Digital Transformation Is About New Business Models, Not New Tech
Targeting pain points with fresh business models
Innovative technologies may change how financial services are delivered, but ultimately they are the means, not the end.
Fintechs and other banking disrupters have targeted pain points and are tackling them with fresh business models. Banks and credit unions that would survive and win must beat them at their own strategy.
I found cause for reflection in an interview in the MIT Sloan Management Review with Clayton Christensen, who was looking back at his “Theory of Disruptive Innovation” almost a quarter century after devising it. He explained the term “disruptive innovation” in this way:
Disruptive innovation describes a process by which a product or service powered by a technology enabler initially takes root in simple applications at the low end of a market — typically by being less expensive and more accessible — and then relentlessly moves upmarket, eventually displacing established competitors.
Disruptive innovation is the force behind the digital transformation we are seeing in all industries and particularly in financial services. When I talk about “digital transformation” with many banking executives, they focus on “digital” or “technology.” But as Christensen noted in the article, technology is an enabler — not a driver.
The second part of the phrase — “transformation,” a change in approach — often gets ignored. In banking, fintech firms are challenging incumbents with less expensive and more accessible business models, and technology is not the centerpiece.
The Key to Fintechs: They focus on solving a customer problem and not on the technology they use to do it.
It’s not surprising that many attempts at digital transformation have not delivered the hoped-for results. In fact, 70% of all digital transformation initiatives globally do not reach their goals, according to an IDC analysis. Of the $1.3 trillion that was spent on digital transformation in 2018, IDC estimated that more than $900 billion was wasted. The main culprit for such waste is lack of understanding on how to transform.