By Phil Hingley, head of financial services, UK
The recent pandemic has thrown some bewildering curveballs at capital market firms. The sudden shift to remote working has added to the challenges for enterprises that were already struggling under the weight of traditional processes, legacy infrastructure, and limited ability to harness their data.
The huge economic disruption caused by COVID-19 has accelerated firms’ realisation of much needed change and adoption of the new technologies they so desperately need.
Organisations that had a five-year plan for enterprise modernisation have had to fast-track their transformation initiatives. The lightning-fast decision-making that relied on instant access to real-time data sources on a bank of screens and on-premise communication to coordinate deals must be replicated in a new working environment. But locally installed legacy applications with no API integration capabilities make that a tough challenge.
It all amounts to a lot of additional disruption in a sector that was already evolving beyond the capabilities of monolithic legacy infrastructures and processes.
Leaders under pressure
For IT and business leaders in capital markets, even before COVID-19, the pressure was immense. The pressure to respond to changing market conditions and the subsequent demand on finding the technology, processes, and budgets to modernise systems that were designed for a different world. The pressure to extend the enterprise’s reach into new digital ecosystems. The pressure to remain competitive and not get left behind as the sector evolves.
In response to this, most organisations have undertaken some kind of digital transformation initiative, with varying levels of success. They’ve attempted to jettison their legacy systems and replace them with modern alternatives, thinking that’s what it takes to stay competitive.
It’s true that a strong technology strategy sits at the heart of a sound digital transformation strategy, and through enterprise modernisation, technology leaders can help increase operational efficiency and productivity, reduce costs and risk, uncover new opportunities – and directly contribute to value creation.
But becoming a modern digital business is about much more than just technology.
Technology gives organisations powerful tools, but they must change their values to realise the full benefit of those digital investments. Otherwise, they’ll simply create the legacy systems of the future while the supporting systems and processes remain firmly in the past.
Transformation must go deeper
In too many transformation initiatives, the end state is just the old end state with a digital veneer. Take automation, for example. Over time, large organisations have built a Jenga tower of processes and workflows, then they’ve started to remove blocks and plug the gaps with automation. While that can increase speed in some areas, the outcomes remain the same, they just get to the bottlenecks faster.
Meaningful transformation – the kind that will help leaders compete with new digital entrants – requires more fundamental changes to deliver new outcomes. For example, an organisation that sets out to embed new core principles in its brand positioning to grow in key markets, invests heavily to plot a course to change. However, if the underlying values don’t change – those that drive the internal reward and measurement policies – then change will fail; the purpose of the technology and the value the business expects are at odds with each other.
So, what can be done to balance the change in values with modernising systems and processes? How can we give digital transformation initiatives a better chance of success?
Transformation success factors
Gain executive sponsorship
As per a recent industry survey, only 53% of CIOs and 42% of CFOs said they get full funding commitments from senior leadership for legacy system modernisation. This implies that at times it’s difficult for technology leaders to gain executive buy-in when it comes to business-critical tech transformation.
In every worthwhile transformation, things get worse before they get better, and it takes a brave leader to convince others to continue on the transformation path when results temporarily dip.
To acquire and maintain executive sponsorship, it’s essential to quickly deliver demonstrable value. Very few business leaders have an appetite for complex, multi-year transformations that consume CapEx and OpEx without any visible return. If the values of the business are to change – and with them, the ways people are managed, assessed, and remunerated – there must be unflinching executive sponsorship.
So, it’s critical that any transformation is based on reality, and what the business can digest as it transforms. Ensuring the program is outcome-based, with lightweight governance involving business, technology, and operations leaders working together is vital. The executive sponsorship should be powered by a long-term strategic vision that’s integrated into the company’s growth strategy and not the annual budget cycle. That will allow for active resolution of roadblocks with organisational restructuring, process changes, and bonus structures, all enabled through effective, value-driven portfolio management.
That’s why it’s so important to break down digital transformations into smaller, tightly focused initiatives that deliver immediate, measurable business value and a tangible impact on the top or bottom line. At Thoughtworks, we use a “thin slice” approach to break down legacy problems into bite-size pieces where we can deliver business value fast. The aim is for a visible win every 8-12 weeks to demonstrate value and maintain momentum. As these initiatives progress, they release a budget that was previously assigned to business-as-usual, money that can fund projects that either add to the bottom line or accelerate innovation.
A thin-slice approach to legacy modernisation
Align business and IT
Capital markets enterprises pour billions every year into the IT function, but innovation investment is hampered by the demands of keeping the lights on for the current monolith. So, when IT leaders are asked to do more with less, it’s the innovation budget that shrinks – the lights must stay on.
This apparent lack of innovation is, in part, what’s driven many enterprises in the sector to circumvent the IT function by building separate businesses for specific functions. The hope is that, when the new business can stand on its own, the legacy systems supporting that function in the parent business can simply be switched off. However, the intricate web of interdependencies in monolithic legacy architectures means that’s rarely easy to do.
By bringing business functions and IT together with our teams to work collaboratively on quick-win modernisations, it’s much easier to ensure technology is at the core of the business – one of the keys to transforming into a modern digital business.
Assess the business impact
With the increasing number of IT failure incidents reported to the FCA, it’s clear that technological debt, combined with change management lapses, can cause significant business disruption, resulting in financial and reputational loss.
It’s important to remember that ‘legacy’ is not just about IT; the legacy technology stacks of hardware, software, network infrastructure, operating systems, and so on, are surrounded by people, processes, and culture. To understand the impact of IT on business outcomes, all these factors need to be viewed holistically.
For a successful transformation, IT initiatives should be part of a bigger picture and seen through a value-driven lens – what business problem will it solve, or what capability will it enhance? That requires developing a deeper understanding of the business metrics related to customer satisfaction and profitability.
Enterprise modernisation needs a concerted effort by business and IT, to bring the big picture together and align objectives on both sides. That upfront alignment with business improvement objectives will make the change easier to manage, as the logic has been established from the get-go. This will also result in technology being at the core of your business, not a siloed cost centre.
Build new skills
A big part of breaking out of legacy systems is also breaking the dependency on legacy IT partners whose own business models are complex, aged and reliant on large multi-year contracts. To do this, part of the transformation journey is changing and augmenting the skill sets of in-house teams.
There’s a growing technology skills gap in capital markets, as new computer science graduates are lured away to the tech giants or exciting startups. We’ve seen that by investing in modernising ways of working, and bringing clarity to the organisation's own direction, staff retention improves and the ability to attract talent increases.
Putting modern digital technology and the right business values in place will go a long way to attracting the best talent back into capital markets. But another important part of what we do with the organisations we work with is the transfer of skills to in-house teams at each stage of a project. We use capability mapping to identify the people with the ability and the willingness to learn new skills, so we can quickly onboard and upskill an engaged majority who will continue to add value to the business in future projects.
Are you ready for the transformation challenge?
Ultimately, transformation is the orchestration of people, processes, and technology so they’re working cohesively, with a focus on value delivery. Technology can be a key source of competitive advantage, but only with a meaningful alignment of functions, budgeting, measurement, and architecture – all based on a clear understanding of the value to the customer.
This kind of transformation is extremely challenging, involving substantial cultural change and a humanistic approach from leaders. It’s not for the faint of heart – but those that get it right will see enormous benefits for their business long into the future.
Get your transformation assessment
Need some expert advice on your technology transformation? With years of experience in delivering legacy modernisation, technology transformation, and DevOps, we can help you design the roadmap to your future enterprise. Get in touch with us at email@example.com.
This article was published on August 20, 2020