News
Why do transformations in the financial services sector fail?
For Australian financial organisations that launch transformation projects, the success rate tends to be low. While it is difficult to measure exactly what constitutes “success”, few end up achieving the ideal outcome and hitting their targets, according to a report by Oliver Wyman.
The financial sector in Australia (and around the world) is evolving rapidly and organisations need to keep pace with innovation, cost efficiency and resilience. With stakeholder pressures increasing, organisations are often required to launch major transformation programs focused on business, technology and risk.
But financial institutions undertaking major transformations face daunting odds. And the risks must be taken seriously: More than 40% of failed transformations have severe financial, operational and reputational repercussions.
A survey of Australian business leaders from Oliver Wyman found that most unsuccessful transformations are due to ineffective governance, lack of commitment, and poor stakeholder alignment.
The impacts of a failed transformation can be serious because it involves large investments and takes resources away from normal business activities. Most failed transformations tend to result in significant financial losses and staff turnover.
The report shows that about 60% of companies pursuing transformation will suffer cost overruns. The financial hit organizations suffer includes capital sunk in failed projects and workforce expenses.
With so much money and energy invested in transformation, companies will often see their usual revenue-generating activities suffer significantly. These operational disruptions can be a serious problem if the transformation process drags on longer than expected or fails to meet defined goals.
Another important consequence of a failed transformation is the potential damage to the reputation of the company and its executives. This can end up being a major blow to the trust of stakeholders such as an organization’s board of directors. The report showed that 45% of failed transformations lead to executive departures.
“Transformations are crucial to an organization’s continued success,” the report says.
“However, the severe impacts of failed attempts raise an important question: How can transformation programs be structured to increase the likelihood of success and optimize the value they deliver to the organization?”
The answer to this question is admittedly very complicated. But in a nutshell: transformations must be led by business plans (not just technological innovation) and must be comprehensive, with the involvement of business, technology and management teams.
“Organizations need a value-driven approach to transformation. This requires the business to be the primary owner of transformation programs, enabling central oversight over economic value, greater program agility, and continuous feedback loops to optimize delivery,” the authors said.