The new banking reality is one of lower profitability, greater shareholder expectations, and more competitors at the doorstep. Accelerating and sustaining digital transformation is key to realising a new world order of banking activities. The aim, naturally, is to not only stay on the front foot when it comes to innovation but also to weave digital technologies and capabilities through existing business activities, processes and models for radical efficiency gains.
At the heart of successful digital transformation lies the smart treatment of data. The right strategy around data architecture and platform design, with a view to how they will operate in practice, can open up business gains, performance improvements, and the possibility for banks to become a “self-sustaining” machine in the digital age.
This aspiration is, however, far from the operational reality of today. Legacy IT estates are widely acknowledged as the Achilles’ heel of the financial industry’s digital transformation. Such estates are expensive to maintain, not agile enough to underpin new technologies or compete in terms of costs, and cannot be transformed into digital platforms easily. The net outcome is trapped and duplicated customer data and computing power across the siloes of spreadsheets, functions, and business divisions.
To turn around the tide, banks need to get the culture right and adopt a “technology meritocracy” mind-set. That is, decision-making in digital transformation should focus on technical merits, rather than suiting legacy organisation constraints. So what does this look like in practice?
Rationalisation is as crucial as modernisation when it comes to transforming the technology estates. A balanced, long-term view of cost-benefit analysis is key to ensuring successful rationalisation efforts. Adding 15% to a delivery estimate to include extra work to decommission legacy systems should not be considered a drag, but an inevitable part of the digital transformation journey. Often certain technologies and practices are known internally to cause the most complexity and instability, while those can’t be shut down overnight, new use can be discouraged as long-term alternatives are being developed and implemented. The best digital architecture is often the result of a constant evolution – banks need to be prepared to make a long-term commitment to doing things differently and be prepared to enforce that.
The modernisation of technology estates is exciting, but futile if the uptake and use of new technologies cannot be ensured. Enabling the best uptake of modernisation is both a science and an art. Beyond fitness for purpose, technical solutions need to balance control, capability and performance against the ease of use and time to market. Socialisation is key. Staff across the organisation need to be aware of the solution and how to take the most advantage of it. Fostering an environment where staff are keen to stay abreast of the latest developments and encouraging those with the potential and business-savviness to come forward can be vital for maximising the return on technology investments.
The use of technology controls is also critical to establishing the right culture and working practices. It is tempting to increase restrictions as a reaction to control failures. But this can increase unnecessary work-arounds and slow the pace of change. Perhaps counter-intuitively, “letting go” can be more effective when it comes to technology controls. A more permissive approach of setting up conventions and standards can encourage teams to follow the spirits of guidelines rather than their letters and enable them to make the best use of that freedom.
Competing delivery objectives are another common issue. Typically, the business wants new functionality as soon as possible, while delivery teams are measured on meeting their delivery estimates and avoiding bugs in production. This incentivises the setting of a long delivery and testing timeline, which in turn encourages tactical workarounds and fragmentation. Greater alignment of objectives, combined with transparency and a forward-looking approach to handling failures, can help break down some of these boundaries to encourage greater collaboration.
The banking industry stands on the brink of a technology upheaval. The transformation journey ahead will only increase in speed, scale and scope. Successful digital transformation efforts must be matched with an equally significant change in culture: decision-making, change management and governance should focus on technical merits, rather than legacy organisation constraints. Technology meritocracy sits at the heart of business success in the next phase of digital banking.
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