Digital Transformation Disablers: How BFSI sector struggles with digitalization.
Digital transformation is all the rage today. Enterprises the world over are embarking on digital initiatives – big and small, and transformative and tactical – to varying degrees of success.
When one looks deeply at the digital disasters – the jaw-dropping failures in enterprises pursuit of digital dreams – there are some common threads. We could write a book on why digital transformation efforts in the BFSI sector fail so often, particularly among the larger institutions.
Without much further ado, here are the digital transformation disablers. (We will address the digital transformation enablers in a separate article.)
Digital Transformation Disablers:
Executive Fiats without Leadership:
In companies that are laggards in the digitalization, a paramount reason is lack of leadership and a clear vision and purpose on why engage in the transformation endeavor. Just saying, “Do Digital” is not enough in planning and orchestrating the right initiatives and executing them flawlessly.
Unclear North Star:
Lack of a valid North Star becomes evident and is a consequence of lack of leadership. For example, in a financial services conglomerate, there is an envy of the buzz around new generation Robo advisors. Without clarity on why they are doing it, the management team let loose a group to build a robo advisor. It landed like a dud as it was a me-too product (probably the 25th in the line) without any differentiation and aping one of the leaders in the space so much that it felt like the team was practically borrowing every screen and flow. This is not a way to motivate a team and build a revolutionary product.
Instead, a coherent roadmap based on comprehensive digital capabilities are a critical value-add.
Paralysis by Analysis:
Companies that spend enormously long cycles in planning tend to be in the mode of paralysis by analysis. The planning to plan mode. If you look at the strategy pillars, they tend to be generic and with a change in logo, they may apply to any other company. Instead of this futile planning exercises, outcome-oriented agile planning will go together with the pace and dynamic nature of digital transformation.
Blind Spots Galore:
The legacy of the financial services giants tends to not only pervade in the process and infrastructure, but also in the strategy and operating models. The leadership of these monolithic financial giants tends to think and act based on historical patterns rather than future trends. They tend to miss the tectonic shifts and not realize the underinvestment in areas that matter until it is too little and too late.
The Peanut Butter Syndrome:
The keep the lights on budgets at banks, insurers, wealth and asset managers is too vast and the demands on discretionary dollars to high, that instead of focused investment in a few areas that matter, the financial services institutions tend to spread the available dollars across the board based on various considerations. Instead, mercy killing of some products, services, projects, and programs and instead redirecting investment dollars to emerging and growth areas may be a prudent capital budgeting decision. Even within the emerging and growth areas, prioritizing on what matters and makes the most impact is a critical success factor.
Limited Time Horizon:
Even as the BFSI companies spout the mantra of “long-term thinking” to their investors/customers, the time horizon at these giants is anything but long-term. The need for immediate rewards drives the conversation so much that it is easy to predict a service such as AWS (Amazon Web Services) equivalent in the financial services world will not come from an established company.
No Right of Way:
The budgetary allocations, the resource assignments, the ability to fast-track highly innovative digital projects is a paramount consideration for the success of the digitalization endeavors. When so-called digital attempts blend with all other business as usual projects and have to fight for money, material, and human resources the new sprouts tend to suffocate amongst the weeds.
In large financial services firms, particularly the conglomerates that have grown through acquisitions, there are a lot of silos with duplication of processes, capabilities, and investment. For example, each division – banking, credit cards, commercial lending, and brokerage – spin off a different CRM system (just as an example) wasting time, money and adding to the technical debt. Instead, it may behoove to consider some as “common core” capabilities and buy/build/ or assemble a best of breed solution that transcends the limitations of a siloed approach and instead conceptualizes and execute as an enterprise common core capability.
Historically, the rainmakers in investment banking, the dealmakers in M&A (mergers and acquisitions), the equity researchers and portfolio managers in buy-side firms, and traders in capital markets were the ones that took home the spoils and the big bucks.
The information technology, data, and other teams were not considered core assets and hence underpaid. However, today to get a machine learning expert, or a Blockchain guru is not easy given the high competition for their services.
Today, every financial firm needs to think of itself as a “technology firm that happens to be <banking, lending, wealth management, insurance, capital markets, asset management>.” Hence, paying peanuts means you get monkeys. The digital leaders among financial services have upped the ante and are snatching high caliber talent at significant price tags.
The typical governance structures tend to either pure top-down micromanagement stifling innovation or too much decentralization leading to lack of a cohesive enterprise effort in tackling BHAGs (Big, Hairy, Audacious Goals).
Typically, financial services companies tend to be in the former camp, except in places that have grown inorganically and the center of gravity and power resides in the business units.
Both extremes are dangerous, and companies that find a balance will survive and thrive in this digital economy.
What other digital transformation disablers have you observed? Furthermore, what has been your experience in tackling these problems and avoiding digitalization disasters at your company?