What is digital transformation and how is it affecting the global business landscape? According to an IDC prediction, 40% of technology spending in 2019 will be reportedly focused on digital transformation, with enterprises spending in excess of $2 trillion. With this in mind, it is crucial for global businesses to learn how to leverage new opportunities and join the digital movement in order to remain competitive. Here, we’ve prepared an overview article for you to understand the ‘ins and outs’ of digital transformation alongside the impact it has on financial services.
1. What does digital transformation mean?
Source: The Organic Agency
The thing about digital transformation is that it can come across as a rather ambiguous concept. This is especially true when you consider that what constitutes a digital transformation can differ for each company. For example, digital transformation for a financial institution vs. a telecommunications company would require very different strategies. Similarly, a digital transformation for a large multinational company would be very different from the one implemented by a small to medium enterprise.
In the most technical sense, ‘digital transformation’ refers to the integration of digital architecture into all areas of a business resulting in fundamental changes to how the business operates and how it delivers value to customers. Beyond that, however, a digital transformation suggests that there will be a cultural change to how things are done within the company. Employees are expected to adapt to new technology and be innovative in order to do things faster and in a more agile manner. This usually requires walking away from a certain set of procedures that the employees are used to, which may result in technophobia and change-management resistance. Undoubtedly, it is one of the obstacles that the management needs to consider before engaging in digital transformation.
2. Digital transformation – an example
Source: DBS Bank
DBS is a Singaporean multinational banking and financial services corporation. In 2019, it became the first-ever bank to be awarded with the title ‘Best Bank in the World’ by three major publications. A decade ago, however, DBS was actually ranked at the bottom of the list for customer satisfaction. In fact, it was colloquially known as “Damn Bloody Slow”, with lines of customers queueing in front of its cash machines.
At the start of their pivot, DBS allocated a significant amount of their resources into strengthening their digital foundations. For example, the bank went from outsourcing 85% to insourcing 85% of their technology capacities, which subsequently allowed them to launch the world’s largest banking API platform. By making available a wide-array of APIs for other banks, corporates, FinTechs and software developers to plug into, DBS effectively boosted its ability to create innovative and customer-centric experiences.
Another successful product of DBS’ digital transformation, is its launch DigiBank, a mobile-only bank in India. From a business architecture standpoint, the way in which DigiBank operates on Cloud is an impressive feat. In fact, some of DBS’ internal operations also run on Cloud. DBS is known to utilise a combination of Amazon Web Services’ (AWS), Microsoft’s Office 365 productivity suite and Akamai’s cloud-based web application accelerator. Leveraging Cloud-based technologies has allowed them to be more cost-effective whilst simultaneously increasing their scalability.
A significant reason it is considered effective in its digital transformation is due to how DBS’s implementation of modern technology yielded highly quantifiable results:
- Much faster time to market, with an accelerated launch of new products and businesses
- Increasing profits, year on year
- A market capitalisation of €45 billion
3. What are the four pillars of digital transformation?
With any project – digital transformation or otherwise – strategy represents the backbone of its implementation. This will include aspects that touch on budget, stakeholders involved, target audience and such. Discussions should also be held on the objectives, desired outcomes and long term growth options of said project.
According to a McKinsey report on ‘The people power of transformations’, 70% of digital transformation projects fail due to a lack of employee engagement. Furthermore, participation by senior management is imperative. McKinsey states that a transformation is 6.3 times more likely to succeed when senior leaders communicate aligned messages about the change process within the organisation with the employees.
In the era of digital transformation, having the user experience at heart is imperative. Companies that are able to digitally transform successfully, are able to—in turn—create highly engaged customers. In fact, some companies have hired UX consultants to ensure a smoother digital transformation that is best aligned with final objectives.
When it comes to digital transformation, strategy and methodology have to go hand-in-hand for effective implementation. Some methodologies that are commonly used by organisations include: design thinking, Minimum Viable Product and agile working.
4. What are the key drivers of digital transformation?
Modern customers now have higher expectations than ever before. They expect a constantly improved service, instant responses, seamless experiences, and personalised products. A Salesforce report states that 70% of customers are likely to prioritise connected processes while 84% of consumers say that being treated like a person, and not a number is important to winning their business.
Technological advancements have made it easier for businesses to scale and expand. For example, Zhong An—a 100% digital-only insurer—was only founded 6 years ago, and already it has sold over 10 billion policies to 500 million customers. In order for traditional insurance incumbents to stay competitive, innovation is necessary.
5. Why should banks go digital?
Source: The Financial Brand
The expansive benefits for banks that opt to go digital include:
- More efficiently streamlined processes
- Improved customer experience and engagement
- Reduced costs in the banking workforce, higher revenue
- Improved workflow
- Increased competitiveness
A survey of marketing personnel reports that 80% of senior leaders who have implemented digital transformation technologies such as cloud say they are able to deliver new value for smart, connected products throughout their lifecycle. Furthermore, 60% said they have created new business models as a result.
6. The shortcut for digital transformation
Earlier in the article, we’ve briefly touched on the different processes organisations are able to utilise during the digital transformation. Here, we will be focusing on the Minimum Viable Product (MVP) methodology. While the MVP method is most commonly used during product design, McKinsey states that it doesn’t have to be limited to this only. It is occasionally even termed as ‘The shortcut for digital transformation’.
The Minimum Viable Product framework:
- Figure out what problem you’re solving, and for whom
- Analyse your competitors
- Define the user flow
- List all your necessary features and prioritise them
- Build, test, learn
Pacha Bank’s collaboration with IBM iX is a good example of how a bank has leveraged the MVP method. In 6 months, IBM’s in-house digital lab at Pacha was able to launch its first MVP for a Digital Corporate Banking product, providing business clients with vital daily banking capabilities delivered through a new user interface and user experience.
As a whole, increased digitalisation has brought about various disruptions to the financial industry, with changes in consumer behaviour being the most prominent. Underlying this need for digital transformation is the collective shift of businesses prioritising the customer experience, whilst viewing it as a competitive advantage. For example, Zhong An, a digital-only insurer leverages a Natural Language Processing (NLP) powered chatbot for 97% of their customer interactions, allowing for a faster and 24/7 response rate. Not only is it more cost-efficient, as compared to setting up physical call centres, but their consumers are also more satisfied with how quickly they are attended to.
Research has shown that a staggering 76% of consumers report that it is easier than ever to take their business elsewhere if they do not feel that a specific brand is meeting their expectations. With the development of new technologies increasing competition and reducing barriers to entry, companies are now having to struggle increasingly to maintain brand loyalty. Organisations that were previously product-focused are now having to pivot towards being customer-focused instead.
In a nutshell, this is precisely what makes the digital transformation so important. In a customer-focused marketplace, it forces banks to rethink how they engage with customers at every touchpoint.
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