Ulrich Hoffmann is Head of Group Operations at UBS.

There is a lot of talk these days about technological transformation in the financial industry. While developments like blockchain, artificial intelligence and robotics are sure to reshape much of how we do business, innovation and transformation in banking is not solely about technology. It is also about operating models, operational excellence and other factors along the value chain.

At UBS we have been on a journey for a while which I call our “industrial revolution.” As part of this we are building six transformation capabilities to drive innovation and change across the whole Operations organization. As we are addressing many core issues facing banks in general, our experience may be instructive for others too.

Service and client-centric operating model

Today banks increasingly look to separate out their operations functions and run them at arm’s length as commercial entities supplying services to their businesses and clients. With this in mind, we have created an operating model for UBS Group Operations which relies on divisional account management, global service line management and regional/legal entity service delivery management. We are also enhancing financial transparency and management rigor by introducing service level agreements, establishing key performance indicators and tracking our cost drivers.

Our operating model is also driven by regulatory requirements. Regulators increasingly demand and approve such models as it makes it easier to ring-fence systemically relevant operations functions from significant business failures and breakdowns. We have aggressively adopted this approach, moving from a fragmented setup to a truly service­ and client­centric operating model. This allows us to best service our external and internal clients, capturing efficiencies and being more agile in responding to their needs.

Front-to-back simplification

Another important task facing banks today is simplifying processes. At UBS we have initiatives across all areas along our whole value chain where we can streamline, harmonize and digitize our operating landscape. Striving to work in a more holistic, collaborative way than in the past, our goal is to transform our scattered environment by closely aligning processes and rigorously eliminating waste or collapsing duplicate activities. This results in value­added process steps which have an impact on our clients and/or products and services and help us automate our operating environment and address cost challenges.

Operational excellence

Along with simplifying our processes, we are concentrating more rigorously on operational excellence. At UBS we have a dedicated process excellence team which is looking at streamlining processes globally, working closely with business experts while clearly focusing on the client. After applying these techniques and resulting process changes, we are in a better position to identify areas for platform renovation and process automation. Adopting new technologies like robotics and artificial intelligence will allow us to better service our clients, control our risks, substantially reduce our cost base and ensure business continuity.

Workforce and vendor management

At UBS we have taken a close look at our workforce and vendor management strategy, and have built out our framework with new offices in the US, Poland, India and China. We have also strengthened and streamlined our partnerships with major bank and non­bank service providers. This is part of a conscious effort to globalize our operations footprint, find the right balance between captive and third-party near and offshore sites, and make the bank fit for purpose in a resource-constrained and cost­driven environment. For such strategies to be successful, it is important that all service delivery centers operate with commercial discipline as integral parts of the global organization.

Utility build-out and partnering

Compared to other industries – such as automotive, health care or telecommunications – financial service companies still own a significant part of their value chain. Given regulatory challenges and cost pressure, we at UBS are assessing which of our operational services are still a differentiating value proposition to our clients and which are developing into an industry commodity. Many global banks are undertaking a similar process, while at the same time market infrastructure, platform solution and process outsourcing providers are emerging and developing new offerings. We are exploring ways and means to partner with other banks and service providers to form joint ventures and innovative ecosystems which provide an attractive business case to all involved and are compliant with legal and regulatory frameworks. By fostering these new ventures, we can focus on the core areas where we want to be the best and drive the skillsets and efficiencies we need.

Value chain disruption

As the World Economic Forum has pointed out, the universal banking model is under pressure and will become unbundled. The traditional roles of banks will be challenged and eventually substituted by new sources of capital and new financial transmission mechanisms. Disruptive technologies like blockchain are expected to play an important role in how financial value chains are formed, bank processes are designed and bank operations are run. We have created several innovation labs within UBS to test the potential of these transformative technologies and to anticipate and shape the future of our firm and our industry.

As Operations at UBS undergoes its industrial revolution, we are aspiring to find the right balance between meeting our clients’ needs, responding to regulatory requirements and managing our costs and risks. We will also make ourselves fit for the new age, so that when the major transformative technologies do arrive, we are well prepared with our people and our processes to reap the most benefit from them.

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