July 13, 2024

Advancing Business Journey

Empowering Business Excellence

Why do transformations in the financial services sector fail?

2 min read

For Australian financial organizations that launch transformation projects, the success rate tends to be low. Though it is difficult to measure exactly what constitutes ‘success’, few end up reaching the ideal outcome and achieving their targets, according to a report from Oliver Wyman.

The financial sector in Australia (and around the world) is rapidly evolving and organizations need to keep up with innovation, cost efficiency, and resilience. With stakeholder pressures mounting, organizations often need to launch major business, technology, and risk-focused transformation programs.

But finance institutions that carry out major transformations face challenging odds. And the risks must be taken seriously: Over 40% of unsuccessful transformations have severe financial, operational, and reputational repercussions.

Unsuccessful transformations are mainly due to ineffective governance, lack of ongoing business commitment, and poor stakeholder alignment

A survey of Australian business leaders from Oliver Wyman found that the majority of unsuccessful transformations are due to ineffective governance, lack of commitment, and bad alignment of stakeholders.

The impacts of a failed transformation can be serious because it involves large investments and pulls resources away from ordinary business activities. Most failed transformations tend to result in significant financial losses and staff turnover.

The report shows that around 60% of businesses pushing for transformation will experience cost overruns. The financial hit that organizations take include sunk capital in failed projects and workforce expenses.

The majority of transformation failures lead to financial loss and staff departures

With so much money and energy invested in transformation, businesses will often see their usual revenue-generating activities suffer significantly. These operational disruptions can be a serious problem if the transformation process drags on longer than expected or does not manage to meet set goals.

Another major consequence of a failed transformation is potential company and executive reputational damage. That can end up being a big hit to the confidence of stakeholders like the board of directors of an organization. The report showed that 45% of failed transformations lead to executive departures.

“Transformations are crucial to the continued success of an organization,” said Simon Pelletier, Partner at Oliver Wyman and Head of the Financial Services practice.

“However, the severe impacts of unsuccessful attempts prompt an important question: How can transformation programs be structured to increase the likelihood of success and optimise the value they deliver for the organization?”

The answer to that question is, admittedly, very complicated. But in a nut shell: Transformations must be led by business plans (not technological innovation alone) and must be comprehensive, with the involvement of business, tech, and management teams. 

“Organizations need a value-driven approach to transformation. This calls for the business to be the primary owner of transformation programs, allowing central oversight over economic value, greater program agility, and continuous feedback loops to optimize delivery,” Pelletier concluded.

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