Part 1: Value chain mapping for risk transformation in Australia's new regulatory environment

Australia’s financial services industry continues to face evolving community expectations, regulatory change and scrutiny. A trio of new regulations has created a need to demonstrate better governance, clearer senior executive accountability across end-to-end processes and risks, and operational resilience:

• The Australian Securities & Investment Commission (ASIC)’s Design and Distribution Obligations from October 2021;
• The Financial Accountability Regime from ASIC and the Australian Prudential Regulation Authority (APRA), which strengthens responsibility and accountability for authorised deposit-taking institutions from March 2024 and insurance and superannuation trustees from March 2025; and
• APRA’s new prudential standard on operational risk CPS 230, which starts 1 July 2025.

Considered together, the new rules create a sense of urgency for businesses to transform in multiple ways. Understandably, most of Australia’s financial industry is taking on the new requirements through a piecemeal approach, implementing individual rules and regulations as the compliance dates approach. To adapt to evolving market and regulatory needs, financial services firms should capitalise on transforming their businesses and risk management practices by leveraging findings from value chain analyses, evaluating benefits realisation and implementing methods for continuous improvement to ensure longer-term sustainability. 

This paper is the first of a two-part series on achieving business and risk transformation. The subsequent discussion naturally extends into the intersection of risk and business transformation, where the synergies between the two become more apparent.

Getting started: How to engage in business transformation

One strategy for adopting a more holistic approach to business transformation is to map out end-to-end value chain processes to have clarity around business processes and identify areas for improvement. Value chains can be drawn up from varying perspectives, including from an enterprise, business, function or product viewpoint. Improvement areas could centre around process optimisation, revised operating model, technology and enterprise architectural enhancements, uplifted governance, culture and conduct frameworks, as well as revised change management practices, to name a few.

Figure 1 below illustrates a high-level generic product value chain of a bank deposit product. It was adapted from Dr. Eric Lamarque’s study, “Key Activities in the Banking Industry; Analysis by the Value Chain,” with the various business processes added for illustrative purposes. Our experts have incorporated processes that are more commonly seen in the Australian banking industry, noting that some of these processes may not be completely linear as they may continue throughout the value chain.

Each product could be mapped out in the end-to-end product value chain and within a hierarchical structure based on standards supplied by the American Productivity & Quality Centre (APQC) Process Classification Framework (PCF), and notations format based on Business Process Model & Notation (BPMN). Each level below dives into a more granular detail of the process, with Level 5 being the most granular.

Ideally, these processes would be worked out with process owners and key stakeholders to capture all the relevant subprocesses at an agreed level of granularity. Further attributes such as material service providers, data/systems, risks, and obligations can also be mapped to processes, particularly if this is part of APRA’s CPS 230 Operational Risk Management requirements.

Through design thinking workshops and further assessment, areas can be identified for adaptation within the core and/or supporting processes. Observations and change areas can be grouped into clusters or themes, and underlying recommendations can be mapped into a priority matrix and implementation roadmap.

Benefits realisation: After transformation, what happens next?

Business transformations are significant undertakings, and reaping the rewards requires a plan that extends beyond project completion.

We explore the concept of benefits realisation, a crucial aspect of ensuring a transformation’s long-term success. Process optimisation is just one example of how organisations develop a more holistic approach to business transformation. We see undergoing business transformation as also having the ability to enhance organisational resilience, improve decision-making, reduce costs, boost stakeholder confidence, improve employee satisfaction, provide a competitive edge, and support longer-term sustainability. These advantages extend beyond regulatory compliance and are relevant for any organisation seeking to thrive in today’s dynamic business environment.

Sustainable benefits through accountability and monitoring

A key aspect of benefits realisation is establishing an organisation-wide system for accountability and monitoring. While some benefits such as regulatory compliance may be immediate, others, such as improved customer satisfaction and reduced risk exposure, may take time to materialise. Tracking progress and holding stakeholders accountable are essential to ensure these long-term benefits are achieved.

The importance of continuous tracking and evaluation

Tracking both the financial and non-financial return on investment (ROI) after conclusion of the project provides valuable insights that can be applied to future initiatives. Regular reviews and evaluations help validate the effectiveness of the transformation and ensure it remains aligned with the business’s evolving needs.

Conclusion

In today’s dynamic business landscape, transformation is no longer a one-time event to be taken piecemeal, but rather is an ongoing journey that pulls in all parts of the organisation. It is, however, vital to find the right pace for transformation initiatives, as implementing large-scale changes too frequently can be disruptive to the business and staff well-being. 

While achieving long-term benefits from business transformation requires a focus on realisation, managing risk is equally crucial for success. In part two of this series, we’ll delve deeper into the concept of risk transformation and the intersection with business transformation, exploring strategies to turn challenges into opportunities and build a more resilient organisation.