For most companies, digital transformation will end in failure. Learn how successful financial services companies and others have used to escape disaster.
A Look Back at Digital Transformation in Financial Services (and Digital Transformation in General) in 2017
Across industries, a whopping number of companies have already begun a digital transformation – roughly 42% according to a Gartner survey. Not all of them will succeed. In fact, most won’t: 84% of companies who begin a digital transformation project are expected to fail. The astonishing thing isn’t the number of companies which will fail at digital transformation, however. Rather, it’s the fact that so many companies are willing to invest their time and money despite the risk.
In 2017, the digital transformation exited beta. Companies are ending their small-scale pilot programs and are beginning to put serious money behind their efforts to transform. The fact that these experiments are conducted in public (and at a large scale) means that it’s easy to see who the leaders are. It also makes it easy to judge the failures. What tactics have failed, who are the leaders, and what’s next in 2018?
Digital Transformation and the Lessons Learned from Failure
The big reason that so many industries – not just financial services – have begun to pursue digital transformation programs is that the rewards are so fruitful, even though the risks are high. Financial services companies will be able to compete in areas previously cornered by Fintechs. Retailers will be able to offer online storefronts, and all types of traditional companies will be able to push into areas previously cornered by venture-backed startups. Imagine a taxi company trying to stem the tide against Uber by inaugurating its digital ride-hailing service, and you’ll begin to understand the appeal.
So, what are the lessons learned from a year spent digitally transforming?
- Digital transformation isn’t a magic bullet One example is GE. In spite of pushing through 2017 with a suite of bold IoT-related digital transformation initiatives, the company’s share price fell 23% this year. The reasons for this have nothing to do with digital transformation – but more like plain old fiscal mismanagement. For big companies such as banks that are looking to launch digital transformations in 2018, the lesson is that you can’t stake your entire enterprise on the success of a digital endeavor. Unless your endeavors are accompanied by fiscal discipline, smaller newcomers will continue to eat your market share.
- Fail small, fast, and smart Co-op Bank is up for sale in 2017. If that name doesn’t ring a bell immediately, you’ll need to think back to 2007. Ten years ago, the bank was one of the first to announce that it would begin a digital banking transformation, investing £300 million into the modernization of its IT systems. Just four years later, that transformation was deemed a failure – the entirety of the investment simply wasted. The lesson for banks? Don’t start big. If your digital transformation is likely to fail, the best course of action is to fail iteratively. Start with a small amount investment and a small project that will demonstrate value. Think pilot project. Then use the lessons of failure to move to version 1.2. Avoid grandiose versions of change, and you will avoid failing in a damaging manner.
- Will your business fail if digital transformation fails? According to research from Couchbase, 54% of executives think that if their company fails the digital transformation, their company itself will be pushed out of business within four years. That’s quite a sobering thought! If almost half of all companies are investing in digital transformation, and if in turn over 80% of those projects fail...and over 50% believe their company fails as a result...that hypothetical is not a pretty picture for the global economy. It’s a good time to be thinking about the fundamentals of your company, its place in the economy, and how fierce your competition is. Plan to succeed – but also have a backup plan.
How the leaders will lead in 2018
Speaking of planning to succeed - it’s also worth asking how to emulate the leaders of the pack. What were the most successful digitally transformed financial services companies doing in 2017, and what will they do next year?
One big trend for 2018? Microservices modernizing legacy systems. It’s one of the simplest ways to add functionality to pre-existing financial services legacy systems. Instead of investing hundreds of millions of dollars to create an entirely new infrastructure, financial services can follow a simple three-step process:
- Write a new feature in the form of a microservice.
- Place it inside of a container.
- The container’s runtime environment communicates seamlessly with legacy systems, adding new functionality at a fraction of the time and cost of a rip-and-replace approach.
Microservices lets you fail quickly and iteratively, without having to eat the sunk cost of a massive upfront investment. We’ve already seen banks like Fidor take this approach, creating open APIs based on the microservices architecture well ahead of the pack back in 2015. They’ve spun this approach into an entire community of partners who use their marketplace to power services such as mineral exploitation and currency trading – each partner representing a new and unique revenue stream.
To learn more about real-world banking success with digital banking APIs in a microservices architecture, see how OpenLegacy helped a bank implement six key global APIs and microservices in just six weeks – reversing course on a project where 200 developers had stalled for over a year.
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