Digital Transformation: Who Is in the Driver's Seat?
One of the greatest shifts in the financial inclusion industry over the past two decades has been the move to digital. A rapidly growing number of financial service providers (FSPs), along with mobile network operators and fintech start-ups, have been aggressively piloting innovative models and products for digital solutions in financial services provision, striving to “crack the nut” of financial inclusion for all.
Incorporating digital solutions requires a complete organizational change, known as digital transformation. This process should be motivated by a clear understanding of the FSP’s market (current and potential) and its internal capacity, and it should be driven by the organization’s leadership, represented by the CEO or Managing Director.
Unfortunately, too often, financial service providers (especially small and medium-sized microfinance institutions) engage in the adoption of a digital finance solution without a due vetting of its rationale and its process. Many MFIs get caught up with the “HOW” to the detriment of the “WHY,” focusing on the technological solution instead of challenging themselves about the reason for engaging in this process and what the organization is seeking to achieve. Some organizations even decide to undertake a digital transformation journey under the pressure of a fintech aggressively promoting a technology solution, or opportunistically as part of a donor-funded project. Such situations leave little to no room for the organization’s leadership to devise a clear and adapted digital transformation strategy for the organization, not to mention drive it.
Based on my experience working with different MFIs during their digital transformation processes, I share below three areas in which a leader’s role is key.
Setting the vision and laying out key steps for the digital transformation
To get started on this journey, the executive leadership must develop or deepen its own technical understanding of what it takes to successfully engage in a digital transformation process and, most importantly, the key steps and typical pitfalls. At OTIV Diana, a credit union network operating in northern Madagascar, General Manager Mahamoud Youssouf first took the time to consult with experts and participate in capacity-building activities to strengthen his knowledge of the digital transformation process.
With this initial education, he could lay out the roadmap for his organization and was able to meaningfully weigh in on important aspects that require the leaders’ guidance, including:
- The design of the business models adopted (mobile money, mobile banking and agency banking).
- The identification and selection of the digital solutions and the service providers.
- The strategic decisions needed to be made during the process.
“We felt we needed to be fully involved, to be present at each key step of the process and to drive it,” stated Youssouf. This also helped the leadership to be more effective in managing and solving inevitable misunderstandings and/or conflicts between the stakeholders involved in the process.
Building up a new organizational culture supporting digital transformation
writes, “The path to successful digital transformation is paved by brave decisions by leaders. This may include removing some superstars who are blockers, identifying and empowering people who have the knowledge needed to streamline changes as they surface, and bringing in external talent to augment internal capabilities.”As Bhushan Parikh, a member of FORBES Technology Council,
During the digitalization of Beninese MFI ALIDE's savings collection strategy using mobile money, CEO Valére Houssou engaged with all the stakeholders internally to share the vision and the rationale of the project. With the support of his technical assistance provider, he developed an effective communications strategy to explain the objective of the process, its implications and, importantly, the opportunities for existing staff members in capacity building and new skills development. The MFI also set up an effective governance structure for the project that supports the sharing of the new culture across the organization, including a project team composed of heads of departments and dedicated staff members actively involved in the process.
Close supervision and monitoring
Therefore, it is challenging to get it right the first time, with a model or a product that fits perfectly right away. The process needs to be closely monitored and adjusted along the way.
As the driver of the transformation process, the organization's executive leadership needs to set up a monitoring mechanism to keep them informed of the day-to-day implementation status so they can make adjustments along the way. OTIV Diana did just that, setting up an effective monitoring system with key indicators and clear communication channels, which allowed the General Manager to propose necessary adjustments promptly. This system helped save a significant amount of time and financial resources.
Towards the digital future
FSPs failing to apply these principles end up developing a series of ad hoc and inconsistent technology solutions that confuse their staff as well as clients. But those which are able to set a clear vision for their organization’s digital transformation from the start and lay out the key steps, consciously build a new organizational culture and set up effective monitoring systems, have a much greater chance of success in their move towards the digital future.
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This is very insightful, thanks.
Digital transformation is often misunderstood by financial institutions as introducing digital product only, but it should include digitalizing processes and channels as well.
Digital transformation has been the new saver of micro finance institutions. A change that is helping microfinance institutions to move faster in the finance sector to serve the people. The CEOs of these institutions are to have a positive mindset to fast track the agenda quickly due to the huge opportunities involved in it. With a positive direction combined with its monitoring system, there is a great future for microfinance institutions with this digital world.
The successful digital transformation depends on two vital factors in the process viz active involvement of executive leaders and the qualified staff in supply side and capability of customers for digital application in the given demographic environment from digital literacy orientation and in geographic condition from network accessibility perspectives from demand side as well.
The digitization process appears too fast to adapt by the poor MF clients impacting
negative fallout such as cyber crimes , middle men nuisance, digital divide, ...which cannot be ignored in the pathway to digitization.
The core point is that demand side perspectives need to be taken cognizance with more spread of digital literacy, numeracy and repair & services of mobile device locally.
Otherwise the outcome such as 'exclusion after inclusion' ' widening digital divide' and 'inequity gap as well are imminent
Dear Dr Rengarajan,
Thanks for your input that I can not agree more with! You are totally right that success of digital transformation requires effort both on the supply and on the demand side (in terms of financial literacy and digital literacy). Actually the two organizations I referred to did develop digital/financial literacy modules.
Thank you Christian Loupeda for your endorsement on my views on the subject.
It is interesting to note the action (digital/financial literacy) by the two organisations referred to. However, the fact could have been highlighted in the peroration more transparently in the ultimate lines. for the benefit of the readers.
Further apart from digital literacy , demand side imperative need is ‘infrastructure ’ such as connectivity tower in the last mile , Mobile repair & other services locally and client oriented guidance service to handicapped & senior citizen at their home , uninterrupted power etc. that matter crucially in the new organisational culture for enabling the chief executives from supply side in the driver’s seat to drive the process towards sustainable inclusion without any derailment in different manifestation such as of drop outs, exclusion , dormant accounts , inoperative accounts etc.in the digital transformation pathway at high social cost.
With good wishes
Dear Dr V. Rengarajan,
Thanks again for your insights, point well taken. Digital Transformation is a holistic process encompassing the assessment of the supply and demand sides as well as the ecosystem and existing digital infrastructures. The institution leaders should drive all these reflections and be part of the strategic decisions.
This blog is very interesting.
I learn a lot from it.
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