Upskilling the workforce of the future to create a competitive advantage in financial services
The pandemic has exacerbated existing productivity challenges. Many firms have had increasingly unsustainable cost–income ratios—and if they don’t take action, they’ll face an existential threat.
But the pandemic has presented productivity opportunities, too. Some of them are highlighted by the closure of brick-and-mortar branches and offices due to health concerns, the relative ease with which customers have switched to digital channels, and the successful aspects of remote work.
In our first productivity report, published in 2019, we identified six areas that our survey showed were the focus of most institutions’ productivity efforts. Now, in our second survey, we realise that one of them, improving workforce digital IQ, is integral to and interwoven with all of the others.
Each of the pillars of productivity, as you will see in this report, involves some element of upskilling. Better understanding the workforce, for example, requires the deployment of new measurement and analytical tools. Embracing the platform economy to fully leverage gig work and innovation in crowdsourcing means organising and managing the workforce differently and developing and introducing products in a new way. Making sure your employees are equipped with new skills for a new world will unlock productivity gains across the board and is fundamental to becoming a world-beating institution.
As digitisation becomes ever more critical and technology solutions increasingly involve collaboration with third parties, firms need new capabilities. Most organisations have already digitised to some degree and are seeing productivity gains as a result, but there’s much more that can be done. For one thing, it’s not just technical skills that workers need. They also require training in new ‘soft’ skills, such as agile methods and advanced collaboration techniques.
Our updated survey shows that many firms are taking concerted action to implement this sort of training. They’re also putting in place the resources and technology infrastructure necessary for making productivity gains. In this report, we’ll examine the current state of the market, explore success stories, and lay out the next steps we think you should consider as you craft your productivity agenda for 2021 and beyond.
On the surface, the survey results regarding understanding workforce productivity appear encouraging, with a majority of respondents reporting some level of productivity tracking. Yet when you dig deeper, little has changed in the past two years in terms of institutions’ understanding of the detailed tasks their workers actually do every day. Hourly time tracking or periodic time studies are still rare, and just 37% of firms who are not already applying these measures believe that such tracking will improve productivity, down from 63% in our previous survey.
As a result, managerial decisions continue to be made with very little specific data, often by looking at comparable wage rates in different locations and with a cursory knowledge of the activities associated with individual roles. Few institutions are looking comprehensively at the nature of work, the activities that different employees perform, and how individuals can improve their productivity through new ways of working and the development of digital skills. In our view, gaining a better understanding of the workforce represents a major cost reduction opportunity for the industry.
The COVID-19 pandemic and its aftermath have underscored the importance of analysing workforce productivity. Although studies have shown that remote workers are just as productive or more productive than office workers, dealing with a more dispersed workforce does add layers of complexity to the already difficult job managers face in evaluating employees, improving their performance and developing teams. From an employee perspective, the lack of visibility often means that training needs are overlooked, extra work isn’t appreciated, and it is more difficult to separate top performers from the middle of the pack.
Change is expensive. The average change budget at a financial services institution represents about 14% of annual operating costs, according to our most recent findings. Almost one-fourth of respondents are spending 21% to 30% of their operating costs on change programmes, and budgets can exceed that for organisations going through challenging periods. According to another survey PwC conducted in 2020, the top three organisational change priorities, ranked by importance, are client and customer satisfaction (cited by 90% of respondents), regulatory compliance (85%) and operational resilience (82%). Moreover, spending on change programmes has continued to increase since our previous survey, despite continued cost pressures and the impact of COVID-19, and is up 5% year-on-year.
Yet in our experience, increased change budgets are not leading to commensurate results, often because spending is not aligned with an institution’s strategic priorities. Worse, firms often have an inflated sense of their ability to implement change. The majority of our most recent survey respondents say they have a good or very good ability to manage and execute change programmes, but PwC analysis shows financial services lagging most other industries in this area. In a post–COVID-19 world, marked by a growing need to accelerate digitisation efforts, right-size businesses, and cut costs in a negative credit and economic environment, institutions need to improve their performance and generate maximum impact from ever-larger change budgets. Digital skills are a key means of achieving these goals.
Many of the most valuable companies in the world share one thing in common: They have embraced the platform economy as a business model. They operate with relatively few full-time employees and an increasing percentage of ‘gig economy’ talent that they can access on-demand, making their organisations extremely innovative, nimble and cost-efficient. Beyond cost efficiencies, these platforms make it possible to access the full spectrum of talent, from workers with undifferentiated skills to professionals with highly specialised expertise.
As we discussed in our previous report, the financial services sector can use a platform approach to access ‘new world/new skills’ talent and ideas. The sector has made some progress towards this goal. Among respondents to our most recent survey, 50% say they now use crowdsourcing, up from 21% in our 2019 report. Among those that have already implemented crowdsourcing, the vast majority say it’s generated high or very high value for the organisation.
Next, we expect many financial institutions to become platform companies themselves—facilitating transactions across a wider suite of products and services (including those from other participants on the platform). Mutual fund marketplaces and multi-provider lending and insurance sites are some examples. We believe this trend will continue, pushed forward by some of the forces we describe in our recent report The future of financial services: Securing your tomorrow, today.
Somewhat surprisingly, our most recent survey shows that the use of agile ways of working actually declined over the past two years. The most common applications are still in information technology, finance and business development. Our work with institutions around the world has given us some insight into why this might be the case. First, some management teams might not be fully committed to the journey. Other management teams don’t always understand how the new approach will create value or improve performance, and they might be uncomfortable working in unconventional ways with greater transparency. In extreme cases, they might actively undermine confidence in agile ways of working by citing examples where peer organisations have failed.
‘Digital labour’ encompasses all of the tools and techniques used to replace human labour with technology. According to our most recent survey, artificial intelligence (AI) has passed robotic process automation (RPA) as the most widely used type of automation solution, and PwC’s experience on the ground supports this finding. AI is increasingly being used to drive exponential improvements in productivity and provide unique value to end customers. For example, AI solutions now enable the underwriting of large mortgage loans in minutes, allowing home buyers to walk through a property and make a fully backed offer on the spot—a dramatic improvement over the weeks-long process offered by traditional institutions. AI is also increasingly being used in conjunction with Internet of Things devices to track data as diverse as health factors, driving habits and investor sentiments.
As organisations incorporate AI into more and more areas of the business, regulators and other stakeholders are increasingly focused on topics such as transparency, control, fairness and privacy. The risk is that AI is creating new ‘black boxes,’ where humans are unable to understand the nature of the algorithms and their implications. Do credit-scoring algorithms have hidden biases that discriminate against certain borrowers? Are the algorithms that are monitoring transactions for money laundering able to detect the latest techniques used by drug traffickers and terrorists? Can my AI-based intrusion-detection software cope with the latest threats from hackers, organised crime and national governments? These questions have moved beyond risk and technology functions and into the C-suite, and we are only at the beginning.
The increasing use of the cloud is akin to providing rocket fuel to the use of AI in financial services. In fact, many of the first applications being developed or converted to both the private and public clouds are algorithmic in nature and require large amounts of data and computing power. AI is an area where the cloud providers themselves will lend not only their immense computing power but also considerable expertise.
As our survey results and experiences with the world’s leading financial institutions show, there are many ways to address the daunting productivity challenge, but they all share a common foundation. You need to improve the digital IQ of your workforces, along with relevant softer skills. These skills are even more critical in a post–COVID-19 environment. They are, in fact, the decisive factor in increasing productivity on a sustainable basis, which is proving to be one of the key factors in an organisation’s long-term success.
This skills challenge calls for a comprehensive talent strategy and approach, and the execution of specific upskilling efforts that can explicitly demonstrate the tie between investment and improved business outcomes. Without these quantitative results, along with greater employee engagement (which can also be measured), our experience shows that upskilling programmes quickly lose momentum and can ultimately fail. On the other hand, explicitly linking investments to outcomes and capturing benefits typically builds confidence that such efforts deliver real improvements in return on investment and other aspects of performance. This momentum can quickly spread throughout the enterprise.
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Financial Services Industry Leader, PwC Turkey
Tel: +90 212 326 6073