The Risk Management Association Hosts COVID-19: Accelerating Digital TransformationWATCH NOW
on August 18, 2020 in Digital Transformation

Driving Your Bank’s Digital Transformation

Recently, Inpensa sponsored a Risk Management Association (RMA) webinar, COVID-19: Accelerating Digital Transformation.  Inpensa Co-Founder, President, and CEO Suraj Nekram shared insights on what banks need to consider in design and execution of digital transformation strategies with the resilience and flexibility crucial to navigating uncharted waters ahead.

In this podcast, Suraj provides responses to important follow-up questions from the webinar during an interview with RMA’s Stephen Krasowski.

1. Do you have a disciplined ‘test and learn’ approach, such as an agile funding model, which is a common technique used by banks for significant overall investments and supports general risk “hygiene” so to speak?

We highly recommend an agile approach to digital transformation. We are seeing this being adopted more and more across our customer base. Simply put, it’s the start-up approach. You seed-fund the early stages of the project and, once the initiative meets key milestones and continues to look promising, you continue to fund it. Funding can be in several stages, particularly for large and complex initiatives. A common practice is to set aside the entire budget for the project, and release funds based on milestones. This provides confidence to the team that the project has the appropriate funding overall but also lets them know that if the project is not meeting its goals or milestones—funds can easily be diverted to other initiatives. This agile approach is becoming more common and has proven to be very successful.

2. Do you have mechanisms to challenge ideas? In other words, how do you determine and ensure ROI by assessing projects and overall program roll-ups at the portfolio level?

First, we help ensure there is a standard methodology for calculating ROI and that key assumptions are the same across the company. Having a system that is designed to manage this process reduces potential errors and mistakes. When comparing ideas, we look at several factors beyond ROI.

We developed a strategic value vs. ability to execute assessment. For strategic value, we have a questionnaire bank that asks questions relating to the business impact—such as customer value and impact to revenues. Once the questions are completed, the system calculates a strategic value score. Similarly, we capture data relating to ability to execute. We look at resource constraints, technology limitations, and other risk related data points. The system then calculates an ability to execute score.

We then map them in a matrix depicting strategic value vs. ability to execute. With this approach we can then select ideas with the highest strategic value and greatest ability to execute. This is an objective approach to vetting ideas and creating a diversified portfolio matrix.

We also use strategic alignment by mapping every idea to strategies. This allows us to quickly view strategic alignment and identify strategies that are overfunded or underfunded. For overfunded initiatives, we can then go back and evaluate initiatives in that portfolio, and rebalance it as needed.

3. With regard to governance of an overall project, how do you incorporate regulatory compliance with regard to trading, CRA (Community Reinvestment Act), and/or Fair Lending in the credit space and how do you think your process helps an organization reduce risks such as operational, strategic, and transformation?

This goes back to categorization and initiative alignment. Once the guidelines are identified and set-up for, let’s say, Fair Lending or CRA in our system, all initiatives are measured against these guidelines and are aligned appropriately. It can be one to many. In other words, an initiative can be aligned to both CRA and Fair lending. This provides a view on the level of investment being made to support each regulatory category. It also can highlight underinvestment which can identify red-flags for non-compliance. This is typically managed in spreadsheets and internal databases. Having a unified solution that brings all of the data together and provides real-time analysis is incredibly helpful. Similarly, This can also be done for operational and transformation risks.

4. Do you have any thoughts on best practices in coordinating a portfolio of initiatives?

Developing and coordinating initiatives at the individual BU level is fairly straightforward. This becomes more complex when trying to develop portfolios at the company-wide level. Let’s say, for example, you are creating a portfolio for digital transformation. Chances are there are already digital transformation initiatives underway not only in technology but across individual BUs as well.

The goal is to be able to capture all the digital transformation related initiatives across the entire company and pull them together into a Digital Transformation Portfolio. What our system does is create a hierarchy for every initiative—from initiative to program to portfolio. When an initiative is created it is aligned to a program then a portfolio. This alignment allows for company-wide portfolio analysis and accurate data capture. If you set this up right in the onset, it becomes very easy to manage over time.

Coordination across the business lines and shared services groups is key. I would recommend a centralized process with centralized governance and coordination.

5. Since your experience is at an institution more complex than others, where should a bank in the current environment start with digital transformation?

Similar to what I mentioned in my last response. The first step is to define what is a digital transformation initiative and what are the goals of the digital transformation program? Once there is consensus on both you can then evaluate current initiatives underway and give them the digital transformation test.

Chances are you may already be halfway on the path to meeting your digital transformation goals as a result of current initiatives underway. After capturing all of the existing digital transformation initiatives and grouping them into a portfolio, you need to evaluate new initiatives that will be added to the portfolio that are aligned with your budget requirements and overall goals.

Building a portfolio is one step, the next is developing a process for managing the portfolio over time and tracking results to ensure the intended outcomes are being reached. This process is called benefits realization. Another positive effect of benefits realization is that it usually drives accountability.

6. What are the internal barriers that usually block the path to transformation?

The most significant barrier is the lack of executive buy in. Transformation just by definition requires change. People instinctively reject change. This is exhibited across roles and up and down the management hierarchy. You need leadership to step up and support transformation every step of the way. This usually means frequent communications from senior management about the goals of the initiative, its importance to the organization, and to rally the teams to work together. They can also help in removing common roadblocks. Creating a path for transformation leads to quickly unjamming roadblocks when they occur and appropriating sufficient funding to ensure success. All of these things will help instill a level of urgency to all involved to get the job done.

7. What is the culture needed for digital transformation?

The most important cultural change is embracing change itself. Giving up the status quo and embracing the new. For example, Blockbuster didn’t embrace change, they thought the old way of doing business was working fine-why change it.

Netflix came along and essentially ate their lunch and completely put them out of business. Netflix continued to drive innovation and transformation internally by transforming their own business and leading the video streaming industry. The point here is Evolution is necessary to not only survive but to thrive. Companies that think business as usual is good enough will eventually join the likes of Blockbuster. A culture that embraces change as a way of sustainability and competitiveness is absolutely necessary for adopting and executing digital transformation.

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