Does FSI CEO have to be personally involved with digital transformation?
Also in this issue: How Does Teaming Structure Evolve During a Digital Transformation Journey in FSIs? Other FSI Digital Transformation Weekly Reads
Does FSI CEO have to be personally involved with digital transformation?
"Why don't they tell me this directly?" asked an FSI CEO after I told him that the majority of his leadership team disagreed with his guidance about tighter management of digital transformation. He was hired due to his track record and proven playbooks, and his leadership team meetings seemed engaging without fundamental disagreements. Yet, after one year in the role, the bureaucracy in his organization was getting worse. "They are afraid of you and of losing their jobs, you know—mortgages on two homes, kids in private schools. Unless you engage directly with their teams, the resistance will keep growing."
Just like passengers on the NYC subway who look away when someone gets assaulted, many FSI executives prefer not to be directly involved in digital transformation. It's perceived as messy, and individuals may fear being blamed if things don't work out. They could willingly endorse a pilot or talk about the benefits of transformation, but engaging personally in conflicts with colleagues is something they avoid. For these executives, the key skill lies in maintaining a favorable perception and avoiding disruption among politically entrenched colleagues. A genuine digital transformation could potentially jeopardize meticulously crafted alignments built over the years.
The fear of change and reluctance to challenge the CEO among FSI executives create a strong interdependence between the CEO's behavior and the pace of digital transformation. There is simply no one else who can inspire and motivate the entire organization for the challenging journey, lead by example, and establish new behavioral norms among a scared and resistant audience. Digital transformation is also complex and counterintuitive from the perspective of typical FSI executives and employees. It raises questions that do not have simple answers, and only the CEO can navigate through endless debates and take accountability for decisive actions.
In previous newsletters, we discussed the role of the CIO as a business enabler and the Head of Digital Transformation as a temporary accelerator, and the Head of LOB as a hands-on coach. Behind each of our successful transformation stories, there is an engaged CEO. However, when such executives attempt to drive strategic decisions without a CEO, they tend to back off due to a lack of political weight while upsetting some of their colleagues in the C-Suite. Many of you have likely observed such debates where the CEO avoids taking accountability.
The hands-on requirement of digital transformation is clearly not what some FSI CEOs initially signed up for. For many of them, the perception of IT as an annoying cost center has only recently shifted to the embrace of PR benefits from exalting digital transformation. These CEOs do not yet naturally perceive their role as that of a hands-on change manager. Heck, some FSI CEOs may even lack certainty regarding whether their interest rate exposure is properly hedged. Navigating digital transformation would be rocket science compared to that.
The fallback trick is simply labeling every change in technology capabilities as a 'digital transformation.' Take, for example, this recent announcement from Manulife Securities about launching a new portfolio management system:
"We are excited to take another next step in our digital transformation by providing this upgraded experience to our advisors and their clients," said Richard McIntyre, president and CEO, Manulife Securities. "… platform will improve advisor productivity and reduce administrative burden with enhanced technology and introduces new opportunities to offer our clients a consolidated experience."
What is the exact digital transformation step here? Would this platform enable Manulife Securities to target new client segments with new products due to mastering favorable unit economics? Would there be a rapid acceleration in advisors/clients switching to digital self-service? Would the group now transition to a cross-functional operating model flattening its management overhead? No. It is the same good old purchase of a technology tool that somehow would be transforming the company by its own virtue.
In a digital transformation workshop with an insurance company’s C-Suite, I asked if anyone had visited their best Agile team. The response was disheartening - no one had, except for one person who knew the team was located in the basement. With my continuous emphasis on the importance of participating in the 'making of a sausage' process, the CEO appeared energized by the end of the session, proclaiming, 'We must all roll up our sleeves and go to the basement on a weekly basis.' However, a year later, no one followed through, and coincidentally, the company continued to lose 5% of its revenue annually.
The good news is that there is a growing list of FSI CEOs who appreciate the full weight of their responsibility and are not delegating away this challenge. Here is how the CEO of Jamaica’s largest banking group, NCB Financial, views his role:
“When we decided to go agile it was a significant risk. As it is said: 70 percent of such projects fail. I said to myself that, as fearful as I am, there is a greater risk if we don’t transform… You have to engage the entire organisation, and the only person who can do that in a meaningful way is the CEO…”
Is your CEO ready to step up?
How Does Teaming Structure Evolve During a Digital Transformation Journey in FSIs?
After gaining a clear understanding of the purpose behind digital transformation, which involves a change in the business model, FSIs face the challenge of transforming their operating model to accommodate a new business paradigm. This is often where many FSIs encounter issues, as they tend to utilize incorrect or inconsistent terminology when defining different teams, leading to considerable internal confusion and wrong expectations.
As mentioned in another newsletter, prominent FSIs and fintechs are converging towards a singular target state for their operating models. Over the course of years or decades, your FSI will also gradually adopt this structure:
Within this envisioned target state, two primary team structures emerge: vertical teams responsible for revenue generation and horizontal teams focused on enabling the vertical teams. As an FSI progresses through the five stages of digital transformation, higher levels of operating maturity facilitate the development of more advanced teaming constructs. An initial IT project team, tasked with delivering business value within a set budget and timeline, evolves into a persistent IT Product team. Subsequently, this IT Product team further evolves into a business-driven cross-functional Value Stream. On the horizontal side, a shared Application team evolves into a Platform team, enabling the development of various application classes.
Larger FSIs face the challenge of maintaining consistent naming conventions across LOBs and Functions as they progress through those five maturity stages. It is important to note that this discussion pertains specifically to the context of digital transformation. Even in highly advanced fintechs or digital-native companies like Spotify, there are still roles that have not yet undergone a transformation. Functions such as HR, Compliance, and Finance in these companies are evolving at a slower pace, with many employees still operating in traditional silos. Therefore, FSIs should resist the inclination to adopt a one-size-fits-all operating model for every LOB and function. Instead, they should gradually evolve the operating model (including naming conventions) in a manner that aligns with the specific needs and purposes of each area.
Although vertical and horizontal teams serve distinct purposes, they share two key design elements: 1) T-shaped team member role profiles to perform multiple tasks, and 2) a minimal number of team members required to achieve their goals. It is common for many FSIs to overstaff teams as a precautionary measure to compensate for gaps in experience and ensure coverage of all potentially required qualifications. However, as discussed in last week's newsletter, a more effective approach involves supplementing internal employees with a select group of skilled contractors.
In my experience, the role of a product analyst within a value stream is particularly challenging to perfect. It requires an individual with deep expertise in the target market for the underlying use case. However, the truly difficult aspect, which cannot be easily acquired through learning, is the ability to effectively engage end-users while also building analytics for A/B testing. Many FSI employees excel in only one of these attributes, making it a time-consuming process for some FSIs to find the right person. I have witnessed instances where FSIs spent years sifting through numerous hires before discovering the ideal candidate.
When assessing the digital teams within your FSI, begin by identifying the most advanced teams and pinpoint any gaps compared to these best practices. With experience, it would take an hour of observations and interactions to ascertain these gaps. Subsequently, you can collaborate on establishing a shared understanding of what constitutes excellence at the current stage of maturity and how to support these teams in reaching that level. Once an internal gold standard for vertical or horizontal teams is established, the adoption of best practices becomes significantly easier to accelerate. After all, the digital transformation of FSIs is essentially a series of incremental transformations across the organization, one team at a time.
Other FSI Digital Transformation Weekly Reads
Singapore Bank DBS: A Blueprint For Digital Transformation In Finance