DIGITIZATION: THE MANIFESTO FOR ENHANCED BANKING PRODUCTIVITY

SYED ALAMDAR ALI
Dec 10 - 16, 2007

Nobel Prize-winning economist Robert Solow has said that we see computers everywhere except in the productivity statistics. Those productivity measures which do not seem to show any impact from new computer and information technologies have been labeled as the "productivity paradox." Productivity growth has slowed every decade since the 1960s while investments in information technology have also grown dramatically. Some take this as proof that information technology doesn't affect productivity!

However, make no mistake; application of information technology does improve productivity. Since the 1970s, productivity has grown about 1.1 percent per year for sectors that have invested heavily in computers and approximately 0.35 percent for sectors that have invested less heavily. Research by MIT economists shows that in the 1990s computers contribute significantly to firm-level output and productivity. But the effects have been concentrated in a limited number of firms and industries.

As we make the transition to a more digital economy, the effects are likely to be felt economy-wide. It wasn't until the early 1990s that microprocessors were fast and cheap enough to really work well in a wide range of applications. Pentium computer chips weren't introduced until 1993. The Internet didn't begin to become a mass medium until 1994. Emerging new technologies such as smart cards, voice-based computing, video telephony, "expert system" software, and the "Next Generation Internet" are just now beginning to arrive. When these and others are widely used, and when a majority of the economy and society are linked through digital networks, it will be possible to speak of a nearly complete digitization.

As a result, the animating force for productivity and wage growth will be the pervasive use of digital electronic technologies to increase efficiency and productivity, particularly in the heretofore low-technology service sector. The digitization in the 21st century promises to bring the kinds of economic benefits that mechanization brought in the 20th. And this will be spurred by the "network effect"-the more these technologies (e.g., Internet, smart cards, and broadband telecommunications) are used, the more applications will be developed, and the more value they will provide for users. Once this occurs, the productivity paradox could very likely give way to a productivity and wage boom. Government can play an important role in facilitating the transition to a digital economy by adopting laws and regulations that explicitly support and advance electronic commerce.

From the customer's view, the financial services industry appears to be embracing digital technology. Each day, more and more people sign up for online banking, pay bills at electronic storefronts and even apply for mortgages and home equity loans online.

In the financial institution back office, data warehousing, data convergence and other enterprise tools are helping institutions gain control of the voluminous data they hold on customers and accounts.

Digital solutions are indeed spreading throughout the financial services industry. Yet, between the customer and the data stores, paper and manual processes continue to rule. From the knee-to-knee encounter with a customer applying for a loan, to changing beneficiaries on an insurance policy, to arranging artifacts in compliance with the know-your-customer provisions of the Prudential Regulations imposed by the State Bank of Pakistan, paper documents handled by human beings remain integral to financial processes. Even after the flurry of "e" activity that began in the late '90s, institutions focused on Web strategies on the front end and data access in the back office have continued to "drop paper" in myriad middle-office manual business processes.

Recently, institutions have begun deploying the new tools emerging for business process management (BPM), workflow, collaboration, and document and content management. Too often, however, these point solutions fail to deliver the hoped-for benefits. For example, a document management solution might store documents in an organized way, but if a global deal team requires distribution of a stored document, the solution would not have the "push" capabilities to deliver it.

Similarly, a BPM tool can manage highly structured information that exists within current systems. Unfortunately, businesses operate on unstructured data emerging from person-to-person collaboration, instant messaging, e-mail, and paper and electronic documents. As a result, most business processes are merely human layers atop siloed applications that provide the facade of a seamless end-to-end process.

In the end it will be pertinent to state that a few organizations have actually institutionalized business processes through a software infrastructure, instead relying on people to figure it out. Digitization can bring these and other technologies together in a suite - or digitization stack - that captures and manifests the way the institution operates today. At the same time, it supports the ability to dynamically reconfigure systems and information at a moment's notice to implement new business processes in specific contexts, such as a new product or new customer.