Large-scale digital transformation for financial institutions can be a challenging and complex journey, but the rewards are often worth reaping. Knowing where and how to begin can be overwhelming but having the patience to step back and devise a clearly defined strategy will set your firm up for success on its transformation journey. In just the last year we’ve seen how the impact of COVID-19 has further accelerated the willingness for companies to re-assess the existing capabilities of their business and organizational models against the fast-paced change of the industry's increasingly complex landscape.
The scramble to do so has these companies abruptly finding themselves buried in the overwhelming complexity embedded in their own global landscape. It’s no surprise that many firms fall short of their goal considering the industry is lagging. The impact of COVID-19 has served as a wake-up call for current digital transformation initiatives as we’ve seen a growing number of banks and broker-dealers looking to consolidate their technology landscape in favor of a more integrated operating model. As such, the financial services industry has made significant investments in Fintech to introduce a more integrated ecosystem, eliminating the costly support of legacy systems and inefficient processes often managed sporadically. Unfortunately, many companies learn that the path to simplification is not an easy one and ultimately fail in the process. Digital transformation is more than just a technology implementation, it involves a continuous change in how your business operates, how people interact with the technology, and how adaptable you are to current market and regulatory changes.
Why Digital Transformations Fail?
Within the financial services industry, there is mounting pressure to keep up with the latest digital strategy trends. Banks and broker-dealers who take the plunge first get the headlines, prompting other banks and broker-dealers to follow suit and initiate their own transformation. As more companies enter the ring, the preference for a more targeted approach suitable for specific requirements takes a back seat to simply mimicking the approach adopted by industry peers. As a result, these companies can face a variety of challenges, the most prevalent of which begins with the ongoing process of strategic planning.
Invest the Time Upfront and Remain Agile
With the accelerated demand to digitize, many banks and broker-dealers tend to underestimate a realistic timeline and overlook many key aspects of the strategic planning process. Organizations looking to introduce digital transformation should be aware that there is no “plug and play” options and that long term complex changes to a business demands a deep dive into the unique way a firm’s people, processes, and technology interact. An all-too-common theme for many large and well-established organizations is the desire to complete planning efforts in a short time period and as cheaply as possible in order to dive into delivery as soon as possible. As a result, these same firms pay the price of critical delivery issues derived from overlooking the basics of well-defined requirements or in-depth vendor analysis. These are just a few of the many mistakes organizations make when planning for a large-scale digital transformation.
Large Fintech organization, such as Broadridge and SAP, who offer end-to-end technology solutions have become the standard in the Financial Services Industry. As a result, it is now easier for banks and broker-dealers to tap into a more consolidated and streamlined operating model using a single platform. Of course, the more modules your organization signs up for the more you will pay, but shrewd planning can help circumvent incremental costs associated with ad-hoc decision making. Fintech organizations may not clearly communicate the implications of their price structures and so the onus is on the buyer to conduct the appropriate due diligence when assessing, end to end, the correct modules required to meet the firm’s technology needs. In a nutshell, spending time on strategic planning rather than acting in haste can introduce major costs savings down the road.
Strategic planning requires time, effort, and continual reassessment. Given proper attention, it can set your business on a more resilient and sustainable path.
A Strategic Planning Playbook
The key to a successful large-scale implementation is not only having a well-defined strategic plan but also ensuring that you stick to that plan. Organizations need to understand that a digital transformation is not a “technology project” per se, but a strategic one, and although technology is a key component to a financial services firm's success the strategy that underpins its successful delivery should not be underestimated. As such, every organization should adhere to a strategic planning playbook, consisting of clearly defined and detailed artifacts including the following:
Executive Summary
An essential part of every playbook is the Executive Summary. If you are short on time and need a whistle-stop tour of what is important, then the Executive Summary should serve that purpose. The intent is to provide executives with a summary view illustrating the key findings concluded in the analysis phase consisting of the Business Case, Current State, and Future State, Competitor Analysis, Vendor Analysis, Execution Roadmap, and Financial Analysis. This is important as it ensures that leadership has a quick and digestible insight into the planning phase.
Business Case
The Business Case highlights exactly why the firm is undertaking this initiative. It provides justification for a potential implementation based on its expected commercial/business benefit. As a result, it is imperative to include a comprehensive deep dive in these areas including a market summary, business objective, change model, solution options, cost analysis, potential constraints, success factors, and approach that is tailored for your business.
Current State and Future State
The Current State and Future State analysis tell you where the firm is today and where it needs to get to, I.e. the Target Operating Model. The Future State cannot be achieved without taking stock of the Current State of all functions this initiative intends to improve. An acute analysis and diagnosis of the gaps and inefficiencies that exist today can only serve to ensure those areas are remediated in the most efficient manner to serve the future state of tomorrow. In an effort to guarantee that all aspects of the business are accounted for, every organization should focus on the following 5 key factors:
Governance: Understanding your organization’s governance is key to understanding your rules, practices, and most importantly, accountability.
Process: Process mapping is a critical step in the process that essentially lays out the blueprint of your operations. Process mapping should allow you to gather further insight into your current processes, identify bottlenecks, and improve upon inefficiencies.
Tools: Mapping your organization’s current toolkit is an important element in reducing complexity. This allows will allow you to identify where it is possible to replace and/or consolidate the usage of tools in order to better streamline your operations.
Data: In today’s landscape data is at the core of almost all decision-making within an organization. More than ever data is providing companies a window into useful metrics that allow them to make more strategic decisions that impact the overall direction of their business.
People: Implementing change across your organization will ultimately impact how people operate. Every organization should have a solid understanding of its current workforce and how they function.
Competitor Analysis
The Competitor Analysis is not always considered in planning; however, it can have a significant impact especially if you are considering fintech adoption, which is common pursuit amongst established financial services firms. This analysis allows an organization to get a better understanding of current trends in the marketplace and how other banks and broker-deals of various sizes are evolving with technology, regulatory impacts, and market volume. The competitor analysis should also focus on how your competitors are utilizing different techniques and as well as some recommendations in how to take advantage of opportunities that other competitors may have missed.
Vendor Analysis
The Vendor Analysis assesses the strengths and weaknesses of prospective vendors, specifically their capabilities and capacity to support the goals of the project or engagement. Organizations sometimes perform a vendor analysis as more of a formality than for any real insight. An organization often already knows who they plan to select based on several irrelevant factors such as they’ve used the product before or it’s common amongst their competitors. Instead of a tick-the-box exercise, the vendor analysis should be a well-thought-out survey that delves into what truly works for your business model. Despite all being participants in the same market, what works best for one organization doesn’t always work best for another.
Execution Roadmap
Once your organization defines exactly what it needs, the Execution Roadmap will focus on “how” to get you there. It is the foundation for change that allows your organization to forecast time, resources, and cost. The execution roadmap should always be carefully curated as it is in fact where many organizations fail. The more accurate the plan, incorporating a realistic timeline and adequate resources will ensure your project stays on track and within budget.
Financial Analysis
Does the project make financial sense? One of the most important decisions an organization will have to make is if the cost justifies the means. This analysis should take a detailed look at all costs associated with the project, quantifying project deliverables and illustrating the financial merits (or lack thereof) of pursuing the project or engagement. This is why things like vendor analysis and planning, in general, are so important because there are almost always opportunities to cut costs along the way.
Staying Ahead of the Curve
Navigating through a large organization’s own complexity can be difficult. However, when tackled properly an organization can benefit greatly and gain a competitive advantage by lowering costs and streamlining its operations. As digital transformation continues to be a growing trend it will be the organizations that consolidate and simplify their complexities who will stand ahead of the pack. However, the path to simplification always starts with a well-defined strategic plan.
About Monticello
Monticello Consulting Group is a management consulting firm supporting the financial services industry through deep knowledge and expertise in digital transformation, change management, and financial services advisory. Our understanding of the competitive forces reshaping business models in capital markets, lending, payments, and digital banking are proven enablers that help our clients remain in compliance with regulations, innovate to be more competitive, and gain market share in new and existing businesses. Monticello leverages its change management and financial services advisory capabilities to guide its clients through the deployment of the latest digital technologies with confidence and resilience.