Digital Transformation: 5 Things CROs Need to Know

To lead their firms into the digital era, chief risk officers should place a premium on people, avoid excessive reliance on technology, build resilience, ask difficult questions, and pursue results that clearly demonstrate ROI.

Friday, December 9, 2022

By Emily Frolick


Disrupt or be disrupted is the state of the financial services industry these days, driven in large part by the ongoing and never-ending evolution of advanced digital technologies. When companies undergo a digital transformation, they open the door to unprecedented opportunities – but with those potentially favorable conditions come significant risks.

Indeed, according to several recent studies, the risk of failure of digital transformation projects (across financial services and other industries) is more than 70%.

So, how can financial institutions overcome the major obstacles presented by the transition to a digital environment and generate a strong return on investment (ROI)? Well, that’s where a visionary chief risk officer can come in very handy.

While the whole of the C-suite is moving full steam ahead on the tech of tomorrow, the CRO is chiefly tasked with avoiding a road filled with detours and potholes. Though that responsibility to ameliorate the risks of digital transformation may seem daunting, the unique lens through which CROs see risk creates a powerful opportunity to build trust, guide success and create value.

Whether you’re digitizing a single part of the organization, connecting the business around your customers, or rethinking the entire business model, you need your firm’s risk and regulation functions to assess what could go wrong and to determine how to mitigate the transition at every turn.  

A CRO can help digital transformation succeed by following five imperative tenets: 

  1. Put People First, and Avoid Overreliance on Technology

Believe it or not, a successful digital transformation starts with people. While the right technology is instrumental in any digital endeavor, it's the workforce that holds the key to digital transformation success or failure.

Companies embarking on a digital journey will be best served by leveraging their most precious and insightful asset – employees – to implement change that is both realistic and sustainable. That means having the right resources, support and cultural mindset in place to harness the power of enterprise-wide digital transformation.

Indeed, efforts are often much more successful when every employee chooses to “own” the changes being made, instead of, say, leaning too heavily on next-generation technology.

For example, it’s sometimes thought that artificial intelligence (AI) can manage a digital shift all by itself. Even your employees may think AI is designed to replace people. However, while AI is remarkably good at detecting patterns in immense amounts of data that humans might overlook, only the people with the proper industry and functional context can ascribe meaning from that information.

AI is impressive, but lacks creativity and the ability to innovate. It can’t build or train its own models. It can’t decide on what data it should include or exclude. It can’t provide its own governance.

At least for the foreseeable future, AI functions (such as data cleanliness, model design, training and retraining) will all require significant human involvement. AI is a powerful new tool, but it’s just that: a tool.

Like the computers that appeared on our desks in the late 1980s, AI can enhance what we do and even open the door to entirely new business models (such as those presented by digital transformation), but it’s only valuable in the hands of people who know how and why to use it.

  1. Develop Trust to Increase Opportunities and Build Resilience

Risk and regulation are sometimes viewed as dull necessities that slow down the business and have an elusive ROI, especially when compared with areas like front-office digital transformation.

However, when you address risk and regulation in a disciplined way, through the eyes of all stakeholders, it actually grows trust and gives you the freedom to go fast. Indeed, after you’ve built trust into your systems and your processes, you can confidently explore new markets and create new technologies and customer experiences.

In the digital age, even a small failure at a critical moment can undermine the trusted reputation you’ve worked so hard to earn. That’s why it’s important to weave things like security and compliance and trust into all systems and transformation activities.

On your path to digital transformation, are you, for example, analyzing interconnected risks to identify potential vulnerabilities? Are you proactively monitoring market signals for your industry, anticipating changes in customer sentiments or regulations? Are you auditing your culture and employee-conduct risks? Moreover, are you automating your fraud and financial crime processes to improve accuracy, speed and trust, as well as the customer experience?

Thinking through and planning for risks in these areas can help organizations thrive through uncertainty while increasing respect and improving returns in situations where less trusted institutions may fall behind.

We know that people want do business and work for and with companies they trust. Sometimes the ROI for the trust factor isn’t obvious, but it’s present, reliable and consistent whether it’s avoiding fines because you complied with a regulatory requirement, keeping customers because you’ve protected their data, or attracting and retaining top talent because you’re a trusted organization.

  1. Demonstrate Bravery: Raise and Engage on Tough Questions

No one sees further and more clearly down the road than the gifted CRO who has the foresight to visualize both future challenges and the most achievable path to success. To overcome obstacles on the trek toward digital transformation, the CRO must remove all blinders that can impede the discovery of real insights and delay genuine change.

Only companies with the discipline, focus and self-awareness to ask – and answer – the tough queries have what it takes to implement a truly transformative digital overhaul. As part of this journey, it is especially important to address the following vital questions:

  • What do we do well? How and why are we lacking?
  • What fundamental problems exist that we often ignore?
  • Are we listening to the feedback we get from customers and employees?
  • What do we want to be, and what is our roadmap for getting there?
  • In what ways might a digital transformation drive growth?

The CRO is uniquely positioned to raise these questions and engage other executives in a healthy dialogue about them, ultimately helping your organization map a journey free of unnecessary pitstops. What’s more, this collaborative process will enable the CRO to join forces with the C-Suite to identify true growth areas.

  1. Find the Low-Hanging Fruit – and Pick It

Many organizations, in the midst of digital transformation or any other wholesale change, grapple with the vortex of fatigue. If months pass without noticeable results and outcomes, even the most avid supporters will be demoralized.  

That’s why it’s important to set an aggressive timetable – and meet it. With success, more people will embrace change. This groundswell of support will produce a self-sustaining energy that will propel the organization to make additional digital enhancements.

A transformation-seeking organization need not embark on a complete overhaul. Rather, it may take an evolutionary approach that can deliver greater lasting impact.

To keep the C-suite – and employees – excited and on board, you’ll need to generate some tangible results quickly to show ROI. Tackle those areas first that can deliver the biggest and best results – and turn skeptics into believers.

  1. Embrace the Journey

If you're dedicating time and resources to a wide-scale digital transformation, don’t approach risk as an afterthought or a compliance exercise. Digital transformation, much like building trust, isn’t just checking a box –it’s embracing the art of the possible.

A well-executed digital transformation empowers companies to develop data-driven business models that can revolutionize industries. What you invest – in people, priorities and goal setting – determines your return.

The ability to embrace these fundamental truths will distinguish which companies succeed tomorrow from those that are left behind. Ultimately, digital transformation is a journey, not a precise destination.

Emily Frolick is the KPMG U.S. Leader for The Trusted Imperative, focused on risk and regulation powered for the digital era. In this role, she helps clients reframe the way they look at risk management by thinking through strategic, proactive ways to build trust and generate value across their entire business ecosystem. She has an extensive background in technology and business risk.



BylawsCode of ConductPrivacy NoticeTerms of Use © 2024 Global Association of Risk Professionals