What is digital transformation?

Digitization is something most people have a relationship with. To begin with, it was about the transition from analog to digital forms, such as new media for music, photos, documents, money, etc. Most of us are positive about this digitization but see that it can also have some negative sides.

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Digitization is now about using technology to innovate, simplify and improve products, services, and processes. The Government Digitization Circular contains orders and recommendations on digitization in the public sector. It states that digitization and innovation can support digital transformation in each business, and the public sector as a whole.

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Is digital transformation a goal for the digitalization of the public sector? And so far also for each business. But what does that mean? It’s about digital technology. Transformation means change according to Norwegian dictionaries. English dictionaries indicate that the word means complete reorganization, that something appears as completely new.

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Digital transformation of the public sector can then mean that all public activities must be digitized as far as possible and appear as new. How will users and employees in the public sector experience such extensive digitalization?

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Digital transformation in banking

The first online bank came in the mid-90s and was immediately a huge success. The further digitalization of the banks became more difficult, especially for more complex banking services. In 2014, it was estimated that European banks had on average digitized approx. 30% of its banking services. While new digital services were constantly emerging from other industries, more forward-looking digital services were requested from the banks. In 2018 came PSD2, an EU directive that facilitates the free flow of production of banking services.

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This means that the service you use as a bank customer in Norway can be produced anywhere and by anyone within the framework of PSD2. Production of banking services is referred to as fintech, and most of the fintech now works in a PSD2 system.

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The purpose of PSD2 is to increase competition between banks to provide better and cheaper banking services for users. So far, the effect of PSD2 and the banks’ digitalization seems to be the greatest for fintech.

What about the bank employees? In 1995 came the first online bank. Then there were 1552 bank branches in Norway. In 2018, there were still 875 bank branches.

In the period from 1995 to 2019, we have had a banking crisis that has affected the number of employees. Nevertheless, the number of employees during the period is quite stable – approx. 52,000 employees in 1995 against approx. 47,000 in 2019.

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In 2017, the then CEO Rune Bjerke said that DnB’s 10,000 employees are lucky if they are more than 5,000 in five years and that it is a miracle if they are more than 5,000 in ten years. The reason was the bank’s digital transformation (source). DNB still has 10,000 employees.

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The banks have been digitizing their customer services for well over 30 years. Increased competition, partly as a result of PSD2, is an argument for banks for digital transformation. But it has proved easier said than done. What can we learn from that?

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What can we learn from the digitalization of banks?

The most important lesson is that it is people who create transformation. The digital-only provides opportunities. Read about involving the people to succeed with digital transformation.

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Most banking services are available online. Nevertheless, bank customers choose to meet bank employees in bank branches in some contexts. The transformation does not take place until the customers’ need for “interpersonal contact” is also taken care of online.

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In the eagerness for digitalization and transformation, it is easy to forget that bank employees are professionals. No one else has the same competence to understand both a customer’s needs, which banking offer best meets this customer’s needs, and how to carry out a good customer conversation. This is what customers understand when they do not want to join in transforming into more complex online banking services. They need the expertise of a bank employee.

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User orientation is important in all service innovations. The most important person in the user orientation of complex banking services is the competent bank employee, not the user, not the UX designer, and not the technologist. Why? Because it is the bank employee’s competence the user demands.

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Do banks need digital transformation?

If it is so difficult to bring about the digital transformation of complex banking services, can the bank just as well not give up trying? Continue as before with incremental service innovation? Of course, they can, but what happens if one bank succeeds in digitizing complex banking services – for example by using AI to digitize the competence of the most competent and professional bank employee?

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Such a service can be disruptive – cheaper, better, more accessible, and more integrated than current services. A game-changer simply, which can potentially redefine the market. If the service is also PSD2 compatible, the market is large.

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Is it likely that one bank will be able to develop such a technologically advanced service that users will be involved in the transformation? According to Forbes, the vast majority of projects with digital transformation will fail. But the story is full of successful digital transformations. One of them is that you read this text. If the gain is large enough, the probability of success also increases – in the end.

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For the Norwegian banks, it is probably smart to listen to what Rune Bjerke said in 2017. New digital banking services will redefine the banking market, it only takes a little longer than you think. This has been the case in all the years of digitalization, technology is being raised, but it is people who determine the degree of transformation.

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What other industries should have ambitions for digital transformation?

Digital transformation is more about strategy than technology. If your business is exposed to competition, then the need for digital transformation will depend on the extent to which your online service offering affects your competitive position. This applies to banks to a large extent and the need for digital transformation is also great. Maybe not equivalent for primary industries?

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There may be other strategic factors than the competitive situation that indicate high ambitions for digital transformation. For example, if access to competent employees is vulnerable or too costly. This is the case for the municipalities where the aging wave means increased pressure on home services. The introduction of digital health technology is a digital transformation to strengthen the municipalities’ handling of the aging wave. The same applies to the municipalities as to the banks – it is the people who create transformation, not the technology.

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All strategic factors where technology can have a major effect, whether cost-saving or value-increasing, are candidates for assessing their level of ambition in digital transformation.

For some, it will be most appropriate with a high level of ambition, while for others it may be just as smart to wait and concentrate on digitizing the most necessary things.

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How to succeed?

If it is strategically right for your business to invest in digital transformation, then just accept that it will be demanding. Reputable analysts estimate the probability of success is less than 30%. At the same time, they estimate that digital transformation will take up large parts of IT budgets in the future. It provides good days for the analysts who can tell you how to succeed.

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An alternative to hiring consultants is to manage yourself. Involve your employees to take an active part in the development of the next version of their business. Digital transformation is not a skipper. It is something you should live with daily, along with everything else you do. To succeed, digital transformation must become part of your core business going forward. You do not leave the core business to others, you must have full control over it yourself.

In the next article, we will look at how you can set up your plan for this yourself. (Coming soon)