Stop Calling it Digital Transformation

Mitch Woods: Welcome to Baker Hill’s podcast, Lending Made Easy the show where we demystify the world of commercial lending and bring you up to speed on everything you need to know to make lending easy. I'm your host, Mitch, and I'm here to help you navigate the complex world of lending and finance, whether you're a seasoned banking professional or new to the industry, this podcast will provide you with valuable insights and information that will help you succeed.

So join us as we explore the exciting world of banking, grab your coffee, close your spreadsheets, and get started. And let's dive into today's episode of Lending Made Easy.

Welcome to today's episode of Lending Made Easy. Today we're going to talk about a topic that is really popular these days, the idea of digital transformation. And got Bryan Peckinpaugh here with me. And I think today we really want to challenge this idea of digital transformation and really talk about digital evolution.

You know, Capgemini really coined the phrase digital transformation back in 2011. So we're thinking 13 years back is when this term digital evolution or digital transformation rather was really introduced in the marketplace. And what does that really mean? When I think about transformation, I think about something where you're making changes and you have an endpoint versus the idea of evolution, where we're looking at constant change.

And so today we want to tackle this topic and just talk a little bit about what that means for banks and credit unions today. Digital transformation is a hot topic in the banking industry. And it means different things to different people. So Bryan, I guess I'll start with a question to you. Like, where do you see digital transformation in this idea of constant change really kind of intersecting in the banking industry today?

Bryan Peckinpaugh: It's been interesting, Mitch, you mentioned Capgemini, but in my time when working with all kinds of consultants, right, they get in and they do what they call target operating model work, where they look at what your current state is, and they build you a vision of a future state. With this intention of kind of making that change one time, putting in the software one time, and trying to get to that target operating model in one fell swoop.

And I've seen it bite more banks than I can count because it's hard. It's a lot. And because I've got this end state in mind. I think I need to be perfect before I am done. Right? And it perfect gets in the way of good enough. And looking at that constant evolution, how it's great to have a vision of a target out state, but the, how I get there needs to be that evolution.

It's like, how can I stairstep my way? How can I move to coin Ashley Garrison's term here at Baker Hill up into the right always? And, and just use that as my guide, not here's when I know I'm done. I even liken it to what we're doing right now internally at Baker Hill, where we've kind of identified this need for financial analysis in the market.

And rather than talking about when is it finished, we're attacking it from the perspective of we will have a scrum team forever dedicated to financial analysis because it is critical to continue evolving it as the market needs evolve and change. So we're kind of trying to drink our own champagne from that perspective and think about evolution and not transformation to get away from here's the end state where I know I'm done.

As opposed to thinking about here are the incremental value based changes I can continue to make, and those compound on each other over time. 

Mitch Woods: I think something that comes to mind to me at least is really the idea of digital evolution is even more future-focused and forward-thinking than this idea of digital transformation.

I think for so long, we've thought about digital transformation as the future, but really by the time we get those changes implemented, right, it's already time to start a new project. And so this idea of like this Japanese concept of Kaizen, right? The continuous improvement really is being very future-oriented and future-focused in what we're doing.

We were just talking about this before recording, but I also think about this kind of like buying a house, right? The idea of digital evolution is like buying a fixer upper, living in it. Taking time over that so many years to remodel the kitchen, redo the bathroom, throw some new paint on the walls, right?

Maybe you knock down a wall and add a room, but you do that over time, right? Versus the idea of flipping a house, you know, you buy it, you do all this work really quickly. And then you sell it with a really kind of strict end date there in mind. And so I think when I see that, right, when I think about it that way, with digital transformation, there's a lot of room to make some mistakes and really it's a lot of work and a lot of effort put in a short period of time.

So there's a big investment involved in that. I think that takes a toll on a team. So I guess next question for you, like, I know you kind of hinted to it a little bit, but when you think about digital transformation, these projects that you've seen that have bid some financial institutions. So what did you see as the downfall there?

Was it change management? Was it poor planning? What was the Achilles heel? 

Bryan Peckinpaugh: More often than not, it's the change management aspect of things. You know, that's the part that just tends to get overlooked when you bring technology to bear in particular and move people's cheese, they don't necessarily like to play nice in those scenarios.

So that's definitely a big part of it. The other one that I think about. You know, I was actually just on a discovery call earlier today where this hit home, where I asked the question of this financial institution, Hey, let's, let's fast forward two years. We're done with the product. You've picked Baker Hill cause we're awesome. You're done with the project you're running the next-gen application, how do you know you were successful? What does good look like? And we were on a Zoom call and they all had this blank stare going back at me. And I think that's a big part of the problem, right? We get into these realms of digital transformation or evaluating software, and we don't know why.

Maybe it's the folks down the street do, or I’ve seen some fun demonstrations, right? without a guiding principle of what does good look like, how do you know you're done? How do you know that we got what we thought we were getting? And when I poked and prodded him a little bit, it was, you know, it was kind of buzzwordy.

It was speed. It was efficiency. It was, well, that's all well and good, but what are you expecting to change, right? And how are you going to manage that? How do you know what it is today? If I'm running a 70-day, loan cycle today, just saying, I want it to be faster. Does me no good. Okay. I get it to 65 days. That's faster. But did that matter if I get it to 15 days? That's the other end of ridiculous where I'm making decisions. I'm getting things out the door faster than it can be consumed by the borrower. Right. The borrower is going to need more time to line up whatever they're doing that they need the money for.

So it's defining what are we trying to solve, right? What is our answer here? Is it, who do I want to be as part of this? What do I want the outcome to be? How do I measure that? How do I report against it? And how do I make sure everybody is aware and on board, right? That'll help. I'll always help with the change management aspect where you're, you know, If you can tell your people, look, we have to get to 45-day turn times for this reason, right?

A better borrower experience, more deals, what have you. We need to be more effective because we plan to grow and we can't afford the staff to the level we would need to support the growth or, Hey, it's a challenging talent market. It's hard to find people. So if I grow, I might not be able to get the people and need the technology, but it's all, you know, all about what is it we're marching towards? What are we tracking and how are you, how do we know we're doing well? 

Mitch Woods: What you're saying really resonates, right? It reminds me of a little bit of a different, maybe a different vein, but the Simon Sinek book Start With Why, right?

Like everything you should start with why. And if you can't define that, then, then you do need to take that step back, and you have to understand, really understand what is my end result. I'll use your words, what is good look like, because again, with change management, that's a big part of it, is it's that communication it's helping other people understand the why behind the change and leading them and bringing them along on that journey too.

So I think that's really powerful. And maybe that's something that somebody could take away that's out there, right? That maybe is in the middle of some kind of digital project at their bank or their credit union. That's maybe going a little bit sideways. That's a great way to be able to course correct is just really take that step back and say, why are we doing this?

And taking that a step further ask that why four or five times, right? So why am I doing this? Well, maybe it's to get loan times faster. Well, why do we want to get loan times faster? Well, because it's going to give a better borrower experience. Why do we want a better borrower experience? It's iterative, right?

You have to keep going and asking that question until you get to a really root understanding of that cause of why are we doing this in the first place? I think that's where we fall down a lot, right? You said it, you see a flashy demo at a trade show and you get excited, but then it really is about understanding a strong reason of why. So I think that's a great call out there, Bryan. 

Bryan Peckinpaugh: It's a reason why a lot of institutions have software that's sitting on a shelf. I don't know if you ever heard the term shelfware, Mitch, but it would get bandied about a lot. And as part of why organizations do the level of due diligence, due diligence that they do is there's been far too many times where they bought stuff to buy stuff.

And then it just sat, it all gets back to knowing why you're doing it, what the incremental value to the organization will be, and how you measure it, right? That guarantees the use and adoption of the platforms. 

Mitch Woods: Absolutely. I think that speaks really well to this idea of a digital evolution, right?

It's always evaluating. It's always looking at ways that all of these processes could be better. You know, technology helps that technology is a great uniter. It brings together your people, your processes, and it really creates this environment where things can be better. Even that 1 percent course correction today lands you in a completely different destination 10 years from now, right?

And so it's all those little 1 percent course corrections over time that end up making a huge difference and the end result. So I think that's a great takeaway for me, right? Is this idea that technology really does empower that, but it does come back down to the people. You have to empower people. You have to explain to people why we're making these changes. And to do that, you really have to understand the why yourself as a leader. 

So Bryan, thanks for sharing some insights today. I think this is a great topic and I think a lot of people will have some takeaways here and some things that they can probably use today, right? Because most people are going through some sort of digital project. And I think just taking that step back and really understanding the why behind it, is a great takeaway for anyone. 

So thanks for sharing your insights and just want to say thanks to everyone out there for listening to today's episode of Lending Made Easy.