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How EY can help
A new approach is needed to assess and fund transformation
As transformation becomes more holistic, delivering value for consumers and employees while controlling costs and improving controls, a fresh approach is required to help leaders plan for and choose the right initiatives. Inter-function tensions frequently arise due to conflicting objectives: the CFO might prioritize transformations that cut costs, the CRO prefers initiatives that reduce risk, and the Chief Product Officer targets programs that improve customer experience.
Creating scorecards that measure each transformation’s potential to improve different areas can help bring clarity. When aggregated, they provide a comprehensive picture of whether the transformation portfolio is aligned with the bank’s strategic objectives. For example, this exercise might reveal that the transformation portfolio is overly weighted to cutting costs, which might be at odds with a wider strategy of improving customer experience. This picture of overall portfolio value needs to be reviewed regularly, with decisions taken to rebalance where required.
The mechanisms by which transformation funding is disbursed to specific initiatives also need to be reexamined. Indeed, securing adequate financing is one of the most significant barriers to delivering a successful transformation. In addition, according to EY Transformation leadership: Humans@center, only a minority (41%) of executives say that money is available to fund new innovations and ideas.1
Banks traditionally evaluate which transformations to pursue based on financial metrics such as net present value (NPV) and internal rate of return (IRR). This means that initiatives focused on DE&I or ESG can be inherently disadvantaged in competitive assessment. Executives should calibrate weightings and rules-based exceptions so that initiatives that do not solely deliver short-term financial returns but could be fundamental to long-term strategy receive a fair appraisal.
Banks should also rethink how they allocate transformation portfolio funding. Historically, banks may have simply initially allocated funding and resource to functions and businesses based on the previous year’s budget, with some minor adjustments. This has resulted in many portfolios being limited to actions and innovations that fit into a preexisting budgetary constraint. The reality is that transforming customer experiences or regulatory compliance often requires input across various functions and also end-to-end. Hence, a conventional, siloed and compartmentalized budgetary framework is not an appropriate funding distribution tool.
Take the mortgage application process in consumer banking, for example. Improving this requires a connected program of work across the user interface, underwriting and customer-service teams, as well as multiple other areas. The budget needs to be simultaneously allocated, with the appropriate weighting, to every function involved in the process to enable successful, holistic and end-to-end transformation.