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Digital transformation requires strong governance and steering

17 May 2023

Digital transformation has become a key priority for many banks seeking to remain competitive and meet customers' evolving demands. However, adopting new technologies that fundamentally change banks’ business models and operations entails new risks and challenges that require careful management to keep both business models and operations resilient and sustainable. Making sure that banks address digitalisation effectively and strengthen their steering capabilities are thus supervisory priorities for the coming years.

This article complements the survey feedback received from banks on their digital transformation efforts in 2022 (see February 2023 Supervision Newsletter) with a supervisory assessment based on five on-site inspections (OSIs) conducted in the same year. While the sample is small, it can provide valuable insights as the inspected banks are all key players in their countries and have ambitious digital transformation strategies. They have also chosen very different implementation paths.

Key observations from the 2022 on-site inspections on digital transformation can be grouped into the following five areas:

Strategy underpinning

All the inspected institutions recognised the importance of performing analyses of the evolving competitive and customer landscape. However, many fell short of the best practice of conducting a comprehensive analysis at the launch of the digital transformation strategy and systematically updating it thereafter. Instead, the analyses were ad hoc, focused on a sub-set of competitors, and reliant on external input whose estimations were not properly challenged before being integrated into strategic plans. Specifically, decisions to enter the market with a new digital product or service could be better supported by comprehensive analyses.

Strategy process

The inspection teams noted different approaches to documenting the digital transformation strategies. Some banks undertaking radical organisational changes had standalone transformation plans detailing all key digital initiatives, but not a strategy per se. Other banks establishing digital subsidiaries generally developed standalone strategies for them. Where strategic goals and action plans were clearly defined, they were also better communicated throughout the organisations, improving alignment and coordination. The better banks plan resources and project dependencies, the more they reduce their risk of delays or budget overruns.

There was often no formalised overarching process for developing the business, digital, IT and other support strategies that need to work cohesively. Moreover, updates to IT strategies stemming from the digitalisation strategy were missing or were insufficient, and the IT strategies themselves sometimes failed to specify clear strategic goals and action plans.

The inspections also raised some concerns about board ownership and steering, as strategies, operating plans and policies were lacking appropriate approvals and progress reports were often missing key elements to ensure effective steering. On the positive side, banks were making efforts to upskill their management bodies so they can properly oversee the digital transformation.

Strategy execution

Most banks apply agile project management in their digital transformation projects, sometimes in combination with other methodologies (like waterfall or hybrid). If banks concurrently use different methodologies, their project oversight could become disjointed and inconsistent. This could impair the identification of resource bottlenecks and their ability to run predictable and high-quality software development and migrations.

Most of the banks recognised the value of more agile approaches for having the right and sufficient skills available in a timely manner (also beyond IT projects), and had organised training on agile methodologies for the entire workforce. However, some banks failed to analyse their staffing needs in a strategic, forward-looking manner and only reacted to workforce needs when staffing shortages occurred. As external IT staff are scarce, properly planned upskilling remains key.

Budgeting and financial planning

While banks were able to substantiate their projected cost savings per initiative, most of them neglected to estimate the potential benefits upfront such as how completion of one initiative might unlock value in another. Too often, finance departments built their projections on the most positive outcome, assuming that all milestones within all initiatives are delivered on time and within budget. However, strategy execution was set up to be agile, which accepts that delays, overruns, and replanning are facts of life. Over time, the disconnect between the two views has been widening, yet there has been no lessons learned process to feed back into future financial plans.


Banks were struggling with monitoring the financial impact of initiatives, lacked dedicated financial indicators to measure their progress and impact on profits and losses, and failed to effectively prioritise and steer. This puts them at risk of allocating resources sub-optimally and missing other benefits in terms of revenue, customer satisfaction, customer base increase, etc.

Overall, it is essential that organisational changes are supported by strong internal governance and steering. Some banks already showed good progress in their digital transformation, but others experienced delays or did not mobilise the means necessary to achieve their ambitions. Going forward, ECB Banking Supervision will continue to focus on digital transformation, combining dedicated on-site inspections (planned for 2023) with targeted reviews of specific aspects of banks’ digital transformation strategies and use of innovative technologies.


European Central Bank

Directorate General Communications

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