Success rates tend to be low for Australian financial organizations undertaking transformational projects. While it’s difficult to measure exactly what constitutes “success,” few ultimately achieve the ideal outcome and reach their goals, Oliver Wyman’s report says.
The financial sector in Australia (and around the world) is evolving rapidly and organizations need to keep pace with innovation, cost efficiency and resilience. With increasing stakeholder pressures, organizations often need to embark on major business, technology and risk-focused transformation programs.
However, financial institutions undergoing major transformations face challenging conditions. And the risks must be taken seriously: More than 40% of failed transformations have serious financial, operational and reputational impacts.
A survey of Australian business leaders by Oliver Wyman found that most failed transformations are caused by ineffective management, lack of commitment and poor stakeholder engagement.
The impact of a failed transformation can be severe, as it involves large investments and drains resources from normal business activities. Most failed transformations result in significant financial losses and employee turnover.
The report shows that approximately 60% of businesses pursuing transformation will experience cost overruns. Financial hits that organizations suffer include sunk capital in failed projects and labor costs.
With so much money and energy invested in transformation, businesses often find that their normal revenue-generating activities suffer significantly. These operational outages can be a serious problem if the transformation process drags on longer than expected or fails to meet set goals.
Another significant consequence of a failed transformation is the potential damage to the reputation of the company and executives. This can end up taking a big toll on the trust of stakeholders such as the organization’s board of directors. The report showed that 45% of failed transformations lead to executive departure.
“Transformation is critical to the ongoing success of an organization,” said Simon Pelletier, Partner at Oliver Wyman and Head of Financial Services.
“However, the serious implications of failed attempts raise an important question: How can transformation programs be structured to increase the likelihood of success and optimize the value they bring to the organization?”
The answer to this question is, admittedly, very complicated. But in a nutshell: Transformations must be driven by business plans (not technological innovations alone) and must be comprehensive, involving business, technical and management teams.
“Organizations need a values-based approach to transformation. This requires the company to be the primary owner of the transformation programs, enabling central oversight of economic value, greater program agility and continuous feedback loops to optimize delivery,” concluded Pelletier.