Becoming an Agile Bank

By Bob Meara, Senior Analyst, Celent

Fifteen years ago, Celent launched a program to identify effective uses of technology in banking. This annual program, Celent Model Bank, has garnered steadily increasing participation from banks in every region of the globe. With COVID-19 wreaking havoc throughout 2020, we feared banks would not participate in our annual awards. Instead, we received a near-record number of nominations detailing courageous stories of customer advocacy, organizational pivots at breakneck speed and celebrations of jobs well done. Innovation in banking didn’t slow during the pandemic; it accelerated!

To be clear, we are speaking of business agility, that is, an organization’s ability to adapt quickly to changing market conditions. This is not to be confused with agile software-development methodology.

Agility: More important than ever

All those participating in Celent’s annual virtual event were asked the question, “How important is agility to your organization compared to one year ago (pre-pandemic)?” In a nearly identical proportion, the overwhelming majority of both banks and solution providers considered agility to be more important today. Just 15 percent felt its importance hadn’t changed. Roughly half of the industry considered agility significantly more important than it was pre-pandemic.

Why?

Some bankers regard agility’s importance as so intuitively obvious that it seemed silly that we were asking the question. That said, several ideas emerged from our discussions that underscore the agility imperative. Specifically:

• Customers: Customers may have always been fickle, but the rate of change in customer expectations has never been higher. The extraordinarily high adoption rate of new technology is but one example.
• Competition: Agility facilitates achieving and maintaining a competitive advantage. One example is the ability of some banks to change risk-based loan pricing at higher frequencies in a rate-changing environment. There are many examples of business agility fostering sustainable competitive advantage.
• Context: The world is quickly becoming digital. Several nonbank examples surfaced, such as Amazon, Airbnb, DoorDash and Uber. While their successes had required much more than agility, their ability to learn and adapt in real-time had led to sustainable competitive advantage over non-agile players.

More than one banker cited specific efforts to encourage and measure the agility in their organizations. In each case, the efforts predated the pandemic and served the banks well during the pandemic.

Agility is clearly a strategic intent at some institutions. One banker put it this way, “Without a step increase in agility, there is no way banks can substantially change business models.” Many insisted that agility and technical prowess go hand in hand.

Agility is moving faster. Nimbleness is flexibility; a willingness to do things differently and do different things. SVP Treasury Product Management, US regional bank

While there was broad agreement about the growing importance of agility, our discussion revealed dramatic differences across organizations in terms of how agility is being pursued.

Intent versus capability

Most bankers, during the breakout discussion, considered agility as a component of their institutions’ larger digital-transformation efforts. But digital transformation is a complex endeavor that can contain several strategic imperatives—each having a number of levers that can spawn multiple projects. For example, many banks seek to be more client-centric and less product-centric. Others seek efficiency improvements or the ability to accelerate innovation. A third ambition is to develop new business models to create future value. These and other strategies require a mix of interdependent capabilities. The collective pursuit and continual improvement of these capabilities is the essence of digital transformation. Agility is one of them.

Celent’s parent, Oliver Wyman, has been engaged as a strategic consulting partner serving banks globally. Its digital practice is uniquely equipped to help banks along their digital-transformation journeys. Oliver Wyman’s Digital Wheel aims to illustrate the interdependency between common strategic intents and requisite capabilities. In this view, there are three primary intents that singularly or combined drive banks’ digital-transformation initiatives. Underpinning each of these three intents are five core capabilities. Oliver Wyman uses this Digital Wheel framework to help banks manage the many facets of change necessary for digital transformation. What emerged from our breakout session is that all five of these capabilities impact business agility and vice versa.

Oliver Wyman’s Digital Wheel

Without prompting, each of these topics was part of our conversation.

Just because agility is a strategic intent, doesn’t mean we’re good at it. Head, Digital Product Management Tier-1 Bank

Capabilities: How to improve agility

Business agility is a necessary but not all-sufficient capability for digital transformation. Other interdependent capabilities are needed. Before we consider each of the interdependent capabilities required for digital transformation, let’s look at two notions that transcend them all. The first is that business agility requires focus and constancy of purpose. It is not the natural state of most organizations and work processes. It must, therefore, be continually and intentionally pursued.

It is often said that necessity is the mother of invention. One banker in our roundtable commented, “COVID-19 was the father of invention.” The pandemic changed everything. Institutions of all sizes needed new ways to interact, both internally and with customers. Change was both necessary and urgent, and this focused resources like nothing else could have. That alone may be responsible for banks’ abilities to pivot quickly. Many banks surprised themselves with what could be achieved so quickly. The challenge will be to operationalize that focus going forward. Not a single banker in our roundtable felt his or her organization had fully realized this objective.

Business agility also requires a bias for action. Others may describe this as a dissatisfaction with the status quo—that is, challenging historic expectations and processes and advocating for faster, more effective approaches. One banker referred to this dynamic in the context of cloud migration. The bank used to be “resistant to cloud. We’ll study up and get ready for it next year”. Now, as a result of COVID-19, the bank had to get it done (e.g., cloud policy, enterprise Microsoft cloud adoption). It shouldn’t take a global pandemic to cultivate a bias for action. After the fact, most of our participants readily agreed.

1. An agile organization

A common sentiment expressed during our conversations was that development teams have been using agile methodology for some time with good results. The problem is the larger organizations’ slowness. An agile organization requires an agile business structure, not merely agile technology. Several bankers from large institutions asserted that truly agile transformation requires a wholesale change in personnel and culture—and doing so takes a long time. We suspect that is true for smaller organizations, as well.

One banker shared that virtually everything is agility-focused now. In that bank, the development teams redesigned around agile scrum a couple of years ago, but it is taking the broader organization—largely the business units—a long time to realign and to embrace the change so that it can permeate throughout the organization.

Many bankers also recognize that it’s easy to regress—to coast and relax and pretend that agility isn’t quite as important any longer (post-pandemic). Don’t do it! One head of digital remarked that he thought his institution had retained “about half” of the process improvements they had instituted during the pandemic. In a garden, weeds grow back quickly!

Specific ideas to foster a more agile organization:

• Metrics and rewards matter. At one credit union, member satisfaction is tied to everyone’s bonuses, along with other member-based metrics. Concerning virtually any action, management would ask, “What’s the impact on member satisfaction?” This kind of constancy of focus really drives thinking and actions.
• Have closely aligned KPIs across organizations. While conceptually simple, doing so is particularly challenging, particularly in large organizations. Aligning KPIs (key performance indicators) is how organizations can focus effort. A head of digital product development at a large bank suggested that the overlap of KPIs across departments is only 20 percent in some cases, and improving the overlap is an ongoing objective. Yet, the overlap, however small and needing to grow, has unleashed great progress. As the digital project head said, it’s imperative that a team or organization regularly ask, “Why are you doing this?”
• Involve senior management. Cross-functional teams are commonplace, but they are often staffed by relatively junior people, who, although they represent their departments or functions, do not have the authority to change things. This is why senior-level involvement is crucial for organizational agility.
• Challenge your process for decision-making. An SVP (senior vice president) of process improvement at a Tier-3 bank reassessed committee-level approvals and decisions that historically had slowed things down. He said that the bank’s process for responding to urgent requests was faster and more flexible. Interestingly, the change was noticeable throughout the organization and well received. Others in the bank validated the change with remarks such as, “We really never liked that process anyway”. When considering an organization’s decision-making processes, every banker in a leadership position should continually ask, “Do we really need all these steps? What would we risk if we eliminated some?”

2. Technology modernization

It goes without saying that technology modernization is an important part of digital transformation. While technology modernization was not a primary topic in our discussion, the group broadly understood that an organization’s technology environment can massively benefit (or hinder) agility. Several practical ideas emerged. Specifically:

• A relatively easy first step can be to reduce the number of applications running at your institution. This can be facilitated by having enterprise-wide systems rather than product-based approaches to doing things. Making this transition takes longer but reduces costs and improves agility over the long term. A product development head at a regional bank offered this illustrative anecdote. The bank previously had three different e-sign services, each of which had to be changed separately when needed. Different lines of business in the bank ran different services that they separately acquired. This is but one example of what is commonplace among banks—and not just large ones.
• More than one institution volunteered examples of having recently gone through a make-versus-buy exercise in which they carefully evaluated applications that were either built in-house or significantly customized. Running non-custom, vendor-provided applications offers cost and agility advantages in many cases. There are many examples of banks building capabilities to enhance vendor applications, and several Model Bank 2021 case studies demonstrate this. However, this is different than running customized vendor applications that are expensive and time-consuming to upgrade as a result of the customization.
• At one credit union, installing a new CIO (chief information officer) and expanding the IT (information technology) team were two keys to transforming technology and promoting agility. Blocking and tackling are sometimes more important than the “shiny new things” that seem to get all the attention and funding, one banker remarked.

In these examples, agility may not be the primary objective of technology modernization but is enhanced as a result.

3. Data and analytics

Much has been written about the importance of an enterprise-wide data-and-analytics strategy to enable successful digital-transformation efforts. While this was not the focus of our discussion, the topic came up repeatedly in the context of agility. In several cases, the reference was the time and/or expense associated with acquiring necessary data.

More than one banker mentioned that data is often an afterthought at his or her institution. The Big Tech firms, in contrast, have well-honed data mindsets. In addition, these firms excel at value exchange—that is, the value they provide users in return for their data. In part, that may be a result of the Big Tech’s spending on data, whereas banks tend to take it for granted. The Big Tech constantly think about how to leverage data. As a result, it is managed exceptionally well.

An SVP of digital banking at a regional bank described an effort at his bank to facilitate customer digital-channel utilization. Data lives in multiple places, so pulling together a basic overview was key. This meant identifying who is transacting, in what channels, with what amounts and so on to understand the transactions that customers couldn’t complete via digital channels that experienced high volumes in other channels. Armed with that insight, the bank assembled a team to quickly enable transaction migration one by one. The bank found there were unintentional differences of capabilities by channel. They discovered the white space (e.g., submit a debit-card claim online) and built in those capabilities. The result was a rapid and sustained increase in customers’ digital utilization.

4. Leadership and talent

The importance of senior-level leadership repeatedly surfaced during our conversation. Agility must be a top-down initiative because it demands collaboration across the entire organization. “We can only be as effective as the top of the house allows,” said one banker. Agility has to be an explicit strategic objective, and progress needs to be celebrated and rewarded. One banker described how senior EVPs (executive vice presidents) were on routine calls, lending support and removing barriers. At that bank, agility gets hands-on support from the top. Other suggestions included:

• • Think long term and through the lens of customers. Ask: What’s important to my customers? How can I become agile and still do all these things? Agility may be a required capability for effective digital transformation, but it is not anyone’s end game. Customers don’t care if their banks are agile; they care if their banks have their backs and meet their needs.
  • Act on facts, not legacy beliefs. We mentioned that metrics matter in the context of organizational dynamics. This applies to leadership as well. One banker spoke of senior management’s historic belief that agile scrum teams are most effective when collocated. As a result, organization heads were pressured to develop a return-to-office plan during the pandemic. Apparently, it took multiple presentations of detailed KPIs to convince senior management that geographically dispersed teams were both more effective and efficient.

Just because agility is a strategic intent, doesn’t mean we’re good at it. Head, Digital Product Management Tier-1 Bank

5. Ecosystem configuration

The group didn’t need convincing about the growing importance of the technology ecosystem. In dealing with technology vendors and system integrators with the aim of improving agility, just two suggestions emerged:

• Have fewer partners along with fewer systems. There are many benefits of doing so beyond improving agility. One banker described a situation at his large bank in which operating multiple technology environments was detrimental to agility: environment contention in the context of monthly product-update cycles. Environment contention occurs when one project gets delayed, causing a cascade effect: “If this is down, we can’t get that done.” Taming this beast involved creating an overall map of every project across all environments, then understanding the dependencies and devising an action plan to eliminate as many as possible. This may seem basic, but it’s the key: programmatic enterprise-wide environment management and prioritization of projects that run late. This banker advocated starting small (e.g., personal banking) but then expanding to get “command and control” across the bank.
• Operate with centralized governance and vendor management. Two banks advocated for having an enterprise view of vendors and what’s going on with each of them. Several Model Bank 2021 winning initiatives were facilitated quickly, in part because a well-run vendor partnership was leveraged in new and different ways in response to the pandemic. In one case, the effort spanned multiple lines of business.

Hopefully, these ideas will spawn action at your institution as you seek to grow in business agility.

For more information on Celent Model Bank, see www.celent.com.