Transformation is not a ‘me too’ strategy

Business leaders in financial services finally recognize that how they use technology and their data is a critical to their business’s success.

Financial services have struggled to adopt transformation technologies for a number of reasons. Speaking with CTO’s or CIO’s the prevailing discussion focuses on a couple of key themes, ‘how do I continue to reduce cost ?’ and ‘how do I innovate ?’. These are competing agendas and in many cases the balancing act of doing both does not work. The end result is that true transformational business capabilities are rarely achieved. There is always a right way and a wrong way of using tools and many companies race headlong into the use of new technologies lacking a true vision of how the end state will accelerate business growth. The following is an ouline of two technologies that have transformational implications that are yet to be fully harnessed by financial services firms.

Cloud

Migrating your compute environment to the cloud at first glance sounds compelling. You pay for what you use and get a superior service at lower costs due to shared economies of scale. In addition, you take advantage of an ecosystem of tools and services designed to accelerate development. The reality is that legacy systems have a huge drag on project execution since the discipline of full application management and deployment in the cloud is very different than on stand alone servers. In many cases in order to get the full benefit of a cloud environment you need to rearchitect your systems and operations processes.

A former colleague was tasked to present their “moon shot” of creating a full elastic compute environment for a major bank. His proposal — ‘You get to migrate all your applications to the cloud, only use the compute power you need and only pay for what you use. On top of that your development and deployment lifecycle will be almost instantaneous since “automation” will be fully available’. The senior leadership of the bank loved the idea of solving all those pesky operational and cost issues in one go and funded the lift and shift program. Two years later all involved have either been fired or moved to other jobs and the overall ‘cloud’ project is stranded with minimal funding and a lot of finger pointing. The failure to build parallel devops capabilities together with micro services architecture for new applications created an environment which became overly complex and expensive.

Being compelled to move to a cloud environment is often driven by a ‘me too’ approach. When a company is convinced it’s competition is doing something different they often follow suit. As in the case sited above simply lifting and shifting your environment to the cloud does not solve the underlying issues you have with application development and deployment. It simply pushes your transformational goals further out since most of your team are focused on the the migration and not on new architecture.

Many companies fail to recognize that simply moving to the cloud does not accelerate the software development lifecycle unless a comprehensive devops program and architectural changes are adopted in parallel. Not many companies can do both at the same time since the majority of their resources are focused on managing the existing environment.

Lessons learned from dramatic failures should give pause to the idea that simply lifting and shifting to an elastic compute environment is cheaper and easier. Technology transformation can only be achieved with a comprehensive architecture and technology roadmap.

RPI / RPA

RPI or RPA is the hot new term for process automation which in effect applies the artificial intelligence or machine learning tools used to extract insights from vast amounts of data. Ubiquitous data and mobile solutions are driving company’s to apply automation and machine learning to augument their products and services.

Driving customers online has had huge benefits for financial services institutions in the form of cost savings and effeciencies. The dilema that arises is that those customers are at arms length and creating a personal relationship with them is more difficult. The use of intelligent agents, ‘robo advisors’ has been tested in some markets with variable success. The direction banks are going is to use artificial intelligence with the data available to customize the products and services offered to customers.

Banks have been unable to use the Amazon, Facebook or Google data approaches to their customer interaction. Legacy banking systems are a tether that are holding back innovation at these firms. SOA architecture has enabled firms like Amazon to be flexible and nimble. FinTechs have momentum in building a base of customers, especially among young adults. Many of these new entrants come from the innovation centers that created Amazon, Google and Facebook.

We now use the term ‘google it’ to describe how we look up information on the web. We have come to trust Amazon to get us our goods within the exact time declared at checkout. We have begun to ‘trust’ these companies services because they have proven to us they are reliable, add value and are convenient.

As I have stated in my previous post the issue of trust has kept fintech companies from eroding bank’s hold on customer relationships. As companies show their capabilities and as customers begin to trust these relationships more we will see rapid change. Products such as Venmo, Apple pay, Google Wallet will make inroads into the traditional relationships banks enjoy today. Once these relationships transition then the investment management, lending and other relationships will follow.

The future banking arms race is not so much about the technology, it already exists, but with the trust embedded within the relationship built when organisations, over time, prove their ability to deliver value and convenience to their customers. Nutmeg, Acorn, lending club are but a few firms that aspire to own that trust and they have the advantage of being nimble in a business that is evolving at an increasing pace. The question remains: Who will be the winners and loosers in this race ?

Finally:

A look at some of the findings of PWC’s Global survey of financial services shows that CEO’s are becoming more dependent on data, analytics and technology that delivers value to a more demanding customer base. Unless Banks invest more in technology and innovation they will loose business to FinTech companies that are not constrained by legacy systems and approaches.

Technology transformation is a term often used to describe a companies strategy to become more competitive and reduce their dependency on legacy systems. Unfortunately in many cases the true value of transformation get’s lost in the focus to reduce cost and increase efficiencies. While not diminishing the value of renovating companies systems, that should be an ongoing process, true transformation focuses on how the business will change to gain market share, increase revenue or even capture new markets by using technology as the tool to execute the business strategy.

Thanks for reading

Best regards: Norman King

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