The Asset Light Operating model

Over the last two decades, financial services has seen a steady increase in new challengers like Monzo, Revolut and Lemonade. These new entrants have changed the competitive landscape by shifting customer demands, driving product innovation and moving with increased agility.

Amplified by COVID-19 restrictions, empty office buildings and new WFH norms, surging technology valuations have begged us to ask fundamental questions about how we define and create value in our businesses and how we deploy capital to optimise returns.

Looking at key differences, incumbents have a larger proportion of capital and resources tied up to maintaining assets (e.g. rent of a large head office or opex/capex to maintain legacy systems), whereas challengers, whether by design or by necessity, have adopted lighter and smarter assets, and freed up capital to change and grow their business. (see Figure 1).

Assets that were deemed strategic in the past have lost their value and new assets have emerged as a source of competitive advantage.

As part of our research, we looked at three different categories of assets (work, workforce and workplace) and compared the different configuration choices between incumbent and challenger banks and insurers, as well as the associated financial impact of such choices. We also surveyed financial services organisations in five major APAC financial centres to understand how they are enhancing their operating models in response to market changes as well as the differences between the five centres.

The different configuration choices

Certain choices across the three asset categories focus attention on value creation and value exchange over value storage as seen in Figure 2.

WORK (Technology and process)

• What work creates the most value for my business: New emerging models (e.g. ecosystem plays, pay per use, etc.) are providing new options that focus attention on what’s important.
• How do I accelerate execution: New ways of working and architectures are helping accelerate change and agility.

WORKFORCE (People and capabilities)

• What is the purpose of my workforce: New workforce choices are creating options for accessing capabilities and capacity, rather than owning full time assets.
• How do I best organise my workforce: New ways to organise and manage teams are emerging including collaboration technologies and a greater focus on outcome-based management.

WORKPLACE (Real estate),

• What is the purpose of my workplace: Increased prevalence of remote working, with workers allowed to work from anywhere all the time. Targeted “in the office” interactions (e.g. usage of ad-hoc shared collaboration and social spaces). Must support/interconnect with talent (office) and customer (branch) strategies.
• How do I get the best returns on my real estate assets: Generational shift to digital interactions and a workforce that can work from anywhere favours reduced investment in long term and fixed assets in real estate for work and customer interactions.

Conclusion and what’s next

The operating model design choices around Work, Workforce and Workplace determine how resources and investments are deployed across the organisation. An asset light operating model is characterised by lower fixed costs, modular design, increased scalability, higher automation and more flexible workforce arrangements.

Our next blogs will explore the financial implications of adopting an asset light model and how some incumbents are leading the way in shifting their operating models.