Rewiring for Digital Banking Transformation Success

Jim Marous (00:13):

Hello and welcome to Banking Transformed the top podcast and retail banking. I'm your host, Jim Marous, owner and CEO of the Digital Bank Report and co-publisher of the Financial Brand. Many financial institutions are stuck with digital transformations that are not moving the needle. In the new book, Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI, the authors found that long-term success comes when leaders embrace change around their talent, operating model, technology and data capabilities. What can the banking industry learn from this detailed how-to book? How can financial institutions of all sizes create great customer experiences, lower costs and build value through digital transformation? We are very fortunate to have Eric Lamarre, senior partner for McKinsey and Company and one of the authors of the book, rewired on the show today.

(01:10)
He shares some of the key findings of the book and what banks must do to become more future ready. When it comes to digital transformation, there are no quick fixes and the process is never really completely finished. But there are successes in the marketplace that financial institutions of all sizes can benefit from. In fact, there's even a playbook for improving the impact of digital transformation. Eric, welcome to the show. Could you introduce yourself, give our audience a little background as to what your background is and also a little bit about the reason for authoring the book Rewired?

Eric Lamarre (01:48):

Awesome. Jim, thank you for having me. I've been with the firm for 29 years. I'm a Canadian by background. I'm based in Boston, and I lead McKinsey Digital in North America, which is essentially the umbrella unit for everything technology inside McKinsey. And I've had the great pleasure of serving a number of financial institutions, including banks over the last 20 years of my career. And as part of that work, of course, digital and AI is front and center.

Jim Marous (02:26):

What makes this... Even though I know because I've opened it and figured it out, what makes this book different than others on this topic? And there's so many of them.

Eric Lamarre (02:36):

There are many of them. And that is a question that we asked ourself before even starting to write this book. What is going to be different about this one? And the difference, Jim, is this is a how to book. It's 400 pages, it's a hundred exhibits. It's a detail in how you actually get an organization to become better at taking advantage of digital and AI to serve customer better, to lower unit costs, whatever you want to do with technology. And so what's different is the how to nature of the book. And perhaps if there was a second element, because we have read all of the other 50 books on digital transformations, of course you would expect that at the beginning of our journey in writing this. It is also holistic in the sense that it takes into consideration what we felt were all of the important planks to be successful at this. It is not just about strategy, it is not just about technology. It is about all of the success ingredients to make this a good journey inside any organization.

Jim Marous (04:00):

And it's interesting because I mentioned this before we went on the air, is that even the structure of the book, the order of the sections really resonated because for me it was in the order of importance for building the founda... It's almost like a lesson plan on building a house. You can't start with the roof, you got to start with the foundation. And your book actually does that, where it builds upon each section and really starts to the beginning. There's a great quote in your book that I think will resonate with many in the banking industry. And it's actually a quote to a degree that's been mentioned many times in McKinsey writings. And it's, "A CEO of once said, we can find digital everywhere in our company except on the bottom line." Why is this quote so true? And what is the barrier to actually achieve what organizations want to achieve with digital transformation and actually having the process be successful?

Eric Lamarre (04:53):

Yes. It's unfortunate that that quote is true and resonates with so many, but it also resonates with a lot of the surveys that we do year in year out on the topic of digital transformation in AI. And we asked companies, "Well, do you have one of those on the way?" And 90% of them tell us they do. That's not surprising perhaps. And then we asked them, "How successful have you been at realizing either the revenue benefits that you were hoping for or the productivity benefits that you were hoping for?" And they tell us that they have achieved 30% of what they were hoping to get. And so there's a gap there between expectations and reality. And so to some extent, the challenges by now are getting well understood, at least from our standpoint. There's a few, there's this notion of, are we actually focusing our efforts enough to transform any given area of our bank, any given banking journey with sufficient effort and concentration?

(06:18)
The mistake being often, Jim, that the efforts get spread in the name of everybody ought to try digital and AI, the investments get fragmented and the reverse is what's needed. You need to actually concentrate. You need to say, "What journey am I going to transform here? Is it home equity loan and that entire journey for a customer?" Well, if that is, then concentrate on that or a few, but not on the dozens and dozens of areas at once, otherwise you never break through. And so that is the initial, where are we going to focus is important. And the other one is capability for delivery because you are never actually done. We call it a transformation, but I almost don't like that word because it implies a beginning and an end. There is no end.

Jim Marous (07:17):

Yep.

Eric Lamarre (07:17):

You start to improve and you continue and you continue. And guess what? Competition is also improving. And so now you got to stay ahead of competition. And so what are the core capabilities that you will invest in as a bank to not only start the journey and do the first few miles, but to actually win a marathon? And that requires a dedication to a set of capabilities that are outlined in the book that are often we, perhaps there's a hope that all of this may not be needed. Maybe we can do a quick win and be done, but that's not the case. And so for those two reason core capabilities and a focus initially, those tend to be the biggest fault lines when people go on this journey.

Jim Marous (08:09):

The saying is that don't boil an ocean. And I think because digital transformation is such a broad process, a broad subject, and as you said, organizations think they want to transform their whole organization, but that's not, as you bring up in the book, not usually the best recipe for success, that you need focus. You need a composable solution that you say, "We need to fix this first." But when you're looking at digital banking transformation, I know it differs from institution to institution, where do firms need to start? And maybe it's simply understanding their why.

Eric Lamarre (08:45):

They always have to fall back on strategically, where are they trying to go? Digital and AI is not a strategy. Digital and AI enable a strategy, augment a strategy, make a strategy better, but that initial strategic direction is actually quite important. I would start with, where are we trying to go as a bank? Where are we going to be delighting our customers? Where are we going to outperform in terms of service or product performance? Where do we think we're going to be able to retain customer over time because we offer them a great experience? And so what is the strategic intent and where the differentiation will come in? And then after that, bring in digital and AI in the areas where technology will make the biggest difference to your strategy. Let me give you an example. Let's assume that we think we can actually be fantastic at home equity loans.

(09:58)
And that is a strategy, we want to expand in home equity loans. Well, it happens that technology can actually make quite a bit of a difference in home equity loans. The way that I pre-underwrite can be infused with data and analytics, so I can have pre-underwriting that's done. The way that I streamline the process so that customers actually go through the journey and do take their home equity loans with me. The way that I do cash fulfillment, which on average in the United States takes 55 days before you get to your cash, which I would argue is way too long for somebody who's considering a home equity loan.

Jim Marous (10:34):

Exactly.

Eric Lamarre (10:34):

How do I reduce that. And so all of these aspects can have technology solutions that dramatically improve the customer experience and will therefore increase the amount of revenues that you make on the back of that product. Strategy's home equity loan, here's where technology is going to make a difference. And there you have your focus.

Jim Marous (10:55):

Well, it's interesting that it's not just about technology either. You bring up in the book, actually throughout the book, the importance of leadership, the importance of other components. Because while technology is very important to, as you mentioned, enable, it's not the only component of digital transformation process. Besides technology, what gets in the way? Is it sometimes leadership not really committing to the process or is there more to it than that?

Eric Lamarre (11:23):

No, so this is a great question and pretty fundamental to the book. The imagery I like to bring to this, Jim, is to put it this way, every bank can get five agile teams to work and develop a piece of AI or technology to do something. And so an agile team, as you know, five to 10 people cross-functional that have a mission to develop a technology oriented product or solution. Everybody can get five working. I can hire my way into this. I can mobilize them in a special project. I-

Eric Lamarre (12:00):

... my way into this. I can mobilize them in a special project. I can cocoon them, I can give them special funding, I can ask my risk management function to shepherd them so that everything is okay. Everybody can get five to work, but five doesn't get you anywhere for a bank, even a mid-size or a large bank. You need 500. And that is the problem. How do I get 500 of these teams to actually run, to get the right talent, to have access to the functionalities that I already have on my technology stack, to have access to data, to have access to the tools that they need to do their job day in, day out, to be able to release code that they have developed into a production environment without having to call IT because now I have 500 people calling IT? I have 500 people calling the data guy.

(12:57)
The concept of Rewired is how do I move from five teams that used to run on a special project basis, if you wish, to now 500 that are infusing every aspect of my organization? They're going into marketing, they're going into product development, they're going into risk management, they're going into fulfillment, they're going into branches, they're going into sales. All of those teams are enabling some technology aspects and the scaling of that is what's difficult, because they all need talent, they all need tools, they all need data. Rewired is that capacity to get 500 teams to innovate. This is what we call the distributed innovation model.

Jim Marous (13:40):

Yeah, it's interesting. The second section of your book actually talks a little bit about this and talks about talent. Talent is a really difficult process right now, because especially when you're a small organization, you probably can't find or afford the talent, but you can't do without the talent. Another challenge that we've seen in our research is that employees intrinsically are frightened by the digital transformation process, because they view it as a risk to their jobs. How do organizations bring their teams, their talent, their current employees on board to believe that they can be part of the digital transformation as opposed to being left behind?

Eric Lamarre (14:24):

There is new talent that needs to be brought for digital transformation. You need data engineers, you need software engineers, you need cloud engineers, you need data scientists. That talent may or may not be inside your four walls and it may or may not be insufficient quantity for the journey that you want to undertake. There may be some recruiting that needs to happen on the outside. There may be some upskilling that needs to happen from the inside for people that are already have a decent foundation in the craft and you're just trying to upskill. And so there's an aspect of the talent equation that says, "Where am I trying to go? What talent do I need? And for that talent that I need, how much can I upscale internally and how much must I get from the outside?" That's closing the expertise equation, if I may.

(15:25)
The other part is, how do I actually bring my employees along so that they feel they are part of the journey? There are many ways that that gets done. First of all, the people who actually lead the technology effort come from the business. They actually don't come from IT. It is the business leaders who decide what will get transformed, and it is also them in their different areas, the head of marketing, the head of branches, the head of contact centers... It is them that say, "That's how we need to transform our business," and it is them that also provide what we call the product owners, those leaders of small teams that guide the development efforts because they know the need. They know the problem to be solved. They may not know how to write code, but they certainly know the problem to be solved, and they can tell you when the problem is getting solved, whether it's being solved effectively or not.

(16:29)
There's a set of the leadership of the business that is really getting brought on board here to show the way, to lead the way. And for employees, they become part of these teams as well. They're subject matter expert. They may know a lot about a contact center operations. They come on the team, they provide that expertise on the team. It's not only technologists on the team. It's people who lead the business, it's people who lead operations, and it's subject matter experts. And then there's the risk folks. In a bank, that's important. The folks that are part of the control function, they also get baked into this model so that they can exert their role effectively with each one of these small agile, cross-functional teams that are developing technology.

(17:15)
Everybody gets brought into the dance to do this. Now, you will say, "Aren't people scared that they're going to lose their jobs?" The pace at which this happens is never overnight. People actually get re-skilled, they get to do other functions, the bank gets to grow. There is, in my experience, very few digital transformations that end up with a disappointed employee base. To the contrary, it becomes a liberating moment, because distributed innovation means just that. Innovation can happen everywhere in the company and everybody can now have the tools, the data to innovate, and that feels liberating.

(18:01)
I'll tell you a story. Some years ago, a bank was starting to do this and there was this employee who, after three months, she was going on retirement. She took the retirement and then she left the small, agile team. She came back the next day. She actually loved the work so much that, even in her post-retirement, she was basically still showing up at work because she wanted to see the work through. It is fun work to be able to innovate and improve a process and feel like you have the tool and the empowerment to do so.

(18:43)
In general, in the large majority of cases, it is freeing up positive energy in the organization. Over time, there will be productivity gains, but it's not like we do a massive layoff tomorrow and 20% of the people are going to go, because frankly, the technology wouldn't even be in place to be able to exert something like this. It'll be exerted over many, many years. The benefits of productivity can be there, but the amazing positive energy from developing technology that solves problem is fantastic.

Jim Marous (19:20):

It's interesting, because while past experiences can sometimes be an anchor if somebody wanted to change, those experiences also give you a jumping off point for digital. You can't do it in a vacuum. One interesting thing is that organizations are... As a rebuilding for digital change, they have to rethink both speed and scale. I'm wondering, is the need for speed and scale an operating model or technology question?

Eric Lamarre (19:50):

Tell me a bit more about what you have in mind on scale. I kind of know where you're going with speed, but tell me a bit more about scale.

Jim Marous (19:56):

The ability to get implementations of technology that allows you to possibly get into the banking as a service or embedded banking that could actually make it so that you're built for the future in the growth of the business.

Eric Lamarre (20:09):

Yes. Okay, very good. I think maybe this gives me an opportunity to tell you a little bit about what we have found in our research with retail banks. We benchmarked 80 retail banks globally and we benchmarked them every year for the past five years. We know about these banks because they offer the information. They want to be benchmarked. We know how many people use their banking app. We know how much of their sales are online. We know how many people they have in their contact center. We know how many branches they have. We know how many people are in their branches. They give us all of that. And we, of course, know about their financial performance because that's public information. We combine this data set, we take these 80 banks, we take the top 20 digital leaders, and the bottom 20 digital laggards, and we follow them over time year after year.

(21:13)
What we are seeing is that the digital leaders are clearly pulling away from financial performance on every single dimension that you can imagine: total return to shareholders, growth, customer growth, cost containment. They are pulling away. Why? Because they have actually been able to embed technology in their different areas of the bank. It's not just a sidecar that's developing a front-end app for the customers; it's actually embedded in how they do credit decisioning, how they do digital marketing, how to do back office fulfillment, how to do sales. It's embedded in all aspects of the technology.

(21:58)
Now, just to answer your point more directly on speed and scale, the faster you move, the more innovation, the better the customer experience, the lower the unit cost, and then you can really start to distance yourself versus others that are coming from the back. What we're finding in the research is, if you've been a leader, you're not going to fall back to a laggards in any given time. If you're a laggard, it's going to take a long time to become a leader. There's persistency to this, and the persistency is established because they've taken some speed. They got to the head of the pack and they're doing it more broadly in their organization. So speed and scale of diffusion across the company, across the bank is actually creating a persistent advantage.

Jim Marous (22:48):

We're going to get back into the banking industry and actually specific example that you have in your book, but let's take a short break and recognize the sponsor of this podcast.

(22:59)
Welcome back to Banking Transformed. Today, I'm joined by Eric Lamarre, senior partner at McKinsey and Company. We've been discussing this new book, Rewired: The McKinsey Guide to Outcompeting in the Age of Digital and AI.

(23:13)
Eric, beyond writing a textbook for digital transformation, you and your co-authors shared a number of case studies in the book. One of the case studies that obviously caught my attention was how DBS emulated top tech companies to improve customer experience and make banking effortless. Can you elaborate a little bit on the DBS digital transformation journey and what made them worthy of being a case study in your book?

Eric Lamarre (23:40):

Absolutely. It's a fantastic case and it's a fantastic read, because it's not something that started last year that gets written about. I mean, it's a decade-long journey for DBS. DBS, to their own admission, was not predestined to be a great bank.

Eric Lamarre (24:00):

Not predestined to be a great bank you would write about. They would say we were an average bank, with all the problems that an average bank would have. But they had a CEO with a big ambition. And I remember vividly when they tell the story, when they embark on the journey, they went and they visited all the tech companies. And they got back and they said, " We learned from Google and we learned from Apple and we learned from LinkedIn and we learned from Netflix, and we said, we're going to be like the tech majors but in banking."

(24:46)
And they had this acronym called GANDALF. And all of the letters in GANDALF are one of the big tech companies, except for D. D was going to be DBS, and DBS was going to be operating just like a tech company. And so, they took the time to formulate a vision for how they were going to run the bank in the future.

(25:09)
And then they said, "Okay, let's go and attack some of the key journeys that are a pain point and start to exert our muscle." And then they went after the talent and started to hire the talent. And then they went after the technology stack and they moved to the cloud and they moved to automated release with CICD, pipeline to be a little technical. They changed their operating model. They created 30 of these product and platforms structure that really embed all of these cause for innovation.

(25:39)
They did big surgery on themself, is what I mean. And it didn't happen overnight, but it started to pay off. They were fantastic. I remember vividly in their, I think it was 2017 or '18 investor presentation, and that's probably still online, they were showing the economics of a traditional customer and the economics of a digital customer. And they showed, obviously, that the economics of the digital customer was that much more favorable. And the name of the game was to basically try to get as many of the traditional customer to become digital customer. Cost to serve is lower, retention was higher, product per customers was higher, revenue per customer was higher. That made for fantastic economics of the digital channel.

(26:29)
Clarity of how value was going to get created, clarity of the journeys that they needed to improve to actually get the customer to shift to a digital channel, the muscle being built. And then they went after this and they became the best digital bank on the planet. They had a fantastic return, fantastic growth. Five years in a row, they became best digital bank. And so, that is a fantastic story, but one that is not ... I mean, the messages for me is it's not overnight.

Jim Marous (27:03):

Yeah. What's interesting about their story too is they really continued to stay focused on the consumer. But how did the DBS leadership build the foundation for keeping that focus? Because really, that allowed them to expand to new markets and all because they actually were generating such great results. But how did the leadership of DBS actually build the mentality and the foundation to keep focused on the consumer?

Eric Lamarre (27:30):

Early on, they had this vision of making banking joyful. It sounds simple enough. But frankly, for all of us that are ...

Jim Marous (27:41):

Pretty aspirational.

Eric Lamarre (27:42):

Yeah. Banking users, how do we make banking joyful? And right from the top, they said, "We're going to reinvent our different customer journeys with that lens, and we're going to keep a high bar for what that's going to be, when the experience is going to be joyful. We're going to track the promoter score at each part of the journey. We're going to see when we actually do it better than competition, and we're going to measure that as well."

(28:14)
A lot of this is about a culture of measurement: measurement of performance. And it's never big steps; it's always small incremental steps that get made day in, day out. Over a month, it doesn't make a difference. Over a year, it starts. Over five years, a game changer. And so, it's all these small improvements. A vision, small improvement, measurement and a machinery, in terms of talent, in terms of technology stack, in terms of data architecture that allows distributed innovation across the bank. And then they did a lot of change management, a lot of hackathons, a lot of very slow training for their entire employee base. Not just the ones that were more directly impacted by the transformation, but all 30,000 employees went through that.

(29:06)
And they sustained it. Sometimes companies don't sustain. They start something and after a year or two, they let it go. It wasn't rosy all the time. And so, they sustained it and gave the result that are written about in the book, but in many other places, obviously, it's a well-known celebrated case.

Jim Marous (29:26):

Well, it's interesting too, because not just at DBS, but your whole book reemphasized the fact that for the transformation process, there's really not a resting place. And DBS is a great example that being a leader in the digital banking evolution was not thought to be a resting place. In fact, you talked about the hackathons and all of the things they did. DBS actually sees themselves, ongoingly, as a startup. How has DBS made sure they're continuing to unlock the sources of value and the innovation spirit to deliver on their promise?

Eric Lamarre (30:02):

Yes. I think a lot of this is baked into the operating model of the bank. At some point, when this digital and AI magic is going to start to have impact, you're going to need to change how you operate the bank. In the language of the book, we call it a product and platform operating model. So product, or journeys. I think it'd be more appropriate in the banking world to call it journeys and platform.

(30:35)
Journeys are exactly what they are. So, the way that you onboard a customer, that's a journey. The way that you secure a home equity loan, that's a journey. The way that you get a credit card, that's a journey. The way that you get servicing in the contact center, that's a journey. Journeys have squads, pods, whose job is to improve that journey, day in, day out. They may have five, they may have 15, they may have 50. But that journey has capabilities and resources to innovate, day in and day out, like a startup would. A startup would have 10 pods, 20 pods, 30 pods. A journey owner, somebody who owns onboarding, or somebody who owns servicing, has pods that he or she can use to innovate and improve like a CEO at a startup could.

(31:32)
And so, to some extent, the journey areas are mini-companies, mini-startups, I'm sorry, that are innovating the customer experience, reducing unit costs. And the platforms, to complete the picture, the platform avoid reinventing the wheel. For example, a customer 360 data set where I have information about the customer, you could imagine every journey is going to need a piece of that. I don't need to do it in every journey; I'm going to do it once in a platform, and then the journeys can basically all consume that capability.

(32:10)
And so the platforms help build the stuff that will get consumed frequently by the journeys. And it's the combination of the journey model, which is a federation of startups if you wish, and the platform which allow the scale of the bank to come together, which is harder to do for a startup and where the competitive advantage starts to come in from scale. That's the magic of the model.

Jim Marous (32:36):

It's interesting, because we talk about WeBank on this podcast quite a bit. We've talked about location, we've talked about other organizations whose leaders have really set the foundation, that say, "We are going to truly become a tech fin as opposed to a FinTech."

Eric Lamarre (32:51):

Yes.

Jim Marous (32:51):

We're going to really drive by technology, but it's really about ... Really, we take it for granted, but it's so much about the culture and the leadership that makes it. This is the way we do business. Now, as you mentioned, that transformation to get to that spot takes a long time. It takes a lot of focus, takes a lot of dedication. It takes some money or collaborations to be able to do it at scale and in a way that really completely changes the business model.

(33:20)
But as you said in your analysis of financial institutions, falling back and not doing well takes time; going forward also takes time. But when you have the focus of the culture, the innovation spirit, the ability to make change incrementally on a continuous basis, it really does keep the organization fresh. And I think that's what I see as being something unique about DBS, is that they've never really lost the focus on what they wanted to achieve. They never rested on their laurels. It's something that I see, what I believe in IBM and Microsoft, the ability to continually evolve in an agile way that says, "We're going to change the marketplace."

(34:03)
As we talk about changing the marketplace, obviously the digital transformation journey changes based on outside influences that impact entire industries, maybe the entire world. Obviously, there's technology that have been introduced in the last eight months, in the form of generative AI, that really could have a significant impact on the future of digital banking and customer experiences. How do you see that fitting in to the entire environment of digital transformation?

Eric Lamarre (34:33):

Yeah, fantastic. Well, so gen AI. Oh, my God.

Jim Marous (34:39):

Where do we start?

Eric Lamarre (34:41):

Where do we start, and also, I like to joke that, if you're in professional services like me and you don't talk about gen AI, you're out of business.

Jim Marous (34:52):

Actually, in the first sentence. In the presentation, you've got to bring that up sooner than later.

Eric Lamarre (34:58):

Exactly, exactly. You've got to. So, we came in last week with a really great report by the McKinsey Global Institute on the economic potential of gen AI. And we revisited some old work of ours from five years ago where we had done the economic potential of AI. And this was detailed work, Jim, where we took hundreds of use cases and figured out, by industry, what was going to be the economic potential of each of these use cases.

(35:36)
And now we revisited it and said, "How does that potential change with gen AI?" And the conclusion goes something like this. I'm not going to get the number exactly precise, but it goes something like this. If the potential was 100 before, five years ago, the potential of AI was 100, today it would be 20% to 30% higher with gen AI. You're going to say, "Ah, maybe I was expect ..."

Eric Lamarre (36:00):

... GenAI. You're going to say, "Ah, maybe I was expecting more. Maybe I was expecting less." I think there are two things in what I just gave you with 20 to 30%, and that is true in banking as well, by the way, when you just do the banking segmentation. You say, "Well, I got to make sure I don't lose sight of the full potential of AI in the first place." And there's a tendency here to say, "Oh, look at the shiny object is GenAI now," and I lose sight of the hundred and I'm starting to change the 20 to 30. And for a bank, there is a lot in the hundred. How you do credit decisioning, that's going to be driven by analytical AI, what I call old AI or traditional AI. Whatever label you want to put on it.

(36:51)
A lot of the personalization that I do when somebody shows up on my website and I decide to present that product versus that product for a bank, a lot of that is traditional AI driven as well. But there will be other possibilities. How do I do a marketing campaign? How do I test marketing campaigns? How do I develop marketing campaigns online? Now, GenAI opens up a whole new game because I can do 10 times more testing and creation of marketing campaigns because that's what GenAI is good at. It's good at creating images, creating content. And so I think it'll be-

Jim Marous (37:30):

And learning from interactions, which is really what is interesting when you can apply that and say, "Each interaction can build on its own a special journey that's very personalized," which is the exciting component of this that we've never been able to really do it at the scale that we're talking about here.

Eric Lamarre (37:48):

Agree. So I would say, let's not lose sight of the hundred. Let's figure out that 20 to 30%. Where exactly is it going to make a difference? Is it going to be in my contact center? Is it going to be in my marketing area? And the third thing I would say about GenAI is not all GenAIs are the same. And so I'm going to just frame it into three buckets. Bucket number one is GenAI, the label we've put on at McKinsey is called takers, which is what you and I and everybody else are going to use in our day-to-day job. So we are going to use chatGPT. If we're software developers, we're going to use GitHub Copilot or some other copilot technology. We're not going to develop it. We're going to be users of it. Everybody will be users of it. That's great. Everybody gets productivity lift, but it's not competitively differentiating because everybody's got it.

(38:50)
The middle bucket is what I would call shapers. So shapers is I'm now going to develop a GenAI specific application that will differentiate my performance. Example, contact center. When you and I call the contact center to get help for banking, how do I get contact center to get a better answer, a more precise answer, a more empathetic answer to the customer that's coming with the question? Contact centers will be dramatically improved, but that will require embedding of your data inside the GenAI application. And so now you have more data engineering work to do. You have more fine-tuning of large language model to do to be able to actually deliver on a shaper application. That's more work. That feels frankly a bit more like old AI, quite a bit of work to actually get an outcome. The outcome will be differentiating.

(39:51)
And the last category, just to be complete. We call it maker, which is you have a belief that if you actually make a brand new large language model, you can have a breakthrough in fields where you weren't able to have breakthroughs before. R&D, engineering would be some of those. I'm not sure that very many companies will be ready to go there, the investment will be too big, but some will venture in that space. But I think for a bank, adopt quickly what can be adopted as a taker and focus where you're going to make a difference in the shaper middle category where it's worth actually investing some of your resources to create a competitive differentiation.

Jim Marous (40:33):

It's interesting, you may have already given that answer in that last sentence, but what advice would you give financial institutions? What one piece of advice would you give financial institutions that right now feel like they're stalled or not meeting expectations on their digital transformation journey? Where should they look? Maybe do that mirror look, and look at themselves. What do they have to look at to move the needle?

Eric Lamarre (40:58):

Jim, I would do exactly what you've just mentioned. If I were the CEO or a member of a c-suite of one of those organizations that's feeling a little bit too much in a laggard category, I would get the top team around the table and I would say, "Let's just call time out for a couple of months and let's go check where we really are." In banking, it's relatively easy to benchmark your positioning. "Where are we from a customer experience? Where are we from a unit cost standpoint? Where are we from an innovation standpoint?"

(41:35)
And look at that and then decide, "Is this journey going well or is this journey really not? And then what interventions are we going to need to have?" And it's likely that the interventions are going to be around, "Where should we focus our efforts? And did we actually commit to build the capabilities that will differentiate us going forward?" And there's probably going to be some shortcomings around those areas for sure. But it's time to take stock because this is a multi period chess game, and if you wait for too many periods to play out, you will lose. And I would-

Jim Marous (42:15):

You fall farther behind. Yep.

Eric Lamarre (42:17):

Yes. And I would go out to say the game is starting to be played out in retail banking. If you're feeling behind, it is really, really time to make that the number one priority and invest there. The game is starting to be played out.

Jim Marous (42:35):

Eric, thank you so much for being on the show today. I don't get any rebates or any fees from this, but I'm going to tell everyone, if you're looking for a textbook on how to build a better transformation journey, if you're looking for a learning manual as to what do you have to do today, please pick up the book, Rewired. I'm extraordinarily excited about. When I started reading it, it was very interesting how rather than being theoretical or traditionally just based on what it does and what it means, this is a tactical book.

(43:07)
This gives you lesson plans on how to improve. You can pick anywhere in the book to start. You can say, "You know what? Our real problem is in the technology sector." Go to that section first. "Our problem is in the talent sector." Go to that first. But make sure you take it. I was telling Eric before we started that this is one of those books that I used to put in the back of my shelf and say, "I want to have it at my fingertips all the time to reference when I'm stumbling." It's a great book. It's worth the read. It's worth the purchase, I believe it just went live on Amazon, so it's available everywhere. But Eric, again, thank you so much to you and your co-authors in developing this book and for being on the show today.

Eric Lamarre (43:50):

Jim, thank you for having me, and thank you for the nice words you just said. If the book can be helpful to management teams that are on this journey, then it will have accomplished what Rodney, Kate, and I were hoping to.

Jim Marous (44:03):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. We appreciate the support we've received since we started this endeavor almost three years ago. If you enjoy what we're doing, please take some time to give a positive review on your favorite podcast app. Finally, be sure to catch my recent articles on the financial brand and the research we're doing for the digital bank report. This has been a production of Evergreen Podcast. A special thank you to our Senior Producer Leah Haslage, Audio Engineer Chris [inaudible 00:44:36] , and Video Producer Will Pritts. I'm your host, Jim Marous. Remember to compete with startups, legacy financial organizations must have a startup mentality.