A Point of View

Digital Transformation for Banks: Actions for Today to Ensure a Digital Tomorrow Abstract The urgent imperative for digital transformation for banks is not coming from inside the organization or at the behest of bank leadership; it's being forced from the outside. Customers are adopting digital behaviors faster than any company can keep pace with, building their expectations from every commercial and social interaction they now experience. As is the case with most companies, many banks aren't achieving their digital goals as quickly as they could be and are also facing tough challenges in setting the right goals in today's changing environment. Attempting to drive the change internally, they find themselves in unfamiliar positions projecting competencies that aren't fully developed. Imagine a tenured banking executive who isn't a technology expert leading the digital revolution. The digital strategies and capabilities are at times wrapped in endless discussion with little execution. Or the execution seems off, as the bank tries to communicate something out of character, only to undermine decades of a brand built on fidelity, prudence and stewardship. The digital transformation is like a tightrope that must be traversed quickly. Banks must both speed their changes while having a pinpoint focus on outcomes and carefully avoiding falling down. It starts with taking an 'outside-in' view that forces the organization to change in a way that it is likely unaccustomed to. It requires a new look on setting priorities. At its core, the right approach will require a reinvigorated leadership and IT culture to make decisions and operate in new ways. As the digital transformation is being forced from outside the bank, it is time for banks to make outside forces their allies and enablers as well.

Introduction In today's world, banks are facing a number of challenges that collectively need to be addressed with a digital transformation. At the forefront of this are their customers. Bank's customers, especially the younger demographic, are changing faster than the banks, and are consequently driving the need for change in banks and financial institutions. Customers are adopting new technologies at unprecedented speeds. Their expectations are driven by their interactions with countless modern businesses, both online and offline, and the expectations are driven both by competing banks and non-banking businesses (e.g., Amazon). The younger generations are conducting massive amounts of business online and on their devices; this trend will likely continue to escalate. According to a recent Pew survey, 61 percent of people now use online banking and 35 percent use mobile banking. 80 percent of the “under 26” demographic banks primarily online. Social media is an important part of the modern banking consumer's online life, and a precious source of real and unbiased customer insight. Through it, consumers express their satisfaction, preferences and frustration candidly and unabashedly with hundreds of their life-long accumulated contacts. Social media can also be used as a powerful communication channel, although perhaps a more precarious and volatile one than most bank marketers realize. The ability to broadcast quickly, casually and broadly is often more dangerous than beneficial. From the customer's perspective, being 'digital' means you have to be able to deliver your service anyway, anywhere, anytime. For example, your Internet or mobile user could be in China on a business trip, and paying their utility bill online. And it could be 2:30 in the morning when this transaction happens. The bank needs to deliver seamless service in their branches, ATMs, online, and on their mobile apps – with quality and consistency. Often, this type of experience isn't simply realized with a slick interface or screen experience but instead may permeate deep into the back office e.g., funds activated immediately, new products originated instantly, or service agents knowing about every product the customer uses with the bank, regardless of where or who they call within the organization.

Banks Must Advance Digital Transformation In order to stay competitive, acquire and retain customers, and to capitalize on the technology evolution within the marketplace, banks must achieve digital transformation to keep pace with their customers. The key insight for this industry: banks and financial institutions need to watch their early adopter demographic in order to stay abreast of current trends. They must create an environment where customers, employees and stakeholders can engage anyway, anywhere and at anytime. In simple terms, this vision entails that: n

All products and services are available as customers need them

n

All products and services are delivered and coordinated across multiple channels beyond the branch, including the web, the app or device, the phone, and at the ATM

n

Employees can access information delivered quickly and instantly, including customer service, information, product origination, sales, product changes and channels, among others

Internally, though, achieving digital transformation is difficult. These changes are driven from the 'outside in', and banks' most prominent (and likely counterproductive) response is to internalize these changes within their traditional operating models and ecosystems, that is, taking 'inside' style approaches. A culture of responsiveness is not easily cultivated within the organization, even if it is one of the stated aims of the organization. Banks' executive management teams are often not accustomed to driving the speed and urgency of change needed to enable the digital transformation. Consensus on important decisions is often hard to achieve. Executive management and leadership often need a new way of setting, managing and accelerating priorities. Technologically, the bank's existing systems may be fundamentally designed for an older brick-and-mortar operating model that can't accommodate anyway/anywhere/anytime. Today's systems need to move and adapt faster and have performance levels capable of constant uptime and reliability. Migration to newer technology approaches, such as cloud, especially for foundational and transactional systems, hasn't happened as rapidly as it could have due to concerns including cost, disruption and security. The internalized approach to IT is still prominent. In a digital transformation, the IT roles have to be very prominent in solution architecture, but traditional models of 'business ownership and IT enablement' may impede this mindset. According to the 2014 TCS Global Trend Study – The Road to Reimagination - companies in the banking and financial services industry are on average spending approximately $142 million annually on their digital initiatives. This is the second highest annual spend among all major industries1. However, internally developed IT tends to have a very 'existing architecture' centric flavor. SAP, Oracle and other software giants have embraced the cloud for anywhere computing, in-memory computing for speed, and they continue to innovate. It is imperative that banks learn from some of these vendors' models to get the 'best bang for their buck'.

Achieving the Digital Transformation Banks looking to achieve digital transformation should generally consider three major areas of focus to accelerate the transformation. First, they must agree on the vision, or the destination, for what the transformed operation will be. This includes what capabilities are required, what new Business Strategy

Digital Strategy

Channel Strategy

Channel Transformation

User Experience

Customer Experience Driven Journeys

Deeply Personalized Segment of One

Cross-Channel - Any Where, Any Time

Analytics Insights Driven

Internal and external Collaboration

Enterprise level Business Capabilities

Customer Empowerment / Self- Service capabilities

Business Considerations

Technology Architecture Considerations Scalability - Build for Scale

Performance

High Availability

Agility - Continuous change / Rapid deployment

Integrated Architecture

Cohesive Solution Framework

Single Code Base

Standards, Guidelines, Best Practices

Release and Change Management

Organizational Governance Model

Program Execution Considerations Quality Assurance

Success Measurement Framework

[1] TCS Global Trend Study - July 2014. The Road to Reimagination: The State and High Stakes of Digital Initiatives. Exhibit lll-6: 2014 Spending on Digital Initiatives by Industry (pg. 46).

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or improved experiences the customers will have, the new resources or organizations required and the new processes among others. This is setting strategy. The second point of focus is how the bank manages and executes change, which is execution. This is a large topic in and of itself, and we will treat this separately in a set of articles later. And the third point is to focus on the success factors for transformation. Setting strategy: What attributes and considerations should be considered within the digital transformation strategy? Banks should consider a proven framework for devising their digital transformation strategies. While all banks will have unique visions for what they want to achieve, they should base their exploration on principles that have been useful in the past. A customer-focused digital strategy will likely include elements of a business strategy (for example, objectives for revenue growth, customer acquisition, and product plays), a digital strategy (that is, how digital interactions will be used), a channel strategy (for example, plays for the web, the device and the ATM, among others) and a channel transformation approach. These core strategies should break down into specific details about how the digital business will operate, such as the user experience, the segmentation strategy, cross- and omni-channel plans, the use of analytics and so forth. Underlying this are technology considerations such as scalability, performance, availability, coding objectives and others. Program execution should be planned so that ongoing activities such as future releases, change management, governance, quality, and program measurement are accounted for. The best implementation strategies don't try to get it perfect the first time. “Perfect is the enemy of good.” The best implementation strategies rely on constant external listening and adjustment to get it right, as opposed to chasing the illusion of a perfect strategy.

Success Factors for Transformation While the strategy or vision sets the destination, banks also need to change how they manage transformation. While not an exhaustive guide, we've found certain common issues and approaches that most banks would benefit from exploring. Prioritize individual business imperatives Many times in our experience working with leading financial institutions, an excuse of “too much to do” is heard. Bank leadership should focus on prioritizing more effectively. We believe that banks will find greater clarity and effectiveness when prioritizing based on an 'outside-in' perspective. The 'inside' view almost always will be incremental tweaking instead of quickly pouncing on new opportunities driven by customers and the market. Taking the 'outside in' view eliminates a lot of the consensus building meetings where internal points of view should not matter. The consensus that is really needed is that the right point of view to listen to is that of the customer.

Social Speaking or Social Listening? We believe that banks may overemphasize activity in their own social media feeds. Miscommunication in social media can be perceived as offbrand and disingenuous. Instead, focus on execution and let the customers praise you in social media. Use social media to listen and learn about customers. Focus on listening well, and let your execution speak for you.

Define and measure the business success criteria If you do not have very specific and very measurable criteria for success, you will rarely know if you are succeeding in transformations that have any significant complexity. Define business success criteria early and upfront, understanding which measures are purely objective (that is, quantitative, met goals, milestones) and which need to be measured subjectively (for example, “does this improve the customer experience?” or “does this reflect our brand?”). Measuring business success criteria is also a powerful tool in managing ongoing change and dynamics during the transformation, allowing the program management and executive management team to sense and respond to progress, in-flight changes and recalibrating priorities. Transform the IT culture Banks' IT organizations can improve their digitization efforts if they shift focus from 'build' to 'source for better, faster outcomes'. Traditional IT tends to favor custom development over off-the-shelf solutions. Even when customizing, they often go too far in ensuring every request is fulfilled, and at any cost. Business users are over-accustomed to IT's willingness to customize everything, often at the expense of enterprise performance. In the digital world, there is a fine balancing act where “build, promote, build, promote” is the appropriate response, and this is done with multiple versions. Don't let perfect be the enemy of good in achieving valuable business outcomes. Using a starting point that is off-the-shelf can enable an organization to achieve remarkable acceleration. Remember to focus on data. Get the data right, get the data structures right, and think about data based on your business use cases. If you do this, you will get your implementation right.

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Manage digital as a program. The best programs use value-based portfolio management to ensure laser like focus on the objectives to be achieved. A business case, benefits and a timeline have to be managed. Resist endless theorizing and projecting “what could be” in favor of decisive and concrete outcomes. Remember: “Perfect is the enemy of good” and “Good is good enough”. This principle can help determine what implementations should be a top priority. For example, when releasing new mobile functionality, there should be a constant stream of micro-releases throughout the year, not just one major release where every feature is held up by the others. This is best supported by using off-the-shelf software as the backbone, and utilizing the considerable IT resources that banks have in a different deployment paradigm. Invigorate the leadership culture towards action and sensitivity to the immediate

Connecting Digital Transformation to Integrated Finance and Risk Perhaps they seem unrelated on the surface, but digital transformation reflects similar imperatives in risk and finance transformation. The same leadership and IT cultural shifts and technology approaches are necessary for both. Finance and risk, especially today, are being driven by external factors, be the new regulations, new customer risks, external and internal bad actors and others. The “outside-in” approach should also set the goals, the immediacy, timing, etc., for finance and risk objectives.

C-Level consensus can be measured by what the C-Level executives are talking about, but this often mis-prioritizes digital transformation. Talking about digital transformation is not doing it. Once again, the 'inside' view will tend to focus the conversation internally, constantly reflecting on how the traditional aspects of the business can be slowly nudged forward. Conversations can circle and be rehashed in endless and unproductive repetition if left to the internal opinions of executives reflecting on their current state. Instead, take the 'outside-in' view – driven by customers, markets, competitors and partners – to understand the needed goals, priorities and tempo that digital transformation requires. Use this understanding to invigorate the leadership culture towards taking action. Instill sensitivity to the “immediate”, where the perils and opportunities of quick action are tied to the demands of customer needs, not the state of the status quo and organizational history.

Starting a New Digital Transformation Conversation Most banks need to start acting quickly to address their digital transformation opportunities. The first conversation, which may well be the most difficult, will need to balance a fine understanding of the current capabilities and culture of the bank with the aspirational demand to develop and project a set of capabilities that are quite difficult to achieve. We suggest that the best way forward to manage this conundrum is to embrace an 'outside-in' view where priorities and tempos are learned from rapidly observing and absorbing customer and market forces. This should drive a new strategy and a change in both IT and leadership culture. The drumbeat of change is being sounded from outside the bank. It's time to make the external forces an ally and a beacon to make digital transformation a reality for today and the future.

About the Author Suren Kumar Lead Partner, Banking & Financial Services, Transformation Practice, Enterprise Solutions Suren Kumar, Lead Partner, Banking & Financial Services, Transformation Practice, Enterprise Solutions, Tata Consultancy Services, has more than 20 years of experience serving as a management consultant and trusted advisor to multiple clients. In his current role, he is responsible for the strategy and direction of the transformation service offerings directed towards TCS' clients in the banking and financial service sectors. He develops transformation programs that extend across business lines to enhance business processes and streamline operations.

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About TCS' Enterprise Solutions Unit With one of the most powerful IT consulting and services portfolios in the world, TCS' Enterprise Solutions help companies optimize data and workflow, manage risk and compliance, increase operational efficiency and productivity, and reach peak performance. TCS' Enterprise Solutions drive business transformations, empowering our clients to take advantage of emerging opportunities and market dynamics. From IT strategy and transformation to enterprise-wide software applications, we optimize technology and business processes. Through our Centers of Excellence and Innovation Labs, coupled with our functional business expertise, we develop custom industry solutions and accelerators. Our proven, repeatable and scalable methodology enables enterprises to realize the maximum business value from investments. Our success is bolstered by long-term strategic alliances with the world's most advanced business software companies, helping us deliver better, faster, and more cost-effective solutions.

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About Tata Consultancy Services Ltd (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery ModelTM, recognized as the benchmark of excellence in software development. A part of the Tata Group, India’s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India.

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