Updated: Oct 7
It’s not a secret to anyone that Covid-19 has reshaped the way businesses operate worldwide. Like any other industry, the impact on financial services has been profound.
Covid-19 showed us that the digital transformation everyone has been discussing for years was, in many cases, still just a discussion. Progress was slow at best, and most businesses were still lost in their manual and inefficient processes. During the first months of the pandemic, a common meme on Social Media asked: “Who led your digital transformation?” Three options followed: A. CEO; B. CIO; or C. Covid-19. I don’t need to say which one was chosen… And all joking aside, in reality, it’s probably the harsh truth.
What has become paradoxical is that the pain felt in operations in the last months has become the silver lining of the crisis. Covid-19 has become the accelerator of digital transformation. The recovery, as we move onto the next normal, is digital, as highlighted in McKinsey’s recent report: The Next Normal. The recovery will be digital.
Not everything digital means Digital Transformation
There is a misconception of what digital transformation really means. Very often, we use Digitization, Digitalization and Digital Transformation as synonyms without understanding their differences. Fortunately, some good reports speak about this paradigm, like the one published recently by Dr Dobrica Savić: From Digitization, through Digitalization, to Digital Transformation.
As a quick explanation, we can say “Digitization” is the first step, which simply means that we turn something physical into an electronic format. Digitization began a long time ago, and that’s why everything we do today is digital.
Next up, “Digitalization” is the step where we start working with digital tools. Very often this is misused as a synonym of Digital Transformation, but as disappointing as it might be, this is still not yet a transformation in itself. Paying for your groceries at the store with a bank card instead of physical currency is still a manual payment, and has not significantly changed your behaviour or the efficiency of your transaction.
So, then what’s “Digital Transformation”? Let's look at a real-life example that I have personally experienced. How would a financial institution perform a client onboarding control? Well, there are three ways:
For every new client, you complete a checklist by printing out (or “de-digitizing”) your digital word document... You perform your manual checks and obtain physical signatures. When finished, you “re-digitize” the checklist by… scanning it of course! Working this way just keeps you in the digitization loop, which is even more work than just doing it physically.
You run your checklists in a spreadsheet and instead of printing it, you fill it in with an “X” in Column C for each control done. When finished, you save this spreadsheet and email it to everyone. They all send back their versions of the same document, creating a big confusion and most likely, errors. Now, this is a digitalized process, but still not digital transformation. You are performing a task digitally, but it is still not very efficient or effective, and you are not really transforming the business yet.
You have an automated process to run checklists. The system performs lots of automated controls by comparing data with rules, which is something a machine is much better at than a human. The process involves the right people at the right time and records when they have performed their controls. At this point, we can speak about a digitally transformed process. And it does not need to be as sophisticated and dramatic as many people often present it. You don’t need artificial intelligence or huge machine learning algorithms to get started with this. In essence, it is the same checklist, but we went from paper to digital and from digital to something that is digitally enabled and transformed.
How not to do Digital Transformation
One can only talk about Digital Transformation when you are truly transforming your business. This is where companies start saving money, create efficiencies and increase robustness because they start doing things more smartly.
But where to start? First, we need to get rid of the idea that digital transformation is something big, complicated and fancy. Avoid messages like “We need to embrace digital transformation”. It feels too complicated, too broad, and it is one of the main causes of failure in the implementation of digital transformation. When you have such a big and generic purpose, it isn’t easy to understand what you are getting into, what your specific needs are in the first place, and how implementation could address those needs. Without this understanding, any effort to transform your business will not be fit for purpose.
Like everything in life, especially in a transformation process, the way to start is by taking small steps, and by not trying to just transpose old manual processes into slightly better digital ones. Companies need to avoid the general message: “We always have done it like that”. Trust me, in 99% of those cases there is a better and smarter way of doing things.
A better way: Be pragmatic and inquisitive
Start with a simple question: “What is hurting you the most?”
Asking questions at this stage is crucial, and by digging in, you will find the real challenges the business is facing. Let’s see an example sequence of questions:
Question: What are you struggling with?
Answer: Remote working.
Question: What element of remote working is painful?
Answer: With remote working, it is difficult to do and monitor our controls.
Question: What kind of controls? All controls? Any specific controls?
Answer: Mostly, the controls related to client onboarding.
Question: What is the impact of that?
Answer: We don’t know what the status of the onboarding controls is, so we cannot monitor if the onboarding is going well. The clients are growing impatient because we cannot give answers or estimates on when we can go live.
With 4 simple questions, we uncovered that the real pain point is the client onboarding, and remote working was what was perceived as the cause. Now that we know this, we can address the client onboarding process specifically while keeping in mind that it must work within a team that is working remotely.
And this is where we start, one process at a time until companies have a fully transformed business.
Yes, it is possible to implement digital transformation quickly
It requires a different way of thinking and a clear definition of outcomes. We normally start with a workshop where we gain an understanding of the real challenges, the existing processes and what our client wants to achieve. Back to client onboarding, these are some relevant things to know:
How do you currently onboard a client?
What do you need to know about the client?
What do you need to control?
What information do you need to have?
What are the different counter-parties?
After mapping all of this, the second step is to brainstorm and build a logical flow, using a piece of paper or whiteboard, no technology involved. Once this is done, you iterate through the process a couple of times until you end up with a solid sketch of the process. With the right people in the room, it shouldn’t take more than two hours to design it.
Now we can turn that into a prototype to be tested. The process here is always the same, create the prototype, load some client data and test it with the business. This process will immediately point out things you forgot and how it will feel like to use in practice. Ending up with the right prototype for your business should take no more than a couple of weeks. And taking it into production is quickly done afterwards.
Don’t forget; your people are the main drivers of your digital transformation
Before Covid-19, and perhaps still today, most companies are stuck in Analysis-Paralysis. Now that is no longer a luxury, it is time to take action. To do this, it is critical to engage people as their natural tendency is to resist change until they are convinced.
You can end up with the best system in the world, but if your people don’t use, it is worthless. Include the business from the start to have the best possible chance for an efficient and quick transformation.
But most importantly, just get started.