Beware short termism in digital transformation
One of the most unexpected outcomes of Covid-19 for businesses is the acceleration and hastening of digitisation. For years, industry leaders have speculated and championed the adoption of new technology. In fact, according to Gartner 87 per cent percent of senior business leaders consider digital transformation a company priority (yet only 40 per cent of organisations have brought digital initiatives to scale).
This year has seen a shift, however; what was once an opportunity to push the agenda forward and adopt a range of technologies to help facilitate a digital transformation (DTX) has become a necessity. Businesses have understandably hurried to to put into place a variety of technological solutions to, firstly, preserve their business and secure its short to medium-term future, and secondly, lay the foundations to enable agility in the wake of the ongoing pandemic or any future socio-economic crises that could bring about the same impact.
While many are focusing on the acceleration of this trend, and how businesses have been able to pivot and secure their short-term future thanks to technology, the reality is slightly different. Covid-19 has robbed businesses of both time and money, and while it may have accelerated the adoption of technologies many predicted would eventually come to pass, it’s also narrowed its focus: digital transformations have instead become digital optimisations with very short-term goals.
DTX vs DOX
In terms of digital business strategy, little has changed between the pre and post-Covid world, aside from aforementioned pace of adoption. However, what many would consider to be a true digital transformation is no longer commonplace. The extraction and replacement of legacy systems would typically involve months of work, including:
- Achieving buy-in from key stakeholders in the business and shifting the company culture;
- Shopping for and partnering with trusted software solutions partners;
- Planning alongside partners for initial pilot programmes and long-term projects;
- Ensuring that both the right technology and people are in place to make the most of the insights and data generated by incoming digital transformations;
- Ongoing maintenance and improvement of the implemented solutions
Needless to say, businesses are short on both time and money, meaning that these lengthy ‘scrap and replace’ digital transformations cannot be afforded.
The alternative businesses have turned to is digital optimisation. These are typically smaller side-projects developed by the business’ existing IT team, or as a one-off project with a software solutions partner, aimed at providing efficiency and operational improvements in specific areas of the business. Understandably, businesses are prioritising technologies that are addressing health and safety concerns and the ubiquity of remote working, but various technologies across various industries and business processes are being explored and taken advantage of.
DOX in Practice
To focus on an example, look no further than the supply chain industry and the role of the IoT (Internet of Things). Supply chain managers are implementing IoT devices to improve and automate inventory management. They can use these tools to monitor their customers’ use of their product and, when it reaches a specific point, alert the IoT device to trigger an automatic order for more, while updating the supply chain manager of a reduction in inventory.
Not only does this bolster efficiency, it lays the groundwork to potentially combine these improvements with machine learning, enabling businesses to better predict what times of year the usage of a certain product surges and falls. This allows even better supply chain forecasting and management.
There are also logistical improvements to be gained. For example, there has been an increase in popularity of devices-as-a-service, with companies leasing office machines like laptops, computers and tablets for their remote workers. A downside to this is that it requires a lot of communication between the leasing companies and their clients to determine precise timings required to order in supplies. By using IoT, this time is given back to the business, which can be better spent on recruitment, securing new business leads, and improving other areas of the businesses to ultimately drive the bottom line - crucial in the current climate.
Taking the next step
Slow and steady isn’t viable in the midst of a pandemic. Where previous implementations of digital transformations have included room for experimentation, business leaders today are tasked with leading their businesses through complex, sometimes messy, and smaller-scale transformation journeys, often very quickly.
While there remains much uncertainty around future plans, the acceleration of digital transformation and digital optimisation will ensure businesses will enter the new year more nimble and agile. The seemingly mandatory adoption of technology in 2020 has brought about the necessary shifts for previously hesitant business leaders.
The challenge that remains, however, is expanding on the foundations that have been placed. The businesses who can build upon these initial investments - turning the DTO into a DTX - and continue to put technology at the heart of their business will be the ones to reap the benefits when the dust has settled.
Alistair Laycock is custom solutions director at Haulmont
'Doing digitalisation wrong and risk being left behind'
Research has shown that 55% of bank executives view non-traditional players as a threat to traditional banks. The fear is justified, as digital banks could have a cost base approximately 60-70% lower than theirs. If this looming threat from innovative and digital-minded industry disruptors has not been enough to trigger a digital rebirth of legacy financial institutions, surely the biggest disruptor of them all – the pandemic – would force change?
It seems that despite studies showing COVID-19's long-lasting effects on the global economy to be of the likes of a substantial one-year reduction in worldwide GDP of more than 6%, the necessity of cost-cutting in 2021 is still not a stake high enough to steer legacy financial service CFOs in the same digital direction that the world is heading to.
Modern living now operates online, both professionally and personally. Distributed working, retail, and socialising are all the ‘new normal’, and the financial services sector is no different; the pandemic has resulted in 71% of global consumers now using digital-banking channels weekly – with contactless and digital payments at the forefront of this shift.
Due to this demand, many banks are experiencing a 50% increase in the use of their digital services. Research has shown that accelerated consumer adoption of digital banking tools has led to the growth of new digital banking users by approximately 20% over the last year alone. The decision-makers at legacy banks now have a choice to make: understand and adapt to the modern consumer’s needs and lifestyle or watch them leave.
This is different from the threat legacy banks saw in the 1990s with the rise in internet banking or even the financial crisis of 2008. Consumers now have a plethora of options available to them with a click of a touchscreen button in the palm of their hands. In order to remain a noticeable competitor in the industry, legacy financial institutions will have to cut costs by 25-50% in the next 3-5 years, which simply won’t happen. A lot needs to change.
Transformation in various forms
This transformation can materialise in various forms, from introducing operational efficiencies and superior customer experience by leveraging AI, modernising legacy systems and processes to allow for cloud-native end-to-end experiences, to building digital onboarding, quick loan disbursements, and real-time payments. With studies finding that firms could digitise many activities 20-25 times faster than previously thought possible, it’s a convenience simply waiting to happen.
It would be wrong to imply that all legacy financial institutions have not thought about accelerating their digitisation. Research has shown that 45% of banking executives are keen on transforming their existing business models into digital ecosystems right now. So, if sentiment and plans to pivot are beginning to take shape, where are legacy banks going wrong and why are changes not being made?
It’s simple. They have their priorities all wrong. Data looking at the top banking priorities for post-pandemic FS shows the three lowest priorities mentioned are instrumental to achieving digital transformation success: innovation, operational excellence, and culture development. This lack of focus on technology, operations and culture will ultimately derail most digital banking transformation efforts, rendering these legacy banks obsolete.
Changes need to be made for these institutions to stand a chance of surviving against their disruptor counterparts. As Jack McCullogh, founder of the CFO Leadership Council, astutely said: “Few, if any, investments can give an organization a sustainable competitive advantage like an investment in technology”.
In every crisis there is an opportunity, and the pandemic is a perfect time for legacy banking to reassert themselves as a viable option for consumers and as noticeable competition in the industry. The world has been forced into digital, and these legacy firms are no exception. It is now or never.