A networked future

This is the age of the digital networked economy, in which business, society and economics are driven by the data and voice that runs across global networks. According to Chris New at UK communications provider BT, the emergence of this phenomenon will enable financial services organisations to create opportunities and new ways of working that have long been talked about, but until now were impossible. The digital networked economy encompasses all areas of a business – customers, employees and partners – and Mr New is passionate about what it can offer. The pressures that the finance sector faces to reduce costs and increase productivity are key to such an economy’s development. Mr New believes that businesses have become increasingly reliant on IT and communications systems to help them address the strategic and operational challenges they face. “However, our research shows that 80% of chief information officers are expecting to spend less money on IT and communications in the next two years. Yet today’s levels of e-mail alone are predicted to double by 2006,” he says. “When you consider that e-mail is just one application, you can only begin to imagine how much network traffic there will be by 2006.” Solving the conundrum of doing more with less is a key challenge for anyone working in the digital networked economy. And Mr New believes it is a challenge that cannot be escaped. Four key factors, he says, have changed the economy and the way businesses work within it forever:

• The ubiquitous availability of low-cost bandwidth, computing and storage means that people and financial organisations have better and cheaper access to information technology;
• Lower transaction costs and widespread adoption of industry standards such as XML have enabled increasing inter-personal and inter-organisational connectivity;
• Information has become more transparent as customers, regulators and competitors gain access to more information about organisations and they, in turn, collate more information about customers;
• The relationship between employer and employee is changing as the mutual expectation of lifetime employment and unquestioning loyalty has been replaced by a more flexible and dynamic attitude to career development.

Mr New sums up the situation by saying that financial organisations have realised that they exist in a connected world, driven by an increased focus on quality of service and customer care. If they can adapt to this new environment, they will realise benefits for all stakeholders, including customers, employees, partners and shareholders. Customer care Customers in particular have become much more sophisticated and demanding. They expect to be able to interact with financial services organisations at the time and via the method they choose. As the marketplace becomes more competitive, it is becoming harder for businesses to reach new customers among a crowd of alternatives. Moreover, existing customers become harder to please and valuable customers harder to keep. That is why financial services companies need to recast their organisations and operations to focus on the customer, says Mr New. A customer-focused approach consists of building and maintaining a consistent view across all points of contact, including phone, web, e-mail and face-to-face. Although the finance sector has already invested time and money in improving customer service, there is still much progress to be made, he says. He cites recent “mystery shopping” research by BT, looking at the timeliness and accuracy of responses to the same question via e-mail and the telephone. When compared with other companies in the retail, travel and utility sectors, financial organisations delivered the best customer service via e-mail but performed less well in their telephone interactions. But it is the lack of integration that gives the most cause for concern. “Just 4% of companies in finance were aware that an e-mail had been sent when telephoned with the same question by the same individual. Consistency was also worryingly low, with just 14% giving the same response to an identical query over the phone and over e-mail. This shows that financial services companies still do not have one view of the customer and therefore a comprehensive understanding of client needs and behaviour,” says Mr New. A consistent view can often be attained by aligning processes and services to match the needs of the customer better, which will deliver higher service levels and allow banks to react more quickly to changing market dynamics. “Moreover, the digital networked economy allows banks to move customer contact channels offshore, reducing costs while providing customers with the same high levels of service,” he adds. Workforce empowerment It is not only customers that can benefit from the digital networked economy. Part of BT’s vision is that work will become purely an occupation rather than a location. Systems and applications are available anywhere, anytime and on any device. This allows employees to work from home as if they were in the office, effectively and productively. All they need is adequate security and access protection to make this viable. Traditionally, financial institutions such as investment banks have shied away from implementing flexible working across the business. Further BT research, involving 180 decision-makers in global financial institutions has shown that 50% of banks have introduced a flexible working policy but only 13% actively support them. Yet half of respondents felt they could do at least a quarter of their work from another location. Mr New argues that there is much more scope for flexible working to be adopted in investment banks than at present. In his view, various business continuity and government regulations, such as the UK Employment Act 2002, will force a greater adoption of flexible working practices in the future. The increased threat from terrorism and more commonplace, yet equally serious, problems like power cuts are forcing global banks to formulate extensive business continuity plans. Mr New says he believes that flexible working has an important role to play in limiting the fall-out from a major disaster because employees can still access core systems, including their specialist trading operations, from wherever they are. When supported by mirrored information on remote servers and back-up offices in separate locations, flexible working can help to create a solid business continuity strategy in the event of disaster. Mr New argues that this will free trading environments from the constraints of outdated technology, allowing them to operate more efficiently in response to market conditions. The virtual trading organisation will break the tight coupling between lines, switches and turrets into a highly distributed environment, where employees have the freedom to move using networked and wireless multi-media devices, such as PCs, turrets or PDAs, and communication channels, such as voice, instant messaging and e-mail. Information can follow users wherever they are, allowing them to communicate consistently with customers, colleagues and trading partners regardless of location. Conquering compliance Compliance issues have serious implications for the financial sector. “Financial institutions are being put under great strain by regulations such as Sarbanes-Oxley and Basel II. Regulatory agencies are increasingly robust in their scrutiny of communications, including e-mail, voice calls, instant messaging, web activity, data retrieval, monitoring and reporting. Everyone knows that they have to look at their systems and make sure that they are compliant,” says Mr New. But because of the time-consuming nature of compliance and the fact that many financial institutions do not know how best to approach it, many banks are not yet fully compliant. In 2003 alone, six leading UK financial organisations were fined £2m each for non-compliance. As well as the fiscal burden, the reputations of these organisations suffered. Mr New also suggests that data protection and freedom of information legislation could generate yet more regulatory considerations for financial institutions. One US company had to spend £4.27m earlier this year to recover five years’ worth of e-mail as evidence against an employee who was suing it for wrongful dismissal – an employee whose petition was only for £2m. “The impact of the digital networked economy has certainly spawned many of these regulatory issues but can also alleviate them as cheaper connectivity and ubiquitous storage make keeping and retrieving information a simple and cost effective process,” says Mr New. Extending reach The emergence and adoption of open standards has resulted in a dramatic reduction in transaction and inter-company connectivity costs. This, and the accompanying increase of bandwidth, means that huge amounts of information can be exchanged easily and cheaply across long distances. It is because of this that Mr New perceives the digital networked economy as offering opportunities for banks to re-evaluate which functions need to be retained in-house and where those functions have to be located. He describes how financial services companies can select lower-cost, higher-quality providers from the global marketplace to fulfil, for example, back office functions and incorporate them into the supply chain as part of the extended organisation. “Transparency between financial companies and suppliers will enable improved collaboration between organisations and a more successful partnership for all participants. When strategic sourcing is done properly, it can be highly effective. However, organisations must realise that it is not just the technology that is important, but also the people and processes involved,” he says. Mr New argues that there is also a need for financial services organisations to change radically the way they interact – creating a single community of interest. The industry currently conducts business over a disorganised conglomeration of ad hoc networks, which are unnecessarily complex, inflexible and costly to manage. Creating a common technology community offers participants the ability to reduce network management costs, improve service standards to existing customers, increase their flexibility and be more responsive to market changes, he says.