"We will become fully digital. We build a new website with cool new interaction features and new products. This website will change the way we do business.”
This is a bit exaggerated, but I often hear similar statements from marketing heads and business owners.

A new website is similar to a new painting. With a new website and new online services you can do a lot to improve your business. You can optimize the user experience and improve online sales. However, this is not what I understand of digitalization. Digitalization is much more fundamental.

A “digital paint job” is like painting a first generation VW Golf with the trendiest color on the market and expecting that it will accelerate ten times faster, halve fuel consumption and can drive by itself.

What I mean by Digitalization is designing the business model with “digital channels first” and full end-to-end digitalization and automation in mind. Such change can be painful and typically hurts a lot to every classic business in the short term. Change in this case is not about just painting but defining what the 21st century VW Golf should look like and then engineering it to make best use of modern capabilities. Nevertheless, I have experienced that if you are willing to invest brainpower and undergo a more fundamental change, you will benefit enormously in the future.

In the car industry the change from fuel to batteries is a major disruption, you can compare it with the digitalization of businesses. Tesla recognized that a “paint job” with a few technical modifications is not the right approach. Tesla cars were designed with “battery only” in mind. That’s why Tesla cars are far superior to every other electric car on the market.

In the coming months and years the “painters market” of designers and front end developers will continue to surge. That is fantastic and users will benefit greatly. Furthermore, sales will increase for the “digital paint job”-leaders. However, a wise digital strategist recognizes now that trendy paintings will rather sooner than later become a commodity.

The largest Swiss banks have IT costs of several billion USD per year – each. Most of the money flows into the maintenance of very expensive, old backend systems. Furthermore, digital channels are often not yet seen as real distribution channels (with their own sales targets) and are still growing like a little plant on top of a huge rock.

In order to get much more out of Digitalization, a disruptive Digital bank would need to be built on the basis of highly streamlined and newly defined digital processes. These processes are built around well-governed and high-quality[1] information, which is only accessed through clearly defined, modern APIs[2].

With full digitalization and ease of use in mind, those APIs can be consumed bank-internally or externally by many services to create new services very efficiently. There are no integration projects needed for every API access, service consumers can just use what they need within a very short time.

For instance, in a typical classic bank the integration of an internal payment service would require a new project and cost many man-days and ten thousands of dollars whereas an Internet startup will integrate a modern payment provider[3] within a few hours in the best case.

There are many more digital examples that show the value of rethinking processes and information flows from scratch, for example think of a bitcoin transfer between two parties anywhere in the world compared to a traditional international payment that takes 3-4 business days with a classic bank. Or the slowness of a securities purchase, including the physical transfer of the security from one custodian bank to another.

With all those well-done “paint jobs” many of us think we are in a digital world but there are so many manual, inefficient processes still around. If, for example, banks want to exploit their full digitalization potential they have to acknowledge that all they do is move bits around and that this is best done in the way Internet-centric start-ups teach us.

The fundamental problem with the implied changes by going fully digital is that large investments are needed over a long time; or that you need to design a company and its business model and processes from scratch with this information-centric, digital-centric approach in mind. The latter is risky and entrepreneurial, so often large corporates try the former, which is also risky because it requires very strong architectural analysis and governance capabilities. There is no easy way but that’s exactly why early exploiters of full digitalization will have a big competitive advantage in the future.

I’ve experienced many times in my life that waiting is seldom the right approach and industry newcomers, often from the Silicon Valley[4], will not have the mercy to wait for incumbents.

Banks and many other classic businesses should take a leap forward and already start exploiting the benefits of the next digitalization frontier after the “paint job age”.

Digitalization is much more than painting the façade. Digitalization is rebuilding the fundament of a business. Digitalization is fundamental.

[1] i.e. there is no such thing as non-synchronized changes and inconsistent master data
[2] API (Application Programming Interfaces): A set of clearly defined functions that is provided by one system and can be consumed by another system. Modern REST-APIs are typically very easy to integrate, use and understand.
[3] e.g. Stripe, Paymill
[4] http://qz.com/175512/to-disrupt-banking-do-you-need-to-own-the-bank/http://nymag.com/daily/intelligencer/2014/05/is-silicon-valley-the-future-of-finance.html