Financial Service Industries in the 21st CenturyWhat really matters?

Ian McCall

Lead Partner – Strategy and Operations Consulting

2nd June 2011

“The future is already here – it’s just not evenly distributed”

- William Gibson, The Economist, 4th December 2003

What I am going to attempt to do is join the dots between a few things that are “already here”

A few consistent conclusions

6 things that are already here…

• The incredible vanishing value – How large companies have ‘misplaced’ their value

• The death of the industrial age– A democratised competitive landscape

• The loaded gun – Seeing the change to which we are already sentenced

• Need finding and the search for meaning– The importance of design thinking

• The fable of Pharaoh and Hosni– How customer behaviour really hasn’t changed

• The ascendancy of the Digital Natives– Immigrate or die

1. The incredible vanishing value - the Big Shift…

• The Shift Index– 2009 Deloitte study of the US Economy– Analysis of 25 metrics to quantify the impact of changing technologies, business

practices and public policy– 9 major industry perspectives developed

• Key Findings– Since 1965, ROA of US Firms has dropped by 75%– Labour productivity has improved although at more modest rates– “Firm topple rate” has doubled – US Competitive intensity has more than doubled in the last 40 years

• The big question – where has the value gone?

© 2010 Deloitte Touche Tohmatsu2015 Strategic Vision.

There has been a long term trend…

… value has migrated to the ends of the value chain.

No one is immune…

Competitive Intensity1

Decrease Static Increase

ROA2

Increase

Aerospace and Defence

Health Care

Static

Consumer Products

Financial services

Decrease

Retail

AviationEnergy

InsuranceLife Sciences

Process and Industrial Prod.

AutomotiveMedia

TechnologyTelecom

1 Static Competitive Intensity is defined as a change of less than .01(+/-) in the HHI. 2 Static ROA is defined as a change of less than 5 percent

Changes in Competitive Intensity and ROA (1965 – 2008)

© 2010 Deloitte Touche Tohmatsu2015 Strategic Vision.

Ignore this lesson at your peril… it can move very fast

2. The death of the Industrial Age

Who moved my competitive advantage?

© 2010 Deloitte Touche Tohmatsu2015 Strategic Vision.

Scale learning and collaboration not Scale efficiencies create value

The democratising effect of information…

Imp

act

Ind

ex3. The loaded gun…

… the change to which we are already sentenced.F

low

In

dex

Fo

un

dat

ion

In

de

x

Markets

Firms

People

Virtual Flows

Physical Flows

Amplifiers

Technology Performance

Infrastructure Penetration

Public Policy

Computing Power, Digital Storage, Bandwidth, Internet Users, Wireless Subscriptions

Internet activity, KX Flows, Travel Volume, Worker Passion, Social Media

Competitive intensity, ROA, Consumer Power, Returns to Talent

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Institutional innovation will be the most powerful form of innovation

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

• We haven’t fully realised the potential for change that is already built into the world

Flow

Foundation

Impact

Component Index Trends (1993-2008)

Source: Deloitte Analysis

7.83

5.95

1.93

4. Need finding and the search for meaning…

…the rise of design thinking

Use

Usability

Meaning

4. The fable of Pharaoh and Hosni – what has changed?

Exodus 8:1

“Let my people go that they may serve me”

Power of the crowd to complain

Consumer complaint behaviour – three questions?

Isn’t it all just a cost benefit analysis at the end

of the day ….

Why do people bother to complain

– because they love me or because they

hate me?

It often easier to complain about

you than to you – why?

…and the benefit of complaining about you just went through the roof

Damned if you don’t…

• Vodafail_com - Looks like Vodafail to me.htm

Damned of you do…

• “Excessive posts drives many to ‘un-Like’ a brand on FacebookA new study released by ExactTarget and CoTweet found the top reason for ‘un-liking’ a brand on Facebook was too many posts with 44 per cent of U.S consumers agreeing to ‘un-like’ a page if the company posted too frequently.

The study also found 38 per cent of consumers would ‘un-like’ a brand if the content was becoming repetitive or boring over time and 26 per cent said they only ‘liked’ a company to take advantage of a one-time offer.” – DynamicBusiness.com.au

Alan Kay

“

”

Technology is only technology for people who were born before it was invented.

6. Behold the ascendancy of the Digital Native..

19

MeritocraticHyperlinks subvert hierarchy!

20

Famous2000 followers on twitter!!

21

FastInstant coffee is too slow!

Empowered

We believe us, not you!

Always OnWhat work/life balance?

LargeClosedTop DownBusiness PlansControlPrivacyMonologueYou

FastOpenBottom UpIterateNo ControlTrustDialogueUs

ImmigrateLearn to speak a second

language!

So what does all of this mean?

• The incredible vanishing value – How large companies have ‘misplaced’ their value

• The death of the industrial age– A democratised competitive landscape

• The loaded gun – Seeing the change to which we are already sentenced

• Need finding and the search for meaning– The importance of design thinking

• The fable of Pharaoh and Hosni– How customer behaviour really hasn’t changed

• The ascendancy of the Digital Natives– Immigrate or die

A more complex, fragmented and diverse set of value chains delivering services to clients.

Talent extracting even greater rewards than ever.

An environment in which your failures will be exposed more quickly and to greater effect in multiple media you can only influence

A new set of consumer attitudes that are shaped by an empowering digital landscape.