Digital transformation initiatives fail for most Banks! This jarring truth is backed by McKinsey's research which mentions that 70% of these initiatives exceed their initial budgets by 7%, leading to financial losses. This impacts the overall business, resulting in operating expenses surpassing operating income.
This blog investigates the intricacies of planning for digital transformation.
Digital Strategy vs Business Strategy in Banking Digital Transformation
Regarding business strategy, it's crucial to have a well-defined plan with clear objectives, timelines, and budgets. However, it's equally important to understand that digital strategy is not the same as business strategy. One common mistake is not properly assessing the existing IT infrastructure, such as outdated legacy systems and potential integration issues with emerging technologies. This can lead to accumulating "tech debt," which is unavoidable. It's crucial to distinguish between business strategy and digital strategies, much like an archaeological expedition that uncovers ancient treasures. The treasures represent business objectives that are hidden beneath layers of digital complexities. While it may be tempting to capitalize on trendy business opportunities like implementing a BNPL (Buy Now Pay Later) scheme, this narrow approach could hinder future adaptability. Therefore, it's clear that when it comes to Digital Transformation initiatives, digital strategy is not simply an add-on to business strategy but rather its foundational bedrock.
To Empty or not Empty the cup?
It may seem cost-effective to opt for siloed automation to address specific business use cases, but it can cause long-term damage. Maintenance and usability issues down the road, coupled with the cost of training existing staff for user adoption, can outweigh the benefits. It's like pouring more into an already full cup. Integrating data with legacy systems can also pose potential challenges. On the other hand, taking an end-to-end approach requires a comprehensive understanding of your existing infrastructure, even if it means starting from scratch. This could signify a shift in a business use case and your entire business model.
The rapid pace of changing preferences underscores the need for a quick mapping process. However, haste should not overshadow prudence, as markets can be unpredictable, fluctuating from boom to stagnation. This predicament challenges financial institutions to have the courage to forego short-term gains in favour of embarking on a long-term journey. A journey that could yield roughly six years' worth of investment but may require a six-month sacrifice for short-term revenue.
Stakeholder Roleplay: A Doctor-Patient miscommunication
The communication gap between the IT and Finance teams is a significant obstacle in digital transformation. Finance experts may struggle with the technical aspects, whereas IT specialists excel at spotting potential technological issues. This situation can be compared to a doctor-patient encounter where the patient describes their symptoms, such as a cold, and the doctor may overlook the possibility of a more serious condition, like pneumonia, because of a misunderstanding or lack of information. Financial institutions must promote cooperation, set up thorough procedures, and give digital transformation careful consideration to close this gap.
Conclusion: The solution lies in the Problem
To implement digital transformation solutions effectively, it's crucial to understand what is feasible and what the limitations are. This involves considering the existing technology landscape while assessing the potential for increased efficiency in reaching existing markets or pursuing untapped opportunities. Creating a digital strategy should go beyond chasing trendy business use cases. Instead, it begins with a deep understanding of the current IT infrastructure, anticipating potential roadblocks, and making informed decisions that account for inevitable tech debt and possible timeline extensions. Achieving successful digital transformation requires the active involvement of all stakeholders and a willingness to embrace change. It's about prioritizing strategic, long-term approaches over fleeting trends.
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