DigitalTransformation infinancialservices

Transkript

1 DigitalTransformation infinancialservices Whichfirmsareleadingthecharge, operatingmodelstrategy andwhyit sdiferentthistime Integrity. Excelence. Results.

2 Contents 3 Introduction 4 Whatisdigitaltransformation,who sleadingthechargeandwhataretheydoing 7 Guidingprinciples,commonissues,requirementsandoperatingmodelapproaches 11 Whydigitaltransformationisdiferent 13 Conclusion 14 AboutCitihubConsulting Author Adam Evans AssociatePartner,CitihubConsulting adam.evans@citihub.com Withover12yearsexperienceinthefinancialservicesindustry,Adam hasbeeninvolvedinbusinessandit transformationprojectsincludingthedevelopmentoffronttobackbusinessoperatingmodels,shared servicessetupandstrategicc-levelcosteficiencyandlabourforcerestructuringinitiatives.inaddition,he hasexpertiseinplatform adoptionandvendormanagement.priortojoiningcitihubconsulting,adam workedforubs,bearstearnsandjpmorganinvariousrolesacrossequityderivatives. 10

3 Introduction Asdigitaltransformationcontinuestoredefinethewaypeopleandbusinessesinteractwhilst providingopportunitiesfornew entrantstogetinthemarket,organisationsarebeingforcedto rethinkandredefinetheirbusinessmodelsandtheoperatingmodelsthatsupportthem. Part1ofthispaperexamineswhatwemeanbydigitaltransformation,whatthemarketleaders aredoingtoachieveitandwhataresomeofthebenefitsgained. Part2outlinestheguidingprinciplesofdigitaltransformation,commonissuesseeninfinancial servicesandhow totacklethem,requirementsforanefectiveoperatingmodel,andananalysis ofdiferentoperatingmodelapproaches. Finaly,part3 discusses why digitaltransformation is diferentfrom previous cycles of technologicalinnovationandwhyfirmsinthefinancialservicesindustryarebeingforcedto adapt. 3

4 1Whatis digitaltransformation, who sleadingthecharge, andwhataretheydoing? Digitaltransformationiscreatingnew opportunitiesandrevenuestreamsforfirmsacrossalindustries.technologies likevirtualagents,naturallanguageprocessing and roboticprocessautomationareenabling firmsto increase eficiencyandcutcostwhilsttheemergenceofblockchainissettosecuretherecording,storingandtransferingof data and make operational processes more reliable. Additionaly, ever-growing consumer participation throughsocialmedia,mobileusageand clientportalsacrossthevaluechain,and theincreased useofcloud computing havefacilitated acustomercentricapproach in an environmentwhereconsumerexpectationsand demandsaregreaterthanever. Business,technologyandoperationshistoricalyexistedasdistinctfunctionswithinanorganisation.Businessdrove thetechnologiesusedbyafirm anditdepartmentsweretaskedwithfindingthebest-fitsolutiontomeetbusiness needs.operationsfunctions(processesandpeople)providedalinkbetweenthetwo.today,thingshavechanged. Technologyisdrivingbusinessinnovationandstrategybyopeningnew opportunitiesforgrowthandconsumer WhatIsDigitalTransformation? Digitaltransformationistheprofoundandacceleratingtransformationofthe: CustomerExperience BusinessModel OperatingModel Broughtaboutbytheapplicationofdigitaltechnologiesthatenablenew formsofvaluecreationawayfrom simple enhancementandsupportoftraditionalmethods,itisaboutimplementingnew processestocreate,enable,manage anddeliverdigitalproductsandserviceswithacontinuousanditerativeapproachtointegratingbusiness,operations andemergingtechnologies. Business,technologyandoperationsmustnow intersectthroughouttheorganisation.whetherthekeystrategic priorityisforincreasedeficiencyortoenablefuturegrowth,firmsthathavecommitedtomakingdigitaltransformation acorestrategicinitiativehaveseenvisiblebenefitsincludingsignificantimprovementsinoperationaleficiency. 4

5 WhoIsLeadingTheChargeAndWhatAreTheyDoing? Implementingaprogrammeofdigitaltransformationisnoteasyandtakestimeandperseverance.Organisational changeistrickyforseveralreasons,including financialconstraintsand resistanceto change,whilstmodifying companycultureisachalengingprocessthatcantakemonthsorevenyearstocascadedowntoallevels.fostering a spiritofenterprise-wide colaboration requires wholesale buy-in and centralised data,and developing a wel-functioningthirdpartymanagementfunctioninalargeorganisationrequiresdetailedplanningandaholisticvision. Improvingoperatingeficiencyisnotanew concepttocxos,butwherepastapproacheshavetendedtofocusheavily onbackoficefunctions,successfuldigitaltransformationrequiresanenterprise-wideapproach. Onewayofcalculatingtheoperatingeficiencyofafirm istodivideseling,generalandadministrativeexpenses (SG&A),alsocaledCostofSales,bytotalrevenue.Thelowerthepercentage,themoreeficienttheoperationsofthe firm. Figure1below showstheoperationaleficiencyofthreeglobalbanks: OperationalEfficiencyinFinancialServices CostofSaleas% oftotalrevenue (OperationalEficiency) 70% 60% 50% 40% TheGoldmanSachsGroup,Inc. BancoBilbaoVizcayaArgentaria,S.A. ING GroepNV 30% Figure1 OperationalEfficiencyinFinancialServices(Source:AnalysisofIncomeStatements YahooFinance) GoldmanSachspredominantlyoperatesininvestmentbankingwherethecostofoperationsisconsiderablyhigher thantheretailbankenvironmentinwhichbbvaanding mostlyoperate.however,whatalthreebankshavein commonisthattheyhavebeenweldocumentedintheirimplementationofdigitaltransformationstrategiesthroughout theirorganisationsinrecentyearswhichhascoincidedwithmaterialimprovementsintheiroperatingeficiencies. 5

6 GoldmanSachssaw itsoperationaleficiencyworsenbetween2014and2015butthiswasfolowedbyalarge decreaseof8% between2015and2016.goldmansachs CEO LloydBlankfeinhasrepeatedlycaleditatechnology company,asevidencedbythefactthatover25% ofemployees(around9000people)arenow engineersand programmers(byfarlargestshareofanyofthebigbanks 1 )equippedwithadigitalmindsetandapproach.furthermore, Goldman snew consumerlendingplatform,marcus,isentirelyrunbysoftware 2 andgsbank,setupbythecompany in2016andbornoutofgoldmansachs acquisitionofgecapitalbank,isanentirelyonlineretailbankwithno physicalbranches 3. SpanishbankBBVAhasexplicitlymadedigitaltransformationitstopstrategicpriority,spendingover$200m since 2013.Theyhaveinvestedinfintechstartupsaswelasdedicating600employeesacrossIT,marketinganddesignin itsmadridheadquarterstoworkinagilescrum teamsthattakeonprojectsaimedatiterativeimprovements 4.A shake-upofthebank sc-suitein2015ledtothecreationofnew corecompetencies.thisincludedschemesfortalent managementandadaptingthebank sculturetothenew strategiccontextwithaclearmandatethatitwasthe responsibilityofthebank sleaderstogeteveryemployeeonboard 5.BBVAwonseveralEuromoneyAwardsfor Excelencein2016including BestDigitalBankinNorthAmerica and BestDigitalBankinLatinAmerica. In2013, thebankhadanoperatingeficiencyofover50% whichhadimprovedto44% in2016,clearevidencethatitsstrategy ofdigitaltransformationwaspayingof. In2014,ING sceo RalphHamerspresentedarenewedstrategyforthebanktore-thinkitsbusinessmodeltobeagile towardschangeandtoensureasustainablemodelreadytoaligntochangingcustomerdemandsandtechnology.a yearafter,itbegantoshiftitsorganisationtoanagilematrixstylemodelcomprisingabout350nine-personsquads dividedinto13tribeswithnofixedstructureanddesignedtoconstantlyevolvewithamixofskilsfocusedonmeeting theclients needs,boostingemployeeengagementandincreasingproductivity 6.Thesameyear,ING launched InnovationStudio,acorporateacceleratorprogrammeinwhichstartupsgetaccesstoING mentorsandexperts, workshopsandtraininginreturnforgivinging asmalstakeintheircompany.thishighlighteding scommitmentto learningfrom externalpartiesthroughopeninnovation.ing hadanoperatingeficiencyof47% in2014.by2016,the numberhadimprovedtojust34%. Otherwel-established incumbentfinancialservices organisations have been slowerto implementmeaningful programmesofdigitaltransformation.whilstsomehavehadprogrammesrunningforseveralyears,theyhavebeen unable to fulyembrace the opportunitiesitcan bring such asthe consolidation ofchannelsand increased opportunitiesforcross-seling.onereasonforthisisthatalthoughefortshavebeenmadetoadjusttheirbusiness modelsandstrategytothenew worldorder,themeansbywhichtheyexecutethem (i.e.theoperatingmodel)have beenslowertoadapt.theanswerliesinimplementingaflexibleoperatingmodelwhichisdesignedtoenablerapid adjustmenttochangingcustomerandtechnologydemands,decidingwhichpartsoftheorganisationtointegrateand whichpartsshouldremainstand-alone,andhow besttoalocateresources. Bylayingoutasetofguidingprinciples,applyingthem tothecommonissuesweseeacrossthefinancialservices industryandusingthem todeveloptherequirementsneededindecidinganoperatingmodelapproach,weareableto assess the strengths and weaknesses ofdiferentmodels in supporting an efective programme ofdigital transformation.thenextsectiondealswiththisstructuredapproach. 1 hbs.org, GoldmanSachs:ABulintheDigitalAge, MITTechnologyReview: AsGoldmanEmbracesAutomation,EventheMastersoftheUniverseAreThreatened, techcrunch.com: GoldmanSachslaunchesGSBank,anInternetbankwitha$1minimum deposit, TheEconomist: AbigSpanishbank stechdrivepromptssomeskepticism, MITCISR: Isyourcompanyadigitalleaderoradigitallaggard?, McKinseyQuarterly: ING sagiletransformation,2017 6

7 2Guidingprinciples, commonissues, requirements andoperatingmodel approaches GuidingPrinciplesOfDigitalTransformation Whilstchangesinthecustomerexperienceandthebusinessmodelarerelativelywelunderstood,how toadaptthe supporting operating modelislessso.in orderto incorporate digitaltransformation into a financialservices organisation,anumberofguidingprinciplesshouldbefolowed: Customercentric Customerrequirementsshouldshapethebusinessmodelandtheproductsandservices oferedwithvalue-addingactivitiesprioritised;whilstineficient,unnecessaryonesshould beeliminated. Dataintegrationacross theorganisation Datashouldbeintegratedasmuchaspossibleacrosstheorganisationtomaximiseits valueandleverage,notwithstandingregulatorylimitations. Cross-silo colaboration Designthinking Technologythat enablesinnovation Peopleandskils arekey Strongtop-down leadership Cleargovernance Continuous improvement Failfast Bariersforinformationsharingacrosssilosshouldberemovedwiththeencouragement ofopencolaborationacrosstheorganisation. Anagile,iterativeandadaptableapproachledbyheavystakeholderinvolvementand buy-iniscriticalinensuringalignmenttobusinessoutcomes. IncreaseduseofAPIsandapplicationofA.I.technologiesenableinnovationandensure thatconstantevolutionisimbeddedthroughouttheorganisation. Updatingrolesandresponsibilitiesaswelastrainingandrecruitingforadigitalskilsetis crucialtoensurethatpeoplearepartoftheprocessandcancontributemostefectively. Top-downleadershipandbuy-intofosteracultureofemployeeengagementanda colectivemindsetwilensurealong-term commitmenttotransformation. Thegovernancestructureshouldbesimple,easytounderstandandalow forquick decisionmaking. Thereshouldbeaflexibleapproachandanopennesstotheconstantevolutionofthe operatingmodelinordertosupportandadapttotheever-changingbusinessmodel. Anagileapproachandcultureofrapidinnovationshouldremovefearoffailure,alowing ittohappenfastandearlyinordertoavoidcostlylong-term investmentsthatdon tdeliver returns. Figure2-GuidingPrinciplesofDigitalTransformation 7

8 Despitediversityingoodsandservicesofered,ourexperienceacrossthefinancialservicesindustrytelsusthatthere arecommonthemesthathindertheabilitytoimplementameaningfulprogrammeofdigitaltransformation.application ofourguidingprinciplestotheseissues,showninfigure2,outlinesthebenefitsthatcanberealised: CommonIssuesAndHow DigitalTransformationCanHelp Figure3 CommonIssues,GuidingPrinciplesandImplementationBenefits 1)Decisionmakingisslow,cumbersomeand inflexible Decisionmakinginla Decisionmakinginlargefinancialservices organisationscanbenotoriouslydificultwithinternal politicsandbluredaccountabilitycreatinga painstakingprocess.furthermore,buildingbusiness casesandagreeingfundingforprogrammesofchange aretimeconsumingandcostly,resultinginanaversion tofailureanddirectionalchanges. 2) 2)Thereisresistancetochange Limitedvisibilityintostrategicbusinessinitiatives,low levelsofemployeeengagementandagnostic sentimenttowardslearningnew skilscontributetoa cultureofchangeresistance.fearofchangeandjob protectioncancompoundtheproblem. 3)Organisationalstructuresarerigid Implementingo Implementingorganisationalchangetosupport changingbusinessmodelshappensineitheraslow andreactivemannerorawidespreadandhighly disruptiveway. 4)Internalcompetitionexistsbetweenbusiness units Businessunitsa Businessunitsareoftenindirectcompetitionwith eachotherastheyoferoverlappingservicesand/or competeforfiniteresourcingandfunding. 5)Dataislargelysiloed Altypesofdata-includingmarketdata,riskdata, clientdataandperformancedata-tendtoexistin silosacrosstheorganisation. 6) 6)Thereisareluctancetousethird-partyvendors Longbuildversusbuydecisioncyclescoupledwitha reluctancetoengagewiththirdpartyvendorsinareas includingdatacentre,cloudandinteligent applicationscanstymieinnovationandgrowth. Anagileandadaptableapproachwith stakeholderbuy-inprovidestimelydecision makingandclearaccountabilitywitha preferenceforrapidstartupofchange programmes,rapidsuccesswithrapidroior rapidfailureandlesswastedinvestmentsothat theriskofchangesthatcausebig,damaging failu failureareavoided. Atractingthebesttalentandequipping employeeswithadigitalskilsetensureefective contributionandfosterinnovation. Acultureofemployeebuy-inandcommitmentto changecaninstiladigitaltransformationmindset inemployeesmakingthem flexible,adaptiveand hungryforchange. Flexibilityandconstantevolutionof Flexibilityandconstantevolutionof organisationalstructuresalow quickandeasy adaptiontochangingbusinessmodelssothat changeisagileandnon-disruptive. Cross-companycolaborationgeneratesahostof benefitsincludingknowledgesharing, cross-selingopportunitiesandasingularclient message. Usingintegrateddataanalyticstoshape business-focuseddecisionmakingensuresa customercentricapproach. Integratingsiloeddatapoolsintousable Integratingsiloeddatapoolsintousable enterprise-wideanalyticscanprovidepowerful decisionmakingcapabilitiesusinga.i. technologies. ExplosionoftheAPIeconomy ExplosionoftheAPIeconomy 7 andagrowing availabilityofopen-source 8 softwarealow customisationanddiferentiationfrom competitorswhilstembeddinginnovationand evolutionintotheorganisation. Theuseofandpartneringwiththi Theuseofandpartneringwiththird-party vendor spartnerscanprovidequickandeasy scalabilitytochangingbusinessdemands. CommonIssues GuidingPrinciple Benefits Cross-silocolaboration Designthinking Strongtop-downleadership Cleargovernance Failfast Peopleandskilsarekey St Strongtop-downleadership Continuousimprovement Customercentric Cross-silocolaboration Customercentric Dataintegrationacrossthe organisation Technologythatenables innovation Technologythatenables innovation 7 IBM estimatesthattheglobalapieconomywilbeworth$2.2tnby2018,source: DigitalTransformationImprovesCustomerExperience, GoldmanSachs,forexample,launchedits Marquee serviceinsept2016tomakeitsproprietaryrisk,pricingandothertoolsopen-source 8

9 Bytranslatingthebenefitsgainedfrom theimplementationofourguidingprinciplesintowhatwewantouroperating modeltodo,weseesixcorerequirements: Rapid-Decisionmakingmustbequick,transparentandadaptable Digitalculture-Adigitalmindsetandskilsetmustbepervasivethroughouttheorganisation Flexible-Theorganisationalstructuremustbefluidandadaptable Colaborative-Cross-functionalcolaborationmustbeencouraged Data-driven-Wherepossible,andsubjecttoregulatorycompliance,datashouldbecentralised Supplychain-Thirdpartyvendorsshouldnotbediscountedfrom thesupplychain WhatDoesThisMeanToTheOperatingModelRequirements? OperatingModelApproaches 9 Features Rapid, transparent, adaptable decision making Digital culture Flexible organisation Crossfunctional colaboration Data-driven decision making Thirdparty usein supplychain Supportsdigitaltransformation Strongalignment Weakalignment Figure4 OperatingModelOptionsMatrix WhentoUse OperatingModelRequirements Decentralised Directional Federated Centralised Acentralteam setsdigitalpoliciesand directionleavingeachhorizontalto implementtoolsandproceses localy.interactionacrosthe organisationexistsattheupperlevels ofmanagementbutlessoatlower levels.adoptionofthemodelcanbe quickbut quickbutvariationcanexistbetween departments. Decisionmakingcanberelatively quickbutimplementationtakestime andefforthinderingrapidinnovation. Auniform digitalmindsetbetween departmentsishighlydependenton strongleadership. Themodelisagileand exibleatthe departmentallevelbutchange bene tsarelocalised. Colaborationatthefunctionallevelis limitedwithlitleknowledgesharing. Centralisationofdataislimitedas departmentsimplementtheirown toolsandproceses. Aconjoinedthirdpartyvendor strategyisdifficult,reducing economiesofscaleandincentivesfor use. Adoptionofthemodelintheearly stagesofdigitaltransformationcan berelativelyquickandeasy.however, standardisationacrosthe rm hasa largedependencyonstrong leadershipwithariskofvariation betweendepartmentsunlestight measu measuresandcontrolsareputin place.silosaredifficulttoavoidand centraliseddataandcolaboration acrosdepartmentsislimited. Individualbusinesunitsoperate withtheirowntoolsandproceses. Digitalstrategyisdeliveredand executedlocalywithlitle interactionacrostherestofthe rm. Thismodelworksbestwhere localisedstakeholderimpactisa pr priorityorwherethereislimited complexitybetweendepartments. Rapiddecisionmakingcanbe effectivelocalybutwithno transparencytotherestofthe organisation. Digitalskilsmayexistinsilosacros theorganisationbutwithouta singularcompanyculture. Themodelishighlyagileand changeablebutexistsinmany instancesonasmalscale. Thereislitleinteractionor knowledgesharingacrosthe organisation. Thereislitleornodata centralisationacrosthe organisation. Thirdpartiesmaybeincludedinthe supplychainbutwithnoenterprise economiesofscale. Thismodelcouldbeusedasa smal-scaleproofofconceptfora digitaltransformationprogramme. Althoughanagilesolutionthatis easilychangeableandadaptable, long-term applicationwilleadto unwantedsilosandorganisational vavariationswithcommunicationand colaborationonlytakingplaceatthe upperlevelsofmanagement, preventingintegrationacrosthe wholeorganisation. Acentralteam developsastandard digitalapproachbutsilosare responsiblefordeployingand runningit.implementationislocal butwithshared/common components.governancecanbe complexfororganisational-wide changesbutthemodelcan changesbutthemodelcanfoster cros-polinationbetweenteams. Asdecisionmakingcanbecomplex withdifferingstakeholderpriorities acrostheorganisation,aversionto failureexists. Digitalcultureexiststhroughoutthe organisationwithagoodblendof digitalskilsavailable. Theorganisationalstructureis exiblewithlitleduplicationof effortbetweendepartments. Departmentscolaboratetosome extentasthisislimitedbythe existenceofsilos. Dataelementscanbecentralised acrosdepartmentsaidedby commonintegration. Thirdpartyvendorusage, particularlyincommon infrastructure,canreducesiloed in-housebuild. Thismodelissuitableforcomplex organisations.decisionmakingcan bedifficultasdepartmentsbatle overprioritiesbutstrongtop-down leadershipcanfosterastrongdigital mindsetthroughoutthecompany.a exibleorganisationalstructurecan rea reactquicklytochangesinthe businesmodelbutstrong colaborationacrosthewhole organisationcanbeheldbackby informationsilos. Busines,ITandoperationsarewel integratedwithcentralymanaged controlandgovernanceledbya dedicatedleadershipteam.features andcapabilitiesarehighly standardisedanddigitalstrategyis executeduniformlyacrosthe or organisation. Clearstakeholderaccountabilityaids transparentdecisionmakingbut standardisationcanhinder exibility. Digitalcultureexiststhroughoutthe organisationthoughdifferentiated skilsarelescommon. Arigidorganisationalstructuremakes changescomplexandtime consuming. Deepcolaborationexistsacrosthe organisationwithhighlevels knowledgesharing. Dataisstandardisedandreadily availableinaconsistentformat. Economiesofscalecanberealised althoughadesireforstandardisation mayfavourabuildapproach. Thismodelworksbestinsmaler rms inwhichdecisionmakingand organisationalchangeislescomplex anddigitaltransformationisatop priority.inthelong-run,itcanbe cost-effectivebyreducingduplication ofeffortsandalowingclear acc accountabilitybutitrequiresastrong andwelunderstoodgovernance structureandtakestimetofuly implement.

10 Thecorerequirementscanbeincorporatedintoanumberoftraditionaloperatingmodelapproaches,eachwithpros andcons.figure4describesthefeaturesoffourtypesofoperatingmodelwithaheatmapassessingtherelative strengthsandweaknessesofeachmodelinconsiderationofeachcorerequirementanditsalignmenttosupporting digitaltransformation. Asevidencedfrom theheatmap,nosingletraditionaloperatingmodelapproachhasstrongalignmentacrosstheboard tothefulsetofdigitaltransformationrequirements.forlargefinancialservicesorganisationsthatarehighlycomplex withdiverseoferingsthatarespreadacrossmultiplegeographiesandmarkets,aniterativeapproachthatusesa hybridmixofthesemodelsandevolvesovertimecouldbethemostefectiveandnon-disruptivestrategicapproach. Decentralisedanddirectionalmodelscanbeusedintheearlierstageswithagradualmovetowardsafederatedor centralisedmodel-dependingonthecomplexityoftheorganisation astheprogrammeofdigitaltransformation matures. Alternatively,ahighlyagileapproachwithnofixedstructureultilisedbyING (referencedinpart1)benefitsfrom constantevolution,flexibilityanddrivesadigitalculture.asimilarapproachthatisbeingreplicatedacrossseveral industriesanddevelopedbyspotifylookstoovercomethelimitationsofthematrixorganisationmodelwithproduct aligned entrepreneurs operating verticaly down the organisation and disciplines aranged horizontaly with responsibilityownedby professors 9. AswiththeING model,therearemultipleproduct-focusedsquadsworkingin tribes-groupsofpeopleworkingonarelatedcolectionofproducts-withproductmanagerssetingpriorities. Completingthemodel,chapters-ahorizontalvirtualgroupofemployeeswithsimilarskils(e.g.testing) eachhavea lead,actingasalinemanager,toorganisetheirteamswithintheirtribeswithguildsactingasself-organisinginterest groups. Justasnosingletraditionaloperatingmodelapproachanalysedhasstrongalignmentwitheveryoneofthesixkey requirementsspeledoutatthebeginningofthissection,thishighlyagileapproachmaybeefectiveinsmalerorpure technologyfirms.however,itwouldtakeconsiderableefortandupheavaltofulyimplementintheshort-term ina multinationalfinancialservicesfirm withacomplexregulatoryobligations.itwouldthereforealsoworkbeterbeing integratedovertimeinconjunctionwiththemoretraditionalmodels. Part1ofthispaperoutlinedwhatwemeanbydigitaltransformationandwhatthemarketleadersaredoing.Part2 outlinedtheguidingprinciplesofdigitaltransformation,commonissuesseeninfinancialservices,how totacklethem, requirementsforanefectiveoperatingmodelandadiscussionofdiferentapproaches.inpart3,weoutlinewhydigital transformationisdiferentfrom previouswavesoftechnicalinnovationandgiveexamplesoftheimpactitishavingin thefinancialservicesindustry. 9 wordpress.com, ScalingAgile@ SpotifywithTribes,Squads,Chapters&Guilds,

11 3Why digitaltransformation isdiferent? Previousincarnationsoftechnicalinnovationhaveimprovedeficiencyandcutcostswithvaryingdegreesofsuccess. Witheachnew wavecomesboththehypeofopportunityandthefearofmissingout,resultinginasignificantoutlayof resourcesafterwhichtheendsoftendoesn tjustifythemeans.sohow isdigitaltransformationdiferent? 1.It snotjustabouttechnology,peopleareatitscore Whilsttechnologyistheenabler,digitaltransformationisaboutmuchmore.Ifhumanbehaviourremainsthesame,the benefitsoftechnologicaladvanceswilbelimited.thatisnottransformationandwhereastechnologyprovidesthe buildingblocks,thecultureofdigitaltransformationisamindsetthatdefinesanddictatesthewayafirm operates. Shapinghumanbehaviourisatthecoreofdigitaltransformationwhereacultureofcolectivethinking,continuous improvementandanenvironmentofopencolaborationpervades. 2.Customerloyaltyisdeadandinformationisubiquitous Digitaltransformationhaschangedthewaytheconsumeroperates.Wherecustomerloyaltyoncemeantsomething, easyaccesstoanabundanceofinformationandchoicehasledtocustomersdemandingthebest,nomaterthe provider.wherebanksusedtomakemoneybytakingsizeablespreadsoncustomertransactions,easyaccessto pricing,aplethoraofchoicesandasurgeinnon-bankingdisruptorshavecreatedcompetitioninalsectorsofthe financialservicesindustry;from mortgagesandloans non-bankingentitiesquickenloansandcaliberhomeloans werethesecondandthirdlargesthomeloanlendersinamericain2016accordingtoinman 10 -totradeexecutionand brokeragewhereforbescalculatesthatfulservicebrokerscommandameagre1.5centspersharetodayversus5 centspershareinthepast Barierstoentrywon tprotectyouanymore Barierstoentryusetodeternew entrants,butwithlow startupcostsandeasyscalabilityprovidedbysoftware-as-a- Service(SaaS)deliverymodelsandaflexibleworkforce,disruptiveentrantsarenow drivingdemandinnew areas whilstclaiming marketsharein established ones.from alistoffinancialservicesorganisationspublished by 10 inman.com, Bigbankscedemarketsharetononbanks, Forbes.com, TheBrokerageWorldIsChanging,WhoWilSurvive?,

12 Burnmark 12 toshow nichedisruptorsandindustrytransformers,18outof37werefoundedinthepast3years,each oferingaclientpropositiontocompetewithcoretraditionalservicesacrossretailbanking.meanwhile,siliconvaleyis comingaftercapitalmarketsasfirmssuchassanfrancisco-basedsentienttechnologiesexpandintoinvestment managementwiththeuseofdeeplearningplatformstofindpaternsindataanddevisenew investmentstrategiesnot possiblewithtraditionalmethodsofanalysis.tostayrelevant,financialservicesorganisationsarehavingtorapidly adapttheirbusinessmodelsorfacedecliningmarketshareandoutofdateoferings.whilststartupsgainingmarket shareisn'tbreakingnewsanymore,increasinglyonerousregulatorycomplianceobligationsonestablishedfinancial servicesorganisationsandtheriseofshadow banking-lendingandotherfinancialactivitiesconductedbyunregulated non-bankfinancialintermediaries-meanthatitisn tsomethingthatwilbegoingawayanytimesoon. 4.DataanalyticsandA.I.havebecomeaccessibletoal Overthepastfew ofyears,theintroductionofmassiveparalelism incomputerprocessing,coupledwiththescalability ofcloudcomputingandtheavailabilityofseeminglyinfinitestorage,havemadeprocessingofhugeamountsof availabledataeverfaster,cheaper,andmorepowerful.machinelearningplatformsthatoncerequiredcomputepower beyondthereachofmostarenow easilyaccessiblewithitsapplicationtoprocessesacrossthefront,middleandback oficesinadditiontofinance,hranditoperations,transformingusercapabilities. 12 Burnmark,April2017TheFinancialBrand 12

13 Conclusion Thepathtodigitaltransformationandthedevelopmentofanoperatingmodelthatcansupport itisanongoingjourneythatwilrequireconstantadaptationinthefaceofdisruptivetechnologies andeverchangingbusinessmodels.firmsthatareslow toreactwilbeleftbehindwhilstthose thatcontinualyevolveunderstrongleadershipandacultureofconstantanditerativechange havebeguntoflourishwithtangiblebenefitsalreadyvisible.implementingefectivedigital transformationwiltaketimeanddedication,butasfirmsmaturealongthatpath,thecapabilities andopportunitiesthatcanberealisedwilhaveaprofoundimpactonthewholeorganisation, frfronttoback. Insummary,weconcludethat: Theutilisationofemergingtechnologiesincludingenhanceddataanalytics,A.I.andcloud computingarecreatingnew opportunitiesforgrowthandinnovation. Marketleadersthathaveprioritiseddigitaltransformationprogrammeshaveseennotable improvementsinoperationaleficiency. Asbusinessmodelsandstrategyadapttokeeppacewithchangingcustomerdemands,the meansbywhichtheyareexecuted(theoperatingmodel)mustalsoadapt. Applyingdigitaltransformationguidingprinciplestocommonissuesinthefinancialservices industryprovides6keyrequirementstoshapeoperatingmodelstrategy. Digitaltransformationisnotjustabouttechnology.It sacultureandawayofthinkingthat requiresstrongleadership,organisationalflexibilityandcross-companycolaboration. Theacceleratedavailabilityofdigitaltechnologieswilcontinuetodisruptthefinancial servicesindustryandbringnew entrantstoamarketinwhichcustomerdemandsaremore powerfulthanever.firmsthatfailtoadequatelyadaptwilstruggletosurvive. 13

14 AboutCitihubConsulting CitihubConsultingisaglobal,independentITadvisoryfirm withdeepdomainexpertiseacrosseverylayer ofthetechnologystack from businessapplicationsanddataplatformsdowntocoreinfrastructure.from ITstrategy,architectureandsolutiondevelopment,throughtocostoptimisation,riskassessmentand implementation ourtrustedexpertsdelivertherightresultsforyourbusiness. Forus,consultancyispersonal.Wehavearelentlesscommitmenttogreatexecution,integrityandclient success.weaim toredefineperceptionsofourindustryandourcommitmenttodeliveringtherightresults forourclientshasneverchanged,evenasthebusinesshasgrownconsistentlyoverthelastdecades. Formoreinformation,pleasevisitwww.citihub.com ContactUs NorthAmerica EMEA AsiaPacific KeithMaitland RichardHamstead SteveRutherford 500FifthAve,Suite1610 New York,NY TheDineenBuilding 140YongeStreet,Suite200 Toronto,Ontario,M5C1X MoorPlace 1ForeStreet LondonEC2Y9DT PickeringStreet #01-64 Singapore