Is what got your bank or credit union to where you are today helping you become future-ready or holding you back? In other words, are legacy processes and thinking getting in the way of digital banking transformation?
Business as usual is not a good recipe for success. Many financial institutions have people throughout the organization thinking and acting as they have for decades, but banking is in a period of disruptive change, so the results of their efforts are not as strong as in the past.
While legacy technology often gets all the attention, legacy thinking is often preventing organizations from realizing the full benefits of modern technology and hinders the ability to adapt to changing market conditions. This stifles innovation and impacts an organization’s ability to make informed decisions quickly and at scale.
To respond, banks and credit unions must support a shift in culture, mindsets and processes, including investments in training to ensure that employees will support business transformation without holding on to legacy thinking and processes.
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Digital Banking Transformation Requires Experience and an Open Mind
Legacy thinking comes from experience, so it isn’t entirely bad. “Overcoming legacy thinking doesn’t mandate erasing every strategy, idea or leadership concept you’ve ever used in the past,” says Daniel Burrus of the technology consulting firm Burrus Research. “Instead, identify those ideas and strategies that continue to serve you well while pinpointing others that may have worn out their value.”
According to an article in the MIT Sloan Management Review, the ability to innovate and transform an organization requires four organizational capabilities:
- Nimbleness: The ability to quickly pivot and move from the current state to the desired future state.
- Scalability: The ability to increase capacity to serve a greater universe efficiently and effectively.
- Stability: The ability to maintain operational excellence during times of massive disruption.
- Optionality: The ability to leverage external collaboration to expand capabilities.
Each of these capabilities require leveraging modern technologies, such as applied analytics, artificial intelligence, machine learning, cloud computing, the internet of things and robotic process automation, along with an organizational mindset open to change. In other words, the balance of legacy experiences paired with the ability to rethink processes will increase the potential for success.
According to the research in the MIT Sloan Management Review, “When a company has the right culture to leverage the capabilities of a robust digital infrastructure, it is relatively easy to make quick decisions and repurpose that infrastructure for new challenges that emerge during disruptions.”
Organizations with a “challenger mindset” encourage experimentation and continual learning, support and organize around internal and external collaboration, and accept the potential of failure. This supports continuous digital banking transformation.
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‘Being Digital’ Is an All-In Proposition
Most banks and credit unions grossly underestimate the challenge of digital transformation. Buying advanced technology and new digital solutions is simple compared to changing legacy processes — and imposing discipline — that can enable the benefits of digitization. Many longtime veterans within an organization can be hesitant, whether wholly or partly, to embrace new technology critical to future growth and success.
To help address the hesitance of legacy executives to embrace modern technologies, leaders must articulate a visionary digital value proposition. This value proposition must define how digital technologies will enhance an organization’s ability to create new customer (and business) value. In pursuit of ‘being digital,’ there must be agreement that old analog processes will not stand in the way of digitized excellence.
As we research financial institutions globally, we find that organizations are successfully engaging third-party solution providers that can implement exceptional digital solutions at speed and scale. Unfortunately, in the majority of cases, banks and credit unions can’t let go of some of the most inefficient legacy processes that derail the benefits of the solution.
To Act Differently, First Think Differently:
One of the most important steps in making the shift to digital is discarding outdated legacy mentalities.
For instance, financial institutions that purchase new digital account opening solutions won’t embrace digital know-your-customer components, which would replace outdated processes requiring the presentation of a driver’s license. Similarly, despite the availability of digital solutions that can pre-fill the majority of customer information on a loan app or new account form, many organizations still require the consumer to complete long and tedious mobile forms.
Remember, the next time your financial institution considers investing in new technology, there may be challenges with legacy thinking that can undermine the return on investment or possibly derail the solution entirely. Just as old core systems can hamper digital banking transformation, legacy thinking can cripple your organization as well.
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For Transformation Success, Balancing Continuity and Change Is Key
Finding the right balance between continuity and change can help financial institutions better manage the internal struggles that occur during a digital banking transformation. As the terms imply, cultural change refers to how digital banking transformation may alter a bank or credit union’s culture, while cultural continuity refers to the components of a bank or credit union’s culture that remain stable.
According to an article from Carsten Lund Pedersen in the MIT Sloan Management Review, “Change without continuity results in chaos, while continuity without change results in conservatism.” In banking, we tend to overly favor continuity … especially with legacy processes that have been in place decades.
The key is to find the appropriate balance, without negatively impacting progress. The most successful digital banking transformation initiatives have continually changed underlying business models to align with technological developments, while simultaneously maintaining the core cultural values on which the organization was founded. According to Pedersen, “Managers must demonstrate both their openness to change and respect for the existing culture. Moreover, they need to be explicit about which parts of the culture might change and which parts should remain stable, while emphasizing how this cultural shift will affect the core identity of the organization.”