As promised in our last quarterly issue, we will be dissecting the diagram below. As a reminder, at Strategy & Resources, LLC, we view the evolution in the financial services industry through three lenses, dubbed “The 3 C-Drivers.” They are:

  • Consumer and Advisor Preference
  • Competitor Behavior
  • Compliance and Regulatory Environment

This article will expand upon our previously published content, which you can access here using your membership credentials.

Operating Model and Intentional Design

Financial services businesses such as broker/dealers, banks, insurance companies, asset management firms, TAMPs and FinTech service providers should be intentionally designed. Every aspect of the operating model should reflect the optimal organizational structure to support maximizing the return to the shareholder. The only way to do that is to be clear about who the end-customer is, how the business will access the end-customer, and the levels of support necessary to maintain the end-customer experience. In other words: Build the organization to support the strategy.

If the strategy or customer focus has changed from the time the support organization was built, or from the time the tech stack and vendor partners were selected, most likely the structure is actually working against optimal results. Symptoms of this include frequent work-arounds to standard processes, or use of tools and data (legacy systems) by those processing business, responding to service requests, spending marketing resources, etc. that were not intended to be used for that purpose. The diagram above and questions below bring to life the Strategy Framework we use at Strategy and Resources, LLC.

How to Create a Solid Strategy

Step #1: Who is your end-customer (who ultimately pays for or uses the product or service your business provides)?

As with the construction of an office building, if you get the foundation right the remaining building process should work out according to the architect’s vision. But before you can sign off on the foundation plan, it’s necessary to have the overall design completed. The layout and materials contemplated for the 20th floor of the building inform the design of the foundation. With building construction, major decisions about how the building will look when completed, the type of tenants who will occupy the building, the number of tenants (one or many), etc. all must be considered before the developer breaks ground. Everything must line up to support the finished product. Fail to plan properly with the foundation (such as electrical or plumbing required) and the finished product will fail to meet expectations and fail to produce intended return on investment.

For financial services companies, foundation-level business decisions should begin with a clear understanding of the end-customer. As basic or obvious as that statement sounds, we find many companies where agreement on the definition has never been fully addressed. Or, more often, the definition has morphed over time and the current management team does not concur on the definition. If management isn’t operating on the same set of assumptions regarding the customer, it’s impossible for the resources they direct to be effectively deployed.

Back to Step #1, what characteristics are common among the optimal end-customer?

  • Are they clearly definable by market segment?
    • Individual Retail Investors
    • Individual Institutional Customers
    • Individual Small Businesses
  • Do other demographic characteristics matter, such as age, gender, income, education level, geography (where they live and work), etc.?

Step #2: Think about your business model. Does the customer access your product/service directly from your company or through an intermediary?

  • If direct, what are the key attributes of your distribution methods? For some financial services product manufacturers, management describes distribution as a “channel”

    • a path to reach the end-customer. In some circumstances owning the distribution channel is the best option; this could be considered a direct path to the end-client (assuming the agent/rep/advisor is an employee of the company).
  • If through an intermediary, does the intermediary influence/control who the end-user chooses for the service/product provided, or does your company? There are significant risks and benefits of distributing product through an intermediary; however, it’s critical to understand how the affiliation/relationship with the intermediary can impact the end-client experience.

Questions to consider include:

  • Does the intermediary influence how the end-user perceives the value of the product/service your company produces?
  • Does the service/support your company provides to the intermediary influence how the end-customer perceives the value your company provides?
  • What characteristics are common among the optimal intermediary?
  • Does the intermediary set the price paid by the end-customer for your product/service?
  • Does the intermediary do business with other product/service providers with whom you compete?
  • Could your business also be considered an intermediary? Is your end-client actually the intermediary?
    • Or put another way, what’s your business model? Are you B2B or B2C model or both? Which (B2B/B2C) is primary in terms of your revenue source?
    • Where does growth come from and upon whose success is it dependent?
    • Is your business structure aligned with the reality you outlined above?

Step #3: Drill deeper into and discuss the S&R Strategy Framework diagram elements.


Intermediary or Direct Support Model

If your growth is dependent upon the success of an intermediary, how well is your business aligned to support theirs? Are you truly relevant to the success of their business, or just another interchangeable vendor/manufacturer? Are you committed to or expected to provide service after the sale to the end-customer? Or are you dependent upon the intermediary to provide service after the sale?

If you’re an intermediary, does the product manufacturer know your business success metrics, or just track what’s important to them (e.g., your sales results on their behalf)?

Which model can best impact the revenue source view of your value proposition?

Functional Design: Build, Buy or Partner

Is your product/service offering industry standard or truly differentiated when compared with the competitors’ offering?

If you believe the product or service is meaningfully differentiated, what’s unique about it, and does that characteristic define a meaningful value for your customer? It’s truly important to get this right, as the build/buy/partner vendor decisions can be made only if you know what elements of the product design or service delivery are unique—and create value for the end-user.

To the extent your business requires functional support such as processing trades, reporting account values, opening client accounts, paying compensation, etc., is the design optimized in support of your core offering? Should your business be building these functional capabilities or outsourcing?

Reporting/KIP (Yours and Theirs)

How does your customer keep score/measure value? How does the intermediary keep score/measure value?

What if the end-customer and the intermediary use different methods? What if they are operating under entirely different sets of value assumptions in terms of how they label your company’s product/services?

Does your company measure results that are only relevant to insiders in the company, or results consistent with how the end-customer or intermediary measures your value?

What results from the KPIs would indicate changes need to be made, or what results would suggest that the status quo is acceptable?

Conclusion: When a board member or CEO of a financial services company is asked to approve allocation of resources, including human or financial capital, we believe having the answers to some of the questions outlined above is critical to making informed decisions. When companies are underperforming in or failing to achieve expected growth, we believe validation of the organizational structure is a necessary step to diagnose the right solutions.


Matt Lynch, Managing Partner, Strategy & Resources, LLC

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