Customer expectations are changing. Driven by a demand for integrated, self-service options, banking customers are actively seeking solutions beyond traditional models. This shift has facilitated the rise of digital ecosystem banking, a collaborative approach where banks partner with other companies to provide a broader range of services.

Sohar International Bank exemplifies how to navigate this digital shift. Sohar’s strategic transformation journey, initiated in 2018, prioritized customer experience through a five-year plan. This resulted in significant investments in people, technology and processes. 

The outcome? A customer-centric mobile banking platform offering a comprehensive suite of financial and non-financial services, alongside a sophisticated transaction banking platform for businesses. A strong digital core, outperforming industry average returns, paved the way for long-term success. This foundation positioned the bank to seize a strategic M&A opportunity, acquiring HSBC Oman. Since the ownership changes in 2017 and development of new strategy in 2018, Sohar International's digital transformation journey has yielded significant results.

Built a World Class Ecosystem: The ecosystem has delivered seamless experience for Sohar International’s customers.

Market Expansion: Sohar International’s market share grew by 10% to 18%, with 2% organic growth and 8% inorganic growth through strategic acquisition of HSBC Oman.

Financial Growth: Total assets surged 135% to USD 10 billion, deposits soared 211% to USD 9 billion and profitability increased by 178% to USD 117 million.

Industry Recognition: Sohar International earned numerous prestigious awards like "Most Innovative Digital Bank for Ecosystem Services" and "Industry Leader in Digital Banking," highlighting the bank’s commitment to cutting-edge solutions.

Notably, Sohar International's commitment to digitalization aligns perfectly with Oman Vision 2040, the nation's economic development plan.

Sohar International Bank's acquisition of HSBC Oman presents a growth opportunity but also operational challenges, necessitating an efficiency program focused on leveraging digitalization and automation to streamline processes and optimize staff allocation. The program should prioritize integrating HSBC Oman's operations, consolidating systems, and upskilling employees for a digital environment, ultimately unlocking the acquisition's full potential. Additionally, the bank could explore strategic partnerships and acquisitions to expand its digital ecosystem, offering a wider range of financial products and services, and accelerating innovation through integrating new technologies and talent.

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The accelerating pace of digital transformation in the financial sector has fundamentally altered the landscape of risks faced by banks. Operational disruptions caused by cyberattacks, technology failures, or third-party dependencies have the potential to trigger systemic crises across the interconnected financial system. In response to these evolving threats, the European Union's Digital Operational Resilience Act (DORA) represents a watershed moment, establishing a harmonized framework to enhance the sector's ability to withstand and recover from digital disruptions. For supervisory board members of banks, DORA signifies a call to action, demanding a renewed focus on digital operational resilience and a comprehensive oversight approach.

DORA goes beyond existing cybersecurity regulations by mandating in-depth ICT (Information and Communication Technology) risk management across the entire financial ecosystem. Supervisory boards hold the primary responsibility for ensuring their institutions are adequately prepared for the challenges posed by DORA. This entails a profound understanding of the regulation's core principles, a strategic recalibration of risk management approaches, and a commitment to fostering a culture of resilience across all organizational levels.

One of the most critical functions of supervisory boards in the wake of DORA is the implementation of a robust ICT risk management framework. Board members must not only approve ICT-related policies and procedures but also actively monitor their effectiveness. This requires a shift in mindset, recognizing that ICT risk is not a purely technical issue but a fundamental business risk. Boards need to ensure a holistic view of the institution's digital footprint, mapping critical business functions and identifying potential vulnerabilities stemming from internal systems, external dependencies, and the ever-evolving threat landscape.

When it comes to overseeing a bank's digital transformation, board members play a critical role in setting strategic direction and ensuring that the organization achieves its objectives effectively. Key Performance Indicators (KPIs) are essential tools for board members to monitor progress, assess the impact of digital initiatives, and make informed decisions. 

Beyond mere tracking, KPIs serve as litmus tests for evaluating the success or need for course correction in transformation efforts. They provide evidence of ROI for significant digital investments, aligning with boards' fiduciary duty to shareholders. Moreover, KPIs aid in risk management by tracking potential threats like cybersecurity, enabling proactive measures to address vulnerabilities. By benchmarking against industry standards, boards gain insight into the competitive landscape, shaping strategies for maintaining competitiveness.

Enclosed 25 KPIs are indispensable for board members during a bank's digital transformation:

I) Customer Experience & Adoption KPIs provide insights into how well the bank is meeting customer expectations and adapting to changing preferences. Board members need to understand the level of digital channel usage, Net Promoter Score (NPS) for digital channels, Digital Adoption Rate, Customer Effort Score (CES), and Self-Service Completion Rate to gauge the success of digital initiatives in enhancing customer experience and driving adoption. By tracking these metrics, board members can ensure that the bank remains customer-centric and competitive in the digital age.

II) Innovation KPIs help board members evaluate the bank's ability to innovate and adapt to a rapidly changing digital landscape. Metrics such as Time-to-Market for New Digital Products, Number of New Digital Partnerships, and Rate of Experimentation reflect the bank's agility, creativity, and willingness to embrace innovation. By tracking these KPIs, board members can assess the bank's competitive positioning, identify emerging opportunities, and ensure that the organization remains at the forefront of industry innovation.

IV) Operational Efficiency KPIs are vital for board members to assess the operational impact of digital transformation. Metrics such as Cost-to-Income Ratio, Process Automation Rate, Time-to-Resolution for support tickets, and Operational Cost per Transaction help board members evaluate the efficiency gains achieved through digitalization efforts. By monitoring these KPIs, board members can identify areas for optimization, cost reduction, and process improvement, ultimately driving operational excellence across the organization.

V) Cybersecurity KPIs offer critical insights into the bank's resilience against digital threats and its ability to protect sensitive data and systems from malicious actors. Metrics such as Number of Cybersecurity Incidents, Mean Time to Detection (MTD), Mean Time to Resolution (MTTR), Percentage of Successful Phishing Simulations, and Compliance with Cybersecurity Frameworks provide board members with a comprehensive view of the bank's cybersecurity posture. It's important to balance security with customer experience. Overly stringent security measures might frustrate users. By monitoring these KPIs, board members can assess the effectiveness of the bank's security measures, identify potential vulnerabilities, and prioritize investments in cybersecurity infrastructure and employee training. 

VI) Finally, regulatory compliance is another area of paramount importance for board members during a bank's digital transformation. Regulatory KPIs help board members assess the bank's adherence to legal and regulatory requirements, mitigate compliance-related risks, and maintain the organization's reputation and trustworthiness. Metrics such as Number of Regulatory Fines, Percentage of Audits Passed, Number of Regulatory Change Orders Required for New Digital Products, and Customer Data Privacy Breach Rate offer valuable insights into the bank's compliance efforts.

⚡️Important to note: the best KPIs evolve with the transformation's phases. Early on, focus may be on adoption, and later, the emphasis could shift to revenue generation. Boards need adaptable oversight.

In summary, these 25 KPIs are essential for board members during a bank's digital transformation because they provide valuable insights into customer experience, innovation, financial performance, operational efficiency, cybersecurity, and regulatory compliance. By monitoring these KPIs closely, board members can effectively oversee the digital transformation process, drive strategic decision-making, and ensure the long-term success of the organization in an increasingly digital-centric world.

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1️⃣ Evolutionary Forces in Banking

The banking and finance industry undergoes significant evolutionary forces, marked by non-physical products, high competition, and escalating costs. Ulrich Cartellieri's 1990 assessment of German banking as the "steel branch of the 1990s" resonates today. With up to 50% more bank branches than gasoline stations, questions arise about the need for such proliferation in a digitized era.

2️⃣ Strategy Formulation and Execution Gap

The challenge lies not in lacking awareness or foresight among decision-makers but in bridging the gap between formulating and executing strategies. Alignment in understanding, ownership, accountability, incentives, and corporate culture is crucial for successful implementation.

3️⃣ Missing Ownership and Incentives

Strategies falter when those tasked with execution lack a deep understanding and ownership. Incentives play a pivotal role, aligning personal goals with organizational objectives. Without the right motivations, even well-intentioned strategies can fail.

4️⃣ Lost Core Business Focus

Failure occurs when banks deviate from the core of a functioning business model. For instance, neglecting payments, a core function, can jeopardize consumer and merchant retention. The importance of focusing on the essential aspects of banking cannot be overstated.

5️⃣ Unrealistic Profit Goals

Prioritizing unrealistic profit goals over a sustainable risk portfolio is a recipe for failure. Striking a balance between profitability and risk management is crucial for the long-term health of a bank.

6️⃣ Implementation Challenges

Even well-crafted strategies can falter due to challenges in implementation. Banks may excel in devising strategies but struggle with the practical aspects of bringing them to life, including project management, resource allocation, and change management.

7️⃣ Poor Leadership and Communication

Leadership, from the top to middle management and front-line employees, plays a key role in strategy execution. Communication gaps and a lack of understanding at different levels can lead to poor implementation.

8️⃣ Lack of Consistency

Consistency is crucial for successful strategy implementation. Shifting strategies due to leadership changes or lack of continuity can impede progress. Successful strategies often have clear objectives that remain unchanged throughout their execution.

📌 Conclusion

In conclusion, the failure of banking strategies stems from a combination of factors, including leadership issues, a lack of alignment between strategy formulation and execution, and challenges in adapting to industry evolution. Understanding the core functions of banking, setting realistic goals, and fostering a culture of innovation are vital steps toward sustainable success in an ever-changing financial landscape.

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