Investment banking was built on a rich tradition of innovation—of products, markets and operating models—but the industry has been focused on cost reduction and regulatory compliance for too long. The organizational structures and culture that once encouraged innovation have weakened, and banks continue to deal with the burden of a heritage of complex and often inflexible technology and operating platforms that stymie innovation at great expense. In fact, our research suggests that banks spend triple the money maintaining their legacy as they do building and delivering new capabilities.
Meanwhile, advances in technology have helped lower barriers to entry and put information, scalability and global access—long the protective “moats” of investment banking—within reach of many. Between 2010 and 2014, the number of financial technology (FinTech) deals in New York alone more than doubled, from 33 to 85, and the emphasis of these firms has shifted from technology to business capability providers. Additionally, established players, including asset managers and hedge funds, often have more agile platforms and the desire to enter profitable segments of the investment banking market. The competitive landscape is being flooded with modern, nimble players, offering discreet technology-based capabilities in high-margin areas, including capital raising, advisory services, and beyond.
The old monolithic investment banking model is fading, and a new digital ecosystem is emerging—based on modern architectures and principles—where fresh thinking and client centricity rule the day.
Investment banks must begin today if they wish to secure a role in emerging digital ecosystems. Here’s how to start:
- Redefine clients, value propositions, and roles in the ecosystem. Who do you want your clients to be, what experiences and services do you want to provide them, and how? Where can your organization add the most value, and what should you stop doing? With whom will you partner, and how will you integrate? Do you have a clear view of where you fit?
- Embrace modern architectural principles and concepts. Are you experience-driven, service-oriented, collaborative and cloud-based in everything you produce? Does everyone in your organization (not just IT) understand the merits of Agile/DevOps, Micro-Services, Advanced Analytics, Cloud and XaaS?
- Focus on talent. Do you have the leadership and skills required to compete in this new environment? How can you create a working environment that will develop and attract top talent and help them thrive and grow? Is your legacy driving young talent away?
- Encourage and institutionalize innovation. What steps can you take to institutionalize innovation in your organization? Do you have digital innovators on your board of directors? Have you established growth counsels, “seed funds” or internal incubators? Have you formed closer ties with the venture capital community? Do you teach and reward entrepreneurship and innovation?
Embracing digital ecosystems is an opportunity for investment banks to reset their cost curves and return to innovation—unbundling current offerings and combining financial expertise with digital sophistication. It is not an option. It is an imperative.