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Managing complex changes: issues and challenges for central banks

Guy MBULA ea LOONDO

Human organizations are subject to disappearance if they don’t called upon to adapt to
their immediate environment in order to maintain durably both the relevance of their
existence and their operational efficiency. Subject toIn this regard that, they are
requiredneed to implement a continuous process of adaptation of their businesses,
culture, structures, processes, strategies, skills or resources. This adaptive capacity,
more or less conscious, is certainly essential. But, as it has been demonstrated evidenced
by sudden disappearance bankruptcy of some iconic companies, it is no longer a
sufficient condition for enjoying their continued peaceful existence in front of “hidden
competing threats” hanging around to pull you down. We areWe think of referring here
to once successful companies that have gone bankruptcy or suffered huge losses due
most of the time to lack of anticipation of sudden economic changes or disruption.

In other words, given the volatile, uncertain, complex and ambiguous nature of the
current environment, any organization is no more able to maintain continuously, in the
long run, a completive performanceadvantage. To see light trough chaos, he global
environment requires from organizations are deemed to develop two crucial, even
special skills, namely which are the ability to anticipate and the ability to influence.
These skills are key factors for success to find one’s way trough chaos. In particular, they
make possible to renew constantly the potentialities of the organizations.

Indeed, nowadays, the ability to anticipate changes, not only from major trends but also
from weak environmental signals, has become crucial, as evidenced by a survey
conducted in the United States on more than 300 companies. According to this survey, a
successful company is one that is able to anticipate strategic changes over 5 years. As
for the capacity to influence, it refuses requires no more defensive strategy but to
underto take an attentive stance towards changes (changes undergone) and promotes a
voluntarily attitude toward themactions in order to impose its own strategy.

An organization's adaptability is measured by the difference between the speed of


external change and the speed of internal adaptation process, the latter being the speed
with changes are implemented within the organization. The ability to anticipate is
measured, ex post, by the organization's rate of connectivity to its environment, this rate
being qualitatively provided by the difference between the scenarios selected and the
way in which the facts display. The ability to influence is measured by the credibility or
reputation of an organization in its market or area and is built on consistent visionary
leadership.

When an organization's adaptive, prospective and influential capacity is low; there is


inevitably a misalignment force driving it away from with the it’s environmentmarket.
For organizations operating in a highly competitive sector, bankruptcy is fatally the
sanction. Organizations that are not at risk of bankruptcy will still be marked by critical
organizational weaknesses that will prevent them from successfully achieving their
objectives. These weaknesses are part of the strategic risks that also affect organizations
such as central banks.
Indeed, central banks have very stable mandate and this induces a highly bureaucratic
and hierarchical culture. This culture, which is very far from start- upup’s culture, is
characterized by a relatively cautious approach to risk-taking and defensive-like
strategy. However, this caution hasbeing cautious plays against the disadvantage of
being a handicap to the agility required by the current environment. Though there are
multitude of differences between a central bank and a start-up, so as, it seems, to justify
this cautious culture,. In in realityfact, these differences are only apparent. It is true that
Central central banks are not exposed to the same risks as start-ups; but, like them, they
risk to operatieoperate at a sub-optimal level if they do not become aware of the forces
that structure their environment. At the dawn of the 21st century, central banks must
face three driving forces, otherwise known as change drivers, which are at work and
which, without fundamentally questioning their mandate of central bankers, put under
permanent stress their central bank’s ability to perform their duties successfully under
permanent stress.

What then are these three drivers of change in the central bank universe? Formatted: Font: Bold

After several debates on the objectives pursued by central banks, a consensus emerged
that the main objective of central banks is the stability of the generalto maintain price
stabilitylevel, which can be measured by inflations rate. Some central banks have a
direct or indirect role in supervising the banking sector. Others central banks have
explicit mandates to support growth and full employment as a key contribution to their
government's economic policypolicies. They also provide various financial services to
the State and other public entities and operate financial market infrastructures that are
critical for the successful completion of payment transactions, monetary policy
operations and credit lendingdistribution. At first sight, the central banks'
businesscentral banking is not directly at threat. However, three forces, to which
insufficient attention is paid, have in reverse a significant impact on central banks’
objectives. These three forces are the volatility of the components of the financial
ecosystem, the speed of technological innovation and stakeholders' expectations in
terms of the institution's profitability.

The volatility of financial ecosystems

In a market economy, since the price of a good or service depends on the law of supply
and demand, the question arises: (i) as to how a central bank can preserve themaintain
price stability of the general price level without directly constraining constrain whether
on the supply or demand for goods and services (prices control). or The same applies
toon the distribution of credit (credit containment. )? How can we central banks
improve the financing of the economysoundness of the financial system in an
environment where , when lending credit institutions do not have the assurance of
obtaining loan repayments face high default or counterparties risks, or are struggling
pain to collect savings that are becoming increasingly scarce due to a lack of wealth
creation? The answer to all these questions and many others about the effectiveness of
monetary policy and banking supervision lies in the state of the financial ecosystem.

A financial ecosystem includes financial markets, public policies and institutions, the
judiciary because of its impact on the administration of justice between parties in
transactions involving financial instruments, legal rules on financial transactions,
infrastructure, educational structures related to financial, legal and monetary training,
the production system in that it allows the monetization of assets, the removal of
barriers to domestic production, etc. A financial ecosystem thus allows the
transformation of assets into financial assets and guarantees the transformation,
without high transaction costs, of these assets into cash.

Recurrent financial crises, financial scandals, commodity price fluctuations, corporate


relocations, judicial dysfunctions, protectionism, questionable social, financial and
economic laws or climate change are thus evidence of the volatility of the financial
ecosystem and its impact on the mandate of central banks. There is not doubt that the
success of central banks today lies in the development of tools and strategies that are in
line with the chaotic state of the financial ecosystems of the jurisdictions in which they
operate.

The speed of technological innovation

The financial sector has become the field of experience for technological innovation. This
innovation can be displayed as process innovation, product innovation or market
innovation. Considerable gains are made for the entire community users financial
services by these technological innovations: speed of transactions, low intermediation
costs, suppression of territorial constraints and market atomicity (number of actors and
operations). Technological innovation has a significant impact on the central banks'
business, including monetary issuance, monetary policy, banking supervision, foreign
exchange reserve management, supervision of the stability of the financial system and
the operation of market infrastructures. Central banks are nowadays strongly involved
in the development of digital financial services (Fintech) as part of financial inclusion,
are concerned about the development of crypto-currencies and remain perplexed by the
rise of artificial intelligence. On the organizational level, all these innovations put under
pressure the digital maturity of central banks in the use of technologies and their ability
to keep pace with technological change. They are therefore called upon to be the central
banks of their time.

The issue of central bank profitability


The statutes of central banks, unlike those of commercial banks, do not explicitly include
profits as an explicit objective. The consequence is that a central bank would not be
obliged to make profits and, in some cases, can operate with negative equity since profit
would crowd out the primary objective of stability of the general price level. However, it
is important to ask the question whether a chronically loss-making central bank can
successfully carry out its mission? There no doubt that answer to such a question is
negative. This means that a central bank that does not have financial autonomy will
represent an enormous cost for the taxpayer and will not have sufficient flexibility to
carry out its tasks. The reaction of both the French Court of Auditors and the French
Senate to the Banque de France's first deficit result in 2003, i.e. €179 million, is very
illustrative in this respect. The terms "recovery", "productivity" or "competitiveness"
have been widely used as if it was about a commercial firm Central banks are therefore
forced, like commercial banks, to constantly reinvent their economic model to maintain
the financial autonomy.

To sum all it up
The forces driving the aforementioned changes are representative of the enormous
pressure on central banks today and situate the effectiveness of these institutions in
their ability to manage increasingly complex changes. There are also links between them
so that they can be strengthened to keep a central bank in a quasi-vegetative situation.
To reverse the trend, changes must be made. But what strategic changes are we talking
about? These changes concern the strategic orientation that has taken place in the
organization and functioning of central banks, leading them to put in place critical
processes, more or less explicit, for the continuous improvement of the financial
ecosystem to which they belong, for IT governance and operational excellence and at the
same time strengthening their adaptive, prospective or influential capacity, as shown in
the following table.

Adaptive capacity Prospective capacity Influence capacity


Financial ecosystem 1. Develop a very thorough understanding of the economic and
financial environment
2. Adaptation of intervention instruments in consideration of changes in the
environment 1. implementation of the ever-advanced modelling and forecasting tools;
2. Use of expert foresight methods;
3. Anticipating the implications of environmental changes on business lines and
activities 1. establishing permanent communication with local institutions and public
authorities
2. Leadership in identifying weaknesses and proposing solutions for improvement
Technological innovation 1. Integration of technological innovations into procedures
2. Adoption of agile methods
3. Strengthening IT governance (CobIT) 1. setting up a technology watch process;
2. Exchanges of experience with peers;
3. Maintaining permanent contact with research structures in the IT field;
4. Monitoring changes in the supply of financial services
5. Anticipating information system vulnerabilities 1. promoting financial
innovations
2. Adoption and implementation of e-government principles;
Operational excellence 1. Constant adaptation of internal structures;
2. Outsourcing of non-strategic functions or internalization of strategic functions
3. Optimization of business processes
4. Implementation of a Quality Management System
5. Continuous training of human resources 1. change of company culture;
2. Implementation of a strategic foresight process;
3. Strengthening management control;
4. Adoption of the GPEEC;

Improvement of internal and external communication (aimed in particular at the


Government, local elected officials or trade union organisations

These induced changes are therefore of several kinds that affect the tangible dimension
of the organization, i.e. structures, tools and resources, and the non-tangible dimension
of the organization, i.e. processes, skills and culture. Establishing a change management
process that can strengthen internal capacities and deliver the results expected by
stakeholders is therefore critical for central banks.
To go further

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2. AUTISSIER D., BENSEBAA F. and MUTOT J.-M., Les stratégies du changement,
Dunod, Paris, 2012.
3. BAREIL C., "La résistance au changement : synthèse et critique des écrits", in
Cahier n° 04-10 - August 2004, HEC Montréal.
4. CHALLANDE J.-F. and LEQUEUX J.-L., Le grand livre du DSI, Editions de
l'Organisation, Paris, 2009.
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sciences de gestion", in Management & Avenir 2011/8 (n° 48), pp. 97-117.
6. Cour des comptes, Rapport public thématique sur la Banque de France, 2005.
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Paris, 2008.
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10. Harvard Business Review, November-December 2017.
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WP/09/13, IMF, 2009.
12. LECERF-THOMAS B., Neurosciences and management. Le pouvoir de changer,
Editions de l'Organisation/Eyrolles, Paris, 2009.
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l'Organisation, Paris, 2003.
14. Revue "Problèmes économiques", Les technologies au cœur de la croissance,
September 2015, n° 3115, La Documentation Française.
15. SINGLETON J., Central Banking in the Twentieth Century, Cambridge University
Press, United Kingdom, 2011.

About the author


Executive at the Central Bank of Congo in charge of issues with change management.
Professionally reachable via "l.mbula@bcc.cd" or, at any time, reachable on "guymbula".

Translated with www.DeepL.com/Translator

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