Digital transformation: The revenue leak banks don’t talk about

For banks, the failure to innovate doesn’t come from a lack of will, money or effort

Big banks are spending billions of dollars on digital transformation initiatives that never get off the ground.

According to the International Data Center, an estimated $1.3 trillion was spent on large-scale digital transformation projects across all industries in 2018, 70% of it on efforts that failed to achieve their objectives. That’s more than $900 billion down the drain.

For banks, the failure to innovate doesn’t come from a lack of will, money or effort. The financial industry has had the world’s highest growth rate in digital transformation spending, at nearly 20 percent, according to a new IDC report.

In my experience, there are a few key reasons why banks have struggled with digital adoption and several equally important lessons that can help financial institutions realize real change.

What Banks Get Wrong About Digital Transformation

The first issue banks run into with digital transformation is a human one: talent. It drives digital transformations, but when talent leaves, digital transformation initiatives fizzle. Banking and finance already have an 18.6% turnover rate, one of the highest of any industry. Compound that with tech, the highest turnover rate, and you can see why it’s so hard to get these initiatives launched. According to Paragus CEO Delcie D. Bean IV, the best solution he’s found isn’t one most CEOs will like. “Accepting turnover was better than fighting it,” he explains. The tech company re-worked its operational model so that no client relies on one point of contact for exactly that reason.

 

The second problem is that seeing an idea come to life is a great motivator, but the shine wears off once the reality of how much work there is to be done hits. “This is because most projects will require vastly different resources to evolve from the proof-of-concept to production,” Michael Lokshin at World Bank Group explains. “Field testing, user focus groups, development of new processes to the existing technologies need skills that might be scarce or missing completely in the team that conceived the original idea.”


And getting other teams to carry the torch presents its own bureaucratic hurdle. Incentives need to be managed creatively to move projects forward. Collective kudos for large projects are hard to establish, and for team members hoping for a promotion, it can be hard to follow someone else’s lead even when it’s the best thing for a company. This leads to redundant tech builds. At one bank we worked with, we found that their major technology platforms had been replicated an average of three to five times. So much money was wasted rebuilding the wheel.


Disney and Marcus: Top-Down Alignment Works

Banks need to prioritize genuine top-to-bottom and lateral alignment. Take a look at Disney, a corporation built on analog animation that’s thrived in a digital era. Under the leadership of Bob Iger, Disney achieved transformation because “he didn’t see reinvention of Disney as a separate function to be done by a Chief Digital Officer.” By acquiring Pixar and centering digitization as a core operation of the company rather than a side project, Disney was able to own digital transformation across the board instead of relegating it to a few tech-heads. Now, Disney+ competes with Netflix, HBO Max, and Amazon Prime Video.

Banks need a similar commitment. Consider the success of Marcus by Goldman Sachs, an online division of the multinational investment bank. Goldman knew digital competitors lacked its scale and consumer banks were more focused on credit cards. So it built a bank from the ground up and began providing online unsecured consumer loans through Marcus in 2016. By designing for growth and digitization, Goldman Sachs quickly expanded to a multi-product business with nearly $5 billion in loans, $55 billion in deposits, a personal finance app, and a partnership with Apple within three years.

Banks need to do some soul-searching and rethink their digital transformation strategies from the ground up. If you’re looking for a place to start, here’s what I’d suggest:

  • Study how companies like Disney and Goldman established digital transformation as a core tenet
  • Empower ambitious executives with creative incentives and long-term funding
  • Partner with product companies that can own product development from start to finish


Small Consultancies, Big Solutions

Spending on digital transformation is expected to increase by more than 10 percent in 2020. My guess is much of that will be spent in the same wasteful ways.

It doesn’t have to be that way. Tapping partners for development is one of the best ways to ensure that digital transformation funding is well-leveraged. Bob Iger brought Steve Jobs on as a consultant for Disney’s transformation. Banks can do something similar by partnering with product companies that own product development from start to finish.

Product companies address the challenges of talent turnover, redundancy, and bureaucracy to focus more narrowly and fully on projects. Small consultancy teams take on just a few clients at a time, allowing talent to become deeply invested in and focused on an initiative without the constraints of interdepartmental competition and asynchronous communications and approvals. Additionally, consultancies have the advantage of an outside perspective, bringing fresh eyes free of political agendas and unrestricted minds ready to innovate.

Sometimes the best way to make change happen is from the outside.

Tom

Sandeep

Sandeep: Tell me a bit about the early part of your career.

Tom: I spent a decade helping to build start-ups focused on application and database software. This was where I learned how to sell and do business development. I was fortunate to be part of one company going public and another being sold to IBM.

Sandeep: What is something you learned during this time that helped you with consulting?

Tom: I began to appreciate how different customers achieved varying levels of success with the same foundational technology. This made me understand just how critical getting your team and process right can be.

Sandeep: This is something I only came to appreciate years into consulting, especially after the sale of my first consultancy to Capital One.I saw teams in different parts of the company trying to solve challenges like real-time messaging. Same corporate culture, same technology, same internal support mechanisms. Night and day outcomes.

Tom: We saw a lot of the same thing after selling our practice to EMC (sold to Dell in 2015). This is probably the thing I'm most proud of when it comes to the teams I've helped to build: the ability to perform well in a variety of contexts, sometimes in ways that inspires the client team to up their game as well.

Sandeep: Yes. It's particularly cool to see your team succeed in individual ways after an acquisition...consulting skills definitely translate into the corporate environment.

Tom: Totally. We have people who've stayed on at Dell and risen up the ranks, while others took the opportunity to become successful executives at other Fortune 100 companies....or to start their own agencies and startups.

Sandeep: We've both been around a while. My first consulting project was a Y2K thing for Cisco back in 1998. You've been around a little longer than that :). How do you think consulting has changed most during the past five years?

Tom: I think because there is so much infrastructure available now, consulting has become more delivery and outcome-oriented. A better blend of strategic and tactical. Public Cloud has also enabled velocity to increase at a pace unfathomable 5 years ago.

Sandeep: What has stayed the same?

Tom: It's still mostly about people. People who thrive on change and are focused on their personal and professional development. I love that this has not and will not change...it's what I love about consulting.

Sandeep: I know you're adjusting your work style to COVID. You're still a dude who clearly prefers to drive an hour for a socially-distanced hike or outdoor meeting over Zoom any day of the week :) But personal styles aside, what is specifically compelling about a remote agency during the era of COVID?

Tom: Kunai has been remote for years, which gives them an inherent advantage. There is something about the communication and management styles that just works in a way that other organizations are still figuring out.

Sandeep: Yeah, I think what a lot of people fail to realize is that remote work isn't just office work over Zoom. it's an entirely new paradigm. There needs to be an understanding for asynchronous efficiency...and this just takes time and effort to develop. How do you approach remote work and family? What are you learning about separating work and personal time?

Tom: No matter what the form of interaction, Focus. Be present. Quality over quantity. The best weeks are the weeks where I proactively schedule work and personal time. Neil (Kunai's Head of Delivery) shared a great quote with me "With discipline comes freedom." When I am proactively addressing the majority of my professional and personal commitments, I find I earn a little flexibility. A little freedom.

Sandeep: Tell us about a business hero of yours that I may not have heard of before.

Tom: Paul O'Neill is someone you may not know. His work in both the public and the private sector created a profound impact

Sandeep: We are both over forty years old :). How have you learned how to work smarter during the past decade or so? What do you wish you knew about consulting when you were 25 that you know now?

Tom: Consultants want to make lasting change. Lasting change is often not the act of a single person. Today I work much harder bringing others along on the journey.

Sandeep: Last question. What are you doing here? :) Why join a small consulting company this late in your career when you could have a cushy job somewhere else?

Tom: I love a good challenge personally and professionally. When I turned 40, I decided I would run a 10K every Thanksgiving weekend and try to have my finishing time be less than my age. With the exception of one year where I did not run due to a health issue, I have met the goal. I also recently completed the Leadville 100 Mountain Bike race. So, I guess I'm here because I'm a glutton for punishment :) Jokes aside, our customers have a job to do and I intend to put Kunai in a position to execute flawlessly on their behalf. I love committing jointly to audacious goals for our customers and our business.

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