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Appearances can

A clearer picture of the way forward for the financial services industry

deceive

The image projected by leading firms in the financial services industry is still one of a profitable sector led by effective leaders. Hay Group research highlights that this does not accurately reflect reality. Many financial organizations have yet to adapt to the post-crisis environment and therein lies an opportunity for renewal >>

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Contents

Foreword: a distorted perception 3

1 Context: a pause for reflection 4

2 The nature and impact of leadership 6

3 Breaking the cycle 13

4 Ahead of the curve 17

Conclusion 20

Appearances can deceive2

©2013 Hay Group. All rights reserved

Five years on from the crisis, we find many financial firms working in ways that are out of step with the new competitive landscape.

3

Foreword: a distorted perception

The common message emanating from leading firms within

the financial services industry is one of change. Barclays,

Citibank and HSBC have all heralded major cultural, structural

or remunerative changes during the early part of 2013.

We know financial services firms realize that

the strategies of the past will no longer

generate the prolonged success they enjoyed

prior to the global collapse. In the post-

crisis landscape, they are facing poor share

performance, squeezed margins, tightening

regulation and growing competition from

emerging markets, start-ups and new entrants

from outside the sector.

In a market where consumer behavior is

rapidly changing and the choice of alternatives

multiplying, the perception of value is shifting.

Value will soon be – if it is not already –

determined by simplicity, transparency and trust,

rather than by product features and number of

branches. Author Brett King summarized the

nature of the new game with the memorable

phrase: ‘Banking is no longer somewhere that

you go, it’s something that you do.’ 1

In the face of this, financial services institutions

sense they must adapt if they are to preserve

profitability, protect their competitive position

and reinvigorate performance.

Drawing on over sixty years’ experience of

working with global financial organizations,

Hay Group sets out to examine how firms are

addressing the need for change. Five years on

from the crisis, our analysis finds an industry –

and its leaders – yet to adapt to the new

competitive landscape. Many firms are locked

in once-successful, pre-recession business

models and ways of working, which are now

out of step with the current climate.

But our ambition is not to heap further criticism

on an already beleaguered sector. Our research

suggests that there is real opportunity

for renewal and outstanding performance

for those institutions ready to address the

embedded cultures and practices that are

preventing change.

To make this fundamental transition, financial

services organizations need to cast their eyes

to the top of the tree. It is the most senior

leaders who must drive the necessary change,

starting with an honest look in the mirror.

Financial services executives must be ready

to acknowledge leadership challenges

in order to set their organizations on a path

to sustainable renewal.

Welcome to Appearances Can Deceive.

This report, based on a review of dozens

of cases and the systematic analysis of a

wealth of hard data, explores how financial

services can resume growth and improve

profitability, and use transformational

leadership to leave crisis behind.

Jean-Marc Laouchez, managing director, global financial services, Hay Group, May 2013

1 ‘Bank 3.0. Why banking is no longer somewhere you go, but something you do.’



Profits are under siege as financial firms

are confronted with a perfect storm of low

interest rates, disruptive technologies and

high capital adequacy requirements, as well

as restrictions – self-inflicted or regulatory –

on proprietary trading.

The balance of power has shifted inexorably

towards clients and customers, whose

expectations – and options – have never been

higher. Retail customers demand greater choice,

transparent prices and a more personalized,

multichannel service experience. Corporate

clients want tailored, cost effective advice

and solutions. And when things do not go

their way, they are increasingly quick to air

their grievances very publicly over social media,

or shift to other providers.

Customer trust in the industry has been severely

damaged by behaviors uncovered by the

financial crisis and ensuing high-profile ‘scandals’,

from Libor and Peregrine, to the London Whale.

Weak banking systems, from Belgium to Cyprus,

have also taken their toll on public confidence.

What worked yesterday no longer works today,

and as a result, the financial industry – in contrast

to other sectors – is struggling to recover from

the 2008-2009 crisis.

Since spring 2011, The KBW Bank and Dow Jones

US Select Insurance and US Asset Managers

Indices have all consistently underperformed

the Dow Jones Index by up to 40 percent.

And, for the first time, the sector did not feature

in Hay Group’s last top 20 Best Companies

for Leadership, global research which ranks

organizations against dimensions such as ability

to meet customer needs, agility, collaboration

and innovation.

In response to the public clamor for retribution,

politicians have taken an increasingly vociferous

stance against the industry, prompting waves

of new regulation and more power to regulatory

bodies. As the European Central Bank, for

instance, readies to become the eurozone’s

single banking watchdog, EU leaders sent shock

waves across the industry with the recent

proposals for bonus caps.2

But, all too often, new regulation has been

a knee-jerk response to popular concerns over

media-friendly topics such as executive pay,

rather than a considered, collaborative attempt

to reduce the systemic risk of future institutional

or market failures. As a result, financial services

boards and leaders are left navigating a

confusing patchwork of codes, guidance and

regulations at national and regional levels, which

often overlap and even contradict each other.

The reputational fallout from the financial crisis

has also affected the sector’s ability to attract

the very best young talent – a potential ticking

timebomb for future success. The best and

brightest graduates are now more attracted to

the progressive and egalitarian climate offered

by the technology giants, or by highly lucrative

hedge funds.

1 Context: a pause for reflection

Times have changed in financial services.

The post-recession environment is at best uncertain and,

at worst, hostile for financial institutions, which face

a fierce battle to attract and retain profitable customers

in an increasingly competitive climate.

2 This measure indicates that regulators are not yet satisfied with the industry learning from and response to the crisis.

However, Hay Group does not support a cap on bonuses for bankers or fund managers, because it could restrain

financial services firms from making positive contributions to the economy in the future. Indeed it may cement the

way they reward their people, rather than encouraging them to explore approaches that fit the new environment.

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…all too often,

new regulation

has been a knee-jerk

response to popular

concerns over a

media-friendly

topic…This competitive landscape requires financial

services firms to develop a new combination

of skills and capabilities. They must:

n reinforce discipline to avoid risks they

do not fully understand and continue

to increase productivity and efficiency.

n make clients their priority and learn

new ways to partner, innovate and

develop solutions and business models

to serve them.

n excel at leading change in a volatile

environment.

This changing climate has laid bare the need

for financial institutions to renew.

The market has changed, but the leaders

and institutions have not. Yet.

Our research uncovers widespread use

of outdated leadership styles and practices,

inappropriate to the current competitive

context. Rapid change and increasing complexity

are placing sector leaders under unprecedented

pressures. In short, they are feeling the heat

like never before, but many are clinging to the

strategies and behaviors bred in the ‘good old

days’ of financial services boom.

So what common leadership styles and practices

are holding back organizations within the

financial sector?

Fig 1.1 ‘Just do it’ leadership

Difference in average scores of leadership styles between financial services sector leaders and leaders from other

sectors. Like their peers from other industries, financial services used a broad range of styles. However significantly

more financial service leaders rely on the coercive style. Source: Hay Group’s leadership climate and styles data.

-3.9%

0.4%1.0%1.1%

3.8%

8.9%

Coercive Coaching Visionary Affiliative Participative

Pacesetting



‘Just do it’ leadership

To succeed in a more competitive and volatile

climate, leaders in financial firms will need

a highly engaged workforce, capable of

successfully executing rapid change.

However, our research shows that leaders tend

to heavily rely on a ‘coercive’ style, demanding

specific actions, rather than enabling and

nurturing their peers and team members. Nearly

half (43 percent) of financial services leaders

adopt the coercive style as their dominant

approach, compared to only a third (34 percent)

of leaders across all sectors. This indicates a

‘paternalistic’ style of leadership, which is not

conducive to building the capabilities required

to win and sustain performance in the new

competitive context. Such capabilities

include responsible risk taking, partnering

and customer-focused innovation.

Perhaps not surprisingly then, 55 percent

of leaders in financial services are creating

demotivating climates for their teams, and

less than a third (31 percent) of their employees

are likely to be performing at or near their best.

In a reversal of what is commonly observed,

where employees report engagement but

are frustrated in their ability to deliver through

organizational barriers; the biggest gap for

financial services firms is engagement.

2 The nature and impact of leadership

Many of the barriers to renewal that we have identified

stem from the prevailing leadership profile in the sector.

A formula suited to pre-crisis times is now out of step

with current requirements.

Fig 1.2 The impact of leadership

High performing companies

All industries average

Enablement – to what extent the workforce feels ‘enabled’ to perform

Financial services firms

0 20 40 60 80 100



Engagement – to what extent the workforce feels ‘engaged’ to perform


0 20 40 60 80 100

A comparison of financial services and general industry employee opinion data. In a reversal of what is commonly

observed when employees report engagement but are frustrated in their ability to deliver through organizational

barriers; the biggest gap for financial services firms is engagement. Source: Hay Group’s Insight database.

Fig 1.3 The impact of leadership



Job provides

challenging and

interesting work


0 20 40 60 80 100



Job conditions

allow productivity


0 20 40 60 80 100



Company

motivates me


0 20 40 60 80 100



Intention to stay


0 20 40 60 80 100

A comparison of financial services and general industry employee opinion data. Feedback highlights the fact that there

is a lack of pride or belief in their job or firm. Source: Hay Group’s Insight database.

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Feedback from financial employees highlights

the fact that their ‘heart isn’t in the job’ and

that that there is a lack of pride or belief in their

role or firm.

Fewer than 63 percent of employees in the

sector feel engaged and able to do their job,

compared to 71 percent in the best-performing

organizations across all sectors.

That’s a lot of talent and discretionary effort left

on the table by high value knowledge workers.

So as a result the prevailing leadership profile

in the sector is fostering a lack of engagement

and pride. It’s also leading to an insufficient

focus on clients and customers, self-serving

innovation, limited diversity and an inability

to look beyond the short-term.

a) Lack of external and client focus

As the balance of power shifts in favor of

the customer in financial services, customer-

orientation will be critical to future success.

And yet employee opinion data from our

Insight database indicates that just two thirds

of financial services employees (67 percent)

describe their organization as customer-focused,

compared to 79 percent of the world’s best

performing companies. See fig 1.4.

Financial services employees rate their own

listening abilities lower than those in other

sectors. And while an encouraging 72 percent

of employees agree that their firm attempts

to understand and meet customers’ needs,

this is lower than the 82 percent among

high-performing organizations. See fig 1.5.

Similarly, fewer financial services employees

have faith in the quality of their firm’s customer

support compared to top performing companies

(61 versus 75 percent).

Leaders in financial services firms appear more

removed from the field and their clients than

in other industries, making it difficult to react

to new trends with the speed needed.

Leadership styles

n Coercive

A coercive style demands compliance

and can contaminate everyone’s mood

and drive talent away. To be used

sparingly and for a short time – in a crisis

or to kick-start an urgent turnaround.

n Visionary

Inspires and is able to explain how and

why people’s efforts contribute to the

‘vision’. Moves people towards shared

outcomes through empathy and clarity.

n Affiliative

Creates harmony that boosts morale and

solves conflict – a useful style for healing

rifts in a team or for motivating during

stressful times.

n Participative

This style is manifested in those leaders

who are effective listeners, team workers,

collaborators and influencers. They value

people’s input and get commitment

through participation.

n Pacesetting

This style is used by those who have

a strong drive to achieve through their

own efforts and have high personal

standards and initiative. They may be

impatient, prone to micromanaging

and only lead through example.

n Coaching

This style involves listening and helping

people identify their own strengths

and weaknesses. Coaching leaders

encourage, provide feedback and improve

performance by building their people’s

long term capabilities.

Fig 1.5 Products over customers

Fig 1.4 Products over customers



Quality of customer support, responsiveness, flexibility, turnaround produced by the company


0 20 40 60 80 100



Focus on the quality of the products and the services produced by the company


0 20 40 60 80 100



Being customer focused seeking to understand and meet customers’ needs and requirements


0 20 40 60 80 100

Long Term Horizon

Values

Ethics

FS Firms lag in customer focus and innovation

Social ResponsibilityInnovation

Quality

Operational Efficiency

Customer Focus

Focus on Competitors

90

80

70

60

50

High performing companies All industries average Financial services firms

Employee opinion data from our Insight database indicates that just two thirds of financial services employees

(67 percent) describe their organization as customer-focused, compared to 79 percent of the world’s best

performing companies. Source: Hay Group’s Insight database (2007-2011).

Source: Hay Group’s Insight database.

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c) Lack of diversity – a small gene pool

The financial services industry tends to

recruit in its own image. Candidates currently

attracted to, and sought by, the industry

typically have very high IQs and display strong

logical and numerical reasoning. They also

tend to be goal-oriented, resilient individuals.

These bright, driven and articulate employees

were perfectly suited to generating immediate

value in the fast-growth, sales and deal-driven

environment of yesteryear. However, the new

environment calls for more ‘disciplined listeners’

with the skills to drive performance and effective

risk-taking through responsible empowerment

and leadership of others.

d) Rewarding short-term, company-oriented outcomes

Since the onset of the financial crisis,

the sector’s and in particular banks’ incentive

structures for the sector – and for banks in

particular – have been under intense scrutiny.

Media, politicians, shareholders and regulators

have been quick to criticize a culture that

they view as rewarding short-term results

at the expense of longer term success and

value creation.

Our analysis suggests that the industry’s pay

and reward practices are providing leaders with

little imperative to focus on the long, or even

medium term.

Until recently, bonus potential was discretionary,

and what the sector considered long-term

incentives were, in fact, backward looking and

mainly determined by annual performance.

In contrast to practice in other sectors, pay and

bonuses were also pegged to market rate rather

than sized to job.

While various regulations have been created to

address this, the resultant changes to incentives

have merely painted over the cracks. What needs

to be dealt with is what is incentivized. What

is the strategy? And what are the behaviors

required to support it?

b) Self-serving innovation

To meet rapidly evolving customer demands,

financial services leaders will need to

encourage creativity and innovation that

delivers significant value to their markets.

We have seen handfuls of institutions and

senior executives being extremely creative

in developing new products, from derivatives

to securitization. They have also found new

ways to go to market with financial engineering,

or developed innovative business models –

Berkshire Hathaway’s GEICO direct-to-consumer

auto insurance sales and advertising model

is one such example.

Where such firms lead, others will follow.

However innovation is often focused on

delivering immediate returns to the institution,

without offering systematically longer-term

client value. It thereby fails to generate loyalty.

Our research shows that financial leaders are

not always equipped to foster a culture of

innovation for a wider group of stakeholders.

This requires leadership and vision. It also

requires commitment to support collaboration

and give employees the space and opportunity

to try radically new ways of doing things,

within the parameters of acceptable risk.

But, as we have seen, financial leaders currently

depend heavily on the ‘coercive’ leadership

style. This has worked well in a context of high

margins or in the dark days of the crisis, but it

is counter-productive when used continuously

and over the long term. Excessive use of this

approach erodes the adaptive capabilities

of a workforce.

Not surprisingly, therefore, financial services

employees lack confidence in their firm’s

capabilities to innovate. Just over half

(53 percent) believe that their company

is able to develop better products and

services than competitors for customers,

compared to 70 percent of high performing

cross-industry companies.

Fig 1.6 Financial services leaders ‘more overconfident’

Emotional and social competency inventory (ESCI). Gaps between self-assessment and others' assessment.

Financial services leaders and leaders from other industries, 2011-2012.

** Significant

Financial services firm managers and leaders

Other industry managers and leaders

Adaptability

Conflict managm

ent

Coaching, mentoring

Empathy

Emotional self aw

areness

Emotional self control**

Inspiring leader

Influence

Organizational aw

areness

Positive outlook

Team w

ork

Achievement**

Working with leaders over the decades, Hay Group has found that managers typically rate their abilities across the

12 areas of emotional intelligence higher than their colleagues and their reports rate them. Within financial services

however, the gap between leadership perception and reality is even wider. Source: Hay Group’s emotional and social

competency inventory.

0.15

0.10

0.05

-0.05

-0.10

-0.15

-0.20

0

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A long look in the mirror

As we will outline in the next section, leaders

will need to be agents for renewal if their

firms are to succeed amid the shifting sands

of global financial services.

Self-awareness will be a critical success factor

in achieving renewal. But, when asked to rate

their own emotional and social intelligence –

the ability to bring out the best in themselves

and their employees – financial services

managers consistently score themselves

higher than others rate them in each of the

twelve competencies that make up emotional

and social intelligence.

This is particularly true of achievement,

emotional self control and positive outlook.

Rather than promoting renewal, these significant

gaps indicate a high level of overconfidence,

which is limiting leaders’ ability to acknowledge

the need for change and to embrace it.

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Transformation strategies in this naturally

conservative sector have typically involved

bringing in fresh blood, shifting teams around,

outsourcing operations or investing in new

technologies. But the key driver of renewal

should be leadership itself.

Leaders have the power to improve performance

by fostering customer-focus and inspiring new

models of innovation. But it will need a profound

change in mindset and behavior.

Creating innovation capability requires a

drive from the top. It demands a commitment

to establish an engaging vision and a new

definition of risk and risk-taking. It also involves

the encouragement of real collaboration across

units and functions.

In a time of increased uncertainty and volatility,

we all need a compass: a simple and compelling

sense of direction, which informs the right

trade-offs and decisions as we go. Only a few

financial firms’ leaders provide this clear purpose.

Citigroup CEO Michael Corbat recently provided

just such direction: “Without the appropriate

discipline and targeting, our resources can

be spread too thinly or too evenly across

the portfolio, under-investing in our best

opportunities and opening ourselves to

mission creep in less attractive areas.”

“And having just spent four years selling off

assets that came on to our balance sheet as

a consequence of mission creep, I believe the

right framework needs to be more granular

today than in the past, with a balanced view

across markets, clients, and products. We also

need to make sure we measure our progress

in real-time so we can make mid-course

corrections as necessary and respond to the

operating environment.”

When leaders commit employees and

stakeholders to a shared direction and explain

the nature and extent of the transformation,

it arms the firm against uncertainty, engages

clients and stakeholders and provides

clarity about the nature and the extent

of change required.

In addition, the notion of risk, at the center

of the business of banking, insurance and

asset management will have to be revised.

The challenge will be for leaders to develop

controlling processes and disciplined mindsets

that limit inappropriate financial risk, while

encouraging the experimentation that

supports new, differentiated business models

and solutions.

It is possible. New entrants such as PayPal

are gaining ground in the payments market

by redefining the risk-trust relationship

between customer and provider, dispensing

with traditional paper methods and sharing

the cost benefits with their users.

Fundamentally, institutions will need the

kind of leadership that not only creates

value for the company and its shareholders,

but more crucially, its customers.

Leaders will therefore have to take a longer-term

view, as future success will depend on generating

more sustainable returns – which could be

nonetheless considerable – over a longer period

of time.

So the renewal of financial institutions starts with

the renewal of their leaders. This can be achieved

in three simple, yet meaningful steps.

3 Breaking the cycle

Renewal starts at the top and requires courage.



Step one: develop self-awareness

Beyond the necessary focus on improving

efficiency, structures and technology, financial

services leaders now face a critical choice.

One option is to go ‘back to basics’. Sound

practices in insurance underwriting, lending,

balancing assets and liabilities or investment

will provide many institutions with decent

returns for a foreseeable period of time.

Cost cutting will boost profits for a while.

However it might not be enough to consistently

achieve ROE of over 15 percent, as ‘business

as usual’ might accelerate commoditization.

Alternatively, leaders can decide to position their

firms for a radically different competitive context

and renew their business models, technologies,

partnerships and underlying practices.

If they choose the latter approach, they will

have to embark on an honest appraisal of their

own leadership profile against the capabilities

required to win in the new financial market.

This will ultimately yield sustainable,

long-term success.

Step two: experiment with new behaviors and lead by example

The leadership approach, styles and practices

that are less relevant in the new financial

services context have been identified.

Leaders must experiment with alternative

behaviors and attitudes, such as coaching rather

than lecturing, listening rather than asking and

engaging rather than tasking. These leadership

behaviors will bring new levels of rigor and

management maturity into the institution,

which will translate into competitive advantage.

Leaders that ‘role model’ these behaviors and

types of interactions will inspire others to

do the right thing and develop a culture of

accountability and responsible performance.

One COO of a large European lending institution

has acknowledged: “I led an army of specialists

and subject matter experts to turn our firm

around after the financial crisis. I must now

change the profile of my teams and seriously

alter my leadership style if we want to bridge

across silos, collaborate and grow.”

Leaders must experiment with alternative behaviors and attitudes, such as coaching rather than lecturing, listening rather than asking and engaging rather than tasking.

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Step three: learn and multiply

The strongest leaders and organizations

consciously learn from experimentation.

Such learning can occur at the organization

level: what digital solution draws the best

market response? What new branding or

channel partnership worked, and why? Which

factors really explain high degrees of employee

engagement and could be replicated across

the firm?

Learning should also happen with individuals

and teams. Leaders should reflect on the impact

of their new behaviors on others and on

themselves. Why has coaching worked in one

situation and not in others? Why are peers

and other leaders more open to a given line

of argument?

The most effective behaviors should then

be ‘embedded’ into explicit leadership models

to inspire others and provide a clear benchmark

for success. The experience of one large

insurance company provides an illustration.

It views its competency model as its main

competitive advantage, together with its brand.

It has made extraordinary efforts to understand

the distinctive leadership behaviors that have

helped increase the volume and profitability

of sound insurance policy underwriting. It has

now rolled these out to thousands of professionals

and has rapidly gained market share.



The coming three to five years will see a form of natural selection in the industry.

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The coming three to five years will see a form

of natural selection in the industry.

Those institutions whose leaders quickly evolve

their styles and practices, establish a clear vision

and lead by example in the execution of sound

strategies will thrive.

Firms where executives fail to renew their

leadership may survive or undergo a turbulent

period of change before grasping the

fundamentals of the new landscape. Some

will disappear as many prepare for the next

wave of mergers and acquisitions in the sector.

In this final section, we describe the common

traits of success which will characterize the

survivors in the new context.

4 Ahead of the curve

To address the on-going crisis, most firms have

embarked on cutting cost and improving effectiveness

and compliance. This is often based on heavy investment

in new competitive technology platforms. But when

it comes to resuming growth in the new competitive

landscape, there are broadly three types of response

according to strategy and leadership approach.

1. Rear view 2.Blurred 3. Clear

Leadership

posture

  “We’re just going through a slow phase in the financial business cycle”

  “We must do what we already know how to do but

better”   “focus on executing well

what we already know how to do”

  “The financial sector is changing”

  “We need to adapt”   “I expect my bosses, peers and

employees to evolve”

  “I manage our change effort”

  “The world is changing”   “I listen to clients and employees”   “I am transforming myself”   “I help others through their

evolutions”

Strategic and

organizational

focus

‘Back to basics’

  Cost reduction

  Risk management

  Compliance

  Rebuilding of capital base

  Preservation of existing

business franchise e.g.

clients, brand, expertise

‘Back to basics’ plus:

  Explicit strategic intent, but

unclear business and

organizational trade-offs

  Extensive change management

effort, ‘firing on all cylinders’

  Tension between old and new

models

Same as ‘back to basics’ plus:

  Clear aspiration and actionable

strategy

  Entry in new markets

  Engaging transformation strategy

  Co-development of distinctive

business models

  Building new skills & capabilities ,

with sufficient critical mass

  Focus on relevant change levers

Benchmark/

reference

  Best historic performance

  Immediate results

  Inward-focus

  Reference are ‘best ‘players in

the financial sector

  Outward-focus

  Reference are new entrants and

best players in financial and other

industries

‘Traditional/ rear view.’Unaware of gaps

‘Blurred.’ Aware but not accountable

‘Clear.’ Fully aware and accountable

Leaders’

posture n “We’re going through a

‘low’ in the sector’s cycle”

n “I focus on efficiency

and execution”

n “The financial sector is

changing; we need to adapt”

n “I expect my leaders, peers

and employees to evolve”

n “The world is changing”

n “I learn and transform myself,

and help others to evolve”

Strategic and

organizational

focus

‘Back to basics’

n Cost reduction,

efficiency

n Risk management and

compliance

n Rebuilding capital base

n Preservation of existing

business franchise

(eg. clients, brand,

channels, expertise)

Same as ‘back to basics’, plus:

n Explicit strategic intent,

but unclear business and

organizational trade-offs

n Extensive change

management effort ‘firing

on all cylinders’

n Tension between old and

new models

Same as ‘back to basics’, plus:

n Clear aspiration and

actionable strategy

n Entry into new markets

n Rebuilding internal and

external trust

n Robust transformation

strategy, using relevant

change levers

n Building of new capabilities

and client relations with

sufficient critical mass

Benchmark/

reference

n Best historic

performance

n Immediate results

n Inward-focus

n ‘Best’ players in the

financial sector

n Outward-focus

n New entrants, ‘best’ players

as well as other industries



Successful financial services institutions will:

Focus on the customer

Winning firms will accept the need to serve

customers’ needs as much as the interests

of their shareholders and ahead of their own.

As forthcoming regulations, such as the Volcker

Rule in the US will force institutions to limit

proprietary activities, successful firms will

rebalance their organizations towards driving

value for the customer. They will use client

understanding for competitive advantage.

How will banks retain the increasingly

digitally-literate customer who is ready and

able to abandon traditional banking in favor

of a ‘mobile wallet’?

It’s a question to which payments disruptors

in retail banking, such as Simple and Square

in the US are already finding the answers.

Square’s ‘Square Wallet’ enables people to pay

for goods and services via their smart phone.

The same is true for other sectors of the industry,

with the likes of the similarly named Square1

bank founded in 2004 to provide financial

services to entrepreneurs and venture capitalists.

Its stated commitment is to ’add value in an

industry that deserved a more focused approach’

and to ‘earn business, not trap it.’

Devolve power and restructure along customer segments

A central focus on customer value will have

implications for the organizational structure

of the fittest firms.

Survivor institutions will be increasingly

organized along meaningful customer segments.

This is not simply a case of plugging in big data,

but of re-orienting operating models around the

client, to ensure that the organization is attuned

to their needs.

How do you configure your organization to

serve a customer who no longer cares (if they

ever did) which section of your business delivers

the service? They just want to get their financial

transaction done, when they want it done.

Power within winning firms will be far less

centralized. Frontline staff will be empowered

and developed to be able to provide a flexible,

intuitive and bespoke customer experience.

The best firms will increase loyalty as a result, and

enjoy lower turnover of client-facing employees.

Foster creativity and encourage the right risks

In the war for clients, survivors will harness

innovation to develop products and services

aligned to rapidly evolving customer demand.

And with new and nimbler market entrants

from other industries and start-ups born for

the new environment, staying ahead of the

curve will be critical to the future of larger

and incumbent players.

Creativity in the fittest institutions will no

longer be predominantly correlated to product

and transaction profitability. Teams will be

discouraged from chasing alpha without due

consideration to the risks associated with the

returns. Leaders will have a more sophisticated

understanding of risk – encouraging that which

will add value to the customer and therefore

the firm and its shareholders.

19

Reward contribution

The new outside-in, client-centric approach

will reshape compensation in the financial

sector in the future.

Fundamental questions will be increasingly

asked at board level to validate the

compensation of executives. Successful firms

will have made difficult decisions on how much

money they make available for compensation

overall. As is currently the case, compensation

will continue to be linked to the creation of

economic value, but that value will no longer

excuse a lack of effective leadership.

The fittest firms will have evolved the calculation

of reward from a primarily market-based

approach, to one based on a broader view

of the contribution of managers, incorporating

measures of effectiveness and business and

people leadership. Executives’ know-how,

the scale of the problems they solve, their top

or bottom line accountabilities, the complexity

of their function and their ability to influence

and lead change may all be taken into account.

Diversify recruitment

Winning firms will have more segmented

recruiting to attract a more diverse range

of skills and behaviors to their institution.

This will not be a specific recruitment initiative

to improve the diversity of the workforce,

but rather a natural consequence of the new

leadership approach. Recognizing they don’t

have the solution to every challenge, evolved

leaders will be less inclined to recruit purely

in their own image.

Having accepted that they want to understand

different customers better, empower their

frontline people, garner creative ideas on

how best to serve their clients and encourage

appropriate risk-taking, the leaders of financial

firms will have identified the need to expand

their gene pool for recruitment.

One innovative approach taken by some leading

banks is to recruit from the Ecole Hôtelière de

Lausanne in Switzerland. They believe that the

world’s oldest and most prestigious college for

the hospitality industry will provide talent that

truly understands the nature of customer service.



A shift in mindset is essential if financial

services executives are to reform current

practices and end the cycle

of underperformance.

Leaders will need to ask themselves:

‘Who do I serve?’ and place customers

before their institutions. Their own leadership

style will then follow that refreshed vision,

in order to effect rapid transformation into

a customer-focused, innovative organization.

Encouragingly, some financial institutions

leaders are indicating their commitment

to reform.

Barclays’ chief executive Antony Jenkins issued

a strong statement of intent to transform the

bank’s culture and internal practices and create

a more customer-centric institution. HSBC’s

Stuart Gulliver justified the biggest changes

in the bank’s history by admitting that its

structure was not “fit for purpose for a modern

world”. And Citigroup, following a shareholder

defeat over the chief executive’s pay package,

announced that bonuses for top executives

would be more closely linked to performance

in future.

An excellent opportunity exists for renewal.

Long-term success awaits those leaders who

pause to take a long look in the mirror, and

realign their approach.

To the victor belong the spoils.

Conclusion

Long-term success awaits those leaders who pause to take a look in the mirror, and realign their approach.

About this research

The data referenced in this report is drawn from in-depth analysis of Hay Group’s proprietary financial services

organizational data.

n Hay Group’s Best Companies for Leadership study

Hay Group has researched the Best Companies for Leadership since 2005. This, latest, 2011-2012 survey includes

responses from nearly 7,000 individuals at more than 2,300 organizations worldwide. The survey was based

on the organization’s response to an online questionnaire and peer nominations. Respondents that completed

the survey were from 103 countries, with 11 percent from North America, 35 percent from Europe, two percent

from the Middle East, 21 percent from Asia/Pacific/Africa and 31 percent from Latin America.

n Talent Q database 2012 online, work-focused psychometric tests.

These online work-focused psychometric assessments screen and assess large talent pools, measuring

work-related personality attributes (Dimensions) and numerical, logical and verbal reasoning (Elements).

This study has drawn on the results of 5,018 personality assessments from three types of financial services

organizations (asset management, retail banking and insurance). They have been compared against the

Talent Q global norm of over 30,000 managers, professionals and graduates.

The review has also looked at Elements completions in financial services, specifically 34,648 numerical

assessments, 14,144 logical assessments and 29,046 verbal assessments and these have been compared

against the professional graduate and managerial norm for each of these assessments (170,119 numerical,

65,244 logical and 145,916 verbal).

n ESCI: Hay Group’s emotional and social competency inventory (ESCI)

This is an online survey tool which delivers a 360º assessment of an individual’s behaviours across the

12 competencies that comprise emotional and social intelligence: emotional self-awareness, achievement

orientation, adaptability, emotional self control, positive outlook, empathy, organizational awareness, conflict

management, coaching and mentoring, influence, inspirational leadership and teamwork. This study refers

to data collected during the period 2011-2013 from 1,021 financial services senior executives, benchmarking

them against 12,385 of their peers from a variety of sectors including professional services, pharmaceuticals,

technology, manufacturing, retail, energy, public services and education.

n Motives and values database (2005-2011)

Hay Group’s motive profiling methodology, is one of the most widely researched instruments in the entire field

of psychology and personality assessment. By scoring individuals against the three social motives that collectively

explain the widest range of human social behaviors – this diagnostic tool generates a personalized ‘motive profile’

and allows you to explore how this relates to your work and life in general. This study draws on the values data of

6,863 financial services leaders and the motives of 7,303.

n Hay Group’s leadership styles and climate data 2005-2012.

For over 60 years we have conducted research into the links between how leaders learn and change as well

as the types of performance climates they create. The full data file used for this study comprises data from

202,198 leaders from 1,992 organizations.

This report looked at 31,000 financial services assessments, from 28,359 financial services managers. Those

assessments come from 208 organizations.

n Hay Group’s Insight database analysis (2007-2011).

Hay Group’s Insight database comprises employee opinion data. This study, looked at responses collected from

more than 50 financial services companies around the world and includes data from over 725,000 employees.

It was compared against a general industry norm (GI) and a high performing company norm (HP). GI: 350

companies globally with data from over 5.5 million employees. HP: 35 companies around the world in a wide

variety of industries and comprises data from over 1.4 million employees.

Appearances can deceiveiv

Hay Group is a global management consulting firm that works

with leaders to transform strategy into reality. We develop talent,

organize people to be more effective and motivate them to perform

at their best. Our focus is on making change happen and helping

people and organizations realize their potential.

We have over 2,800 employees working in 86 offices in 48 countries.

Our clients are from the private, public and not-for-profit sectors,

across every major industry. For more information please contact

your local office through www.haygroup.com

Africa

Cape Town

Johannesburg

Pretoria

Asia

Bangkok

Beijing

Ho Chi Minh City

Hong Kong

Jakarta

Kuala Lumpur

Mumbai

New Delhi

Seoul

Shanghai

Shenzhen

Singapore

Tokyo

Europe

Amsterdam

Athens

Barcelona

Berlin

Bilbao

Birmingham

Bratislava

Brussels

Bucharest

Budapest

Dublin

Enschede

Frankfurt

Glasgow

Helsinki

Istanbul

Kiev

Lille

Lisbon

London

Madrid

Manchester

Milan

Moscow

Oslo

Paris

Prague

Rome

Stockholm

Strasbourg

Vienna

Vilnius

Warsaw

Zeist

Zurich

Latin America

Bogotá

Buenos Aires

Caracas

Lima

Mexico City

San José

Santiago

São Paulo

Middle East

Dubai

Riyadh

Tel Aviv

North America

Atlanta

Boston

Calgary

Chicago

Dallas

Edmonton

Halifax

Kansas City

Los Angeles

Montreal

New York Metro

Ottawa

Philadelphia

Regina

San Francisco

Toronto

Vancouver

Washington DC Metro

Pacific

Auckland

Brisbane

Melbourne

Perth

Sydney

Wellington

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