To abuse a phrase: Mobile is Eating the World (or at least the high street!)
Next week Alex is attending a CIO Executive Summit to talk about disruptive innovation. As with any event we attend, we talk as a team about what is happening in the marketplace and the work we do to pull out good examples that will resonate with the audience we are speaking to. In this case, one of the questions to answer was ‘How does aligning business and IT strategies help companies to find new business models and achieve a competitive advantage?’
This question brought into my mind a few things we have been working on recently in the Retail and Retail Banking sectors.
In early April 2014, the first ‘Digital Only’ bank was announced in the UK. It’s called Atom Bank, and it has been founded by a few people who have already shaken up the retail banking industry a couple of times with companies like First Direct and Metro Bank. I found out about this through current client work, and a colleague who is joining the new bank. He has spent the last few years of his career working with existing, traditional retail banks helping them to ‘align business and IT strategy’, but not to the extent where it is Digital Only. It has been rather more conservative than that, and less ambitious. In a sense, most of the companies looking at Mobile, Digital and Agile are really trying to bolt an online business onto their existing ways of working, rather than fundamentally re-working their strategy, governance and delivery models. It makes sense really. People like to hold on to what they know and what made them successful. But, it is not the right approach to thrive in the future. A digital future.
Assuming Atom Bank is executed well, it will be a real alternative way of serving clients in the same way Amazon has for retail. Indeed, it made me think of this infographic and the way I use my bank and other retail services today. People have become very used to the fact that they can interact with their chosen service providers when they want and at a much lower transaction cost in terms of time and energy. The plus point from the providers perspective is that they have much lower acquisition and operational costs with the added benefit of being far more convenient for the customer.
The Atom Bank story came hot on the heels of another recent article in the rise of mobile devices in the banking ecosystem. It says that there are now 5.7 million transactions a day using smart phones and other mobile devices. And, the result is that the demand for day-to-day banking from the local branch is declining. This is backed up in this computer weekly report which suggests that RBS has seen a 30% drop in branch transactions since 2010.
For anyone who watches the trends in mobile and software generally, this is inline with the analysis and doesn’t come as too much of a surprise. But, what is quite startling is the speed of change that is taking place. Back in 2007, a report by Deloitte was focused in the view that the local branch was in the ‘best’ position to create deeper customer relationships and superior service. And, the branch is the key channel to carry forward a new value-enhancing proposition.
I wonder what the advice would be today? I would hope it has more of a Digital First flavour, and a ‘let’s change the way we operate our internal governance to deal with software first and foremost’ message. Followed by a ‘then we work out our high-street strategy will change to support’ angle. The branch is definitely a place where strong and thriving relationships can be strengthened and developed, and there are some segments that will still only use this channel, but the world is changing and so are the customers.
The advice from 2007 seems to come from a view of the past, not the future. When working with executives who are contemplating how they align IT and business strategies, the default position is to consider how to continue running the existing business in the same way and trying to shoehorn new technology on the side. This means sticking with the current rhythms, checkpoints, boards and conversations that have always happened. This is a mistake because the timeframes of innovating in a digital world are much shorter than those of an analogue world. Software is quick to change and allow much faster feedback from customers and users. The alignment of the organisation needs to be tighter, and decisions need to be faster. The analogue world is much slower.
For instance, the economics in retail have been traditionally, tightly related to opening new stores in new areas, redesigning store layout to bring in new merchandise or other value-added services related to loyalty cards and other services. This might happen on a yearly basis. Or, where land acquisition, building and construction is involved, much longer. So, it isn’t really a surprise that a new ‘store’ that happens to be online is just seen as one of many, rather than the new way of doing business. In a well-known UK retailer, the online ‘store’ is now THE BIGGEST store, and it is now outdoing their flagship physical stores. Suddenly, it isn’t a traditional business with some online additional revenue. It is an online business with a physical channel. This story is coming from other retailers too. The Business Editor even stating that “A retailer without a substantial online presence… is on a fast road to obsolescence.” Amazon has led the way in changing customers buying habits.
What all this suggests is that there are new ways of developing, growing and attracting new relationships in a digital medium that customers are very happy and comfortable with. In some cases, they even prefer it. And there are definitely new business models to be discovered. Some will be digital only, some will be a hybrid. Few will be purely analogue.
To really succeed, executives and board attention has to be given to the future relationship customers will have with the brands that serve their needs through a little gadget that fits in the palm of their hands (or maybe soon, something they wear). Those services and relationships will be available 24*7. That’s where the future of their business will be, and it has to be front and centre. Technology is the business strategy. The delivery models and operations of the company should reflect that. Atom Bank will certainly be focused. That is all they have to be focused on.