Digital transformation and upskilling in the banking sector - Building for success

In brief

The banking sector has faced massive disruption in recent years, with the emergence of challenger banks and regulatory changes designed to increase competition. Our Annual Global CEO Survey shows that challenges remain and COVID-19 has introduced further disruption. Digital agility and a highly skilled workforce are two key tools to best mitigate against current disruption and prepare for further disruption to come.

In detail

Traditional banking models need to transform. They must evolve to cater to the changing expectations of customers and to keep pace with growing competition from digital disruptors.

Today, many of those previous barriers to entry have disappeared, enabled by the cloud and other digital technologies, as well as by changes in the regulatory landscape aimed at encouraging innovation and delivering more choice for banking customers.

While technology is critical to transformation, it’s not the whole story. Successful transformation also requires banks to change their cultures, mindsets and skills, whilst keeping customer wants and needs at the heart of everything they do.

The results of PwC’s 23rd Annual Global CEO Survey suggest the industry has yet to solve this challenge, but it must. In a fast-changing economy, winning companies are adept at building new skills and capabilities, particularly those based on digital technology. These organisations have moved beyond the traditional ideas that upskilling equals training and that the workforce is a fixed entity, and instead, they create more flexible ways to access the skills and capabilities they need. Although those skills can be gained through alliances, joint ventures, partnerships with government and academia, and other types of collaborations, the most lasting results come from upskilling the current base of full-time employees.

The COVID-19 pandemic has only underscored the need for digital transformation and upskilling initiatives aimed at improving both internal processes and customer engagement. Consider the changing roles of commercial bankers, wealth advisors, and insurance sales and distribution staff, all of whom are now engaging with clients via digital channels for sales, relationship-building and support. Or consider the way that the shift to working from home increases pressure on organisations to manage security as well as employee productivity, with impacts on a company’s real estate portfolio and IT infrastructure.

With so much time and money at stake, demonstrating a strong financial return is essential — buy-in from the leadership and engagement within the workforce will quickly evaporate if the effort shows no clear evidence of benefits. In a well-planned digital upskilling initiative, financial growth follows from efforts to build talent and improve the external stakeholder experience, so it’s important to track key metrics in all those areas.

Building a successful upskilling strategy calls for management to focus on seven aspects:

Focus on digital tools and new ways of working. 

Every organisation needs to set out its own priorities, but we believe that digital tools and new ways of working should be on the agenda for just about all financial services organisations. For example, many institutions now find themselves building and maintaining client relationships virtually, through digital channels. Longer-term, product teams will still likely need to work remotely to assemble cross-functional teams to collaborate on product development. The creativity and innovation needed for success require both new technology and new ways of working—which in turn call for upskilling initiatives.

Tell a powerful story about the value of upskilling. 

Make a case for upskilling, outlining the strategy and the road ahead, and amplifying the message through regular communications in various channels. Company leaders and 'digital champions' in the workforce need to reinforce these messages over time, to ensure the organisation is aligned around the plan.

Pilot within a segment of the workforce. 

Rather than launching company-wide initiatives, identify a narrower base for early-stage measures. 

This could be the leadership team; a business unit, function or region with a particularly urgent need; or a set of key influencers.

Integrate the upskilling initiative with existing talent and training programmes. 

Upskilling can’t exist in a vacuum. It needs to be linked to processes such as performance management, recognition and rewards and other elements of HR already in place. This kind of alignment will further reinforce the company’s commitment and help boost employee participation.

Prepare for obstacles. 

Anticipate common concerns, especially employee anxiety. A key message to convey is that upskilling programmes are truly an investment in employees as individuals, designed to improve both company and personal performance. Find productivity improvements that will allow employees to do much of the training during work hours. Moreover, organisations should seek to reskill any staff that will be affected by restructurings or headcount reductions, to create future employment opportunities for them. This is an important component of banks living their purpose and standing up for their people, even as the industry becomes more competitive. 

Last but not least, cybersecurity must not be underestimated: the financial sector faces significant challenges when it comes to building resilience against cybersecurity risks. Not only do financial institutions need to combat cyber threats but they also need to maintain uptime before, during, and after these kinds of breaches in order to provide seamless service to customers and maintain compliance with regulators.  

Ensure longevity. 

Make sure upskilling isn’t viewed as just another corporate fad. Generating sustainable progress requires that you identify KPIs, measure progress and refine the company’s approach over time. However, the use of technology to boost productivity can have a downside in terms of burning people out. Organisations need to strike the right balance between productivity and employee well-being. The right approach to upskilling optimises both.

Address the company permanent establishment risk

From a corporate tax perspective, the presence of employees/managers of a Luxembourg company in another country may lead to the recognition of a permanent establishment in that other territory.

If Covid-19 and digitalisation have sped up the transition to home-based working and remote workers, companies should not neglect the risk of creating a fixed place of business. As a basic principle, the higher the person working abroad is in the internal management hierarchy, the higher the risk exists of creating permanent establishment abroad. This is only a basic principle, there are much more indicia leading to a permanent establishment and a case-by-case analysis is required knowing a.o. that foreign tax authorities may have different requirements.

The takeaway

The establishment of successful upskilling strategy requires the management to focus on the six aspects:

1. Focus on digital tools and new ways of working.

2. Tell a powerful story about the value of upskilling.

3. Pilot within a segment of the workforce

4. Integrate the upskilling initiative with existing talent and training programmes.

5. Prepare for obstacles

6. Ensure longevity.

7. Address the company permanent establishment risk