Five Things to Consider During a Financial Institution Transformation
For the past decade our firm has been helping financial institutions manage tremendous industry and cultural changes, helping them remain relevant to their customers and to find efficiencies required to sustain growth. Our projects often start with the move to smart banking and new channel strategies that have lead to a decline in branch number and sizes, but then lead us to other areas not originally considered by the client. In order to respond to the growing disruptive power of fintech upstarts and other new ways customers can access their money, it is our belief that it is critical to leave no stone unturned. In our experience, financial institutions can better balance the risk inherent with transformations by considering the following five key insights:
1. Successful transformations happen in steps, not leaps
I remember the first time we were introduced universal banker desks and video ATMs as part of an assignment to modernize a major North American financial institution: through the lens of security videos and customer exit interviews, it became quite evident customers were not ready for the changes. The use of video ATMs and the role of universal bankers were poorly understood, even when explained by a talented lobby manager. For customers, the pivotal issue was the lack of conventional queuing systems. The experience was so dissimilar from their expectation, they found it frustrating rather than beneficial. The lesson we learned is that building new customer behavior is best done by breaking down the transformation into smaller incremental changes that can be easily assimilated. In the case of the universal banker, it would have been best to introduce a new electronic queuing system similar to the ones we have been installing in our Chinese bank programs. Utilizing a simple electronic system to ease customers’ anxiety would be a small step towards changing the larger behavior of welcoming the universal banker. Through many years working on transformation assignments, we have developed the “Trust Ladder” model that ensures behavioral changes are seen in the right light, and to that end, timing must be carefully planned.
2. Alignment is critical right from the start
On many major programs, the senior leadership team’s directives are understood differently by the various individual departments involved. We have found this is not a unique problem, that in fact internal alignment is frequently a challenge. As such, it’s important major transformation initiatives start with a project charter clearly identifying the key objectives, KPIs, KVIs, milestones and deliverables. This document acts as the contract for each department, at each level of the organization. Everyone must sign the document, and it then ought to form the foundation of every meeting. When decisions are being made and various paths are considered, the organization can then refer to the project charter to ensure the point of the compass has not veered off course.
3. Transformation is a journey where the destination may never be reached
Customers’ banking behaviors are changing not by the year, but by the month. With the advance in new technologies, start-ups and the changing needs of Millennials and up-and-coming Generation Z, the concept of a final solution is an unattainable myth. Historically financial institutions have based brand transformations on capitalization schedules, with most following 10- to 15-year cycles. Today, transformation programs are not about identifying a final design, but more importantly understanding what element of the customer banking journey needs to be transformed. This has lead some of our assignments to focus on the development of learning lounges, online banking areas and the introduction of digital signing within the branches. In most of these instances, the goal was not to reinvent the branch experience but to identify potential gaps in the current experience where new elements could be added. If the focus is to arrive at a destination, our experience has shown shortcuts are taken and decisions are made that may not benefit the bank in the long term.
4. Being nimble and modular is the key to success
The average bank network consists of 1,500 branches in Canada, 5,000 in the U.S. and 10,000 in China. Most transformations tend to take more than 10 to 15 years to upgrade the entire network, and in most instances a new transformation occurs before the entire network is completed, leaving a disperse range of branch designs in its wake. Any transformational changes need to factor in the conventional lag of time it takes to change each location. On the majority of our assignments, we develop a “kit of parts” with more weight given to those elements that have the biggest impact on change. This approach allows a tiered investment, pending the location of the branch, its lease lifecycle and trading area demographic.
5. Make it a collaborative and inclusive process
It’s interesting to note that for the many transformation assignments we have completed, the client ownership of the project has varied from brand management, facilities, architectural design and leasing, to name just a few. Irrespective of who “owns” the project, what is critical to the success of any transformation is the collaborative approach and inclusive nature of the process. Since most true transformation projects touch all aspects of the organization, it is important everyone has a voice and a stake in the final outcome. It’s not uncommon for our firm to be retained after a transformational project failed, when a single department was singled out as the owner of the initiative. Assigning a cross-functional team with project champions across the entire c-suite is critical in ensuring the initiative gains support, and is able to hit key junctures and resolve roadblocks.
Each of us knows that to change our behavior as an individual is an enormous challenge. Asking an entire organization to change is even harder. Not everyone sees the need for change from the same perspective, or places equal importance on the various areas for transformation.
Looking back at the 27 years we have been implementing bank transformations, it is evident a successful program can have revolutionary effects. We rigorously encourage that these five insights inform the process – overlooking them places a transformation in peril. It is never a lack of need or desire that prevents an initiative from reaching its full potential – it is a lack of understanding of these pivotal elements of change management.