Evolution of Operations in 2023

Executive Summary

Technology has been upending a lot of industries. This has been especially true for Financial Services (banking, insurance) and Healthcare services firms. Financial services firms tend to have large operations filled with knowledge workers. Technological advances have been pushing more n more workers into the Knowledge worker category, by enabling new capabilities. As the US federal reserve raises interest rates, firms are under increasing pressure to optimize their operations and reduce operating costs. How will operations for financial services and healthcare services firms evolve in 2023? Read on to know more.

Changing Nature of Work

Emma, an accounting analyst at a major multi national insurance carrier, used to spend most of her day by collecting relevant financial data. Her day would start by receiving a excel report in an email from her supervisor. She would open the excel, go through the entries and for each row in the excel, collect financial transaction info from 5 different systems, update the excel with those transactions and save the files on a shared folder. Since these records in an excel would be used to generate financial reports, she had to concentrate hard and focus intensely on the data entries. One fat finger entry could mean major material implications to financial reports and potential regulatory fines and loss of reputation to the firm. She could never afford to have a bad day at work. All this pressure affected her morale and job satisfaction. Emma would end each day exhausted. Emma had repeated this work for over 25 years with the firm.

On a fine, sunny fall day, her supervisor called Emma into his office and told her that she had to work with a technology partner to implement an automated solution. The solution would automate reading of transaction reports, the collection of data from multiple systems, present collected data for review & approval and update the final system of record. It would also generate trend analysis and insights that could help the insurer better manage its revenue cycle. Emma's professional career had been upended. She had to refocus her skills from data collection, accuracy review and data entry to more business decision making. She had to build data analytical skills to work with the software. Her 25 years of experience would be invaluable in providing the right governance structure and interpret the results of trend analysis produced by the software.

Emma's case was not unique. That was the case for more than a billion knowledge workers around the world. As technology disrupts industry after industry, the share of knowledge workers has been growing across the world. That is particularly true for the US.

Re-thinking the Operating Model

Firms, especially in financial services and healthcare services, have to re-think their operating model and how they utilize the subject matter expertise of their vastly experienced workforce.

Operational model and its workforce matter, because that's the main way their end consumers will experience service with the firm.

Operating costs have to be reduced, without impacting the customer service levels.

As per a research, operations in financial services and healthcare services have some unique characteristics:

1. Fungible Products with an Extensive Use of Technology. One obvious difference between operations in financial services and operations in manufacturing and in other service industries is that the ‘‘widgets’’ in financial services are money, or related financial instruments. Much of the transactions are in the form of bits and bytes. Thus inventory is fungible and can be transported, broken up, and reconstituted (facilitating securitization, e.g.) in malleable ways that are simply not possible in manufacturing or in other service industries
2. High Volumes and Heterogeneity of Clients. Financial services are characterized by very high volumes of customers and transactions. Furthermore, customers are not all alike. In many firms, a small fraction of the customers generate most of the profits, giving the firms an incentive to view them differently and provide differential treatment, given the firms’ limited resources.
3. Repeated Service Encounters. In contrast to other service industries, where research typically focuses on a single encounter (‘‘the moment of truth,’’ ‘‘when the rubber hits the road’’), financial services are characterized by repeated service encounters or potential encounters between the firm and its customers due to regular monthly statements, year-end statements, buy/sell transactions, insurance claims, money transfers, etc
4. Long-Term Contractual Relationships Between Customers and Firms. Connected to the previous characteristic of repeat encounters is the recognition that, unlike in other services, in financial services the firm and the customer have a relatively long-term contractual arrangement. However, technology and information availability makes comparison shopping easy, resulting in easy switching between firms, and therefore high attrition
5. Customers’ Sense of Well-Being Closely Intertwined with Services. Along with the ease of manipulating the putty at the core of the financial services process comes the responsibility of working with something that is so close to the customer’s sense of well-being and worth. Poor operations management that results in delays, quality issues, or sloppiness can and will attract regulatory scrutiny and unfavorable publicity, and will generate immediate rebukes from the customer in the form of calls, complaints, and because the account can be easily moved around, customer attrition.
6. ?Use of Intermediaries. This is an important aspect of the financial services industry. In some cases a direct-to-consumer approach is used (credit cards); in other cases most of the customer facing work is done by intermediaries (financial advisors, insurance agents, annuity sales through banks, etc.); and in still other cases the firm’s employees and its agents have to collaborate with one another (insurance). Working through an intermediary entails a set of issues not normally seen in other services that function without intermediaries.
7. ?Convergence of Operations, Finance, and Marketing. There is probably no other industry where this convergence is more pronounced. These functions are supported and enabled by a healthy dose of statistics, technology, and optimization. By focusing only on back-office operations such as call centers, researchers in service operations are leaving a lot on the table.

Trends and Evolution of Service Operations

With these unique characteristics and challenges, financial services and healthcare services firms are being forced to overhaul their operating model. Based on my experience working with various clients in these sectors, here are a few ways in which their operating models are evolving:

1. Distributed workforce: Firms are designing their operational workforce across the globe, both to harness global talent as well as to service their increasing penetration into global markets. Operational processes are being spread across cross functional teams across the globe. Teams are designed based on functional expertise than geographical location.
2. Positioning for scale: As the competition for market share intensifies, the winners will be those that can quickly capitalize on new market needs. Those firms that are building their IT systems and workforce to scale and support growing customer demand will stand out. There has never been a good time to rapidly scale up or down the processing capabilities of their core IT systems.
3. Eco-system design: Firms that can proactively participate with partners, vendors/suppliers and end consumers will have more stickiness to their products and services. Building an eco-system with an "open API" culture, enabling free movement of data across the eco-system will be hard to beat.

As per Deloitte, free movement of data and resulting insights across a firm's operations will be a key factor to survive in 2023. The real value creation is in harnessing of consumer data, co-forging the collective subject matter expertise of employees and creating relevant products and services.

Technology Trends

As discussed earlier, some of the key technologies impacting service operations are RPA, Advanced Analytics and AI/Cognitive decisions. Together, these technologies provide capabilities that remove decision fatigue, boredom and other costly errors that could inadvertently occur in a purely manual operational process. Human ingenuity, experience and natural customer orientation are difficult to be replicated by technology. But operations can be re-imagined, where skilled workforce consumes data analytics presented by technology suite and improvises to serve consumers evolving needs.

Closing Comments

Positioning yourself for a changing operational landscape in 2023 is a huge challenge in itself. But trying to achieve that alone would be even more daunting. You would need to work with partners who have lead some of these transformations earlier and can show you the most optimal path to achieve the results. Please leave your thoughts.