What are the main business strategy objectives that lead to digital strategy and create a new “organization”?
The objective of a Digital Transformation is simple: to digitize the organization end-to-end.
As with every transformation, digitization has to be aligned with business strategy. With recent technological advancements, the Holy Grail of every enterprise is the successful digitization of its current business model and establishment of a new one that generates profits based on digital technology. This is achieved through an end-to-end digitization, digital mastery.
Financial institutions specifically, face the threat of digital disruptors who, by developing innovative financial technology-based business models and services, put at risk the revenues and, eventually, the very existence of financial institutions. This is happening for four (4) main reasons: Customers are demanding advanced digital services, technology is advancing at an unprecedented pace, entry barriers are removed, and VC funds are available.
Consequently, the objective of a Digital Transformation in banking (and other sectors) is to provide customer experience excellence based on digital technologies. This way, the bank will be able to address its customers in a more sophisticated way, increasing revenues and profitability. To excel in customer excellence, banks have to optimize customer journeys to fit with the bank’s business strategy and priorities. During this journey, the touchpoints that a customer visits most are digital, but even at physical touch-points, technology can be used to provide the customer with unique digital experiences. For a successful customer journey mapping, banks have to apply the design thinking methodology. When design thinking is mastered, the bank can apply it across the organization, to product and service design, always utilizing digital. Regarding customer experience excellence, customers expect personalization. In the era of digital abundance, personalization has to be elevated to the level of individualization.
But that is not enough. Apart from an external focus (the customer) an internal focus (the enterprise) is necessary. In addition to digital customer experience excellence, banks have to also emphasize digital operational excellence to simplify operations and reduce costs. To excel in operational excellence, banks have to apply the lean methodology in conjunction with design thinking. This way, a bank will end up with sustainably reduced operating costs and processes that are less complicated for customers.
Digital Transformation spans across the organization. How is it governed?
Depending on ambition, maturity and time pressure, a bank can establish the Digital Transformation program following one of two approaches.
One approach is to establish “skunk works”, a new, separate unit that will build the new digitized business model and its infrastructure, launch it in production and, when mature, merge it with the “old” organization. This approach is taken when resistance to change is high and time is of paramount importance.
The second approach is to establish a “digital factory” within the bank and apply the digitization in parallel with the current operation. If the resistance to change is not significant and early implementation is not crucial, this approach allows for a deeper and sustainable digitization. Even before implementation of this approach commences, the proper governance has to be in place. To achieve excellence and to infuse digital and innovation into the DNA of the organization, banks have to centralize all digital initiatives, channels and services under the supervision of the Chief Digital Officer (CDO). A frictionless cooperation between departments is of vital importance. Methodologies like design thinking require cross-functional teams to be in place, offering various skills and mindsets. This calls for a clarification of roles and responsibilities for all participants, be it departments, heads and team members.
Usually, the most crucial phase is implementation. How is Digital Transformation implemented?
Implementation is the most crucial phase and requires a parallel action on four axes: culture, organization, technology and metrics.
When Digital Transformation is implemented, the organization starts to resemble a high-technology enterprise, as such, culture development is essential. An innovation mindset has to be established across all units. Top management has to demonstrate its risk tolerance attitude and invent proper compensation schemes related to innovation. An education program has to be established and training sessions on new technologies, new methodologies and new ways of working have to take place. A regular and systematic communication of progress will fill any information gaps re-fueling trust of top management and program participants alike.
Banks tend to operate in hierarchically organized areas. The CDO has to organize her/his area in a way that all crucial units and functions are under the CDO’s span of control. These units should include the digital channels (e-banking, mobile banking etc.), the self-service channels (ATM and the likes), the contact center, customer experience management (customer feedback management, customer journey design, user experience management), digital marketing (web sites, social media, web analytics, performance marketing), advanced customer analytics & big data and the innovation center. Managing performance of these units requires a new set of KPIs and measurements that suit the digital ecosystem.
A robust but modernized core banking system, a middle layer that provides KPIs and an Omni-channel front-end are essential. Data elasticity to allow personal finance management, utilization of the cloud and substantial but controlled outsourcing are also extremely important. Specifically for digital a bi-modal operation of IT allowing for agile implementation and continuous innovation is valuable.
What is the future role of the digital function and the CDO?
Once Digital Transformation has sufficiently advanced and digital has become a vital ingredient of the bank’s DNA, once the organization is ready to launch new business models based on digital technologies, then the CDO can organize a federated center of digital excellence. This will oversee the digital initiatives running in the business units of the bank and closely monitor and evaluate new digital technologies, new business models and best practices and evangelize their value to the bank.
On the other hand though, digital technologies advance at a pace much faster than banks can absorb and convert them to products and services useful to their customers. Does this mean that Digital Transformation and the CDO are here to stay? Or that the new, digitally-enabled business model will be the dominant one – and the CDO will evolve to one of the most important roles for a bank?
It is very early to tell but this is certainly an adventurous journey, so fasten your seatbelts and enjoy the ride!