How Financial Services can transform to ride the digitalisation wave

24 June 2016 3 min. read

Banks and insurance companies that are able to transform themselves will be well placed to benefit from digitalisation. However, most companies remain unprepared, write Alejandro Gonzalez and Pedro Fernández, Partner and Principal at management consultancy Arthur D. Little.

According to a 2015 pan-European survey by Arthur D. Little (see the article ‘80% of firms face lagging digital transformation maturity’), financial institutions are less adapted to digitalisation than the cross-industry average. Although most companies have undergone considerable investments in order to update their IT capabilities and architecture, other key functional aspects are lagging behind, organisation being one of the most critical ones.

Implementing digitalisation
Digitalisation affects many different aspects of the organisation: processes are to be changed, product definitions to be rethought, operative and commercial channels to be affected. Responsibility over those functions is often spread through the organisation.

Digital Transformation maturity

Therefore, any digital transformation plan must coordinate different areas and teams, each one working with its own point of view and agenda. When implementing the plan, two main options arise: Chief Digital Officer and decentralised digital options. Generally speaking, a CDO and a digital department are better for steering a common strategy. Decision-making is easier, there is more agility and initiatives are better coordinated. Also, responsibilities are clearer, KPIs are easier to follow and objectives are simpler to set.

On the other hand, distributing functions also has several advantages: the implementation is done closer to the line of business, and the business priorities are therefore easier to harmonise with the digital strategy. Secondly, the particularities of different BUs are better taken into account

In any case, if the company is to go with the CDO, everybody involved should be aware that it is to be, by definition, an interim solution, available only as long as the company is transforming. The aim of the digital department should be to transform the aspects that ought to be changed and then quickly transfer those functions to the line of business.

Digital Transformation challenges

Traditionally, financial institutions have understood the digital market as an independent one, and thus have undertaken digitalisation through the development of offshoot digital companies. Our opinion on this strategy is that it was good enough in the past, but is not advisable anymore. The virtue of this tactic used to lie in the fact that you could test digital technology and the digital market without having to radically transform the parent company or cannibalise your own clients. This is not the issue any longer (digital technology is well tested and the digital market is not a niche anymore, but the mainstream of clients), and it has considerable drawbacks, such as duplicate investments and lack of digital adaptation within the parent company.

What is the role of IT? Leader or follower?
It is a common mistake to associate digitalisation with IT. IT is undoubtedly a critical enabler of digitalisation, but there is much more to it than having the technology. The business point of view is critical when defining digital channels, customer interactions, products and even internal processes. All along the way of digital transformation, IT must play a very active role because most of these aspects to be defined will impact the technological architecture or technical components that must be assessed. IT must then act as a facilitator and guide the company towards innovative technical solutions that help achieve defined goals.