The digital transformation disillusionment

My friend Paolo Sironi of the IBM Institute of Business Value has been touting his latest research: the 94% core banking problem.

What’s it all that about?

Well, it’s about how digital transformation or, as IBM calls it modernization, hasn’t delivered. In research conducted with a global survey of over 500 CIO’s and almost 200 Chief Data and AI Officers (CDOs and CAIOs) at banks with more than $10 billion of total assets, the key finding is that, for all the massive transformational efforts they’ve made, it has not delivered.

60% of banks struggled significantly with system update costs, risk management, and overall platform resilience. For many the road ahead is still uphill.

• It became harder to manage costs for system updates and modifications (73%).
  Vendor lock-in and lack of portability exposed many institutions to unexpected strains when pursuing platform upgrades. Furthermore, the cost associated with core banking customization—which bankers request frequently due to regulatory adherence as well as professional preferences—escalates at the time of system updates due to expansive testing requirements.
• It became harder to maintain adequate risk management (69%).
  The cloud environment introduced complexities in adhering to evolving regulatory standards, such as ensuring data sovereignty or audit trails across distributed systems, which resulted in unexpected reviews and adjustments to avoid penalties.
• It became harder to guarantee system resilience (63%).
  Outages in platform availability due to instability of data centers during high-traffic periods, system misconfigurations, security incidents, and improper patch updates occur repeatedly. This mandates a more intentional approach to operational resilience.

Admittedly half of the banks did say they had made improvements, but only when aggressive in the “front-to-back” modernization efforts, while carefully calibrating their “back-to-front” transformation approach. These improvements are reassuring, indicating that success is challenging but achievable:

• Improved client experience (49%).
  Cloud-native modernization, particularly real-time capabilities, facilitates more dynamic and responsive customer interactions, allowing banks to better meet evolving client expectations without the constraints of rigid legacy systems.
• Increased frequency of system updates (46%). 
  The shift enables more agile deployment cycles and time to market for new features, reducing the long downtimes associated with monolithic updates.
• More efficient data access (46%).
  Streamlined data handling, such as quicker retrieval and processing via cloud-native analytics, supports faster decisions in areas such as loan approvals or fraud detection.

It’s an interesting report, especially for someone like me who sits back and goes yes, transformation is hard, but it’s easier if you have the whole company on board. As I keep saying, digital transformation is not about the technology but the mindset, the culture, the leadership and the commitment.

From the IBM survey above I would say it is the old discussion of the chicken and the pig. The chicken participates in breakfast, but the pig is committed. We need more commitment.

Anyways, you can read and download the report here: The 94% core banking problem.