Structural Reforms presents a once-in-a-lifetime opportunity to set your house in order!

Why this regulation?

In response to the financial crisis, a number of domestic and international reforms to bank regulation have been introduced or are currently being implemented. Many of these reforms seek to improve the resilience and resolvability of banks, including through making changes to their structure. In the United Kingdom, the PRA is required to make rules to implement the ring-fencing of core UK financial services and facilities. 

In October 2015, the Bank of England published two consultation papers; one on ring-fencing and the other on operational continuity.  Together these proposals sought to ensure that ring-fenced bodies (RFBs) are protected from shocks originating on other parts of their group as well as broader financial system and can be easily separated from their groups in event of failures.

Well-capitalised, resilient firms mean that when problems occur, critical economic functions, including retail banking, can be maintained and economic growth can be supported through ongoing banking activity.

The proposals sought to ensure that ring-fenced banks have sufficient capital resources on a standalone basis, sheltering them from risks originating in other parts of their groups. The proposed rules also mean that a ring-fenced bank can be more easily detached from the wider group by ensuring intragroup arrangements operate on an arm’s length basis – helping ensure important services remain available in the event of a failure of other parts of the group.

What is being sought?

The changes are intended to ensure that ring-fenced bodies (RFBs) are protected from shocks that originate in the rest of their banking group or the financial system in order to minimise disruption to the continuity of the provision of core services. They are also intended to ensure that RFBs, and groups containing RFBs, can be resolved in an orderly manner with minimal disruption to the provision of core services. The Act defines three ‘core services’: 

a. facilities for the accepting of deposits or other payments into an account which is provided in the course of carrying on the core activity of accepting deposits;

b. facilities for withdrawing money or making payments from such an account; and

c. overdraft facilities in connection with such an account.

The RFBs are required to assure the PRA that:

a. a ring-fenced bank has sufficient financial resources and liquidity;

b. intragroup exposures and arrangements between the ring-fenced bank and the rest of the group are managed in a prudent manner, at arm’s length;

c. the ring-fenced bank is clear on the PRA’s expectations on the use of financial market infrastructures; and

d. the ring-fenced bank can demonstrate the ability to continue to provide critical economic functions during resolution.

Who is impacted?

a. Firms which have core deposits in excess of the threshold of £25 billion

b. Firms with growth plans which indicate they are likely to meet this threshold by January 1, 2019

What is the process?

An application for RTFS has to be made to the court.  The application has to detail

a. The type and number of all transfers the applicant proposes to take as part of its RTFS application.  The details of the proposed transferor(s) and transferee(s) needs to be provided along with the respective firm reference number.

b. A detailed summary of what is being transferred (either wholly or in part) through each transfer.  This can be (a) transfer of core activities to be moved across to a RFB, or (b) transfer of ‘excluded’ activities moves from RFB into other authorised entities or transferred to non-authorised entities such as service companies.

c. Details of any exclusions that are being sought and justification for seeking exclusion.

d. Provisional timeline for RTFS including milestones, identification of critical path and key dependencies.

e. Any ancillary and/or complementary transfers being carried out in close proximity to the RTFS

The PRA must approve the (a) form of the scheme report; (b) the skilled person; and (c) the RFTS application to the court.   The approval from the PRA is in the form of certificates certifying

a. PRA’s consent to the RTFS application.

b. That the transferee will possess adequate financial resources

If the applicant is an EEA firm, the PRA will also issue an additional certificate certifying that 

c. The home state regulator of the transferee has been notified of the proposed scheme; and

d. A period of three months has elapsed from the notification date.

At high level process for RFTS is as below:

Ring fencing transfer scheme – approval of a skilled person

Part VII of FSMA 2000 provides for a process for approval of transfers of insurance or banking business.  Under an amendment (2013), an additional process for transfer of business known as ring-fencing transfer scheme (RFTS) has been legislated which will enable firms to restructure their businesses in order to comply with the ring-fencing requirements that will apply from January 1, 2019.

As part of RTFS process, firms must appoint a skilled person to prepare a scheme report.  The person preparing the scheme report should be: 

Appearing to the PRA to have skills necessary to enable the person to make the report, and

Nominated and approved for the purpose by the PRA.  The PRA is also required to consult the FCA before making its decision.

Who can be nominated as a skilled person?

The skilled person being nominated should ideally be one whose knowledge, skills and experience directly correlates to the type of business being transacted.  The applicant will be required to convince the PRA on the suitability of the skilled person being nominated.  Typical evidence required to substantiate a nominee skilled person’s qualifications may be his/her professional qualifications, theoretical and practical knowledge, membership of professional bodies, publications and experience.

In turn, the PRA, in consultation with the FCA, will assess the application for authorization on the following criteria:

a.  How the knowledge and expertise of the nominee directly correlates to the business being transacted.  This will include an assessment of the evidence submitted in support of the nominee’s knowledge and skills.  A key weightage is likely to be there for evidence of preparation of sec 166 report for PRA and FCA.

b.  The methodology being adopted to ensure the quality and independence of the making of the Scheme Report, and

c.   How the nominee will ensure that the ultimate responsibility of effecting the transfer rests with them.

Firms who have recently completed Part VII within their business would find this process familiar.

Interbank payment system

Article 13 of the Order prohibits a RFB from entering into any transaction  that requires the use of services provided through an inter-bank payment system unless it is a direct participant in the system.  Where the RFB is not a direct participant in the system, at least one of the conditions set out in Article 13(2) of the Order should be satisfied. 

This presents a sizeable issue for the RFBs who will have to either prove that conditions of ‘exceptional circumstances’ exist or make an application for approval of the use of indirect access to inter-bank payment system.  The application process asks for a lot of details on the proposed intermediary.  Firms intending to apply for RFB would need to get this sorted out quickly as any delay on this part can lead to delay in the court order.

How are you likely to be impacted and how should you proceed?

The key considerations for PRA while deciding on a RTFS application are:

a.     The quality of operational continuity arrangements of the entities to which those persons are exposed or connected and the ability of the entities to continue to provide core services to those persons;

b.     the capital position of the entities to which those persons are exposed or connected on a risk weighted and leveraged basis;

c.     the liquidity and funding position of the entities to which those persons are exposed or connected;

d.     the business-model viability and sustainability of the entities to which those persons are exposed or connected;

e.     the quality of the governance arrangements of the entities to which those persons are exposed or connected;

f.      the ability of the group to be resolved and the strength of resolution planning in place;

g.     the quality of the risk management and the systems and controls of the entities to which those persons are exposed or connected.

The skilled person is required to provide evidence that the transfer will not result in material deterioration in any of the above.

As evident from above, the applicants would need to perform a detailed analysis of their current operating model to assess the impact of the proposed transfer.  This impact would include, among others, an assessment of their key business components.  Some of the areas which they need to include are:

Customers:  What is the likely impact of the transfer on their customers?  How would they be impacted?  Would it result in a material deterioration of services?  How would the transferor and the transferee ensure continued (if not better) level of customer experience?

Products and Services:  What is the likely impact?  Will the transfer result in unavailability of certain products/services?  What is the extent of impact?  What options do the firms have to mitigate this impact?

Business Capabilities:  RFTS is expected to impact the current capabilities in a significant way.  The transfer would entail building new capabilities in transferor and transferee firms to demonstrate their capability to manage the operations independently.  Ring-fencing presents an excellent opportunity for the firms to assess the maturity of their business capabilities and create plans to strengthen their core capabilities.  A good way to do is through building an enterprise capability model for the firm and for the proposed entities.

Organisation structure:  How will the transfer impact the current organisational hierarchies?  Which new structures, bodies are required to ensure adequate governance of the proposed entities?  Which existing structures/hierarchies are no longer required and hence, can be dispensed with?

People/Employees:  What skill sets are currently present in your workforce?  How will it be impacted by the proposed transfer?  Which additional skills/people capabilities do you need to build to ensure continuity of service levels?  Are there opportunities to outsource some skills to service companies?  In addition, this is also a good opportunity to assess key person(s) dependencies in your organisation.

Data:  What will be the impact on data in the future operating model?  Which key data needs to be shared between the ring-fenced and excluded bodies?  What additional risk does that bring to the firms and how will that be managed.  If data needs to be shared between the transferor and transferee, this provides a good opportunity to get your data and reporting in order.  It is likely that there will be new reporting requirements in the post Brexit world and getting your house in order would prove beneficial in the long run. 

Technology:  Legacy technologies have continued to live in the firms.  Maintaining them has been an expensive proposition.  Ring-fencing presents an ideal opportunity to review your existing stack and explore options about them.  You may not want to get rid of them altogether, but this provides a wonderful opportunity to take a stock and rationalise it to contain your costs and improve customer experience.

Location:  RFTS presents a good opportunity to rationalise your locations.  Locating the transferor or transferee in separate location(s) would be a good move.

Suppliers/Partners:  Over a period of time, firms have continued to add suppliers and partners to their business.  There was never a good time to rationalise them.  And there can never be a better opportunity than this.

The above are, by no means, a complete list of the components that you need to explore.  Some other key elements that you also need to consider are governance, audit, risk and legal which are key components in providing evidence to the skilled person, and through him to the regulators.

Some other aspects that you also need to consider are (a) the magnitude and complexity of the project necessary to comply with Structural Reforms; (b) Which regulatory and/or tax drivers will impact the ring-fenced and the excluded bodies?  How are they inter-related?  How would the structural reforms impact your five year business plan, especially profitability and customer outcomes?

The key point which I want to make here is this:  if you do not have a documented model of your business, this is the best time to have one.  An operating model will provide you with a good starting point and would help you prioritise your activities, and hence prepare the timetable for transfer.  It will also help you answer key questions on your business model, its viability, your business planning and strategy.  In my previous experience, where I was involved in a Part VII transfer, the absence of an operating model proved extremely expensive to the client in the long run.  Be aware and avoid that.

Ring-fencing vis-à-vis  Brexit

Firms are gearing up to the harsh reality of Brexit.  And they will continue to live in this dilemma for a while, before the new department is operational.  Brexit will also impact your operating model.  The structural reforms could not have come at a better time.  The timelines for the structural reforms and (hopefully) for Brexit are likely to coincide.  This presents a good opportunity to focus on your governance, data and reporting.  At the minimal, these three components of your operating model are definitely going to be impacted by Brexit.  At the cost of repetition, there can be never a good time to invest in business architecture capabilities for your business.  Business architecture will help you map your key business components and your business capabilities which would provide a cross-functional vocabulary for decisions on operational continuity, capital, risk and business model viability.  It is advisable to make the most of this opportunity and broaden your horizon to include structural reforms as well as the post Brexit scenarios.  Your options for ring-fencing and Brexit may be aligned and you can save a lot of resources by doing it together.

The above view is based on the available information on the regulators’ websites and from discussions with a number of colleagues and practitioners who have been involved in legal entity amalgamation/divestment before.  While, the requirements for structural reforms have just been released (on July 7^th,  2016), there exists a lot of speculation about Brexit. 

I would welcome your thoughts on this.  Please use the comments section below or mail me at depak.mohan@deepakmohan.net

Organisational Culture Change and Business Architecture

Organisational culture is the behavior of humans within an organization and the meaning that people attach to those behaviours. Culture includes the organization's vision, values, norms, systems, symbols, language, assumptions, beliefs, and habits. It is also the pattern of such collective behaviours and assumptions that are taught to new organizational members as a way of perceiving, and even thinking and feeling. Organisational culture affects the way people and groups interact with each other, with clients, and with stakeholders. Ravasi and Schultz (2006) stated that organizational culture is a set of shared mental assumptions that guide interpretation and action in organizations by defining appropriate behaviour for various situations. Although a company may have its "own unique culture", in larger organizations there are sometimes conflicting cultures that co-exist owing to the characteristics of different management teams. Organisational culture may affect employees' identification with an organization. 

(The above definition is taken from Wikipedia. Emphasis is mine.)

 Organisation culture provides an effective ‘rallying force’ in the formative years of an organisation, when the size is small. As organisations grow in size (and complexity, geography, business lines), the organisation culture provides a ‘binding force’ to the group. However, there comes a certain stage (organisation size, spread, complexity) when the rallying/binding force is no longer effective. As organisation grows, it gets increasingly difficult for its constituents (especially for those who have joined the organisation post its formative stage) to associate with its culture. In turn, they find closer affinity to a culture which is exists within his immediate periphery. The larger an organisation, the greater is the dissimilarity between its constituents who are grouped into divisions, teams, departments etc. What happens to the original culture?

 At a certain size, the organisation culture starts getting “eroded”. This may be due to:

1.  The size of organization becomes too big for an individual employee to maintain his personal identity;
2. Too many products, divisions, processes to find a meaningful association with all; 
3. The larger an organisation; the more formal is the communication, and hence, the leadership (perpetrators of the culture) appears more distant. 

 How do employees react in this situation?

1. People need an ideological construct (read culture) to relate to. Once the BIG culture seems abstract, all-encompassing an ‘not-so-relevant’, they form their own ‘little culture’ within the DOMINANT culture 
2. The constituents of the little culture are more closely related to each other (i.e., by performing the same role, being in the same area etc) and hence, find greater affinity and identity in their ‘little culture’ than with the Dominant culture. 
3. Very soon, multiple little cultures become stronger enough to threaten the dominant culture. Organisations react by reinforcing the Dominant culture (or a variant of it), which is not always successful. 

 Here is the problem: First, virtually no one clearly defines what they mean by “culture,” and when they do they usually get it wrong. Second, organisation cultures develop impromptu in the initial years and hence an attempt to change it, in the later years proves an onerous task.

How does culture change? A powerful person at the top, or a large enough group from anywhere in the organization, decides the old ways are not working, figures out a change vision, starts acting differently, and enlists others to act differently. If the new actions produce better results, if the results are communicated and celebrated, and if they are not killed off by the old culture fighting its rear-guard action, new norms will form and new shared values will grow.

The key to changing an organisational culture is alignment of the ‘new’ culture with the little cultures in the organisation. As little cultures have grown, their constituents have more powerful allegiance to the little culture (which is more immediate and visible) than a wider Dominant Culture. A new Dominant culture would not uproot the existing little cultures. Rather any attempt to uproot it has often proved to be counter-productive. Quite often, HR is tasked with culture issues and they are left to change culture, with little or no support from across the organisation. Culture is an organisation-wide issue and a culture change works when most (if not all) constituents voluntarily agree to the new construct. The new construct cannot be perceived (or sold) as an alternative to their immediate (little) culture. Rather, it should be perceived as an extension to the little culture. Implementing bits of culture over a period of time has proved to be successful.

What does NOT work in changing a culture? Some group decides what the new culture should be. It turns a list of values over to the communications or HR departments with the order that they tell people what the new culture is. They cascade the message down the hierarchy, and little to nothing changes.

Where does Business Architecture fit in Organisation Culture change? As change agents, and working closely within ‘little cultures’, Business Architects are best placed to identify the key binding constructs within individual little cultures. It is important that these key constructs (ideas, processes, identity) is not disturbed in the initial stages. More important than the binding forces, are the ‘divisive factors’ – those that make a little culture seem ‘different’ from other such cultures. Once these ‘divisive factors’ are identified and reconstructed in a way that they no longer seem ‘divisive’, it is easier to break down the barriers and create a wider (newer) organisational culture.

For example, in the case of insurance industry, the claims departments (little culture) consider themselves unique and pivotal to the survival of the company, as they are solely responsible for preservation of capital by weeding out fictitious and fraudulent claims. In this construct, the marketing and sales functions seem to work against them. Using the construct (fraud detection process), and by identifying how claims fraud detection processes build upon the earlier ‘selection’ of customers done by marketing; and in turn, how marketing is dependent upon claims’ inputs to improve their selection of customers, the divisive forces can be diminished. The eventual aim of the new culture would be to allow the employees to associate with an organisation which is there to protect genuine losses incurred by a customer.

Business architects can work very closely with the HR team to identify, articulate and provide examples using the constructs of little culture, identify the ‘divisive’ constructs and re-architect a new culture which is aligned to the little cultures. The new organisational culture – articulated using little culture constructs – are easily palatable to the constituents. 

A good starting point can be the building of common frameworks across little cultures. For example, developing an organisation wide process framework which shows a same set of activities being performed across different groups (little cultures) – for different purposes, but geared towards the same aim. To resurrect the earlier example from Insurance, the Anti Money Laundering (AML) checks, credit checks done by sales and the fraud detection steps in operations or claims can be depicted using a set of common steps (albeit with small difference in activities), using the same set of reference data (as in an organisational database for known fraud cases). This would potentially encourage the two little cultures to co-operate and share ideas. 

In summary, I feel Business Architecture can play a definitive role in architecting an organisational culture (which may be based on a new target operating model) by using existing tools of his trade. I would welcome the views of my readers on this.

Customer Services - Keep It Simple

On 6th March 2013, I approached my bank (it is one of the largest bank in the UK) for opening a business current account for my company. I am not particularly happy with this bank, but when I needed to open an account for my business, I thought my past 10 years of (good) transaction history would help me in getting the account opened fast. As I write this in the last week of May 2013, my account is open, but I cannot transact! So much for the (good) transaction history! When the rest of the world is moving on and jumping on the digital ship, why is the financial services lagging behind? Its not that banks have not onboarded the digital band-wagon, but my experience shows that their digital face is just perfunctory – it continues to sit on top of ancient systems, processes and people who believe they live in 1950s. Another example. While I was facing the challenges opening the bank account, I tweeted my frustration to this bank’s tweet handler. All I got from them was “we’re looking into your complaint…”, “..have you contacted the customer helpdesk…”. Basically farce. I could not discern any eagerness on the part of the tweet handler to solve my issue. When a customer decides to approach you with a complaint, he says, “hey I am unhappy, but don’t want to leave you yet! Please set the things right!”. This is a golden opportunity for you to jump up to the occasion, take an extra step and provide mind-boggling customer service. And you miss that opportunity??? Some UK banks are offering digital banking, contactless cards and what-nots! I wonder how do they do this, while simultaneously taking 8 working days for a credit check (I get mine done in less than 5 minutes); 7 working days for compliance checks (it takes at the most 30 minutes to run the identify through all the systems); and, 78 days (and still counting!) to provide all functionalities to a customer to operate his account! Something is fundamentally wrong in the current operating model and architecture of the financial services. And it is not entirely their fault. While on the one hand we expect our banks, insurers, brokers to keep pace with technology, at the other we expect them to conduct their business with ever more caution, in the wake of financial crisis, identity theft etc. Are these two issues mutually incompatible? Are we expecting too much? Or does the fault lie with the inertia in the bank? The Internet and mobile have brought fundamental change in the way we seek and respond to our information needs. A couple of decades ago, we would happily wait for two weeks for a service request (let’s say change of address) to be fulfilled. And we were extremely happy with the timeline. Since the bank launched their website, our expectation has increased geometrically. Not content with checking my balance on any PC, now I expect my balance to be available on my mobile! And this list can go on. What has changed is our expectation of service from a service provider who has not kept pace with the time, but has continued to apply coats of makeup on a system (process and technology) which has never been designed to operate in this way. Rather than making structural changes in the system, banks and other institutions have continued to pay lip-service by making available a facility which is manually fulfilled at the back-end and then entered in the system to give an appearance of automated fulfilment. Such a façade is good to begin with if your competitors are scoring ahead of you on that count. But quickly it becomes a big problem as you have raised customers’ expectations. For a customer, finding another channel to communicate to a bank is a delight. However, underlying this delight is a (mis)belief, that for a bank, the customer is one single entity across the channels – post, email, web, mobile, social media. After all, he has willingly given all his usernames to you – so you should not have any issues identifying him across the channels. And because you can recognise your customers across the channels, so he is no longer obliged to restrict to one channel for a service request. The customer can inquire on a channel, get a quote on another, start an application on another and finally complete on yet another channel. For example, I ask for information of a new account by sending a text, use my tablet and get a quotation, start an application using my PC at work and finally complete my application at home. Yet, the experience is far from this. Instead of one seamless transaction across the channels, I find, I have to input the same set of data every time I change a channel, or, every time I log in using a same channel! Clearly something is missing here. When I compare this experience with other service providers – mobiles, for example, I get remarkably better experience. What have the mobile providers done that the banks cannot do? Launching a new channel (e.g., web self-service, mobile channel, social media) is a serious business. Have you thought of what gaps will it address in your current communication model? Have you thought of how it will complement/supplement the existing channels? How will it overlap with other channels? And how will you unify the messages across the various channels into one coherent message from your customer? I am again reminded of my bank and the time they launched their twitter handler. The poor operator was literally begging for some work on twitter: “Hi! I’m here to help. Please ask questions.” I would get this message every single day from my bank. And when the time came to seek help, clearly the bank had not thought through the end-to-end process of receiving, servicing and closing a complaint on Twitter!! So while I kept on bombarding the twitter handler with my frustration and asking what he is planning to do, all I could get was “I’m looking into this…. Please contact customer services…. So sorry to hear about your experience….” What should have ideally happened? a. Someone complains on Twitter; respond immediately, apologise b. Send a URL or a ref no in the public domain (twitter) and ask the complainant to call customer service with the ref number. You need to isolate the complainant ASAP before he can do further damage to your brand on the social media. This action lets other followers see that (i) you respond immediately and positively; and (ii) you are paying individual attention to the complaint. So you have turned a potentially damaging situation into a good PR exercise. c. However, if the complainant does not get his complaint resolved with your intervention, you’re in for a worse backlash. So you need to have an A-team ready to handle ‘special cases’ d. If you were to take a bold step, once the issue is resolved, tweet about the successful resolution and tag the complainant asking for his feedback. In the same way, if you have multiple channels of communication with your customers, but you do not have all the channels managed optimally, sometimes assigning a simple reference number, and asking the client to input the reference number for a particular service request will do away with the necessity of asking customer to fill in the same information every time. Managing a reference number in a ‘lookup’ is a fairly simple process, irrespective of the complexity or legacy of your applications/processes. Creating an agile and responsive customer service is not solely dependent on the technologies. Technologies – especially the new ones, like Business Process Management – helps, but they require a lot more that your systems can currently deliver. For example, for BPM to run effectively and provide optimal value, you need all your reference data in one place, your processes should be rationalised and your workforce flexible to be moved around. A tall task, if you look at the back office of most of the financial services companies at least. This does not go to mean that financial services companies can/should not implement new technologies. However, often, while your data is getting resolved, building a small team who are empowered to take decisions on the spot (to be rectified later on) and having sufficient access to resolve an issue, will go a long way to build your customer services credentials and pave way for your investments in new technologies. Financial services organisations have been investing significantly in upgrade of their technologies. However, they have not paid due diligence to the operating models to enable the new technologies. As such, you have old, processes running on new technologies –something akin to an old sedan chassis on a V5 (or whatever is the latest) engine: while you have the power below your bonnet, your seats and doors and dashboard will continue to rattle while you drive. And that is NOT going to be a pleasant driving experience. Before upgrading your systems, please think processes. Do you have the right processes to run on the new systems? And most important, have you fostered in the right environment for your people to execute them? After all, taking the sedan example, what good is a brand new engine or a chassis, if the person behind the wheels does not know how to drive?

Retail Distribution Review (RDR) and Social Media

While advisers are focussing on key aspects of RDR – such as qualifications and shift to adviser charging, they also need to pay attention to their communication strategy – i.e., changing communication needs of their customers. Social media is just one example of how the next generation does things differently, and how advisers may have to adapt to them.


Advisors may think that their current clients – the retiring baby boomers – still like the old fashioned face-to-face meetings. However, the object of their advise – their children, think differently. Naturally, the inheritors of the wealth are likely to gravitate towards the same advisors as their parents, but only as long as the advisors are serving their communication needs. The millennials (or Generation Y), are just not satisfied by one set of advise. They like to ‘trawl around’ on the web, engage in discussion forums, fish for more information on companies’ websites, comparison sites and social networks, before arriving at a decision. They are not happy with the annual statements received from the providers on their funds; they would like to view their funds at least once a month over the Internet.

Before they meet the advisers, they are sure to research the funds, their options, the comparative returns and thus go to the meeting ‘armed’ with a lot more information. And possibly, with an opinion on how they would like their funds to perform. In this situation, advisors need to (at least) aware of what is being discussed on these forum where their (potential) clients are actively engaged.

The millennials have – very often – conflicting priorities. More than the profit maximisations, they are driven towards ethics, morality and environment. Weren’t we the same a couple of decades ago? For them it is important to understand the green credentials of a firm (providers and advisors), their CSR activities and their ethics, before they would decide to invest in them.

Building and implementing a social media strategy is not difficult. It helps if advisors have a clear vision of their business, the profile of their clients and their expertise. Being a ‘Jack of all trades’ no longer work in this domain. Armed with your social media strategy, you have a clearer picture on who you want to target and for which products and services. Social media provides you an opportunity to engage with a much wider audience and understand the emerging needs of your potential clients. Once you have perfected the messaging on the social media, you’ll be surprised to find how quickly the message is being distributed to a very large audience (your potential clients). Your website is no longer a dull-and-drab page, but a ‘happening’ place for discussions on relevant (to your potential client) issues. Its like creating a new page every day. And pulling clients to your sites, by its contents.

While you are thinking about the new operating model in the post RDR world, it may be worth considering how to build these new practices in your business to be able to attract the next generation.

Customer Satisfaction is passé! Think Customer Advocacy!

Forget customer satisfaction. It is a thing of past; it reflects what has happened – you cannot build forward looking strategies on data from past events. In the world of social media, supported by smartphones and location tagging, you need to take customer satisfaction to the next level. Your customers need to be passionate about using your products and services and feel proud to talk about it. They are not your customers – they are advocates of your brand! And they love themselves and feel proud for doing just that!


Advocacy is very different from customer satisfaction or loyalty. A satisfied customer is happy to have used your products/services –he may return (and become loyal) or may not. Advocates are a breed apart. Advocates are ‘smitten’ by your brand – they see a reflection of their personality and values in your brand and seek to promote it. Advocacy is a relationship based on trust. Companies lose control of their brand message to the advocates who reach to the masses in an anonymous, everlasting way.

Advocates are the dreams for any company. But how do you go building advocates?

Start with the trolls: Surprised, are you? Trolls have the potential to generate a lot of negative vibes, doubts and apprehensions about your brand. They may not be factually correct – nevertheless, they sow a seed of doubt! Develop an environment where customers would not talk bad about your products/services. Identify and prioritise customers with high negativity and engage with them to fix the root issues. In many cases, the root cause of negativity is a trivial issue – which unattended, has snowballed. A small delay in response, a minor discrepancy in their invoice or a sour experience at your front office! All which could have been fixed with a simple solution, but were neglected and has become a sore point for the troll. It is still not late. Go ahead and fix it.

Very recently I stayed at an upmarket hotel at Bristol, UK. I was unfortunate to be trapped in a lift during a power outage! Being trapped in a lift where the emergency lights are not working and no one is responding to the alarm for over 25 minutes is a horrifying experience. I can’t blame the hotel for power outage! But I definitely blame the hotel for extremely poor handling of the situation after the event! The hotel staff seemed least bothered with the fact that a customer has been trapped in the lift for 25 minutes! Later when I complained to the hotel management (and even their CEO), I got the impression that (a) they doubt the trauma I experienced; and (b) it was not their fault as I was trapped due to power outage!

The experience of 25 minutes has converted me to a troll! Had they handled the post event in a positive way, I could (and definitely would) have commented on their excellent treatment of the situation!

Create the milieu for a positive customer service experience: Study the complaints from your customers – they have sufficient data on what does NOT work well in your business. What is the root cause of the problem in that department? My bet is (a) communications – internal, inter-functional communications; and/or (b) empowerment – the workers are not authorised to take initiative, or are not encouraged to do so! Develop effective internal communications where a worker does not think twice before taking a decision to deliver a positive customer experience. Reward and publicise such instances!

Take that extra step: when your customers least expect it and in return you will experience their long term commitment. A couple of years ago, I was travelling to Bangalore in India. My flight (Emirates) landed at Chennai from where I took a connecting flight to Bangalore. The domestic flight was through a local carrier – Kingfisher. When I landed at Bangalore I realised that I had a missing luggage (I was travelling with my family and hence 7 pieces of luggage). It was obviously not Kingfisher’s mistake as I had failed to collect my luggage at Chennai and hence did not check it in with Kingfisher. The Kingfisher ground staff went to his office and called the Emirates office at Chennai. When he was not able to locate my luggage, he took down my details and was finally able to track my luggage at Chennai airport. He arranged for the pickup and delivered it to my hotel in Bangalore. Of course, it cost a significant effort on the part of Kingfisher airlines! But it created a strong advocate of me for life – despite the fact that I have had quite a few instances of frustration since then.

Every customer experience adds to the trust. However, one ‘extra step’ experience can help build a life-time of trust and brand advocacy! In my earlier experience, had the hotel handled the post event positively, it might have been that ‘extra step’ required to turn me into an advocate! Their loss!

Companies now have the technologies to build deeper relationships with their customers – the social networks. Don’t underutilise the power of social networks by ‘promoting’ your brand. Rather encourage your fans/followers to share their experiences on the social networks. Encourage them to be creative and reward their creativity. You’ll be surprised by the response. Today, armed with a £50 digital camera and a computer or just their smartphone, customers can create extremely powerful messages for your brand, publicise and perpetuate them through the ‘likes’, reposts and retweets!

Customer Services have become the most important function in your organisation – even important than your sales and marketing. In this digital age consumers are seeking information as never before. It is the information that helps them make a buying decision. My buying decisions are being made by the group/community that I belong to and their recommendations. If I need to book a table at a restaurant, the first information I seek is customer’s reviews! I trust a Peter or a Jane who happens to be a friend of a friend of a friend more than I trust the restaurant’s ads!

Advocates play a key role in nudging people into buying decisions. Advocates are seemingly unbiased and people trust their recommendations/experience. The process of creating advocates requires a different level of customer service than you currently may have in your organisation. It requires a deeper segmentation of your customers into indifferent and satisfied. For the indifferent customers, emphasise the value that they receive over the price and create customised value drivers at the touch points.

For the satisfied customers, analyse their likes and dislikes (again trust social media to provide this information to you), align your values to those and build an emotional bond with them. Encourage them to share their experience – good or bad! Every bad experience gives you another opportunity to proactively engage with them and underline the importance that you ascribe to them! Create an ‘invitation only’ community for them where satisfied customers are able to comment on your ideas, future products/services and give suggestions. If possible, invite them to ‘exclusive’ events. And if you’re thinking about the returns on your investment, just consider the point when they turn advocates!

Matthew Rhoden summed this process very well by saying, “Satisfaction and loyalty are important, but they're old news. Forward-thinking companies will be the ones that identify and work with their customer advocates to genuinely build the brand, the customer base, and the bottom line.”

Customer Servicing @ Twitter

Twitter is just not to communicate with your friends; it can do a lot to your brand and your servicing.


What can 140 characters do for you? A LOT! Yes! A lot. Despite being designed as a two way communication channel for friends, Twitter has evolved to a serious business tool. And it just does not communicate your brand message. You can – and companies are doing it already – use it to enhance your customer support, turning customer complaints into customer compliments!

If you have not done so far, do a twitter search (search.twitter.com) for your brand. Chances are you’d come across people commenting on your products or services – some are good, and there may be some criticisms. So what do you do about it? You can (a) choose to avoid it; after all no one that you know uses twitter, or (b) deal with them head on. The first option can be risky. With 175 million (and growing) user base, the negative tweets have a fair chance of being commented upon, retweeted. And that does not hold your business in good stead. It is equally well known that the tweets do not stay on twitter. They are actively being included in web search results on Google and Bing, and are used to determine the (in)famous page rank on google. Think again, a web search on your product results in the first 5 results being negative tweets!

Little wonder why businesses are increasingly using Twitter and promoting it as a customer servicing tool. Creating a dedicated Twitter account for customer service (e.g., @CompanynameService or @CompanynameSupport) shows your customer you are treating Twitter as a legitimate way to talk to your business. It is just not there for brand building (often interpreted as one way communication), but to listen to customers and their issues. And you need not wait for customers to complain. Use Twitter search to find out if people have complained about your products and services before and start your conversation with them. Being proactive and searching out unhappy customers will earn a lot of accolades for your business. In addition you’d be seen as proactive and more likely to turn a (previously) dissatisfied customer into a ‘happy tweeter’.

Do not use Twitter to get involved into discussions with your customers. Use Twitter as a place to pick up an issue and move it quickly outside the forum to solve it. Of course, if you have solved the issue to the satisfaction of the customer, do ask him to tweet their feedback! If you are moving an issue away from Twitter, please remember that customer would expect the same promptness as on twitter. Just do a wild search on twitter to find out how many complaints are about the delay in response. If there’s a genuine reason for delay, reply to the customer’s tweets with the reason.

Twitter is a great way to build your brand while providing servicing to the irate customers. And it hardly costs anything. If your customers uses Twitter for raising their concern (or praising your business), you HAVE to be there to apprehend it and deal with it quickly and effectively. Nothing can be worse than unresponded tweets (and retweets, and re-retweets). If it has not been picked up by another irate customer, surely your competitors are not going to let it die down!

Markeets and mongooses: Going Viral!

He was born in January 2009 and seven months later he was an international sensation with a fan following to die for: 700,00 followers on Facebook, 22,000 followers on Twitter, a separate gallery dedicated to his family on Flickr, and some months later a hugely successful autobiography. The only problem is, he’s a CGI anthropomorphic Russian Meerkat. Meet the famous Aleksandr Orlov from comparethemarket.com (or comparethemeerkat.com).


As his popularity grows, so does the twist in his family’s tragedies which viewers never tire to watch over and over again and share the through YouTube, FaceBook, Twitter and a host of social media sites. Aleksandr is every PR agency’s dream! Every company’s dream mascot. (and I do hope, using a twist on the spelling would help my blog too!)

Why does a campaign turn viral, when others don’t? What was special in this campaign? It was an advertisement for (yet another) comparison site with a plain Jane name! Yet, the meerkat caught the imagination of its viewers catapulting the website to the top!

One of the coolest things about the Web is that when an idea takes off, it can propel a brand or a company to seemingly instant fame and fortune. For Free. Whatever you call it – viral, buzz, word-of-mouth... – having other people tell you the story drives action. One person sends to another, then that person sends it to yet another and so on. The challenge for marketers is to harness the amazing power of word-of-mouse.

Let’s look at some of the products/campaigns that have been successful. Is there something we can learn from them?

Classic Case 1: Hotmail.com

The classic example of viral marketing is Hotmail.com, one of the first free Web-based e-mail services. The strategy is simple:

1. Give away free e-mail addresses and services,
2. Attach a simple tag at the bottom of every free message sent out: "Get your private, free email at http://www.hotmail.com" and,
3. Then stand back while people e-mail to their own network of friends and associates,
4. Who see the message,
5. Sign up for their own free e-mail service, and then
6. Propel the message still wider to their own ever-increasing circles of friends and associates.

Like tiny waves spreading ever farther from a single pebble dropped into a pond, a carefully designed viral marketing strategy ripples outward extremely rapidly.

Classic Case 2: Gmail

Unlike Hotmail, Gmail came up with a different strategy. It invited a select group to Gmail. The initial invitees had a limited number of invites. As PC users were getting used to Google, they were intrigued by the ‘exclusivity’ surrounding Gmail. Very soon, people were ‘begging’ the Gmail users for introductions. Some enterprising chaps even tried to ‘sell’ gmail accounts introductions on the web!

So what was different in this case? Exclusivity, obviously!



Case 3: Multi-level marketing

Use existing communication networks – Multi-level marketers have perfected this art. Social scientists tell us that each person has a network of 8 – 12 people in their close network of friends, family, and associates. Start with one and expect the communication/service/product to ride on this network. If you have a LinkedIn account you are aware of this geometric progression.

So what are the key elements of a successful viral marketing? Ralph Wilson, very aptly sums them up as follows:

1. Gives away products or services
2. Provides for effortless transfer to others
3. Scales easily from small to very large
4. Exploits common motivations and behaviors
5. Utilises existing communication networks
6. Takes advantage of others' resources

It is not necessary that all elements must be present for a campaign to turn viral. However, it is logical to assume that the more elements are present, the more powerful the results are likely to be.

The Internet provides a perfect nurturing ground for viral marketing. You devise a plot, weave a story (3 minutes maximum – keep YouTube in mind), put it on the web and start talking about it. It can begin from as simple as putting a link below your email signature, to posting a link on facebook and twitter. As you can see, the formula for success includes a combination of some great—and free— Web content (a video, blog entry, interactive tool, or e-book) that provides valuable information (or is groundbreaking or amazing or hilarious or involves a celebrity), plus a network of people to light the fire and links that make your content very easy to share.

While this looks fairly simple, I wish I could tell you whether your campaign will turn viral. Honestly, if I knew this secret, I’d not be here writing this blog! Having said that, the fact remains that viral marketing is one of the most exciting and powerful ways to reach your audiences. It is not easy to harness the power of word-of-mouse, but any company with thoughtful ideas to share – and clever ways to create interest in them – can, after some careful preparation, hit the jackpot. And, even if you do not this time, what do you have to lose?

Digital strategy can help manage your reputaion risk

Whatever be the size of your business, the most serious dent to your reputation can come from a single highly motivated individual armed with a $100 laptop and an internet connection.


Digital world has opened up a situation where businesses are constantly exposed to threats to their reputation. And the opposition may not be a competitor, or another business; a disgruntled customer, a sacked employee or even an imposter (see my earlier blog “Do you have a digital strategy in place?) , armed with a computer and an internet connection can cause serious dent to your business. Internet, and the profusion of digital forum has dramatically changed the rules of engagement. It has levelled the playing field between large businesses and single individual. What is required is the dedication and perseverance to post disparaging and (often) damaging contents about a business on key sites, stroking the flame the keeping it alive for a minimum time for it to start raging. And business leaders do not have any advance warning or time to reflect!

If your company comes into disrepute for any reason, you can expect

• A media grilling
• Negative public opinion that is hard to reverse
• Punitive fines, if applicable
• Unwanted attention from pressure groups
• Disastrous sales
• Reduced profits and revenue.

In this economic climate, can you afford it? How can you be prepared and be able to identify and kill these sparks early? What new tools or techniques do you need in your business to counter these sniper attacks?

The permanence of web comments makes the internet a challenging place for corporate reputations. There was a time when bad news that surfaced in traditional media might be expected to blow over in a couple of days. These days, however, just about every google search for a business’ name can dredge up gripes from years past. This is a good reason for communicators to take control of their online destiny and ensure they are in driving seat when it comes to steering their corporate reputation.

With a meaningful digital strategy in place, it can go a long way to keep you prepared for such situations. How does it work?

A digital strategy helps you think through the different future scenarios/events that your business can be exposed to. Let’s take the example of insurance industry. The industry has been at the receiving end of criticisms, since the onset of economic crisis. Websites, discussion forum, tweets are full of criticism on products, processes and people in the industry. Be it remunerations, bonuses, measly returns or unsettled claims, people get a (almost) perverse delight in posting criticisms on the digital forum. What is conspicuous is an almost lack of response of any kind from the companies. I am not trying to defend the insurance companies. But I cannot believe that they do not have a point of view which they would not like to share. And sometimes the insurance companies do share their points of view. But by the time, the response is written, re-written, reviewed and whetted by compliance, legal, marketing, communications etc, the number of ‘re-tweets’, post-shares and comments have far exceeded the response. The response is often apologetic, light and lost in the storm of responses.

In the current landscape you cannot afford to be reactive. Most often, you are aware of future events/triggers which have potential disruptive impact on your business. You need to have canned responses ready for it. Or, better still; offset the negative response by publishing your view point ahead of the reaction. Let’s take a hypothetical case. An insurance company has been imposed fines by a regulator for a breach. The business is aware of the fine days before it is made public by the regulator. The business can do well by identifying potential scenarios (read responses) to the news, the potential sites where the reaction would be published (for example, trade journals, blog sites of industry commentators, financial discussion forum and not to forget, their own Intranet). The marketing/PR/Strategy depart has pretty good idea of the extent of criticism that the news would generate. Armed with this insight, the business could prepare ‘wire frame’ responses to the (potential) reaction which could be quickly customised and posted, as the reactions are being aired. Or, even better, pre-empt the reaction by breaking the news themselves with details on the steps the company is taking to ensure that the breach is not repeated in future!

Planning ahead helps – this is a well known fact. Building and nurturing a mechanism to plan for such situations will relieve the business of herding the stakeholders into their war room every time there is a crisis. The mechanism to plan for such scenarios is your digital strategy team. It is a small group drawn from various key functions who understand the potential impact of various digital forum, and who are empowered to issue responses as the reactions are posted, or as an event unfolds! What helps them to perform this role is your digital strategy.

Today having a meaningful digital strategy is not less important than a business strategy. Digital space is emerging as the de facto place for sharing ideas and opinions. And, shaping them as well. In a recent survey conducted by @equalman production suggests that 78% of the consumers trust peer recommendations as against 14% who trust adverts! The various forum give you a perfect opportunity to be in touch with the popular discussions on your products and services, engage with the participants and help shape the opinion. If 78% of the users trust a peer review, there cannot be a better business case of having a presence on the digital space and engaging with them.

Your presence on the digital space also ensures that any disparaging comments/observations made are picked up and dealt with swiftly. A demographic analysis of the users can reveal wealth of opportunities for the business participating on the digital space. Analytics and insight forms a separate topic itself, which (hopefully) I will cover in a later blog.

In this world of mega-connectivity, businesses need to rethink their marketing/communication strategy to engage the customers and help shape opinion and nudge them into a buying scenario. The population is willing to listen and form an opinion on your products and services. Have you been engaging with them recently?

Building Meaningful Digital Strategy

Issue: If consumers are spending 30% of their time online, why does marketing department spend only 5% of their budgets online?


We are amidst the second wave of excitement around digital. In the ‘90s, there was a lot of excitement around the new way of selling products and services to the customers. The euphoria was short-lived. There was nothing wrong with the channel – what we failed to realise that it takes a long time for habits to change.

Over the decade, as Internet grew, our target customers have become more active online, embracing all manner of new digital media habits—from social networks to smart phones—and they are continuing to spend more time and money online despite the economic meltdown. Unfortunately, digital marketing has been largely unable to benefit from this shift. The reason is simple: People no longer need what we offer to them. We continue to dish out what we had created in the ‘90s (or micro-improved variants of the same content) and expect our consumers to lap it up.

What gets passed around as Digital Way of engagement - spam emails, banners, commercials, pop-ups – no longer catches the fancy of customers. In fact, they are actively taking steps to get rid of them. Today, customers actively take part in selection of the content, presentation and audience.

And this is not a passing fad. Digital connectivity is here to stay. It will radically change the way a business engage with the world (consisting of customers, prospects, defectors and critics). As the ‘digital way of life’ sinks in people’s psyche, it is important that businesses recognise this trend and build strategies for it.

So what is a meaningful Digital Strategy?

Digital Strategy is NOT about Social Media. Social Media is – at best - a part of digital strategy. Neither are mailers, banners or pop-up. A mere presence on the web – be it website, or a presence on the social networks – does not constitute a digital strategy. There exists a wide divergence on the exact definition of Digital strategy. For the purpose of this blog, I have used a generic definition of digital strategy as a process of specifying an organisation's vision, goals, opportunities and initiatives in order to maximise the business benefits digital investments and efforts provide to the organisation. These can includes customer intelligence, collaboration, new product/market exploration, sales and service optimisation, enterprise technology architectures and processes, innovation and governance using marketing and customer-focused efforts such as web sites, mobile, eCommerce, social, site and search engine optimization, and advertising.

The profusion of social media sites, fuelled by easily accessible tools for content generation has put customers in the centre-stage. Connected customers have become ‘prosumers’ (borrowing a term from Alvin Toffler), producing and consuming information as they surf in the digital space. They actively seek to engage with the businesses for a variety of needs. They seek information, they provide feedback and are willing to be consulted. Being empowered, and equipped with the tools, they definitely not appreciate being ignored! If they have a point of view, they post it, share it and invite comments on it. Be it a product, service, provider or an event. They can be cryptic and post their views in less than 140 words (on Twitter), and/or provide details in greater length (on a blog), and/or provide visual evidences (Flicker) or even videos (YouTube). And the list does not end there! If your website does not provide enough information on your products/services or if they do not agree with your view, they can leave comments on your website using sidewiki!

This empowerment of the prosumer poses a great risk and an opportunity for businesses. The risks are pretty obvious. A serious (and malicious) campaign against your business can be launched with little effort and, if directed carefully, can cause serious damage to your brand. After the explosion of BP’s Deepwater Horizon drilling platform, for example, Leroy Stick (an alias) began publishing the tweets of a totally made-up representative of a similarly bogus BP global public relations division. While crude oil spilled into the Gulf of Mexico, devastating the regional ecology and economy, the satirical Twitterer (@BPGlobalPR) tweeted about the division’s lunch menu and other inane matters. Tens of thousands followed his updates—far more than the number who followed the real BP Twitter account. Through this low-cost effort, Stick helped keep Americans’ rage boiling as BP scrambled to plug the well and restore faith in its brand.

On the other hand, a well-thought strategy to engage with the prosumers on digital space, can provide new business opportunities, insights and opportunities to collaborate more actively with your customers and prospects alike. And that too, at a fraction of cost.

The prosumer seeks connectivity. The prosumer is looking at ways to engage with you. So why are businesses shying away from this opportunity to work closely with their customers and prospects. For one, they have little idea on the composition of the prosumers – who are they, what is their profile, are they my potential customers or just ‘teenagers wasting their time on the Net’. Second, businesses are (most often) unaware of what is being talked about them. Third, they are unclear how to channelize the prosumers into meaningful conversation, and for what purpose.

A meaningful digital strategy provides answers to precisely these questions, provides insight to the popular sentiments on your business and helps you build activities to enable you to engage with your market, build meaningful dialogue and prepares you to counter any negative sentiments arising out of internal or external factors.

Unfortunately, you cannot buy digital strategy off the shelf! Your digital strategy should reflect the uniqueness of your business. It should be based on a careful deliberation of the face that you want to present to the world, how you want to be perceived, the scenarios that you foresee and your typical response to the scenarios. These gets built and refined over time, as your digital engagement increases. Your digital strategy may get ‘dictated’ by the prosumers – they may disagree with your digital persona creating a situation for you to ‘think through’ the strategy again.

Scary as it may sound, building a digital strategy is as much simple (or complex) as thinking through your business/marketing strategy. The difference being, you work with ‘real’ insights gathered from the digital world, and the response to your strategy is far more quicker than any other strategy.
Before I end, one word of caution. Digital strategy is a one way street. You cannot decide to abandon it half-way. Once you have built your presence on the digital space and have decided to engage with the world, back-tracking can cause you more damage than before. In all my engagements, I do not fail to emphasise this over and over again. Before you start your journey, you need to be completely sure that this is the way forward, as it will radically change the way you engage with your customers and prospects going forward.

Do you have a digital strategy in place?

Odds are that a small-scale antagonist, armed with an internet connection and a $100 digital camera can pose serious threat to your business. Are you prepared for this?

After the BP disaster in Gulf of Mexico, a satirical Twitter (@BPGlobalPR) attracted tens of thousands of followers – more than the official BP Twitter account. @BPGlobalPR (mis)fed totally made-up stories on BP – from (supposedly) PR Division’s lunch menu to a lot of inane matters. @BPGlobalBP, through his efforts helped keep Americans’ rage boiling while BP was scrambling to cap the leaking well and salvage its reputation!

The rules of engagement have changed. Irrespective of your size, your strongest and most vicious critic can be a single disgruntled customer, an employee or even a self-styled crusader who has decided to launch his tirade against you. While some of the criticism may be based on truth, often a rumour or hearsay is enough to let loose a tirade and, fuelled by ‘page-hits’ continue to build the story. The most unfortunate part of the story is that the popular belief in such stories is inversely proportional to the size of the company/ public stature of the person against whom it is written!

Corporations have since long ignored the power of internet. The Internet has levelled the playing field between the large corporations and individual activists. This is not to say that traditional PR tactics are irrelevant. PR, media, advertisement still continue to influence a vast majority. However it is not enough! Companies need to integrate social media as a core building block in their strategy.

Social media does not have only a negative influence. The new generation – born and brought up in digital age – use it as a primary source of information and decision making. The traditional funnel metaphor has given way to customer decision journeys. Decisions are largely being influenced by social networking sites, product review blogs and other such forum. Another big leveller is You Tube which contains more than 50000 videos on product reviews ranging from cars, cosmetics, software, guns, financial products, mobiles.... you name it, it’s been reviewed on You Tube.

The proliferation of social media means that companies need to change the rules how they engage with their internal and external customers. You need to understand the demographics of the people who access these sites and tailor your message to help in decision making. Quite a few of us would recall ‘Second Life’ phenomenon and the advertising blitz of real-life (or first life?) companies on ‘Second Life’! It is interesting to note that most adverts on the Second-life were almost the same that you saw in real life.

Digital Strategy

So what constitutes a digital strategy for your organisation? Or better still, what is a digital strategy? Wikipedia  defines Digital strategy is the process of specifying an organization's vision, goals, opportunities and initiatives in order to maximize the business benefits digital investments and efforts provide to the organization. These can range from an enterprise focus, which considers the broader opportunities and risks that digital potentially creates (e.g., changes in the publishing industry) and often includes customer intelligence, collaboration, new product/market exploration, sales and service optimization, enterprise technology architectures and processes, innovation and governance; to more marketing and customer-focused efforts such as web sites, mobile, eCommerce, social, site and search engine optimization, and advertising. Phew! Simply put, the extension of corporate strategy to include and harness the power of digital media is a simple definition of your digital strategy.

To build your digital strategy you need to identify the specific opportunities (or challenges) that digital media imposes on your business, develop a vision on how to exploit digital media to address those opportunities/challenges and prioritise a set of initiatives to deliver them. I have come across some companies who have ‘done’ their digital strategy! As with their corporate strategy the digital strategy is ever-changing. You need to constantly monitor your digital strategy and improvise it.

Digital involvement is viral – it can go extremely well for your business and create an altogether different level of branding (heard of Blendtech? If not search them on YouTube. Remember to see the page views for each of their posts!) or can go horribly wrong. If you have got your digital strategy right you are prepared for the latter!

Solvency II – Does BPM hold the key to painless compliance?

Solvency II has forced insurance companies to relook at the business in a holistic manner – an end-to-end value chain consisting of internal and external business processes comprising of risk, finance, policy admin through to sales and distribution. No longer can executives afford to think of their functions as ‘islands’. There is an urgent need to stitch the disconnected systems, processes and stakeholders in a single ‘eco-system’.


Insurers since long have been having a flirtatious relationship with Business Process Management (BPM) tools. I guess, the time is ripe for BPM tools to shine and rescue the insurance companies from their plight.

So, how can BPM help insurance companies meet their Solvency II compliance?

Solvency II, in a nutshell, is about creating transparent processes across the organisation, which would help executives to get a pan-enterprise view of risk. The three pillars are built around identification, quantification and reporting of the risk to the regulators. In order to achieve this, insurers are building/revising their risk management frameworks. A Risk Management Framework (RMF) in a nutshell is an integrated view of risk management including consistent processes for analysing, evaluating, mitigating and communicating risks. RMF will enable an insurer to bring together a risk-based procedure, governance structure and integrated methodologies where the relationships between processes, risks, controls and regulations are made more visible.

BPM tools can help companies meet this challenge effectively. The formal processes, once approved by the regulators can be built using BPM and deployed in the organisation. Workflows are best placed to build governance structures to manage risks with built in triggers to escalate to appropriate roles in the organisation, should the need arise. Reporting (Pillar 3) can be delivered with greater certainty using the dashboards.

Solvency II is not ‘one-off’ compliance. CEIOPS expects insurance organisation to embed a culture of risk within the organisation, using Internal/Standard Model and Use tests to validate their risk management frameworks and constantly improvise the results for better quantification of risks. Building a ‘one-off’ compliance for Solvency II would entail repeated enhancements to the systems and processes. As against this, BPM tools provide the flexibility to dynamically change the processes with minimal costs and minimal down-time.

Documentation is another area of concern for insurers and regulators. CEIOPS has published guidance on this topic and insurance companies are expected to maintain comprehensive documentation on the processes with detailed explanation. While companies have been exploring Sharepoint and similar tools for this, I strongly recommend using the document management capabilities in BPM for this purpose. The document management capabilities in a BPM tools provides for scenarios where documents need to be accessed by a large group of people who need to collaborate on them. Another point in favour of BPM!

Many insurance companies have successfully deployed BPM in some functions (or majority of functions) in their organisation. It is the perfect time to extend the deployment to cover critical areas which would also help them comply to Solvency II.

Mobile BPM - Why do we have to wait so long for it?

Let’s face it. Mobile applications are here to stay. And they mean business! Gone are the days when iPhone Apps or Google Apps were for fun, or social networking. Increasingly, companies are building apps meant for serious business, designed to help their work-force and customers alike to improve their touch-point experience with the business.


Mobile apps face a serious challenge in being ‘too restrictive’. To quote Medhat Galal, If Business Process Management (BPM) is going to do for process what Google did for information, BPM must be mobile and always on. A good example is UPS or FedEx who have built their own ‘mobile BPM’ applications to meet their customers’ demands. Why can’t other companies do the same. The personnel working in the field only carries local information on his device (Laptop, Blackberry or even IPad). To a large extent they still remain locked out from the data which could help them access the most up to date information and close the meeting/sale successfully. “I will get back to you”, has a history of missed opportunities – ask any salesperson!

So what has prevented Mobile BPM to develop and be available for adoption. For one, the differing standards – Apple, versus Android versus Symbian versus RIM versus Windows Mobile versus.... has been a major barrier to adoption. Very recently Cordys has shown previews of mobile BPM for Google Apps that supports Smartphone. The smartphone support is enabled via a new Mobile Apps Composer offering, which allows users to design business processes for their smartphone. A good place to start building Mobile apps would be typically administrative and HR processes as they involve the review of limited amount of data that can be easily handled by mobiles. Imagine a senior executive logging on to the enterprise applications while waiting in an airport terminal or commuting to a meeting, and approving all the pending requests, leaves etc!!! Such a saving on time!

I believe the time is ripe for BPM vendors to take the step towards Mobile BPM. I hope to see that happening in the next couple of years!

Have you analysed the business implications of Solvency II?

In a recently published report by Morgan Stanley and Oliver Wyman, the impact on Solvency II on an insurance organisation becomes increasingly clear.

 

The report uses their proprietary QIS5 model to analyse the impact of Solvency II on four fictitious companies – a life company, a non-life, a composite and a reinsurer. The key findings were:

 

The solvency ratios for the non-life oriented insurers show sharp declines under QIS 5;
Reinsurers are likely to see a major decline in reported solvency ratio, but demand for reinsurance should increase;

• For life, the major impact is for participating (with-profit) policies;
• The majority of the industry's capital requirement would come from a combination of market risk and participating contracts;
• Diversification benefits will also be a key driver of the Solvency II capital requirements; and
• European insurers may become competitively challenged in markets with "non-Solvency II equivalent" regimes.

 

Being one of the largest regulatory programme till date, it is important to view Solvency II as a major catalyst for changing the traditional business models on insurance companies. An industry beset by declining investment returns, inefficient processes and legacy IT systems, need major overall in the way they do business in the future. The report rightly points out that the pace of strategic change will dramatically improve in the Solvency II world with the transparency brought about by the regulation. However at the same time, there exists a risk of the European insurers’ competitive advantage threatened by their ‘non-Solvency II’ competitors across the Atlantic!

 

Managing Solvency II Programme: There’s more to it than a RAID!

Solvency II is by far the largest finance change programme undertaken by insurers in recent years. And, probably the most complex till date. But the complexity does not end there. Given the nature of change involved in delivering Solvency II and the timelines, the Solvency II Programme Director finds himself at loggerheads with other Business As Usual (BAU) projects and finance projects managers. An organisation cannot afford to wait for Solvency II to deliver compliance before it can initiate other changes – most changes need to happen simultaneously! And often, the deliverables are at cross purposes to each other.


The finance teams of UK insurers are grappling with some key changes in their current operating model – IFRS, MCEV proposed changes around reporting; implementation of TAS standards for actuarial reporting to name a few. These changes are directly impacting the deliverables of Solvency II workstream. Unless the proposed changes by the respective teams are discussed and agreed, insurance companies will waste significant time doubling the deliverables at the best case, or undoing previous deliverables at the worst.

The Solvency II programme suffers from an inherent weakness of not being able to define the exact deliverables for each of their work stream, as the requirements are still emerging. Two weeks ago, CEIOPS has delivered another set of documentation which are currently being analysed for impact by the actuaries. This ambiguity is of no great help to either the Solvency II Programme Director or the other finance change directors! The BAU functionaries have to perform their day-to-day role and they cannot wait indefinitely for Solvency II.

So how does one go about efficiently managing the change portfolio within finance?

My experience suggests developing an Impact Management Framework for this purpose. The framework is a simple tool to identify the current the future ‘conflicts’, map the conflicts and the overlapping areas, broker a possible mitigation plan and continually assess the tool and update it to the conclusion of the impact / dependency.


Impact Management Framework for Solvency II

Given the nature of Solvency II deliverables, it is potentially impacted by, and, in turn could impact a number of BAU functions/projects in an organisation. The proposed framework is a methodology to identify and manage the impacts. The framework is shown in a diagram below.

The framework consists of five steps:

Step 1: Identify

Identify a list of all current and future projects in the organisation. A good starting point is the Change Board or Portfolio Governance function which has a most up-to-date list of the projects. It is useful to validate the list with key functions such as IT, Business Change to ensure that the list is complete. The change function also has a list of future projects which have been approved.

Step 2: Investigate

Typically the starting list will be fairly long. It is not unusual to have more than 100 projects on the initial list. Use a first filter to eliminate those projects which has no potential impact on Solvency II. For example, system upgrades, site enhancements, version upgrades, changes in client facing documentations, changes impacting distributor commissions. Having put the list through the initial filter will give you a manageable list to begin.

Step 3: Assess

For the shortlisted project, investigate the scope of the project, the products/processes/systems impacted to assess if they have interdependence with Solvency II. This is the second filter. During this stage, I do an initial investigation, followed by a quick conversation with the Project Lead to validate my understanding.

At the end of Step 2, you will have a definite list of projects which have potential interdependence on Solvency II.

Step 4: Plan

During this stage, identify the exact areas of overlap between the two projects. The areas could be one of more of the following:

1. Impacting product valuations

2. Impacting financial reporting

3. Impacting financial processes

4. Modifying risk categories

5. Modelling changes

6. Changes to finance data mart

The list above is not exhaustive. You will need to modify the above list based on the functional organisation and the prevalent project life cycle in your organisation.

For the external projects (i.e., those other than solvency II), identify the areas of overlap, their delivery time line and the resource utilisation. The delivery timeline needs to be compared with that of the relevant work packet of Solvency II programme. The comparison should result in a mitigation plan with defined activities at pre-defined time to ensure that the interdependencies are tracked. Given the evolving requirements of Solvency II, a typical mitigation plan can be to reassess the interdependence. For those work packets within Solvency II where the requirements are clear, a mitigation plan can be picking up relevant deliverables of external project and including it within Solvency II deliveries.

Step 5: Mitigation

This step refers to activities in the future where Solvency II work packet manager and the external project manager need to re-assess the identified interdependencies. The mitigation plan should be included in the main Solvency II programme Project Plan to ensure their monitoring.

I have found it a good practice to be in regular contact with the change board to ensure that new projects are brought to my attention immediately. It is a relatively simple task to communicate the potential dependencies early in an external project’s plan, than doing so at a later date.

The list of dependencies does not end here. Solvency II programme need to be cognizant about the forthcoming papers from the European Regulator, resource availability among a host of potential dependencies. I will cover them in a later blog.

Who cares about your business processes – and why you should care about them!

As change manager, I often find myself in a situation where there are many stakeholders pushing, pulling, wanting a say or ready to veto on any or (most often) every initiative related to change. Quite often I found myself in the thick of conflict resolution issues rather than progressing the change initiative. And once in, it takes a significant amount of effort to pull out of the hurricane.

Let’s admit! Change is hard and evokes strong reactions from the people who are (potentially) affected by it. And hence their reaction! I learnt it the hard way to stay calm in the eye of the hurricane and find the right balance between the competing perspectives.

Any project in an organisation affect people – some directly; some indirectly. It is important to identify the affected groups, group them on the basis of the impact and handle them accordingly. Easier said than done.

Who Cares?

Whatever be their impact on our project, we need to realise at the outset that they care about our business processes. And hence we need to care about them. We have to recognise that we have relationships with

• People outside our organisation
• People inside the organisation who are in the value stream
• People who manage and direct the functions within the value stream
• Peers and associates
• Systems/technologies that orchestrate the work in value stream.

They are often referred to as stakeholders as they have a stake in the outcome of the change initiative. Anyone of them has the potential to cause difficulties and stop progress and prevent success.

Let’s take a closer look at them.

Customers and consumers: those we are in business to serve. This group may not be easy to identify. With multiple routes to market, multiple products and services for different markets, there is significant overlap within this group.

Owners: those who invest in us and direct our activity. This group includes the investors, board and senior executives. As before this group can have multiple sub-levels exercising varying degrees of control.

Staff: those who work on serving and supporting the business and its stakeholders. This group can be external (as in manning those functions that are not affected by your project) or internal.

Suppliers: those who provide products, services and resources to us. These can be further segmented based on what they supply

Community: Those who govern, guide or influence what and how we do what we do. This group includes the the regulators, watch-dogs, influencers and general public.

Competitors: those who fight in our market for our customers.

Enterprise: the organisation itself. We need to consider organisation itself as different from tis staff, owners and customers in its ability to be sustainable and freedom to act in its best interests.

Oddballs: Those who play conflicting roles. There are always a group who do not fit into the above categories as they may be playing multiple roles.

What do they care about?

Roger Burton, author of Business Process Management: Profiting from Process uses the ten principles of BPM to explain what the stakeholders care about. Honestly, the list can be used for any stake analysis. Here’s what he has to say:

• Business change must be performance driven - Performance is on behalf of the external stakeholders such as shareholders and customers.
• Business change must be stakeholder based - Change that does not deliver value to outsiders just adds cost.
• Business change decisions must be traceable to the stakeholder criteria - If we do not know and agree what is of importance to each stakeholder then change becomes a political process.
• The business must be segmented along business process lines to synchronize change - Processes serve stakeholders and are served by them. This is the heart of true cross functional process management.
• Business processes must be managed holistically - Managing the parts without managing the whole delivery of value to outsiders is a sure recipe for sub optimisation.
• Process renewal initiatives must inspire shared insight - The insight must be shared by stakeholders externally and internally and be the basis for design decisions.
• Process renewal initiatives must be conducted from the outside in - Process analysis and design starts and ends with assessments of outside value creation. Lean thinking is built on this concept. Bottom up (inside out) leads to broken processes.
• Process renewal initiatives must be conducted in an iterative, time-boxed approach - Stakeholders and change agents do not know what they do not know. This is the learning and trust building that delivers changes tested and accepted as they are developed.
• Business change is all about people - If all the people, both internal and external stakeholders, do not change, then performance will not either.
• Business change is a journey, not a destination - The management of stakeholder relationships will continue to be required since the destination is a moving target. Trust will have to be constantly assessed and built with all of those who care.

Managing stakeholder relationships
Having tried various options, I am certain that while managing stakeholder relationships, one size DOES NOT fit all. Having said that, there exists a broad framework within which we can develop and nurture the relationships. Key areas to focus on and monitor are:

• Stakeholder expectations and goals. Having an unambiguous idea of stakeholders’ expectations and connecting them to the potential benefits realised ensures that they are aligned to the project objectives from the start. Failure to include the stakeholders in project objectives often results in ‘skewed’ viewpoints about the initiative.

• Stakeholder interaction and exchange. Communications ALWAYS helps. It brings transparency to the project; rallies support and can provide useful insights during crucial phases. A triage like assessment of recent communications also helps in understanding relationship issues and opportunities.

• Knowledge shared. This ties in to the previous point on interactions and exchange. Weekly dash-boards and project status reports are helpful to an extent. However, in a change programme – especially a large initiative spanning across functions, stakeholders often seek more information than dashboards. What will the ‘new’ organisation look like? How do I perform the tasks that I am responsible for? Such questions are natural and should be answered to the best of ability. As the project team gets further insights, the previous answers should be revised and re-communicated. I have found that if you go back to the stakeholders with revised/updated knowledge, it helps to build a lot of confidence in the project, the team and wins you critical support.

• Commitments made. Commitments – very easy to make; difficult to deliver. Be sure to make a note of every commitment that you make to your stakeholders. It can be as small as forwarding an email to sending a detailed report/document which may require several person-days of work. If you are unable to meet the committed time-line, be sure to inform the stakeholders about the delay and indicate a new delivery date.

Relationships are never easy to handle. In a change environment, it becomes more difficult to manage relationship with a large and varied set of stakeholders. In our personal lives most of us are able to manage our relationships fairly well; we fail to use the same rules in the profession environs. Creating and nurturing effective relationships in change projects are critical since without getting them sorted out, our processes simply cannot and will not perform.

Thats my view.  Would be happy to hear what others have to say about this.