When it comes to going digital, time is money, according to a new study from Harvard Business Review and Verizon.
“The Digital Dividend – First Mover Advantage” shows that companies that are early adopters of new technologies are apt to lead their peers in revenue growth and market position.
“There is a correlation between the early adoption of new technologies and better business outcomes,” the study found, adding that IT is increasingly becoming a key part of business decision.
“This is causing a shifting and blending of roles across IT and other parts of the business, with leaders from across the organization more involved in formulating technology strategy (in partnership with IT) and deciding how technology is used to enable business change.”
The study classified companies into pioneers, fast followers and cautious, said Chandan Sharma, global managing director for financial services at Verizon Enterprise Solutions.
“Most of the financial services firms are in the fast follower category,” he explained, “in some cases for very good reasons such as regulation and compliance. But at the same time, many of them are facing competition, not necessarily just from financial services, but also some from Silicon Valley and technology companies which are impacting the financial services industry,” he added.
“Our message to financial institutions is that technologies like cloud give them more agility in experimentation with these technologies to drive innovation. Financial firms are starting to be more mindful of that. They recognize where the competition is, and they are looking at these technologies in a pretty serious way, more than they have done in the past.”
For banks, old, very old, legacy systems have been a barrier to adopting new technology. Sharma said that leading banks are taking a selective approach to modernization.
“Core transformation or uplift is a big risk and it takes a long time,” he said. “Institutions are looking at their legacy systems and picking a set of services they can transform and expose in a much more agile model, an incremental change.”
The Harvard Business Review study found that change was being driven from outside in.
“Most significant, named by 65% of all respondents, are changing customer behaviors and expectations, closely followed by cost. Today’s consumers are mobile- and tech-savvy. They expect to be connected, to have access to information, and to be able to conduct transactions anywhere. Any company that wants their business must cater to these expectations.”
The study found a link between consumers and costs.
“Consumers can access products and services from literally millions of vendors—from independent eBay sellers to main street stalwarts. It is easier than ever before for them to find exactly what they want at the best possible price. This is having a commoditizing effect on a whole host of products and services and putting significant cost pressures on companies. To win customers, companies have to be able to sense and respond quickly.”
“ ‘When customers get in their vehicle, they want the same experience that they have with their mobile device,’ said the U.S.-based CIO for a large automobile company.” They also expect a bank’s presentation to be as clean as an Apple app.
Changing customer expectations was also the number-one change driver for financial services and healthcare, the report said, though increased regulations wasn’t far behind; 62% of financial services companies and 57% of healthcare organizations named this a top driver.
The pace of change is changing with new technology, it added, and financial firms may struggle to keep up.
Software companies have traditionally had long product cycles and invested a lot of time and money in getting things right up front, said a long-time industry executive now working at an enterprise cloud company. “We had to predict the future,” he said. Now with cloud services, “we ship all the time.”
When the company rolled out a new feature with a different pricing model last year, it created a revenue report that blended new data with its existing financial reporting information so that the company could understand which customers were switching and the revenue impact as they moved from the older to newer products. Advanced analytics is a critical capability in a “sense and respond” world, where the company that can meet new customer needs first wins.
The report said that top executives are out of touch and underestimate the resistance to change within their firms, compared to mid-level executive who are often frustrated by the delays.
Sharma took a very diplomatic approach to that comment.
“Their vantage point is different,” said Sharma. “If you are responsible for a narrow function, like distributed technology and looking at a move to cloud, that could take months to lay out the strategy and do it as you have to convince a lot of stakeholders. From management, the process may look very slow while from the corner office it may appear to be moving faster.”
The survey noted the threat from mobile banking, in both developed and developing markets.
Financial services companies have seen the most change in their products and services, as mobile banking has taken off. In many cases, less-developed countries are leading the way as they leapfrog the fixed infrastructure stage and embrace services that avoid the need to use cash or visit a branch. Mobile banking services can be truly transformative in a region that doesn’t have a network of branches or readily available—and affordable—broadband. Innovations from developing nations are now finding a foothold in the developed world.
The report called for closer collaboration between business and IT, not exactly a new recommendation, but impressive in its persistence.
“This closer collaboration is critical as business leaders become more involved in technology strategy decisions. A full quarter of respondents are very involved in making such decisions, with another 48 percent being somewhat involved. This is significant, given that less than 10 percent of the people participating in the study said that they work in the IT function. The more senior the leader, the more likely he or she is to be very involved, with 42 percent of executive leaders very involved, compared with 30 percent of senior managers and 14 percent of other managers.”
How is that going to turn out?
Sharma said Verizon has met with customers who have very deliberately made the decision not to be first a mover.
“It’s interesting in today’s environment,” he added, suggesting it might have made more sense in a time when technology wasn’t as central to customer experience as it is now.
Business is about to face two demographic waves, he added. The first is a large wave of millennials, larger than the baby-boomers, with very different customer experience expectations.
“And then, as baby boomers start to retire we will see a rise in the ranks of enterprises, people in decision-making who were born with technology, their entire experience is very different. That is a second wave that will push the wave in this direction [of digital innovation].”