Podcast transcript: Digital enterprise transformation and innovation: winning themes of financial services leaders (Agents of Change series)

Roger Park

Welcome back to the Agents of Change podcast series. I’m excited to be back with you all after our summer break so that we can continue our ongoing conversation around innovation and financial services. We define innovation as an organization’s ability to respond to change. All organizations, large and small, are dealing with changes due to macroeconomic uncertainty, geopolitical shifts, changing customer preferences and emerging disruptive technologies. 

The goal of this podcast is to discuss perspectives on how organizations can industrialize innovation, at scale, at speed, safely and efficiently. We need agents of change to help us industrialize innovation and our guests are these agents of change. 

Our guest today is Kevin Koenig, EY Principal, Data and Analytics Leader, Insurance, Advisory. Kevin, why don’t you tell us a little bit about yourself.

Kevin Koenig

Well, thank you. I appreciate the time. I have nearly three decades of experience guiding C-level leaders through large transformational programs related to analytics and digital transformation. Those programs have largely been focused on profitable growth, customer retention, business optimization and other areas of customer care across sort of the entire domain of functional areas within those businesses. 

I worked with IBM for over 12 years, largely across digital social channel management, customer relationship management, and other analytics and database optimization efforts in financial services and telecommunications and retail distribution. 

Park

Great. Thanks for joining us today, Kevin. Your consulting experience at EY must be incredibly applicable as companies become more and more focused on customer management analytics, but what are you personally focused on these days?

Koenig

Well, that’s a great question to ask. I do focus on insurance as an industry and I have been focused largely in the analytics and data excellence sort of domains of those enterprise capabilities. But as of late, I have been helping clients bridge the gap around digital enterprise transformation and how clients realize value between that which the business is sort of targeting as a valued outcome and that which some of the functional leaders around data and analytics and digital try to make that become a reality.

Park

Yeah, data is going to be a huge part of getting value out of digital transformation.

Koenig

Absolutely.

Park

So, you worked at a global technology company for a long time. How did that shape your perspective on innovation and digital transformation? You’re smiling. 

Koenig

I am a bit, well partially because those are very, very different worlds. IBM and EY couldn’t be more different. On one hand, you have inarguably one of the world’s largest technology integration services firms that’s out there making great products, and the on the other hand, you have a world-class management consulting firm, and while, certainly, from a technology perspective it’s a great cause for change and certainly we see that today as it relates to things like blockchain and robotics and cloud and cyber, but that’s not the agent of change so to speak. 

And, so, we look to organizations like ourselves to create those agents of change within our client environment. So they’re very, very different sort of entities in some ways, but they’re different sides of the same coin, I guess I would say. 

Park

Yeah. It definitely will play complementary roles in the marketplace.

Koenig

Absolutely.

Park

So, EY, we recently released a report based on the findings of a research study conducted by Forrester on our behalf. I know that you were one of the key sponsors of that study. It’s called Digital Enterprise Transformation, Winning Themes of Financial Services Leaders. What were your goals for that study?

Koenig

Well, we really set out to do something different in coordination with Forrester, and that really was to understand what was leading successful change for leaders in the market, and we wanted to focus in on those areas that were really creating that differential for success, right, and what those financial services firms were doing, how they were approaching the challenges that they faced in transforming their businesses, the technology that they were integrating inside the company and how they were going about evolving their cultures.

Park

That’s a lot of stuff, Kevin.

Koenig

It is. It is. 

Park

I know this is going to be a hot report because everyone’s wondering who the winners and losers are going to be in digital transformation. Can you maybe tell us a little bit about how you approached the survey and how it was set up?

Koenig

Sure. So the survey, from a geographical perspective, was focused on the United States and Canada, largely the United States. We surveyed nearly 250 executives from across those firms. 

More than the majority held C-level positions, and it really included or focused on large banks, insurers, wealth and asset management firms, and the insights that they self-reported in context of that survey.

Park

Well that’s a good group of people to ask some tough questions.

Koenig

Absolutely. There should be some agents of change in there somewhere, right?

Park

Yeah, I think you probably found a few. What were the key themes that emerged from the findings in case people don’t have a chance to read the full report or to give them a reason to read the full report?

Koenig

Sure. The way that we approached the evaluation, we looked at 27 different measures of digital and price transformation and the associated maturity. So this was a typical approach that we took with Forrester. Those survey respondents again self-reported across a five-point scale for each measure across five distinct categories, and the study results confirmed meaningful differences between the approach of digital transformation leaders and the laggards.

Park

That’s a lot of different measures, and you said there were five categories that you looked. What were those five categories?

Koenig

Well, the five categories were strategy, so creating a holistic digital strategy that embraces continuous improvement across the organization; obviously, structure, sort of the organizational cross-functional requirements that are required to lead that transformation; culture, as I noted before, is an incredibly important part to realize that transformation; technology, obviously, as an incubation and a point to transform around; and the concept of security, ensuring customer trust through accountability transparency in security.

Park

You said no particular order, but I think that security one is pretty important, don’t you think, Kevin?

Koenig

Well, absolutely. As we talk about sort of the convergence of technologies, different ecosystems in the marketplace today, security, cyber, digital risk, all of those things become absolutely, you know, sort of mission critical and important as our clients are making that transformation happen. 

Park

You said there were leaders and laggards that emerged from the study. What were some of the key differentiators between what defined a leader and a laggard?

Koenig

When we look at leaders, that really sort of revolved around the way that they thought about or how they instituted transformation, not so much on the what. 

So they embraced sort of all aspects of those five different measures, where laggards typically focused on an individual component or they focused on creating cost takeouts, so it’s much more sort of myopic in the way that laggards thought about transformation and innovation versus leaders. 

Park

So, how important do you think innovation will be to a firm’s successful digital transformation?

Koenig

One of the things that we saw as we did the survey and the research is that we found that it really quite frankly is impossible for us to separate the concept of both innovation and transformation, that they are in fact inextricably linked to one another. 

So, the firms that are most effective in creating or managing a portfolio of innovations are obviously much more successful at implementing transformation, while those firms that experience successful transformation realize more innovative results. So that close relationship reinforces our views from a broad industry perspective that are imperative. 

So, among the high maturity firms that we surveyed, 81% rated innovation as the key goal of digital enterprise transformation. We also noted that within that sort of area, the high maturity firms, there is a greater focus on performance tracking, executive accountability and coordination across teams, which leads into the model that they apply within those enterprises to sort of conduct and realize that transformation. So, from that perspective, we start talking about federated models versus centralized models as being the conduit to realizing that.

Park

That makes a lot of sense to me. I mean, you want to have accountability, but you also don’t want to centralize or overly control how you innovate within an organization.

Koenig

Absolutely. In fact, those things are very much linked to that concept of accountability. Accountability is sort of at the top of the enterprise, and those that we make accountable to the outcomes at sort of the very sort of grassroots of those projects across the organization. 

Park

That makes a lot of sense. So I know, you know, when you sponsor these types of studies you probably have a hypothesis or an idea of what the outcomes is going to be or what the results are going to be. Did any of the results of this report surprise you at all?

Koenig

I don’t think that the overall survey itself was surprising on some of the main themes, but what we found interesting was going back to the concept of sort of team collaboration, how leaders manage and reach sort of that articulated or conveyed or perceived value in digital transformation goals. 

And so one of the things that we saw as we looked across three main C-level executives, so the chief technology officer, chief digital officer and chief innovation officer, was a disconnect in how they perceived that value. And so some of that points to some of the challenges that we continue to see from a legacy perspective around the silos that we’re building inside an organization. So, on one hand, we have this concept of federated models and how we need to go about collaborating and driving innovation. And on the other hand, we still have highly complex siloed organizations which go about transforming those organizations in very different ways, shapes and forms. 

A lot of that is obviously driven by where P&L falls inside the organization and, arguably, there’s a lot of work to do, Roger, around bringing, for instance, chief technology officers to the table and how that value is realized versus what the business is setting out to do and achieve as a result of that transformation. When I look at the survey and what we need to do, we have our work cut out for us because we have to be that bridge between technology and the business. 

Park

I think that’s going to be the big challenge here. I know in the report you go into a lot of detail on some of the specifics, but rationalizing and harmonizing the different priorities of all the stakeholders involved in a big organization, that’s never easy. But moving at the pace of digital transformation, that’s going to be a big challenge.

Koenig

Absolutely.

Park

So, you said that the report covered insurance, banking, capital markets, wealth and asset management. It’s all financial services, but those are all very distinct sectors. Did you see any key differences between the sectors in the results?

Koenig

We did. Some of those insights were probably surprising for some and not for others. As I said up front, my focus from a sector perspective certainly has been in the insurance space. Part of my background is also in retail consumer banking. In fact, I was involved in banking during sort of the whole core banking, you know, platform transformation work that the sector was doing. 

But one of the things that we saw from an insurance perspective is this focus on changing customer expectations and that, by way of results of the survey, really kind of gave them the edge in the digital transformation space. On one hand, you can say that may be surprising because typically from a sector perspective we tend to think that insurers lag banks in many ways around technology. 

But when you think about the business that insurers are in, which is largely customer risk space, care service, that type of thing, we’re dealing with an organization that really is creating a set of products and services and the way that they process claims, underwrite products, establish risk, that is based on tons of information and tons of personal data. And, so, insurers have been very proactive, very aggressive in establishing proofs of concepts around drone usage in field claims management, as an example, wearables around personal health, that information that obviously comes back into an ecosystem from a digital perspective and helps inform things like risk modeling, underwriting, product development, etc. So, from that perspective, they seem to be a bit more advanced, but certainly there are a lot of things that they need to do, considering the changes that are taking place in the insurance market. 

On the banking side, we certainly see a sector that’s ready for technology disruption, right? But one of the things, and certainly it’s been a sector that’s been focused a lot on technology adoption, as we just spoke about, some of the core replacement of banking systems and things like that and over the recent years around answering regulatory concerns as a result of the financial crisis. But now I think we’re also dealing with retail banks, which are sort of renewing their interest and focus on dismantling that traditional product structure and becoming much more customer focused, so sort of tipping the bank on the side. 

And, so, from that context, I think banks are readying themselves for this whole new adoption around technology and how that can help them innovate in the financial services space. And then on the wealth and asset management side, you know, I think we have a business with inarguably a very complex distribution agent sort of relationship workforce, right? We’re dealing with agents who have very personal relationships with investors, individual investors, and in many cases, they’re not ready to give up those relationships to digital sort of automated environments to recommend or make investment decisions. 

And, so, in the wealth and asset management space, we’ve seen a lot of work being done around robo-advisors and things like that. But there’s still certainly a lot of work that needs to be done in the wealth and asset management space. 

Park

That’s very insightful. I love that visual of tipping the bank on its side to focus on customers instead of products. So, I’m going to steal that. One recurring theme seems to be just unlocking the data of an organization to make better decisions. 

Koenig

I’m glad you brought that up. That’s one area, you know, if I were to look back at the sectors, there’s some differences there as well. So, if we look at insurers as an example, that really is kind of the Achilles heel for insurers right now. In fact, it’s something that we saw come out in the research that that’s an outlier of difficulty or challenges and the insurance sector really hasn’t been focused on some of that core sort of data operational system transformation that the banks have been over the past several years as a result of the financial crisis. 

Insurers, as of late, have been focused on operational transformation related to policy, billing and claims systems, but not data. And, so, when we look forward to some of the truly transformational leaders in the insurance space, they’re talking about data as being sort of that core asset that they need to help differentiate the business. 

We look at banks, in some ways, it’s the same thing, right? We have legacy systems through a bunch of mergers and acquisitions that need to be in a much more controlled environment. Certainly, accessible by the right individuals, whether those be service line professional or whether those be data scientists. But I say controlled because I go back to your statement around cyber and risk and security, right, as being an underpinning theme that we need to build upon as we talk about data in sort of this ever-evolving sort of ecosystem. And that becomes incredibly important when we talk about moving everything to the cloud, when we talk about digital disruption and all of the different sort of mechanisms that are feeding data back into the organization. 

In fact, a couple of conversations as of late that I’ve had with some of the large firms is that we have typically approached the concept of security around data from an internal perspective, meaning that it’s important for us to sort of put the right guide rails, security boundaries, the walls up around the stuff that we currently house inside the organization. 

But what I challenge companies to do today is to say, OK, what’s the risk of the information coming into the environment, right, that we really haven’t had to think about before? So, we see some of the challenges in industry around social media and some of the technology analytical firms across the country, where we haven’t had the right controls in place. And I think that those challenges of data coming into the organization were unforeseen, certainly not forecasted in any way, shape or form. But they caused immense disruption, that we need to think differently, right, about how information is sort of running or flowing through the ecosystems, certainly in a connected cloud type of environment or ecosystem. 

Park

Well, that’s a lot of good information and good insight, but I know that you haven’t covered the full report so for the listeners, we’ll have a link to the full report on ey.com. Kevin, thank you so much for joining us today and sharing a little bit about your background and what you’re looking at and focused on in the market. We close these things with a quick-fire Q&A.

Koenig

OK.

Park

So, a couple quick questions. What book on innovation would you recommend? Or what are you reading nowadays?

Koenig

Well, there are two books that I’m currently reading. One is called Quirky by Melissa Schilling, which really is talking about some of the traits that some of the sort of transformational innovation leaders have acquired throughout the years that are driving a ton of growth within the marketplace. 

And the other one that I’m reading is called Outliers by Malcom Gladwell, which I’m sure a lot of listeners will draw connotation to or realize he was the author of Blink and Tipping Point. And, so, again, sort of looking at some of those leaders in the marketplace and innovation and technology disruption, how they did what they did. 

Park

Yeah, those are great books. What headline do you think we might be seeing in The Wall Street Journal in 10 years?

Koenig

So, I’m not sure that I can actually tell you what the headline will be. I’m pretty certain that the headline we will read will be about a company that either we’re not paying attention to today or doesn’t even exist today. In fact, I think a lot of scholars and analysts say that, what, half of the S&P won’t even exist in 10 years. I have a feeling it will be a headline about a company that is not on the radar today.

Park

And then what skill would you suggest our listeners teach their kids?

Koenig

That’s a fantastic question. The reason is because there’s so much change happening related to sort of new generations and, in fact, there’s a recent piece of research that came out that was, in my view, a little bit disturbing saying that more than half of teenagers now prefer texting or social media as the primary context of communication.

And when we think about technology disruption, some of the things that are happening in the marketplace, certainly it will continue to be a new sort of evolving way that we communicate. But nothing, as you know, Roger, displaces the face-to-face human interaction of individuals to be able to make connections and drive the type of collaboration and change that’s required. 

So I hope that people would focus their teenagers on actual good, old fashioned, face-to-face communication.

Park

Yeah. I think that’s going to be even more important going forward. And then, what’s the best way for our listeners to get in contact with you Kevin?

Koenig

That would certainly be through LinkedIn. I typically focus on a lot of my comments around business in the LinkedIn environment. I do have a Twitter social channel, but I usually rely on that to sort of drive some of my observations and pushing sort of the diversity change envelope through sort of the Twitter channel. So, I look at social media and I use those vehicles in different ways to sort of propel and talk about different things. 

Park

That’s awesome. So, I encourage all of our listeners to connect with Kevin Koenig on LinkedIn and Twitter. And thank you, again.

Koenig

Thanks, Roger. I enjoyed the conversation as well. I want to remind listeners that we recently broadcast a global webcast with Forrester titled, Winning themes for financial services leaders. You can download the webcast on www.ey.com/det_insights.

Park

So, in closing, listeners can make suggestions on topics, guests or questions on Twitter using #agentsofchange. The full study is also linked to our ey.com Agents of Change podcast page, so you’ll be able to get the report from there. 

Thanks for your time. Next podcast will be in three or four weeks. Looking forward to having another good conversation with the entire group here. Thanks.