Overcoming the core-technology transformation challenge

Across all sectors, companies face a shift to technology driven business requiring significant transformation, while grappling with rising costs or shrinking margins.

At the same time, fast-rising customer expectations require new functionality that must be developed without breaking current functionality or reducing performance. While core-technology transformations are complex, they are also critical to remaining competitive in a rapidly digitizing world.

1. Choose a transformation approach

Three major types to approach core-technology transformations:

  • “repaint” by making the minimum investment required to maintain existing operations and digital channels;
  • “renovate” through smaller, but consistent upgrades to deliver more substantial improvements; and
  • “rebuild or replace,”

Which approach is right for a company depends on its particular circumstances. Companies under significant financial pressure may need to repaint, with targeted investment to maintain the technology stack and preserve the ability to play in the future. Companies too often default to simply “do something,” because it is far easier to put off a strategic decision on technology spend for another budget cycle. This approach, however, has the effect of treading water, which leads to falling further behind the competition and ultimately increasing investment costs when tactical improvements must be replaced by more holistic solutions.

At the other end of the spectrum, companies that have significant levels of technology complexity and technology debt and sufficient financial resources or capabilities on hand can choose a greenfield rebuild approach. This allows incumbent companies to free themselves from legacy technology constraints and compete with digital natives that have substantially lower operating costs.

This approach is particularly attractive where speed to market is critical for capturing value, or delivering a new offering requires a significant departure from the current operating model. The difficulty with this approach is that it requires considerable capital outlay; a depth of technical knowledge to build the new stack, migrate applications to it, and decommission the old; and a cultural shift in the organization to ensure the new IT capabilities are leveraged in the most effective way. These need to be planned and executed carefully, as, unfortunately, many of these transformations have ended up with high levels of spend and questionable returns.

Our client a mid-pack retail bank in Slovakia used a “rebuild or replace” approach to radically transform its technology stack, with focus to migrate the data step by step and product by product to enable digital first and to simplify the end-to-end processes. Over the course of its transformation, the company worked systematically across the key pillars of its approach: sharpening the company’s technology vision, increasing the level of business and IT collaboration, launching new capabilities, increasing agility, and turbocharging the technology core.

Notably, as part of this journey, the company targets to develop a repeatable method to allow M&A and migrating at pace to improve the positioning among the top 3.

2. Mindset that brings business together with technology

Core-technology transformations are successful only when company leaders truly believe in the need to change. Transformations are about more than just adding new technologies. They are driven by the needs of customers and employees as well as the imperatives of shareholders and regulators.

To build the new business/IT fusion mindset across the organization, top companies embed targets throughout the business plan along with a clear end-state vision and transparent key performance indicators (KPIs) shared jointly between business and technology. CEOs demonstrate their own commitment in their communications with employees and other stakeholders. In the recent example, the CEO of a local bank pushed an ambitious goal of migrating key business areas to new core technology to enable faster digital sales, focus on STP and to reduce operating costs. This commitment was then cascaded to all business and IT executives.

Long-term transformations of any kind succeed only by building alignment within the organization and ensuring that senior executives have the confidence and patience to see the process through. For a core-technology transformation, this means building the belief that an investment in IT is an investment in the business.

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