FS organizations will be obliged to step up as investors prioritize corporate ESG principles
The unprecedented disruption unleashed by COVID-19 is among the numerous events sparking C-suite executives, corporate boards, and financial firms to pick a lane when it comes to environmental, social, and governance (ESG) standards. Recently, many of us have stepped back and considered our influence and dependence on the environment and society, and how organizations regard stakeholders – employees, customers, suppliers, investors, and communities. It’s about diversity and equity across all levels of business.
Less than a year ago, the World Economic Forum (WEF) published a whitepaper outlining universal ESG metrics to help companies measure stakeholder capitalism. Then, this past January, more than 60 top global business leaders committed to Stakeholder Capitalism Metrics focused on people, planet, prosperity, and governance. The metrics include 21 universal, comparable disclosures, considered critical for business, society, and the planet. All companies, regardless of industry or region, can leverage these metrics to benchmark their sustainability efforts, improve decision making, and enhance transparency and accountability.
Investors, stakeholders, and consumers are loud and clear about wanting corporations to prioritize sustainability and ethical impact; and tone-deaf responses may fuel stakeholder abandonment. Organizations and nations that ignore sustainability risk market skepticism and diminished investor interest and capital infusion. By contrast, transparency and ESG champions are attracting investment, including higher-quality and more long-term capital.
Over the last few years, ESG standards have been influencing corporate decisions and gaining momentum through better operational performance and risk mitigation. A joint study by the NYU Stern Center for Sustainable Business and Rockefeller Asset Management examined the relationship between ESG activities and financial performance and found that corporate sustainability initiatives drive better financial performance due to mediating factors such as improved risk management and more innovation.
High ESG-rated companies have lower capital costs, higher valuations, are less vulnerable to systemic risks, and are more profitable. Not surprisingly, in 2020 ESG investing accounted for one out of every four dollars under professional management in the United States and one out of every two dollars in Europe. Many firms now seek a carefully orchestrated strategic balance between financial, social, and environmental priorities to support long-term business success.
The growing role of financial institutions
Responsible banking and skillful ESG management can improve risk-adjusted returns, enhance reputation, spark commercial opportunities, mitigate portfolio risks, and improve market positions and value, according to the United Nations’ Principles for Responsible Banking. This behavior is all the more critical for commercial banks involved in lending and driving corporate clients’ business operations.
An ESG yardstick can help banks qualify commercial loan candidates and decide which client relationships to cultivate or dissolve. Financial institutions that run a significant asset management business may face complex ESG risks and opportunities.
A post-pandemic survey by Deutsche Bank revealed that more than half of private-banking clients now believe ESG investing can mitigate risks, while 74% said that COVID-19 made them realize the importance of risk management. The role of banks and environmental, social, and governance standards intersect during loan provision, financing of or investment in projects, and advice to issuers of securities.
Bank of America tripled its environmental financing goal to reach USD1 trillion by 2030 to boost its commitment to a sustainable future.
Goldman Sachsmerchant-banking division plans to form a sustainable investing group as part of its 10-year commitment to pump $750 billion in sustainable financing, investing, and advisory activities.
Citi’s five-year 2025 Sustainable Progress Strategy includes a USD250 billion environmental goal to finance and facilitate global climate solutions.
The pandemic made all things more visible
As the initial waves of COVID-19 impact wane, ESG is on the radar of investors, regulators, and banks. Awareness will surely continue given the significant risk concerns (such as climate change) that ESG has thrust into the spotlight – all potential threats for banks and the financial system broadly.
Many banks have begun to integrate sustainability into their core businesses by incorporating ESG considerations into risk management processes, product design, purpose statements, and long-term strategies. The pandemic illustrated the gravity of sustainability, such as the need for continuity planning and disaster preparedness.
Consumers and businesses are more mindful of sustainable investments
Not only did COVID-19 popularize savings and safe instruments, Capgemini’s Consumer Behavior survey indicates that investors increasingly prefer assets with a societal impact, such as green bonds. At the height of the pandemic, the percentage of consumers who said they were interested in investing in assets with a positive social impact within six to nine months grew from 31% (before the outbreak) to 39%, despite potential for lower returns.
Increasingly, ESG issues are taking center stage as institutional investors exert their influence and channel more funds to investments that deliver measurable impact along with improved long-term financial returns. A Bloomberg Intelligence Report predicts that global ESG assets will exceed USD53 trillion by 2025, accounting for ~a third of total projected assets under management − USD140.5 trillion.
The way forward: A cultural shift to organizational ESG vision
These days, commercial banks are compelled to assess borrowers based on ESG criteria to filter out those with practices that may not be sustainable. Strategic lenders are integrating resources across credit platforms to measure ESG factors.
Demand for ESG integration is accelerating, which means laggards may run out of time to to thoughtfully implement appropriate structure, leadership, and skills to embed organizational ESG principles.
The planet’s future depends on us. The question is, are financial institutions considering the ESG impact of their clients’ business models?
Malware: Bad for business and the environment
As we collectively work towards achieving targets laid out in the 2030 climate and energy framework, organizations around the world are implementing their own ambitious sustainability goals. While some have been proudly holding the sustainability baton for years, others are quickly gaining pace in the relay.
This acceleration comes at the same time as a digital revolution, which often jars against the drive to lower our environmental footprint. Why? Because as we become more and more reliant on digitization, we also produce more and more data. Processing that data consumes electricity, which if not done efficiently, can cause energy consumption to skyrocket.
However, what happens when that data isn’t secure? We often discuss the risks that a data breach imposes on a business, but we rarely consider the implications on the environment.
The risks of malware
The harsh reality is that malware doesn’t only threaten data security – it can also have a direct impact on sustainability initiatives and impede enterprise climate targets. There are numerous attacks that cause detrimental effects on the environment:
DDOS attacks consume extortionate amounts of energy. The attack often starts with that suspicious link or download that you accidently click on. Before you know it, you have a botnet on your hands, rapidly sending fake traffic to a server or website. As the network becomes flooded with malicious traffic, it’s no longer able to operate normally. The malware quickly captures workstations causing computers across the network to run at full capacity, firing more and more requests to the server. Eventually, the server goes into overdrive as it tries to handle the mass of data requests it’s receiving.
From a business perspective, this means services and operations can grind to a halt. But from an energy perspective, it means consumption levels accelerate exponentially, undermining efficiency measures that may have been in place.
Production line sabotage
Cyber criminals are increasingly targeting production lines in an attempt to break into a company’s network. This can spell disaster for a factory, potentially rendering its entire production unfit for purpose. Malware can jeopardize the robust quality control procedures that ensure a product is being produced safely and meets standards.
For example, a factory producing automotive chemicals will have various digital checkpoints along the production line to ensure the product meets regulated levels. Malware can damage these checkpoints, making them unreliable and ineffective. This has a considerable knock-on effect: entire batches of product become unusable and must be discarded, the energy used becomes obsolete, and ultimately pollution and waste levels increase.
This was seen recently when one of the spirits brands suffered a ransomware attack. While the breach compromised the security of customer data, it also ground its factories to a halt. The drinks brand was unable to prove that its liquor met regulations and so had to discard batches of product.
Sustainable infrastructure warfare
For organizations that operate in sustainable infrastructure, any attacks will have a direct and devastating effect on the environment – a fact that certainly does not escape attackers, particularly the growing number of state sponsored ones.
Take, for example, a water works company. A water works ensures that water is safe and prevents pollution from entering our rivers. It processes water to ensure it is clean and will monitor pollution levels at all times. If that system is compromised, then the water is no longer guaranteed to be clean or free of pollution, creating astronomical environmental, economic, and societal consequences.
By actively protecting infrastructure against malicious attacks, we are simultaneously protecting the environment – and the communities it supports.
An end-to-end solution
Given the widespread impact of a potential attack, organizations cannot afford any gaps in their cybersecurity. The most effective way to protect your business is through end-to-end encryption, which enables you to manage the full lifecycle of your security.
Define your security objectives and procedures; ensure cybercriminals can’t get through the back door.
Protect your assets; implement the right security solutions for your business.
Defend the enterprise; detect and react in advance of cyberattacks.
By taking this approach, you can ensure your business is secure and quick to respond in the event of a breach. The sooner you act on malware, the faster you stop the spread of infection and avoid the associated risks. It’s this action that ensures cybersecurity can be an enabler for sustainability.
Time to shift the gear with software defined vehicles
Software and data are transforming the automotive industry as we traditionally know it – breaking down barriers in and out of the vehicle through the deployment of cutting-edge technologies. Rodrigo Maia, Executive Board Member at Capgemini Engineering Portugal, shifts you into the not-so-distant future paradigm of vehicles – the Software-Defined Vehicles (SDV) – with an approach focused on the challenges of an emerging automotive ecosystem.
Software and data define everything nowadays. We see software and data overcome hardware as an innovation driver for vehicles, taking the center stage of new automobile design. Together, they define new functionalities and interact with physical systems and other remote systems. However, the most significant change concerns the hardware no longer driving the function but becoming a part of the software and data platform. Let’s take a closer look at emerging key trends to get a behind-the-scenes vantage point.
Electrifying the fleet
First, there is the drive for electrification. Climate change is an apparent reality. Worldwide, many countries have committed to becoming carbon-neutral will impose bans on internal combustion engines (ICE) as early as 2030 and on hybrids by 2035. As a result, many automakers are committed to selling only zero-emission vehicles in the next decade, with General Motors being one of the latest examples.
Another major trend is shared mobility that enables traffic reduction and meets the mobility demands of ever-growing cities. Automation will bring safety to the roads and counteract the number of traffic-related fatalities. It will also boost productivity and make driving time more usable. Finally, connected vehicles will increase the convenience and safety of road trips and optimize traffic flow.
What do these trends have in common?
They are powered by software and data. This raises new challenges related to the safety and security of the drivers due to an increased number of vehicle functions and ways of interacting both with the vehicle and others on the road system. However, it won’t slow down the adoption of software and data in the vehicle.
Vehicles thus become much more digital through the deployment of cutting-edge technologies such as Edge Computing, Cloud, and AI. This enables building and delivering customer-centric solutions that make for a safer and more personalized ride.
Digitalization is progressively changing our vision of vehicles and the way they are used. Undoubtedly, vehicles will become our “third place” and transform time wasted into time well spent.
Challenges for the new automotive paradigm
For the new automotive paradigm to become a reality, some challenges need to be addressed:
Stay one step ahead of the virtual assistants – in the future, the automotive industry may have to compete with Siri, Alexa, or Google Assistant in the battle to make vehicles livable one. Adequate integration will be one of the more prominent challenges that SDV will have to tackle.
Overcome obstacles by upgrading and updating – With the adoption of shorter development cycles and the continuous update or upgrade of vehicle functions, software will expand the adaptability and longevity of cars by constantly updating the current systems in operation. Adapting to a DevOps approach is a necessity for the industry.
Transition from lone shark to shark tank – established industry players that used to own the value chain face the challenge of no longer being the only “shark” in the tank. New entrants (such as Tesla); tech giants (GAFA and its Chinese counterparts) are jumping into the mobility market. Further, Telco operators intend to use 5G and V2X solutions to create new revenue streams. Moreover, silicon vendors provide the technology for the electronics deployed in the vehicles of the future. Therefore, the incumbents must decide whether they want to compete, collaborate, or master the software and data platforms that comprise the new vehicle backbone. “Software sharks” are positioning themselves to lead the development of this backbone (e.g., Android Automotive). In other words, whomever (still) wants to rule the tank needs to quickly realize the importance of developing their software and data ecosystem.
Create a balance between digital demand and capacity – Technology evolution is driving massive demand for the next generation of software and data solutions that the industry cannot currently deliver. The productivity and efficiency of the Automotive sector are well below the level of demand in this area.
How can organizations remain relevant?
Here’s how. The industry needs to increase its availability of skilled resources, building curricula themselves or through course co-creation with academies and universities. For instance, it needs to find better ways to manage processes, efficiency, and productivity, in a much more agile and more DevOps-oriented way. Also, it must improve access to knowledge and innovation.
In all cases, partnerships are essential. They can be set up through joint ventures between manufacturers, software companies, and research centers to accelerate technology adoption. A good example is Vortex- CoLab, a collaborative laboratory created in cooperation with three universities dedicated to applied research within this exciting, rapidly evolving area.
Running on software
We see a significant shift in the automotive industry in the way vehicles are designed and delivered. Vehicles went from being mainly hardware based to being a software and data platform on wheels. In the new automotive paradigm, software and data will account for 90 percent of future innovations for vehicles, which is led by industry leader Volkswagen.
The key to success lies in adapting and being resilient, continuously updating and upgrading the vehicle with software, data, and AI features. This is how you can retain a competitive advantage and gain a privileged and unique position in the continually changing waters of the Automotive shark tank.
#automotive #telco #software #future #cars
Innovate with software and data: It brings a new paradigm – the Software-Defined Vehicle – and a set of unique challenges for every player in the Automotive ecosystem.
The vehicle is our third place: Use cutting-edge technologies, like AI, Edge Computing, and the Cloud to develop customer-centric solutions for vehicles that can feel like home or work.
Adapt to the shark tank: Adapt rapidly while staying resilient, continuously updating, and upgrading vehicles, leveraging the full potential of software and data as it evolves. Indeed, there are ways to rule the shark tank.
Data-powered Innovation Review | Wave 2 features 21 such powerful stories from our leading technology partners and global top experts, covering fields like data for a better society, autonomous systems, data mesh architecture, creative AI, and data sharing ecosystems which will inspire you and activate your innovation muscles. Download your copy here!
Rodrigo Maia is currently Group Vice President and Executive Board Member of Capgemini Engineering in Portugal with the responsibilities of R&I, Engineering Practices and Strategic Investments. He is also the CEO ofVortex-CoLab, a joint venture devoted to Applied Research on Cyber-physical Systems and Cybersecurity.
To find out, Capgemini has conducted industry research, including a series of in-depth expert interviews. The results show that several gaps need to be filled before even the most advanced cars are as smart as smartphones. For example, car makers need to combine a comparable range of everyday functions seamlessly into a single platform. (And that’s before we even consider whether the smartphone is really the model that we should ultimately be aiming for.)
In this article – the first of three – we discuss some ways in which cars fall short of the smartphone model. Building on this analysis, a subsequent article will define a series of measures and strategies for closing the gaps. A third and final article will discuss the infrastructure that needs to be provided before this can happen, including 5G, cloud processing technology, and vehicle architecture. We’ll also look beyond the smartphone analogy to consider how the automotive industry can achieve a level of success comparable with that of smartphones and the associated mobile applications.
It’s almost a truism to call a car a smartphone on wheels. It may have been Toyota president Akio Toyoda who first used the analogy, back in 2011. Subsequently, the same analogy has been repeated by OEMs worldwide (see panel) when they want to emphasize product features such as advanced connectivity, user-friendliness, customizability, and versatility.
“Smartphone on wheels” – an analogy that the industry keeps coming backto 2011 Toyota Motor Corp. President Akio Toyoda unveils a “smartphone on wheels” concept car.  With 4G on the rise, this analogy quickly becomes widespread. 2015 Daimler Head Dieter Zetsche says the car is becoming a smartphone on wheels. 2015 Volkswagen brand chief introduces future VW cars as smartphones on wheels. 2016 China’s “Internet car” from Alibaba and SAIC is marketed as a smartphone on wheels that can take selfies and pay for your coffee. 2017 Nio’s CEO Padmasree Warrior says, “We want to be the first company that builds the next-generation mobile space”, the company wants to build a computer on wheels.
Indeed, the automotive industry’s developments around digital and connected services have often followed, or been shaped by, those seen in smartphones. This influence is not surprising. Smartphones have achieved a unique position in our daily lives over the past few years, from the moment when Apple’s iPhone first appeared. This success has been due to their groundbreaking combination of functions: phone, camera, music player, browser, calendar, and more, all integrated into a single platform.
Of course, a car is never going to be a smartphone, and in many ways it is very much more. Nor do automotive manufacturers lag behind their phone industry counterparts in general. They are already making rapid progress in areas that smartphone makers don’t have to worry about, such as drivetrains, autopilot, and predictive collision avoidance.
Yet smartphones do provide a useful model of how technological progress and connected services should be delivered and integrated into a platform, and the automotive industry has benefited from this model. Many major milestones in the smartphone evolution were achieved by vehicles approximately three to five years later. For example, voice control was provided in smartphones in 2009, but the first voice applications in vehicles didn’t appear until 2013 and beyond. Mobile payments were available on phones in 2017/18, but in cars they have only recently been introduced, or have yet to appear. In addition, there are several areas where even the most advanced and intelligent of today’s cars still fall short of the smartphone model.
It’s useful to understand these gaps, so in this article we’ll consider some aspects of smartphones that we believe explain their success and their central role in our lives. We’ll compare those aspects of phones with how cars currently look, using three perspectives:
usability & customer interaction,
app landscape & operating system, and
innovation & updatability.
This will help us understand what developments are required before cars’ functionality can become as indispensable as that of smartphones.
Usability & customer interaction
From the customer perspective, there are two major value drivers: usability and customer interaction.
In terms of usability, smartphones score more highly than cars because they can satisfy a wide range of user requirements and everyday purposes. They can serve as cameras or timers, allow the user to watch videos, and so on. This flexible and broad value proposition is a major success factor for smartphones. Indeed, for most users making phone calls is no longer the smartphone’s main function – a disruptive change.
Compared to smartphone usage, the driving situation demands significantly more attention, and so the range of tasks that can be safely performed is limited. Hence, transportation remains the major value proposition of today’s cars, though this picture could change dramatically as automated and autonomous driving functions mature. In the future, if driving is no longer the main activity while spending time in a vehicle, the driver can become more like a passenger, able to make greater use of in-car services.
As well as having a more limited range of functionality available to them, car drivers miss out on the seamless user experience that smartphone owners enjoy. Thanks to the use of a single account across all devices, if a smartphone user updates a calendar entry or contact, say, that update is instantly visible on the user’s tablet, laptop, and so on. With a car, even if the driver logs in to use a connected service, or has a phone app to lock and unlock the vehicle, they can’t expect that updates will get transferred between the car and their other devices, because they probably need to use a separate account for the car. In other words, the car is not yet part of the “digital portfolio.”
We’ve seen that cars fall short of smartphones’ usability in a few respects. Let’s now turn to customer interaction. Smartphone producers and app or service providers are good at interacting with customers, and they leverage the customer data they collect to take better care of their customers. People expect to receive personalized offers and recommendations while they are using smartphones, and to be able to engage in direct communication (e.g. via chat).
App landscape & operating system
The smartness of a device depends on the variety of ways in which it can deliver value to the user – which in practice means the variety of third-party apps – and on how well these services or apps are integrated to support different aspects of the user’s driving experience and wider lifestyle.
A vast number of third-party apps – perhaps 2–3 million in total – have been designed and developed for smart devices. Cars fall short of smartphones in this area, with far fewer apps. Smartphone users can find apps to address virtually every purpose you can think of, in both B2B and B2C segments. For cars, the connected services apps are mostly focused on infotainment, telematics, safety & security, and vehicle-to-everything (V2X) connectivity. Examples of V2X functionality include traffic lights alerting vehicles to adjust their speed to take account of an impending change from green to red, and vehicles warning each other of hazards to prevent collisions.
There are several reasons for the difference in the size of the application landscapes for phones and for cars. One is the smaller user base. There are almost 4 billion smartphone users worldwide, but probably only around 120 million connected cars on the roads. That small user base, coupled with the fact that people don’t use the connected services in their cars as intensively as those on their phones, makes connected cars a less appealing market for third-party app developers.
The way services are supplied and integrated is another major area of difference between cars and phones, and one that further explains the difference in the app landscape. The phone app market is centralized around two players, Google/Android (with around 72% of the market) and Apple/iOS. These two have massive negotiating power, can define guidelines and standards, and run app stores via which the vast majority of apps are offered to customers. This structure has led to the growth of a huge ecosystem of third-party developers, who can take much of the credit for the richness of functionality available to smartphone users.
For cars, the ecosystem is far more fragmented. Regarding operating systems, some OEMs want to offer their own: For example, Daimler is aiming to launch MB.OS by 2025. Volkswagen has bundled its software competencies into a newly formed entity, CARIAD, to develop the VW.OS operating system (a pre-existing VW project targeted to complete in 2025). However, more and more OEMs – including Polestar and Ford – are adopting Android Automotive. Clearly, this fragmented landscape is less open, and less attractive to app developers, than that presented by smartphones. Smartphone app developers need to consider just two operating platforms, but anyone launching an app for cars is likely to have to create – and, worse, to support, update, and maintain – multiple versions.
In addition, OEMs have tended to limit the range of apps that get integrated into their cars – often for good reasons such as safety considerations – and this has made it a difficult market for developers to access. This represents another major gap between phones and cars, and one that the industry needs to close. In fact, the gap may start to close very soon whether we like it or not, because regulations such as the EU’s Digital Markets Act are likely to enforce the availability of third-party app stores within cars, and will limit OEMs’ ability to act as gatekeepers to their platforms.
On balance, this opening up of the market is good news for OEMs. The creation of an ecosystem that encourages third-party apps will be crucial for the industry’s ability to combine diverse valuable functionality into a single platform in the way that has been achieved with smartphones. Furthermore, OEMs can start to earn money from software as well as hardware. There is more than one way to do this. One approach is through revenue sharing models like those from which smartphone vendors such as Apple already benefit. Another approach is for OEMs to develop operating systems and license them to other OEMs, perhaps on an as-a-service basis. There will also be opportunities for exploiting the wealth of data generated by connected services. OEMs can derive insights that help them (and their ecosystem members) to offer the individualized services that customers really value.
Innovation & updatability
At present, cars do not keep up with technological innovation anywhere as successfully as phones do. We’ll discuss two main reasons. One is about the rate at which manufacturers and their ecosystem partners can innovate. The other reason is to do with the way innovation is distributed to customers using the finished products.
It’s relatively easy to ensure that most smartphones are equipped with the latest technology. Development cycles are short (around one year), and users tend to replace their phones around every two to three years. This rapid innovation results in a sophisticated device, with very fast processing and response times, and advanced use of many different types of data; for example, interpretation of sensor and image data. This is supported by mobile cloud services that smartphones often use to offload heavy data processing and storage outside the device.
Vehicles have a much longer development cycle of up to five years – so much so that hardware can already seem outdated when it is launched. In addition, cars tend to have a longer lifespan of around seven years (or two to three years for commercial vehicles). It’s one reason why a car is currently a less streamlined device than a phone, and more limited as to the amount and type of data it can work with, and what it can do with it.
It isn’t possible – or desirable from the sustainability viewpoint – to make people change their cars more often. So the main way to bridge this gap is for OEMs to adopt a more customer-centric development process that reduces time to market and ensures that evolving customer expectations (and technological possibilities) are reflected in the models they deliver.
Another way to keep cars up to date is to add innovative features once they’re on the road. That brings us to a second key differentiator between cars and phones in the technology area: the ability to distribute innovation in the form of software updates to an existing device. Smartphones are usually permanently online and can receive regular updates, processed in the background. By contrast, smart cars tend to be offline a lot of the time, even if they can be remotely activated, for example for climate control purposes. Even when they are online, this does not mean that they can necessarily receive over-the-air (OTA) software updates the way a smartphone can; this depends on the car’s architecture, plus the availability of updates and of the infrastructure necessary to enable those updates.
Progress is already happening here, with Tesla’s lead being followed by the likes of Mercedes-Benz, Audi, and BMW. But at present, only the newest models in a range tend to have these capabilities, so there is still a way to go before cars have the updatability of phones. Wider adoption of OTA updates can greatly improve the automotive industry’s ability to deliver innovation to customers.
Closing the gaps
We’ve discussed several gaps between smart cars and smartphones. We believe that it’s essential to close these gaps if the industry wants to meet the needs of today’s consumers. Closing the gaps will also enable automakers to reach their goals of transforming into “original experience manufacturers”.
From the customer perspective, it’s important to improve flexibility and usability. The rise of automated and autonomous driving brings a lot of opportunities for smartphone-like user interaction. It is, however, crucial that OEMs identify the applications that will really be used.
The app landscape needs to catch up, particularly in terms of the way functionality is created, delivered, and integrated. The emergence of app stores for third-party apps may improve matters, and offer OEMs additional revenue streams from revenue sharing and as-a-service operating system delivery, as well as opportunities for data utilization and monetization.
In the innovation area, the key is to adopt faster, more customer-centric processes, and to find a way to deliver innovation more effectively to cars on the road – which depends on making OTA software updates pervasive and effective, and providing the necessary infrastructure.
Beyond the smartphone?
Some industry players are now questioning whether the smartphone model is really the one they should be aiming for. It’s been proposed that cars should, in fact, be computers on wheels as suggested by Nio, or maybe sci-fi living rooms on wheels (BMW). Arguably, though, the automotive industry needs to create its own vision of the future, rather than imitating other sectors. We’ll return to these issues later in this series.
Whatever we think about these more futuristic ideas, for now, at least, the smartphone sets the standard that cars need to match in terms of integrating diverse everyday functionality into a single platform in order to provide a seamless, interactive user experience that truly meets user expectations about connectivity and functionality. In the next article of this series, we will discuss in more detail how the industry can close up the gaps between cars and smartphones, which we believe is an essential first step.
FS businesses are working to decode the unpredictable during historically uncertain times
As with most things in life, the business environment is unpredictable. And although Hollywood, the scientific community, health experts, and even Bill Gates have warned of the possibility, no one saw this pandemic coming or can predict with any certainty what might happen next.
The World Insurance Report 2019 from Capgemini and Efma warned that emerging risks such as disruptive weather patterns, new infectious diseases, and pandemics could significantly disrupt businesses. And today, the virus has spurred the most abrupt and widespread cessation of economic activity in history by blocking the world’s ability to produce and consume.
Businesses large and small are struggling as the International Monetary Fund (IMF) predicts the global economy to shrink 3% this year – far worse than its 0.1% dip in the Great Recession year of 2009 – before rebounding in 2021 with 5.8% growth.
These fast-evolving social, business, and economic scenarios are stirring blustery headwinds for Financial Services (FS) sectors. Firm executives are grappling with issues ranging from business continuity to employee safety, risk management and coverage, to customer service and communication – all while keeping a wary eye on investments, financial results, and business outlook.
Amid almost daily change, three broad key performance indicators (KPIs) can help FS businesses measure and mitigate the impact of challenging operating conditions.
Customer engagement: Maintain customer touchpoints and ensure that client needs are met efficiently in the absence of physical (face-to-face) channels. Minimize the impact of customer desertion and identify ways to drive acquisition and engagement in an era of social distancing and a harsh business environment.
Business performance: Ease the effects of an economic slowdown on business growth and profitability while managing business-related risk and staunching erosion of shareholder equity or returns.
Sustainability agenda: While driving an effective business continuity plan, restructuring operations, and safeguarding the health and safety of employees – pursue initiatives to reduce the company’s carbon footprint to stem resource depletion and align brand values with a customer base that, increasingly, is becoming environmentally conscious.
The pandemic’s impact on FS businesses will undoubtedly evolve throughout the near- and long term. Let’s take a look at the potential implications for KPIs within the banking and insurance sectors.
Houston, we have a problem. Our customers are changing, and our numbers are plunging!
Getting customer engagement right during a crisis is a top agenda item for financial services as it can make or break future customer relationships. Capgemini conducted a survey (of more than 11,000 customers across 11 countries) at the peak of the crisis in April and found that despite the quick efforts by many banks and insurers, an assurance gap exists. Only 65% of customers said their bank is taking care of their financial needs in the present situation, and only 54% thought their bank/financial institution is taking initiatives to help them overcome the current situation and stress. “Find out in detail the impact of COVID-19 on the financial services consumer in the detailed research note: COVID-19 and the financial services consumer.”
What does it mean? A substantial portion of customers do not believe their FS service providers are meeting their present needs adequately. What is more, 44% of survey respondents said they would consider switching to a BigTech (such as Amazon, Google, or Alibaba) or a FinTech (such as Revolut, N26, or Monzo) after the pandemic if their FS firm did not deliver the experience they expect.
On the business performance front, banking indexes face pressure as fears over a prolonged lockdown, fragile economy, and business slowdown pummel global markets. As Q1 drew to a close, the S&P Banks Select Industry Index’s (SPSIBK) one-year returns were down more than 33%.
At the same time, the insurance sector is navigating a similar maelstrom. Now, as most insurers cannot deliver services via their traditional brick-and-mortar channels, policyholders may face service disruption unless robust digital options are available. Customer experience (CX) is at stake. Insurers’ ability to fulfill payouts and provide seamless claims’ experiences will define customer relationships and trust now and into the foreseeable future.
However, with the World Health Organization (WHO) recognizing coronavirus as a pandemic, many claims across all insurance classes can be declared void because global epidemics are considered exclusions. Now, insurers face the dilemma of whether to work to retain an emotional connection with customers by honoring claims that drive trust and loyalty or to prioritize underwriting profitability and financial performance at a time when investments are eroding.
Perhaps the answer lies in recognizing that these objectives do not necessarily conflict. Isn’t there, after all, an undeniable link between customer engagement, business performance, and sustainability?
Customer engagement while continuing to invest in environmental sustainability measures is critical to driving steady business growth and profitability, although one might think sustainability would take a back burner these days. The combination of these two complementary approaches can help FS firms drive strong customer preference and advocacy.
A keen focus on customer centricity and environmental sustainability is critical to maintaining profitability as the risk landscape quickly evolves.
As FS sector executives slog through unprecedented scenarios, they are likely to mull over significant questions:
Are we willing to take a hit on our valuation, or can we quickly adapt to this fast-evolving risk landscape to create new business opportunities?
With the redefinition of businesses and operating models, are old KPIs still valid, or should we rewrite or modify some parameters?
Given the challenging future outlook, how can we achieve the golden mean between customer centricity, sustainable business growth, and all-important profitability?
The way forward
Life – although different – will continue, and business must go on. The most successful financial services providers will decode today’s challenges and pursue their long-term, socially conscious, and environmentally sustainable agendas – all while innovating to boost CX that supports maintainable, profitable growth.
“Inventive Insurer” mindset: The need of the hour for property insurers
“It was the best of times, it was the worst of times.”
The introduction from Charles Dickens’ “A Tale of Two Cities” may be an apt description of today’s property insurance landscape. While numerous opportunities exist, insurers face a variety of challenges – some often unforeseen.
What are they up against?
Weather-related loss incidents are increasing in both frequency and severity thanks to changing global climate conditions that spark difficult-to-contain wildfires and significant rain/storms/flooding.
COVID-19 flashed a bright light on coverage gaps and the need for new, more innovative, and flexible insurance offerings.
Cybersecurity threats have become commonplace – compromising carriers and the individuals and businesses they insure.
Insurers have been forced to raise annual premiums – leading personal and commercial policyholders to expect excellent service above and beyond the coverage.
These challenges may translate to the worst of the times for firms unwilling or unprepared to adapt their business and operating models to suit today’s fast-shifting business dynamics. Conversely, these may be the best of times for innovative-minded carriers ready to embrace change and the opportunities with it enthusiastically.
The reference to innovative thinking isn’t simply about new product development or adopting new technologies. Instead, it’s about identifying gaps in existing business processes, enhancing efficiency and effectiveness, identifying gaps in customer risk needs and expectations, and simplifying the business of insurance to benefit policyholders and insurers.
Inventive Insurers focus from the outside in on the customer – their needs, expectations, and experience. They embrace an ecosystem of partners, who provide new reach, value-added services, and innovative capabilities. They prioritize unlocking the true potential of data and embrace open architecture to collaborate with ecosystem partners seamlessly. These inventive innovators respond agilely to challenges and thrive during uncertainty, such as in today’s market.
Being a truly customer-centric organization
These days, customers want more than just protection through an insurance product. In today’s new world, customers view the product as a combination of the risk product, value-added services, and customer experience. They expect insurers to help them detect and prevent loss incidents through value-added services and capabilities, thereby avoiding traumatic scenarios. They seek empathic carriers who help them manage their lives across a broader array of related areas. A next-gen, customer-centric firm prioritizes customer-facing applications and protocols that redefine the experience to create a holistic experience across not only the value chain but with ecosystem partners who bring value to the relationship.
Exploiting the true potential of data
Data is an important leg of the customer-centricity journey. It is the oil that runs the insurance machinery. To drive and derive meaningful insights from data, the oil must flow smoothly across all components.
Today, access to real-time data sources helps insurers assess risk more accurately, which drives improved profitability. IoT devices, high-quality visual data imagery and geospatial data, artificial intelligence (AI), and machine learning (ML) techniques can enable property insurers to improve existing business and operating models.
Underpinning both the data and next-gen core and other technologies is the cloud infrastructure. The ability to handle and process large volumes of data, AI and ML-based advanced visualization tools, advanced predictive analysis, all integrated with next-gen core systems, demands a cloud infrastructure for speed, security, and scale.
Seamlessly collaborating with ecosystem partners
Insurers must also embrace an ecosystem of partners – partners that provide new data sources, new capabilities, market reach, and value-added services. With the breadth and velocity of change in technologies, customer risk needs, and engagement expectations, it is nearly impossible for any insurer to possess, nor afford the acquisition of, the resources and capabilities needed to keep up with the changes, let alone anticipate and stay ahead of them.
A next-gen, platform-based insurance business model that leverages platform technologies and a digital ecosystem of diverse third-party partner services completely removes this barrier. Digital ecosystems offer constant touchpoints with customers in simple ways by plugging into capabilities that enable cost-effective growth while bringing insurance coverage closer and more personalized to the customer.
Today’s changes require insurers to gain clarity on how to succeed in the future of insurance. Future market leadership and success will be defined by a new digital foundation and business model that embraces customer, technology, and market boundary changes with vision, energy, and speed. Next-gen core, digital, data, and ecosystems offer opportunities for insurers to sell digitally, provide touchless services, and adopt next-gen underwriting with enhanced pricing accuracy.
If leveraged with an Inventive Insurer mindset, property insurance can transform to deliver innovative products, business models, processes, channels, and experiences − outside the mainstream − with overall superior CX. Inventive insurers may reach the ideal where insurance is not just sold but eagerly purchased.
Incumbents that adapt an inventive insurer mindset are poised for the best of times.
Employee experience measurement, a game changer in IT services delivery
Over the past two years, IT service providers and industry analysts have been explaining why it is important to move towards experience-level agreements (XLAs). Besides the popular watermelon-effect argument, where green SLAs may not reflect how employees experience the service, the measurement of employee experience is a fundamental shift in mindset in the way companies should consider their IT services delivered to their employees. It is even more important that such companies usually take the same approach for their own customers. Every digital consumer project puts client experience (CX) at the heart of solution design. Why then should it be different for employees working for these companies?
First of all, what do we mean by employee experience?
Employee experience is the application of user experience for your employees. Experience is highly subjective because it’s related to employees’ perception. You will not be able to compute a magic number which reflects how employees feel. In the best case, you will be able to create balanced scorecards compiling a set of technical metrics – such as speed of answer or computer performance – but this will not tell you how your employees feel about the IT services you provide.
We do know that employee experience can be affected in many ways: work interruptions, network slowness, system or application crashes, complex support procedures, the inability to find required information, or unexpected automations can adversely impact employee experience. Conversely, simple, rapid, and straightforward services can positively influence employee happiness.
And this is what employee experience comprises a series of positive and negative events that generate satisfaction or frustration, which will be different for each individual in the organization.
How can we measure employee experience?
There are not many ways to measure experience. Since it is unique to each employee – based on their role in the company, their background, their age, their personal evolution – there is no automated KPI available. The only way is to ask employees. Since it is a subjective perception, raising surveys with relevant targeted questions can help us understand how employees feel within the context of IT services.
If we measure it several times across various roles or personas within the organization, we start getting trends, and seeing different trend lines for different personas, because their needs are different. Once we have several measures and data points in place, and understand the dynamics of employee experience, we can start evaluating how to influence it.
How can we influence employee experience?
You can’t control how employees feel. However, you can control the elements that influence their experience. In an enterprise context, there are two main sets of activities IT organizations can apply to find the right balance:
Decreasing negative influencers: this is about identifying and eliminating sources of employee frustration. In a service desk context, long resolution times, hops between support teams, ticket reopens all create frustration and adversely impact employee experience. In a digital workplace context, slow or inefficient computers, network latency, application crashes, long computer boot times all adversely impact employee experience, and hinder productivity. In a collaboration context, negative influencers can relate to mail disturbance, ineffective use of collaboration tools, and loss of focus.
Increasing positive influencers: this is probably the most complex set of activities. We aren’t speaking about eliminating pain points here, but about putting simple and effective elements in place. An end-to-end, instant, and automated solution to request a service can be positively perceived if it is simple to use. Self-service tools or chatbots are not natively positive influencers but can become positive if user journeys are as simple and quick as possible. This requires special skillsets, which IT departments need to scale up. UX designers will become more and more important in this space. In a service desk context, speed and ease of getting the necessary support are key influencers. The ability of a support organization to understand the user’s context and adapt its support to the user role or business processes is also a positive influencer, as we can put an individual issue or request in the right context and behave accordingly. In a workplace context, the ability of the employee to do his/her work without being limited or constrained by IT is a key influencer. In a collaboration context, the ability of the employee to retain focus and get maximum benefit from teamwork is a key influencer.
Journey mapping – getting to know your customers’ challenges and enhance value to your company
The business environment today no longer resembles the one we were taught about in traditional marketing books because the overall landscape in which companies function has fundamentally changed. The internet and the digitization of products and processes are largely responsible for this. This digital transformation has created an unprecedented number of customer touchpoints, channels, and opportunities for customers to explore, interact, and connect with business. In this context, it becomes indispensable for companies to reformulate their strategy at a new customer-driven market following best CX practices and keeping up with increasing expectations and innovation.
The first step to develop a successful customer experience strategy is getting to know your customers’ journey. Customer journeys are a set of experiences delivered by a brand to its clients during interactions along their lifecycle. Every business has at least one journey, which can be experienced multiple times, providing different perceptions to each one of their customers.
First and foremost, you have to know your customers and understand what their experience with the brand looks and feels like. The key to this is the journey map, which provides a clear and practical view of all interactions experienced by a customer with the brand, product, or service over time. The effectiveness of a journey map is inherently related to a customer-centric mindset, which provides a portrait of the customer’s point of view in the foreground while maintaining a realistic and empirically anchored perspective.
In addition to the digital transformation context, journey mappings are even more relevant when omnichannel experiences are part of a company’s strategy. The first step is to develop a holistic view of the customer experiences and their connections with all the company’s channels. Journey mapping helps demonstrate the whole experience throughout a sequence of touchpoints, making it possible to understand how customers feel when the results are related to the company’s data, processes, systems, and stakeholders.
An effective journey map should also present an accurate view of the current processes (what we call the “as-is” journey), and a bold and innovative proposal for an ideal future state (the “to-be” journey), as the best possible experience. The gap between them makes it possible to understand changes needed to accomplish the desired outcomes.
To design an effective journey map, you have to be aware of some potential pitfalls. Here are three tips on how to avoid biased and inaccurate work:
Be specific when you define the journey. It is important to know what exactly you are analyzing, based on the work’s purpose.
Focus on what the customer really sees and feels, avoid wishful thinking and be careful with your own personal perceptions. Listen to the customer and gather data from customer feedback.
List all touchpoints and channels where the customer can access your services. All possible tracks should be mapped.
The benefits of journey mapping go beyond the simple identification of opportunities for improvement. If you understand your customer journey, you can effectively lead and prioritize digital transformation projects, including automation platforms, DMP/CDPs, websites/app renewal. Moreover, identifying all the key customer moments enables you to develop assertive communication, with the right message to the right customer at the right time.
When it comes to business strategy, the end-to-end approach based on the customer journey is a powerful way to analyze, connect, and boost relevant business KPIs, such as conversion, repurchasing, and loyalty. In this sense, journey mapping helps to establish relevant and accurate health metrics, based on customer satisfaction, effort, emotional value, and promotion (such as NPS, CSAT and CES*), which can make business strategies more connected to real customer experiences. Customer journeys are dynamic and alive, requiring consistent effort from all business areas to track metrics. Understanding how CX metrics can impact your business results is the key to developing a customer-centric mindset and keeping up with the latest trends in the business and consumer world.
If you want to know more about journey mapping, speak with our experts to find out more about our Connected Marketing ecosystem approach and its offerings.
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Opening up a virtual world with our partner CodeYourFuture
Across our Group, Capgemini colleagues have mobilized strongly, expressing solidarity and leveraging their creative and deep technology and data expertise to address the needs of local communities as they cope with the current COVID-19 crisis.
Now more than ever, our focus on digital inclusion is critical. In the media, there has rightly been much attention paid to giving the most vulnerable populations access to the vital skills and equipment to reach much-needed services such as food supplies. Indeed, our new report, by the award-winning Capgemini Research Institute, The Great Digital Divide: Why bringing the digitally excluded online should be a global priority, points to how important this is.
While this must be a focus, we are also seeing how important our commitment to our existing charity partners is at this time, as the economic effects begin to bite.
Our partnership with CodeYourFuture is a good example of this, and highlights how we have been able to adopt new strategies and adapt, to keep the program on track.
Building on our first successful academy last year, we had plans to scale the partnership to ensure that we can help more refugees and others from disadvantaged groups get the skills they need to join our sector.
For potential CodeYourFuture students, many of whom may not able to work or may have lost their limited sources of income as a result of the current situation, it’s imperative that they continue to receive the support to complete their training and gain access to new employment opportunities. Read some of their stories here and here.
I am delighted that CodeYourFuture has proved so agile and entrepreneurial, enabling us to continue with our expansion plans for the partnership. We have been able to grow our commitment in unexpected ways, working together to launch virtual academies, now operating in Birmingham and London – helping another 50 students.
Five mindsets that have enabled us to go virtual with CodeYourFuture
With CodeYourFuture, we drew on five mindsets which I believe, have enabled us to make the transition to a virtual model:
Focusing on continuity – Maintaining our commitment to establishing our new class in Birmingham and new class in London meant that we were solutions-focused, discussing “how to overcome problems.” We were able to sign students and volunteers up without any face-to-face meetings, and overcome practical hurdles such as how to build a solid community virtually, where trust and interaction are so important, or what to do about classroom kit, as these issues emerged.
Understanding that we needed to adapt quickly – Going virtual very quickly meant we didn’t lose momentum. We didn’t focus on the “ifs and buts,” choosing to focus on how to make it work, using virtual collaboration tools to keep everyone engaged.
Seeing virtual as an opportunity – Opening volunteering opportunities to Capgemini employees across the UK has been a bonus. Previously volunteering opportunities to mentor students were restricted to a physical location. Having businesses and personal mentors able to engage from anywhere means we have been able to involve more people – and we’ve been able to support CodeYourFuture in other ways. It’s also a bonus for the students, as technology becomes their everyday bridge to a positive future.
Bringing an agile design approach – We are also able to draw on the skills of more of our colleagues, who are running hackathons to address new challenges CodeYourFuture might face – such as how we monitor students who may be falling behind, or what new functions may be needed to improve the learning experience for students during this period of remote working. We have shared our own experiences but are also learning from the creative solutions deployed by the CodeYourFuture team.
Keeping an eye on the future – Building on from the partnership, we have been able to support CodeYourFuture in their endeavor to adapt and launch new elements to their offering. They have introduced basic skills to students, who are not ready for a full course, but through virtual workshops, can gain an experience of coding in a fun safe environment. These are hosted by graduates, volunteers, and students from the current course who can connect from any location.
Germán Bencci, CodeYourFuture’s managing director, summed up the importance of virtual working when he said, “During this difficult period, CodeYourFuture quickly transitioned to offer the training online. We have acquired equipment and connectivity services for students so that they can participate in our classes and study groups. This is the time to offer more opportunities to people from disadvantaged backgrounds, so we welcome the new volunteers from Capgemini who have started supporting us remotely from various locations.”
These are very difficult times for so many. It has been critical for us that we have been able to maintain and grow the strong sense of community among students and volunteers that is the bedrock of our partnership.
We are lucky to collaborate with a like-minded organization seeking solutions and looking for opportunities where we can. It will be this mindset – innovative, collaborative, and socially entrepreneurial that will help us build the return to a new normal.
Throughout her career with Capgemini, Sally has worked in various roles on client transformation programs. She’s a passionate advocate of the positive difference technology and digital solutions can bring to every organization and individual, and in 2015 she was part of the team that set up the Careers and Enterprise Company, dedicated to preparing and inspiring young people for the changing world of work. Leading Capgemini’s digital inclusion program in the UK since 2018, she’s focused on how business can help to make sure that everyone can benefit from the digital revolution.