Stop Calling It Digital Transformation. It’s an Evolution

Stop Calling It Digital Transformation. It’s an Evolution

Digital transformation: what does it mean? It’s often a catch-all buzzword that can mean many different things. According to Techopedia, the phrase was first coined in 2011 by consulting firm, Capgemeni and they define it as “the use of technology to radically improve performance or the reach of businesses.”

While it first caught on in 2011, Google searches for the term have climbed steadily ever since and hit a peak during the pandemic when virtually all businesses were scrambling to define a digital transformation strategy to get them through the Covid-19 era.

But it’s time for a new term that more accurately encompasses what digital transformation actually is: an evolution.

There’s two reasons for this:
  1. Digital transformation cannot occur with the right technology by itself.
  2. Technology is constantly evolving, which means the business should evolve with it. Digital transformation is not something you should check off the list and consider it done.

So what does successful digital evolution look like for financial services? This blog will explore how financial institutions can embrace their digital evolution, with a special focus on their lending operations.

The Puzzle Pieces of Digital Evolution

A piece of technology alone is unlikely to radically transform a business’s performance. Optimizing a business model or a company’s performance takes a team, the right processes, and the right technology. If one of these pieces is missing or lacking, the puzzle will be incomplete. On the other hand, when all of these components are aligned, that’s when evolutionary magic can happen.

Aligning people, processes and technology throughout an institution’s digital evolution depends on strong change management and fostering a culture of continuous improvement. Effective change management acknowledges that technology alone isn’t the answer. Financial leaders need to focus on other areas of change beyond the new IT investment and this involves engaging other key stakeholders across the institution.

Start by mapping out current processes. This will help everyone understand what is going on behind the hood and to discuss the ideal processes or workflows that would work best and what improvements should be prioritized.

For example, a bank seeking to transform its commercial lending operations should consult with the financial institution’s relationship managers and loan officers, credit analysts and underwriters, as well as any other manager who is consistently tapped for loan operations.

Consider how an ideal process looks for each of these stakeholders. What about the customer or the borrower? The ideal scenario may be consistently funding commercial loans in 45 days or less. By engaging the team to understand what the target operating model should look like, the bank can map out a plan to get there and keep all stakeholders focused on a united objective.

But once such a goal is accomplished, the process is not done. In fact, it never is. It’s an ongoing, never-ending process of continual improvement. As noted in Cornerstone Advisor’s What’s Going on in Banking 2024, 23% of the banks and 27% of credit unions surveyed recognized that they’ll never be done with their digital transformation strategy. Those are the ones “with their heads screwed on straight,” according to Ron Shevlin, author of the report.

What Drives Digital Evolution Success?

So if the process is never complete, how does a financial institution determine if it is moving in the right direction? Look for effective collaboration and coordination across the financial institution. When banks align team members, business processes and the right technology, projects are much more likely to succeed.

How are you progressing compared to initial KPIs? When kicking off a digital transformation project, leaders often consider the KPIs and objectives they want to achieve as a result. No matter how well-intentioned, these objectives can be overly broad or generic, which may be fine as initial goals, but more specificity is needed to determine if those goals are being met. Leaders often say they want to increase efficiencies or drive loan growth. Or, perhaps the goal is to close loans faster. While these are great goals, what is preventing your bank from getting there? This will dictate where you focus your digital evolution and change management efforts.

While digital transformation is a fine concept, it’s a little dated today. The term connotates something that will be accomplished at some future date. That’s why “evolution” is a better term. Evolution has no endpoint, which means there are always opportunities for improvement for those that look.