The Invisible Expense: Tackling Hidden Costs in Digital Transformation, Part 2

Identify and address overlooked expenses in your bank’s tech overhaul

 As PRI consultant John Chappelle discussed in Part One of this blog, most financial institutions are aware of the potential benefits of a successful digital transformation in today’s competitive environment. However, in an organization’s haste to reap the benefits of improved customer experience, enhanced operational efficiency and increased competitive advantage, corners can sometimes be cut. Developing a sound digital strategy before tackling a digital transformation project can increase the chances for long-term success and decrease the likelihood of needing a “do over.”

A crucial part of developing a digital strategy is uncovering and addressing the hidden costs that can come with change. In Part One, Chappelle talked about the tangible hidden costs such as infrastructure upgrades, vendor expenses and cyber security and anti-fraud needs. In Part Two, Chappelle highlights the intangible costs of a digital transformation project.

• Cultural misalignment. The truth is, once an institution commits to a digital transformation journey, not everyone will be on board with the changes needed. Some employees will even work against change, sometimes actively sabotaging progress to protect their jobs, which can be costly in terms of time, morale and money. Leadership must recognize the intangible costs of cultural misalignment and address it through communication, training, thoughtfully managing employee attrition and making strategic adjustments in personnel if necessary. Having the right people in the right spots will save money and increase the project’s odds of success.
• Change management and employee training. An unexpected and hidden intangible cost of a digital transformation project is the cost of implementing an effective change management plan and training employees how to utilize the new solution. However, doing a good job with these items will pay dividends down the line, and the benefits include:
  • Obtaining employee buy-in and good will. Making employees aware of the benefits to themselves, their customers and the organization goes a long way in helping them get on board with the changes.
  • Combating resistance. People are more likely to support the organization’s efforts if they can clearly see the role they have to play in the success of a shared project.
  • Getting the full benefit of the solution. Training employees how to use the digital transformation solutions helps them become more invested in the journey and gives them the necessary tools and experiences to train and convert customers. Their feedback can be invaluable when making tweaks to the product, the process or the implementation, saving the organization from stumbles and helping it pivot when needed.
• Business disruption and productivity slumps. Plan for intangible costs to show up in the form of business disruption and productivity slumps. A digital transformation is a just that – a complex change that affects many parts of the organization at once. Determine in advance how you will handle:
  • Down time. It will not always be “business as usual” as the organization tackles a large project. Are there ways to minimize down time or to use it for another purpose?
  • Resource availability. How will the institution handle pulling people and resources from one area of the business to another to accomplish the goals of the digital transformation project? How will leaders reprioritize their pending goals?  
  • New processes and procedures. It will take time to implement new processes and procedures, which is an upfront cost that will hopefully pay dividends later as your organization becomes more efficient and serves customers (and employees!) better.
• Customer awareness and adoption. When taking on a digital transformation project, never forget the customer and their role in your strategic plan! Do your customers want the changes you are proposing and are they aware of the benefits? There are intangible costs associated with customer awareness and adoption that include:
  • Effective marketing and communication. The institution will need to let customers know about the changes and the benefits to them, and the customer will need to know where to go for help and how to plug into the solution. An effective marketing and communications plan will reach customers in the channels where they are, and it will be consistent and repeated over time.
  • Increased support service demand. Whenever there is a change in the way a financial institution does business, customers will require increased support services until they incorporate the change fully into their unique banking experience.
  • Onboarding needs. Customers will need to be onboarded to the new solution, which will likely require both a technological and human response.   
• Maintenance and ongoing investment. One intangible cost institution leaders may not consider is associated with maintenance and updates. Simply launching a new solution does not end the organization’s commitment – it just begins it. There will be recurring expenses to maintain the product and to invest in updates and expansions during its life cycle.  

Chappelle’s tips to overcome or mitigate hidden, intangible expenses include:

• Plan thoroughly and don’t just wing it! Thorough planning includes preparing a formal cost benefit analysis and a risk assessment. Include the intangible costs! The plan should be evaluated periodically to assess successes and failures and to decide where to adjust.
• Always plan for problems, delays and added costs. No plan is perfect, and there will be unexpected detours. Be prepared to pivot.
• Implement incrementally. You will be more successful if you don’t try to do everything at once. Implementing in stages allows you to better allocate resources and spread costs out over time.
• Leverage resources from across the organization. Digital is not a department. It must live and breathe with the full organization, and there should be buy-in from all corners of the institution if it’s to be successful.    
• Utilize outside resources. Banks should consider utilizing outside resources to help manage the project.

Digital transformation is necessary to level the playing field for community banks competing with larger competition with big budgets for future innovation. Understanding all the hidden costs of digital transformation – tangible and intangible – is critical to position the organization to best execute and achieve its desired outcomes and expected return on investment. 

Resources 

What is Digital Transformation? – McKinsey & Company

Going Digital: Why Getting More Can Leave You with Less – PRI

The Dos and Don’ts of Digital Transformation – PRI

PRI specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.