The playbook for transformation has changed. Change management practices from the past seem to miss the dynamics to deal with present days pace of change. Traditionally, key competitors were known and generally faced the same challenges, similar economic circumstances and a common pressure on profits. Now, competitors come from different sectors and industries, use different technologies, new ways of working and launch products and services faster than ever before. The current environment forces banks to transform into a flexible, agile organisation, capable of quickly adopting to market developments and simultaneously identify, test and scale new business models. This is a transformation covering all aspects of the bank. From front office to back office, IT to compliance and risk management, which calls for a different approach to business transformation.
Below we describe the four steps to follow for a successful digital banking transformation:
1. DESIGN A CLEAR VISION
Banks without a coherent digital strategy often lack the power to execute the transformation, they are simply going in all directions. The sheer volume of noise generated by digital technologies, increased competition, new regulations etc. become a distraction instead of a guiding rail for future opportunities. To make progress in this uncertain and highly volatile environment, banks need to start by taking stock of their current position based on an objective, data driven internal- and external analysis. From these analysis, the bank’s core capabilities and assets are identified and a vision of where the banking industry is heading is created. Subsequently, the bank should define its role in this future world. For a Dutch retail bank focusing on the mass market, the vision of the future can be to become a tech player like Google or Facebook , whereas a bank serving a corporate niche segment will focus its visions around enabling the account managers by providing them predictive analyses to define next best actions and improve service delivery. Larger and more complex banks servicing multiple customer segments and geographices may translate the vision of the group to different levels within the bank (by business unit, function or theme). Each bank determines its own appropriate levels, but must adhere to the vision, strategy and objectives.
Good strategic focus entails making clear and deliberate choices on where to play and where not to play. These strategic choices, based on data and profound analysis, are different for all banks and will evolve in a very bank specific view on how to compete in the digital future. This way, successful banks define the battleground on their own terms.
2. DEFINE THE BUILDING BLOCKS
A vision is foundational, but it doesn’t get the transformation executed. Once a bank has this clear vision, the next step is to translate this vision into action. However, in the current uncertain environment, banks need to maintain sufficient flexibility in their strategic execution. Banks should therefore break up their strategic planning at two different levels, waves and building blocks. Waves are the successive, longer term evolutions a bank must go through to move towards its vision and building blocks are the tactical, short-term actions and initiatives that start to move an organization in the right direction. Building blocks are small enough to permit short cycles of testing and collection of customer feedback. Taking the example of the corporate bank aiming to digitally enable its account managers, the first wave would be around digitalisation of processes and journeys, the second wave about data and the third wave about artificial intelligence. A building block could in that case be the digitalisation of a specific (set of) end-to-end customer journeys or the launch of a new product or service.
3. START, PREPARE AND ORCHESTRATE
At most banks, piecemeal experiments and initiatives are already under way, lacking clear direction and having limited visibility into where progress is made and budgets are spent. Taking inventory of these initiatives is a good first step before prioritising between them. Subsequently, the bank should agree on the first building blocks to take up, likely the ones who will have high impact and are relatively easy to implement. Important in the execution of these first building blocks is to adhere to an approach which corresponds with the way of working envisaged in the transformed organisation (multidisciplinary teams, customer centric, fast, agile, data-driven decision making, and less hierarchical and more self-steering).
By coordinating the initiatives, a central team can spot patterns, share lessons across teams, attract new and shift available resources, support teams in their new way of working, share experience, etc. This team orchestrates and drives forward the portfolio of projects, using data to accelerate, pivot initiatives or shut down experiments when they fail. As the number of initiatives grows, the more complex the orchestration becomes. So before scaling the digital transformation it requires thoughtful preparation and orchestration.
4. SCALE AND AMPLIFY
Learning from the initially steps, the transformation is gradually rolled out across the bank, while maintaining its strategic focus. When the first projects start to affect clients, employees, services and/or processes, the first successes need to be amplified so more parts of the bank want to join the transformation. To amplify, scale and accelerate the transformation across the bank, an activerole by senior management (CEO/ Chief transformation officer) promoting the digital transformation is essential to encourage and activate all parts of the bank.
How well and how quickly a bank can execute the digital transformation heavily depends on how quickly it can assemble the required capabilities (talent, processes and systems). They fundamentally and collectively form the engine that allows the company to achieve its vision. Yet these same capabilities (enablers) driving a transformation are often also the result of a good transformation. For example, while technology used to be a back-office function, it is now represented in every facet of a bank and is a critical component for leading banks.
A digital transformation is not simply an implementation of a new core banking system, it’s an organisation-wide overhaul of a banks operating model. By starting small, the bank will quickly run into the bottlenecks within its own organisation that can arise in all sorts of forms such as the availability of human resources or lengthy backlogs to change legacy IT systems. Once the bank has resolved those problems and figured out the key design principles, guidelines and ways of working within the first projects, it has effectively developed a mini digitalisation factory. Once ready, the bank scales this mini digitalisation factory to drive the transformation throughout the entire organisation.
HOW FINCOG CAN HELP
Modernizing your bank can be both exciting and challenging, and you’re likely to need help along the way. At Fincog we're experts in digital transformation and offer both consulting and implementation services to guide you throughout your journey. Fincog has in-depth knowledge of both established financial services and fintech. Thereby we bring a fresh and impact-driven approach to creating the most relevant and sustainable solutions tailored to our clients across the globe. By combining strategy with implementation, Fincog designs what is feasible and builds what is envisioned.
Want to read more? Here’s a story on how we helped an Eastern European bank with its digital transformation