Why Digital Transformation in 2022 is a People Problem
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“It is not the strongest or the most intelligent who will survive, but those who can best manage change.” Charles Darwin, 1809-1882
A recent KPMG report found 85% of financial services CEOs confirm that the pandemic has accelerated the digitisation of their operations and the creation of next-generation business models. However, despite these good intentions, research from the business consultancy BDO reveals that only 30% of UK financial firms are close to achieving mid- to late-stage implementation of these strategies.
This means 2022 will see a blitz of investment and activity in digital transformation. This hiatus will happen during a perfect storm of what Claire Tunley, CEO of Financial Services Skills Commission (FSSC), describes as the “disruption from megatrends, such as innovative technology, reliance on data, globalisation and changing workforce demographics.”
Yet, whilst there is much focus on the technological and investment aspects of digital transformation in financial services, less thought has been given to the people skills needed by financial firms to deliver success. Nor is there equivalent understanding of the impact of digital transformation on an organisation’s culture.
Many financial services firms are going into 2022 with a plethora of challenges, from hybrid working practices and technology accelerators to skills shortages and budget pressures. This article looks at some of the trends in digital skills needed by financial services firms.
Start with a plan
As always, having a top-down strategy for human capital within a firm is the best start. Any workforce strategy that is fit for purpose and aligned to the digital strategy needs to build on the organisation’s culture and business operations. Successful workforce strategies are built on two foundations: employee engagement and change management.
In terms of employee engagement, research shows lack of skills/insufficient training and employee pushback are cited as top reasons why digital initiatives underperform. These challenges have only increased with the post-COVID expansion of remote working and the increased need for digital literacy across the workforce.
Equally, the ability of firms to have robust and adaptive change management culture and strategy is critical to the success of digital transformation programmes. Put simply, company culture must foster agility and responsiveness to change.
The following are the main actions Hanover has seen undertaken by UK financial firms to enable and encourage the employee adoption of digital initiatives:
- Appointing board members with digital experience
- Reinforcing HR as a business partner for digital advocacy
- Investment in training to upskill current employees
- Working with external consultancy/advisory firms
- Hiring of new talent
The leadership and ownership of these changes is usually led through a designated digital transformation office, comprising HR, business, and IT leaders with board-level oversight.
What are the new skills needed?
Financial services have always relied on highly skilled talent to innovate, adapt, and succeed. But which skills are most in demand in a digital age?
There are two types of skills needed for firms to embrace the benefits of digital transformation: technical and behavioural.
Technical Skills
- User experience
- Agile
- Cyber-security
- Machine learning/AI
Behavioural Skills
- Behavioural Skills
- Adaptability
- Relationship management & influencing
- Teamwork
- Empathy
The list of technical skills is not exhaustive and more can easily be added. What is key is that familiarity with the technology is not confined to the IT department. Analysts and actuaries must embrace digital age and seek to expand their proficiency in Excel to become cognisant in the modern and emerging tools for data analytics and modelling.
“Purple people” is a term pioneered by business intelligence and championed by analytics expert Wayne Eckerson. He argues that these are the team members who can combine “red” tech-speak with “blue” business-speak, translating between the tech and data scientists and the senior decision makers. These so-called purple people will become increasingly valuable. Through blending relevant business and technology skills, they help to articulate business requirements, identify data needs and work with technical specialists to produce workable systems. Although tech specialists may write the code, develop the algorithms and shape the models, firms need input from purple people to achieve their business goals.
But many financial services firms are struggling to find the skills they require and are facing stiff competition for tech talent skills from across the broader economy. In mid-2020, at the height of the macro-economic slowdown caused by the pandemic, there was still a 22% increase in demand for software developers in the UK fintech sector (source Gartner).
How to respond to these trends? Hanover has seen three tactics to address the skills and culture gap in the race for digital success.
- Develop internal talent
- Hire better
- Bring tech into the boardroom
Developing internal talent
This is an obvious first step. But too often words are not matched by deeds. Most C-level executives agree that there is a need for more coaching and leadership development in their firms, but investment in learning and development is not keeping pace with the financial services sector’s evolving needs. The main reason for this is that the rewards and returns are often intangible or long term. To retain and nurture the best in-house digital talent is critical. Good leadership, combined with innovative and constructive staff training is a way of (a) enhancing and retaining key tech talent, and (b) mitigating (but not replacing totally) the need to offer competitive salaries.
Hire better
Recruitment of external people with new or better skills is important, but the process needs to change. In terms of successful new hiring strategies, Hanover has seen a rapid rise in companies assessing candidates closely for their personality and behaviour traits as much as their functional/technical skills.
Identifying people with technical skills is straightforward, although it is necessary to test candidates to verify the extent of their skills (spoiler alert: tech candidates may overstate their technology skills on their CVs). But how to identify people who bring a combination of robust technical and behavioural skills? Scenario-based interview questions and practical tests/presentations are tried and tested and should be factored into the interview process. Psychological assessments provide objectivity and depth to the hiring process, especially useful where the job function is new or there is a mix of internal and external candidates for the same role. However, assessments are guides only and must always be used in parallel with traditional interviews.
It works the other way around from an elite candidate’s perspective. When Hanover talks to candidates, a company’s culture is a key factor when faced with multiple job opportunities. To achieve this culture/personality match, the company-centric, two-dimensional interview processes need to be updated by (a) increased use of personality and behaviour assessments, and (b) clarity and evidence on what makes the firm a great place to work.
Bringing Tech into the boardroom
A recent study by Accenture shows only one in ten board directors in the traditional financial services sector have professional technology experience, and one-third of big banks have no tech knowledge in the boardroom. This is a worrying lack of expertise at a time when financial services firms are investing hugely in digital. Accenture said it believes 25% of board directors at financial firms should have technology experience. Having non-executive directors with digital expertise is a good short-term fix whilst you ‘digitise’ your ExCo team.
The impact of increased technology expertise in the boardroom is as follows:
- Strong awareness and understanding of the impact of digital tech on finance
- Easier to articulate the value of digital processes and systems throughout the organisation
- Develop a strong foundation of digital fluency to support transformational change
- Inspire and reward curiosity about digital applications and related opportunities
To summarise, achieving successful digital transformation isn’t as simple as implementing new technology - it’s about shifting the mindset and culture of your entire organisation to embrace the opportunity. This means bringing the people with you.
Want to talk about how to set your people up for digital transformation? Talk to Hanover about recruiting leaders and experts and developing your staff’s talent to help drive digital for your financial services firm.
