Most U.S. banks understand the importance of having a digital strategy and of delivering a portfolio of digital products, and they have taken steps to make digital part of their future. To date, however, the digital strategies and aspirations of most banks lie unfulfilled: According to A.T. Kearney research, more than 50 percent of digital projects over the past five years have failed completely or have fallen far short of expectations.
The symptoms of this digital failure are easy to see, and banks are well aware of them: failure to deliver quality products, low or no product adoption, no business case for specific products, etc. But to become digitally successful, banks must stop focusing on these symptoms. Instead, they must objectively evaluate their enterprises to identify the underlying causes of their digital failures -— most often due to organizational misalignment, a rigid approach to digital strategy formulation, or a lack of customer-centered digital design -- and to determine the actions needed to fix the issues.
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Generally speaking, the type of operating structure a bank needs depends fundamentally on whether the enterprise is a digital leader or a digital laggard. Leaders are those that have matured digitally; laggards are still in their infancy or adolescence.
A digitally immature bank typically needs a centralized, standalone digital group to roll out core capabilities, like strategy and execution, and to serve as the enterprise’s digital center of excellence (COE). But as banks mature along the path toward innovation, the work of day-to-day production innovation and pressure to keep up with the pace of change can become too difficult for one centralized team. This is because a gap now exists between the vision and strategic direction of the organization and product ownership, which drives execution. At this stage, the digital group’s configuration can range from a hub-and-spoke structure to a totally decentralized and embedded function in the product development, marketing and other operating groups.
When it’s no longer the only center of excellence, the digital group should serve as the enterprise’s innovation hub (an operational test-and-learn team) that can develop solutions rapidly, fail fast, and incorporate winners into the broader organization, leaving the task of digital enhancements to the product teams and SBU’s.
Unfortunately, banks’ operating structures often become misaligned as the enterprises evolve over time in their digital maturity but continue to maintain their digital centers of excellence with mandates that that have not evolved with the maturity curve. For example, one indicator that a bank should begin considering organizational and operating model changes is when digital initiatives historically delivered successfully by a digital COE start experiencing delays and push-backs due to lack of clarity of product ownership, resource commitment, and inter-departmental bottlenecks.
Rigid Digital Strategy
Banks, like most other businesses, develop corporate long-term strategic plans that cover, perhaps, five to ten years. Then they stick with these plans, unwilling to make changes -- typically due to upfront investments and support structures that have been established. While this approach may work for most operational functions, it typically does not work for digital. The pace of digital evolution is fast (and getting faster), so the digital strategy must be reevaluated frequently, to react to changing market dynamics and organizational capabilities.
Rather than having an unchangeable long-term digital plan in place, banks can consider a fluid digital process, one that supports the corporate strategy but does not commit the enterprise to specific products in the future. (Such products most likely would be obsolete long before they are introduced.) This process will likely call for the establishment of a digital R&D budget with distinct performance metrics aligned to innovation criteria rather than to business growth or profits. Here are examples of such metrics: The number of new markets, segments or categories addressed in past year
• The number of prototypes released
• Speed of execution: Ideation to beta deployment
• The number of re-useable features / workable ideas generated for use on other products
• The number of patents filed
• The size and quality of product enhancement pipeline
It could also call for a periodic (perhaps quarterly or biannually) gathering of the bank’s digital thought leaders from all the business units to talk through their digital journey, to review the results of that period’s innovation success and failures, and to revisit the strategy to confirm that the bank’s “digital evolution” is on track.
Lack of Customer-Centered Design and Development
To design winning products and services in the digital age, banks should adopt a needs-based, customer-centered approach. Start-ups and leaders in other industries that successfully introduce new products and services ask questions such as: What customer needs can we meet? How can we solve this customer pain point? Then they focus on these customer issues when deciding which products and services to introduce. Banks that are not so successful often begin with the wrong question: Who will buy this product or service that we designed because we wanted to do such and such.
Start-ups and other digital leaders also go further: They consider the overall customer experience so they can better anticipate future customer pain points and determine when customers might want or need certain products or services. This consideration helps them both improve the customer experience and maximize product and service successes by more accurately and more timely meeting these wants and needs.
Now that digital innovation is significantly lowering switching costs and enabling customers to easily migrate their banking relationships from bank to bank with only a couple of keyboard clicks, today’s savvy customers are becoming less forgiving. It will serve banks well to design products that are focused on solving real needs/demands and thus drive stickiness.
Fergus Gordon is a partner and Femi Odunuga is a principal in the financial services practice of A.T. Kearney, a global management consulting firm.