Transformation for Bankers Needs A Change In Mindset

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“It’s not the strongest of the species that survive, nor the most intelligent, but the most responsive to change,” according to the often cited “mis-quotation” of Charles Darwin. Whether or not Darwin said it is irrelevant as it makes a point as valid in 21st century banking as in his 19th century study of evolution.

For banks to adapt, thrive, and mature in the digital economy they must embrace change through the digital transformation of their business. Until now, however, too much focus has been on technologies driving change and not enough on management’s need to reimagine the organization and its own role in making the most of digitally driven business opportunities. For CEO’s accustomed to leaving IT issues to a CIO or CTO and viewing IT as a support function rather than full partner in developing business strategy, digital transformation can be daunting. To leverage the power of digital technologies in financial services, C-Suite executives need to overcome their fear of change.

Digital transformation is far more than an IT upgrade. It encompasses the full organization, strategy and processes, and introduction of potential new business models in ways to leverage digital technologies to create new business opportunities.

Today’s Customers Expect More

Today, banks are under pressure from all sides – from tech-savvy customers who have come of age with smartphones in hand and expect to do their banking via digital services, as well as from Fintech start-ups developing applications for customer-facing financial services that quickly become commoditized in direct competition with banks.

Surprisingly, many banks have yet to implement or even develop a digital transformation strategy. An estimated 40 percent of banks still view digital transformation as an ad hoc IT project, according to IDC MaturityScape Benchmark; Digital Transformation in Banking 2018.

Why have banks been slow to move on digital transformation?

It’s not a lack of awareness of the importance of the technology. After all, banks have long been big investors in IT. But that itself is part of the problem.  Large banks’ operations are often run on legacy IT systems dating back to the 1990s or even 1980s. The investment in maintaining that installed hardware and dated software to support established applications and methodologies makes managers reluctant to give up the investment and long- established business processes tied to the systems. Banks are often simply too busy keeping these legacy systems alive to innovate and change.

Legacy IT systems and processes are an obstacle – and so too are “legacy attitudes”. As I have often seen in my work—if you view your infrastructure as a commodity, then perhaps you should view your business as a commodity as well.

Banks that position IT as a support service for operations with the CIO as IT manager rather than a full partner in developing business strategy will find digital transformation a challenge. Such “legacy attitudes” have led CEOs to misjudge the speed and magnitude of change underway in financial services.  Relegating the bank’s CIO to a support role rather than offering a seat at the table in developing long-term strategy has also played a role in some banks missing opportunities to engage  a new generation of bank clients and understand their preferences for digital services.

Looking Beyond A Quick Fix

Re-imagining the organization and long-term strategy are key to successful digital transformation. Transformation of business is not designed for short-term solutions and immediate gain.  Digital transformation to position a bank for success in the new economy must have a vision for long-term success. It’s not a quick fix for a troubled business. The transformation of the business needs to embed agility in the bank’s processes and management thinking to ensure the organization can effectively manage change and to survive.  Agile fintech start-ups developing innovative ideas to successfully engage a new generation of customer are already disrupting bank business. Banks need to learn from fintech entrepreneurs and work with them when possible.   The desired end-state and success criteria will be based on “Fintegration”; those banks that best leverage and partner with Fintechs will succeed.

Success for bank CEOs today is to build an organization that is agile and prepared to manage change. This requires viewing digital transformation as change management rather than project management.  Change management is open ended in its goals and looks not only to transforming defined business operations or processes, but to the people in the organization to prepare them to manage rapidly changing business conditions. Project management, on the other hand, is a process of guiding a team to accomplish a defined goal and deliverables working along a timeline with a target completion date.

Who’s Leading Digital Innovation?

The digital revolution in financial services is focused on leveraging new technologies to enhance and serve the customer experience. A recent study by the Economist Intelligence Unit for SAP showed that IT departments in banks still take a back seat in digital innovation as change is often led by business units. That leaves IT to play a support role.

Lessons from Fintech entrepreneurs show IT should play an equal role with business units in developing digitally driven customer services.  In the digital economy, IT must have a seat at the management table to build its expertise into every business process. To hold onto bank clients and profits while rolling out new customer facing services means putting digital technology in place that enables new forms of innovation and creativity.  It’s not simply a project to enhance or support traditional methodologies.

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Digital transformation is the key to banks achieving sustainable success in a new economy. To succeed, CEOs will need to move beyond both legacy systems and “legacy attitudes”.  A wave of game changing technology convergence is underway today. Big data, blockchain, biometrics, API banking, adaptive security, AI and technologies yet undreamed of will have an enormous impact on banking in future.

CEOs must not only adopt new technologies, but new ways of thinking to build organizations capable of managing change.

 

 

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