Today, disruption is accelerating everywhere you look. The past three years have seen CEOs and leadership teams tested as never before, as they’ve had to navigate their organizations through multiple challenges ranging from a pandemic to supply chain dislocation, and from geopolitical tensions to energy shocks to rising inflation and interest rates.

Faced with the sustained turbulence, we have seen the leaders of many companies rise to the occasion. How? By harnessing technology to truly transform their organizations and operations further and faster than ever before. It’s a phenomenon that we call “compressed transformation”—and, since the pandemic, it’s taken center stage.

Multiple external forces at play…

The capital markets industry is no exception. Far from it. Alongside the forces impacting all sectors, capital markets firms also face a distinct set of sector-specific challenges—economic, technological, client-related and competitive—that are further amplifying the disruption. The result is to only intensify the need for change.

What are these challenges? On the economic front, rising cost pressures are compelling firms to drive greater operational efficiency, as macroeconomic headwinds dampen the post-pandemic revenue bounce. In the technology sphere, the growing need to manage costs, unlock the value of data and being able to offer new types of services (e.g., around digital assets), is pushing firms to leverage the power of cloud, data and artificial intelligence (AI).

In terms of customers, rising client demand for sustainable, ethical, tailored and digital products is driving firms to re-evaluate and reshape their portfolios and widen access to ESG and digital solutions. And in the competitive landscape, digital native entrants have forced firms to rethink their value propositions, while the global modernization of capital markets has driven new distribution models.

…converging to require Total Enterprise Reinvention

The overall effect? The scale, scope and interrelated nature of the disruptions now facing all capital markets firms mean a new approach to organizational change is needed. One that looks beyond the historical use of transformation as an execution lever for strategy in siloed areas of the business, and instead positions reinvention—end-to-end, and across the entire organization—as the strategy in its own right.

We call this new strategy Total Enterprise Reinvention. Effective and applicable across and beyond capital markets, it isn’t a “to-do” but a “to-be”: A deliberate strategy that aims to set a new performance frontier for companies and—in most cases— the industries in which they operate. Centered around a strong digital core, it helps drive growth and optimize operations. Talent and new ways of working establish a culture and capability for continuous reinvention, rather than a one-off transformation effort.

Through our research we found that roughly nine percent of all capital markets firms we surveyed met the mark of adopting what we have described above. We refer to them as Reinventors. That is not to say others aren’t changing as well. They may however just focus on transforming parts of their business rather than the whole and may tend to treat transformation as a finite program.

An important point to stress here is that just because a strategy of Total Enterprise Reinvention is “total”, that doesn’t mean it has to be done all at once across the organization. Rather, it’s “total” in the sense that every area of the business could benefit from a fresh look through a reinvention lens. And while change takes time, most survey respondents in our research expect their current or planned transformation journeys to happen faster than previous programs. The key is to start the journey early—before competitors steal a march and begin to pull away.

While only that small number of capital markets firms mentioned above having today embraced Total Enterprise Reinvention, we believe the competitive edge will become a major differentiator of performance within the next three years—and probably table stakes within five.

What reinvention in capital markets looks like

I’ve described what Total Enterprise Reinvention requires. But this leads us to two further questions: What does it look like in practical terms in capital markets and how can firms begin and navigate the journey?

On the first of these two questions. We believe Total Enterprise Reinvention enables capital markets firms to set a new performance frontier.

The bedrock for unlocking value is a strong digital core, enabled by next-gen technologies and data. We’re already seeing examples of this emerge, such as firms embracing DLT to progress towards T+0 settlement or sharing data via APIs with exchanges and customers. Next up is talent strategy and people impact. A case in point? The trialing of an OpenAI-powered chatbot as a tool for wealth advisors by Morgan Stanley.

Both the digital core and empowered talent feed into the ability to provide winning experiences for consumer and business customers: Witness how forward-looking firms are using data insights to take personalization to new levels and open up new markets such as the mass-affluent segment.

The digital core, an empowered workforce, and providing winning experience all support the ability to seek and scale new growth through an array of business models, many of them unimaginable in the pre-digital era. And all four breakthroughs need to be governed and aligned through a holistic approach to risk and compliance, and a deeply held commitment to being a sustainable and responsible business.

Time to turn ambition into reality

That’s the prize on offer. But how to realize the ambition? I think a lot starts with building out a strong digital core—especially in a technology-driven industry like ours. And to do so, it requires firms having an executive team that’s highly engaged with the relevant technology, data and AI capabilities. That could help to provide the long-term commitment needed. It’s also not only how much you spend on the digital core that matters—but spending it on the right things.

The message? The capital markets industry is being reinvented before our eyes. Is your firm getting on board? The choice is yours.

Watch this space for my next blog on generative AI which will be a major component of any central digital core for our industry segments and on detailing further what the new performance frontier for capital markets firms could look like.