Five guidelines: Digital transformation at banks

Pragmatic themes separate the hype from the here and now

Graph on mobile device The daily news and noise about digital transformation can leave banks feeling a little lost as they try to design their next strategy.

Business and consumer banks hear customers of all demographics request advanced mobile services and innovative fintech features. At the same time, disruptions from market volatility, low interest rates, new regulations, and emerging competitors are eroding traditional bank profits.

As banks plan for the future, their focus is now divided between the buzz of new banking technology and the forces of disruption. Grant Thornton Strategy and Transformation Principal Chris Smith said, “I think what we see is that those talking points can sometimes derail banks from making decisions and actually getting to execution.”

To stay focused and find the best next steps, bank executives may want to slow down and consider some guidelines to digital transformation. “There are some themes we’re seeing, from some of the most forward-leaning companies, that actually separate the hype from how you can really drive a successful digital transformation,” Smith said.

Five pragmatic guidelines “A lot has been learned over the last 24 to 36 months that can be applied to all the banks on their journey right now, or just beginning their journey,” Smith said. The guidelines below summarize some of the key lessons learned about how to lead a bank’s successful digital transformation.

Guideline 1: Determine strategic focus and alignment It’s important to begin by understanding that digital transformation is not a point-in-time activity, and it’s not an upgrade project. It’s an ongoing process and a new way of doing business. That’s why it’s more than a transformation of technology – it’s also a transformation of processes, roles, and culture. Executives should begin with that understanding, and help share it across the organization.

That said, transformation often starts small – with an individual effort that leads to greater changes. Each effort should begin with a focus on customers, employees, or operations – not the technology that enables the transformation. The focus will help determine how processes, roles, and culture need to be aligned.

To guide realignment, the transformation needs a champion. “We often say that we all own digital transformation, which is true because we’re all a part of it. However, there always needs to be a champion group. And historically it shouldn’t be IT,” Smith said. Often, banks put IT in charge of driving digital transformation, but that could hinder the effort by making it an “IT project” and creating resistance to the very process, role, and culture changes that need to be driving the change. Instead, transformation needs a champion that can help show how the realignment will help unlock growth, scale and achieve business objectives.

Once the champion is identified, transparent communication about the transformation’s goals and its coming changes is critical. The full organization must understand the context and value for their teams (the “what’s in it for me?”). Everyone from the branch teller to the C-suite will be trying to understand the transformation and make sense of it amidst other bank priorities. So, communicating the right perspective and alignment requires both agility and resiliency. Success is much more likely when individuals understand what’s happening, why, and whom will be affected, in advance.

Guideline 2: Operate to innovate It’s easier to motivate employees and drive compliance when you can show early returns, and that’s where an “operate to innovate” mindset can provide incentive. With “operate to innovate,” the bank uses cost optimization and performance improvement throughout the organization to make transformation nearly or entirely self-funded. In this way, digital transformation becomes something that helps the organization both operate and innovate.

This approach starts with the right business case. Every initiative has a business case, but this one needs to be more than an overall ROI analysis. It needs to include the incremental ROI with the self-funded milestones to achieve incremental wins. One potential benefit to factor in is improved talent retention. It’s expensive to lose talented employees, and digital transformation can keep them involved in innovative work that boosts retention.

To operate to innovate, a bank also needs a self-sustaining governance model across the executive team, where executives support each other’s role in the program’s mission. The chief financial officer (CFO) will be thinking about cost, the chief risk officer (CRO) will be thinking about risk, and so on, but all executives should be aligned with the transformation goal. The collective ability to agree and row in the same direction requires a clarity of ownership, authority, and accountability.

Lastly, the bank may need a new approach to organizational governance. “We’re seeing a huge shift of the traditional project management office (PMO) becoming much more about strategy realization. There are entire teams able to dive in and work with the business groups and product groups to actually realize the future of their world instead of just replicating the existing world,” Smith said. Whether this is a new role for the PMO or a new Office of Strategy Realization or Office of Strategic Execution, it shifts the focus from milestones, budget, risk, and dependencies to add design thinking, performance improvement, and cutting-edge change and transformation techniques.

Guideline 3. Reintroduce yourself to tomorrow’s customers If a bank undergoes transformation to reach the same customers it’s already serving, then it misses out on many of the benefits. As banks consider the possibilities that digital transformation will foster in the future, it’s advisable for them to take a fresh look at potential profitable market segments that might not be part of their target today – or unprofitable segments that do not need to be part of the equation. For many years, software and tech companies have considered “customer lifetime value” to help inform their targeting decisions, and that can help retail banking put the customer journey at the center of their plans. Often, retail banking thinks of the customer in support of the product. But, when banks put the customer at the center of the story and storyboard the customer’s journey, they begin to understand the customer’s needs, decision points, and decision factors. That understanding is critical for banks to create competitive new products and services and succeed at digital transformation.

Banks should be thinking about how they embed themselves in the lives of their customers, and in the business interests of commercial clients. A bank’s products and services need to be seamless but sticky – easy for customers to use and transition between services, but also comprehensive and embedded so that the thought of switching to another bank becomes undesirable.

Guideline 4: Develop a prioritization and sequencing roadmap Digital transformation in banking affects many layers of the business, so it’s very important to prioritize and sequence transformation efforts correctly. Grant Thornton National Banking Sector Principal Graham Tasman said, “In a lot of our client interactions, people focus on ‘what’ needs to happen, but it’s just as important to consider ‘how’ you are going to make it happen.” Your digital transformation roadmap can determine whether your transformation succeeds, and your first step is to create a map that’s agile and iterative.

“The days of the traditional waterfall plan with the big bang outcome are not going to work in these types of complex transformation programs,” Tasman said. Agile plans with iterative sprints give you a chance to update your plan as you continue to learn more about business requirements, interdependencies, impacts, and componentize costs. You should be constantly refreshing the plan based on your environment and new places where you can gain efficiencies.

Metrics will define success for your effort, but it might be hard to identify the right targets at the beginning. “Setting dates based on calendar cycles may seem arbitrary, but it forces action in a defined timeframe,” Tasman said. Within that timeframe, you can manage change based on what is determined and achievable as you are testing the outcomes and successes at each stage.

In an “operate to innovate” culture, it’s especially important to keep testing your results to ensure that you are helping the business and incorporating any new efficiencies.

Guideline 5: Maintain momentum and sustainability As stated, digital transformation is not a project; it’s a way of business. So, what happens in the long term? How do you build sustainability into digital transformation? “It’s not like you’re going to hit a button to go live, and then everything goes back to normal. You’re changing not just technology and process, you’re changing the operating model of the business,” Tasman said.

The most important consideration for sustainability is to ensure that your operating model includes long-term support for transformation. “All too often, we see transformations where there’s such a focus on a capability getting launched that, once it’s launched, it gets inherited by an organizational structure that was frankly never designed or sized to support that new structure,” Tasman said. With such a significant change to the business, it’s important to plan for ongoing support from the beginning.

The focus on launching the new initiative can also distract you from your competitors and changes in your market. It’s important to keep considering external events, regulatory changes, mergers and acquisitions, and other factors that can arise from market disruptions and affect the ultimate target you defined.

That awareness of new disruptions, and the willingness to change and improve, are important to keep sharing with others in the organization. It’s an awareness that should be driven by the new role for the PMO, or the new Office of Strategy Realization discussed earlier, but it also needs to be part of your bank’s culture.

Your advantage over disruption Today’s emerging technologies and disruptive factors are a lot to consider, and you might wonder if you’re already behind schedule. Many mid-size banks are nervous when they see that larger competitors have already developed new products and services that are reaching across regional and other traditional boundaries of competition.

But, by applying the five guidelines above and other lessons learned from the first adopters, mid-size banks can help ensure that their digital transformation makes progress without risking the same profit impact experienced by the early adopters. Think of it as a “second mover advantage,” and make it work for you.


Graham TasmanGraham Tasman
Principal, Advisory
T +1 215 376 6080

Chris SmithChris Smith
Principal, Advisory
T +1 425 214 9820