A roundtable on funding for digital in financial services organisations
We proposed a simple 3 stage digital funding framework that roundtable attendees recognised. The conversation then focussed on the triggers that drive transition between the stages.
In late September we hosted a roundtable with guests from 8 financial organisations: a global private bank, multinational insurance groups, investment services, a technology research organisation, and a business banking start up. The attendees were digital leaders: Global Heads of Digital, IT, Digital Transformation, Data Science, etc.
We created a framework to hang the conversation on, which we named The Money Hump, which represents a simplified maturity curve for funding digital business. All participants were invited to respond to, validate, dismiss or enrich the framework, and more generally share their own perspective and experiences of seeking, securing (or not) and managing digital funding.
The Money Hump
The Money Hump framework shows how digital budget evolves over 3 key stages:
Digital ad hoc: in this pre-transformation phase, budget is spent on digital marketing, improving the surfaces customers interact with, or developing the digital infrastructure. These projects are likely to be disconnected and funded each as a one-off. Digital effort is typically evaluated on marketing effectiveness, dwell time, page views, contact, etc.
Change programme: The need for a global approach to digital is understood, and a ‘transformation’ programme is set up. A shift in culture is fundamental in this phase, and a digital ‘Tsar’ is named to be at the helm, as the agent of change. He or she negotiates and holds a much larger budget to effect this change, and the evaluation framework goes beyond marketing metrics to operational efficiencies, growth and share price.
Digital as BAU: Once an organisation is well engaged in the path to greater digital maturity, digital budget moves from the hands of a single executive sponsor to being shared between product and service owners to optimise existing products and services and develop new ones. The success criteria are simplified, and sometimes distilled to a simple score system used across all products. “Digital” becomes a mix of attitudes, behaviours, technologies that are a normal part of good business.
The attendees could relate to the framework, with some nuances. Perhaps obviously, it rang true for ‘Pre-Google’ organisations more than for Fintech businesses. For most, different parts of their business (e.g. product groups, or divisions, or specific markets) were at different stages - very few could place their whole organisation in a single genuinely consistent position on the framework.
Triggers and transitions between the 3 stages
Quickly, the discussion moved to the boundaries between the three stages and the triggers that caused organisations to transition from one to another:
The Money vs. The Customer Experience
The group acknowledged, with wry smiles, that moving from Digital Ad-hoc to a Change Programme was never driven by an ambition to improve the customer experience. The driver was always a simple, hard commercial goal - or even a hard commercial necessity - like limiting customer churn or attrition, cost-to-serve reduction, share of wallet increase etc. In simple terms, an improved customer experience is not a sufficiently valuable “good” alone to justify significant investment (which the Change Programme always does) - but it was widely accepted as the method to achieve the hard commercial goals. This seems obvious, but to a room full of people who’ve been evangelists for improving customer experience for years, the stark reminder that this is the means and not the ends, was a minor wake-up!
The agent of change as a temporary agitator
One of the ingredients in the transition from Digital Ad-hoc to Change Programme is the emergence or arrival of a digital Tsar to lead the change. It can be a humbling role, with hard political battles to fight, complex implementations to orchestrate, unrealistic expectations to manage and often, the visible delivery impact takes longer than everyone hoped. They may be the one who makes the case to release the funding to step out of Digital Ad-hoc, or they may be hired to drivethe Change Programme once the funding is in place. Either way, they need to be subsumed into the business or to exit from the business as part of the transition to digital as BAU. Often the character of a digital change agent makes them unsuitable to business as usual. Many aspire to become the CEO. How many make it?
Creating organisational capacity
One of the most valuable things the better Tsars leave behind, even if the journey is bumpier than expected, is organisational capability. Often this comes in the form of autonomous cross-functional agile delivery teams, shipping high-quality customer-facing digital products, at speed, in a lean management structure, with funding and budget governance designed to support this way of working. This is a capability that contains a dynamic adaptability. Of anything, organisational agility is perhaps the most valuable legacy a digital Tsar can leave in their wake, and a necessary part of Digital as BAU.
One of the factors that supports a transition from Transformational Change to Digital as BAU is the acceptance of “grey money”. Grey money is, essentially, unassigned budget that a delivery team will be able to use to do valuable things that will need doing, but cannot be foreseen. Budget holders have always hidden something down the back of the budget sofa to cope with the unforseeable. But when you grant greater budget autonomy to a team, you need to make this grey money pot explicit and give the team latitude to use it. The maturity to have open conversations about grey money, and mechanisms to govern it, and the will to defend the need for it, is part of the transition to Digital as BAU.
Capitalising agile spend
Much is written elsewhere on what can be capitalised in agile software development, and what can’t. But, our attendees agreed, a transition to Digital as BAU is predicated on having a clear and functioning relationship between finance teams and product owners to define policy on capitalising spend, to apply it, and to work through the inevitable of edge-cases and things-on-the-fence.
We’d welcome your thoughts and feedback on our Money Hump framework. To understand if it applies to you, and to help us refine it further, or for details on upcoming roundtables at Friday— just ping email@example.com.