How banks can manage digital transformation effectively

February 24, 2022 10:55
Image: Reuters

‘Digital Transformation’; the buzzword of the banking industry, achilles heel of incumbent, and perhaps the most misunderstood process of a bank’s ascension to region dominance.
Before addressing how banks can pivot and embrace digitalisation, it is of critical importance to understand what ‘digital transformation’ means. This lack of clarity is the primary touchpoint where Digital Executives fumble their objectives, and the reason why up to 80% of digital transformations fail, according to a Boston Consulting Group report.

Digital transformation is akin to organisational culture; though everyone has some sense of the concept, there isn't a well-defined line which demarcates it.
In its simplest form, Digital Transformation is a holistic, integrated process that cuts across Process Transformation, Business Model Transformation, Domain Transformation, and Cultural Transformation. With engagement required from multiple departments of an organisation, ownership must also simultaneously be taken by multiple stakeholders, and not just the Chief Information Officer, or Chief Digital Officer.

The need for digital transformation has never been more apparent than during the pandemic, where financial institutions have had to redesign and accelerate the shift to digital services to serve their customers. However, a recent FT Focus report has found that less than a third of APAC banks describe their digital transformation strategy as mature or advanced. While it is widely understood that an actionable roadmap is always key to a bank’s digital transformation strategy, we must first understand why organisations are daunted by digitisation.

First, banks and financial institutions approach digital transformation from the vantage point of business, not a customer. Regardless of the amount of capital investment in tech suites, the flashy cards and crisp UI/CX experiences, the gamified reward schemes you introduce, the basic fundamentals of business hold true and will trump you; the customer is king. If your digital transformation endeavors are driven by your Fear of Missing Out (FOMO), or your scramble to beat the competition, you will be misaligned and your transformation will be regression, cemented by your company’s negative balance of payment.

Second, incumbents treat digital transformation as a finite game; essentially, just another task on a to-do list. The reality is that digital transformation is a journey, not a destination. In order to leverage the investment in the system, incumbents must relentlessly not just revamp their tech portfolio, but consistently harness it to launch newer, seamless digital financial products and solutions for their customers.

After 30 years in the industry advising clients on stress-tested digitisation processes, here's a roadmap that can be leveraged to actually deliver on the promise of digital transformation.
First, aspiring digital leaders must appraise existing tech suites and audit internal product propositions. Once existing products are evaluated, they must be benchmarked against the kinds of products and solutions customers expect, and at this point, institutions must ask themselves a critical question – “Do we have the capability to deliver on what our customers expect?”
If the answer to this question is negative, only then must digital transformation be pursued. Such an internal process enables institutions to critically assess existing capabilities, and enables them to make better, informed decisions.

The next phase in the roadmap, digital leaders must work backwards. Instead of developing technology capabilities haphazardly, institutions must be laser-precise in pinpointing what fronts technology needs to develop upon, which is a process that will be informed by the type of propositions that their customers want. Third, and perhaps the most important, set realistic, measurable deadlines, and mint a strategic partnership with a technology company that not only understands the transformation, but one that is willing to advise as opposed to just sell you a proposition.

The second side to this transformation is another stumble-block that executives tend to overlook; grassroot cultural change. What is important is that this stage is a process, and leaders must help guide their teams through the milestones of creating awareness about the transformation, to helping create acceptance, and ultimately empowering them to anchor the transformation and champion it.
Ultimately, what is critical for any digital transformation is understanding this simple rule; transformations are an extension of the customer. The prime mover for any digital transformation should always start by asking this simple question; “how will this benefit our customer.” Once this question is answered, everything else falls into place.

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Managing Director APAC, Codebase Technologies