Recommendations for Effective Digital Transformation in the Banking Sector

Going digital doesn’t have to mean millions of dollars n new investment  or a major IT upheaval. Large investment will be necessary in some areas, but in general, many of the elements Banks need to transform digitally may already be in place. Banks must find ways to leverage their digital assets better and invest in targeted ways.

Advice from McKinsey's Tunde Olanrewaju.

Maximize the use of existing technology

Many banks have widely deployed imaging and work-flow systems, online servicing, capacity-management software, interactive-voice-response systems, and other connectivity and work-management technologies. Often they’re not used widely or well enough once they are deployed.

  • Customer-service representatives continued to send documentation by fax, and the poor image quality led to significant inefficiency in downstream processing.
  • Addressing this problem requires systematic evaluation of existing capabilities, their usage rates, and barriers to adoption.

Apply lightweight technology interventions

Banks can generate significant performance gains with surprisingly small targeted investments.

  • For example wider deployment of tools like e-forms and work-flow systems, which can be implemented relatively rapidly, sometimes without deep integration into complex legacy architectures.
  • The relationship managers and underwriters at one bank got together with IT to design a stripped-down and user-friendly online loan application. The form automatically adapts to input data and guides underwriters on which risk processes to follow.

Place a few selective big bets

There will be places where Banks need to pursue more sweeping transformation investments. However, instead of trying to automate every aspect of a process or product, Banks could invest in a few that drive the most capacity consumption and give the greatest return. There is no need  to build a new digital empire just for the sake of it.

  • One Bank that went through a systematic mapping of its processes for automation potential found fewer than ten processes that represented the bulk of full-time-employee capacity.
  • In these targeted areas, the Bank embarked on more radical investments, retiring old platforms, deploying new digital solutions, and reinventing the way the process works.

Address people issues not just technology

No amount of technology will help if Banks don’t address the people issues underlying digital transformation. Success requires more than rethinking technology; it requires rethinking the organizational model-- especially skills, structure, incentives, and performance management.

1. Set the right structure and incentives

Banks must make a concerted efforts to realign incentives to ensure collaboration in the new digital reality.

  • For instance, creating a Centre of Exellence but not giving the business digital targets often leads to a lot of technology being successfully built, but with limited adoption.
  • In extreme cases, the wrong functionality is built—it’s exciting to demonstrate to senior leaders and wins awards externally but ultimately creates no bottom-line impact.

2. Increase the focus on business outcomes, not digital activity

Banks often manage the progress of their digital transformations by tracking activity metrics, such as the number of app downloads, page views, and log-in rates.

  • Banks must set clear aspirations for value outcomes, looking at productivity, servicing-unit costs, and lead-conversion rates, and link these explicitly to digital investments.
  • With the collective focus on shaping the right actions, true value will be realized.

3. Formulate and implement a people vision.

Banks need a vision for the role of employees in the new digital reality. This takes two forms:

  1. Expectations of how they spend their time and how they work alongside the new technologies
  2. Clarity on what technology competencies employees need to develop.

Digital transformation will diminish the importance of some roles, which is why many employees view digital transformations as a threat and are resistant to change. Another perspective is to shift the focus toward higher-value tasks, creating exciting new opportunities for employee development.

  • For example, relationship managers will spend less time capturing customer details and more time giving valuable advice.
  • Business leaders need to undersand how technology can be leveraged to address commercial challenges.

4. New talent isnt the answer

Banks cannot rely on bringing in new talent from digitally savvy industries to transform. New talent provides an important stimulus, but digital needs to become a new management competence across the entire Bank for true change to begin.

Advice from McKinsey's Tunde Olanrewaju.