The Thai banking industry was shaken by Siam Commercial Bank’s recent announcement of major business transformation. In September, the bank unveiled a plan to set up SCB^X Public Company Limited as new parent company, or “mothership”, in the form of a holding company. The new entity, to be listed on the Stock Exchange of Thailand in place of SCB, will shift from traditional banking business to full-scaled “Financial Technology Group”. The transformation is meant to freed itself from constraints in the banking business, enhance agility, accelerate aggressive expansion into other types of financial businesses that the market demands, build technological capabilities, and manage a large technology platform to keep pace with global players while having a stronger banking business as part of the group. It set goal to become a regional financial technology conglomerate with 200 million customer-base. The bank targets its new business to generate one third of business value (currently 90% of earnings derives from banking business) and that its market capitalization reaches Bt1 trillion in five years.

SCB’s CEO Arthid Nanthawithaya said the transformation is a response to the disruption trend that began six years ago and will become very apparent over the next three years. With changing behaviors of post-pandemic consumers, competition from non-bank operators (such as fintech startups and global digital platform operators) and regulatory changes, traditional financial intermediary business model is no longer viable. Therefore, SCB has to transform into SCB^X “to create new value for its shareholders and consumers and grow further in the new world.”

Although the bold move seems rational as the existing business model no longer warrant viability and competitiveness under rapidly changing business environment, it is not common to see such dramatic change especially in the financial sector. Therefore, it is particularly interesting to learn about the discussion and decision-making processes of SCB’s Board that led to digital transformation strategy, breaking away from 115-year legacy as Thailand’s oldest bank. 

Of course, what happened in SCB’s Boardroom was internal but the resolution announced to the public indicated significance roles of the Board, together with the management, in determining corporate strategy and direction for survival and sustainable growth. As technological development brought about changes in competitive landscape of almost all industries while disruptive forces acted as the catalyst for change, the Board should start discussing with the management about digital transformation strategy. The essence of this strategy involves the application of digital technology to improve or transform operating process, products and services, as well as business model to enhance competitiveness, better respond to demand of stakeholders, and create new business opportunities. 

Most Boards may think this role is “difficult” since it involves tech issues. Terms like AI, Big Data, and Blockchain may make the Board feel unsure how to start discussing about applying technology to the business strategically. Actually, the Board’s roles in digital transformation are not to understand how technology works but how the technology could benefit the business so as to provide guidance to the management about how to best utilize technology for creating value to the business and stakeholders. Should the Board recognize the significance of technology in business improvement amid ongoing challenges, the following five questions could be the starting point for the Board to take parts in formulating and overseeing the implementation of digital transformation strategy.

1. Do we understand the implications of technology well enough to provide valuable guidance?

The speed and complexity of technological development may make it difficult for the Board to recognize the significance of technology in competitiveness enhancement and creation of business opportunities.  Therefore, it is essential to improve the Board’s knowledge and understanding of existing and emerging technologies’ benefits on business. This can be done by hiring technological expert as advisor to the Board and training led by advisor or expert with direct experience in digital transformation to provide knowledge and view that can initiate ideas on strategic technology application. It is becoming more common for the Board to recruit new director with experience, knowledge, and competencies that match digital transformation strategy and direction of the business to provide views and guidance in this agenda. To ensure technological comprehension crystalizes into appropriate digital transformation strategy, the Board should allocate sufficient time to discuss and exchange views with the management about opportunities and direction of technology application for value creation by including this issue in meeting agenda regularly.

2. Is the digital transformation fundamentally changing how the business creates value?

The core of digital transformation is to use technology to create value. Such value, in the digital transformation context, that the Board should emphasize and discuss with the management consists of three aspects:

1)     Scale – Businesses usually expect digital transformation to boost earnings but the targeted value should be sizable enough to ensure material benefit. In the case of SCB, it targets the value proportion of new business at one third to reduce dependency on the traditional banking business. The Board and management should discuss how technology can be used to transform Operating Model or Business Model to expand into new businesses or industries to create even greater business values.

2)     Source – The most explicit benefits of technology usually discussed were operating efficiency improvement and cost reduction. However, technology should also be viewed as a “Game Changer” that could create value for business and stakeholders as well as new opportunities. Therefore, the Board should encourage the management to figure out what is the business’ core competitive advantage, and how digital transformation strategy can extend that competitive advantage and lead to new source of income in the future.

3)     Scope - Digital transformation cannot yield quick result. It is more like a long-distance travel that requires abundant time and funding until the expected return is achieved. Therefore, the Board and management should have clear long-term value creation targets of the digital transformation and set aside long-term budget to accommodate such value creation. At the same time, it must also analyze the changing industry trend and business context from technological changes while taking into account the vanishing boundary between industries in the planning process.

3. How do we know if the digital transformation is working?

Digital transformation could lead to numerous projects and activities, making it difficult to track if the strategic changes actually achieve targets. Therefore, the Board should ensure the digital transformation strategy emphasizes on 2-3 key aspects that tend to create value the most for optimum resource allocation.  The Board should agree with the management about key success indicators, covering those indicating results and values generated, as well as those indicating digital transformation progress which can be considered from aspects such as changes in behavior and operating process. Many companies may opt not to use ROI in tracking the outcome of technology investment or relevant projects because it is not timely enough. However, ROI is still significant as a benchmark to gauge digital transformation progress.

4. Do we have a sufficiently expansive view of talent?

For the Board, the first responsibility regarding human resources that comes to mind would be recruitment of senior executives with competencies and experiences that fit to drive digital transformation. However, it is just as important to look further into individuals responsible for technological operations because they are key personnel who drive the strategy. Therefore, the Board should ensure the management has appropriate talent recruitment and development plans to accommodate digital transformation strategy both in the short and long runs. Besides recruitment of skilled personnel, it is also crucial to develop skills and competencies of existing employees at all departments to match digital transformation strategy. The Board may suggest that the management identify key skills and plan personnel recruitment and development for the next 6-12 months as concrete preparation.

5. Do we have a clear view of emerging threats?

Business opportunities arise from digital transformation come with complex non-traditional risks such as cyber threat and new legislations or regulations that emphasize on technological impacts on stakeholders, especially data privacy. Therefore, the Board must ensure the company’s risk management also sufficiently covers cybersecurity and data privacy threats while accommodating digital transformation. Moreover, the Board and management should have wider perspectives regarding competition risks from new comer, new technologies, and industry shifts that could emerge anytime. In this regard, SCB mentioned the entrance of technology business into the financial sector. Thus, companies must not only monitor direct competitors in the same business but also players in other industries that may one day step in to replace existing business.

Boards do not necessary urge management to build mothership and transform into tech firm like SCB. The digital transformation strategy of each company may differ in accordance with their respective contexts and appropriateness. In the financial industry, many banks have conducted digital transformation in their operating processes and establish financial technology development firms. Some also set up companies for co-investment with fintech startups to develop financial innovation with an aim to support their core banking businesses. Meanwhile, companies in other industries may respond to their challenges differently.  Whether digital transformation leads to new business model, new businesses, new industries, or simply competitiveness enhancement, it is important to create a fine balance between responding to disruptive forces and long-term goals. Although digital transformation may take a long time to yield result, the Board needs to make a bold move and take the first step toward changes for the business to “grow further in the new world”. It doesn’t matter if it is just a small step or a big leap like SCB. 

References:

·        The Siam Commercial Bank Public Company Limited

·       “5 Questions Boards Should Be Asking About Digital transformation,” Celia Huber, Alex Sukharevsky, and Rodney Zemmel, Harvard Business Review (2021)

Charawi Chiramakara
Senior CG Analyst – Curriculum and Facilitators
Thai Institute of Directors Association (IOD)