During bank earnings season, the media, shareholders, and analysts stay glued to the latest news of growth, disappointment, investments, and write-offs. The largest banks are lashed or applauded for every percentage point dip or uptick. After a relatively disappointing Q4 2014, shareholders are wondering if banks will demonstrate the kind of turnaround in Q1 2015 that people are looking for.
There are a whole host of questions surrounding banks. What can banks do to transform their organizations to improve earnings? How do they start this process? And the most important question – Why?
Undoubtedly, banks face an unenviable position, veritably wedged between a rock and a hard place: the rock being rising margin pressures, low interest rates and regulatory constraints and the hard place being Silicon Valley disruption threatening the traditional banking institution. Many banks have taken to brutal cost-cutting exercises to tangibly improve the bottom-line in relative short periods of time. But is this really the long-term path to success? Sure, there's immediate gratification in short-term tactical measures to reduce costs or boost efficiencies temporarily. But this is the operational equivalent of taking a roll of duct tape to a leaky pipe – it might work in the moment and stave off a flood, but are you willing to run the risk?
Banks need to play the long game and strategically investigate how process-driven innovation can drive operational and technology transformation, a digital journey that will likely take somewhere between 18+ months. The power of “why” unleashes immediate capital that can be invested in transformation initiatives, to create a structural shift toward better quality, lower risk, enhanced control, improved service and much lower cost.
Banks' operations tend to rely on a complex mash-up of legacy technologies and vendor applications. A 360°digital transformation (in and out) brings the structural change on how you operate and process through innovation and automation, unlocking the sought-after efficiencies (and improved earnings) banks need and desire. In a recent Financial Times article, Lord Blackwell, chairman of Lloyds Banking Group comments that the digital transformation will result in “more fundamental change occurring in the banking industry over the next decade than we have seen in the last 200 years”. Lloyds Banking Group plans to invest £1.6bn in digital services and increased automation over the next three years.
In order to start the digital journey the right way, organizations and their operations/IT teams need to stop and ask themselves, “why?” Operational projects tend to be pursued in a tactical, regimented way. If you stopped and asked an operational staffer, “Why are you doing what you're doing?” – they may not know the significance of what they do every day, but they do what they do because they have been told to do so. The power of “why” enables individuals to move from operating in isolation to truly grasping the relevancy of the end-to-end process and than assess what should be done. The level of transparency shifts an organization to being process centric from being activity centric.
I believe that the power of “why” can quickly unleash efficiency to improve a bank's earnings and provide the funding for more strategic transformation initiatives, which can significantly make processes better, faster and cheaper. Why are you (or your group / technology / project / initiative) doing what you're doing and what problem does it ultimately solve? And most importantly, how is it adding value to the end client.? Why is what you're doing important? These are tough but necessary questions to ask and an entire organization asking “why” can move a bank from duct tape fixes to a financially rewarding infrastructure of efficiency and innovation.
At RBC's most recent annual meeting, RBC CEO Dave McKay commented that innovation is necessary to thrive in an increasingly digital world and to become “the bank of the future.” Banks are quickly waking up to the reality that disruption is inevitable and innovation, necessary. In order to unleash earnings and efficiency in the pursuit of innovation, I encourage banks to start with the power of “why”.
About the Author
Sanjay Vatsa is EVP & Chief Strategy Officer for Polaris Consulting & Services Ltd. a leader in digital transformation solutions and services. He recently joined the organization, and was previously Global Head of Transformation, COE, Data & Operations Strategy at SFS in Citigroup. Sanjay can be reached at sanjay.vatsa@polarisFT.com