Digital transformation: A necessary evil or just evil?

By: Sathish N
October 2015

SATHISH N

HEAD – ACCOUNT MANAGEMENT
SUNTEC BUSINESS SOLUTIONS

Sathish is currently heading the Global Account Management in SunTec. A professional services leader with 20 years experience in the Software Product industry, Sathish is responsible for achieving highest levels of client services and satisfaction thereby deepening SunTec’s relationship with its clients globally Sathish has previously held Senior Leadership positions in various global locations with organizations including Oracle Financial Software Services formerly i-flex solutions and CITICORP- CITIL), Kshema Technologies (now part of HP) and few others. 

Digital transformation is well under way within certain industries after years of false starts, cancelled contracts, and nudges from regulators. Improvements in digital experience is advancing by the week thanks to Apple, Google, AirBnB and Uber who have changed the way in which businesses interact with their customers. Businesses today do not have a choice but to ensure they offer a similar level of customer experience delivered by digitally native US technology vendors.

These new digital experiences are challenging for traditional businesses like banks and telecoms service providers to implement due to technical limitations. Factors like risks associated with legacy technology replacement, CIO tenure, business and budget pressures and board mandates make it convenient to push digital transformation for a later point in time.

Organization-wide transformation projects carry large risk, but to reduce that risk they can be broken down into stages of implementation. But are businesses targeting the right areas to improve their transformation strategies by offering better services and processes for customers and employees? A progressive start would possibly be to draw a risk-based system/application architecture map which aligns the IT strategy with business objectives. 

New technology has driven disruption and traditional industries have no choice but to find ways to adapt to customer experience trends and demands. It is time the heritage banks and telecoms businesses tackle the necessary evil of prioritizing areas of their technology that needs to undergo transformation.

If the boardroom decides to satisfy customer demands by changing their entire IT Landscape through a rip and replace method, digital transformation of core systems will end up as an evil, resource-consuming process. Many failed large-scale transformations have been recorded by the media because of the substantial waste of financial and human resources, some of which came from the taxpayer.

Banks that set out to completely revamp their technology stack often find modern software and hardware co-existing with the Legacy systems, and it is a complex task to move or rebuild an exclusive new network.

There certainty are more collaborative IT approaches for banks, which has room to accommodate partnerships with FinTech startups to offer services to digitally-enabled customers. Recent takeovers of startups by established corporations means that it is more practical to merge technology stacks to produce a more robust and modern system than completely change it. The risks associated with not reviewing and updating banking systems far outweigh the impact on customer service if legacy systems were to fail.

To develop trust with customers, businesses should be providing the user with an experience that they are accustomed to in their daily Lives. To create the right experience on an individual Level, banks and other businesses need to show that they have a better understanding of their customers in order to bring about a personal connect. One of the most important reasons is to make full use of the treasure troves of customer data, historic and current, which can provide meaningful intelligence for organizations. This is the competitive edge that established businesses have over the new disruptors, and
this potential is not being fulfilled due to the siloed application and database architectures which are currently in operation.

Data trapped in legacy systems, which are generally not interoperable with other systems in the IT architecture, prevents customer data from being used in a holistic manner. This inflexibility will cause bigger headaches for banks and telecoms businesses because 90 percent of the data in the world today has been created in the last two years and the rate of data growth is set to continue.

To manage the data explosion, banks have already spent $188bn (£120bn) on IT over the last year and this figure is expected to go beyond $200bn (£128bn) by the end of 2016. Unfortunately still, the majority of IT budget and resources are still set aside for running the business, instead of looking into new projects which will transform business operations. Today, over three quarters of IT spend goes on maintenance and keeping the legacy systems fit. This means only less than a quarter of the budget is invested on innovative, business transforming technologies, and some business and IT Leaders view the ratio of spend as a waste of resources because banks are trapped by the need to keep legacy technology running.

Some innovative businesses are working on reducing the margins on the money spent on maintenance of legacy technology by investing in non-intrusive middle layer solutions. This layer in a corporate IT architecture can bridge die digital, technology and business functionality gap created by siloed heritage systems, by orchestrating those gaps at this layer and providing the experience that internal and external stakeholders are expecting.

The middle layer provides a low risk model with measurable outcomes and is more palatable for the boardroom to digest when it is discussed how a business can move into the digital age. Priority applications and systems can be replaced over a period of time while new strategic initiatives and technology advancement required by businesses can be managed by the middle layer.

Banks such as Standard Bank are already ahead of the game by creating a middle layer in the infrastructure to encompass digital and non-digital channels, payments and analytics which make up a typical banking technology infrastructure.

Research shows 88 percent of organizations plan to undergo a significant digital transformation yet only 25 percent have mapped this out. Often corporates find medium to large-scale transformation initiatives as ‘evil’ because they often don’t have a high risk strategy in place

with a clear end goal or business objective, owing to many reasons. Technology vendors like Apple, Google and Samsung have vast amount of financial resources to spend on technology innovation which traditional industries cannot match. Whilst banks and telecoms business shouldn’t attempt to match this spending, it should be an impetus from them to follow the latest customer experience trends from this sector.

Customer-centricity is the key to understanding customer experience and heritage businesses still have gold mine of data to base new offers and products from which new disruptors from Silicon Valley crave. In relation to changing organizational culture, having employees enter this mind-set will allow corporates to build and price a strong product portfolio and know which parts of the IT infrastructure needs to be upgraded first to gain quick wins on customer experience.

Working back from the overall corporate goals, product, marketing and IT teams can improve customer experience such as increasing mobile banking features and special account offers, tracking a letter of credit, bandwidth usage or reducing fees when transferring money between Europe and Asia, will enable transparent planning steps to be put in place.

Digital transformations normally take a considerable amount of resources and time to be successful, but the process will be significantly improved if a customer-centric strategy is in place beforehand. Before implementation, senior management needs to have a view of the risk-based system/application

architecture map highlighting specific impacts to the business and technology.

The resources and time spent on changing the business should be seen as the necessary requirement within the business, from the ground up. Increasing digital capabilities does not only transform the technology infrastructure, it transforms the way an organization operates and interacts with its customers and employees. Digital transformation, when done with the customer and non-intrusive middle layer, will not be an evil deed but will deliver a heavenly outcome on customer experience and business growth.