18 March 2022
Capgemini released a report called ‘Where are banks and insurers on their digital mastery journey?’ which investigated the opinions of executives in over 200 companies. Among its many conclusions was a fascinating statistic showing that many institutions struggle to adopt a culture of technological innovation and change:
“Only 31% of banking and 24% of insurance organisations say their organisations are free of bureaucracy when it comes to employees submitting ideas.”
The pandemic has undoubtedly changed the opinions of decision makers about the importance of technology and the role it plays in success. Most financial institutions are aware of the imperative for action and have embarked on transformation projects. However, most are only at the beginning of their journey and are facing challenges regarding business and product silos, complexity, and a lack of understanding about how technology needs to be part of a future-proofed ecosystem for longer term ROI and rewards.
Digital transformation is the forward-thinking way to solve business-related issues. Digital technologies allow the streamlining of processes and strategies to create positive change. For instance, re-examining operating models, reimagining data processes, and reassessing engagement with third party tech providers. Security strategies, data privacy controls, the use of reg tech and updating compliance can all enable financial institutions to tackle market challenges.
To maximise the benefits of digital transformation, companies need to be open-minded about engaging in a ‘test and learn’ culture. McKinsey’s 2019 article ‘The CEO’s new technology agenda’ examined how the people at the top can focus the technology function on a company’s strategic priorities.
“We’ve seen numerous companies boost their financial performance after their CEOs made it a priority to strengthen the technology function and bring more technology capabilities closer to the business’s strategy and operations… top economic performers are more likely than other companies to develop new digital businesses in addition to digitising their core business.”
When an organisation has prioritised digital transformation at the top, strategic initiatives working across different departments can lead to competitive advantages, boost financial performance and enhance risk management.
But what do these rewards look like?
We know that many institutions involved in capital market transactions constantly have operational risks lurking ominously out of sight. These risks arise from, for example, insufficient controls over the alignment of their legal agreements and the data held within their collateral management systems. Reconciling and analysing the two is extremely time-consuming, which is why many never uncover the truth until the risk has turned into a crisis.
Firms should ensure that when they are building their business case for digital transformation they ensure that any “transformation project” is future-proofed. This means it is considered as part of a broader ecosystem which can deliver benefits in addition to the immediate cost savings or optimisations.
There isn’t a standard approach for building a culture of transformation but we’ve noticed that there are specific characteristics which set successful organisations apart. The buy-in from senior executives is obviously critical, but successful operators often empower tech teams by creating a safe environment in which to fail. This can often be a delicate balancing act. Employees want to feel they can experiment and look at new ways of working without fear of criticism if something goes wrong. However, senior managers need to see evidence of success before they can be confident and relax.
This is achieved in some organisations by having innovation teams or centres of excellence, whose role is to generate new thinking, new opportunities and change. In addition, these teams are also tasked with identifying and challenging cultural barriers to progress.
Another consideration is the risk of doing nothing. As more financial institutions see technology as a central source of increased efficiency and competitive advantage, those that do not invest increase the chances that they will be unable to compete with their rivals over the medium to long term.
As inflationary pressures mount and operational costs increase, the effective use of technology will provide a major competitive advantage. Organisations have emerged from the pandemic more interested than before in the possibilities of technology and digital transformation. Firms which are able to create a dynamic internal culture with the ability to speed up transformation will be better positioned than those with a static way of working.
