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How banking leaders are reimagining transformation programs
In this special episode, moderated by FT Longitude, Yianna Papanikolaou, Chief Transformation Officer at Westpac Group, and Andrew Gilder, EY Asia-Pacific Banking and Capital Markets Leader, discuss banking transformation.
Transformation means different things to different banks. But they are agreed on one thing: transformation is essential to long-term success.
To keep pace with an evolving market and customer expectations, banks must be able to transform at speed, constantly refining and reshaping their processes to remain competitive.
Unfortunately, that’s easier said than done. According to EY research, two-thirds (67%) of businesses experienced at least one underperforming transformation in the past five years – and only 41% of employees actually understand and believe in their organization’s transformation vision. What’s going wrong?
Key takeaways:
How today’s banks are thinking about and delivering transformation.
The key transformation priorities and objectives for a large APAC bank.
How banks are rethinking their talent proposition to attract and retain the necessary skills.
What banks should consider when deciding which transformation initiatives they pursue.
For your convenience, full text transcript of this podcast is also available.
Yianna Papanikolaou
Agility for us is our ability to anticipate and respond to change, and to be able to do that quickly, continuously, and everywhere.
Announcer
This podcast follows ongoing EY research into banking transformation. It explores the forces reshaping the banking industry, and the growth strategies that deliver long-term value.
Moderator
Banks face an uncomfortable fact – they must transform to survive.
But a single act of transformation is no longer enough. In this competitive landscape, banks need to transform constantly, meeting regulatory demands and enhancing experiences for consumers and employees through ongoing change.
New research from EY shows that banks struggle to transform, and they're not alone. Overall, two-thirds of businesses experienced at least one underperforming transformation in the past five years. Banks recognize the importance of change, but many are unable to make it happen, and that's the problem.
So, is it time to talk about transforming transformation?
I'm Thomas Sturge, group editor at FT Longitude. To help answer that question, I'm joined by Yianna Papanikolaou, Chief Transformation Officer at Westpac Group, and Andrew Gilder, EY Asia Pacific Banking and Capital Markets Leader.
Andrew, let's start with you. The word transformation has been used by banks for many years to describe major programs of change. Based on your work with multiple clients, have you observed any changes in the ways that banks think about transformation, what they hope to get from transformation, and how they deliver it?
Andrew Gilder
There’s been a distinct change, but in my view, there’s still more to come. Maybe if I start by calling out two areas, which are actually I think are quite linked as well. The first of those is banks starting to put the customer really at the heart of every transformation that they do.
So even if a program is primarily driven toward cost transformation or what we often see at banks is to meet a regulatory imperative, it doesn't mean that the customer and the employee experience should not be a goal of the programs. If I take financial crime, for example, there are large elements of that that are regulatory driven, but that first interaction that a customer has with the bank through the onboarding process is so critical.
The second area I wanted to call out is really agility. That's the thing we're starting to hear more and more from banks when they talk about transformation. Customer expectations are really evolving fast, and they're getting used to constant product evolution in other area of their lives. It could be the phone software features, their ride-hailing app, their food delivery app, and in some cases the way these integrate with each other. They're getting used to constant releases to enhance their experience. And banks really need to start to think about that because that's the customer expectation that's being created.
And so constantly releasing updates to the way they interface and interact with their customers and driving that integration. So weekly releases to improve a product is, I think, going to become the norm rather than what we've seen traditionally, a three to five-year program that has a dramatic impact on the customer experience at the end of it. So I think they're probably the two key things, the focus on the customer and that agility and that constant change I'd call out.
Moderator
I’m with you. So a razor-sharp focus on customers and employees coupled with moving at speed and agility.
And Yianna, what does transformation mean to Westpac? What are some of the key objectives of the bank's transformation strategy?
Papanikolaou
First of all, I agree with everything that Andrew mentioned, both the customer centricity focus and the need for being more agile are elements that we experience as well.
The way that we like to think about transformation is a bit of a shift from a traditional way of thinking about transformation as large initiatives that achieve specific things, more toward a capability that the organization needs to be able to compete appropriately, offer the right services to its customers, and ultimately achieve its purpose. So at Westpac, our purpose is to create better futures together, and our strategy helps us achieve that. And transformation is a way for us to make our strategy a reality, and this is how we think about it.
To bring this to life a little bit, it can take a variety of forms. We can be doing things that ultimately add value to customers immediately, for example, creating new offerings or better offerings. Like a couple of things that we released recently was where an instant digital mortgage, which is one of the first in the market. Or very recently we released the capability to turn any phone into a payment-accepting device for all merchants. So these are examples of things that we do that deliver direct value to our customers and play to what Andrew was talking about before, which is more customer centricity, better journeys, swifter journeys.
There are other things that we do that the customer doesn't see immediately, but are also essential to our transformation, and they're essential to our strategy. They are more foundational. So things like modernizing data technology infrastructure.
And to just bring this back to the question that you asked me upfront, it's just we've shifted our thinking about transformation into making this a capability that we absolutely must have to compete. And we think about it with regards to things that we do for our customers, things that we do internally and both now and into the future.
Moderator
And Andrew, Yianna just mentioned the behavioural importance and the cultural importance of failing fast, and that being crucial to transforming with agility and at speed, but in a highly regulated environment and in a context where quite fundamental failure is happening right before our eyes - how can banks foster an appropriate culture of risk taking, experimentation and not being afraid to push the boundaries of their transformation programs?
Gilder
Yeah, culture is always difficult. In our recent research where we explored this, I was surprised that only 43% of respondents said that they'd made it clear to their employees that failed experimentation wouldn't have a detrimental impact on their career progression and their performance appraisal. For me, that 43% is a bit low, really, in an environment where fail fast has become a bit of a mantra. And there's certainly some banks that do this better than others.
I think this is an area where large banks in particular could probably learn from the world of FinTech or big tech. The regulated environment that you mentioned, it probably does constrain this to some extent. And this is right, because we don't want a weakening of controls over data, or access to systems, or in the provision of an inappropriate product or service to the market. Certainly in this market, we've seen that in the past, but banks have become a lot better at that.
And so I still think there's room for that playing around with ideas and experimenting and so forth well before you get to that release, and that release being in a controlled way into the live environment. I think an area where banks could make some ground is knowing when to shut something down.
I think that’s where some programs run for longer than they should, even when it’s become abundantly clear that they’re not going to deliver as much as was promised or was expected. And sometimes you really just need to say, “It’s not working, let’s try something else,” and I think that’s where banks could do a bit more.
Papanikolaou
Yeah. I think it's a very topical thing for everyone in our industry, I think, the ability to stop something that may not be successful. And as you said, the regulatory demands or regulatory commitments are very live in our industry. If you look at benchmarks around the world, banks spend between, I don't know, 30% and 50% of their investment spend in regulatory related items. So frequently, if there are commitments made to regulators, then stopping things and admitting that perhaps the route that you have taken is not the right route when you are under time pressure or your credibility is on the line with commitments is not an easy equation.
Andrew's quote was fantastic to say that only 43% of respondents actually encourage people to fail fast or admit to failure, right. That's a material shift that is required for us to be able to say, "Yes, I can look at this solution and understand that it's not going to succeed, and therefore I'm ready to stop it."
Moderator
Yes, indeed. I should add that those percentages, they apply to businesses at large, I think that's cross-sector research, but I'm sure that the percentage is probably fairly similar for banks, as well.
I wanted to change tack slightly and talk about the fairly broad, but nonetheless, extremely important issue of skills and human capabilities. And Yianna, perhaps starting with you, what skills and capabilities will banks need to attract and cultivate in order to effectively transform, and do banks need to rethink their talent proposition to attract and retain the necessary skills?
Papanikolaou
In banking specifically, there's definitely a set of hard skills that are emerging as essential. So people call them digital skills, so ability to understand data, derive conclusions based on data, do programming to basic or more advanced level or use scripting languages or use tools to be able to mock-up experiences quickly, et cetera, agile ways of working. These are digital tools that are becoming essential now. And given how new they are, they are, of course, also rare. So there is definitely a shortage of those skills and we are struggling with being able to satisfy the demand that we have and also build for the future, as I'm sure others are.
And things that we're finding essential and we recruit more and more for are, first of all, super strong cognitive abilities, so you know, structure problem solving, strong planning, communications, mental agility. And last but not least, very strong self-management because, as Andrew was talking about agility before, agility is also about being able to operate more comfortably in an environment that is uncertain, which requires a certain level of personal awareness and self-management that was probably not required before in industries like ours, in a lot of traditional jobs here, like operations, for example, or customer management in the branches and so on.
So yeah, to bring you back to your question, skills is absolutely something that we worry about and we try to become more innovative in the way that we think about how we develop the people who are already in the bank, how we bring talent from the market, how we recruit talent from the market, but also how we work with partners like Andrew's firm or other firms to be able to ingest skills that we may not have and want to develop.
Moderator
I wanted to end up with maybe speaking about the fundamentally important topic of how banks identify and approve the initiatives that may comprise their transformation portfolio.
And Andrew, executives within a bank will often have different views about how the bank should transform and which of a series of potential initiatives should be pursued. I just wonder, based on your experience of working with clients, how often does senior management disagree on how to transform?
Gilder
All the time. Is that an appropriate response? I mean, I see this as an observer. I'm sure Yianna, when she speaks, will have lived experience here with the scars to go along with it. So I mean, we mentioned before that there's a limited amount of transformation budget to go around. And how this gets allocated is the subject of much debate at our clients.
I think the resolution of that really needs to be objective and data driven to the extent possible. So the questions of, what risk am I going to pay down by doing this transformation initiative? What revenue growth will it drive? What costs will it save? What capital will it release back for use in the business? All those questions are important questions to ask.
Once you've got that information, then you can really have an informed decision about prioritization. But key to this will also be holding everyone to account. If someone's saying, "I want this investment money for my business unit because it's going to deliver this much of revenue growth," then there needs to be some accountability for that. Otherwise, there is a risk that over time, that system will become ineffective because people will just gain the system and put unrealistic targets down for the business case. So you need to hold them accountable to the delivery. I don't know, Yianna, you've probably got some lived experience here.
Papanikolaou
It's a fair assumption, I would say. And definitely concur with what you said, that I think everyone has lived experience in this topic.
And a hundred percent concur with what you said about the transparency and the data driven decisions, about distilling things to a common denominator of value, be that return on equity or whatever is the priority in the business, and would add a couple of more. Another one would be, be clear about how you make decisions, so what are those criteria, right? What are those strategic priorities? So the first thing I think that helps the dialogue here is alignment strategy. That's the number one thing. And then the transparency on the value and also the transparency on the trade-offs.
And usually, to make these conversations useful and successful, you have to not only talk about the brilliant ideas you have about taking the business forward, but about what do you have to stop so that you can create capacity to be able to pursue more or better brilliant ideas.
Moderator
Thank you very much. Okay. We've come to the end of our conversation. We've covered a wide range of topics from agility to skills to how banks select the very transformation initiatives they pursue, and the very meaning of transformation itself. And it seems like the concepts of communication, transparency, leadership are always going to be important to resolving these issues, and importantly, a fundamental alignment with the bank's overarching strategy as well. So Andrew and Yianna, thank you very much for your time.
Papanikolaou
Thank you for having us, Thomas.
Gilder
Thank you. Pleasure.
Announcer
This podcast follows ongoing EY research into banking transformation. It explores the forces reshaping the banking industry, and the growth strategies that deliver long-term value. Thank you for listening.
