Playing catch-up?

KM in the financial sector

Knowledge management holds considerable promise for the financial sector an industry that relies largely on intangible products and services which in turn stem from a company’s ability to harness intellectual capital and foster innovation. Simon Lelic talks to representatives from MMT Delta Strategies ICL Xerox KPMG Oracle Shell International and Unisys and considers how much of this promise has been delivered.

The last time Knowledge Management set out to gauge the progress of KM within the financial sector in September 2000 it was apparent that the industry as a whole was some way off the pace established by businesses operating in other economic sectors. As Robert Taylor solutions director with Unisys said at the time: “Few financial institutions have launched serious KM programmes. Of those that have most are in the early stages and their focus tends to be infrastructural rather than strategic.” Exactly one year down the line and in the wake of an in-depth survey of KM in the financial sector undertaken by the Chartered Institute of Bankers (CIB) and Xerox (‘Winning through knowledge’ in Financial World March 2001) it is perhaps a good time to once again take stock and see just how far the industry has come.

Inevitably there are exceptions to the rule and certain financial institutions have excelled in the field of knowledge management leading not only their peers but also the majority of organisations operating outside the financial marketplace. Mikko Arevuo principal at Delta Strategies is one of many among this month’s participants to praise the pioneering work of Skandia and in particular Leif Edvinsson currently director of intellectual capital at the global insurance company. “Skandia’s Intellectual Capital Navigator was the seminal tool for identifying managing and measuring the world of intangible value-generating assets of an organisation ” says Arevuo. Alongside Skandia the World Bank the only other financial institution albeit non-consumer to make it into Teleos’ Most Admired Knowledge Enterprises top ten is also recognised as being a leader in the field while Richard Cross knowledge activist and principal at Xerox Industry Solutions and Services believes IQ Port the Knowledge Exchange that came out of NatWest’s e-commerce development unit was and still is an outstanding concept.

It is as Arevuo suggests difficult to nominate a clear leader in the field of knowledge management as the financial services sector is comprised of numerous entities operating in businesses ranging from cyber-banks to institutional investment management firms to global financial ‘supermarkets’ all with differing KM programmes and priorities. Yet it is also apparent that aside from these few notable exceptions most financial institutions still have a long way to go with their KM efforts. Taylor stands by his original assertion that the financial sector is lagging behind other major industries and this is supported by Dilip Bhatt principal consultant at ICL: “Drivers such as meeting customer expectations in the ‘online’ age and merger activity have taken all the organisational focus and effort. Once the post-merger consolidation is complete then market and consumer drivers will force banks to offer high value services. However there is a long way to go yet.” And while the CIB/Xerox report found that insurance companies are leading the way with KM within the financial industry Nick Allen executive consultant at MMT Management Consultancy has seen little evidence that KM has made any major impact in insurance companies although he does maintain that changes in business strategies are generating more discussion about knowledge management.

Quite why this is still the case in a market so heavily dependent on intangibles is far from clear. As Taylor points out the financial sector is both an IT and people-intensive industry so there are plenty of potential ‘ins’ for KM yet there is unanimous agreement that take-up of KM has been markedly slower across the financial sector as a whole than in most other industries. Marcus Speh Birkenkrahe knowledge manager at Shell Finance Services believes this is partly due to the reduced emphasis on research and development in the financial sector which has often facilitated the early uptake of KM in other industries. This is echoed by James Digges executive consultant at KPMG Consulting who also blames a lack of well-defined end-to-end processes compared for example to the manufacturing industry as well as an over-reliance on IT. There also appears to be endemic confusion about what KM actually means in the financial sector as Digges Cross and Ibrahim Gogus knowledge management director at Oracle all point out. As Gogus says: “Why would you risk scrapping or changing well-established business processes organisational structures and legacy systems which worked fine for decades without specifying tangible benefits? Organisations in other knowledge-intensive industries especially professional services firms were able to spell out the tangible benefits of KM and deliver them much faster.

Considering the potential benefits KM has to offer the financial sector it is doubly strange that financial institutions are not heading the field in terms of KM implementation. The list of benefits highlighted by the CIB/Xerox survey is headed by ‘improved client advice and client satisfaction’ followed by the ability to overcome problems caused by ‘too many formats’ and ‘no company-wide repository’. As Speh suggests this supports the idea that definitions of KM in the financial sector are confused particularly when it comes to the difference between knowledge and document management. Similarly it seems financial institutions are failing to establish a link between the acknowledged driving forces in the industry (identified by Gogus as “globalisation consolidation operational efficiency coping with new competitors customer focus and alternative channels and products”) and the opportunities an effective KM programme can present. And yet the promise of KM remains as vivid for financial institutions as it does for organisations operating in other industries. Digges for example lists “cost reduction” (through improved processes and reducing the cost of employee turnover); “value creation” (by reducing the amount of time required by employees to ‘re-learn’ documented lessons and through improved relationships with stakeholder); and “revenue earners” (in that the company’s knowledge can be readily packaged and sold) as the key potential benefits of KM to financial businesses.

Perhaps the relative reluctance of the financial sector to embrace KM can be explained by the specific problems knowledge management practitioners in the industry must overcome. Cross for instance maintains that KM is yet to catch the imagination (or budget) of senior executives while Allen suggests the key difficulty lies in breaking down the traditional cultural barriers to sharing knowledge that still exist within the industry. According to Arevuo this is reflected by the continued emphasis in many areas of financial operations on individual achievement rather than team results. “Walk into any dealing room or even a tax consultants’ office at annual bonus time and you will witness that the heroes are individuals not teams ” he says. In a similar vein Bhatt believes banks in particular need to foster a single corporate view of individual customers. The current level of fragmentation in this respect makes cross-selling in Bhatt’s opinion extremely difficult while the cultural and organisational conflict caused by a merger or take-over only compounds the problem further. On top of this as Digges points out many organisations in the financial sector also have to cope with the problems presented by connecting large numbers of geographically dispersed employees as well as numerous restrictions relating to knowledge sharing raised by industry-wide regulations and issues of client confidentiality.

For knowledge management to have a real impact according to Arevuo the onus needs to be on senior management to initiate a well-programmed change initiative. “This has to make clear the benefits of a knowledge sharing organisation: knowledge sharing improves competitive advantage; it improves cost effectiveness; it leads to personal growth; and yes knowledge sharing will be a performance criteria come bonus time ” he says. Speh outlines a similar concept whereby for KM to really take root in an organisation a company must strive to establish a knowledge-rich environment that provides unique opportunities for personal and loyalty growth. “There is hardly a better place to work than one where I feel my knowledge is wanted and needed and likewise where I can learn because I have access to the experience and the knowledge of others ” he says. In addition Speh believes financial institutions must focus more directly on the client if the existing barriers to KM are to be scaled: “Providing a service is not enough; product focus is not enough; strong IT infrastructure is not enough. The main challenge comes from the client environment.” This is echoed by Gogus who suggests that by focusing more on the customer financial organisations will be able to overcome the barriers to knowledge sharing that arise from being organised more tangibly by individual product region or business unit.

As ever technology also has a role to play although again there is a consensus that too much emphasis has been placed on IT tools as representing a cure for all ills in the financial industry. “The deployment of information technology in the financial sector is probably greater than in any other industry but it has failed to bring the industry and its customers any closer together ” says Allen. “There has been a lot of hype but no real tangible results.” The real challenge as Gogus says is in using this technology to solve real business issues. To this end Speh believes the use of taxonomies and a sound information architecture is crucial while content is the key to attracting and retaining users of a KM system. Currently according to Cross many of the companies selling knowledge management solutions are doing little more than building systems to distribute information. Yet it will be he argues the technologies that enable more effective and efficient distribution of knowledge rather than information that succeed: “In the financial world we should not imagine that going digital is a panacea. Knowledge work is typically unstructured unpredictable ad hoc collaborative and contextual. More than ever there will be a need for expertise in combining interpreting drawing conclusions and making decisions based on information from multiple sources. Sense-making and knowledge work is fundamentally a social process. Technologies that help us become more productive in collaborative situations rather than augment individual intellect should dominate.”

Perhaps the biggest danger to progress for knowledge management in the financial sector is a continued confusion as to what KM actually means. For instance as Cross says: “Historically the sector seems to have been more at ease with focusing on technology rather than on the somewhat intangible cultural and ‘airy-fairy’ implications of KM.” A recent IDC survey estimated that spending on KM systems in the European banking sector would grow from $155.4m this year to $511.4m in 2004 while the CIB/Xerox report predicted an “exponential growth in shareable knowledge bases seems likely”. Although these findings do not by themselves suggest financial institutions are developing a better understanding of KM – in fact quite possibly the opposite – it nevertheless seems that interest in and commitment to knowledge management in the financial sector is on the rise. Cross for example refers to a recent conference hosted by Xerox at which Lucia Dore editor of the CIB/Xerox report was invited to speak. The conference says Cross was totally sold out – standing room only. And as Taylor puts it to an extent the only possible path from here on is up: “We are at such a low base now I am sure the sector can only benefit more from KM in the future.”

Nick Allen is an executive consultant at MMT Management Consultancy. He can be contacted at: nick.allen@mmtplc.co.uk

Mikko Arevuo is principal at Delta Strategies. He can be contacted at: marevuo@hotmail.com

Dilip Bhatt is a principal consultant at ICL. He can be contacted at: dilip.bhatt@icl.com

Richard Cross is knowledge activist and principal at Xerox Industry Solutions and Services. He can be contacted at: richard.cross2@gbr.xerox.com

James Digges is an executive consultant at KPMG Consulting. He can be contacted at: james.digges@kpmg.co.uk

Ibrahim Gogus is knowledge management director at Oracle. He can be contacted at: ibrahim.gogus@oracle.com

Marcus Speh Birkenkrahe is knowledge manager at Shell Finance Services. He can be contacted at: marcus.m.speh@si.shell.com

Robert Taylor is solutions director at Unisys. He can be contacted at: robert.m.taylor@unisys.com