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Unformatted text preview: How DBS Bank Pursued a Digital Business Strategy Business digitalization is changing the competitive landscape in many industries. Digitally savvy customers are demanding more while threats of digital disruptions from new entrants are rising. This article describes how DBS, a large Asian bank, responded to digital threats and opportunities by adopting a digital business strategy. It identia successful digital business strategy.1 Siew Kien Sia Christina Soh Peter Weill Banks Need to Adopt a Digital Business Strategy 1 Business digitalization is changing the competitive landscape for many industries, and the banking industry is no exception. With the rapid adoption of the Internet, ecommerce and smartphones, consumers are increasingly turning to computers, tablets, mobile phones and smartphones to interact and transact with banks. As a consequence, because bank customers are visiting branches less frequently, the number of physical bank branches has declined steadily over the years. This trend will likely continue—for example, McKinsey sees a sharp rise in digital banking consumers, estimating that the number in Asia will rise from 670 million in 2016 to 1.7 billion by 2020. At the same time, a new breed of digital players is entering the 2 revolution, JP Morgan Chase to the banking sector.3 4 Korea launched its N mobile platform, which allows customers to use their smartphones to withdraw cash from ATMs, send money and pay at stores.5 Money management functionalities, location-based offers and credit facilities are also integrated into the platform. 1 Dorothy Leidner is the accepting senior editor for this article. JP Morgan Annual Report Building the Retail Bank of the Future June 2016 (15:2) | MIS Quarterly Executive 105 How DBS Bank Pursued a Digital Business Strategy challenging to respond to the digital threats and opportunities and are struggling to compete in an increasingly digital marketplace. They are often weighed down by their legacy IT systems and cumbersome legacy processes. Burdened by heavy compliance requirements, these banks also have little capacity to experiment with digital innovation. Yet digitalization hits at the core of a bank—i.e., the digitalization of money and all the related functions around money. IT is not just critical in the running of banking business but is also an important source of banking innovations and has strategic implications for future banking models. Hence, strategy with business strategy. IT needs to be pervasively embedded in every aspect of a bank and be an integral part of the business strategy. The IT strategy of a bank is thus inextricably fused with the business strategy. Bharadwaj et al. termed this fusion of IT strategy and business strategy digital business strategy.6 How can a bank pursue such a digital business strategy? achieve the fusion between business and IT so it can respond to the new digital threats and opportunities? These are the questions that this study aims to address. Pursuing a Digital Business Strategy Best practice for pursuing a digital business strategy is still in its infancy. Most organizations simply respond to new digital threats and opportunities in an ad hoc manner within some organizational functions. For example, some digital initiatives within their marketing functions but do not actively link these initiatives back to their core IT infrastructure.7 the digital realm—most often by offering current banking services through online or mobile channels (e.g., launching new websites or mobile Bank of Australia engaged with its customers throughout the entire home-buying process by integrating a property listing database and the full range of mortgage services on a simple mobile app.8 Other banks are also experimenting with innovative digital offerings, but often within a particular business function or division. Moving forward, however, there is a growing sense that such functionally oriented experiments fail to maximize the potential of digital business strategy. A digital business strategy is inherently cross-functional and thus requires simultaneous business resources across multiple organizational processes. A more holistic and integrated approach is needed if companies are to respond effectively to the threats and opportunities arising from digitalization. To do so, companies need to develop several related capabilities in the areas of leadership, operations, customer needs and innovation. Leadership. CEOs need to be transparent, adaptive and resilient, and senior executives must acquire new competencies.9 The senior 10 able to understand the potential and challenges of digitalization and have a shared vision of digitalization being central to the growth of the business. Top management leadership is crucial for articulating the digital business strategy and for aligning the necessary investment in resources. Operations. The pursuit of a digital business platform on which digital products and services can be readily delivered. These digitized business processes, based on standards and integration business partnerships.11 MIS Quarterly MIS Quarterly MIS Quarterly 106 MIS Quarterly Executive | June 2016 (15:2) misqe.org | © 2016 University of Minnesota How DBS Bank Pursued a Digital Business Strategy Customer needs. Companies also need to develop the ability to respond swiftly to the demands of a growing number of digitally savvy customers. This requires the digitalization of products, services and customer relationships, and the seamless integration of functional silos across the enterprise. Deeper analysis of the new value propositions to customers in the digitally enabled context is required. These value accessibility, higher affordability and wider social connectivity.12 Innovation. Companies face the challenges of innovating to continuously stay at the cutting edge of technology and of keeping in touch with evolving customer needs.13 This requires developing an innovation ecosystem with external partners, including customers. Keen and Williams14 highlight the new realities of value sources in the broader digital ecosystem; the strategic challenge is to identify and capture these dynamic sources of value, which requires new forms of collaboration, new processes and new infrastructures. Existing research, however, reveals little about how banks can make such a holistic transition. There are few comprehensive accounts on how banks have embarked on such radical enterprisewide digital transformations. The examples tend to be anecdotal, often just focusing narrowly on a key digital initiative launched by a bank and lacking an in-depth account of the transformation journey. The authors have studied one bank— centers on three key Asian markets—Greater has been aggressively investing in IT to create an infrastructure platform for regional growth. technology was also driven by the changing nature of Asian consumers. In Asia, there were over 700 million digital banking users in 2014, expected to grow to 1.7 billion by 2020.15 Generally younger and more mobile-centric Asian consumers were leading the adoption of smartphones and preferred to engage with businesses in a very different way. This could be seen in the fast growth of digital banking in Asia. Between 2011 and 2014, digital banking penetration in the developed markets in Asia, rose from 59% to 92%.16 In emerging Asian economies, the penetration rate was 33% in 2014, up from 10% in 2011. Moreover, 82% expected the relationship with their private banks to be conducted mainly through digital channels rest of the world.17 To strengthen its presence and reach across put technology at the core of its banking business. million18 annually on technology. An additional three years. successful digital business strategy (see the DBS Bank Background bank to become the largest bank by assets in services for institutional banking, consumer “Whether we know it or not, the digital revolution has put banks under siege. With Internet 2.0 and mobility, the game a burning platform of competition from mobile and Internet companies. If we don’t embrace digital—and quickly—there is a real danger that our lunch will be eaten. It is only a matter of time before the disruption that the retail and telecom industries have MIS Quarterly MIS Quarterly June 2016 (15:2) | MIS Quarterly Executive 107 How DBS Bank Pursued a Digital Business Strategy Figure 1: Key Thrusts of DBS’ Digital Transformation Strategy • • • 1. Cultivate Leadership for Digital Transformation The most vocal champion for digital experienced befalls banking. Monumental change is just around the corner and Bill Gates will be proven right when he said that people need banking, but not banks.”19 cataclysmic Rewiring DBS Bank For the Digital Era strategy involved strategic initiatives and disruption put digital at the heart of banking continually asked his senior executives was how well the business was exploiting the digitalization of banking products and services. Technology strategy. For example, he commented on the use of digitalization in overcoming the constraints digitally enabled customer experiences and “The point about moving to information and mobile [digital] is that we need to rethink what our business strategy is and how our business model is going to change. It is not just about developing mobile apps but about rethinking the organization. How do you rewire an organization for [digital transformation]?”20 David Gledhill, Head of regionalization drive: banking through digital channels, the need for a large geographic footprint in order to scale up in large geographies such as China, India or Indonesia becomes less of an imperative. A successful digital banking strategy will enable us to accelerate our access to emerging markets without the need for a large and expensive bricks and mortar network.” The Group Executive and the new Head Banking Disrupted, David Gledhill, reported directly to the CEO and strategic directions. Additionally, senior banking 108 MIS Quarterly Executive | June 2016 (15:2) misqe.org | © 2016 University of Minnesota How DBS Bank Pursued a Digital Business Strategy executives were kept up to date with the latest developments in the digital landscape through various forums to help them see the potential disruptions and threats of disintermediation from new market entrants. For example, Ms. Division, became more acutely aware of the rapid commoditization of wealth management by online retail investment players (e.g., bypassed traditional wealth management advisors and put their money directly into funds, the lucrative management fees that banks collect for wealth management services were at the risk becoming history Committed to transforming herself from a technology idiot digital warrior 21 response to the digital threat was to deploy IBM Watson, a cognitive cloud-based data analytics solution in the Wealth Management Division. IBM Watson helped relationship managers (who may and customer data so they could deliver greater This initiative was just one of the many technology investment decisions jointly planned by senior business and technology executives through their annual technology road-mapping workshops. The close collaboration between business and technology executives was evident in the strong business ownership of the technology roadmap; the business heads, not their IT managers, would present their strategic IT plans to senior executives themselves. Increasingly, senior banking executives were also encouraged to innovate and think digitally, development programs were revamped and structured as hackathons.22 “Yes, it’s a huge cultural change. In the past, our leadership program has been all about leadership skills, communication skills. We scrapped all of that and our leadership program now is all about hackathons: [we] take every one of our senior leaders for a one- or two-week hackathon. We … mix traditional senior bankers with a bunch of 20-year-old coders and see what happens. It’s fascinating to watch. On day 1 or 2, there are two camps, the bankers and coders, neither really sure of what to think of each other. By the end of the week, there’s such passion and intensity about what they are creating that we really think we’ve [ignited] a very magical spark [that] changes people’s thinking in the organization.” Neal The cultivation of leadership for digital transformation was not just restricted to senior executives but also systematically cascaded down the hierarchy to mobilize the change agenda. Investments in collaborative technology telepresence videoconferencing systems and coordination and the gathering of feedback from different stakeholders. Mr. Gledhill explained how he pushed his employees to participate in We encourage people to speak up, to put their views on the table. We want people with the change agenda. This is a big shift in culture set up in the internal enterprise portal in 2011. This forum encouraged staff across the region to provide regular feedback or make improvement suggestions directly to the CEO. The portal was The forum proved to be an effective channel for getting wider inputs from employees, cutting What’s important is that [the portal] has allowed people to feel they were part of the process of [making a] change 23 2. Develop Agile and Scalable Digital Operations For greater responsiveness, the previously separate Technology and Operations Divisions Mr. Gledhill. As the Head of Group T&O, he was responsible for over 5,000 employees across Gallup Business Journal June 2016 (15:2) | MIS Quarterly Executive 109 How DBS Bank Pursued a Digital Business Strategy Figure 2: Reporting Structure for DBS’ Group Technology and Operations Division the region. The new T&O structure was also carefully aligned with the respective business lines and geographical markets, because the T&O very, very close to business, to add business value through technology 24 The T&O heads for the various lines of business technology platform across countries, the reality was that Asian markets were diverse stages of development. Hence, the technology platform had to be not just scalable but also reported to Mr. Gledhill, as did the respective country T&O heads (through the matrix reporting comprised project managers, business analysts and system analysts dedicated to understanding the unique business line or local market requirements. to rationalize and standardize the technology and operations platforms. According to Mr. Gupta, many of the business processes and technology platforms needed to manage a regional bank Frankly, if you go around the countries, we do things differently in every place. We don’t even have consistent technology platforms across different countries. That is a singular priority for us 25 enterprise systems, to reverse-engineer and modernize the legacy systems, and to adopt service-oriented architecture and enterprise application integration technologies. “Our belief is to get to the back end, to sort out the pipes. This requires vast amounts of work in the back-end infrastructure, integration layers, messaging and all the associated innovations you need to make your architecture nimble. Getting the core right is where we really put our heavy spend. It will speed up the front end. We build world-class systems on top of that.” David architecture. Thus, the T&O teams worked closely 110 MIS Quarterly Executive | June 2016 (15:2) misqe.org | © 2016 University of Minnesota How DBS Bank Pursued a Digital Business Strategy with their business counterparts to rationalize the range of banking applications needed to support their various operations. The changes needed were captured in a technology roadmap that showed the current state of standardization and the areas to be standardized going forward or different product-packaging features, such as tiered pricing, rebates and loyalty points. Another new enterprise-wide platform was the wealth management system, which integrated retail banking and private banking functionalities. This platform was launched in 2011 and was the cornerstone of a newly created, disciplined process of engagement with business users to manage deviations. Every deviation had to be these deviations were logged, reviewed and The result of these initiatives was that successfully deployed across 13 countries in 28 months. The common operating platform comprised a core banking suite of standardized applications, including trade, accounting ledger, capital reporting, interfaces with Internet banking and other channels. New functionalities in customer management and liquidity management were also introduced. In addition, the modernization of the legacy core also enabled rapid rollout of new products, such as investment or insurance plans denominated transition of customers from middle-class to highend segments. This integrated banking platform facilitated a seamless customer experience. It enabled retail customers with growing assets to access not just the retail banking platform (e.g., to manage their checking accounts, credit cards, management functionalities in private banking to manage their growing assets (e.g., to manage their trading accounts, multi-currency deposits, The wealth management system was quickly followed in 2012 by IDEALTM and mobile banking platform for businesses. IDEALTM offered corporate customers a Figure 3: DBS’ Technology Roadmap June 2016 (15:2) | MIS Quarterly Executive 111 How DBS Bank Pursued a Digital Business Strategy customizable dashboard to manage cash and processing, and access to consolidated statements solution, IDEALTM language and was seamlessly integrated with handled 53.8 million transactions and enquiries, and was accessed by 137,700 companies across 120 countries26 Although these technology platforms were typically best-of-breed systems provided by TM in-house competency in technology integration was critical for devising sound business solutions and for staying responsive to business demands. To be able to integrate My option to choose best-in-class technology is probably right for a bank the size of DBS. So, my real value proposition has been to develop good technology integration expertise. We need that inhouse. We can’t be outsourcing our brain! In addition, the T&O Division launched an hired a new head of process transformation, Paul Cobban, who was tasked with applying process improvement methods and lean requirement for all new T&O projects to undergo process transformation with stretch targets and measurement of outcomes. Cross-functional teams, comprising 10 to 20 people from around the bank (including senior executives and new These process streamlining sponsored business problem as opposed to implementing a piece of technology, measured purely in terms of on time, on budget. Failure to do this will inevitably divide the IT and business teams, and it would be suicidal for the project”.27 Paul Cobban, Head of Process Transformation, 3. Design New Digitally Enabled Customer Experiences In 2010, as the digital platforms were Experience Council, chaired by the CEO. Mr. Head of Customer Experience, as well as Head of Process Transformation, reporting to the Head of Group T&O. The intention was to foster a mindset shift that would go beyond developing a culture of customer service excellence to creating a culture of digitally enabling new customer experiences. “Digital banking goes beyond creating mobile apps or enabling transactions. It is about leveraging world-class technology We have been very focused on executing against our IT strategy to enable us to be more nimble and innovative in the ways we engage our customers, including changing the way people bank.”28 David Gledhill, experiences was guided by a set of principles initiatives framework incorporated core Asian values of process improvement program was extended organization wide, and all employees were encouraged to contribute improvement ideas. By of customer wait...
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