“Late”, “over budget”, “does not deliver” seems to be the rule rather than the exception in digital projects. Succeeding in digital projects will make and break the competitive advantage and existence of new and existing players in a highly competitive market. Time to market is key; combined with the ramp-up in digital across the market there is no room to fail when it comes to digital projects.
In 2007, the UK Co-op Bank signed a deal with Infosys to overhaul its ageing IT systems. Being one of the first banks to begin their digital transformation, they invested £300 million into IT system modernisation, attempting to replace their core banking system with Infosys’ Finacle platform. Aiming to connect all the Co-operative’s financial services businesses to provide a single customer view, the project soon encountered significant problems. Destabilising leadership changes, a lack of appropriate capability, poor coordination, over-complexity and underdeveloped plans forced the project on hold in 2011. Two years later, their transformation was deemed a failure after the bank’s directors concluded it was inconsistent with their strategy going forward, resulting in a write-down of close to €184 million in IT costs.
The Risks of Digital Projects
Co-op Bank effectively illustrates the fatal consequences of failed digital projects. Because IT systems and digital transformations increasingly become a critical competitive element in several industries, technology and IT projects are becoming so big and touch so many parts of an organisation, that they pose a risk in itself.
Co-op Bank is not alone. McKinsey research, conducted in collaboration with the University of Oxford, suggests that half of all large IT projects have major budget overruns. They found that on average, large IT projects run 45 per cent over budget and 7 percent over time while delivering 56 per cent less value than predicted. And software projects are the ones that most often exceed costs and overrun schedules.
According to software development firm Geneca, as much as 75 per cent of business and IT executives anticipate their software projects will fail, 80 per cent admit they spend half their time on rework, while 78 per cent feel the business is usually or always out of sync with project requirements.
The Consequences of Failed Digital Projects
Due to their scale and complexity, digital projects introduce significant organisation and business risk, and the fear of failure is holding back the implementation of digital projects. But digital projects are a necessity to achieve the new level of speed, convenience and personalisation financial services customers demand from their providers in the coming years.
During the next five to ten years, the financial services industry will go through a radical digital transformation. FinTech and InsurTech start-ups enter established markets with customer-friendly solutions unhampered by legacy technology. A new generation of digital natives demands seamless experiences, better services and more value for money. And novel technology spawns the innovation of new products and new pricing models.
Few incumbents will come out as winners after this transformation. Gartner predicts that as much as 80 per cent of heritage financial firms will go out of business, become commoditised or exist only formally by 2030. And another survey reveals that 54 per cent of executives believe their business goes out of business or be absorbed by a competitor within four years if they don’t keep up with the digital transformation.
In conclusion, failure is not an option when it comes to your next digital project.
Avoiding the Pitfalls of Digital Projects
So, how can you avoid the pitfalls and ensure your digital project becomes a success? We believe there are five fundamental factors that should be in place before embarking on digital projects:
- The right business expertise: Digital projects require substantial business expertise. Lack of technical competence rarely makes or breaks a digital project, rather it is a lacking understanding of how technology and digital solutions should support the organisation’s overarching business goals.
- Tools and partners: Choose the right systems and collaborating partners as a starting point. This involves selecting the proper technical platforms and identifying potential partners with deep knowledge of the financial services industry as well as IT and digitalisation.
- IT Strategy: In a world that now relies on technology your IT strategy is just as important as your company strategy. It goes hand in hand and putting down a good IT strategy requires a different skillset than it did only a few years ago because of rapidly changing technology. New technologies such as Cloud, IoT, Big data, machine learning and new analytics tools have enabled new innovations and needs to be incorporated into your strategy. A Four-year-plan must be in place with prioritized investments before you start your journey.
- Change competency and governance: One major challenge with digital transformations is the ability to adapt to a digital world that is continuously and rapidly evolving. An essential component of successful digital projects is to be adaptable. This is equally important on a strategic level as it is when implementing IT systems. Change competency, cultivating a business culture that expects and adapts to change, is important to this. Good governance models that bring in the right stakeholders and decision makers across organisations is a critical success factor.
- Good design: Noria and peers in the IT market have established digital labs to ensure the concept, design and pre-project phase is tested on the market and of good quality. The design sprints process gives a high impact methodology with high impact results.
With this groundwork established, the following steps can help you approach the digital project journey in more concrete ways:
- Choose an advisor with in-depth industry knowledge and sound practical experience. These are hard to come by but don’t start your journey without a fantastic lead.
- Design the new digital customer journey with a customer-centric focus. Design sprints is an excellent tool for this.
- Identify the senior competence in your organisation that are also willing to change. The change-willing 60-year-old in your team might just be the most valuable member you can find. Motive your most experienced people instead of alienating them and you all the business knowledge that you need for your transition.
- Redesign and simplify internal processes and think end-to-end, to arrive at new processes with a high degree of automation and collaboration including a significant reduction in complexity and cost of operation.
- Prioritize low hanging fruits! Once you start looking and enabling your organisation to change there will be a long list of changes that required small changes to provide immediate business value.
- Think, act and adopt an agile way of working. This is not easy for most organisations, so hire an experienced agile coach to get you going.
- Your IT strategy might have been top notch when you started but things change, and it might be out of date a year after. Make sure you regularly review the IT strategy and change according to the market. Adapting to change is always better than following a plan. Especially with the speed of change we now have in this market.
Launching large-scale digital projects today only to fail several years later down the line, is a sure-fire way to come out on the losing end of the digital transformation of the financial services industry. The risks involved in digital projects have far-reaching consequences and avoiding them is critical for future success.