Firas Ghunaim

July 24, 2022

How to Create a Digital Bank's Operational Model

How to Create a Digital Bank's Operations Model

Operating models are an important component of creating a digital bank, and if they aren't effectively developed, they may have serious effects, such as increased operating costs, longer time-to-market cycles, greater compliance risk, and slower decision-making.

We hope that by reading this blog post, you will have a better understanding of how to avoid these traps and what it takes to create a thorough and successful operational model.

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What Does an Operating Model Entail?

An operational model is simply a document that outlines how and by whom value is produced inside a company. To put it another way, we might think of it as a blueprint that guides an organization through the process of translating strategy into operational choices.

A digital bank’s target operating model (TOM) will consist of 4 blocks:

  1. Organization: What entities and lines of business will I require, and how will they be structured?
  2. Processes: What are the major processes and process flows that will be required to manage the company?
  3. IT: What technologies and IT architecture will the organization require to support and enable it?
  4. People: What essential positions, responsibilities, and skill sets will the company require?

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The Strategy Determines the Target Operating Model (TOM)

An operational model's design begins with a description of the strategy. An operating model aids a company's management in translating strategic goals into operationally actionable steps. Because the operating model connects strategy and execution, it's reasonable to argue that the operating model's fundamental building elements are ultimately determined by the strategy.

Consider an online lender whose strategy is to provide loans to retail clients smoothly and quickly using technology and alternative credit scoring. The strategic goals necessitate several cross-functional teams working closely together, rather than segregated teams responsible for loan generation who use traditional data sources for pre-approval and loan decisions.

A next-gen lender will need teams responsible for the Data Platform or Machine Learning skills to support the new credit scoring models employing alternative data sources, in addition to traditional teams managing client acquisition, loan approval, and underwriting. With so many linked processes and teams, such a team may also intervene across multiple roles and processes, such as loan monitoring or general customer service, and the business will have a range of following requirements. These teams comprise individuals with cross-functional competencies and ways of working throughout the whole business and teams that handle critical technology such as cloud infrastructure.

As a result, before establishing the Operating Model, a firm must first have a clear strategic vision for the market, product, and client groups in which it will compete, as well as a differentiated value offer and a well-defined business model. All of these factors should be thoroughly examined since they have a direct impact on the operational model's design.

Defining Your Operating Model

Following the definition of the company's strategic vision, design principles should be formed, describing how the operating model will support strategic objectives and identifying essential needs and capabilities that the target operating model must support. A high-level design that specifies the construct of the operating model from front to back may be established based on the design principles. This might contain basic sketches of the organizational structure, important roles, and duties of the main entities, or the first explanation of cultural rules for how individuals collaborate across the company.

Following the high-level operational model design, a more thorough blueprint may be created. Aside from basing the operating model on the overarching strategy, designing an operating model around the end-to-end user journeys of customers is also critical. As a result, we often encourage customers to identify essential user journeys before moving from high-level activities to detailed procedures and organization architecture.

Finally, if a company's strategic aims and objectives change over time, key components of the operational model should be updated to ensure that operations are continuously smooth.

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How Sitech Can Help

The decisions you make when developing your operating model are influenced by several circumstances, and we've found that no one, perfect goal operating model fits every type of business. Sitech uses its knowledge and experience in building new operating models to assist its clients in designing, developing, and scaling digital banks.

Sitech is a leading digital enterprise transformation firm that focuses on fintech and banking. We provide end-to-end consultancy support to our customers in the design, development, and expansion of digital banks and the transformation of legacy institutions.

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Contact us today for a free consultation!

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Helpful Resources for Digital Banking: