What Whole-System Planning Means For The Future of Banking

There is a global trend toward systems and practices that provide protection from future threats through long-term, holistic thinking. As the United Nations puts it "It is not acceptable to view natural resources as mere commodities or goods with a price tag." (Earth Summit 2005) The goal of whole system planning is to create a holistic view for the future, in which we see how all parts of a system are interrelated and dependent. This is particularly true for banks as financial institutions are complex systems that provide services to people through various channels.

The global trend towards whole-system planning has its origins in the 1950s with the Club of Rome report Limits to growth, which focused on the finite nature of natural resources, and their impact on human society. The Club of Rome report created a foundation for modern whole-system planning practices by developing the World3 model to simulate interactions between world systems such as food production, pollution, population growth and global economic trends. Subsequent influential reports developed similar core ideas:

a) the world is a complex system that behaves in certain way

b) many of these systems are finite and relative to human activity

c) if we fail to consider interactions between different systems, or possibilities for disruptive change from external or internal sources, then it could lead to serious consequences.

One particularly influential report on whole-systems planning was Zero Marginal Cost Society, written by Jeremy Rifkin in 2014. In the report, Rifkin describes how digital communication technology is rapidly changing our economy and infrastructure. His analysis shows how this affects energy consumption (for example, through smart grids) as well as other industries such as transportation and manufacturing. Particularly important for financial institutions is his prediction that in the near future products and services will be available for free or at marginal costs, thanks to digital technology.

Rifkin's Zero Marginal Cost Society is an example of a trend toward whole-system planning, because it advocates the use of long-term thinking to identify potential threats and opportunities. For financial institutions this means creating a holistic view for the future by connecting different parts of their business in order to better understand how they are interrelated as well as dependent. This includes taking into account the effects of disruptive technologies such as Bitcoin and ultra-low interest rates, which may adversely affect traditional banking models.

One area that is attracting global attention is how financial institutions treat their customers' money. In particular, how to ensure that the customer can always withdraw his/her own money when needed; a process that is called "financial inclusion." The United Nations (UN) has defined financial inclusion as "the availability of an appropriate range of credit, deposit and insurance products that meet the needs of individuals and small-and-medium enterprises (SMEs), both to support productive activities and to protect against unforeseen events. Financial systems are inclusive when they enable people to access financial services and, at the same time, benefit from other social services and basic infrastructure." (2012) The UN is particularly concerned with ensuring that people living in poverty are able to receive banking services.

Some of the key global challenges for financial institutions include creating products that minimize risk while taking advantage of opportunities created by disruptive technologies. For example, Bitcoin is a global payment network that allows users to make peer-to-peer payments using digital currency. It is an example of disruptive technology because it eliminates the need for central authorities such as banks and governments by allowing direct transactions between people.

In order to remain competitive in this rapidly changing environment, financial institutions must be able to quickly innovate and adapt their business models. Strategic management consultant George T. Mentzas suggests that financial institutions should incorporate many potential strategies at each stage of the company's development into a comprehensive whole-system planning process. The overall goal is that management can continually assess how different parts of the organization are interrelated, as well as figure out which strategies are working and which ones aren't. As an example, Mentzas cites the use of Big Data analytics to "inform critical business decisions and develop effective strategies." (2014)

Another important function of whole-system planning is identifying potential threats coming from external sources. One key threat identified by analysts is the possibility that customers will switch banks because they can use non-traditional alternatives. This is particularly relevant for institutions offering savings accounts, which may not be able to compete with the interest rates paid by alternative options such as Bitcoin and ultra-low interest rates from Central Banks.

One possible solution for financial institutions is creating a holistic vision of their business model that allows them to quickly identify and respond to threats and opportunities. Although this will entail a different definition of banking than the one that their business has been based on for years, it is the path they are forced down because customers expect more open and sustainable models.

If financial institutions don't develop holistic vision statements encompassing all aspects of their organizations, then alternative solutions such as Bitcoin will quickly become mainstream. If they don't create a better customer experience, then traditional banking will soon be as antiquated as using letters to communicate or sending physical money orders through the mail.

The financial industry has seen some radical changes during the past ten years, and it is likely that those ten years will pale in comparison to what is going to happen in the next ten years. If financial institutions can figure out how to use Big Data, disruptive technologies and whole-system planning to create a sustainable business model, then they will stay ahead of the game and continue to provide quality services for their customers.

It is inevitable that alternative solutions such as Bitcoin will become more important in the future because disruptive technologies are changing the way people view banking. The future of banking will be more open and sustainable, and innovative organizations that figure out how to stay ahead of disruptive technology adoption curves are going to be better positioned for success than their competition.

On top of all this, it is critical that institutions developing new business models integrate whole-system planning into their strategic management processes.

By learning to use disruptive technologies as well as incorporating holistic vision statements into strategic management processes, financial institutions will be able to develop new business models in the future that can compete with more open and sustainable solutions such as Bitcoin.

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