by Jim Marous
The banking industry is changing at a pace never before seen. Digital transformation has become an imperative for financial institutions of all sizes. The transformation goes beyond technology, however, requiring people and organizations to ’embrace change, take risks and disrupt themselves’. Are bankers prepared?
As consumer adoption of the digital lifestyle has gained momentum, it has disrupted businesses in every industry, introduced new competition, and redefined ecosystems. People no longer view banking as a place to go … they expect their financial institutions to know them, look out for them and reward them – in real time – using the channel they prefer.
Banks and credit unions that are focusing their business models around the consumer’s digital lifestyle are realizing great value from the digital opportunities. These opportunities are not just for the new fintech or established big tech firms, but are also available to traditional organizations. The key is to use a digital-first approach to connect emotionally with consumers and to build simple, contextual and personalized experiences.
The challenge is whether traditional financial services industry executives and their organizations are willing to let go of the past and move forward. Are you and your company willing to embrace the change that is occurring, take appropriate risks and disrupt yourself before you are disrupted?
For most banks and credit unions, a culture change is required to succeed in the future. Gone are the days of incremental adjustments to business models. Digital evangelists within companies need to convince management of the benefits of going beyond buying new technology or building new mobile apps. The fundamental change that needs to happen within a business must go much deeper than the consumer interface.
Digital transformation in banking is both costly and complex. It is not an easy journey. It requires commitment from top management to re-imagine business models, build new strategic alliances and develop a digital workforce that may be far different than the team they have today.
As was discussed by many of the speakers at the Financial Brand Forum, it requires banks and credit unions to quickly respond to change – it requires urgency. In fact, many believe that the lack of urgency may be the greatest risk to the banking industry today. Amazon didn’t improve the retail experience. It reinvented it quickly.
Change can’t happen all at once. For most financial organizations, they should start on digital customer experiences from the inside-out. There is a need to embrace new security protocols, mobile functionality like digital account opening, cloud technologies and enhanced analytic capabilities.
Finally, organizations need to look at their work force. As much as 30% of jobs will be less relevant because of robotics and automated technologies. People will need to be retrained or replaced. Because all industries are going to be digitally disrupted, the availability of talent will be in short supply, leading to new partnerships, collaborations and opportunities for those willing to become part of the future.
Paradai Theerathada, an executive development expert, stated, “People need to first change their mindsets to embrace change as an everyday norm and to become open to, if not comfortable with, change itself. Second, they should stay positive and find the courage of their convictions to overcome the paralysis of inaction. Third, they need to find ways to implement ideas.” The challenge may be finding an environment that supports this personal growth.
To build something new, an organization (or an individual) must expand their willingness to take on risk. In many cases, you’re trying something new that nobody’s ever tried before. And, since it is hard to predict the future, there is risk involved. What is interesting about this period of digital transformation, is that this ‘risk’ is to future-proof yourself and your business.
For instance, many believe that there will be great opportunities around AR and VR in the near future. While still in its infancy, augmented and virtual reality are thought to be the next frontier not just in entertainment, but in communication – especially around voice. There were many examples of voice banking technology at the Financial Brand Forum, with exciting potential.
There was even discussion of the eventual ‘demise’ of computers and mobile phones as the devices of the future. Planning for a future where the primary engagement device may be a chip, eyeglass or other medium presents risk to
the digital banking planning process.
It is management’s role to understand the benefits and risks associated with digital transformation – including the risks of inaction. Management needs to realize that avoiding risks can be just as damaging to a company as undertaking excessive risks.
The challenge is that many executives and boards lack an understanding of digital technologies. Their history and legacy is in traditional banking. This can limit the ability to determine the appropriate risk appetite – both the amount and type of risk that should be taken on in order to grow and achieve solid long-term performance.
Digital transformation success requires more than simply pouring time and money into an assortment of consumer-facing digital initiatives, such as developing a new mobile app or redesigning your company’s website. Unless digital transformation efforts are built from within and create sustainable competitive advantages, they will likely put your organization further behind consumer expectations and the competitive norm.
For both organizations and individuals, getting out of the normal ‘comfort zone’ will be imperative for future survival. With change happening so quickly, it will be important to try to predict where the industry may be 2-5 years in the future, as opposed to just playing catch up. This is why it is so important to disrupt yourself.
Disrupt or be Disrupted
Legacy financial institutions (and legacy banking executives) looking to become digital-enabled face two main challenges. First, the business models and personal skills that have served the industry well for decades has been disrupted by digital innovation and no longer works in the new banking ecosystem that is emerging. Second, attempts to create new, viable models for the digital age will flounder unless people and organizations are willing to disrupt themselves. This paradox has been termed ‘the innovator’s dilemma’ and was first outlined almost 20 years ago by Clayton Christensen.
Because of the existence of current profitable business sectors and personal successes from the past, there is a normal lack of incentive to identify radically new ways to conduct business. This leads to insufficient decisiveness to commit human or financial resources to experiment with new models.
But legacy organizations and experienced banking executives usually have some promising options to explore when looking to disrupt themselves – mainly because they are sitting on both a wealth of experience and data as a foundation for change. Advanced technology allows access to these insights that can be a powerful springboard for new growth opportunities.
There are many options for organizations hoping to disrupt themselves:
Build – Best when the future model is not very different than the current model and where current experience will apply.
Buy – When the ability to shift is not enough and where outside talent may significantly improve speed to market.
Partner – When the cost of building or buying may be prohibitive and the benefits of learning alternative options is great.
Invest – Where there is a desire to leave an outside partner’s model intact, usually to avoid hindering entrepreneurial dynamics.
Incubate – When the synergies of outside organizations or people are better achieved in an accelerator environment.
For individuals hoping to disrupt themselves, the strategies may differ, but many of the benefits are similar.
According to Christensen’s research on disruptive innovation, when a company pursues growth in a new market, the odds of success are six times higher and the revenue potential 20 times greater.
While it is difficult to quantify the impact of personal disruption in the same way, evidence suggests it can yield similar results – significantly improving chances of finding financial, social, and emotional success. But the appeal of not taking risks or disrupting yourself as still powerful.
Friends, family and peers will often encourage you to avoid change or disruption. For those who look to the future with excitement and anticipation, though, status quo is not acceptable. For those people, letting go and grabbing for the next opportunity is a more powerful lure.
According to the World Economic Forum, “Organizations that are leveraging digital technologies to reinvent their business models and processes to establish closer customer connection and drive innovation will be the winners. Digital technologies enable businesses to engage more deeply with customers in the context of who they are, what they prefer and what they need. Companies can use these insights to implement enterprise-wide changes that enable them to quickly and cost-effectively deliver more useful, meaningful experiences.”
For many organizations and individuals, the power of digital transformation will only be realized by those who embrace change, take risks and disrupt themselves.