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What is Digital Transformation and How Do You Get it Right?

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While financial institutions are grasping the opportunities offered by the digital transformation of their activities, a number of impediments are hampering some from extending the strategy to their operations teams in the back office.

A stubborn corporate culture, fear of change and a lack of planning are just some of the challenges cited by industry participants as among the reasons the efficiencies and synergies of digitalisation aren’t reaching beyond client-facing and revenue-generating teams.

However, these problems are not insurmountable; with careful and sensitive planning, there are no reasons why entire enterprises shouldn’t reap the benefits of such a transition.

“I would summarise most challenges with establishing a digital transformation programme with two words: unfocused, misalignment,” Omar Abduljalil, Associate Director, Digital Transformation at RBC Capital Markets tells Data Management Insight. **“**Establishing a major transformation programme without the appropriate strategy is a recipe for disaster.”

Overcoming obstacles to achieve greater automation will be one of the key topics for discussion at Data Management Insight’s upcoming webinar, “Tackling digital transformation challenges for operations teams”. The April 7 event will see Abduljalil join Lou Rosato, Director for Investment Operations, Global Business Strategy and Relationship Management at BlackRock; Ruchir Verma, Head of Global Services, Investment Management, Transformation, Shared Services at Zurich Insurance; and, Neil Vernon, Chief Technology Officer at Gresham Technologies.

The benefits of a digital-first approach is being felt in company bottom lines, according Boston Consulting Group (BCG), which found companies that had undergone transformation are reaping earnings almost double those of their peers that hadn’t taken the plunge. In a separate survey it found that 80 per cent of companies said going digital had helped them get through the pandemic of the past two years.

“Digital technologies and ways of working offer productivity improvements and better customer experiences and open up new growth opportunities and business model innovation,” BCG wrote in a 2021 paper. “Successful transformations set companies up for sustained success; they won’t have to digitally transform again as they become ‘bionic’ and master continuous innovation.”

What is it?

As companies establish whether or not to embark on a digital strategy across their operations teams, it’s worth first establishing what digital transformation means.

Definitions differ slightly according to who you ask. The common themes through all descriptions are a reliance on data and automation to achieve tasks that might otherwise be performed, at great opportunity cost, by employees.

In practice that usually envisages paper-, and human-free operations in which employees are asked to step into workflows only to make judgement or analytical calls.

Abduljalil defines it by its two component words.

Transformation is “a holistic cultural change where an organisation can achieve its main business outcomes, whether that be tackling disruptive threats, expanding their value proposition, or finding cost efficiencies across their functions,” he says.

“The ‘digital’ component is then introduced when we reimagine how an organisation can operate through data, digitalisation and automation, in conjunction with the underlying process to ensure employees can be more efficient with the tools we provide them.”

Getting digital transformation right will depend on a great deal of research into which parts of an operations team would most benefit, while also taking into consideration the impact change will have on corporate culture. Digital transformation case studies are littered with examples of organisations that have been hampered by the reluctance or inability of workforces to change.

One leading observer said the biggest challenge to executing a successful transformation is shifting the corporate mindset. Not surprisingly, many stakeholders feel threatened by change, that their roles will be lost or their prestige within the organisation diminished.

Planning Period

That’s why a period of detailed planning is recommended during which the views of multiple stakeholders are sought and acted upon. Strategies for proving concepts can include running transition pilots in specific parts of the enterprise and running stakeholder education sessions. Consultation should be honest – proponents need to clearly explain the costs as well as the benefits to win over doubters.

Gaining stakeholder backing, argues Abduljalil, is vital.

“It’s incredibly important and quite difficult,” he says. “The main selling point for our team at RBC CM has been to make our stakeholders aware of the urgency to modernise our systems, processes and technologies. The next five years will be more disruptive than the last 15 as we continue to see the rise of unicorn Fintechs, technology conglomerates expanding into financial services and regulatory bodies pushing organisations to be faster, quicker and more transparent.”

Identifying which parts of an enterprise need be included in a programme of digital transformation should also occupy the minds of planners. Considering the cost of transition, it is worth identifying which operations would most benefit. Deployment in a department of a handful of people, for instance, may add little value, for example. This also applies to the level of data that an organisation intends to absorb or process; an all-inclusive blanket approach to data acquisition can add unnecessary complexity and costly new processes, such as storage and security.

A way to establish where to focus change is to identify the purposes of transition.

In terms of output, the objective is to achieve better efficiencies and synergies by giving talent more time and resources to do value-adding activities. For front-office operations this is most apparent in improvements in client engagement and satisfaction. In the back office, while the gains are less apparent, they are no less beneficial.

Efficiencies in regulatory compliance would be self-evident. As oversight requirements become more complex and change more rapidly – particularly in the environment, social and governance (ESG) space – compliance teams can have a difficult time keeping abreast of their obligations while also putting in the processes to execute them. RegTech solutions are rapidly removing that burden.

Also, synergies can be achieved through the data-led interaction of the front and back offices. Taking a holistic view of the trading lifecycle is a good example of how many financial institutions are beneficially deploying artificial intelligence. By examining the inputs and outcomes of trades, back offices can provide useful insights for future transactions through structures such as pre- and post-transaction cost analyses.

Abduljalil offers a three-step strategy to integrating front and back offices.

  • Adopt a data strategy to ensure back-office teams collect and use reference data – this will lead to straight-through processing
  • Find quick wins using process re-engineering, RPA and wrapper solutions to gain trust, while meeting your strategic needs in parallel to achieve transformation
  • “Co-opetition”: The rise of network platforms and a behavioural shift to “work with the enemy” will be pivotal with the rise of TechFins.

“Digital transformation is more than just a switch that can be turned on with the right investment,” he says. “There are ways to do it correctly, and ways it can go badly wrong. If you invest in digital infrastructure but aren’t sure of how to best utilise the many tools it offers, then you haven’t transformed; you’ve just built a façade.”

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