When it comes to overseeing a bank's digital transformation, board members play a critical role in setting strategic direction and ensuring that the organization achieves its objectives effectively. Key Performance Indicators (KPIs) are essential tools for board members to monitor progress, assess the impact of digital initiatives, and make informed decisions. 

Beyond mere tracking, KPIs serve as litmus tests for evaluating the success or need for course correction in transformation efforts. They provide evidence of ROI for significant digital investments, aligning with boards' fiduciary duty to shareholders. Moreover, KPIs aid in risk management by tracking potential threats like cybersecurity, enabling proactive measures to address vulnerabilities. By benchmarking against industry standards, boards gain insight into the competitive landscape, shaping strategies for maintaining competitiveness.

Enclosed 25 KPIs are indispensable for board members during a bank's digital transformation:

I) Customer Experience & Adoption KPIs provide insights into how well the bank is meeting customer expectations and adapting to changing preferences. Board members need to understand the level of digital channel usage, Net Promoter Score (NPS) for digital channels, Digital Adoption Rate, Customer Effort Score (CES), and Self-Service Completion Rate to gauge the success of digital initiatives in enhancing customer experience and driving adoption. By tracking these metrics, board members can ensure that the bank remains customer-centric and competitive in the digital age.

II) Innovation KPIs help board members evaluate the bank's ability to innovate and adapt to a rapidly changing digital landscape. Metrics such as Time-to-Market for New Digital Products, Number of New Digital Partnerships, and Rate of Experimentation reflect the bank's agility, creativity, and willingness to embrace innovation. By tracking these KPIs, board members can assess the bank's competitive positioning, identify emerging opportunities, and ensure that the organization remains at the forefront of industry innovation.

IV) Operational Efficiency KPIs are vital for board members to assess the operational impact of digital transformation. Metrics such as Cost-to-Income Ratio, Process Automation Rate, Time-to-Resolution for support tickets, and Operational Cost per Transaction help board members evaluate the efficiency gains achieved through digitalization efforts. By monitoring these KPIs, board members can identify areas for optimization, cost reduction, and process improvement, ultimately driving operational excellence across the organization.

V) Cybersecurity KPIs offer critical insights into the bank's resilience against digital threats and its ability to protect sensitive data and systems from malicious actors. Metrics such as Number of Cybersecurity Incidents, Mean Time to Detection (MTD), Mean Time to Resolution (MTTR), Percentage of Successful Phishing Simulations, and Compliance with Cybersecurity Frameworks provide board members with a comprehensive view of the bank's cybersecurity posture. It's important to balance security with customer experience. Overly stringent security measures might frustrate users. By monitoring these KPIs, board members can assess the effectiveness of the bank's security measures, identify potential vulnerabilities, and prioritize investments in cybersecurity infrastructure and employee training. 

VI) Finally, regulatory compliance is another area of paramount importance for board members during a bank's digital transformation. Regulatory KPIs help board members assess the bank's adherence to legal and regulatory requirements, mitigate compliance-related risks, and maintain the organization's reputation and trustworthiness. Metrics such as Number of Regulatory Fines, Percentage of Audits Passed, Number of Regulatory Change Orders Required for New Digital Products, and Customer Data Privacy Breach Rate offer valuable insights into the bank's compliance efforts.

⚡️Important to note: the best KPIs evolve with the transformation's phases. Early on, focus may be on adoption, and later, the emphasis could shift to revenue generation. Boards need adaptable oversight.

In summary, these 25 KPIs are essential for board members during a bank's digital transformation because they provide valuable insights into customer experience, innovation, financial performance, operational efficiency, cybersecurity, and regulatory compliance. By monitoring these KPIs closely, board members can effectively oversee the digital transformation process, drive strategic decision-making, and ensure the long-term success of the organization in an increasingly digital-centric world.

https://FrankSchwabSpeaks.com

Finally, AI training for board members is recommended to make them knowledgable about the concepts, methods, needs, challenges and risks.

Design matters

Audi TT, Apple iPhone, bulthaup kitchen, Braun Pulsonic shaver and Bang & Olufsen BeoSound are products, which all come with great design and address retail markets. Designed retail products sell at higher prices and with better margins. E.g. an Apple iPhone comes with a great unique design and an up to 100% higher price than comparable cell phones.

Many people think design is limited to physical goods and products. But you also can design services. An example of service design is the great customer experience delivered by Ritz Carlton hotels. Guest satisfaction is their highest mission. E.g., when a room attendant sees an empty soft drink container in a guest's room, the type of beverage is noted. The next time a guest stays at any Ritz-Carlton, globally, that soft drink will be waiting on ice in the room. They don't just offer a hotel room – they offer an experience. Ritz Carlton is spending 120 hours on service training per employee per year. And this pays off. Ritz Carlton is able to charge a 30% price premium. Further examples of great service design are the recruitment service hello change! and Presby Neuro Clinic.

A recent Retail Banking Satisfaction Survey conducted by J.D. Power and Associates, an US research firm, reveals suffering bank customer loyalty. In addition due to the financial crisis many customers did loose trust into their banks. So, it is a matter of time until banks will discover how to leverage service design in retail banking to inspire their customers and to regain trust and loyalty.

Good bank customer experience can be designed 

Actually, you can already observe first service design experiments of retail banks. Q110 – The Deutsche Bank of the Future in Berlin is a branch without barriers. The banks’ customers are called guests. Advisors and bank guests meet each other at a comfortable lounge and friendly atmosphere.

The different approach towards design starts with the branch architecture. The bank branch was not designed by a typically bank branch architect. Q110was designed by architects who usually design Tommy Hilfiger and TOM TAILOR retail stores. The bank products come in special designed aluminium boxes and sales processes like “to welcome bank guests” and “account opening” are designed and trained restlessly by branch staff. 

Finally, it is remarkable how Q110 makes use of new technologies. One example of outstanding customer experience design and use of technology is the deployment of Microsoft Surface™. Bank guest and advisor do jointly navigate through complex financial matters by simply touching a large table screen. In context of advisory of retirement provision Q110 has doubled sales.  

Good online banking experience can be designed

Websites of todays’ banks all look alike and deliver a bad user and customer experience. Text and figures dominate. And most bank websites lack of a visual experience, bright colours, dynamic content and modern design. 

Though, it can be done differently. Newly designed bank websites make good use of colours, are easily to read, have meaningful visuals, make use of quality photography, keep the website as simple as possible and provide an experience. An example of great web design in retail banking is SalemFive. 

The U.S. based bank has a strong philosophy to listen to their customers to make banking a better experience. The website of SalemFive is extremely visual, combines bold photos and bright colours with dynamic content and modern design. The bank has created its own, unique branded online experience. Another example of customer experience design in retail banking is mint.com.  The free online service of mint.com brings all financial accounts of their customers together online, automatically categorizes transactions, lets set budgets and helps to achieve savings goals. 

New IT landscapes will enable service design

Most traditional retail banks struggle to design similar branch or online banking customer experiences. Reasons are lack of understanding, skills and foresight. Another reason is the limitation to adapt new technologies efficiently in order to design bank services for better customer experience. While Deutsche Bank is able to create a great customer experience in Q110 the bank is limited by the inflexibility of its 30+ years old legacy IT landscape to efficiently integrate and roll out proven Q110sales technologies and processes to all other 1,500 retail branches in Europe. In 2010 Deutsche Bank has started a replacement of its IT landscape by implementing a much more flexible and modern core banking system from SAP.

The example of Deutsche Bank shows, it is not enough to design great customer experience in one branch.  There is a need of retail banks to renew their legacy IT landscapes to enable service design across all sales channels like branch, internet and mobile internet.

https://FrankSchwabSpeaks.com

Links

http://www.jdpower.com/finance/articles/2010-Retail-Banking-Satisfaction-Study

http://thefinancialbrand.com/17645/7-financial-website-homepage-designs

http://www.q110.de, Deutsche Bank of the Future, Berlin, Germany

In February 2011 we learned that the Irish bank AIB is suing Oracle over a failed, €84 million implementation of its Flexcube banking software. And in July 2011 the Union Bank of Carlifornia has cancelled the implementation of Infosys’ Finacle Solutions - two years after the start of the program. A Boston Consultant Group survey on Renewing Core Banking IT Systems in May 2006 reports that all survey participants said that they had struggled to deal with expanding project scope and changing requirements.

Experience shows that there is a high failure rate of core banking system implementations. We can assume that 25% of core banking system transformations fail without any results, 50% do not achieve the transformation objectives - costs and implementation times double or triple and only 25% of the transformations can be called successful.

Possible causes of the bad success rates of core banking system transformations are widely unknown. Concerned banks, integrators and core banking system vendors keep quiet about failed implementations. 

Bent Flyvbjerg, professor at Oxford University, studies megaprojects. Generally spoken, he argues that people involved in mega projects overestimate their capabilities and underestimate risks. His late research indicates that black swans (very rare events with large scale impact) occur much more often in software mega projects than in any other mega project. Applied to core banking system transformations this means that there is a high likelihood that a single aspect handled wrongly leads to a disaster of the transformation as a whole.

Therefore it is essential for a successful core banking system transformation to understand, plan, control and execute all aspects of a CBS transformation program, comprehensively.

Over the last five years I have analysed more than 100 core banking system implementations, globally and derived best practices for successful program delivery.

Here the first six best practices which I have identified to run a successful core banking system transformation

1. 1.Shared Strategy: Strategy, objectives and scope are widely shared and changes are managed well by all stakeholder group
   

2. 2.Prepared Business Processes: All as-is and to-be business processes well documented and maintained in BPM tool, roadmap in place and maintained
   

3. 3.Measurable Benefits: Detailed phased business and benefit plans are followed up and kept up-to-date
   

4. 4.Minimum Customization: Customization requirements are kept minimal and are well known to all stakeholders, documented, put into contracts and budgeted 
   

5. 5.Real Partnership: Vendor is seen and respected and trusted as partner, agreed split of responsibilities, good communication, both partner help each other if necessary regardless of responsibilities
   

6. 6.Strong Governance: Flexible governance structures across landscape, portfolio, program and projects in place. Interdependencies are well understood and managed actively.
   

At this point in time it is clear that the identified best practices are not sufficient to ensure a successful core banking system transformation. But knowing the occurrence of black swans in mega projects it seems to be obvious that if a bank manages one of the six best practices badly the bank will suffer significantly and add another case to the list of unsuccessful core banking system transformations.

https://FrankSchwabSpeaks.com

Links

http://www.information-age.com/channels/business-applications/news/1598128/aib-sues-oracle-for-84m-over-failed-implementation.thtml

http://www.bcg.com/documents/file14774.pdf Boston Consultant Group survey on Renewing Core Banking IT Systems ,May 2006

https://en.wikipedia.org/wiki/Black_swan_theory Black Swan Theory by Nassim Nicholas Taleb