Strategic Layering: Crafting Business Unit Strategies for Financial Success

Role: consultant

Industry: financial services

Situation:

I'm consulting for a mid-size financial services company that has defined their corporate level strategy and OKRs but to date has not taken a disciplined approach to defining strategy in the layers down such as business unit and functional. We need to both educate on layers of strategy and come up with an approach to determining strategy at lower levels.

Question to Marcus:

“

Do you have any frameworks to explain layers of strategy?

Strategic Planning

In financial services, strategic planning is the blueprint for allocating resources to achieve long-term goals. This process should be tiered, starting from the corporate level down to business units and functional teams.

For a mid-size company, this means aligning the strategies of various departments—such as investment, retail banking, and customer service—with the overarching corporate objectives. This alignment ensures that each unit's efforts contribute directly to the company's broader goals, such as market expansion, customer satisfaction, or digital transformation. In this industry, where regulatory compliance and market dynamics are constantly changing, strategic planning also involves preparing for different scenarios, ensuring agility and resilience in the face of unexpected challenges.

Corporate Strategy

Corporate strategy in the financial services sector involves defining the scope of the business and the direction it intends to pursue. For a mid-size financial services company, this could mean deciding whether to focus on expanding its core offerings, like mortgages or wealth management, or diversifying into new services such as insurance or investment banking.

The corporate strategy sets the stage for business units to develop their strategies in line with the company's overall objectives and key results (OKRs). It's crucial to evaluate the competitive landscape, assess internal capabilities, and consider regulatory environments to identify growth opportunities and mitigate risks.

Change Management

Implementing new strategies in financial services requires effective change management to address the human and cultural aspects of change. This is particularly important when cascading corporate-level strategies to business units and functional teams.

Financial services firms often face resistance from employees accustomed to traditional ways of working, especially when introducing digital transformation initiatives or new business models. A structured change management approach, including clear communication, stakeholder engagement, and training programs, can facilitate a smoother transition by aligning employees with the new strategic direction and ensuring they have the necessary skills to implement it.

Operational Excellence

Achieving operational excellence is crucial for financial services firms seeking to execute their strategies effectively. This involves optimizing processes, technology, and people to deliver services in the most efficient and cost-effective manner.

For business units and functional teams, this means continually improving operational processes—such as loan processing, risk management, and customer service—to enhance quality, reduce costs, and improve customer satisfaction. Leveraging technology, like automation and data analytics, can provide real-time insights for better decision-making and process optimization, directly supporting strategic objectives.

Risk Management

In the financial services industry, risk management is not just a compliance requirement but a strategic function that enables firms to make informed decisions and protect their assets. As strategies are developed for business units and functions, it's essential to integrate risk management principles to identify, assess, and mitigate potential risks associated with these strategies.

This includes credit risk, market risk, operational risk, and cybersecurity threats. By embedding risk management into the strategic planning process, financial services companies can balance risk and reward more effectively, ensuring that strategic objectives are met without exposing the firm to undue risk.

Corporate Culture

Aligning corporate culture with strategy is vital for its successful implementation, especially in the financial services sector, known for its conservative culture. As strategies cascade down from the corporate level to business units and functions, fostering a culture that supports these strategic objectives becomes essential.

For example, if a key corporate objective is to drive innovation, the culture across the organization must encourage creativity, experimentation, and learning from failure. Creating a culture that aligns with strategic objectives involves leadership modeling desired behaviors, recognizing and rewarding those who embody these behaviors, and embedding them into hiring and performance management practices.

Stakeholder Management

Effective stakeholder management is essential in financial services, where strategies at the business unit and functional levels often impact a wide range of internal and external stakeholders. Developing a strategy for engaging with these stakeholders—including employees, customers, regulators, and investors—is crucial for gaining their support and mitigating potential resistance.

This involves identifying stakeholders' interests and concerns, communicating strategic plans and their benefits clearly, and involving key stakeholders in the strategy development process where appropriate. Engaging stakeholders early and often can help ensure the successful implementation of strategies at all levels of the organization.

Digital Transformation

For financial services firms, digital transformation is a strategic imperative to remain competitive and meet the evolving needs of customers. As strategies are developed at the business unit and functional levels, integrating digital initiatives is critical.

This could include adopting new technologies to improve customer experiences, streamline operations, or leverage data analytics for better decision-making. Digital transformation projects should align with the overall corporate strategy and objectives, ensuring that investments in technology drive value for the business and its customers. Engaging cross-functional teams in these initiatives can help foster innovation and ensure that digital transformation efforts are cohesive across the organization.