the ideal skills profile for consulting companies

So much for the ideal skills profile of consulting companies for financial service providers. But how can a bank, insurer or leasing company recognize which consulting firm has these skills?

3. Guidance for Financial Service providers when choosing the right Management consultancy

Criterion organizational size of the management consultancy => consulting boutique

The first point of reference is the size of the consulting firm. Can conclusions be drawn here as to which organization can meet the above requirements particularly well? There is a choice:

• Global players: These are the global brands with a worldwide presence, such as McKinsey, or those that have developed out of auditing, such as Accenture, Deloitte, KPMG, PriceWaterhouseCoopers or CapGemini. They are currently on a shopping spree to build up digitalization and innovation expertise.
• Consulting boutiques: This primarily refers to highly specialized units that are equivalent to medium-sized organizations. They focus primarily on excellent customer orientation, but are large enough to ensure international rollouts without any problems.
• Individual consultants: Individual consultants are generally closely linked to the client company, are part of its culture and organization and can be deployed flexibly. They rely on flexible networking or consultant networks to manage the tasks to be supervised or implemented.
• Consultant networks: There are consultant networks that attempt to combine the advantages of individual consultants with the benefits of larger organizations. Prominent representatives of this approach are Eden McCalllum and a-connect, which are particularly well known in German-speaking countries.

In our view, consulting boutiques are particularly well suited for financial service providers to be able to map the above competence profile. The reason for this is that their USP (excellent customer orientation combined with sufficient organizational strength) corresponds exactly to the needs structure of financial service providers: these consulting firms are very good at keeping up with the enormous pressure for change from their clients in the financial sector and constantly "staying on the ball". Very large consulting providers such as the global players have disadvantages in terms of "agility" due to the sheer size of their own organization. Very small consulting units, such as individual consultants, find it difficult to achieve the necessary impact for larger rollouts in the short term without frictional losses.

Company roadmap => IT criterion

Every company has its own history and individual development. Not all management consultancies have always been management consultancies. Companies have often developed from implementation practice into management consultancies. This is a development process that has been observed for a long time. However, digitalization has also triggered a noticeable increase in this phenomenon: companies from "related" industries are being added to the consulting market to an unprecedented extent. Examples of this include IT companies, human resources specialists and advertising and marketing agencies. Today, consulting clients are spoiled for choice. It should be noted that consulting companies are characterized by their roadmap and this has an impact on how they approach problems.

Which type of consulting company is particularly favorable for financial service providers? Due to the digitalization dictates of our time, there is a lot to be said for consultants with a strong IT pedigree. Consulting firms that have emerged from IT or software service providers have the most experience in "digitalization". IT will remain a key competitive factor in the future and, above all, a source of innovation, which is so important for financial service providers.

Thematic specialization => digitalization criterion

Thematic specialization has always been an important differentiating feature of management consultancies. Specialization in a consulting topic is chosen by many consultants as an important positioning feature. For example, you can specialize in important company phases (such as corporate development or crisis / turnaround / insolvency) or in technology-driven topics. One of the best-known specializations, which has probably not gone unnoticed by consulting market laymen, is digitalization.

The reasons for this are understandable: On the one hand, digitalization runs through all industries. On the other hand, it should be noted that all departments and functions of companies operating in these sectors are also confronted with digitalization. This means that every consulting company with all common functional specializations comes into contact with it. Here are three brief examples: The HR department is working on digitalization, and consequently so are their consultants, the consulting companies specializing in HR (HR consulting). The IT department is working on digitalization, and so are the consultants in the IT division (IT consulting). A marketing department is currently working on digitalization, which means that the marketing department's consultancy also comes into contact with it (marketing consulting). This makes it clear why there are currently a large number of consulting firms that have declared digitalization as a specialization.

In view of the overriding importance of the topic of digitalization, it seems necessary from today's perspective for consultants to have a high level of digitalization expertise. According to the thesis put forward here - what is true for other sectors is even more true for financial service providers - it is obvious that financial service providers should give preference to consultants who have strong digitalization expertise. As a result, digitalization appears to be the most important subject specialization from the perspective of financial service providers.

Criterion service form => Consulting 4.0 or BITP

The profile of the ideal consulting company for financial service providers presented here does not follow a scientific approach, but is based on pure practice: inspired and driven by its customers, afb Application Services AG has taken this path. Starting with a state-of-the-art IT system, the other components have been added and integrated over the course of two decades of working with customers. This form of service is well described by the term Business Innovation and Transportation Partner (BITP).

The content discussed in the current Consulting 4.0 debate comes close to the BITP philosophy. What is Consulting 4.0? Dr. Christoph Treichler investigated the movement in the article "Consulting 4.0 - new phenomenon or hype?". In his opinion, a top-down description is not yet possible at the present time. At present, Consulting 4.0 stands for the fundamental upheaval of an industry that has so far been spared structural changes. One of the upheavals consists of a rethink towards the philosophy of consulting, implementation and support described here in a circular fashion.

After all, there is such a thing as a birth or initial spark. In this context, he cites an article written in 2013 by Clayton M. Christensen, professor at Harvard Business School, which has attracted a great deal of attention in the consulting industry. In it, Christensen states that disruptive developments have now also reached the consulting industry. He attests that consultants need to reshape themselves: new business models, new growth areas and innovative products and services [5].

For the financial services provider, it can be stated: Consulting firms with a Consulting 4.0 or BITP orientation are highly likely to be able to offer the set-up presented here as the ideal skills profile.

Summary of the guidance for financial service providers

4.  The right Management consultancy depending on the Type of Financial Service provider

How strictly financial service providers should orient themselves to the ideal profile presented here depends heavily on the type of financial service provider. Not all financial service providers are the same. It is well known that this collective term covers a considerable diversity. First and foremost, there are banks, which in turn have a wide variety of forms, insurance companies and other financial service providers such as leasing companies or factoring providers.

There is also an important group of companies that do not yet offer financial services, but could soon do so: The group of secondary companies that act as financial service providers is also becoming increasingly important. First and foremost:

• Product providers (manufacturers and retailers): Tendencies for manufacturers, for example, to set up (or buy) banks to promote their sales have been around for a long time. They are the classics, but this focus is intensifying.
• Tech giants: Google, Facebook, Apple. They all already have a banking license. The activities of tech giants from the eastern hemisphere, such as Yandex and Alibaba, are less well known but very revealing.
• FinTechs: Young FinTech start-ups are currently at the center of attention as they enter the market with innovative and simple business models.

Unprecedented developments are currently taking place in terms of new players entering the financial market. We have analyzed them in the afb position paper "Finance Business Next 2020". If you are interested, you can read it here. At this point, we can only provide a very simplified overview of the complex constellation of players that will emerge on the financial market. For this purpose, we will divide the participants into two exaggerated worlds that correspond to two fundamentally opposing strategic directions: "defenders" and "attackers". Defenders are companies from the traditional financial world, such as banks. Attackers are FinTechs, for example. The organizational size component is also taken up, with the two characteristics "large" and "small". Based on these criteria, a simplified decision pattern is presented below and illustrated by way of example:

"Large defenders": you should focus on consulting firms that come particularly close to the ideal skills profile. The reason for this is that such a consulting partner has the skills that can compensate for the weaknesses of large defenders. For example, the large traditional players can compensate for the speed advantages of FinTechs with intelligent two-speed IT management without having to forego the advantages of their legacy systems.

"Small defenders": They can also benefit from a consulting company of the type presented here, but they do not necessarily need all the competence components to the same extent.

"Big attackers": Here, for example, a big tech giant might need less help in the technical and innovation area, but industry knowledge. Another large attacker, such as a traditional industrial company that wants to enter the world of financial services, has completely different requirements. The IT and innovation expertise of a BITP could be very helpful here.

"Small attackers": For example, a traditionally oriented consulting firm could also provide just the right added value for FinTech start-ups. FinTech start-ups usually bring skills with a pronounced IT competence and innovative ability that, for example, large defenders of BITPs expect. However, they may have other issues, such as how to organize dynamic growth.

5. Result

1. Management consultants and financial service providers will remain loyal companions in the future and are moving even closer together.
2. From the perspective of financial service providers, consulting firms should be practically oriented all-rounders. For the consultant, this means in the simplest terms: advise, implement, support. The ideal competence profile derived from this is to ensure the cycle of innovation, strategy, process, IT solution and change for the customer, who should always be the focus.
3. Financial service providers can identify such a company on the basis of various indicators: From an organizational perspective, a consulting boutique is well suited. It is particularly promising if their company history is primarily anchored in the IT and software sector. They are particularly good at implementing digitalization. As a form of service, Consulting 4.0 or BITP is a strong indication that the philosophy represented here is put into practice.
4. The extent to which financial service providers should orient themselves towards the ideal consultant profile presented here depends on the type of financial service provider - especially with regard to the entry of new players into the financial services market. The following tendency can be outlined as a rule of thumb: The more "defender" role and the larger the organization, the more important it is to have a consulting partner at your side who matches the ideal profile presented here.

Sources

1 zeit online (2016). Deutsche Bank share falls below ten euros for the first time. URL: www.zeit.de/wirtschaft/2016-09/deutsche-bank-aktie-unter-zehn-euro-unternehmensgeschichte-boerse
2 BDU (2016). Facts and Figures on the consulting market 2015 /2016, p. 5ff
3 BDU (2016). Facts and Figures on the consulting market 2015 /2016, p. 9
4 Cardea. Strategy consulting in the face of changing customer needs. URL: www.consultingsearcher.com/Cardea-Kompetenzcenter/Der-Beratungsmarkt/Strategieberatung-im-Zeichen-veraenderter-Kundenbeduerfnisse
5 Cardea. Consulting 4.0: The Future of Consulting or just a trend? URL: www.consultingsearcher.com/Cardea-Kompetenzcenter/Der-Beratungsmarkt/Consulting-4.0-The-Future-of-Consulting-oder-nur-Trend