PART 4 2019 January navigating complexity New realities in central banking Central banking HR of the future: Driving strategic changeTHE BIG 3 2 Think:Act Central banking HR of the future HOW TO BUILD A FINANCIAL ECOSYSTEMSINGAPORE'S EXAMPLEP. 13 50% efficiency savings in HR functions through process optimization and automation. Page 8 80% of central banks don't have any institutionalized open innovation initiatives. Page 12 3 effective ways that HR can drive strategic change: create a supportive organizational setup, instill an innovative mindset and become a borderless organization. Page 14Think:Act Central banking HR of the future 3 In the wake of the global financial crisis, financial insti- tutions are faced with stricter regulation, increasing complexity and interdependencies. Rapid technologi- cal changes are also having far-reaching consequences for the financial services sector and the players within it. The environment in which organizations are operat- ing is changing at the same speed. The number of Fin- Tech startups has risen enormously and their ability to transform and innovate increases the potential for dis- ruption within the industry. Cloud technologies and robotics are increasingly being used to reduce costs and improve quality. In short, digital technologies have become the new norm in the financial world. Today's central banks find themselves in the midst of this fast-changing environment, with all the atten- dant consequences for their business. They are trying to be proactive and endeavoring to picture how the world might look tomorrow. Expectations on them are high from both the markets and the political world. Furthermore, against the backdrop of rapidly changing demands, roles and governance, the qualities and skill sets they require have evolved, raising the question of what the key expectations on them are. One thing is for sure central banks must immediately start to create the conditions to manage the present while at the same time laying the foundations to own the future. With these challenges in mind, the following questions arise: > In what way will the mandate of central banks change? > What will be demanded of central banks in the future? > How can resources be used in an effective and efficient way? Our ongoing series “New realities in central banking“ looks to address these issues. Part one, “The Organiza- tional Challenge“, explored the difficulties central banks are facing in fostering cultural change within Central banks are on the precipice of change: HR has a key role to play in embracing new technologies and pre- paring for new realities Cover illustration: z_wei/Getty Images 4 Think:Act Central banking HR of the future their organization. The second publication, “The Rise of Cryptocurrency“, shed light on the impact of digital currencies and other emerging technologies on central banks. Our third study focused on how the IT organiza- tion, systems and infrastructure of many central banks are not yet fit for purpose and explained how they can transform their IT departments into proactive business partners with a clear strategic mandate. A This fourth publication focuses on human resourc- es, the backbone of every organization, and points out how tomorrow's business environment and workplace will require HR to become more proactive. Human re- NEW REALITIES IN CENTRAL BANKING T echnological innovation and new players in financial markets are strongly affecting central banks around the world. A Source: Roland Berger FINANCIAL CRISIS Considered by many economists the worst financial crisis since the Great Depression of the 1930s BITCOIN WHITEPAPER Bitcoin whitepaper by Satoshi Nakamoto published FIRST BITCOIN ATM First Bitcoin ATM opens in Vancouver, Canada CONSORTIUM TO EXPLORE BLOCKCHAIN Major financial companies form R3 a consortium of over 40 institutions committed to exploring and implementing blockchain technology MAS SHOWS COMMITMENT TO FOSTER A FINANCIAL ECOSYSTEM MAS formed the Financial T echnology and Innovation Group (FTIG) within its organizational structure. FTIG will be responsible for regulatory policies and development strategies to facilitate the use of technology and innovation CYBERATTACK ON SWIFT NETWORK Hackers use malware to attack Bangladesh Bank and steal USD 81 million via the SWIFT network CENTRAL BANK OF IRELAND LAUNCHES INNOVATION HUB Platform engages with innovators in order to gain early sight of new technologies and to allow Fin T ech firms to engage with the Central Bank of Ireland BANK OF CANADA LAUNCHES TECH COLLABORATION INITIATIVE Collaboration with partners in the private sector and academic world to experiment with digital tools and technology (e.g. artificial intelligence and machine learning)20182016201520132008Think:Act Central banking HR of the future 5 Source: Roland Berger source experts need to understand what changes are coming and, crucially, the needs of the individuals within their organization to decide on the best way to manage change. This includes ensuring that the right talent is attracted, developed and retained. Looking forward, HR must act as a transformation partner, designing the organization for adaptability. Moreover, it needs to foster and actively drive change by breaking through bureaucracy and instilling an in- novative mindset in the organization. By breaking up silos and fostering an innovation-friendly culture, cen- tral banks can pave the way for co-creation. Ultimately, this means they and their HR departments need to re- think their traditional working structures and discuss new collaboration models to leverage untapped poten- tial by building up a network. In the following pages, we outline the three key en- ablers that will allow HR to prepare central banks for the future and drive strategic change. “The bottom line is that digital technologies are disrupting central banking along with everything else. Digital disruption is likely to be a major preoccupation of central bankers for the foreseeable future. ” Stephen Poloz, Governor, Bank of Canada Selected key elements crucial for future success Foster an end-to-end process view and support cooperation across teams Increase efficiency through automation HR needs to lay the foundations by hiring for innovation, creating a culture for innovation and rewarding for innovation Become a borderless organiz- ation and evaluate how the expertise of third parties can be used to build up new capabilities and leverage untapped potential END-TO-END PROCESS DIGITIZATION FROM EXPERT TO ENTREPRENEUR TRANSFORM INTO A BORDERLESS ORGANIZATION 2. 3. 1.Think:Act Central banking HR of the future 6End-to-end process digitization: Foster collaboration, reduce errors, improve efficiency and free up resources for more complex tasks Todays fast paced, innovation-driven business envi- ronment and the rapid substitution of one “next big thing“ with another strongly influence the way we live and how business is conducted. An important part of thriving in this ever-changing world is having an orga- nizational setup that is flexible, agile and designed for adaptability. Central banks are often traditional companies with a rather hierarchical, historically grown organizational structure. They are often divided into “suborganiza- tions“ or divisions, each performing a specific func- tion. Targets are then defined on the level of the sepa- rate departments often without considering the organization as a whole. But this approach prioritizes the short-term goals of individual departments, and results in the duplication of work as departments are not aligned. Moreover, departments focus on optimiz- ing their own unit instead of the overall process and outcome. The approach ultimately leads to the ineffi- cient use of resources as well as lower overall perfor- mance. THE NEED FOR AN END-TO-END PROCESS PERSPECTIVE As public institutions, central banks are required to al- locate their resources in the most efficient and effective way, based on effective and sustainable HR operations built on the sound design of support processes and ef- fective use of technology. To deploy resources more efficiently and achieve better performance, they need to break down existing silos and foster a shift from a functional view to an end-to-end process perspective. 1.Think:Act Central banking HR of the future 7 To do this, banks need to transcend the current silo mindset, or function-based thinking, which results in project delays, increased costs, poor decision making and a lack of ownership. They should become more business-process oriented and strive towards the over- all target, thus fostering end-to-end process responsi- bility. This closer interaction and collaboration should go beyond business departments and, in particular, be developed at the interface of business and IT . Poor alignment and cooperation between IT and business departments results in missing ownership and project delays. Coordination along processes within the whole organization should therefore be a top priority, and di- rect interaction between departments actively encour- aged through cross-functional, agile teams. To this end, central banks should build an organi- zation that encourages teams and individuals to work together and share information transparently. Collab- oration and an end-to-end process view is not a “nice to have“ organizational philosophy anymore but an es- sential ingredient in organizational success. Hence, there needs to be flexibility for employees to move from team to team depending on the issue at hand, supported by the relevant tools and collaboration plat- forms. The central bank of the future is designed for speed, agility and adaptability. In recent years, our clients experienced the following benefits from adopting a process-oriented perspective: 1 Stronger focus on continuous improvement of processes and outcomes 2 Focus on aligning and linking processes to achieve overall organizational goals and objectives 3 Focus on improving efficiency and effectiveness by concentrating on the outcome 4 Consistent performance and well-defined workflows 5 Stronger knowledge exchange and more involvement and empowerment of employees WHAT CAN HR DO TO FACILITATE TEAMWORK AND AN END-TO-END PROCESS VIEW? Change will only happen if it is supported and enabled by HR. First, HR needs to ensure that the right reward system is in place, meaning that it needs to review the existing appraisal processes and make sure they reflect a stronger focus and acknowledgment of group results instead of individual results. Second, collaboration needs to be integrated in the personal development plans of employees, and KPIs need to be tailored to group goals as well. Third, job descriptions need to be reviewed and cooperation actively considered part of the job profile. Fourth, the right leadership needs to be in place to form and foster the change. FOSTERING AN END-TO-END PERSPECTIVE VIEW BY DIGITIZING PROCESSES As already mentioned, a process view will place a stron- ger focus on continuously improving processes to drive efficiency. As the demand to perform complex, la- bor-intensive tasks increases and the shortage of skilled workforce grows, the automation and end-to- end digitization of processes is seen as an important enabler of business efficiency and agility. Moreover, the end-to-end digitization of processes will ultimately support the shift to a process view. Yet not every process should simply be automated. It's vital for central banks to determine which processes are best suited to automation and which ones still need human interaction. Our previous experience has shown that the automation of routine and repetitive tasks re- quiring no human interaction tends to produce the best results. Data evaluation, data analysis and document management based on predefined rules are other areas well suited to automation. The technology can reduce human error in processes or tasks managed by employ- ees themselves (e.g. data entry, document upload, order placements), thus increasing efficiency (for instance through pre-populated entry fields or pre-checks, etc.). Organizations need to look at the strategic and op- erative drivers of process improvements. The use of technology and machines should be especially consid- ered for processes that are time and resource intensive. Once processes that are suited to automation are iden- tified, it is crucial to review them from start to finish. This includes cutting the number of process steps, re- ducing or revising the amount of documentation nec- essary, and developing automated decision making based on predefined rules. Automation will not entirely replace human inter- action. While useful to free up resources to use on more complex problems, it is not (yet) a good fit with subjective tasks, such as the selection of candidates. Moreover, some support functions should not simply be given over to the technology; chatbots, for example, may make employees feel less appreciated. Think:Act Central banking HR of the future 8 BUSINESS PROCESS OPTIMIZATION Changes to HR processes can lead to significant improvements in efficiency. B Source: Roland Berger LINKAGE TO MASTER DATABASE Stronger linkage to master database and introduction of standardized pre-checks and pre-populated e-forms led to fewer errors and significant quality improvements SELF-SERVICES Through the expansion of services offered in a self-service mode, a significant decrease of the current manual workload can be attained while also increasing customer satisfaction AUTOMATION/ DIGITIZATION Digitization of paper-based forms and workflows led to a decrease in the amount of effort involved in processing and uploading documents. Moreover, customer satisfaction was increased due to greater transparency and self-explanatory processes ALIGNMENT Through the fostering of a stronger alignment and linkage between processes, duplication of work was reduced significantly and overall process ownership increased POLICIES Stronger focus on self-declaration, lump sums and random inspections instead of policies according to individual employee needs significant reduction of complexity, redundancies and inconsistencies Over the course of three months with a team of 3 three consultants, Roland Berger successfully redesigned and automated key HR processes at a large Eurosystem central bank in order to increase efficiency while decreasing manual workload. The following results were achieved: PROCESS EFFICIENCY WAS ON AVERAGE INCREASED BY UP TO 50%23451Think:Act Central banking HR of the future 9 To succeed in the automation of their processes, cen- tral banks should bear in mind the following thr