Having written previously about the demystification of digital transformation, I was interested to see the financial services industry’s hit rate for success with projects so far.
Billions, if not trillions, of dollars have been poured into businesses over the last few decades in the name of transformation. And yet, even in 2023, it seems there is a lot of legacy still hanging around.
According to McKinsey, 70% of transformations fail. Shockingly, this intuitively feels about right. But what is going wrong? Many potential answers exist, but I wanted to focus on a few.
The wrong starting point
One obvious thing is that most successful companies are tech businesses that have not had to go through the transformation to digital that so many analogue bricks-and-mortar businesses have had to or are going through. These tech businesses seem able to adapt and change in a way that traditional companies find so problematic.
Steven Denning has undertaken some analysis, which revealed that the businesses with the highest growth are what he calls the “digital giants”. From the start, these businesses identified pain points and needs (known and unknown) and offered products and services that addressed these. They were able to keep pace with the rapidly changing and evolving world and provided transformative solutions. They have changed and adapted as the world has evolved. Sometimes they have led and sometimes followed, but they are “value creators” overall.
Meanwhile, traditional businesses remain locked into old ways of doing things. Transformation has been a way of extracting value rather than re-invention. Financial services companies are particularly guilty of this. For example, in banking, digital has been a way of reducing costs by moving the “business of banking” into the hands of the end customer – hence why we all do things ourselves that the bank used to do for us. This focus on cost reduction has meant that processes have been optimised for the digital age at the expense of true innovation.
The days of extracting value are almost over for the financial services industry. There are not many places left to reduce costs. So, they must become value creators, which means taking a leaf out of the digital giants’ book and finding ways of identifying and solving problems. For example, Banking-as-a-Service (BaaS) and embedded banking offer banks the opportunity to leverage their operations on behalf of third-party brands to create value. But, according to Paul Staples, who was, until recently, head of embedded banking for HSBC, success will not be determined by technology but by the proposition, approach, and processes that the banks wrap around it. Pain points and value must be identified up front, forming the basis of what gets delivered.
For these businesses, time can be a massive barrier. Many companies embark on transformation and, years later, forget why they started in the first place. I remember one of the first projects my previous agency HeathWallace undertook for HSBC: redesigning internet banking. It took more time from start to finish than it took for the new Wembley stadium to be designed, built, and have its inaugural match. This was a project rather than a programme, but was glacial in pace.
Corporate “transformation” amnesia often results from lacking that all-important plan and vision. Larry Fink, CEO of BlackRock, has suggested that all S&P 500 companies should “lay out a strategic framework for long-term value creation for shareholders each year”. The mere fact that he was suggesting infers that this is not automatically done.
China nicely illustrates the power of long-term planning. Since 1953, the Communist Party has published a plan for the subsequent five years providing guidelines and a vision for the economic and socio-development of the country. So, for example, the 14th plan covering 2021 to 2025 includes the following:
- Prioritising the quality of growth rather than the quantity of growth.
- Building China into a self-reliant technological and manufacturing powerhouse.
- Accelerating the drive towards a low-carbon economy to help achieve the 2030/2060 climate goals.
These headlines paint a picture and give enough for all to understand the direction of travel.
If a company has forgotten why or lost sight of why it started a transformation programme in the first place, it may be time to call a halt and re-plan and reset the vision and mission.
Forgetting it is all about people
According to two good friends of mine, Josephine Wong and Dan Szuc, the co-founders of the globally successful User Experience Hong Kong (UXHK), “It is never too late to recalibrate.” Their latest venture, Make Meaningful Work, is embarking on several interventions with companies struggling with digital transformation.
Jo and Dan say, “We have spent much of our careers understanding how to create the best user experience, and we now find those skills equally relevant to an employee context. Almost all the issues we encounter with digital transformation are human-centric.”
Jo and Dan have developed an innovative toolkit that focuses on “the person”, helping people understand themselves, their roles, and the most effective way to work as part of a team.
Digital transformation needs transforming. With a focus on value creation rather than value extraction, companies will become more innovative because that endpoint requires it. It will take time, so finding ways to battle corporate amnesia is critical. Be more China, have a well-articulated and understood plan, and ensure everyone involved in the programme knows what they are doing.
About the author
He is a passionate customer advocate and champion and a successful entrepreneur.