Understanding Digital Organization Models for Commercial and Regional Banks

Banks that can successfully implement a contemporary, agile digital organization model and establish a company culture that embraces rapid responses to opportunities innovation will be better equipped to maintain their position in financial services.The banking industry has been engaging consumers at the digital level since electronic transfers and ATMs. Despite this early-adopter status, few, if any, organizations in this sector can be regarded as leaders in the ongoing digital transformation. Many include digital tools and functions as after thoughts or add-ons rather than integral parts of their banking operations. Instead, industries such as retail and healthcare are setting the bar for digital consumer experiences, one which is getting higher all the time. The main culprit holding back digital innovation in the banking world? Traditional banks' digital organization models.

Current Conditions

Large, long-standing institutions with orthodox approaches to banking are finding themselves at a disadvantage in comparison to FinTech companies that, in recent years, have successfully infiltrated the most profitable banking business units, including lending, money transfer and investing. Even smaller banks and credit unions are feeling the pinch, as they often find themselves playing catch-up, merely replicating features from larger competitors rather than pushing new bounds.In response, many regional and commercial banks have invested a considerable amount of resources into upgrading their existing digital offerings and developing new products that can compete with the innovation and agility of FinTech. However, the legacy systems these products are built on are often convoluted, fragmented and antiquated. This makes it difficult to implement meaningful improvements and keep up with changes that happen practically overnight.Consumers, as well as institutional entities, are becoming increasingly inclined toward the simple-yet-functional user experiences they receive from FinTech products. In fact, 15 percent of consumers who own a digital device have report using two or more FinTech applications within the past six months, and experts are forecasting this number to double in the next year. As these trends continue to grow and new disruptors enter the industry, the gap between leaders and laggards will continue to widen and severely impact bottom lines.

Examining Digital Models

To combat this, traditional regional and commercial banks must reorganize their digital blueprint throughout the organization. The most common models of digital structure are centralized and decentralized structures.

Decentralized

Tech-native disruptors have digital in their DNA and usually fall under a decentralized structure. This means that digital is fully embedded in individual lines of business, making it a flexible and ready-for-change approach. A decentralized model establishes individual leadership roles within each area of the institution, making digital products and resources the domain of individual departments. In the most basic sense, this can take the form of independent digital information silos. In more extreme circumstances, it can mean entirely different websites, social networks and sub-brands between various parts of the bank.Decentralization isn't always the best option, however, especially for companies that are less mature and/or not digitally savvy. In some instances, this approach can even be detrimental. Collaboration often falls to the wayside as departments and products compete with rather than augment each other. It's too easy to duplicate data and digital resources, creating inefficiencies and wasting valuable time, money and manpower. Without central management of the digital structure, user experiences can also become disparate and fragmented. This is particularly true if the groupings are by region or product offering. Checking and savings account information, for example, may not connect with applications for loans and credit card because they are different products. Customers then have to spend time entering information that the bank already has and the bank has to request data from a multitude of departments to confirm information that it already knows.

Centralized

Most traditional banking institutions utilize a centralized digital model that allows management of the entire digital structure via a single touch point. There is one digital silo run by one team or individual that serves the entire organization. Content, messaging and other digital assets are usually more consistent under this model, and it's easier to connect products and services.Unfortunately, a centralized digital structure can cause institutions to become slow adopters of change due to deeply-rooted methodologies and processes. And since stakeholders reside solely within the digital silo, there may be a distinct lack of creativity and few new ideas from other parts of the organization. Purely centralized models are more prone to bottlenecks, slow development, delayed releases of key features and reactive -- rather than proactive -- practices. Most importantly, the siloed, centralized approach that most banks follow is one of the biggest barriers to consistent customer experiences.

Hybrid

There are pros and cons to both, but for today's banking industry, the most effective digital model combines the best of both worlds. A hybrid structure utilizes the idea of individual units within the organization having a significant amount of control over their digital real estate but tempers it with a strong central hub that provides overall direction. Orders can still come from the top, but they're implemented on an individual basis. This creates a digital environment that's tailored to each business unit's specific needs while working toward the institution's comprehensive, long-term strategic goals. Everyone is connected and on the same page, making collaboration more effective and simplifying things on the user's end.

Establishing the Digital Framework

Success in the digital arena means a complete transformation of both structures and processes. The organizational structure needs to reflect the level of the organization's digital education, so leaders have to be cognizant of the digital maturity and experience of the organization as well as its business objectives. Knowing the proper organizational structure for the current and future state begins with a benchmark assessment of people processes against business objectives. Decision-makers need to develop a solid understanding of how the organization is currently performing in the digital sphere by answering a few questions:

• Who is responsible for the organization of digital resources?
• What's lacking in the organization's websites, social media, email and mobile applications?
• Where can the most effectual improvements be made?
• When is the organization planning to release its newest digital offerings?
• Why would making changes be difficult?
• How do existing digital channels compare to both traditional and FinTech competitors?

This line of questioning can also serve as a way to further educate the rest of the organization/business units and begin to spread digital thinking - ultimately paving the way to further decentralized responsibilities. The more digitally mature a company is and the more digital knowledge throughout the organization, the more digital responsibility can be decentralized into the business units.By understanding the current and long-term needs dictated by the business objectives, digital strategy for insurance and the required flexibility to adapt, banks can set their targets on a future organizational structure while organizing in the short term around a digital center of excellence that integrates into the business units - both performing and educating.Creating this hub in a hybrid structure requires consolidating ownership and accountability without taking autonomy or flexibility away from individual business units -- a tightrope walk, to be sure. The best way to go about this is to engage senior and mid-level leaders within each unit to obtain visions and viewpoints from across the organization. Banking business units can develop digital ideas and strategies that best fit them and then report to the central digital hub to ensure that they align with the bank's overall digital blueprint.The insights that are derived from previous in-person and digital experiences with the bank, clickstream data, social media and other data sources within the Internet of Things are also essential to understanding and developing optimal, repeatable customer experiences -- and they're often spread throughout the organization. Successful integration of a new digital model requires banks to analyze each step of the customer journey to determine how they are using digital tools, their preferences and things they'd like to see in the future. This full communication and shared responsibility is the only way to align digital strategy with user experience to foster consistent consumer interactions and seamless cross-channel coordination.

Conclusions

Today's financial services customers are more informed, more demanding and have more choices than ever before. They also have unprecedented access to technology that simplifies financial activities from fund transfers to investing and wealth management. FinTech has begun to meet those needs better than conventional banks, offering solutions that embody a customer-centric, digital-first outlook.The digital disruption in banking is certainly a game changer, but FinTech newcomers still have a way to go before they overtake traditional institutions. Banks that can successfully implement a contemporary, agile digital organization model and establish a company culture that embraces rapid responses to opportunities innovation will be better equipped to maintain their position in financial services. This evolution needs to happen quickly, however. The key is wide-spread innovation within banking institutions and an open, adaptable digital framework that can handle continuous improvements. Traditional banks need to build on their strengths, including large existing customer bases that offer a plethora of digital data, while working to shore up shortcomings in online, mobile and other digital channels. If they can let go of the passive, reactive mentality that's so prevalent in the industry, banks can not only compete with FinTech startups, but beat them at their own game.