“I have one word of advice for you, Benjamin. One word. Are you listening? ‘Digital.’”
Whereas “plastics” (the one word of advice for Benjamin Braddock in The Graduate) may have defined the future in the 1960s, “digital” is defining the future in the 2010s. In a nutshell, digital can mean the reliance on technology and online capabilities to shorten and/or simplify processes, reduce costs, and reconfigure services. It can mean the transformation of what we buy, how we buy, and how we interact with businesses. Think online transactions, internet-driven automated services, remote call centres, and individualized marketing driven by personal data. It’s a big deal.
In financial services (where I spent much of my career), we’ve all heard about the disruptive technologies that have enabled new competition to enter many facets of the business – from technology behemoths to small startups nipping at the banks’ ankles. The big five are very worried. So, the banks have all undertaken massive restructuring programs to redeploy resources – cutting from traditional businesses and from administrative/support functions, in order to fund a growing digital model.
There should be a sense of urgency within the banks regarding the new competitive environment. There should not be, however, a sense of panic. Unfortunately, that’s what’s happening. Resources are being thrown at anything with the moniker “digital.” Lost in the stampede to digital are the notions that the company still has to run properly, and that existing businesses and customers still deserve appropriate attention.
What’s needed is a transformation that is managed methodically and with appropriate balance. It should be done expeditiously (i.e. with a sense of urgency) but not recklessly (i.e. with a sense of panic).
Here are a few themes to remember through any such transformation (focusing on the banking world):
It’s still evolving
Throughout modern business history there have always been major changes in the competitive and/or customer environment. Stronger companies anticipated, adapted, changed if necessary, and thrived. Weaker companies reacted, retrenched and sometimes failed. Sometimes the change occurred relatively gradually, as with the migration of retail from High Streets to suburban big box stores. Sometimes it occurred fairly quickly, like when Canadian manufacturers woke up to a host of new large-scale competitors enabled by NAFTA. The current threat to financial institutions results from disruptive technology, enabling new entrants such as Apple, Google or Square in the payments business, Kabbage in the lending business, and Wealthsimple in the competition for investment dollars. There’s a raft of new competitors out there.
While not dismissing the threats, let me say, “so what?” So an FI (Financial Institution) has new, potentially game-changing competition. Go ahead and address that competition. But, this is not an immediate, existential threat. FIs should not forget that the majority of their customer base is not yet in that arena. Consider that mobile technology is central to most fintechs’ new offerings. As of mid-2016, about a third of Canadians use mobile banking technology. Although this will undoubtedly increase over time, the fact remains that the majority of consumers are still paying by debit, credit or (!!!) cash. A majority of borrowers are still talking to lenders rather than getting loans through smartphones. And, investors are still talking to investment advisors.
While the trends and the threats are obvious, they do not constitute a reason for financial institutions to abandon sound business practices and immediately shift support from the services that the majority of their customers still use. In their rush to digital, companies are panicking. In rushing to serve customers of the future, they are pissing off the customers of the present.
The world is changing, but it has not suddenly closed and locked the door on everything that was done prior to 2016. Better to treat this as an evolution (albeit a fairly rapid one), making sure it’s done rationally.
Strike a balance
Until recently I worked for one of big five Canadian banks, in a function that was restructured (i.e. downsized) to fund new digital development. The company’s rationale for major job cuts was that it was shifting emphasis (i.e. people, attention, $) from functions that “run the business” to those that “build the business.” All well and good, but you still have to run the business, and run it well. You still have to take care of the customers you have, and provide them with the service they came to you for in the first place. These requirements don’t diminish just because new competitors have entered the industry – in fact, they become more important.
When resources for existing businesses and/or customers are limited, there will almost always be consequences, perhaps in advance of the newly funded digital-based services being implemented. Here’s one small example. Retail investment advisors within my former employer had long been promised an investment administrative system that would provide standard client reports such as a year-end gain/loss statement without the need for extensive manual calculations – a fundamental, basic client service. Once the digital transformation was underway, however, it became clear to the advisors that the IT resources assigned to this priority item no longer constituted an “A” team – not even a “B” team. Clients and advisors had to make do, because the best IT people and an increasing amount of IT budgets were busy developing new digital services. The task still isn’t done, and some advisors (with their clients) left the firm in frustration. They saw that the company’s priorities lay in (for example) creating a 7 minute turnaround for a small business loan application process relying on online profiles. While this may be attractive to a limited number of future clients, it’s clear that the reorientation of resources sacrificed a current client in favour of a potential future client, the current business in favour of a future business.
A more prudent approach to new digital-based competition would be strike a balance between running what was already in place and building capabilities for the future, rather than throw all the weight on the “grow” side of the scale. Avoid at all costs an attitude of “digital=good,” “non-digital=bad”. All customers matter.
Years ago I worked for an executive who complained that I lacked a sense of urgency. He was uncomfortable with the fact that I appeared to approach new challenges, however important and time-constrained, calmly and methodically. His attitude could be described as, “I’m panicking; you should too.” Over time, he came to realize that a methodical, rational process can be just as quick, and usually more effective, than one where people flail around chasing shiny objects and shadows.
Don’t panic. Calm down. This doesn’t signify complacency; it just means that just because a company has ignored or downplayed new competitive conditions in the past (the advent and implications of the digital economy were first described over twenty years ago), it should not abandon sound business principles and processes in correcting previous failings.
When resources are limited for administrative and/or support processes, a company risks compromising its ability to operate properly, effectively and in accordance with the law. Sure, increased efficiencies can almost always be found in areas that are not customer-facing or revenue-producing. However, cuts of the magnitude we’ve seen in the banks require wholesale changes in the business processes underlying the functions, and in the technology supporting them. That isn’t happening. Instead, a smaller number of staff just ends up doing the same work as before, in the same way, using the same tools. It’s short-term thinking, and is usually a recipe for disaster in terms of employee engagement, retention and performance.
A more rational approach to administrative/support functions recognizes that they are necessary and indeed valued, and focuses on a clearly-marked road to increased efficiency. Efficiency through edict, while the bank is busy chasing shiny objects, will almost certainly be a short-term proposition.
Don’t get me wrong – I recognize as much as anybody that the world of FIs is changing rapidly and banks especially need to keep up. At the same time, however, they should remember that there are still businesses to be run and customers to serve. Sound business models that will enable the banks to compete with the current fintechs as well as other, not-yet-identified competitors will result from sound business processes and a reasoned approach. Throwing more resources at a new contingent of tattooed millennials in skinny jeans just won’t cut it. It’s time to address the new world without the frenzy, histrionics, or drama.