Innovation Rediscovered
According to Accenture, innovation in the global capital markets industry during the times of tremendous expansion and wealth creation was practically synonymous with new product development and product innovation, including the asset-based structured products that contributed to the near-collapse of the global banking system.
“The likely fallout from the global credit crisis will require firms to shift focus to a more balanced approach to innovation” says Heinrich Degener, Accenture Financial Services, Capital Markets. “Speed to adapt will be to the back office what speed to market was to the front office. With shorter product lifecycles and increasing competition, innovation is central to ensuring that processing costs decline as commoditisation brings products to maturity ever more rapidly,” he adds.
Given the failure of firms to prepare for adverse consequences, risk management has become critical. “Risk was largely ignored in many cases, but it will not be cast aside so easily during and after the recovery. No longer a necessary evil, it is now a competitive advantage as transparency and restoration of sound practices become selling points with clients,” according to Degener.
Being somewhat isolated from the worst of the housing market-related excesses in many parts of the developed world, South African banks have been left in a stronger position during the global downturn.
“This is primarily because of exchange controls; South African banks did not have the exposure to the credit derivative instruments issued in the United Kingdom or United States. As a result, South African banks have not seen their market capitalisations erode like that of their global peers,” added Degener.
South African banks must look to seize this opportunity to establish innovative practices that have for too long been ignored by the global industry.
The upheaval facing the global capital markets represents a “once-in-a-generation” system shock. During this period of uncertainty, firms are returning to principles of transparency and stability, while governments, regulators, institutions and investors search for a way to rebuild the industry.
This is an ideal time for organisations on the road to high performance to lay the foundation for a new phase of innovation. Much of this innovation will be based on emerging technologies, and will indeed require expensive short-term endeavours – difficult for many firms to consider in the current environment.
“However, in a more regulated and lower-risk industry, innovation will mean more than developing products. Streamlined and interconnected processes, stronger risk tolerance and advisory services that cater to a new and very different generation of investors will be essential to survival in the emerging industry,” concludes Degener.
