Digital Transformation Requires a Digital Operating Model

The promise of digital transformation is of revolutionising the customer experience, fostering innovation and creating new opportunities for monetisation, all whilst improving efficiency and driving down costs through the adoption of new technologies and ways of working.

Spurred on by heightened customer expectations, the rise of challengers and the introduction of the Open Banking Standard, the pressure is on financial services organisations to embrace digital and act and interact more like tech firms in an environment where switching banks is (almost) as straightforward as downloading a new app.

One-third of financial service CIOs identified digital as their top business priority for 2019[1], building on a trend that saw $1.3tn spent worldwide on digital transformation in the previous year[2]. Multi-year, multi-million pound transformation programmes range from implementing Cloud, Big Data and Blockchain, to adopting agile ways of working and integrating more closely with suppliers (such as credit ratings agencies). It is clear that the need to evolve – if not revolutionise – exists across the industry.

But just as filling your wardrobe with black polo-necks does not make you Steve Jobs, springing up dozens of digital initiatives does not a Monzo, Starling, or even Apple Pay make.

Digital transformation that considers it the sole problem of a CTO or IT department or an individual fiefdom, or which treats operational changes as a footnote in a technology implementation plan (‘support model’!), is not going to work. An approach to digital that assumes, or even hopes, for smooth co-operation across complex functional and geographical siloes in the face of fragmented accountabilities and incentives is doomed to fail. Indeed, according to Forbes[3], 70% of digital transformations do not achieve their stated goal, representing $900 billion worth of 2019 spend that may miss the mark.

So how can banks achieve their digital transformation ambitions?

It starts with understanding that digital transformation is not just a technology challenge; it is a bank-wide operating model one.

The Digital Operating Model

An operating model describes how people, process and technology are organised to achieve strategic objectives. A digital operating model does so whilst placing the customer at its core and joining up the traditional gaps between the C-Suite, IT and Operations to embed digital thinking up-front.

Digital operating models meet the needs and expectations of today’s customers without incurring additional back office costs because their key processes, organisational structures and technical infrastructure (including data models) have been fundamentally realigned to support customer journeys.

They are more efficient and effective in delivering improvements because IT and the business work closely together throughout development from inception through implementation, ensuring that expectations and delivery plans are fully aligned. Whoever owns the customer owns the product, but in a digital organisation the business understands emergent technology and its (realistic) practical application, whilst the technologists have an improved understanding of the products and customers, enabling better design suited to the underlying platform and standards.

Furthermore, digital operating models are nimble and innovative because cross-functional teams focus on quick, iterative delivery and the use of continuous release management to get products to the market both quickly and safely. Data driven decision-making and short lead times enable rapid response and reprioritisation based on feedback direct from the customer.

How to get there?

“Think more culture, customer journeys and data & analytics, in addition to simply people, process and technology.”

Delivering on the promise of digital is no mean feat and achieving full transformation is not straightforward.

Focusing on customer experience without examining the organisation that will deliver it risks introducing disjointedness and inefficiency; springing up new platforms without integrating or demising legacy systems increases IT expenditure; customer analytics are hollow service offerings if timely, high quality underlying data is not readily available and appropriately structured; and failure to get IT, Operations and the business working closely together will stifle innovation and lengthen time to market.

The danger is that organisations end up with piecemeal benefits from individual initiatives that do not add up to a transformed whole. To avoid this, three distinct factors are key:

1. Place the customer experience at the heart of the op model

Re-segmenting the operating model around customer journeys and digital channels ensures that supporting people, process and technology are organised to enable effective delivery of value to the end customer.

At its boldest, this could mean dissolving traditional lines of business and support function structures to create new teams aligned to end-to-end customer journeys (such as client onboarding). A slightly less dramatic, but no less impactful alternative sees the creation of squads, tribes and guilds – cross-functional teams of complementary skillsets with end-to-end responsibility for what they build – that can be configured to ensure each product (or feature) has the appropriate ‘production line’.

2. Embed digital thinking up-front

Using a digital lens for analysis and design helps provide a holistic view of the organisation, bringing in technology from the start. Think more culture, customer journeys and data & analytics, in addition to simply people, process and technology.

Paired with ensuring early IT engagement and senior business sponsorship, this starts to bridge the traditional gap between IT and Operations whereby requirements and capability, deadlines and release schedules can become easily misaligned creating re-work and inefficiency. Embedding digital thinking up-front supports smoother delivery and helps foster realistic innovation and the identification of quick wins earlier in development.

3. Adopt an iterative approach to operating model delivery

Iteratively refining and implementing the design via a series of change initiatives provides the agility to ensure a focus on key areas as the overall design evolves, whilst ensuring changes are successfully landed in the organisation. Issues and glitches can be rapidly identified and addressed, increasing early uptake of new practices.

Paired with continuous release management and unified business / IT delivery teams, this helps ensure that the business is working in tandem with IT towards common goals and deadlines, fostering positive friction and ensuring that, as the technology evolves, so does the operating model.

Adopting an iterative approach also has the added benefit of ensuring that suppliers working in sprints are focused on the quick delivery of benefits in line with the latest priorities.

Ultimately, successful digital transformation requires an approach that matches the scale of its ambition, the support of fully engaged senior leadership and a change delivery team selected from across the organisation with the right mix of business, technical and change management know-how, empowered to look beyond the immediate technology challenge.

Framing digital as an operating model challenge with the customer at its core, digital thinking up-front and iterative design and implementation helps avoid siloed or piecemeal delivery, whilst striking the right balance between customer experience and efficiency, and agility and risk management, to achieve the full benefits of transformation without breaking the bank.

References:

[1] Gartner – The 5 Digital Transformation Identities of Financial Services Organizations

[2] HBR – Digital Transformation Is Not About Technology

[3] Forbes – Why Digital Transformations Fail: Closing The $900 Billion Hole In Enterprise Strategy