Achieving digital transformation of the back office

Digital transformation is imperative for financial services organizations, not just because it’s the only clear route to addressing changing consumer expectations. It’s also because of the ability to create efficiencies in back-office operations that will enable a more agile, cost-effective and competitive enterprise.

In our previous article we discussed how digital transformation is necessary to address the customer experience. But digital transformation is also critical to helping institutions maintain low expense ratios and address inefficiencies in the back office.

In this second of our three-part series, we address the back office side of digital transformation and offer some tips and best practices to ensure success along your road to digital optimization. If you missed part one on “Meeting your customers’ needs through digital transformation,” check it out here.

According to a recent study by BCG, banks that have undergone successful digital transformations have seen “cost reductions of 15% to 20% (through decreases in the current cost base or avoidance of future cost increases), improvements of 20% to 40% in efficiency and error rate reduction, increases of 20 to 30 points in customer satisfaction scores and two- to fourfold acceleration in the delivery of new products and services.”

Specifically, by implementing back-office automation through AI-enabled technologies like robotic process automation (RPA) and intelligent document processing can provide dividends through faster processing, less manual involvement and fewer opportunities for human error.

“Automation in the back office can speed up processes that often take a lot of time when done in a manual fashion,” says Joe Benigno, chief information officer at HORNE. “The automation frees up people from doing low-value, high-effort tasks to focus on higher value activities. As you’re automating the things that are typically done manually, you’re taking human error out of the process as well.”

But financial institutions face several challenges to getting the most out of back office digital transformation. Common missteps include poor project scoping, inadequate resources and skillsets and taking on too many technology projects at the same time. These early mistakes can result in negative outcomes like ballooning costs, data security risks and a lack of fit with internal culture, manifested by strong resistance to change.

Effective planning leads to success

If you’re just beginning your digital transformation journey, it’s best to start by targeting some quick wins that will generate enthusiasm and positive momentum among your teams.

As a first step, Benigno recommends analyzing your institution’s business processes to determine which workflows could be more efficient through consolidation and automation.

“At HORNE, we would typically come in and do a business process assessment,” Benigno says. “From that, we would look at the institution’s back office, their user interfaces and processes to gauge where the biggest bang for the buck would be.

“A good first step is to dive into your business processes, to understand where there are pain points or inefficiencies, such as comparable processes that may be done three or four different ways across the bank.”

Benigno recommends focusing on repeatable processes for automation. For example, in your lending and credit operations, portfolio risk ratings are likely the most obvious choices. For RPA. In deposit operations, check processing and ACH are high-volume, standardized processes that can benefit greatly from automation.

It’s a good idea to review your support areas, like HR and accounting, as well. Is your employee onboarding process optimized, or do you use manual checklists to conduct the same process every time you hire a new employee? Can you apply RPA to streamline and remove manual effort?

Look to employ cognitive technologies like artificial intelligence, machine learning and RPA where appropriate and cost-effective. The key question to ask yourself is: Wherever there is a piece of paper — what are you doing to automate it?

Banking on digital transformation: Six steps to success

Once you’ve completed your initial business process assessment, it’s time to get your project plan in place. HORNE’s Financial Institutions team has worked with banks and credit unions on implementing digital transformation in both their back office and customer-facing areas. Here are some keys to ensuring your next digital transformation project is a success:

  1. Establish your project plan, resources and budget. As with any major project, it’s important to develop a strategy. Make sure your project plan is aligned with specific goals and you have a sufficient resources and budget to get the job done.

“Before you jump into any transformation project, don’t piecemeal it,” says Tim Morgan, partner at HORNE. “Have a strategy that outlines where you’re trying to go, so you can measure that you are getting to where you want to be.”

  1. Get buy-in from your board and senior leadership. Successful digital transformation starts at the top. Before you begin implementing your project, make sure that the CEO, board and senior leadership understand the goals of digital transformation and how it will help improve efficiencies and the customer and employee experience. Without thorough buy-in, many technology projects aren’t implemented.
  1. Include key stakeholders early in the planning process. It’s important to ensure that all affected areas of the organization are included early in the process. This typically includes compliance and risk, legal, finance and accounting, IT and the business units that will benefit from the technology.
  1. Communicate the process throughout the entire organization: Whereas most organizations focus on the technology aspects of digital transformation, the biggest factor of success is often whether the organization accepts the change. Employees will often resist if they are afraid their jobs are being taken away or if they view the new process as making their current jobs harder.

To combat these cultural challenges, it’s important to raise awareness from the beginning of the project. Explain to affected staff how automation will help make their jobs easier and less monotonous and free them up for new, higher-value roles with more responsibility.

  1. Define what success looks like. If you can’t track it, you’ll never know if the project has met your goals. As you build the project plan, make sure to establish a definition of success. These metrics can be in the form of faster processing, fewer data entry errors, hard cost savings or less staff and resources needed. Then, make sure you establish baseline benchmarks in each category and track these metrics post-implementation.
  1. Celebrate your successes. Lastly, don’t forget to take time to celebrate even the small wins. Communicate results widely throughout the organization and congratulate those who contributed to the project’s success. This will generate excitement and a desire to participate in future digital transformation initiatives.

In the final article in this series, we look to answer the question: “Fintech: Friend or Foe?” We discuss how best to partner with third-party providers, including financial technology firms, to jumpstart your digital transformation journey, and share best practices and tips on handling vendor management due diligence to ensure all critical risks are covered.

HORNE’s Financial Institutions team is here to help guide you on your digital transformation journey. Contact us today.

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