7 Best practices for automation programs

Enterprise automation programs are critical for financial services institutions. According to a report from American Banker, “nine out of 10 banks and insurance companies believe automation is helping them stay competitive with new market entrants, including fintechs and insurtechs.” However, the results have been mixed: only six out of 10 respondents rate themselves as excellent or good and one-quarter of the respondents reported that their company had suffered an automation initiative failure.

My experience working in more than 25 banks and financial institutions has been similar to those reported in the American Banker. For many clients, automation programs quickly evolved into large complex programs that were ineffective and had costs quickly escalating to a point where the returns and benefits did not justify the effort. As one of my favorite clients always said, “The juice does not justify the squeeze”.

The following are seven best practices to consider for any automation program to drive short-term and long-term value.

1. Never automate a bad process

Many times, significant value can be achieved through process improvements before automation is implemented. It is important to review the target processes and make improvements before the actual automation work begins.

2. Use caution when automating offshore processes as they offer limited cost savings

If the primary goal is to create cost savings to justify the implementation expense through the business case, it is difficult to meet the internal Key Performance Indicators like ROI and Payback periods through the automation of offshore processes. Typically processes that were moved offshore were simple and repetitive manual processes that could be performed by lower cost resources. Most of the value (juice) has already been realized from a cost savings standpoint. While these processes typically represent excellent candidates for automation based on what is required by employee resources, they do not produce significant cost savings.

3. Actively and continuously manage the length of the Discovery vs the Delivery Phase

The typical automation program is structured to include a Discovery phase to review the automation opportunities and build the business case, followed by a Delivery phase for approved opportunities. The challenges come when organizations shorten the Discovery phase to move opportunities quickly into the Delivery phase in an effort to accelerate the elapsed time required to realize the benefits of automation. While this makes sense in theory, my experience indicates that reducing the Discovery phase only results in significant issues during the Delivery phase. Of course, it is a delicate balance as extended Discovery phases do not ensure a smooth and rapid Delivery phase. Like all things in life, it requires a careful balancing act.

4. Beware that the “Happy Path” is not so happy

A common mistake during the Discovery phase is to assume that the “Happy Path” or straight-through non-exception processes are 80%+ of the typical process volumes. This assumption creates problems and frustration during the Delivery phase when each individual process step is captured and analyzed for automation. In many cases, the “Happy Path” represents less than 30% of actual processes on a daily basis. Banks often have legacy exception processes that were cobbled together to meet daily production demands.

5. Develop two types of evaluation criteria

When implementing an automation program, the opportunities need to be analyzed across two aspects: (1) Investment in the business and (2) Return on investment. There are many processes that are good candidates for automation and represent a significant and needed reduction in manual processing. These opportunities must be prioritized based on criteria other than simply cost savings and capacity generation. They will never pass the hurdles of a strict internal business case with high ROI and payback period targets. They are an investment in the business and on a cumulative basis can help “move the needle”. A best practice is to have a separate program to fund these types of initiatives based on different criteria using lower-cost delivery resources and tools in addition to the primary automation program budget.

6. Embrace revenue acceleration as a key benefit driver

The primary benefit driver for most automation programs is cost savings. These are used to justify the costs to implement the automation opportunities. Another important aspect that is typically overlooked is revenue acceleration. In some organizations, I have witnessed millions of dollars in lost revenue due to poor onboarding (customer and products) processes that result in delayed revenue or customer abandonment due to the delays. The revenue is literally blocked by poor processes resulting in customer dissatisfaction and lost revenue that will likely never be recovered.

7. Balance the impact of internal quality control and project management structures

Because enterprise-wide automation initiatives involve large capital expenditures and resource commitments, organizations will create internal project management and quality control teams. This is a necessary step in being good stewards of the organization’s assets and resources. However, they typically grow into large teams of resources which significantly increases the costs and slows down the implementation of the automation opportunities. Again, they are necessary and important, but they must be managed as the mission of the automation initiatives can be lost and the final value significantly reduced.

Given the importance of automation and digitalization tools to remain competitive and meet increasing customer demand to transact in the digital world, banks and financial services organizations will always have automation initiatives in progress. The keys to driving sustained value from these programs include leveraging lessons learned and best practices, creating a high performance culture and organizations, and rapidly implementing the initiatives.