In general, digital transformation leaders are more aware of how digital-first challengers and fintech startups are changing the competitive landscape. They are more likely to take the threat of these new entrants in the world of finance seriously. This is reflected in their dedication to keeping up with developing technologies and evolving business philosophies.
10 Tactics Banks Should Adopt From Transformation Leaders
The overwhelming majority of banks are quick to embrace the idea of digital business transformation, but they are slow on executing their plans in reality.
According to the Global Banking Benchmark Study, which assesses transformation leadership, 71 percent of banks are slow to adopt digital technology. Seven percent are excelling in operational transformation and nine percent are elevating the customer experience. But only 14 percent are thriving in both categories.
Nigel Vaz, CEO of Publicis Sapient and author of “Digital Business Transformation,” said most companies are great at their core business, but not reimagining what it could be. He said recognizing the imperative for transformation is long overdue and that the current challenge is developing a vision for the future and a roadmap to get there.
He said that companies need to “identify opportunities for disruption” and understand how to seize them. That includes identifying and removing the business’ current internal obstacles to transformation and replacing them with the qualities of a “digital-at-the-core organization.”
We call the financial services firms that prioritize both improving the customer experience and investing in operational changes digital transformation leaders. Most banks can learn a few things about unlocking growth opportunities and reaching higher levels of success from these digitally enabled companies:
Consumer technology companies – like Apple and Google – are more likely to influence the values and behaviors of digital transformation leaders than they are to influence the values and behaviors of banks overall (37 percent vs 28 percent). Pay attention to the progress of technology intended for the general public – otherwise you won’t understand why what worked years ago can be judged harshly today.
The COVID-19 pandemic, on the other hand, was slightly less likely to influence the priorities of digital transformation leaders when compared with banks in general (38 percent vs 44 percent). That’s because the leaders did not need additional convincing. They already knew the importance of digital transformation and were ready when more aspects of everyday life went virtual. Nearly all leaders (99 percent) say their staff was able to switch to remote and flexible working arrangements quickly at the onset of the crisis.
It’s important to not merely focus on where one’s business comes up short in comparisons with transformation leaders. Many banks should find comfort in the places where their values align with the leaders’ values. Comparable percentages of transformation leaders and banks in general understand the importance of funding intelligent technologies (30 percent vs 29 percent), agile product and service innovation (27 percent vs 26 percent), customer-centric innovation (26 percent vs 26 percent) and replacing traditional skills with digital skills (25 percent vs 25 percent). Take comfort in being on the right track and keep going.
There are even a few categories in which leaders value aspects of digital transformation slightly less than banks overall: cloud technologies (27 percent vs 29 percent), decentralized decision-making (13 percent vs 17 percent), cultural acceptance of disruption (14 percent vs 16 percent) and faster (re)deployment of talent or teams (16 percent vs 20 percent). These are avenues of potential advantage for other banks. The digital world changes quickly. Some middling companies of yesterday have become the leaders of today. And today’s average companies today could become tomorrow’s leaders. Recognize potential for building competitive advantage when constructing a “digital moat.”
“Organizational change is hard, It’s hard because it requires, first, the acceptance that digital business transformation necessarily goes beyond the surface and permeates all the way through an organization and, second, the commitment and resilience to get that done.”
No digitally enabled firm is an island unto itself. Just like traditional supply chains organize the flow of goods and services, innovative distribution networks with various forms of business and technology partnerships are vitally important. It’s not just a matter of success, but of surviving. Understanding the importance of investing in an innovative distribution network is truly an area where digital transformation leaders diverge from the pack (31 percent vs 24 percent). These leaders were more likely to emphasize partner networks and ecosystems (28 percent vs 24 percent).
The growing embedded finance trend – nonbanks integrating financial services into their websites and platforms – threatens the market share of incumbent banks. But these legacy institutions can take advantage of the same technologies to elevate their existing platforms and reach new distribution channels for their existing products. Rather than lamenting the rise of embedded finance, banks should look for opportunities to make it work for them.
Digital transformation leaders elevate the customer experience by innovating within their core products (41 percent) but also create new products and offerings that go beyond the boundaries of traditional financial services (37 percent). Fortune favors the bold. Timid leaders who don’t embrace a culture of experimentation or learn and unlearn are at risk of quickly losing relevance
Leaders are more likely than other firms to focus on building agile capabilities (35 percent vs 27 percent). Organizations that embrace agile product development take an iterative approach featuring cross-functional teams. This results in responsiveness, rapidity and refinement.
Compared with firms overall, digital transformation leaders are more likely to value expanding the talents and skillsets of their current employees (37 percent vs 31 percent). They were slightly less likely to focus on new talent development (29 percent vs 31 percent). Clearly, attracting new talent is important but retaining first- class employees through upskilling and retraining is also important for companies in highly competitive markets.
Everyone has something to learn from the transformation leaders. Whether related to the customer experience (product streams, marketing, creating new services) or developing technologies and talent (agile capabilities, cloud migration, internal learning), these digital pioneers are shining a light on the path all banks must follow one day. Even transformation leaders are learning from their peers, as well as the instances where specific customer champions or operational evangelists outshined them.
“Organizational change is hard,” Vaz said. “It’s hard because it requires, first, the acceptance that digital business transformation necessarily goes beyond the surface and permeates all the way through an organization and, second, the commitment and resilience to get that done.”
Transforming established financial institutions into digitally perceptive, customer- centric enterprises is not just preferable. It’s business critical. Seeing how other organizations are making this transition is illuminating.
The Global Banking Benchmark Study, based on an international survey of 1,041 senior financial services executives, is one resource for banking professionals to better understand their digital maturity level in relation to their peers.