“Transformation is an overused word and an underdeveloped concept at most banks and credit unions,” contends Jim Marous, Co-Publisher of The Financial Brand and CEO of the Digital Banking Report.
And that’s part of the reason why only about 30% of companies that announce a transformation goal actually achieve that goal, according to McKinsey research.
During a recent episode of the Banking Transformed podcast, Marous spoke with Seth Goldstrom, a McKinsey Senior Partner who works with companies — including financial institutions — to support business transformations.
Successful transformation can help a financial institution achieve its full potential in digital banking and beyond, notes Marous, adding that transformation is not a project or a destination but a continuous process of adapting to volatile and uncertain environments to become more future ready.
If transformation is so important, why do so few banks and credit unions seem to get it right? For one thing, even when “limited” to digital transformation, the scope of transformation is often much wider than anticipated, impacting not only technology issues, but workforce skills, company culture, business process and organizational structure. It’s more than most institutions anticipate.
Recreating the PPP Miracle
On the other hand, in the recent past financial institutions did an amazing job of transforming their loan operations in response to the pandemic. Who would have predicted that banks and credit unions would provide PPP loans to customers and non-customers alike with only a few days’ notice and a remote workforce?
“It’s hard to even get your head around how much companies really transformed in a very short period of time because they had to,” says Goldstrom.
Can lightning strike twice? Absolutely. But so far the impressive response to the pandemic’s do-or-die scenarios, have not been the lever for further transformation in banking that many hoped for.
Goldstrom believes this can change, however, without another pandemic-type crisis. He lays out how banks and credit unions can meet the transformation challenge by employing nine key tenants.
1. Shoot for the Stars
“Companies that succeed at transformation focus on the full potential of what is realistically achievable,” explains Goldstrom. However, most banks and credit unions underestimate transformation potential by as much as two-and-a-half times. They are selling themselves short.
While it’s human nature to under promise so you can then overdeliver, Goldstrom says that those financial institutions that set goals outside of their comfort zone are most likely to succeed. “Don’t high ball what you will do when going after budget and then negotiate down your goals and targets,” advises Goldstrom.
2. Move Fast
Rather than a slow and steady linear progression over two or three years, transformation progress should resemble a hockey stick in which you front load progress, aiming to achieve about one-third of your transformation results in about six months or less. “Companies that are most successful at transformation get to about a third of their results on a run rate basis after a quarter or two,” says Goldstrom. “When you can get results quickly the odds of success go up enormously.”
3. Execute at Scale
If you’re managing only five different initiatives, your current project management process is probably adequate to handle more. And transformation at a typical large institution means hundreds or thousands of changes have to occur. “You need to build a knowledge process to execute that many changes at scale,” says Goldstrom.
Since McKinsey research has found that an individual can only manage one or two initiatives at a time, banks and credit unions will need to mobilize dozens if not hundreds of employees. A knowledge process keeps everyone working in lockstep.
4. Keep Your Eye on the Prize
It’s the age-old “can’t see the forest for the trees” dilemma. Banks and credit unions get caught up in doing a set of activities perhaps tied to a process improvement methodology like six sigma or agile but don’t keep an eye on the outcome or ensuring that the broader financial institution knows why they are even working on transformation.
A process improvement methodology is important, Goldstrom states, but don’t get so caught up in the details of discrete tasks that you forget the vision for where you want to go and what that looks like in terms of strategy and performance.
5. Focus on Growth
“Companies that are successful at transformation have an obsession with growth rather than cost reduction,” explains Goldstrom. “They spend as much time on growth as they do on efficiency.”
Banks and credit unions tend to focus too much on near-term performance rather than focusing on how transformation will make them a more vibrant and exciting company five years from now. Ultimately, notes Goldstrom, that comes back to growth.
6. Don’t Get Stuck in the Past
Not to imply that leveraging the successes and missteps of last years’ strategic plan to help inform transformation is not helpful, but many banks and credit unions focus too much on a historical view when planning for the future. “How in the world are we expected to achieve transformation when our starting point is the past?” asks Marous.
Rather than orienting transformation goals around solving next year’s budget, orient goals around achieving your financial institution’s full potential, says Goldstrom. (I.e. See point No. 1.)
7. Really Want It
Even though the components and details of transformation have evolved over the years, what has remained the same is that the banks and credit unions most successful at transformation really want to change for the better because they don’t like where they are today.
“A person or organization has to be very uncomfortable with how things are today to succeed at transformation,” says Goldstrom. “There is no sense of complacency. There’s a real desire to be the best they can be, either individually or as an organization.”
8. Build Excitement
Depending on how long they’ve been with the financial institution, employees have likely been through at least one transformation at some point in their careers. If the transformation feels like ‘here we go again,’ it won’t be successful, says Goldstrom. “It needs to feel more like a wedding than a funeral,” the consultant quips.
It’s up to the CEO to build excitement by articulating why this transformation is different. Since it can be more difficult to capture employees’ hearts and minds in virtual meetings versus face-to-face, be prepared to spend more time than in the past building excitement.
9. Democratize Transformation
It’s important that people feel that they are part of the transformation rather than just having transformation done to them. Instead, banks and credit unions must democratize the process. “Don’t confine transformation to a department or a few individuals, but share it with the rest of the organization,” recommends Marous. That way employees feel like they are part of the transformation rather than on the outside looking in.