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May 2019
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TD Magazine

Under Pressure

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Under Pressure

The finance industry, more so than others, is competing against automation, requiring workers to gain digital skills.

The world is moving forward at a fast pace. This may not sound like big news, because change has always been part of life. But taking today's frequency and magnitude of uncertainty due to digital transformation into account, it becomes further apparent that the impact of this ongoing shift is much more than just a conventional cycle of economic change. In particular, many employees and managers in financial companies feel overwhelmed by the continual fast-paced developments under the umbrella of digitalization—always on, always available, information everywhere, and processes never stop evolving. The result: skepticism and fear of what awaits us in the future. The good news is that building up and expanding digital competence company-wide makes traditional companies more prepared for the ongoing digital transformation.

The old economy is trying to catch up with mighty tech companies such as Amazon, Google, and Tencent that all seem to dominate increasingly more market segments. These companies have perfectly understood the new rules of the game, and they are driving the constant change not just in terms of business but also in how technology is influencing our lives.

All traditional industries are facing the same challenge: Reinvent the way you operate or become a past memory. This is especially true for the FIRE (financial, insurance, and real estate) industries.

FIRE industries: No stone is left upon another

During the past few years, companies in the FIRE markets have increasingly been put under pressure. This is due to two factors: the changing legislation and regulations resulting from the financial crises and new market demands; and these markets are confronted with a huge digital wave related to blockchain technology and so-called fintech companies, such as LendingClub, that completely challenge the way financial transactions of every kind will be conducted, with China leading the charge.

As financial institutions become more integrated into other industries (think Amazon and Tencent) and artificial intelligence increasingly takes over tasks, it's an understatement to say that FIRE industries will look quite different in the next decade. So too will the roles and the training for those roles.

There is much talk about all these new technologies and developments, but sometimes it is a lot of noise without true meaning. On the one hand, companies constantly highlight the importance of people in the digital age, but on the other hand, many people do not feel well integrated in or well prepared for the change process.

What are we doing wrong?

The Organization for Economic Cooperation and Development (OECD) recently published research insights on policies to harness the productivity potential of digital technologies such as cloud computing, artificial intelligence, biometrics, and blockchain, which are considered key technologies in future financial markets. They can provide faster, cheaper, more transparent, more inclusive, and more user-friendly financial services. But the study indicates that productivity growth has slowed down in major OECD countries despite the promised productivity gains due to digitalization.

Two separate research studies suggest that the adaption of digitalization indeed supports productivity growth but only if additional factors apply. One major factor seems to be upgrading available skill sets and, thus, providing more training possibilities for all employee groups.

These findings highlight that technology on its own will not result in progress. People in all functions and at all hierarchy levels need to be trained to find new applications and new business models. This is a prerequisite for digital change, not just in financial markets.

Preventing a digital two-class society

The evolution of terms describing a rosy new world of work and future learning is almost inflationary—for example, new work, work 4.0, and upskilling. Conversely, the internal perspective in the financial market often does not yet correspond to this beautiful world of new work and innovation.

Financial companies, even those that have been proclaiming digital change for themselves for a long time, are only slowly succeeding in implementing a digital mindset across the whole organization. Without a doubt, there are highly innovative departments and project groups that develop, apply, and advance new technologies and methods. As an example, Belgium KBC Bank developed the blockchain-based service KBC My Car to simplify the process of car loans between buyers, dealers, insurance companies, and banks. And Bancolombia's award-winning Plink is an analytics and advanced intelligence service that provides data-driven insights to Colombian consumer and retail businesses.

Nevertheless, outside of the digital mastermind groups, there is an overstrained organization that lags far behind in terms of its processes, leadership culture, and understanding of innovation. This is hardly surprising, because in essence, apart from a few artifacts such as colored open offices and much "startup talk," large parts of financial organizations operate essentially as they did two decades ago. For example, Accenture's yearly cloud report reveals that more than two-fifths of international banking executives assess cloud adoption rates of their companies as low. Further, a Deloitte study indicates that only 46 percent of financial companies are adequately preparing for the digital disruption of their markets. Employees often lack the in-depth understanding and concrete knowledge necessary for a holistic transformation.

HR: The architect of digital transformation

If we are serious about digital transformation of financial markets needing to be more people-centric, then talent development professionals must become frontline architects of this growth-driving digital transformation by creating a new competence model for their organizations. Such a framework must not only contain IT-related skills such as analytics or the handling of application programing interfaces. It also must include methodical skills such as design thinking, customer centricity, and social skills such as cross-functional cooperation and routine for the ongoing uncertainty in the environment.

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Digital transformation is much more than a technological shift but a tremendous change in how markets and work are organized in general. Talent development and HR professionals need to work hard to change the antiquated view that they are merely administrative departments that only follow instructions from subject matter experts. If digital change is all about people and how technologies will affect them, which department should have more responsibility than talent development?

Well-trained employees must be valued as assets rather than seen as a liability. A Capgemini study reveals that 62 percent of senior leaders in the banking industry believe the digital talent gap has become worse in the past few years. That's more than any other industry surveyed—retail, automotive, utilities, and even insurance.

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The World Economic Forum's The Future of Jobs report predicts a decrease in demand for skills related to financial resources management because fully automated and algorithm-based processes are set to significantly replace administrative tasks in the financial services and investors sector. While today machines and algorithms perform 36 percent of the collective hours spent on this task, by 2022 this share is predicted to rise to 61 percent, according to the report.

Among the top 10 declining jobs until 2022, at least six fit profiles related to financial markets: data entry clerks, accounting/bookkeeping and payroll clerks, administrative and executive secretaries, client information and customer service workers, business services and administration managers, and accountants and auditors.

To put it bluntly, the increasingly data-dominated FIRE market will require fewer employees and will need people with different skill sets than the past. McKinsey forecasts that until 2030, software developers, customer service representatives, and computer systems analysts will be the top growing professions in financial markets. On that basis, advanced IT skills such as programming, data analysis, and engineering and cognitive skills such as creativity will be crucial for future financial markets.

Only those employees and managers who fully understand the principles and concepts behind digitization and possess the necessary competencies will be able to develop future applications, services, and whole new business areas for banks, insurance firms, and real estate companies. Businesses need to prepare their employees not for one specific change but for permanent adaptability in a highly dynamic financial context. This is not something you can automatically expect from people. To prepare today's employees and managers for the upcoming race, talent development needs to set up mechanisms, such as possibilities for lifelong learning.

If financial companies do not want to be permanently dependent on consultants and external service providers like they are today, then all the know-how required for digitization must be built up internally. It is already clear today that new hires will not be nearly sufficient to integrate digital competence into the entire company. Many surveys show that in recent years the attraction of the financial industries among graduates has significantly decreased. This industry that used to attract those looking for safe jobs now needs to attract enablers, design thinkers, and future-oriented doers. Therefore, the task of systematic competence development is more important than ever before.

One major approach will be digital academies within companies. This means more than organizing some workshop or training programs from time to time. Rather, it's the creation of in-depth and modularized programs and architectures for talent development on digital transformation. It will be the talent development team's task to set up in-depth curriculums together with internal and external experts to define the right topics and approaches, such as blended learning or e-learning. Partnerships with other companies, universities, or associations can provide valuable input for such a project as well.

Talent development professionals are responsible for ensuring that digital know-how is not an exclusive asset reserved for a few experts throughout the organization. For example, outside of the digital units of banks, a kind of analog parallel society exists, in which not everything that appears straightforward to digital natives is applied and accepted. This aspect also applies particularly to middle management, which is fed from above, with visionary digital phrases, and confronted from below, with operational implementation problems—but without understanding exactly how to solve this Gordian knot.

The lack of competence is in most cases a failure of the companies and less of the people themselves. Where are employees who completed training or studies many years ago expected to get their digital skills from? There is a lack of systematic mechanisms that allow and promote the learning and further development of all employees in the company environment. The Future of Jobs estimates that each employee will need 101 days of learning between now and 2022 to be prepared. That figure corresponds to almost 25 learning days per year per employee.

What must be learned about future financial markets?

Talent development has a central role to play here. In addition to moderating the change process in corporate competencies, it must sit in the driver's seat and push the process forward methodically and professionally. For designing future competence architectures, address these questions: Which profiles will be needed in future individual departments? Where is a particular urgency to catch up? How do respective skills differ and complement each other? How can employees acquire these skills?

The development of digital IT, method, and social competences is hampered by the fact that there is still much uncertainty about what digital competences mean in general and for the different financial markets. This also depends on the type of digital technologies and strategies that will be used in the different financial markets. First, companies must bring a structure into this sometimes arbitrarily conducted discussion that often mixes up a wide variety of terms. This also includes the definition of competencies as a symbiosis of certain abilities and skills and not their synonymous use.

Based on this, some may argue that the term digital competence is distracting, because it is not about a concrete new competence but rather about a new weighting and composition of existing abilities and skills. Thus, talent development, together with specialists from several functions such as investment banking, retail banking, and the mortgage business, must define the delta between the status quo of existing competencies and required future roles. This is a challenging task that requires having sufficient information about existing employees' available competencies and already knowing the future required models for roles of employees and managers. Because the future role models must be aligned with the corporate digital strategy, it is blatantly obvious that talent development should have a leading strategic role in the transformation process.

Talent development will need many different competence paths for building up required competencies throughout the organization. A democratization of digital knowledge needs individual approaches for different groups of people. The choice of topics, level of demands, and didactic concept can vary greatly between different people, because there are different types of learners. The development and selection of appropriate learning strategies for specific groups of people and topics will become a continuous task, demanding a high level of understanding of new learning formats—for example hands-on workshops, e-learning, and augmented and virtual reality.


Five Steps Toward a Digital Competence Architecture for Financial Companies

  1. Analyze existing competence profiles among employees and managers.
  2. Compare the existing competencies with requirements of the company's digital strategy.
  3. Formulate the key future business characters based on the digital strategy.
  4. Develop individual learning paths for different employee and management groups to fill the competence gap between status quo and the requirements of future business characters.
  5. Implement the learning paths systematically by means of the right combination of different learning modes, such as classroom training, on-the-job training, e-learning, and augmented and virtual reality applications.
About the Author

Philipp Ramin is CEO and founder of German Innovation Centre for Industry 4.0, an international training, consultancy, and research company.

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