What is Digital Transformation?
Since digital transformation looks different in each company, it’s difficult to assign an exact definition. However, at the foundation, digital transformation involves creating a “digital-first” mindset throughout operations. The goal of digital transformation is to incorporate fundamental changes in how a business conducts operations with the use of technology, from marketing strategies to the value proposition.
Digital transformation evaluates how you think about and interact with customers. One example is moving from spreadsheets to software to reduce the time spent answering customer questions. At the core, digital transformation begins and ends with the customer. A major component of transformation is the ability to future-proof your organization. The agility and flexibility of working technology into your organization is something the financial service industry can’t overlook.
What are the Main Areas of Digital Transformation?
Digital transformation can be broken down into four main areas, which include:
- Process Transformation – This segment looks to analyze and improve the current processes of your organization, such as the customer service experience.
- Business Model Transformation – This area of transformation is important to stay in front of competitors by innovating and evolving.
- Domain Transformation – Domain transformation involves utilizing the cloud to reduce costs, easily scale, and improve security.
- Cultural Transformation – This area of transformation includes understanding the values and beliefs of company leaders, employees, and customers to make actionable changes toward inclusivity and cultural awareness.
Your financial service business should consider what each of these four areas entails to remain competitive and appeal to consumer demands.
How Does Digital Transformation Work?
Each business will have a different way they leverage digital transformation. Nevertheless, the first step in digital transformation is starting with a problem statement, an opportunity, or a goal. How can your business improve the value customers perceive? Where can technology improve efficiency and productivity in operations?
Next, your business will need to find solutions to reach its goals or solve the problems identified. This could be investing in new customer service software or implementing automation in your accounting function. Whatever the case, digital transformation relies on not only finding weaknesses in operations but also solutions to overcome those challenges.
Another important piece of digital transformation is reviewing progress and its impact on consumers and employees. How are customers responding to automated customer service? What is the productivity rate of switching to a remote workforce? In order to future-proof your financial service business and promote long-term success, you need to consistently review and adjust the digital transformation of your business.
Why is Digital Transformation Important?
Companies are implementing digital transformation for various reasons. First, digital transformation is important to survive the increasingly competitive business environment. Technology has led to low barriers to entry in the financial sector. New banks and insurance agencies are popping up weekly. Creating a unique competitive edge is vital to remain competitive and grow the market share of your business.
In addition, digital transformation helps businesses avoid disruptions, from supply chain issues to changing consumer expectations. Consumers don’t want to spend hours on the phone with customer service or spend ten minutes logging into their online accounts. Instead, they want convenience, accuracy, and innovation, all of which are supported by digital transformation.
Digital transformation is also important from a financial standpoint. Reworking inefficient operations, such as manual data entry or traditional customer service queues, allows your organization to achieve higher profitability. Productivity and profitability are positively correlated. As one increases, the other one improves as well.
Additionally, one of the constraints to scalability is resources. By leveraging technology and digital transformation, you are minimizing bottlenecks and allowing your business to reach new target markets and improve retention rates.
Digital transformation is particularly important from a marketing perspective. Aligning the strategies and operations with transformation efforts gives your marketing team the tools to keep up with changing customer expectations and demands. In fact, marketing technologies are a key driver of digital transformation, empowering markets to facilitate digital interactions with customers.
How Did the Pandemic Affect Digital Transformation?
The recent pandemic accelerated the need for digital transformation. For one, most businesses didn’t have the capabilities to support a remote workforce. The pandemic created an urgency to move in-person teams to remote work to avoid completely halting operations. As a result, many financial organizations utilized digital transformation to rework operations to use the cloud and support remote work.
In addition, the pandemic caused consumer demands to shift rapidly, with 75% of consumers agreeing that the pandemic would create long-term changes in their behaviors. Additionally, 53% of customer service support teams have seen an increase in queries since the start of the pandemic. These statistics support that consumers are moving towards electronic interactions instead of in-person, creating a need to implement digital transformation to meet demands.
What Digital Transformation is Found in the Financial Service Sector?
The financial service sector is seeing some of the most profound changes through digital transformation. Shifting consumer expectations, stiff competition, growing regulatory challenges, and outside pressures to streamline operations push innovation to the forefront of discussions.
Studies show that nearly 97% of financial service firms have made some advancements in line with digital transformation. For example, many fundamental banking services, such as loan payments, have remained the same for over a century. Today, banks need to rethink how they manage these transactions, and the value customers perceive.
Furthermore, financial service companies have experienced significant upticks in competition. What once were a few well-known names in the banking, wealth management, and insurance sectors now has spanned to include hundreds of new entrants. Being a big company is no longer seen as better or safer and instead can hinder innovation.
What are the Challenges of Digital Transformation?
Despite the growing importance of digital transformation, financial service businesses face some challenges. First, siloed tactics in the decision-making process are a major challenge. Large organizations have seen difficulty aligning all segments of operations to enact effective transformation.
In addition, implementing digital transformation can be expensive. With rising inflation, interest rates, and employee wages, organizations are seeing challenges finding the necessary funding to utilize digital technology. For example, re-working online banking apps remains expensive, but it is necessary to provide customers with the necessary value and resources. The inability to support the capital expenditures of digital transformation risks losing customers and relevance.
Digital transformation has a direct impact on the financial service sectors, from infusing technology in marketing strategies to automating customer service and feedback. Finding the right solutions in digital transformation for your organization should be a priority going into the next few years. To discuss viable strategies, reach out to one of our team members at Naehas today.