Infosys Digital Radar 2019: Barriers
and Accelerators for Digital Transformation in the Financial
Services Industry
By Jeff
Kavanaugh, Ashok
Hegde, Rajesh
Menon, Jeff Mosier
June 2019
| Report | 31 min
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The digital transformation journey
Financial services companies have confronted challenges
from all sides in the past two decades. Stricter regulatory
requirements, changing customer demands, nontraditional
competition and other factors are all forcing organizations to
innovate.
While the industry overall has continuously invested in
technology, only a small fraction has reached the level needed to
compete against digitally-native companies or legacy
organizations that have transformed for the new era.
Financial services companies must accelerate their pace
of digital adoption and learn how to deliver real-time services
and enhanced customer experience. Failure means losing customers
and market leadership.
In early 2018, Infosys surveyed more than 1,000 senior
management level executives working in large organizations around
the world that had more than 5,000 employees and over $1 billion
in annual revenue. That research included responses from more
than 100 financial services industry executives.
Based on that survey, we produced a report — The New
Champions of Digital Disruption: Incumbent Organizations —
showing that incumbent organizations (as opposed to digital
natives) fall into three clusters determined by their progress
along the digital transformation journey:
Knowing that many organizations are rapidly intensifying
their digital transformation efforts, Infosys conducted a new
survey in November 2018 to gauge the pace of that change. This
new survey of financial services firms shows a slightly smaller
percentage of watchers and explorers and more visionaries, a sign
of greater progress than in other industries. Overall, company
executives told us that their organizations can advance from the
watcher to the explorer level without herculean effort, but
reaching the visionary level is significantly more difficult.
Financial services firms must prepare for the stress of
devouring their own businesses, not to win in the marketplace but
to simply survive. As Silicon Valley continues to attack their
profit pools, banks must be prepared to disrupt their overall
structures, operations and leadership.
Fewer watchers, more visionaries
The need to be visionaries
Almost every incumbent financial services firm is being
pushed by disruptors or peers to transform digitally. Stephen
Lynch, CIO for consumer banking at a leading U.S. financial
institution, believes that the pace and magnitude of the current
technology-driven changes are unprecedented.
“Organizations have never had to transform in this
manner before,” he said. “It’s very exciting — almost on par
with the launch of the internet. It’s changing the economy so
fast that we’re going to need all the global thought power we
can get.”
Banks and financial services firms will survive only if
they become digital transformation visionaries. Many will likely
fall by the wayside. To stay relevant and avoid being blindsided
by competitors, companies must find ways to transform their
products, processes and business models using digitally-enabled
approaches and technologies.
Navigating the transformation journey
Our most recent study takes a closer look at the
transformation journey. We identified 22 key digital initiatives
and then asked respondents where their companies stood on
implementing each initiative:
- Not started (or in planning).
- Completed multiple proofs of concept.
- Completed pilot projects.
- Operating at scale.
We then developed the Digital Maturity Index and assigned
each company an index score from 0 to 100 according to its
progress on pursuing and implementing the 22 key initiatives.
Companies on the digital journey
Comparing clusters on their digital transformation
journeys
As financial services companies advance through the digital
transformation journey from watchers to explorers to visionaries,
they operate more and more key digital initiatives at scale. The
types of projects change throughout the journey and can be
grouped into four categories:
- Foundation initiatives must be implemented to modernize
legacy systems.
- Mainstay initiatives represent the core elements of
digital transformation, including automation and artificial
intelligence (AI).
- Customer initiatives primarily impact the customer
experience. They include omnichannel marketing and content
personalization.
- Forefront initiatives harness cutting-edge technologies,
such as augmented reality (AR), drones and blockchain.
Visionaries stand out – cluster progress across
22 digital initiatives
As shown in the previous figure, financial services
visionaries are significantly more advanced than explorers in
their implementation of virtually all initiatives, and watchers
are far behind.
Watchers |
Explorers |
Visionaries |
- They typically operate at scale on only one or two
digital initiatives, with perhaps a couple of others in the
pilot testing phase.
- None were operating at scale on the “internet of
things,” AI, robotic process automation (RPA), content
personalization or any of the forefront initiatives.
- Fewer than half had moved beyond the planning
stages on any forefront initiatives.
- Among the foundation initiatives, cybersecurity
shows the most progress in financial services as fraud
increasingly moves online. Compliance and liability
pressures are driving all companies in all clusters to
invest here.
- Watchers are investing in Agile and DevOps, with
success in pilots. However, our research indicates
difficulty in converting these small wins to larger
initiative success.
- Digital marketing is the sole customer initiative
where financial services watchers have made significant
progress. This is seen as a leading indicator of
customer-centric initiatives to follow.
|
- Much further along than watchers, financial
services explorers have completed pilot projects for an
average of seven key digital initiatives.
- These companies have progressed past the planning
stage on four-fifths of the initiatives. Yet they are
operating at scale on only about six initiatives.
- Cybersecurity, as the leading area in foundation
initiatives, is also an area in which explorers are showing
progress. Websense Security Labs has estimated that, on
average, financial services companies suffer three times as
many cyberattacks as do companies in other industries.
- Earlier investments in business intelligence have
provided a foundation for big data and analytics, which
offers benefits for fraud detection as well as determining
creditworthiness. Financial services explorers have made
more progress here than on other mainstay initiatives.
- Explorers have also made more progress on digital
marketing than on other customer initiatives. This
rules-based, revenue-oriented initiative tends to provide a
clear business case in the financial services industry.
|
- Far ahead of their peers, on average they are at
scale for 12 initiatives and have completed pilots on seven
further initiatives.
- They have either completed pilots or achieved scale
on nearly all key initiatives, with exceptions only on
forefront projects such as virtual reality (VR) and AR,
with 3% still pursuing each of these.
- The overall consistency of progress across
initiatives is remarkable, and shows that a comprehensive
approach is required to attain leadership in financial
services. It also implies possible synergy across
initiatives, where success in one area such as big data may
provide core capabilities for another initiative, such as
internet of things — where some banks are already
experimenting with expanded mobile payments and Bluetooth
beacons in their branches.
- Even in the forefront category, where progress is
understandably less advanced than in the others, there is
still consistency across initiatives. From our discussions
with industry executives and experts, this highlights a
“lean forward” mindset that embraces the understanding that
today’s advanced technologies will become a vital part of
tomorrow’s operating system.
|
Changing focus, making progress
Visionaries have many more initiatives operating
at scale
As financial services companies advance along their digital
transformation journeys, they tend to focus on different sorts of
projects. Watchers are just trying to build a foundation for
their digital transformation, so they are unlikely to have the
bandwidth to launch mainstay, customer or forefront initiatives.
As companies reach the explorer stage, they turn their
attention to a broader range of initiatives, including such
mainstays as big data and analytics, enterprise cloud, and RPA,
which helps with repetitive tasks such as opening accounts and
following Know Your Customer regulations.
They can also spend time working on customer initiatives
such as content personalization, digital product engineering and
digital marketing. However, explorers must still invest time
focusing on the basics, such as scaling the implementation of
core foundational initiatives like legacy modernization,
application programming interfaces (APIs) and business process
management (BPM).
Financial services visionaries bring many initiatives to
scale within foundation, mainstay and customer categories. They
are also the only cluster making substantial progress on scaling
forefront initiatives such as blockchain, originally created for
cryptocurrencies but now gaining traction in the mainstream
financial services industry. That technology is the basis for
smart contracts, is used to facilitate international trade and
can help verify online identities.
Shifting barriers on the digital transformation journey
Our survey revealed that an inability to experiment quickly
is the greatest barrier to digital transformation that financial
services companies faced in 2018. More than half of respondents
(58%) worry that their companies lack the capacity for the rapid
experimentation that is essential for testing different
technologies and figuring out which ones hold the most promise.
Most companies believe that they can quickly develop this
capability. Only 18% of respondents in financial services felt
that lack of rapid experimentation skills would still frustrate
their digital transformation in 2019.
Barriers to digital transformation
We believe that the financial services industry
underestimates the challenge of mastering the art of rapid
experimentation. Companies need to implement major cultural
changes in order to become adept at rapid experimentation,
according to Alok Uniyal, vice president and head of Agile and
DevOps at Infosys. Significant cultural shifts rarely happen
quickly, but pressure is building on the financial services
industry.
“Silicon Valley is coming and if banks don’t up their game,
then tech companies will take over the industry’s business,” said
Jamie Dimon, chairman, president and CEO of JPMorgan Chase.
“There are hundreds of startups with a lot of brains and money
working on various alternatives to traditional banking.”
While respondents to the Infosys survey feel that most
barriers to digital transformation will diminish over time, they
have persistent concerns over legacy systems.
Legacy systems currently rank as the third most commonly
cited barrier (named by 42% of respondents), but financial
services executives expect that it could become the most serious
barrier in 2019.
According to Gartner estimates, banks need to triple their
digital business innovation budgets to modernize legacy
applications through 2020. Legacy systems are costly and also
slow product time to market. Indeed, digital natives cite their
lack of legacy systems as a major competitive advantage.
Experience with digital transformation is a double-edged
sword. On the one hand, the visionaries who have progressed the
furthest along the digital transformation journey recognize the
most barriers, identifying four or more from the list of 10 that
we provided.
At the same time, financial services visionaries are also
more optimistic than their counterparts in the watcher and
explorer groups about overcoming these barriers. This
demonstrates that companies become more confident as they gain
experience with implementing successful pilots and bringing ideas
to scale on their digital transformation journeys.
Survey respondents are also confident that budgetary
constraints will become less of a barrier in 2019.
While 41% of financial services executives cited
“insufficient budget” as a barrier to digital transformation in
2018, 35% feel that it will still be a serious stumbling block
this year. If organizations were to devote more investment to key
digital initiatives, it would show that senior leaders are
strengthening their commitment to digital transformation.
On the flip side, participants expect that change
management will grow slightly harder as time goes on. While 32%
in financial services named “lack of change management
capabilities” as a barrier in 2018, 34% said it would be a
problem in 2019. Watchers and explorers are especially worried
about managing change.
Digital maturity by industry
Our survey revealed significant differences in digital
maturity by industry. Financial services scored slightly higher
than the median on the Digital Maturity Index, but it still
trailed telecommunications, manufacturing and technology.
In the financial services industry, legacy organizations
face intense competition from startups and large tech companies
muscling into the sector. These legacy incumbents are trying to
make progress toward digital transformation, but their efforts
are hampered by regulations, security concerns and complex
internal processes.
Industry ranking on the Digital Maturity Index
Accelerating the digital transformation journey: 5 key
capabilities
In August 2018, Infosys conducted a research study that
identified five capabilities which help companies, including
financial services firms, accelerate their digital transformation
journeys: Agile and DevOps, automation and AI, design, learning,
and proximity.
In our November 2018 executive survey, we looked deeper to
understand company competencies in these areas. We found that
companies with the highest Digital Maturity Index scores (i.e.,
visionaries) do indeed have the strongest abilities in all
accelerator categories.
Visionary companies have superior accelerator
capabilities
Cluster average
Each of the five digital capability accelerators above is
powerful in its own right, and we examine each of them on the
pages that follow. Before looking at the accelerators
individually, it is worth reviewing them holistically at a
summary level. When we reviewed client and industry digital
transformation programs, we found multiple successes in the past
two years where one of the accelerators was dominant.
However, in discussions with executives about the next 12
months and beyond, the consistent message was that multiple
accelerators will increasingly be needed for future success.
Agile and DevOps programs will be required for the uncertainty
that accompanies the frenetic, ongoing pace of change. The
amplification and intelligence from automation and AI will be
required to make sense of an increasingly complex world.
Design will become a non-negotiable expectation that goes
beyond functionality to experience, and will permeate more and
more business functions.
The rate of change faced by enterprises, and the necessity
for widespread adoption, virtually guarantee that learning will
be a core part of any lasting transformation. Finally, the
location or proximity to work will be a major factor in
capability and program planning, for both strategic intent and
cost management.
Let’s examine each of these digital capability
accelerators.
Digital transformation accelerator No. 1: Agile and
DevOps
While the financial services industry has been a slow
adopter of Agile and DevOps, these practices are now being
implemented for new product delivery and software updates.
Security, an industry cornerstone, has also led to the emergence
of DevSecOps to fill security loopholes, minimize weaknesses and
reduce risks. “There’s an overarching need for companies to be
nimble and responsive, to understand company needs, and to
quickly develop solutions,” Uniyal said.
“Agile and DevOps enable companies to beat competitors by
quickly experimenting, validating ideas and scaling leading-edge
solutions. They enable greater flexibility and higher
productivity. DevOps helps by automating the Agile software
development life cycle, enabling companies to deploy new features
on a nearly continuous basis.”
The visionary financial services companies that are
furthest along the digital transformation journey have the
strongest ability to deliver Agile programs at scale. They have
fully adopted both an Agile mindset and Agile practices. Their IT
developers and operations teams cooperate closely to achieve
business objectives. Their technology teams deliver results fast
enough for these legacy companies to stay competitive and fend
off digital native rivals. Such visionaries are also likely to
have a robust, stable DevOps platform that serves their entire
enterprise. One bank with a large, federated IT structure used
Agile and DevOps practices to shorten the release cycle of new
features from 12 weeks to four weeks. Besides improving service,
those efforts also increased reliability by 25% and saved the
company $2 million.
That approach also paid off for one of the world’s largest
financial services firms. With over $1 trillion in trades, J.P.
Morgan Asset Management executes nearly 1% of the world’s equity
trades. Previously, the firm had long software change cycles,
minimal coordination between development and operations, and
quarterly software release cycles. To cut costs and risk, the
firm adopted Agile and DevOps practices; over time, the release
frequency improved dramatically from quarterly to daily releases.
There are two primary barriers that prevent financial services
companies from making more progress on Agile and DevOps.
One major organizational challenge is changing the
culture to ensure that business cooperates with IT from the
start.
Our research has found that about 80% of development
projects are IT-led and IT-sponsored, without early involvement
of business stakeholders.If companies can change their culture
and mindset to ensure early business and IT collaboration, they
will dramatically improve the likelihood of Agile and DevOps
success.
In addition to facilitating culture change, financial
services companies also need to make sure that their employees
are trained in new ways of working. This retraining must extend
throughout the organization so that all stakeholders have a good
understanding of these new ways of working.
Agile and DevOps methods can be extremely useful in certain
industries, such as branded consumer goods, where speed is
critical in order to successfully keep pace with fast-changing
trends. In banking, however, regulations, risk and audit controls
can impede efforts to scale up Agile and DevOps. “As we transform
our mobile apps using continuous delivery and DevOps, we have
control processes that will have to be modified to also support
new methods of delivery,” said Lynch. “Like many large firms,
rethinking these essential parts of our build process is key to
efficiency in digital channels.” While our survey shows that many
companies are confident — perhaps overconfident — in their
ability to master rapid experimentation, the reality is that
Agile and DevOps techniques are hard to master. Even companies
that purport to have flexible, Agile teams may still rely on the
same old structured, rigid waterfall development methods inside
those teams. There are practical steps that companies can take to
improve their Agile and DevOps skills. Companies can work faster
and scale quicker while meeting the demands of global markets by
implementing Agile on a distributed basis.
“Companies need to become more dynamic and nimbler,” Uniyal
said. “To react faster to changing markets and come up with
improved products and services, companies need to have a culture
of rapid experimentation, quick development, prototyping and
validation. To accomplish this, they need to be able to visualize
their end-to-end value chain. This is a major challenge in legacy
organizations where the value chain may be fragmented. The best
way to overcome this issue is by implementing Lean and related
simplification initiatives.”
Digital transformation accelerator No. 2: automation and
AI
AI and automation have the potential to radically transform
existing business models and unlock new opportunities in
financial services, from loan approvals to customer-and
employee-facing chatbots.
What distinguishes visionaries from their peers when it
comes to AI and automation? Our survey found that visionaries are
more likely to have developed and started to implement
well-articulated strategies and initiatives for AI, RPA and IT
automation. They also tend to approach automation and AI as ways
to amplify human capabilities — freeing them from repetitive
tasks — rather than just reduce headcount and costs. Their
employees have the skills to implement automation and AI
technologies in ways that advance corporate strategic goals.
That said, financial services companies at all stages of
their digital transformation journeys are grappling with the
ethical implications and opacity of AI.
“We need a paradigm shift in how we interact with AI and
automation,” said John Gikopoulos, global head of AI and
Automation at Infosys. “We should apply ethics and control at
the personal level, rather than expecting a process, machine or
laws to govern these technologies once they are out in the
world.”
In highly regulated industries, such as financial services,
AI’s ethical issues could expose organizations to even more
scrutiny.
Better tools are constantly coming to market that give
financial services companies new ways to create AI applications.
Companies need to figure out the best ways to harness these tools
to develop useful solutions that meet client needs. To get the
most benefit from automation and AI, most incumbent companies
will need to convince their own workforce about the benefits of
these technologies and reskill employees to make sure that people
and machines can work seamlessly together to achieve superior
results.
“The focus on AI is often narrow and deep at large
organizations,” said Andy Maguire, group chief operating officer
at HSBC. These companies have hundreds of thousands of employees,
but AI generally affects fewer than 1% of them.
In HSBC’s branches and call centers, large-scale
digitization has already started. But that hasn’t eliminated the
need for people in those areas, Maguire said. AI often frees
employees from mundane and repetitive work, allowing them to
focus more on judgment-based projects and work requiring critical
thinking. “If we educate people to do the things we need them to
do tomorrow and in the next decade, I think it’s all going to be
OK,” he said.
“There are many misconceptions about how quickly
large-scale AI transformation will take place,” Infosys president
Mohit Joshi said. While it’s true AI is already being integrated
into companies of all sizes, we’re still at least 15 to 20 years
away from AI being the heart of a major corporation and making
many of the decisions that senior executives make now, he said.
In the meantime, AI alleviates much of the drudgery work in
financial services, known for its torturous 100-plus-hour
workweeks.
Digital transformation accelerator No. 3: design
Design skills enable the financial services industry to
rethink every aspect of its business, from internal operations to
external customer service. Financial services companies with
superior design skills use technology to find novel solutions to
serve human needs.
Our survey shows that companies with design strengths
are better able to seize opportunities to improve both customer
and employee experiences. They are more likely to deploy
technology in the form of digital product engineering, content
personalization and AR.
Financial services visionaries understand that design is
more than mere user experience. Instead of segregating user
design within its own silo, they make sure that more people in
more functions across the company have responsibility to design
products and services that maximize user satisfaction.
Design-led companies have effective processes in place to
continuously listen to customers. They are committed to testing
ideas and iterating them to improve over time. They measure
design performance and results with the same rigor they apply to
tracking revenues and costs.
When it comes to pursuing design-led solutions, Infosys
design executive Corey Glickman warned against excessive
prototyping. He said too many companies spend millions of dollars
a year on prototypes and proofs of concept, without ever moving
on to implement those pilots at scale. In times of disruptive
change, companies must bite the bullet and make big bets. It
sometimes takes an industry leader or innovative upstart to
establish a new norm. “No one would have a digital twin today if
GE hadn’t sunk millions of dollars into developing theirs,”
Glickman pointed out.
Systems engineering has emerged as a critical role in the
digital age. The best systems designers are diligent scientists
with master’s degrees and many years of work experience. This
type of talent is in short supply, exacerbating the war for
talent. However, the good news is that a systems designer with
experience in one area can typically apply his or her knowledge
to other domains. “Systems designers understand how large,
complex systems behave,” Glickman said.
“As a discipline, systems design is universal enough
that someone with experience in financial services can apply
their skills and experience to software design or health care.”
On a practical, operational level, our research has
confirmed the effectiveness of breaking up large projects into
small teams of highly skilled programmers handling the hardest
and most important challenges.
These all-star coders are hands-on, working iteratively in
physical and virtual whiteboard environments, efficiently pulling
from reusable code libraries and writing their own fresh code
every day. This approach can reduce development time from three
months to as little as three weeks. With this arrangement,
companies can deliver more effective programming, solve difficult
problems faster, and reduce technical debt that may have
accumulated through legacy programming and processes.
Finally, the success of design-led digital transformation
depends on the involvement of senior executives. In the early
digital era, design involved taking individual physical processes
such as teller banking and putting them online, first through
ATMs and then through apps in the smartphone era. Now design is
helping to transform major components of enterprise operating
models, and success requires buy-in and leadership from the top.
Digital transformation accelerator No. 4: learning
Companies are facing a significant gap between the digital
skill sets they need and the talent available, according to
Jonquil Hackenberg, partner at Infosys Consulting. “Recent
graduates, even in desirable fields like data science and
enterprise architecture, lack the experience and expertise to
implement at scale,” warned Hackenberg. “Meanwhile, many legacy
IT professionals struggle to engage with subject matter experts
in a way that translates business needs to modern, scalable
technology solutions.”
Visionary financial services companies are more likely than
other firms to bridge this talent gap by investing in the digital
tools and infrastructure necessary to support a robust,
always-on, continuous learning and reskilling program for
employees.
Continuous learning is fundamental to developing the
workforce of the future, one that can achieve and sustain digital
transformation. Employees must become nimble, responsive and
proactive enough to identify and seize the best opportunities
made possible by emerging technologies and new business models.
Our research findings suggest that such continuous learning
programs play an especially important role to help employees
develop skills in Agile and DevOps, areas that require mindset
shifts as much as technical skills.
Employees realize the critical importance of continuous
learning to keep themselves marketable and relevant in a rapidly
changing business world. Beyond internal skills development,
learning programs have the added benefit of supporting retention.
Employees appreciate when companies make investments in their
career development.
Many leading financial services firms have built their own
internal training, reskilling and upskilling programs.
Our research shows that watchers often overlook the
substantial benefits of learning accelerators. For companies
looking to make the move from watcher to explorer, investing in
learning is an important early step.
A large number of banks focus on learning and reskilling as
fundamental components of their culture. ING is setting up an
“analytics academy” to refresh its staff’s data skills. In 2018,
JPMorgan Chase introduced mandatory training in Python for
employees in its asset management division. NatWest plans to
invest £1 million in a training academy for its 70,000 employees,
and even CEO Ross McEwan enrolled in the training program.
Digital transformation accelerator No. 5: proximity
Even though many financial services firms are competing in
a global marketplace and have access to a growing suite of
collaboration and communication tools, distance still adds
complications to any initiative or project. On the other hand,
proximity enhances collaboration and can remove physical barriers
to success in product and IT development projects.
“Value creation occurs when companies bring teams together
end-to-end in proximity,” advised Deverre Lierman, leader of the
Infosys Raleigh Technology Hub.
“Companies should deliberately structure their ecosystem
and choose their partners with an eye to maximize innovation,
speed and responsiveness. “The key is to capitalize on the
benefits of high-quality, low-cost locations without sacrificing
the advantages that proximity brings. Visionaries balance global
delivery centers with nearby innovation hubs.”
These hubs may be internal or involve strategic partners.
M&T Bank recently announced it will hire hundreds of new
employees to staff its planned tech hubs. And BBVA Compass
created an Agile-inspired development center in Birmingham,
Alabama, that’s designed to operate like a tech startup.
Our data shows that visionary financial services companies
are more likely than watchers or explorers to have implemented
finely tuned strategies to locate employees together in
geographies that balance cost with proximity to partners and
customers.
Still, even visionaries depend on the contributions and
efficiency of distributed development teams. Visionaries supply
these teams with effective collaboration tools and implement
standards to measure the quality of work these distributed teams
deliver. To the extent that visionaries rely on global
development centers, they also invest in the infrastructure and
systems to minimize the impact of distance.
At the same time, visionaries recognize that there is no
substitute for physical proximity and are quite willing to
establish well-staffed technology and innovation hubs near
important partners or customers. That is why Infosys is
establishing six new technology and innovation hubs in the United
States and staffing them with 10,000 American employees to serve
its customers there. Such proximity is especially valuable when
working on initiatives involving customer experience, such as
product development, content personalization and AR.
Financial services companies looking to reap maximum
benefits from proximity should locate their technology and
innovation hubs near end users (i.e., clients) and in places
that have intrinsic appeal for the talent that the company
wishes to recruit and retain.
Locations near top universities are also attractive, since
those schools can provide a pipeline of candidates for
recruitment and an ecosystem for incubating innovation ideas.
Companies at all stages of digital transformation should
strive to create a culture that attracts talent. Our research
shows that employees want to work in a collaborative and
collegial environment, where they know they can focus on getting
results without wasting time fighting turf wars.
Practices and mindset — what sets visionaries apart
Every incumbent financial services company knows that it
needs to make progress on its digital journey, but our recent
survey indicates most are not moving fast enough.
As our survey showed, most legacy companies are still at
the watcher or, at best, the explorer stage of the digital
transformation journey. How can they move to the visionary level?
What sets visionaries apart from watchers and explorers?
According to our research, visionaries stand out in the
way they have fully embraced the mindset and practices of both
being agile and doing Agile.
To become more like visionaries, companies should put in
place a formal digital transformation strategy, and share that
plan with employees, customers and partners alike. They should
also develop and implement a comprehensive strategy for using
automation and AI to bolster human capabilities rather than just
focusing on cutting costs.
These are not trivial matters. Companies will face real
challenges around talent recruitment and reskilling, retooling
legacy systems, building the five accelerator capabilities, and
fighting off lean, hungry digital native disruptors.
The truth is that incumbent financial services firms need
to do three things, do them all well and do them simultaneously:
- Establish the technical foundations for digital
transformation.
- Build technological capabilities and talent.
- Innovate at the speed of Agile.
There are two ways that financial services companies can
give themselves a boost on the digital transformation path. They
can seek to amplify their existing capabilities by focusing on
high-value projects with the greatest potential impact, and they
can partner with other organizations to gain access to
complementary skills and resources.
JPMorgan Chase continues to do just that. As part of its
digital foundation, the financial services giant has invested in
and implemented new technologies. The bank has set up incubators,
formed strategic partnerships and established alliances with
fintechs and startups. By practicing Agile and DevOps, JPMorgan
Chase is now able to make changes at speed.
Amplify
Financial services companies have limited talent resources,
so it makes sense to focus systems designers’ efforts on the
biggest problems where the solutions they create will have the
greatest impact. “You can amplify the impact of designers by
assigning them to small teams where they can work together to
deliver scalable solutions that can be replicated throughout the
organization,” explained Infosys’ Glickman.
“If you have the right systems and process, a small
number of talented individuals can have a big impact on a
company’s digital transformation journey.”
The financial services industry needs to figure out which
projects to prioritize and how to push the digital envelope where
it will matter most. Visionaries are comfortable with different
parts of the organization being at different steps in their
digital transformation journeys.
Here’s a key insight — not everything needs to be Agile.
The CIO at one financial services company agreed that
prioritization and proper allocation of scarce resources could be
key to having the desired impact. “Right now, we’re trying to do
a little bit in each area and bring the entire organization along
simultaneously,” he acknowledged.
“While this is delivering progress, we’ll likely focus
more attention on making faster changes in a smaller number of
high-priority areas. That may be the only way to accomplish our
digital transformation in a big way.”
Partner
Financial services executives told us that nearly 40% of
digital initiatives are led and delivered internally, while more
than 40% are led internally and delivered by partners and the
remaining 20% are fully delegated.
Companies partner for nearly two-thirds of their
digital initiatives
There is a significant difference in how clusters handle
partnering. Across industries, watchers are the most likely to
run initiatives entirely internally. Explorers are most likely to
lead projects internally, while having them executed externally.
Visionaries are more likely than the others to let partners run
and deliver initiatives on their behalf. The results were
slightly different in financial services, where watchers are more
likely than explorers to rely on external partnerships for
digital initiatives.
Visionaries are more likely to partner on
digital initiatives
According to our respondents, partnering offers two
primary advantages: higher chances of success and quicker
implementation.
Partnerships have several advantages
According to our research, visionaries are more likely to
form partnerships because they have the process and governance
maturity needed to build and run them effectively. It’s the same
reason companies that invest in architecture and data management
are more likely to support API interfaces with external services.
Visionaries also have experience building partnerships and
understand the multifaceted value of a good partnership, so they
are more likely to pursue and forge additional partnerships when
opportunities arise.
Visionaries’ digital accomplishments also give them a
better appreciation for the unique capabilities that partners
bring to the table. When it comes to the vast world of
technology, visionaries that develop certain technical skills
also tend to learn that they cannot be experts at everything.
Instead, they recognize the value of focusing on their core
competencies and gaining access to other expertise through
mutually beneficial partnerships.
Respondents told us the best partnerships are built on
strong personal relationships among humans.
Our survey showed that companies are willing to partner on
almost any digital transformation initiative, but they are least
likely to work with partners on legacy modernization, where they
presumably feel they have the in-house knowledge to upgrade those
systems on their own.
In financial services, participants reported that their
companies were most likely to ask an external partner to both
lead and deliver on such sophisticated initiatives as AI, RPA and
blockchain. One-fourth to one-third of incumbent companies turn
to partners for help with these sorts of initiatives that require
specialized, hard-to-recruit expertise.
Financial services firms were more apt to favor internal
leadership, while partnering with external help for execution on
initiatives such as APIs, 3D printing and enterprise cloud. These
areas also require specialized expertise and significant
resources, but in-house staff may already have some experience in
these fields and thus feel more confident directing such projects
themselves.
According to our research, U.S.-based companies tend to
view intellectual property (IP) even more as a proprietary
advantage than their European and Asian counterparts do. As a
result, U.S.-based firms more often prefer to develop high-value
innovation in house.
European firms partner for IP in a more transactional
manner, while Asian companies have shown more openness for
partners to take leading roles in IP creation.
Accelerating the journey
As mentioned in the Amplify section above, all financial
services companies — including visionaries — need to prioritize
specific digital transformation projects in order to maximize the
impact of scarce resources.
How can a company know which projects to prioritize?
- Analyze its level of digital maturity and develop a
clear, honest evaluation of current initiatives relative to
objectives.
- Assess the short-term future of its industry. What are
the key threats from disruptors? Which emerging technologies
hold the most promise? How are customer expectations changing?
What impact will these factors have on business models?
- Ensure that the company has a solid digital foundation
by modernizing legacy systems and working on APIs and BPM.
Strength in these areas will enable success in other aspects of
a digital transformation plan.
- Strengthen and refine the five accelerator capabilities
— Agile and DevOps, automation and AI, design, learning, and
proximity.
- Forge relationships with partners whose skills and
services could promote faster, better progress toward digital
transformation goals.
As with other change initiatives, senior financial services
executives should take an active role in driving digital
transformation initiatives.
Leaders have to send a signal that internal power struggles
will not be tolerated. Digital transformation journeys can
succeed only when individuals from multiple areas of the
organization step outside their comfort zones and work across
boundaries for the good of the entire enterprise.
The digital future is arriving at a rapid pace, and the
consequences for inaction are more severe than ever. With proper
planning, cooperation and commitment, business leaders and IT
professionals can work together to position their companies for
success, no matter which direction the digital winds may blow.
Survey methodology
In November 2018, the Infosys Knowledge Institute used a
blind format to conduct an online survey that attracted responses
from more than 1,000 CXOs and other senior-level respondents from
companies with revenue upward of $1 billion. Respondents
represented multiple industries and hailed from Australia, China,
France, Germany, India, the U.K. and the U.S.
To gain additional qualitative insights, we also conducted
phone interviews with more than a dozen industry practitioners
and subject matter experts.
Survey coverage