Demystifying digital transformation

Written by Dave Wallace
17th February 2023

I have worked in financial services for a very long time. I was there at the dawn of the rise of digital and have spent more time hearing the word ‘transformation’ than I care to remember.

Digital transformation encompasses trying to shed decades of heritage by changing legacy tech

And I know it sounds crazy, but I have never really sat down and fully thought about what ‘digital transformation’ actually means.

As Dharmesh Mistry mentioned in his column last week, we recently had the good fortune to chat with Joseph Edwin from Bain & Company about the subject. In case you didn’t read Dharmesh’s excellent article, Joe is a partner based out of London who predominantly focuses on large-scale core banking and systems modernisation programmes.

Before Bain, Joe worked client-side, including spending six and a half years at Nordea Bank leading its core banking modernisation programme. Before that, he worked for Commonwealth Bank of Australia, helping with, amongst other things, the transformation of its front office and digital banking across both retail and commercial banking. Joe has been there, done it, got the badge and probably the tattoo as well.

Digital transformation encompasses those immense programmes trying to shed decades of heritage by changing the technology, business processes and products built on that legacy technology. For banks, particularly heritage institutions, much of that legacy in their business processes goes back many decades and is hard-coded into how the bank does things.

Joe says: “Transforming a bank from within by ripping apart old technology and putting in a new modern digital stack is complex and tricky compounded by the definition of ‘change’ evolving. For example, cloud banking was not really a thing when we were doing core banking in my Australian bank. Fast forward 15 years, and everybody’s talking about cloud-based core banking.”

There are a lot of parallels among the big banks in terms of why it’s so complicated. Much of it has to do with the layering of technology that has happened over the last few decades. People have bolted on different solutions. For example, the same bank may have five ways of doing customer origination. This could be based on customer segments or maybe their presence in different markets or as a function of when various things were implemented, and they’re trying to make all these things work together. The result is different types of technologies cobbled together, which creates a lot of complexity. And unwinding that spaghetti is quite a challenge.

To help, Joe has devised a checklist for success:

1) Define why. Why are you doing this? What’s your vision and ambition? Ensure the top team and leadership is fully aligned around that. If that alignment doesn’t exist, prepare for many struggles along the way. This is a multi-year journey, and often the transformation will not be completed within the tenure of the management team that decided to embark upon it. So when new people come in, they will inevitably start questioning rationale, giving their ideas and challenging the premise behind the approach. A lot of time and energy will then be spent trying to convince them or perhaps adjusting the approach if they cannot be persuaded.

2) When thinking about the case for change, don’t just make it about technology. Ultimately, technology is being replaced. But technology change for its own sake doesn’t win any battles. It is critical to consider the customer and employee experience benefits and ensure these are articulated clearly to stakeholders and with repeated reminders. Don’t just do this at the start of the programme. Write them in a comprehensive presentation, take this out every few months and constantly remind stakeholders and employees why you are doing this.

3) Be very clear on the destination and the desired target state. This is not the same as the “end state” because there’s no such thing in technology. After all, everything changes every few years, so it needs adaptation. But have a target in mind for the next phase of the organisation’s lifetime. And use that and the ambitions and vision you have for the organisation to decide on the right architecture to help you achieve that. Decide that up front because that clears the path a lot for the next level of detail required for implementation. Lack of clarity will lead to terrible decisions. And then those decisions will be questioned repeatedly by people within the architecture community and senior stakeholders.

4) Get help from people who have done this before. Both internally and through partners. Many banks embark upon digital transformation initiatives thinking they know how to do it, but in reality, they have never done anything of this scale, which risks going down lots of rabbit holes and making expensive mistakes.

5) Redesign products and processes first. Don’t fall into the trap of trying to make a like-for-like copy of the existing business with the new core platform, which likely results in heavy customisation and very little in the way of improvements that customers and employees notice. The value of having a vendor supplying a new core will start disappearing very quickly.

6) Ensure IT, business and operations work together in cross-functional teams. It seems that most organisations are adopting Agile, yet so often IT will have its Agile teams and the business its own, working from separate backlogs with nothing aligning. And people are surprised when these programmes don’t get delivered.

Having a vision and understanding of the ‘why’ is crucial to act as the guide and reference point. Digital transformation can take a long time and should involve many parts of the organisation. Failure comes through a lack of experience and expertise and by taking a piecemeal approach and working in silos rather than in cross-functional teams.

About the author

Dave Wallace is a user experience and marketing professional who has spent the last 25 years helping financial services companies design, launch and evolve digital customer experiences.