European banks face challenges in creating future value


seen as lagging in their digital transformation program saw a decrease of 11% in

When it comes to future value for shareholders, banks are lagging badly behind GAFA (Google, Amazon, Facebook and Apple) companies, and they also trail financial () companies. Our analysis of Capital IQ data in 2017 indicated that future value represents 49% of the total value of GAFA companies and 40% of the total value of companies, with “future value” defined as the premium investors are willing to pay beyond the value of current operations.

Future growth value of banks launching an aggressive digital transformation program was 20%, but banks seen as lagging in their digital transformation program saw a decrease of 11% in future value. Clearly, innovation is a key driver for creating future value in banking, but banks cannot simply snap their fingers and magically transform themselves into innovators.

Our experience shows that there are five key steps to creating future value through innovation:

  1. Become a data-driven organization.
  2. Create a culture that is both open and agile.
  3. Align customer experience and user experience to principles established by GAFA companies.
  4. Drive innovation with an eye to attracting talent and reshape roles (such as moving into new areas like artificial intelligence).
  5. Transform compliance requirements into business opportunities.

Getting on board the digital transformation train is not easy, as the pace of change is accelerating. To capture trapped value, banks need a disciplined, systematic approach to change, acknowledging that change is a constant evolution rather than a single . Speed is becoming the critical factor for both decision-making and transformation.

Banks need to transform their core businesses, determining what is required just to stay viable, and then what is needed to increase profits. But they should no longer be thinking in terms of moving from phase to phase. Rather, they should create an innovation architecture and work on getting the timing, scale and direction right, so that they can manage the investment process and the allocation of capital in both core and new businesses. The ultimate objective should be a circular path of growth and renewal.

It is worth keeping in mind that banks cannot succeed at digital transformation without a) identifying, training and retaining the right people and b) helping their people understand and adapt to the of the digital era. The order of magnitude of the hiring, training and adapting involved is far beyond anything banks have experienced so far. Banks, as well, have a social responsibility to deal fairly with their employees. I will discuss these and other “people” factors in my next blog.

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