The Weekly Extract: June 8, 2020

  • Alex Jimenez
  • June 08, 2020

The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.

This week we look at how flexible strategy and leadership are necessary for successful digital transformation. We look at what experts say about the future of working from home, and whether banks are ready. Finally, we ask the question is it time to close branches?


Flexible Strategy – the key to digital transformation?

Successful digital transformation begins with a meaningful digital strategy. Strategy used to be a one time event, but as the current crisis has reminded us, strategy must be continuous and flexible. The importance of flexible strategy is well presented in a Goran Paunovich’s article in Forbes:

“We’ve found that brands that focus on implementing a flexible strategy are better able to respond quickly when faced with market disruption. To increase your longevity, ensure that your brand strategy prioritizes innovation. When faced with obstacles that are beyond your current capacity, a flexible brand strategy can allow you to persevere through transformation.”

The pandemic has given the opportunity for some businesses to show that flexibility. For example, when Ben Mills, co-owner of Australian fitness center Shelter, faced closing their doors to clients, he already had an idea for dealing with the situation. Ben hired a truck and delivered 25 spin bikes to clients for free. They were then able to connect to live-stream spin classes on the Shelter website.

While it’s easy to dismiss this sort of ingenuity in the face of Covid, other examples exist well before the pandemic, during more stable times.

Goran gives the example of Netflix as a “modern business that has found success through transformation.” Netflix wasn’t happy with merely killing Blockbuster and becoming a leader in streaming digital content. They are now “a leading streaming service providing original content.” They aren’t just producing content. Netflix has been nominated for fifty-four Oscars and has won eight. Add that to the 225 Emmy nominations and 43 awards won.

In previous posts, we have noted examples of flexible strategy by financial service organizations that allowed them to respond to Covid. These include Citi’s focus on digital for commercial banking, allowing them to grow the business even during a pandemic. Also, Citizens Bank of Edmond’s response to Covid and their partnership with Mark Cuban for PPP loans.

Flexible strategy is a result of leadership that lives the Greek philosopher Heraclitus’ quote “Change is the only constant in life.” It’s seems evident that strong leadership is an ingredient of successful digital transformation.

An article in Fintech Magazine by Matt High examines this connection based on a 2019 study by Accenture. Matt lists some findings from the study:

  • 12% of banks, or 19 of 161, fell under the category of digitally focused. This, it said, is a small group of banks fully committed to digital transformation and with clear intent to shift to a different banking model.
  • 38% of banks, or 61 of 161, were digitally active. This category identifies those institutions in the transformative phase but without an overall sense of cohesion to their efforts.
  • 50% of banks, or 81 of 161, fell under the category of the rest. This group of banks have made little visible progress on digital transformation.

Accenture then looked at performance differences between these groups. The found that the digital focused banks “were the only ones with a price-to-book ratio above 1x.” They noted that:

“digital maturity is associated with a higher market premium and a better return on capital”

While we remain advocates of digital transformation to improve the customer experience, the fact that it also drives financial performance should give naysayers something to think about. For financial institutions interested in defining their own digital transformation, aside from calling Extractable for help, they could look into the emerging discipline of “Experience Architecture.”

According to an article in The Next Web by CapGemini’s Michelle Berryman and Charlton Monsanto, experience architecture is “a new frontier that blends the capabilities and competencies of ‘enterprise architecture’ and ‘experience design’ to enable next-level customer experience to come to life.”

Michelle and Charlton make the point that “every moment of interaction is dependent on a complex combination of design, people, processes, business rules, security, data, integration, and infrastructure technology.” This combination is what experience architecture aims to address in a cohesive manner.

The lesson for this week is that flexible strategy and leadership wil drive a successful digital transformation based on the application of experience architecture. Lucky for us, this is what we at Extractable preach every day.


The New Normal – banking embraces working from home

As states start opening up and some companies are calling their employees back to the office, others have changed their rules permanently.  In an article in the San Diego Union-Tribune, Phillip Milner asks “will working from home become permanent?”

Both Facebook and Twitter have announced permanent moves for their teams. Phillip reached out to 14 experts to understand if working from home (WFH) will be widespread going forward. Of the 14, 12 believe that some level of WFH will be the new normal. One expert disagrees, expecting for a return to pre-COVID levels long-term, while another hedges his bets and answers yes and no.

The lone stand out, Gary London of London Moeder Advisors, notes that in the short-term there will continue to be WFH and flextime until a vaccine is developed. After that companies will want to go back to offices “where ideas and networks are hatched and enhanced.”

Gregory Northcraft, of University of Illinois, and Margaret Neale, of Stanford Graduate School of Business, agree with London. Writing for Inc, they argue that research shows there’s no substitute for human presence. They warn that virtualizing social interaction:

  1. “Runs the risk of decreasing engagement, which is critical for effectiveness and innovation.”
  2. “Can result in a subpar experience for participants.”
  3. Loses “tacit interaction.”

Accenture‘s CEO Julie Sweet also agrees that “personal engagement face-to-face remains a critical part of success.” In an interview in Time she noted, “while it was an incredible insight that you can innovate remotely, it is not a long-term answer. Personal engagement remains essential for long-term success.”

Kelly Cunningham from the San Diego Institute for Economic Research exemplifies the reasons most experts in the SD Union-Tribune article cite for adoption of WFH. He notes that the remote work trend has been ongoing for a while. “Top companies offering this will become even more talented attracting the best workers wanting the flexibility. Talent will therefore leave major cities to areas with more appealing lifestyle, vibrant culture, and lower costs and stresses of living.”

Didhiti Bhoumik, Chief Administrative Officer at BLG, believes that an element of WFH will remain but advises organizations to make changes in an article in Forbes. Changes organizations should consider include reconfiguring office space, redefining space sharing, prioritizing collaboration, and combating isolation.

Whether WFH becomes a permanent trend or not, J. Tyler Rohrer co-founder Liquidware, writes in a separate article in Forbes, that the real disruption of WFH is the “opportunity to truly re-power” organizations’ internal computing strategies.  He notes that “web collaboration platforms, tele and PC-presence, chat, teams, data sharing, VDI, DaaS, RDS, application publishing, server-based computing, clouds, hyperconverged infrastructure and more are all available right now to enable a completely new re-imagining of what your workforce could and perhaps should be.” He calls for organizations to use this opportunity to “cloud stage.”

Some bankers are notoriously conservative and have difficult time with change. Bob Bardusch, executive vice president and chief operating officer at Valley Bank, is quoted in an article in ROI-NJ saying:

“We had some very traditional bankers who thought they couldn’t perform their job remotely. But, for them, this ended up being an eye-opener. The feedback we’re getting from those folks is now their perspective has been changed on doing their job remotely and being just as productive. We’re by no means ever going to be a fully, 100% work-from-home organization. But, certainly, there’s going to be more of an openness to the flexibility of working from home in the future.”

At Extractable, we believe that WFH is here to stay. Some organizations will go back to the office, but there will be short-term and long-term changes even after a vaccine is widely available. Open office schemes are clearly on their way out. Organizations have learned that the distributed workforce is not only possible but can be a tool to minimize costs, improve employee satisfaction and retention, and can result in easier recruitment. Innovation is possible remotely, with the right tools. Most importantly, WFH has taught many the importance of user experience design for both customers and employees.


Branch Closure Debate Continues

The World Economic Forum had an article this week by Mohit Joshi,President at Infosys, and Markos Zachariadis, FinTech professor at University of Manchester, examining retail banking’s future. While they agree with others in financial services that the pandemic will and has accelerated the adoption of digital banking, they see a combination of both digital and physical channels as the best way forward.

Their point is that there are “three areas where banks rely on a physical asset to do business – and each is at a different stage in its digital evolution and maturity:” documentation, cash, and branches.

In their view, branches are the most difficult to change. “Not only does a bank branch hold a cultural, historical and prestige value for communities – it also is the final bastion for those segments of the population that are clinging to cash.” They add, “the branch is also the only place where a bank can have trusted and secure physical interactions with its customers, where relationships can be formed, advice can be given, and new products sold. It is core to the brand.” Their suggested solution is providing a combination of physical and digital experiences that compliment and support each other.

Whatever the way forward, banking organizations are taking this opportunity to reassess their branch networks. In an article in the Wall Street Journal, US Bank is said be accelerating branch consolidation. Chief Executive Officer Andy Cecere expects to close “more than the 10% to 15% targeted by the bank in 2019” he said during an industry conference last month. The bank counted about 3,000 branches at the time. Those closures were set to occur over two years. The article also cites plans for accelerating branch closings at regional banks Citizens, Fifth Third, and Regions.

It isn’t yet clear if smaller community banks and Credit Unions will follow suit. Some community banks, like New Jersey’s Lakeland Bank had already closed branches and used the savings to invest in digital banking, per the ROI-NJ article. While this helped them through the pandemic, they have also heard from customers that they can’t wait to go back to the branches.

Dorian Hansen, chief marketing and product officer at Investors Bank, has also heard similar comments. Hansen is quoted saying, “when it comes to talk about cost savings during a slow climb out of the pandemic’s economic dip, cutting back on real estate isn’t a priority”.

Perhaps we are seeing the growing chasm between larger banks that have “invested heavily in digital capabilities in recent years” and  community banks that “are stuck with mediocre digital offerings from third-party providers,” as noted by a WSJ article from last year.

Community organizations that refuse to up their digital game and continue to focus on branches find themselves in a Blockbuster video scenario — caught focused on a dying delivery channel. Their subpar investment in digital results in less than stellar reviews from their customers, confirming the bias that digital just isn’t an ideal channel. In the meantime, larger banks and swifter community organizations invest heavily in digital, a la Netflix — playing where the puck is going to be rather than where it is.

The question is, is your FI Blockbuster or Netflix?

Let us know what you think of the Weekly Extract. Stay safe. And don’t forget to follow us on LinkedIn and on twitter.

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