Digital Transformation Series – Part 1

June 8, 2020

Part 1 – Why cartography is important in digital transformation and how to approach it

In recent years there has been much focus on becoming more “digitally enabled” or “running a digital business”. The concept of digital transformation is not new, but it has gained significant traction and has become more mainstream across multiple industries as part of the “Industry 4.0” revolution, and even governments have decided to go digital to provide seamless services so that they can interact with their citizens in new innovative ways.

Digital transformation and disruption of digital transformation within financial services and capital markets are well known. A recent study from Oxford economic outlined that over 90% of CTO and CIOS within capital markets have a long-term plan for technology innovation and use of digital within their business models. It is also outlined that over 80% of the participants expect that the majority of business-to-business transactions will take place on block-chain or other relevant technologies. It is also a very well-known fact that the majority of Capital Market participants are under tremendous pressure since the 2008 recession to reduce Total Cost of Ownership (TCO) of current technology estate to provide cheaper, faster and efficient services. This has led to significant investments within the financial services sector within recent years to develop capabilities in Artificial Intelligence, Cloud Computing and other disruptive digital technologies.

From our experience at First Derivatives in supporting our clients globally with their transformation programs, we have witnessed many different interpretations of “digital” and becoming “digitally enabled”. The differences are not just between organizations, indeed very often they vary from person to person. At First Derivatives we define true Digital Transformation as going far beyond a standard technology change project. Digital Transformation removes the gap between the Business and the IT department, changing how a business operates by embedding disruptive technology at the core and forefront of the business.
Executing this transformation changes a business entirely and in doing so creates an increased demand for technology professionals with an understanding of the most efficient, lean delivery methodologies, who are also well versed in the latest disruptive technologies and at the same time have a deep understanding of the business domain they’re working in.

Like with any transformation programme, there is an inherit risk of the programme not delivering the results as expected and therefore it may end up doing more harm than good. So, it begs the billion-dollar question; how can you safely and efficiently deliver digital transformation programme aligned with its business expectations and ensure that it doesn’t fail?

 

Why cartography is important

As in any complex transformation and change programme delivery, we first need to form an accurate and comprehensive understanding of what is currently there to establish a solid starting point. This approach makes me recall some very interesting insights from Sun Tzu’s famous book of “Art of War”. In chapter 8, “Variation in Tactics”, he counsels that you have to be adaptable and willing to accept that change is good and just because you have done something in one way doesn’t mean that you have to continue doing it that way. He then goes on to advise in chapter 10, “The Terrain”; in order to achieve the desired outcome, you must know your surroundings so that you can adapt as you move forward.

In other words, both chapters advise that if you want to ensure success you need to understand the playing field which you operate on and when you do, you can then devise the appropriate strategies to ensure you overcome issues and achieve the outcome which you desire. Throughout your transformation strategy you have to be adaptable to changing circumstances but never lose sight on the end goal.

Although the book was written many centuries ago, its lessons are still valid and can be easily transferred to our current day technology and change programmes. More specifically, in our experience in implementing complex transformational changes with clients, we repeatedly observe that either not knowing or not clearly articulating the day-to-day operational processes, controls and data points is one of the main causes of issues and delays. In many cases, it can be the crucial difference between whether a transformational process succeeds or fails.

 

How to approach your cartography mission

At First Derivatives, we counsel that when you embark on your digital transformation journey you achieve the desired benefits and efficiency only when multiple departments (including people, processes, controls and tools) are aligned within the organization. The complexity of navigating around operational controls and multiple data touch points cannot be underestimated, but such alignment over time creates harmonization.

Disruptive thinking requires thinking out of the box and as part of your digital transformation journey and foresight in making investments with long term yields in mind with the aid of technology. Technology is not a commodity that you simply select and implement. In order to choose the right technology to support your overall goal you must be definitive in specifying your requirements, processes, controls and business rules so that the technology of your choice can support you. Therefore, knowing your operations and the clearly defined roles and responsibilities of your systems, controls, people and operational culture are crucial to your success. After all you can only make good choices if you have all the facts in your hand.

Transformation at its best is applied as an end-to-end change. For example, in trade management the process usually goes from front to middle to back office. You could be digitally transforming your front office operations but if you want to get the most value you should look at both middle and back at the same time. However, depending on your circumstances, you may wish to limit the changes to department or business functions. In this case it is very important to ensure that the appropriate level of process analysis and change definition is applied and delivered by right personnel.

The hierarchy model outlined below shows the different process levels involved in executing a digital transformation programme. Over the years of supporting our diverse footprint of our global clients in capital markets sector, our transformation practice has observed and mapped out how the path to digital transformation ranges from the holistic to the very granular.

hierarchy-model-diagram

We believe that a key consideration when analyzing, defining and optimizing your business processes is to have an end-to-end view of the capabilities and functions. By focusing on the value proposition and efficiency as well integration of these functions across the landscape, appropriate levels of control can be applied to ensure that execution is in alignment with acceptable risk tolerances. This is important because, not only does it provide an accurate baseline on what you currently have, but also helps you to work on your digital products definition for which you need appropriate data and information to make informed choices.

 

Execution and mapping the terrain

Mapping your business process should always deliver value for your organization. To align with your digital operating and digital business strategy, you should always ask the following questions:

  • Why do we have this process? Is it there to improve the value or is it there to ensure control?
  • Who are the parties involved in the process? What activities do they perform and what value do they bring?
  • What are the interactions between actors and what are the hand over points?
  • What controls are applied and are they relevant and at the right point in the process?
  • What are the data sources and data generation points within the process? How is data changed, stored and maintained by these processes?
  • How much of this process can run stand alone? Are there activity overlaps with other processes?

Asking the right questions at the right time will help you to gather a broad range of views and form an accurate perspective. In turn, it will help you will identify and focus on the most important areas to address.

It is important to note that you may see a lot of overlaps in your processes and issues across your operations. Though they may be difficult to identify these are areas you should address early in your digital transformation as overlaps within your processes are the points where you could consider the introduction of your microservices architecture (another post on this topic will come later).

Process transparency and clear articulation of the processes are key success factors in going digital. The more you share and adopt use of common and shared micro activities within your organization the more efficient your operations will become. This will enable you to try new process optimization models and offer different perspectives to validate your value proposition and value of your services.

It is about creating a mass movement and, as outlined in Sun Tzu’s book, having a clear view for the overall goal, knowing your surroundings and adapting to change as you move forward is the optimum approach for a successful outcome. If everyone knows the path you are taking to success, more will follow and therefore you will have momentum towards organization-wide digitalization and ultimately, digital transformation.

 

In the next chapters of this multipart blog series, we will focus on:

  • Definition and delivery of appropriate technology architecture to support your digital business
  • Cloud technologies to unleash its power and fuel your digital transformation
  • Artificial Intelligence and Machine Learning capabilities within your origination in an efficient manner

 


Erdem Gezer
Managing Consultant
First Derivatives – CMC Technology – London

About the author

Erdem Gezer is a senior technology delivery and change manager within First Derivatives Global Delivery network. Erdem focuses in efficient and high-performance delivery of complex trading platforms, digital transformation delivery using emerging technologies and Enterprise Architecture Design.