posted 1 Sep 2000 in Volume 4 Issue 1
Profiting from knowledge?
KM in the financial sector
In a sector in which business is
fundamentally founded on knowledge-based intangible assets and competencies, a
more strategic approach to KM could reap significant rewards. Robert Taylor
reflects on knowledge management priorities in the financial sector.
Has the financial
sector got the knowledge message?
Cranfield’s recent survey The Business
Value of Knowledge Exploitation found that the financial sector appears to be
leading the way in knowledge management in terms of knowledge infrastructure and
working practices. The report proposes that the reason for this might be that
“differentiation of their products and services...almost exclusively hinges
on the continuous rejuvenation of the underlying knowledge base”.
We would not
disagree with Cranfield’s proposition about the critical importance of knowledge
in financial businesses. Our practical experience in Unisys Consulting, however
– where our knowledge management practice is entirely focused on the banking and
insurance sectors – is quite different to the Cranfield findings, a valuable
contribution though they are. In our experience:
Few financial institutions have launched serious KM programmes. While most
major financial institutions have some very creditable knowledge management
initiatives in place or in progress, there is little evidence across the sector
of the adoption of major, strategic knowledge management programmes of the kind
seen in, say, the major firms in the management consulting sector. The
initiatives that do exist tend to be departmental rather than corporate.
Of those who have, most are in the early stages only... Notwithstanding that
they have some initiatives in place, most major financial institutions are still
very much at the evaluation and planning stage, working out what knowledge
management means for them and what their approach should be. Largely missing
from the delegate lists of knowledge management conferences in the first few
years, financial institutions are now more often represented at such events. We
find that organisations of all kinds share the same issues at this stage:
Business case, management support, staff motivation and behaviours, and so
...and their focus tends to be infrastructural rather than strategic. The
initiatives that are being worked on tend to be infrastructural rather than
directed at supporting specific business strategies. To be fair, this is a
flavour of knowledge management practice in general, and is not limited to the
financial sector. What this means is that most organisations are seeking to
address rather generic issues such as promoting knowledge sharing and supporting
knowledge communities, and so on. We propose that there is an alternative
approach in which knowledge management initiatives are directed at specific
business issues and objectives. When this alternative approach is taken
knowledge management becomes more relevant to the specific organisation’s own
situation (which helps greatly with the business case, management support and
staff motivation/behaviour problems too).
In short, financial businesses are
not, broadly speaking, acting in a way that suggests that they really believe
they are knowledge-based businesses and that the practices of knowledge
management are a vital part of achieving their missions. In truth, this
observation holds for many types of business across all sectors. The reason is
simple: Knowledge is invisible and intangible, and, in any case, it’s free. Or,
at least, these are the unspoken beliefs that have been the norm up until the
current ‘knowledge awakening’.
So what are the issues facing
financial businesses that KM should be responding to?
Business drivers for KM in the
Our main proposition is that knowledge management should be an integral
part of how a business seeks to meet its objectives, achieve its strategies and
fulfil its mission. This is fundamentally a matter of responding to business
drivers; changes in the market place, opportunities and threats. So what are the
main business drivers in the financial sector at the moment? Financial
businesses are beset with challenges on every front:
Industry consolidation – mergers and acquisitions. Hardly a week seems to go
by without some announcement or other. A great deal of what are being merged or
acquired are, of course, knowledge-based, intangible assets, yet only a minority
of KM programmes are asking the question: “How should we support a
Customer focus – segmentation and ‘farming’ of the customer base, customer
knowledge, customer service. Probably the number one theme in business today is
customer service and the management of the customer base for long-term profit. A
great deal of real knowledge management is, in fact, being conducted outside of
formal KM programmes and within various CRM (customer relationship management)
projects. Interestingly, however, the major focus is still on the development of
databases of customer information rather than repositories of customer
financial institution has developed models that reflect what customers’
financial issues are likely to be at different stages of their life or when
faced with various prototypical life events. This leverages, shares and applies
the collective real-life knowledge and original research of the institution to
both improve its sales and provide better customer service through more accurate
positioning and targeting of product and service offers.
Unisys has been
working with various financial sector clients in different aspects of customer
knowledge. The most interesting of these are approaches to modelling customer
behaviour, which can then be used to segment the customer base, anticipate
customer actions, or as a basis to making flexible decisions about customers
(for example, lending decisions that more accurately reflect what the
institution knows about a customer, taking into account both the business
development and risk factors in a balanced manner). One example application is
the development of models of suspicious transaction patterns that, we have
proved, can be used with a high degree of accuracy to point out potential fraud
early on in the processing cycle, and so reduce losses.
New channels – Internet, WAP, interactive digital TV. New technologies
present new knowledge needs in themselves. Many institutions are concerned not
only about the new technical competencies required to make use of these
channels, but also about other issues such as the legal dimensions of the
Internet and the complexities of communication across different media (what will
do for the Net probably won’t work on WAP so well). The other side of this coin
is the content question: The way in which these new media lend themselves to a
wider bandwidth of communication and so therefore demand content – which may
mean sharing knowledge and information with customers to a degree and in ways
that have not been seen before.
New products – stakeholder pensions, ISAs, online share dealing. Many new
products and services are more knowledge rich (‘smarter’ as some would say) than
their forebears. They may require a higher advisory and tailoring element, and
may be more flexible than before. Conversely, some products and services (and
stakeholder pensions are a prime example of this) are as simplified as possible
for quick, cheap processing. This point supports the observation that financial
businesses have an ambivalence towards the knowledge economy; they partially
lean towards it, partially away and in favour of the old disciplines of ‘pile
‘em high, sell ‘em cheap’.
New competition – foreign banks, Internet banks, insurance companies
entering banking, supermarket banks. Businesses are always looking for
differential, competitive advantage. The knowledge and experience that an
organisation has (and its people have) are quite singular potential sources of
such an advantage since only that organisation and those people have the
experiences that are unique to them. New entrants trade on a different platform
to incumbents; perhaps it is leveraging their existing customer base and store
networks (for instance, in the case of the supermarket banks). However,
incumbents have the potential to leverage their deeper knowledge and experience
of the particular market, geography, services and customers that the new entrant
is addressing and so force greater cost efficiencies and produce even better
service. The fact that this, broadly speaking, is not happening is an indicator
that the potential knowledge advantage is not being leveraged.
Changes in the regulatory and economic environment – for example, the Euro.
Keeping staff, systems and processes up to date with regulatory requirements is
a major challenge in the financial sector. Other changes in the operating
environment also pose significant challenges. An interesting one is the Euro,
the arrival of which some institutions are preparing for while others see it as
more of a longer-term issue. One of the apparent challenges of the Euro is that
it is, on the face of it, a unique challenge; a single, one-off major change in
the currency that will have impacts on staff, customers, systems and processes.
It may appear to be an issue that knowledge management cannot help with on the
grounds that there is little or no experience of it to go by (except maybe, to
some extent, in other countries). However, there have been many similar
challenges over the years including decimalisation and the ‘Millennium Bug’. The
knowledge and experience of the people who tackled such issues could be valuable
in ensuring a smooth(-er) transition to the Euro. Some organisations have
invested in capturing corporate histories of such pivotal moments of change.
These are valuable knowledge artefacts that preserve knowledge for future use.
institution has captured the story of its demutualisation as just such a
Unisys has been assisting another financial institution in the
development of a ‘knowledge centre’ on Euro issues (for example, systems
conversion) that could be available to all parts of that institution as and when
they make that transition.
IT – mastering new technologies, managing legacy systems, gaining the
business benefits. Changes in technology present similar challenges to changes
in the business environment (as above) – for instance, the challenge of needing
to refresh the organisation’s knowledge base and skills so as to keep ahead (or
keep up) with new technology. In truth, however, the sector has always been a
heavy user of computerised automation and relies on it for fast, low-cost,
reliable processing. Indeed, the tuning of systems and processes with the
objectives of cost reduction and speed/quality improvements is a major activity,
especially at the ‘retail’ end of the market. Here, however, much knowledge
remains local and ‘in heads’. In most large institutions there is a major
opportunity for improvement in systems management through knowledge management
techniques and approaches.
Unisys has recently been advising
various financial institutions in different aspects of this, including
problem/event management where, for large global banks, there is significant
potential for a better quality of service from the IT department through the
global pooling and sharing of information on potential and actual system
problems, and their solutions.
Cost pressures – automation vs. staffing, ‘e’ channels vs. branches etc. The
KM answer to cost management/reduction is to find the ‘knowledge sensitive
areas’ in those processes in which knowledge and information handling and usage
can be streamlined to reduce work and errors, simplify tasks and so save cost.
Many KM programmes are concerned with cost issues but few are working closely
with specific processes and functions in order to ascertain where the actual
cost reduction potential lies – instead, many of these KM programmes are working
at a generic level where it is proposed that the initiatives to be put in place
will provide a generally cheaper infrastructure (in most cases for the less
structured aspects of work – for example, communication and collaboration
between different people, locations and departments).
So what should a financial business be
doing in respect of managing its knowledge assets?
Real KM objectives for financial
Financial businesses need to set KM objectives that are directly
relevant to the business issues, drivers and strategies specific to them. This
means asking a different question than ‘what is KM about?’ – it means asking:
‘What can KM contribute to supporting our real business issues, drivers and
what is a relevant KM objective for a financial business? Consider the following
– just three examples of potential KM objectives under the heading of ‘customer
focus’ for a financial business:
Becoming expert in customers’ financial concerns
Transforming customer-facing staff from ‘processors’ into ‘advisors’
Becoming experts in corporate customers’ businesses.
These sorts of (proposed) objectives
(which are only examples, and only from one small part of one particular
business issue) are markedly different from the kinds of objectives commonly
being set in nascent KM programmes today, which are often more infrastructural,
addressing such generic issues as:
Fostering knowledge sharing, and
Supporting knowledge communities.
Taking a more focused approach to KM
as proposed here may not mean that radically different solutions will have to be
investigated. Tools such as expertise directories, intranets, document
management systems, knowledge centres, corporate histories, and so on will still
be the relevant solutions. What will be different is the manner in which they
will be used and implemented. For example, an expertise directory project may
not be about cataloguing many and various sorts of people and their interests
and skills. Rather, there may be a more deliberate focus on capturing
information about the specific subjects, skills and people relevant to a
particular business strategy – for instance, the Euro expertise directory.
Community development initiatives, rather than supporting natural communities
(or just those who are interested in taking part) may have to invest more effort
in getting together the people the company needs to have work together – perhaps
the suppliers and consumers of expertise on the Euro, in this case.
Just think – would you
say that the financial institutions that you deal with (on a personal basis) are
trusted advisors, knowledgeable in the financial issues that concern you?
Couldn’t the tools and techniques of a broad practice like KM help them be ever
more like that? And wouldn’t the business advantages be worth it?
organisations – not only those in the financial sector – are still at the
evaluation stage of the knowledge journey and asking themselves how all the
generic things they have read, heard and seen in the hype of KM relate to their
businesses and to their situations. These same organisations are wrestling with
the issues of how to work out the business case for KM, how to get senior
management support for KM and how to get staff buy-in to KM programmes.
This is a case of ‘the
clue is in the question’. The answers to these issues and problems are tied up
in the question itself – the question of ‘what does KM mean to us, to
initiatives are planned so as to directly address the real issues and support
the real strategies of the business then the business case will be clearer and
they will be more readily supported. Many of the same types of solutions will be
implemented; many of the same approaches will be taken as are currently being
trialed today. What will be different will be the focus put on those solutions –
they will be less infrastructural and more purposeful and specific.
The financial sector,
beset with so many issues and challenges, is ripe for this ‘new KM’ approach.
2000. The opinions expressed in this article are not necessarily those of
Taylor is a knowledge management specialist with Unisys Consulting. He can be
contacted at: firstname.lastname@example.org