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"Transforming Banking with AI: Rewiring the Enterprise"

2024-12-09

In today's rapidly evolving business landscape, the role of AI in banking cannot be overstated. It holds the potential to bring about significant transformations, from enhancing customer experiences to boosting operational efficiency. However, as the banking sector faces various challenges, questions arise about the realization of value from AI. This article delves deep into the complex path of extracting value from AI across the enterprise and provides a blueprint for financial-services leaders.

Unlock the Potential of AI in Banking

Setting a Bold, Bankwide Vision for the Value AI Can Create

McKinsey's experience with hundreds of companies shows that capturing value from digital and AI transformations requires a fundamental rewiring of how a company operates. This involves six critical enterprise capabilities: a business-led digital road map, talent with the right skills, a fit-for-purpose operating model, technology that's easy for teams to use, data that's continually enriched and easily accessible across the enterprise, and adoption and scaling of digital solutions. Leading banks view AI not just as a cost-efficiency driver but as a tool to enhance revenues and improve customer and employee experiences.

They embed AI in the strategic planning process, requiring every business unit to set bold financial and customer goals. By prioritizing high-impact areas and investing in enabling scalability, leading banks ensure that major AI initiatives are business-led. This means business executives take ownership and hold joint accountability with technology leaders to deliver outcomes.

Rooting the Transformation in Business Value

Launching isolated AI endeavors like chatbots or document summarizers leads to incremental results and rarely drives material financial changes. To significantly boost business value, banks need to choose the right scope of transformation by rewiring entire domains and subdomains. Instead of having many disparate, siloed projects, leading banks reimagine entire business domains and subdomains using a full range of AI and digital technologies.

When selecting subdomains for transformation, banks consider business impact, technical feasibility, end-user adoption, and solution priority. Once selected, each subdomain is deconstructed into executable modules that drive business value. For example, transforming the customer underwriting subdomain involves multiple AI and digital technologies working together.

Enabling Value through an AI Stack Powered by Multiagent Systems

To embed AI seamlessly across the enterprise, banks implement a comprehensive capability stack. This includes the engagement layer, decision-making layer, data and core tech layer, and operating model layer. The decision-making layer, the brain of the AI-first bank, orchestrates thousands of AI-powered decisions.

Orchestrated multiagent systems represent a major advancement. These systems comprise various AI "agents" that can plan, think, and act. When combined with predictive AI models and digital tools, they can rewire several domains, boosting productivity and creating more engaging experiences for customers and employees.

For example, in credit underwriting, agents can handle most tasks, with human intervention for the final steps. Multiagent systems can automate complex decisions and workflows, enhancing the work of both credit risk teams and employees.

Investing in the Foundations to Enable AI Value Creation

Banks that unlock value from AI make balanced investments across the entire AI capability stack. The industrial AI/machine learning sublayer provides reusable tools for deploying and running LLMs. The enterprise data sublayer stores and accesses large unstructured data sets for training multiagent systems.

Building AI capabilities at scale requires investing in these crucial sublayers to ensure the right capabilities and innovations are in place.

Sustaining and Scaling Value from AI

A successful AI transformation balances near-term financial impact with building lasting capabilities. After choosing domains and subdomains for transformation, banks focus on executing at scale and delivering value from reusable components.

For example, a large bank is transforming to improve performance and deliver analytics at scale. They built reusable assets and an end-to-end analytics pipeline, with early results showing promising revenue increases.

To sustain value, banks set up teams that create value, not just models. They also establish a central AI control tower and governance council to oversee the transformation, track value, and ensure reusability of assets.

Elders Limited, a prominent player in the industry, has recently taken a significant step by entering into an agreement to acquire Australian agribusiness Delta. This acquisition holds great importance for both companies and the agricultural sector as a whole.

Uniting Agribusinesses for Enhanced Service and Growth

Delta's Operational Network and Customer Base

Delta, founded in 2006, operates a vast network consisting of 68 locations. It serves around 40 independent wholesale customers, offering a comprehensive range of farm inputs. These include essential items such as crop protection, seeds, animal health products, fertilisers, fuel, and general merchandise. The company's extensive reach and diverse product offerings make it a key player in the agricultural supply chain. It not only provides these products but also markets its own private label brand of agricultural chemicals and animal health products. This allows Delta to stand out in the market and offer unique solutions to its customers. Additionally, Delta's team of agronomists and Precision Agriculture specialists provides farm advisory services, adding significant value to its operations.The acquisition of Delta by Elders Limited is expected to bring several benefits. As Mark Allison, the managing director and CEO of Elders, stated, "All decision making at Elders is underpinned by an ambition to provide the best service for our clients and customers, and the acquisition of Delta supports that." Delta provides Elders with greater exposure to key local retail markets, especially in regions such as New South Wales, North West Victoria, South Australia, and Western Australia. This expanded market presence will complement and extend Elders' existing products and services range, enabling them to better serve rural and regional customers.

Integration and Future Prospects

Under the terms of the integration with Elders, Delta's leadership and operations will remain unchanged. Both companies will continue to operate independently, maintaining the current structure of their networks. This ensures that customers receive the same level of service from both Delta and Elders. Allison further added that the agreement will enhance Elders' existing technical service network and its offering in Ag Tech and precision agriculture. Elders has a proven track record of synergy generation through backward integration, and it is anticipated that this acquisition will create meaningful value for Elders shareholders.Delta management and employees will also remain unchanged, in line with Elders' light touch integration strategy. As Gerard Hines, the managing director and co-founder of Delta, mentioned, "There is strong cultural alignment between Elders and Delta, as two trusted agribusinesses seeking to create value for our customers." The management team will continue to lead Delta, and they are excited to be able to provide customers with innovative and value-adding business solutions with the added support of Elders.Completion of this acquisition is subject to customary conditions and ACCC clearance. It is expected to occur in the first half of calendar year 2025, marking a significant milestone in the growth and development of both Elders and Delta. This acquisition has the potential to reshape the agricultural landscape and bring new opportunities for both companies and their customers.

Foodfolk Australia, a Western Australian family-owned and operated business, is experiencing remarkable growth with the support of a government investment. This investment is enabling them to expand their operations and put their delicious ready-made meals on more in-flight menus.

Government's Investment Unlocks New Heights for Foodfolk Australia

Government Support and Business Expansion

The Western Australia Government's investment of $1 million through the Value Add Investment Grant is playing a crucial role in Foodfolk Australia's growth journey. This grant is allowing the business to undertake its ambitious $10 million expansion project. By relocating and upgrading their operations at Perth Airport, Foodfolk Australia is setting the stage for significant growth.The introduction of new state-of-the-art technology, advanced equipment, and automation will enhance the capacity and efficiency of the business. It will enable them to triple their meal production, increasing their share in the Australian aviation and non-aviation markets. This includes sectors such as mining, events, hospitals, and aged care. Moreover, it opens up opportunities to attract new international air-carrier customers.

Ethos of 'Less Waste, More Taste'

New processing and packaging equipment will be a key aspect of Foodfolk Australia's expansion. This equipment will support their ethos of 'less waste, more taste' by extending the shelf life of fresh packaged meals from five days to 20 days. This not only reduces waste but also ensures that customers can enjoy their delicious meals for a longer period.

Job Creation and Local Economy Boost

The expansion is expected to create 100 new jobs over the next three years, with the potential for a further 100 jobs within the decade. This job creation will have a significant impact on the local economy, providing employment opportunities and contributing to the growth of local supply chains.The Value Add Investment Grants program is not only helping Foodfolk Australia but also a diverse range of agrifood and beverage businesses across the state. These grants are enabling them to take on large-scale expansion plans and provide a much-needed boost to local economies.As Food Minister Jackie Jarvis said, "It's truly exciting to support Foodfolk Australia, which started as a small business, to reach new heights and put more of WA's incredible produce on the menu." The Cook Government's continuous support for the growing food industry is evident through programs like the Value Add Investment Grants.Foodfolk Australia's story is a testament to the power of government investment in supporting local businesses and driving economic growth. With their expanded operations and increased production capacity, they are set to make a significant impact in the food industry.