2018 Crunch Time For Digital Transformation

In a new report, Forrester says that Digital transformation is not elective surgery. It is the critical response needed to meet rising customer expectations, deliver individualized experiences at scale, and operate at the speed of the market. This echoes our Quiet Revolution report, released just yesterday.

They say the results are sobering:

Over 60% of executives believe they are behind in their digital transformation. Lagging results have created a loss of confidence in the CIO, driving up the number of chief digital officers and business units creating their own digital strategies.

But that misses the point. Digital transformation is a CEO issue and an economic question.

Digital transformation is expensive; CEOs can’t drive operational savings fast enough to fund it and are cautious about destroying margins.

In 2018, CEOs must show the political will and, with the CIO and CMO, orchestrate digital transformation across the enterprise.

Some CEOs will use their balance sheet to acquire digital assets and buy time. But 20% of CEOs will fail to act: As a result, those firms will be acquired or begin to perish.

More on this from  IT Wire.

Companies face a year of more uncertainty in 2018 and the window of opportunity is closing for many looking to digitally transform, and revitalise customer experiences, according to a new report.

According to the report from research firm Forrester, 2018 will force decisive action on the digital front for companies to take control of their destiny.

“The dynamics favour those taking aggressive action and create existential risks for those still holding on to old ways of doing business,” Forrester warns.

And Forrester predicts that the chief information officer’s agenda for 2018 will focus on fully embracing digital transformation, cultivating talent, and implementing (not just testing) new technologies.

It says that the rapid maturation of artificial intelligence, blockchain and conversational interfaces will force organisations to create new customer experiences, transform jobs and forge new partnerships.

“As technology continues to disrupt business, digital will disrupt the role of the CIO. A new breed of digital-savvy CIOs with digital backgrounds will emerge and demand a new title to fit their transformation,” Forrester says.

The research firm also predicts that AI and Internet of Things will remain hot, “blockchain will simmer, and quantum will gather steam”, while digital business platforms are just “a wave” and companies will either build them or deliver through them.

In a further prediction, Forrester says the pace of automation across industries will pick up significantly around the world in 2018, altering the shape of the global workforce.

Forrester expects the global market for automation will accelerate faster in the New Year as enterprises aim to enhance performance and garner insights from commodity tasks.

And, according to Forrester, automation will eliminate 9% of US jobs but create 2% more and “a political automation backlash” will briefly impede progress – and lose, while bots, backed by AI, will alter traditional information management.

Other predictions for 2018 from Forrester include:

Artificial intelligence: the honeymoon for AI is over: blended AI will Disrupt customer service and sales strategy

CIOs will move away from the lift-and-shift approach to AI tech implementations, and new applications of blended AI will increasingly be used to improve customer service and sales processes in the New Year. In addition, Forrester predicts that AI will make decisions and provide real-time instructions at 20% of firms and will increasingly be used for visual experience.

Blockchain: be ready to face the realities behind the blockchain hype

It says 2018 will be the year CIOs will exploit the potential of blockchain technology. While there will be steady improvement and a few breakthroughs, don’t expect a major leap in technology maturity in 2018. In addition, CIOs, CISOs will pay greater attention to blockchain security, and blockchain will start to transform fraud management and identity verification. Banking processes will also see heterogeneous blockchain adoption in 2018.

Cloud computing accelerates enterprise transformation everywhere

Public cloud adoption will reach a 50% adoption rate in 2018, which is a significant milestone for enterprises. Looking at the factors shaping the cloud computing landscape next year, Forrester also predicts that the market should expect further consolidation through 2020. Enterprises will shift 10% of their traffic from carrier backbones to other providers, and telecom providers will feel the effects.

Cyber security: businesses will face even more challenges In 2018

Rising tensions in international relations, ubiquitous connectivity, digital transformation initiatives and the data economy will have a large impact on cyber security. Forrester has six predictions for cyber security in 2018, including: Governments will no longer be the sole providers of reliable, verified identities; More IoT attacks will be motivated by financial gain than chaos; and blockchain will overtake AI in VC funding and security vendor roadmaps.

IoT moves from experimentation to business scale

IoT technologies will dictate how companies deliver high-value experiences for their customers next year. Increased consumer adoption and advances in AI are fuelling the improvement of connected devices, and the quality of voice services will boost adoption of IoT devices. In addition, IoT will be at the center of broader and more damaging cyber attacks as hackers seek to compromise systems to extract sensitive data.

Employee experience powers the future of work

An engaged workforce boosts customer experience and revenue performance. While Forrester predicts that employee engagement won’t improve in 2018, technology leaders must stay on top of micro trends like collaboration and employee technology as well as macro issues, such as how automation is reshaping labor, as they are thrust into the forefront to help create the conditions for a positive employee experience.

Mobile evolves into the digital experience conductor

Next year is the year that mobile becomes core to the digital ecosystem. While many firms believe that they’ve checked the box on mobile, they also should note that what is changing is the next generation of consumer experiences on these devices. Smart firms will continue to invest heavily in the underlying technology: the architecture, talent, and process to deliver these experiences. Emerging tech like AR, AI and chatbots will continue to pique interest but mainstream breakthrough is still further off.

Time For “Digital First” – The Quiet Revolution Report Vol 3 Released

Digital Finance Analytics has released the latest edition of our flagship channel preferences report – “The Quiet Revolution” Volume 3, now available free on request, using the form below.

This report contains the latest results from our household surveys with a focus on their use of banking channels, preferred devices and social media trends.

Our research shows that consumers have largely migrated into the digital world and have a strong expectation that existing banking services will be delivered via mobile devices and new enhanced services will be extended to them. Even “Digital Luddites”, the least willing to migrate are nevertheless finally moving into the digital domain. Now the gap between expectation and reality is larger than ever.

Looking across the transaction life cycle, from search, apply, transact and service; universally the desire by households to engage digitally is now so compelling that banks have no choice but to respond more completely.

We also identified a number of compelling new services which consumers indicated they were expecting to see, and players need to develop plans to move into these next generation banking offerings. Many centre around bots, smart agents and “Siri-Like” capabilities.

We have developed a mud-map to illustrate the journey of investment and disinvestment in banking. The DFA Banking Innovation Life Cycle, which is informed by our research, highlights the number of current assets and functions which are in the slope of decline, and those climbing the hill of innovation.  A number of current “fixtures” in the banking landscape will decline in importance, and in relatively short order.

We are now at a critical inflection point in the development of banking as digital now takes the lead.  Players must move from omni-channel towards digital first strategies, where the deployment of existing services via mobile is just the first stage in the development of new services, designed from the customers point of view and offering real value added capabilities. These must be delivered via mobile devices, and leverage the capabilities of social media, big data and advanced analytics.

This is certainly not a cost reduction exercise, although the reduction in branch footprint, which we already see as 10% of outlets have closed in the past 2 years, does offer the opportunity to reduce the running costs of the physical infrastructure. Significant investment will need to be made in new core capabilities, as well as the reengineering of existing back-end systems and processes. At the same time banks must deal with their “stranded costs”.

The biggest challenges in this migration are cultural and managerial. But the evidence is clear that customers are already way ahead of where most banks are in Australia today. This means there is early mover advantage, for those who handle the transition swiftly. It is time to get off the fence, and on the digital transformation fast track. Now, banking has to be rebuilt from the bottom up. Digitally.

Request the report [44 pages] using the form below. You should get confirmation your message was sent immediately and you will receive an email with the report attached after a short delay.

Note this will NOT automatically send you our research updates, for that register here. You can find details of our other research programmes here.

The first edition is still available, in which we discuss the digital branding of incumbents and challengers, using our thought experiment.

Volume 2 from 2016 is also available.

Banks Must Go Digital To Protect Margins

Looking across the world of banking, there is one striking trend according to the latest Mckinsey Global Banking Report. Profit remains elusive as margins are crushed. Return on equity is stuck in a range of 8 to 10 per cent (though we note Australian Banks’ are higher!, but are still falling). Recovery from the 2007 banking crisis has, they say, been tepid.

Underlying this is a slowing in revenue growth, currently as low as 3%, half that of the previous five years – so margins are down 35 basis points in China and 46 basis points in the USA. They suggest that in a fully disrupted world ROE could fall to around 5%, compared with around 9.3% without disruption.

They claim the biggest contribution to profitability is not geography, but a bank’s business model.

We found that “manufacturing”—the core businesses of financing and lending that pivot off the bank’s balance sheet—generated 53.0 percent of industry revenues, but only 35.0 percent of profits, with an ROE of 4.4 percent. “Distribution,” on the other hand—the origination and sales side of banking—produced 47 percent of revenues and 65 percent of profits, with an ROE of 20 percent.

Now new digital platform players are threatening customer relationships and stealing margin. But Fintechs, which were seen as an outright threat initially, are now collaborating with major players, for example Standard Chartered and GlobalTrade, Royal Bank of Scotland and Taulia, and Barclays and Wave.

“digital pioneers are bridging the value chains of various industries to create “ecosystems” that reduce customers’ costs, increase convenience, provide them with new experiences, and whet their appetites for more.”

So they argue, banks are at a cross roads. Should banks participate in this new digital ecosystem or resit it? To participate, banks will have to deploy a vast digital toolkit. This offers a path to sustainable higher ROE, perhaps. This is a substantive digital transformation, designed from customer centricity.

The point, we would add from our Quiet Revolution banking channel analysis, is that customers are already ahead of banks, demanding more and better digital services, so first in best dressed!

 

ATMs Out-evolved By Mobile Phones

There is an inevitable decline in the volume of transactions through Australian ATMs as alternative, mainly non-cash alternatives bloom.

Data from the RBA shows the volume of ATM cash withdrawal transactions has fallen by 15% over 3 years, whilst the gross value has slipped a little (and fallen in post-inflation adjusted terms). Debit card transactions are more than taking up the slack. But there is also more going on here.

We had the chance to discuss this on Perth radio and coverage in an article in the Herald-Sun.

There is a generation shift in play as digital natives continue to adopt smartphone based payment options, from Applepay, to NFC transactions in shops, or apps like paypal as well as the move to debt. Even digital migrants are using electronic mechanisms, such as smart phones,  internet banking, contactless payments and Bpay is also a popular option.

We are approaching a tipping point where the economics of ATMs will not make sense, other than at a few high traffic locations, as there a fixed costs relating to installation and maintenance (including the cash top-up) and income is linked to volumes. There was a proliferation of third party ATMs in for example retail sites in the 1990’s, but these are getting less use too. So we think the number of machines will fall.

Meantime the ubiquitous smart phone is set to become your personal finance assistant, your electronic wallet and electronic credit card. Just do not loose your phone!

As a result, traditional channels such the the branch, ATM and even plastic are all under threat. Cash will become less important in every day life, but it will remain, used perhaps by people less comfortable with the technology, or in the black economy. It would not surprise me if down the track larger bank notes started to disappear under the guise of migration to digitally based more cost-efficient payment solutions, which just happen also to be easier to track.

Meantime, the ATM just got out-evolved by the smartphone.

Revealed – The Top-Ten Digital Suburbs Across Australia

We finish our review of the top digital suburbs across Australia by revealing the top ten post codes with the highest counts of households who are digitally inclined.

10-digital-suburbsThis is an interesting list because it consists of a wide spread of household segments, locations and states. This means that counter to the initial idea of a standardised “digital first” approach, effective digital strategy needs to be tailored and targetted to each group. Segmentation is still required.

The truth is that effective digital strategy still requires intimate knoweldge of the target groups. This is something which can be done more easily via digital channels, if the strategy is built correctly. However, many players are yet to harness the potential this offers, and to appreciate the full implications for those with a strong physical geographic footprint.

Read more about “digital first” in our report – The Quiet Revolution.

The Top Digital Suburbs Around Perth

As we continue our series on Australia’s top digital suburbs, today we look at WA, and the region around Perth. The top postcode is 6210, which includes Coodanup, Dudley Park, Erskine, Falcon, Greenfields, Halls Head, Madora Bay, Mandurah, Meadow Springs, San Remo, Silver Sands, and Wannanup around 65 kms from Perth.

The location of digitally active households is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

Using data from our household surveys we track the proportion of households with a preference for using digital devices – especially smartphones – for their banking interactions and other online activities. The latest data, which will flow in due course to our next edition of the Quiet Revolution – our channel analysis report – shows that there are large numbers of digitally savvy consumers and small businesses who want more digital, and less branch. They want a “mobile first” offering.

To illustrate this we map the current branch representation around Brisbane, based on the latest APRA points of Presence report.

branch-mapping-waThen we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes.  There is a striking mismatch between the two.

digital-footprint-perthHere is the top 10 listing by number of digitally aligned – mobile first – households across SA. They vary by segment, age, zone and region.

digital-suburbs-waThis information is useful to anyone wishing to engage with these households because it highlights where the centre of gravity for online initiatives should be focussed. The point is that although households are in the digital world, they still have a geographic centre. Digital still has a geographic sense.

Looking at the banks, it seems that they are not heeding the geographic concentration of mobile first households, and nor are they fully comprehending the changes afoot. We think it likely there will be significant stranded costs in the branch network, and insufficient focus on “mobile first”banking offerings.

Households are leading the way.

Next time we will reveal the top ten digital suburbs across Australia.

The Top Digital Suburbs Around Adelaide

As we continue our series on Australia’s top digital suburbs, today we look at SA, and the region around Adelaide. The top postcode is 5159, which includes Aberfoyle Park, Chandlers Hill, Flagstaff Hill and Happy Valley in South Australia. The area is about 17 kms from Adelaide.

The location of digitally active households is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

Using data from our household surveys we track the proportion of households with a preference for using digital devices – especially smartphones – for their banking interactions and other online activities. The latest data, which will flow in due course to our next edition of the Quiet Revolution – our channel analysis report – shows that there are large numbers of digitally savvy consumers and small businesses who want more digital, and less branch. They want a “mobile first” offering.

To illustrate this we map the current branch representation around Brisbane, based on the latest APRA points of Presence report.

branch-mapping-saThen we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes.  There is a striking mismatch between the two.

digital-footprint-adelaideHere is the top 10 listing by number of digitally aligned – mobile first – households across SA. They vary by segment, age, zone and region.

digital-suburbs-adelaideThis information is useful to anyone wishing to engage with these households because it highlights where the centre of gravity for online initiatives should be focussed. The point is that although households are in the digital world, they still have a geographic centre. Digital still has a geographic sense.

Looking at the banks, it seems that they are not heeding the geographic concentration of mobile first households, and nor are they fully comprehending the changes afoot. We think it likely there will be significant stranded costs in the branch network, and insufficient focus on “mobile first”banking offerings.

Households are leading the way.

Next time we will look at the state of play in Perth and then reveal the top ten digital suburbs across Australia.

Top Digital Suburbs In Brisbane Region

We continue our series looking at Australia’s top digital suburbs by looking at households in QLD. The top postcode is 4670, in the Bundaberg region about 297 kms from Brisbane. In fact across the state, there are a number of regional hot spots where digital usage is very high.

The location of digitally active households is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

Using data from our household surveys we track the proportion of households with a preference for using digital devices – especially smartphones – for their banking interactions and other online activities. The latest data, which will flow in due course to our next edition of the Quiet Revolution – our channel analysis report – shows that there are large numbers of digitally savvy consumers and small businesses who want more digital, and less branch. They want a “mobile first” offering.

To illustrate this we map the current branch representation around Brisbane, based on the latest APRA points of Presence report.

Branch-Mapping-QLD Then we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes.  There is a striking mismatch between the two.

Digital-Footprint-BrisbaneHere is the top 10 listing by number of digitally aligned – mobile first – households across QLD. They vary by segment, age, zone and region.

Dig-Footpring-List-QLDThis information is useful to anyone wishing to engage with these households because it highlights where the centre of gravity for online initiatives should be focussed. The point is that although households are in the digital world, they still have a geographic centre. Digital still has a geographic sense.

Looking at the banks, it seems that they are not heeding the geographic concentration of mobile first households, and nor are they fully comprehending the changes afoot. We think it likely there will be significant stranded costs in the branch network, and insufficient focus on “mobile first”banking offerings.

Households are leading the way.

Next time we will look at the state of play in Adelaide and subsequently explore developments in other regions, before revealing the top ten digital suburbs across Australia.

The Top Digital Suburbs In Melbourne

We continue our series on where most digitally active households reside. Today we look in the Melbourne district. The largest number of digitally active households reside in the post code of 3977 which includes Botanic Ridge, Cannons Creek, Cranbourne, Cranbourne East, Cranbourne North, Cranbourne South, Cranbourne West, Devon Meadows, Devon Meadows, Five Ways, Junction Village, Junction Village, Sandhurst and Skye.

The location of digitally active households is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

Using data from our household surveys we track the proportion of households with a preference for using digital devices – especially smartphones – for their banking interactions and other online activities. The latest data, which will flow in due course to our next edition of the Quiet Revolution – our channel analysis report – shows that there are large numbers of digitally savvy consumers and small businesses who want more digital, and less branch. They want a “mobile first” offering.

To illustrate this we map the current branch representation, based on the latest APRA points of Presence report.

Branch-Mapping-VICThen we mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes.  There is a striking mismatch between the two.

Digital-Footprint-MelbourneHere is the top 10 listing by number of digitally aligned – mobile first – households in VIC. They vary by segment, age, zone and region.

Digital-Mapping-VICThis information is useful to anyone wishing to engage with these households because it highlights where the centre of gravity for online initiatives should be focussed. The point is that although households are in the digital world, they still have a geographic centre. Digital still has a geographic sense.

Looking at the banks, it seems that they are not heeding the geographic concentration of mobile first households, and nor are they fully comprehending the changes afoot. We think it likely there will be significant stranded costs in the branch network, and insufficient focus on “mobile first”banking offerings.

Households are leading the way.

Next time we will look at the state of play in Brisbane and subsequently explore developments in other regions, before revealing the top ten digital suburbs across Australia.

The Top Digital Suburbs In The Sydney Region

Where do most digitally active households reside? This is becoming an increasingly important question, as mobile penetration and use climbs. It fundamentally changes the optimal marketing approach and channel strategy.

Using data from our household surveys we track the proportion of households with a preference for using digital devices – especially smartphones – for their banking interactions and other online activities. The latest data, which will flow in due course to our next edition of the Quiet Revolution – our channel analysis report – shows that there are large numbers of digitally savvy consumers and small businesses who want more digital, and less branch. They want a “mobile first” offering.

To illustrate this we have mapped the number of households by digital segments – identifying those seeking a mobile first solution – to postcodes. Then we also map the current branch representation, based on the latest APRA points of Presence report. There is a striking mismatch between the two.

Lets take the Sydney area as an example.  Below is the branch representation, with the largest number of branches in the Sydney CBD, and a smattering across the region.

Branch-Footprint-SydneyNow looking at the representation of mobile first households, we see a very large number in Sydney CBD, as well as hot spots across the Sydney basin.

Digital-Footprint-SydneyHere is the top 10 listing by number of digitally aligned – mobile first – households in NSW. They vary by segment, age, zone and region.

Dig-Table-SydneyThis information is useful to anyone wishing to engage with these households because it highlights where the centre of gravity for online initiatives should be focussed. The point is that although households are in the digital world, they still have a geographic centre. Digital still has a geographic sense.

Looking at the banks, it seems that they are not heeding the geographic concentration of mobile first households, and nor are they fully comprehending the changes afoot. We think it likely there will be significant stranded costs in the branch network, and insufficient focus on “mobile first”banking offerings.

Households are leading the way.

Next time we will look at the state of play in Brisbane and subsequently explore developments in other regions, before revealing the top ten digital suburbs in Australia.