This is the 3rd article in the blog series on Digital Transformation and Business Strategy for Financial Institutions, written by the Q-Lana Team. We have conducted our observations and analyses of prevalent trends, integrated with our experience, to shape the series’ structure and content. Our approach is grounded in common sense and a steadfast belief in evolutionary development. We kick off the series with insights into effectively navigating the realm of Digital Transformation. From there, we delve into compelling ideas for crafting a dynamic Business Strategy, tailored specifically for financial institutions. While our work so far focused on financial markets in lower and middle-income countries, it’s worth noting that the overarching concepts we present are universally applicable across all financial markets.
In this article, we look at the 6 Stages of Digital Transformation. This will help a financial institution understand, where in the path of transformation they find themselves.
Successful Digital Transformation is driven by a clear Purpose, Vision, and Motivated People. There is no one way to pursue digital transformation, but without human-centered input, direction, or best practices, companies set themselves up for failure. The first steps of transformation are often shaped by a single person or a small group and the initial success does depend on their activities. At a later stage collaboration among change agents from various departments is crucial. Long-term success depends on many factors, but the focus on leadership at all levels is a key ingredient.
Most of the Financial Institutions we know have engaged to some degree in digital transformation with different results. In the following, we like to introduce a scale that defines the 6 stages of Digital Transformation. We assess each stage against six different criteria. This can help a Financial Institution to self-assess the status quo and to understand the steps that are necessary to graduate to higher stages. Our framework is based on Altimeter, a San Francisco research and consulting firm.
The six stages we refer to are called.
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- Business as Usual: these are financial institutions that operate with a familiar legacy perspective on customers, process metrics, and business models. Their existing technology seems sufficient to fulfill expectations.
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- Present and active: here the financial institution engages in some experimentation about developing digital literacy and creativity in some of the business areas.
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- Formalized: institutions at this level have seen success with experimenting and are becoming more intentional on their path of Digital Transformation. Experiments and initiatives become projects for which executive support and resources are required.
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- Strategic: once intentional projects show success and individual project groups start collaborating on their research and development with the result being the formulation of a strategic road map for digital transformation.
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- Converged organization: here, a dedicated digital transformation team is formed to guide strategy and operations, based on business and customer-centric goals. In such an institution, new organizational structures take shape to optimize the combination of expertise, processes, and systems. This is where you see a much stronger collaboration between Data, IT, and Business Experts
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- Innovative and adaptive: at this stage of development, permanent digital transformation becomes the way business is conducted as executives recognize the change will stay a constant factor of influence.
Let’s start with the first Stage, In the “Business as Usual” phase, financial institutions are highly cautious about risks, and their organizational culture hinders creativity, experimentation, and internal entrepreneurship. Compliance and regulations further stifle innovative thinking. There is a lack of urgency for change, and leadership discourages or dismisses the need for it. Changes that do occur are mainly technology-driven for efficiency, rather than driven by understanding customer needs. The culture not only avoids risks but also undervalues or ignores innovation, with decisions based on traditional business norms. Digital transformation isn’t a central focus, as companies prioritize current stakeholders and shareholders, which prevents meaningful change and competitiveness in reaching new digitally connected customers.
In the second stage, called “Present and Active”. Financial Institutions in this category are evolving thanks to change agents who identify fresh opportunities and drive experimental initiatives within their areas. Emerging trends like digital, mobile, and social media motivate early adopters to explore new avenues. These efforts can be independent, lacking cross-organizational insights, and best practices. Often, they bypass formal approval, embracing an “act first and apologize later” approach to accelerate trials. These experiments push limits and generate momentum for formal digital transformation initiatives.
The next stage is referred to as “Formalized”: For Financial Institutions in this stage, The sense of urgency to modernize the customer experience accelerates. Early adopters and change agents unite to advocate for teamwork and experimentation (breaking down silos). Digital transformation efforts are focused on key areas for exploration and experimentation. Change agents guide each sector and foster cross-functional partnerships. Insights lead to the early development of digital transformation roadmaps to prioritize and optimize areas of opportunity and deficiency. Strategic investments in people, processes, and technology solve for current work and set the stage for a more unified digital transformation effort.
In a Financial Institution that classifies as “Strategic” Change agents within the financial institution have effectively generated urgency, secured executive backing, and gained the C-suite’s attention. Digital transformation initiatives are now a top corporate concern. The strategy is concentrated and improved through clear immediate and long-term objectives that drive alterations and yield crucial results. This endeavor receives substantial support via targeted investments in infrastructure and operations. Additional expertise is enlisted to oversee and carry out the strategy. Technology serves specific purposes and is integrated to support objectives, rather than molding processes around its capabilities.
In an institution that categorizes as “Converged”, the path toward digital transformation is now underway. New operating models and teams are created to unify disparate, repetitive, or competitive roles and processes while streamlining operations to deliver integrated, consistent, and holistic customer experiences. Technology is purposeful both in customer-facing and back-office integration. Customer experience becomes seamless by design and enriched based on how customers expect to navigate their journey. Digital transformation expands beyond DCX and is now enterprise-wide affecting all facets of business at scale.
As financial institutions reach the “Innovative and Adaptive” stage, fostering a culture of innovation becomes a primary objective. Digital ceases to be a distinct state and transforms into an integral part of how businesses compete, evolving alongside technology and markets. Innovation becomes ingrained in the company’s identity, involving formal teams and strategies to monitor customer and technology trends. These efforts contribute to various initiatives, spanning from experimental test-and-learn projects to incorporating fresh roles and expertise, as well as collaborations and investments in startups. These initiatives gradually extend throughout the organization, enhancing core processes continuously. Investments in people, processes, and technology are aligned with business, employee, and customer experiences, ensuring a democratized and empowered approach to continuous change.
Now with this, we conclude the introduction to Digital Transformation.
We have shown the path towards full integration of a Digital Customer Experience. This is important but it still is only the consequence of a Business Strategy. That part we have not yet covered but we will attack it in the next session.
Below, you can also find the video version of this article
