Authors and contributors

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2 Authors and contributors About FSD Africa FSDA is a non-profit company that promotes financial sector development across sub-saharan Africa. It is a catalyst for change, working with partners to build financial markets that are robust, efficient and above all inclusive. It uses funding, research and technical expertise to identify market failures, and strengthens the capacity of its partners to improve access to financial services and drive economic growth. It is FSDA s belief that strong and responsive financial markets will be central to Africa s emerging growth story and the prosperity of its people. FSDA is highly focused on impact. Its aim is to provide access to finance to 3 million more poor people across sub-saharan Africa by FSDA Authors Mark Napier, Director FSD Africa Paul Musoke, FSD Africa s Director - Change Management & Building Services Markets FSDA s largest budget allocation is to support change management projects that aim to strengthen organisational capacity in banks and other financial institutions. By supporting such projects, FSDA expects to see development in the wider markets, resulting in stronger institutions and the emergence of new institutions that are champions for underserved market segments. In addition, projects are expected to lead to greater innovation leading to products and services that are better aligned to the needs of underserved segments. 2

3 About Accenture Accenture is a global management consulting, technology services and outsourcing company with more than employees serving clients in more than 56 countries. Combining unparalleled experience; comprehensive capabilities across all industries and business functions; and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become highperformance businesses and governments. The company generated net revenues of US$30 billion for the fiscal year Its home page is Accenture Authors Finn Erik Kolnes, Senior Manager, Accenture Strategy Thomas E Abell, Senior Manager, Accenture Development Partnerships About Accenture Development Partnerships (ADP) Accenture Development Partnerships (ADP) collaborates with organisations working in the international development sector to help deliver innovative solutions that truly change the way people work and live. Its award-winning business model enables Accenture s core capabilities consisting of its best people and its strategic business, technology and project management expertise to be made available to clients in the international development sector on a not-for-profit basis. Since its launch in 2003, Accenture Development Partnerships has completed over 650 projects in 70+ countries, working with over 130 clients on short- and long-term assignments. Table of Contents Executive summary 4 Building inclusive financial markets 7 Understanding the financial sector 8 Driving change 9 Capacity building through the use of professional services 11 The role of professional services in supporting change 11 Successfully structuring the support from professional services 11 Partnering the catalyse sustainable change 14 Conclusion 16 Reference and sources 16 3

4 Executive Summary This report summarises a research programme, sponsored by FSD Africa, which investigates drivers of change within the financial sector of sub-saharan Africa. The research aims to provide the development sector with a better understanding of the dynamics of financial institutions, on which to base improved partnerships towards sustainable development in the financial sector. Accenture Development Partnerships performed the research across several countries in the region, conducting interviews with industry specialists and executives within financial, professional services and telecommunications firms. Our research identified a set of success criteria for organisations seeking to drive sustainable change: Explore and commit to the right ideas: Strategic planning processes need to challenge and explore. Prioritisation processes should give room for risky business cases. Develop ideas into sustainable designs: New business models require new processes and approaches. It is critical not to be over-reliant on the applicability of existing customer insights. Enable the organisation throughout the implementation phase: Stakeholder engagement, communication and change impact analysis should be driven by projects. Sustain change on a continuous basis: Sustain C-level support for new ventures, giving time to fail, learn and adjust. Scale up results and celebrate successes. Set out a clear strategy for the change capability: Make projects accountable for their role in change management and provide support from central change management functions. Our research also identified opportunities for development sector organisations to work more effectively with the financial sector on inclusive development. Our findings are differentiated between mid-tier firms and industry leaders. Recommended approaches for working with mid-tier financial institutions are: Establish sponsorship from commercial operations, capitalising on urgency and existing momentum. Initiate relationships by solving concrete issues like process design, market research, data analysis, etc. and involve relationship managers across interventions. Develop a trusted advisor role with C-level executives to further increase impact. When partnering with large and well-established organisations, we recommend identifying executives known for their agenda to drive growth into new business models. Support them in developing growth cases within the organisation to crowd in private investment. One development approach is to provide support for professional services to come in at the right points in the change process, catalysing change and making results sustainable. Such support tends to be most effective under the following conditions: Objectives are driven by an internal momentum or sense of urgency. The scope is clearly defined. Consultants take an active part in stakeholder management. Internal resources are involved throughout the engagement. There is a long-term relationship between client and service provider. In addition, the research identified barriers preventing financial firms from successfully working with development organisations. Financial institutions must be careful in their choice of development sector partners, due to various complexities. However, new development trends and emerging service delivery models are opening the door to new development blueprints that will improve partnership opportunities. Select a few institutions and establish long-term relationships, prioritising opportunities through a pipeline management process. 4

5 Figure 1: Market potential of low-income banking consumers 1 South Africa Nigeria Ethiopia Kenya Namibia Other SSA Est. revenue 2014 (USD$) Market revenue potential (USD$) Figure 2: Financial account uptake (% age 15+) 2 Financial account penetration (% Age 15+) 24% % Legend Percentage Data N/A

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7 Building inclusive financial markets Too often, the development of financial markets is seen as following two separate paths: the commercially attractive one that focuses on profitability and growth, and the development-centric one targeting the unbanked via business models like microfinance and community lending. In the case of the latter, commercial viability is less understood and appreciated. Technology advances in areas like mobile communications, cloud computing and analytics are opening up new products and services to low-income customers, due to their low cost and ability to scale. This is evident in mobile money platforms like M-Pesa and mobile banking solutions like M-Shwari, which have profitably expanded services to the unbanked. While these are encouraging examples, our research shows that most financial organisations are not prioritising underserved segments. In some cases, financial institutions lack the internal capacity required to develop products and services that can scale effectively, and they often need external support. This provides an opportunity for the development sector to work more effectively with the commercial sector to expand financial access to low-income segments. It is imperative that the development sector aligns donor funding more closely with the core strategies of financial sector partners to achieve the most impact. In addition, both sectors need to understand the process through which change happens and how effective partnerships can be established. Against this backdrop, this report aims to answer the intriguing question of how the private and development sectors can partner to drive change, growth and capacity building within financial institutions: What is the process through which effective and sustainable organisational change/growth occurs in financial institutions? What are the patterns in how professional services are leveraged to support these processes? In what way can well-positioned use of professional services further enable sustainable growth? How can development sector funding for professional services best be used to either precipitate or entrench change processes? This publication is an excerpt of a larger report that is available upon request. The report is based on research and interviews with financial institutions, telecom operators and service providers across several countries in sub-saharan Africa. To augment these insights, researchers have leveraged secondary observations from senior industry specialists, performed desktop research and authored a set of case studies. 7

8 Understanding the financial sector The continent s economies are continuing to expand at a rapid pace and have demonstrated resilience to both internal and external market shocks. The financial sector, in turn, is responding to the region s continued economic success. While large portions of African adults continue to be denied access to the formal financial system, accelerated growth towards inclusive financial systems is promising. The recent advances in mobile telephony, cloud computing, social media and data analytics have enabled the development of entirely new business models. Sub-Saharan Africa is on the leading edge of many of the abovementioned digital disruptions. The financial sector is especially vulnerable to these disruptive forces, but traditional institutions have been slow to adapt to these disruptive trends and are facing tough strategic decisions. In growth markets such as Kenya and Tanzania, many banks are diversifying into new segments, expanding branch networks and launching mobile money platforms to remain relevant in the marketplace. In more mature markets, leading banks such as South-Africa s Big Four, have worked to solidify and defend their positions of strength in existing customer segments. In many ways, this re-entrenchment has negatively impacted financial innovation. In addition to the economic drivers of change, there are company-specific and structural factors that affect change in financial institutions. In order to understand how priorities are driven in an organisation, it is important to keep in mind the relative power of business areas. Most of the institutions reviewed were found to be product-oriented in the sense that product units are profit centres and are ultimately responsible for delivering revenue and profitability. As a result, customer segments are often seen to have less impact on budgets, and priorities are driven towards the largest revenue contributors within each product unit. Figure 3: Product oriented operating model SME High-net-worth Middle income Financial inclusion Distribution network Branch Self-service channel Branch Digital banking Product breakdown Transactional Lending Investment Saving Product management Product management Product management Product management Figure 4: World Bank sub-saharan Africa statistics 3 Improved economic growth 4.5% 2014 GDP growth estimate across 48 countries, estimated to grow to 5.1 by 2017 and creating the platform for Financial Sector change 350 M Individuals aged 15+ without a formal financial account while challenges remain 27% of individuals without an account cited distance to financial institutions...new business models are emerging 12% Adults with a mobile money account, in comparison to 2% globally Image: Andre De Jager... is accelerating opportunities for expansion 45% Adults with only a mobile money account 8

9 Driving change Nearly all the institutions interviewed have a process for annual strategic planning, but there are fundamental differences in how institutions go about reviewing trends and data, what the output of the strategy is and how it is converted into concrete action plans to be implemented. There is a tendency in many organisations for strategic planning to stay within the status quo rather than addressing disruptive opportunities. Organisational elements like project governance, performance management structures and leadership styles also affect the ability to drive effective change. Accenture s change framework was used to evaluate different approaches to change between leading and mid-tier institutions across Strategic Planning, the Project Lifecycle, Change Enablement & Integration, and Leadership capabilities Figure 5: Organisational change framework Set Targets Change capability Strategic planning Define Strategy Strategy Execution Plan Actions Monitor & Correct Journey management Innovate Culture, mindset, behaviour Incentives and performance management Project lifecycle Assess & commit Design Implement Operate & improve Other triggers Project management & governance Observations on how change is driven Function Large-Tier Institution Mid-Tier Institution Strategic planning Project lifecycle Change enablement & integration Less focus on challenging status quo or exploring fundamentally new and innovative opportunities In many cases a bottom up process prevails, where executives describe their departments actions within broader corporate themes CSR strategies are often made on the side of core business Product-driven operating models and a focus on large-scale near-term returns, making it difficult to commit to new business models Bias towards existing customers, making it difficult to develop products that are relevant to new segments Focus on scale often results in big bang rollout vs the iterative process of try, fail, learn, scale Sufficient scale to have a dedicated change enablement function, but challenges still crop up due to complexity of project portfolios Difficulties with sustaining new business models due to e.g. performance/incentive structures, cost allocation and legacy issues including systems and culture Leadership Complex businesses with cost pressures focusing on operational excellence requires leaders with strengths within operational excellence and execution This may reduce focus on setting out new directions, often driven by leaders with a more visionary style C-level team tends to plan strategy top-down in joint sessions Many banks have a stronghold in one or two segments, but follow market trends driving diversification into new segments Prioritisation is often driven top-down from a joint C-level team Internal process design capabilities often limited When diversifying into new segments, a tendency exists to place over-reliance on existing operating models New business models are often given time to get things right ; sustained C-level support is imperative in these cases Smaller size and higher transparency give C- suite a cockpit view of the strategic project portfolio Transparency makes C-suite more involved in execution Projects are often narrowly scoped and not held accountable for change and stakeholder enablement Organisations facing rapid growth may gravitate towards leaders with a more visionary style This may reduce focus on sustainable change and operation excellence 9

10 Recommendations on how to trigger and drive sustainable change Don t Do Trigger and support the right ideas Develop sustainable models Implement and enable the organisation Bring in visionaries and challenging perspectives to the strategy process. Make each project accountable for analysing change impact. Embed stakeholder management and communication in each project. Ensure and communicate C-level supports for risky business cases. Engage with stakeholders from the concept phase. Consider organising new products outside existing structures. Communicate benefits from previous successes. Prioritise based on absorptive capacity and change fatigue. Ensure alignment with performance measurement. Leverage analytics to ensure fact based design. Use pilots and field research to get products right. Fully delegate innovation and exploration to business areas. Overestimate applicability of current customer insights. Run projects as silos without continuous alignment on dependencies. Over-rely on managers of execution to explore new growth areas. Rely on existing processes to work for new business models. Over-rely on PMOs or change functions to manage stakeholders. Fully allocate legacy costs to new business models. Complete design without piloting. Focus on scaling up successes and celebrate results. Sustain C-level support for new ventures. Allow new products and channels to deliver on realistic targets. Give time to fail, learn and adjust. Allocate legacy costs on an incremental basis. Allow C-level attention to shift away before products have had time to mature. Hold new business models accountable for the same results as core segments. Over-rely on visionary leaders to stabilise successful models. Forget to track benefits and reflect on lessons learned. Coordinate training, HR plans and other staff impact across projects. Sustain change 1010

11 Capacity building through the use of professional services The role of professional services in supporting change In many cases, professional services can support organisations with successfully managing change. Our research examined professional services that support institutions in exploring new ideas; developing concepts and business cases; and designing the structures required to support and sustain change. Leading institutions typically have funding available and the experience to know when to ask for assistance. As a result, larger banks are seen to invest in services across the spectrum. Management consulting services in particular are generally in demand both for strategic advisory services as well as product- and channel design within the business areas. Given the current strategic focus on core segments, prioritisation of funding is being driven away from efforts to develop products that cannot promise near-term profits. As a result, there is tendency to under-invest in management consulting support to develop business models aimed at entry-level segments. A surprising finding, perhaps, is the demand for premium strategy consulting services from many midtier institutions. This is driven by a need for support in their diversification into new segments as well as what appears to be a momentum effect, where institutions want to ensure they get the same level of advice as the competition. With concrete projects, organisations clearly acknowledge skills gaps to support IT systems and technology development, but tend to under-invest in consulting support for such projects. As a consequence, sound strategic plans risk not being successfully implemented due to a lack of detailed design, implementation planning and alignment of the supporting organisation. Successfully structuring the support from professional services It is important to understand the link between long-term relationships and individual projects. Leading institutions have a stable demand for external support and typically work with several large consulting firms. Within the consulting firms, this justifies investment in dedicated account management. Senior executives are available to the institutions across specific engagements, and in many cases have the ear of the institution s executives as trusted advisors. This brings along several benefits to both parties. Mid-tier institutions often procure smaller engagements to be conducted over shorter timeframes. This implies that the consultants are usually not around long enough to fully understand the context and engage with the organisation. As a result, there is a risk that results are not well integrated and that the organisation is not able to drive actions based on recommendations. 11

12 Our partner from the development sector brought in external research, objectivity, broad experience and structure. They are able to combine global expertise combined with local knowledge Business area leader in mid-tier bank How are development sector organisations see to successfully drive development through such services? While financial services companies view change as a continuous journey that has to be balanced with ongoing operations, the development sector s raison d'être is to drive change through targeted interventions with an end date. As a result, development sector organisations may not offer their support based in a way that is fully aligned to the institutions change dynamics. We identified two key challenges; change is less effective when supported via fragmented interventions, and many interventions do not integrate change management in the form of holistic impact analysis, stakeholder engagement and realistic implementation planning. We found promising examples where the development sector organisation structures interventions in a way that focuses on long-term objectives and includes change enablement and stakeholder management. Specific projects can be delivered by different professional services providers, but a relationship management role by the development partner can ensure the continuity and change enablement that has typically only been available to larger institutions (where professional services firms invest in account management). In many cases, intervention support for larger banks goes through CSR departments. If the objective is to catalyse market development at scale, our research indicates that stakeholders from commercial operations need to become more involved. Success criteria Support from external service providers tends to be most effective under the following conditions: 1. Objectives are driven by an internal momentum or sense of urgency: Support that is aligned to existing business imperatives is more likely to have a catalytic effect. 2. The scope is clearly defined: Continual focus on objectives reduces the risk of answering the wrong questions. 3. Consultants take an active part in stakeholder management: Professional services providers should work closely with project stakeholders. 4. Internal resources are involved throughout the engagement: Identify executives who will be accountable for project results. 5. There is a long-term relationship between client and service provider: A long-term relationship will allow teams to quickly get up to speed. Alternative ways of structuring consulting engagements Large Financial Institution Mid-tier financial institution PSP 1 PSP 2 PSP 1 PSP 2 PSP 3 Account Management E1 Account Management E2 E3 E4 Continuity Efficient Mobilisation Clear Scoping Executive Advisory E1 E2 E3 12

13 Photo: Peter Steward Photo: Georgina Smita Photo: Warrenski Photo: Olliver Girard 13 Photo: Trust for Afria s Orphans

14 Partnering to catalyse sustainable change Partnerships from development sector organisations perspective Development sector organisations should take a more active approach in their role vis-à-vis financial institutions and service providers. The best opportunities often come from being invited in versus relying on cold calling with good ideas. This calls for a structured approach to positioning engagements, as well as a focus on brand building before engaging with financial institutions. Our research illustrates that development sector organisations should structure their support so that relationships are managed across interventions. This also implies engagement with a select number of financial institutions over time. Development sector organisations need to balance several factors when considering how to engage service providers and what capabilities are required internally. This includes continuity, operational efficiency, procurement processes, in-house relationship management and subject matter expertise. Our research recommends that, instead of funding procurement of professional services at arm s length, the development sector should ensure continuity e.g. by providing relationship managers to support continuity across interventions. This should be combined with in-house research capacity and subject matter specialists. Alternative structures for development sector supported interventions Figure 6: Arm s length Financial Sector Institution Impact reporting $ Development Sector Organisation SP 1 SP 2 SP 3 Figure 7: Managed relationship Financial Sector Institution Development Sector Organisation SP 1 SP 2 SP 3 14

15 Partnerships from the financial institutions perspective Recent research indicates that most partnerships between the private and development sectors primarily involve financial support, while knowledge sharing, capacity development and technical cooperation are secondary benefits. As development sector organisations consider private sector partners to promote sustainable financial development, it is important for financial institutions to understand the perspectives of different development organisations and the services they provide. Some of the questions to ask are: Do the development objectives coincide with our commercial objectives? Do internal processes within the development sector partner align with our change dynamics? Do funding cycles and processes allow flexibility to adjust and extend projects as required by us? Are we comfortable with supporting the required monitoring and evaluation processes? Does the development sector organisation seek to partner on engagements that complement our internal capabilities? Does the development sector organisation seek a long-term partnership, and does it have an approach that enables continuity? Approach to interventions for large vs mid-size organisations Figure 8: Large organisations C-level Get commitment and private investment Business area leaders Ideate and sell in concept Projects and line managers Design, pilot and scale Figure 9: Mid-size organisations Become trusted advisor Advise on overall need for change management Establish credibility Identify and scope new initiatives Support on delivery of concrete initiatives Support change enablement and delivery 15

16 Conclusion The rapid pace of innovation and growth in sub- Saharan African economies is driving new opportunities for financial inclusion. Development sector organisations recognise the need to partner with the financial sector to develop new business models that can benefit a wider population. By looking at the drivers of change within the financial sector, our research shows how development organisations can more effectively engage with financial firms. Our recommendations highlight the need for long-term relationships and address the opportunity to engage professional services to fill capacity gaps. If implemented successfully, these partnerships will help the development sector achieve greater impact, while also improving the ability of the financial sector to respond to disruptive challenges and to pursue the large market opportunity in serving the unbanked population. References and sources 1. Accenture Low Income Banking Point of View, Financial Inclusion Data, World Bank Global Findex Database 3. Regional Economic Outlook: Sub-Saharan Africa Staying The Course. International Monetary Fund Oct Mapping Private Sector Engagements in Development Cooperation, North South Institute 16

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