Other parts of this series:
- Thinking about change from the outside-in: digital disruption and opportunity in financial services
- Thinking about change outside in: three common barriers to true digital transformation
- Thinking about change outside in: four tactics for embracing digital disruption and opportunity in financial services
- Thinking about change outside in: building the right workforce
In my first post, we talked about the state of the rapid digital revolution and the need for outside-in change. For true digital transformation, it’s clear that traditional FS firms will need to form partnerships with the wider ecosystem.
However, this is not easy and there are three barriers holding traditional players back from achieving outside-in change that I’d like to highlight: 1) infrastructure and processes, 2) skills and mindsets and 3) pace of change.
Established FS players continue to struggle with the constraints imposed by their legacy architecture. Many of these organisations core systems have grown massively complex, unreliable, expensive to run and are not fit for the purpose of running a digital organisation. In 2016 Accenture research revealed that up to 50 per cent of all IT assets are in urgent need of modernisation. These inherited legacy systems limit the traditional FS organisations’ opportunity for collaboration, while fintechs and other new entrants to the market use their flexibility to partner with others and share data with ease. Potential partners in the fintech space with a high-cash burn rate tend balk at the large firms dealing with layers of legacy systems. Having a clear API layer and ‘decoupling’ strategy can help establish a faster pace of change on top of legacy platforms.
FS firms are used to having a long decision-making process and governance where the opportunity cost of delaying is seen as effectively trivial. But the difference between investing today and in 3 months’ time hurts smaller organizations which cannot afford to wait and burn cash while waiting for a quarterly committee to convene. This results in fintechs choosing to partner with FS firms where quicker decision-making is the norm. In particular, banks and insurers need to rewire their risk and procurement processes to be able to work with fintechs and digital partners at a faster pace. These firms do not have large legal teams to review lengthy contracts. Nor should the same processes be applied to a small and contained proof of concept, as to a global outsourcing contract.
The second barrier is the skills and mindsets for outside in change. Accenture research shows only 10 per cent of board members have professional technology experience, with banking ranked as the second lowest compared to other industries. As the digital revolution continues to rapidly transform the industry, FS change leaders need to focus on spreading the right talent and capabilities across the entire organisation instead of only concentrating digital talent in one part of the organisation or within one team. Distributing the knowledge base and providing opportunities for the whole workforce and leadership to learn about digital transformation is key to creating the cultural awareness necessary to survive and thrive in the ‘new’.
The final barrier is pace of change. When it comes to the pace of change in the industry, many FS firms continue to have difficulty adapting. Accenture Technology Vision for Banking 2016 found more than 85 per cent of bank executives anticipate the pace of change will increase rapidly and at an unprecedented rate over the next three years and banks will struggle to keep up. Banks are being founded, launched and licensed at a breath-taking speed (Atom, Starling, Tandem, Revolut to name a few). For these digital natives, the pace of change is an advantage, as they are able to adapt and launch products faster than their legacy competitors. The ability to react quickly to external changes is a must for traditional FS firms looking to distinguish themselves in the evolving marketplace. The good news is more and more FS firms are embracing agile approaches to change and seeking wider enterprise agility. But success levels vary and there is an increasing realization that agile change requires more than just methods adoption. FS firms need to take a broader approach to enterprise agility in order to maximise the value of outside in change – rewiring the whole enterprise for speed and stability, including increasing the flexibility and responsiveness of technology and data, operations, channels, decision making, organisation structure and the workforce.
In summary, taking a more outside-in approach to digital transformation offers great benefits. However, in order to do this banks and insurers need to get ready with the right 1) infrastructure and processes, 2) skills and mindsets and 3) pace of change.
In my next post, I will delve further into how FS firms can overcome these barriers in a value-creating way to enable true digital transformation.
With special thanks to Elitsa Nacheva and John Watson.