This month’s CFO Insight section is slightly different than usual. Although written by Francois Ruchon, who has 20 years of international experience in Finance, the article offers a valuable insight on digital transformation, providing advice to CIOs. Francois is the Senior Vice President of Global Finance, Sales and Business Development at CAST - a leader in software measurement and analysis. Daily, he works with CIOs of large banking, financial services and insurance organizations to help them understand their software assets by providing tangible insight into the risk, cost and efficiency of systems that run their core business. He frequently assists chief executives at banks, financial institutions, and insurance companies to improve their business modernization initiatives. Whether they are going through a digital transformation, merger or acquisition, or shifting toward lean or Agile IT principles, Francois helps them understand if their software assets are helping or hindering these processes.

Measurement is the Key to Digital Transformation Success

Digitization is disrupting global business. The same is true for the banking, financial services, and insurance industries. Every BFSI organization needs to adapt their IT systems to the digital age, as consumers increasingly demand mobile, always-on 24/7 service. Failing to adapt to this new era will prove detrimental to the business and will ensure steep economic backlash.

The days of driving IT like a captain drives a super-tanker, using inertia to limit the change required to overcome obstacles, is over. CIOs know they must change course and transform their organizations to succeed in the digital world. In fact, first movers have already overcome many of the challenges to starting the journey.

Past the stage of building up a digital user interface, change is commonly divided between two groups of technologists – those who are already moving in Agile, DevOps environments and those who are used to managing legacy systems. This is the stage in which transformation blueprints can get derailed and result in unhappy customers, or unhappy business partners.

FinTechs and InsurTechs have largely grown without the burden of heavy legacy systems, bypassing these internal complications. This is why they are often held up as examples of transformation success in the industry. Darwin is never too far!

For the more traditional banks or insurance companies who have significant core systems, sometimes written in antediluvian technologies, the metamorphosis will be more painful, and it will come at a higher cost. But in all cases, it is absolutely needed. If not, as a CTO of a large investment bank put it a few years ago:

“Financial institutions that have been around for one hundred years or so, will simply disappear.”

One might say Darwin’s theory is not what should be referenced here, but there was a time when dinosaurs disappeared from the earth allegedly because of a meteor. The “Digital Meteor” is on its way, and in front of such impending danger, it is a mistake for CIOs to believe they can save the world with messianic solutions.

Hiring technical gurus in charge of rendering the IT organization more agile, more flexible, and more productive is certainly something to consider, but leaving them the keys and hoping they’ll solve every problem is shortsighted.

Simply following the latest industry trend does not make the difference between success or failure. Today, it’s easy to agree on adopting Agile, DevOps, modular architecture, Cloud, and others, but the end goal is really to move core business functionalities to a new digital platform. The challenge for CIOs is to discern whether this exercise is going to be seamless for customers and how long it will take.

Digitization endeavors undoubtedly take several years, but as everyone knows, several can turn into much more than three, four or five. It all comes back to proper planning and considering all dimensions of the transformation – from team size, to timelines, to deliverables, to key performance indicators.

The missing key here is MEASUREMENT. Regularly measuring achievements against plans will ensure you are not aggregating a pile of future re-work, technical debt or introducing new software, system-level risks.

So many early adopter CIOs have realized, a few years along their journey, that building fresh web and mobile interfaces to initially satisfy customers only goes so far to ensure long-term success. Just tacking on integrated APIs and building DevOps capabilities for new application developments still fails to consider IT capabilities at the core. Ignoring core systems means that efficiency and risk issues are likely to remain, drawing criticism from business partners and customers. A lack of, or a slow modernization of core systems will continue to be a thorn in the side of CIOs who are looking for long-term digital transformation wins.

Medical analogies are sometimes the most accurate in fully representing what is at stake here. Let’s say, for example, your cardiovascular system is having difficulty in efficiently pumping blood through the body. You can indeed replace your venal system with a brand new one, but what if your heart is not adequately pumping the blood?

In our case, customers might enjoy a slick user interface – seamless single sign on access and smooth multi-channel experience – but the treatment of their input data will still take ages to process. This could be because the core systems have not evolved at the same pace as the new digital layers, or worse, because connections between the new layers and the core systems triggers instability or data integrity issues.

It is therefore the duty of CIOs to anticipate, manage and MEASURE all aspects of digital transformation – from the flashy front-end to more complex back-end systems.

Following this process should help:

• Modernize core systems
• Migrate to the Cloud
• Ensure end-to-end systems, from the newly developed digital layers to the evolving legacy applications, down the databases don’t generate erratic or unexpected behaviors that would translate to production outages or increased risk to the customer.

A main reason digital transformation initiatives still fail is because the measurement tools available to CIOs have been fairly rudimentary. Much of the analysis has historically been based on subjective assessments and the measurement of outputs only.

However, what analysis should focus on is not just the number of incidents, but the quality of customer experience delivered. Other industries, such as retail, have been wildly successful here.

Implementing a measurement system that actually denotes team performance based on quality rather than speed will make a world of difference. For example, these measurement systems should look at what functionality has been delivered, how much technical debt has been introduced or remediated and ongoing levels of stability risk against industry benchmarks.

In IDC’s 2017 worldwide predictions for CIOs, the research firm estimated that by 2019, 80% of bimodal IT organizations will accumulate a crippling amount of technical debt, resulting in spiraling complexity, costs, and lost credibility. They write:

“As ‘fast IT’ cranks out applications and products, shortcuts are taken and solutions that are architecturally unsound, brittle, and poorly coded are ultimately handed to ‘slow IT’, which becomes mired in fixing problems, rendering it even slower. As a business problem, technical debt needs a business solution in the form of governance that makes formal trade-offs between ‘the need for speed’ and the need for robustness and reliability.”

For many years, CAST has been at the forefront of software analysis and measurement, pushing CIOs and IT executives to measure their application development organizations to address complex applications, set up objective targets and drive their application development teams to reduce risk and cost. This includes proactively looking at stability, performance efficiency, data integrity and security measures while shifting the IT organization from a run-the-business model to a change-the-business driver.

As digital transformation continues to drive the CIO agenda for years to come, implementing a measurement plan early-on in the process will drastically simplify the process and improve their ability to benchmark progress over time. There are many moving parts to successfully transform, and centrally aggregating performance indicators – regardless of your current stage of transformation – is a strategic process that should not go overlooked.

Financial technology has seen significant growth over the last few years, with organisations seeking to meet customers’ growing demands for more digital and mobile services. FinTech solutions that enable anytime, anywhere and any type of transacting have definitely come a long way but there’s still room to grow.

As we start off 2017, our discussions with customers and prospects, as well as our general observations suggest a few trends for the year.

Digital customer onboarding will be a top priority

Customer onboarding remains one of the few business processes yet to be fully digitised. Some financial organisations have already tried digital onboarding with low value, high volume use cases, but we are now seeing growing interest for mobile onboarding around high value transactions – typically mediated scenarios with more complex workflows. It’s because of the emergence of onboarding platforms like e-signatures that can handle sophisticated workflows and transactions, and provide the ability to connect to popular back-end technology systems, that we are seeing the shift to automate more complex onboarding scenarios.

According to Forrester Research, “Banks like Bank of America, Royal Bank of Canada, and U.S. Bank are now digitally verifying a customer’s identity and using electronic signatures to provide an instant decision on certain retail products within minutes; they are also issuing the account number in real time.”

Cyber security will be at the heart of digital transactions

Recent high-profile data breaches have focused many financial organisations on where their weaknesses lie, especially with regard to security. Organisations are reconsidering the security around each process or transaction they are taking digital. A DDoS attack in October highlighted how fragile digital transacting can be, with security often added after a hack or breach rather than upfront.

As a result, we are going to see a shift to digital processes that is rooted in transaction security. The concept of a digital trust chain that links technologies together to provide a secure transaction from end-to-end will be at the heart of digital transformation.

Mobile-first will finally become mobile-first

Mobile technology is more ubiquitous and secure than ever, and financial organisations are hard pressed to ignore the need to provide services designed primarily with the consumer’s mobile experience in mind. That’s why this will be the year that mobile-first initiatives will actually be put first.

It’s well-documented that mobile device use is on the rise, which is fuelling the need for mobile apps – to date, there are over 5 million apps available that people rely on every day, and according to Yahoo’s Flurry Analytics, 90 percent of a consumer’s mobile time is spent in apps. This staggering statistic is the driving force behind organisations’ development of mobile apps of their websites and web applications.

For financial organisations, offering a mobile-first experience also means errors can be minimized and processes can be compressed from days to single sessions. It’s all about speed, less manual work, tighter compliance and meeting expectations for a modern experience.

Artificial Intelligence will emerge but will not dominate

In its current form, artificial intelligence offers somewhat limited applications for financial services. It can easily deal with queries such as ‘How can I make a transfer between accounts’ and ‘How long does it take to process a payment’ but more detailed queries still require human interaction. However, we can already see some of benefits AI offers, namely efficiency and a more seamless user experience. For example, Swedbank’s web assistant, Nina achieved an average of 30,000 conversations per month and first-contact resolution of 78% in its first three months. Nina can handle over 350 different customer questions and answers. As the technology evolves, AI will take on more functionalities that will broaden its scope.

The rise of artificial intelligence will likely have widespread applications in financial services in future, but for now humans or a hybrid approach between automated and mediated transactions are better designed to provide the best service in most cases, something financial services organizations should remember when considering how to invest in artificial intelligence.

A simplified approach to digital transformation

Digital transformation implies that an organization needs to undertake a massive project, which can be intimidating and a potential roadblock to starting the digitisation process. However, it doesn’t have to be so complicated – digital transformation can be as simple as digitising one process or transaction across one line of business.

The best thing financial organisations can do is choose technology for digital transformation initiatives that can be built as enterprise solutions and reused across all lines of business and processes, essentially a “build once, deploy anywhere” model. This simplified approach allows businesses to take on digital transformation at a pace that works for them.