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The Custom-Fit Failure of Digital Transformation
Enterprises are expected to spend $1.3 trillion in digital transformation projects this year. Unfortunately, about 70 percent of those investments—adding up to more than $900 billion—will be wasted.
For digital transformation to be effective, organizations must align people, processes, and technology. But while many experts point to a failure to involve people as the primary culprit for failed investments in digital transformation, customized software could pose an even greater threat to your success.
While customization can seem attractive, it can present several challenges. Here’s what you need to know and how you can better protect your digital transformation investment.
The Customization Trap
Consider this scenario: The leader of one of the largest banks in the US signs a multi-billion dollar digital transformation commitment in annual reports. The bank’s best and brightest set out with a bold vision to break down silos, introduce modern processes, and deliver an industry-leading digital customer experience—all supported by significant investments in new tools.
But because this organization is unique, its workflows are bespoke, and the bank assumes no “off-the-shelf” software will meet its needs. The team weighs the costs and benefits of building a tool versus buying a solution they can conform to their distinct processes. Ultimately, the bank chooses to purchase a customizable third-party software and tailor it to fit their new, cutting-edge process.
A year later, after full implementation and rigorous training, teams have fully onboarded the highly customized tool to run their modern workflows. But just when the investment should begin yielding returns, the bank leader realizes the organization will likely be anchored to their 2019 processes for the next 30 years.
Customization can be profoundly profitable for enterprise software companies. These vendors often build the base of a product and charge banks hefty fees to complete the rest. In fact, there’s an entire sub-industry dedicated to implementing software and customizing it to meet customers’ specific needs.
Not only do vendors benefit from upfront implementation costs, but customization can reduce the likelihood that a bank will endure the hassle associated with switching providers when it’s time to renew their contract.
Headaches Caused by Customizable Software
When presented with proposals that include customization, it makes sense that banks often jump at the chance to bolster their unique workflows with customizable solutions. However, customization may introduce many long-term problems.
Whatever a bank’s needs are today, they will likely evolve. Institutions often have to develop people and update processes and technology to keep up with competitors, navigate a merger, support new growth, or weather a market contraction. But if you’ve chosen a customizable solution, there’s a good chance you’ll have to invest in resources to update the system, tack on a workaround, or forego the change altogether.
Industry-leading vendors are also continually adding new features to their software to ensure they—and the banks they serve—stay ahead of the competition. However, with customized software, you likely wouldn’t receive these new functionalities unless you have a team continuously researching and developing features. The pace of innovation depends on IT’s competing priorities or budget availability for outside consultants.
Once a system has been customized, it also becomes challenging to transfer knowledge. (Regularly using spreadsheets and sending PDFs via email between internal and external partners is a clear sign your information is siloed.) In business lines like real estate, where information is shared across a vast ecosystem, customization can impede an efficient flow of information.
Custom software also introduces hurdles to hiring and training new people. While outside resources are widely available to support learning off-the-shelf software, this is rarely the case for customized solutions. In a competitive labor market, it’s critical your software suite attracts new talent. But even worse than limiting the pool for new hires, is stunting existing team members. If an employee is too central to a customized process, organizations may be tempted to overlook a rising star for a promotion.
A Better Alternative
So what are the alternatives to relying on customized software? Banks can avoid the long-term costs of building or buying customized software with two adjustments to their digital transformation strategies.
The first is to vet off-the-shelf technology when you’re in the early stages of redesigning a process. This helps you identify how available software works when you build processes according to new industry best practices, instead of forcing software to fit a highly bespoke internally developed process.
The second is to seek out off-the-shelf software with built-in flexibility to support various needs. Flexible software is different from customized software in that it’s created to support most unique processes while also providing necessary standardization.
Digital transformation doesn’t have to be a wasted effort. By avoiding the short-term lure of software customization, banks are more likely to meet their stated goals.