The finance industry’s digital transformation imperative

The financial services industry, much like many others, is under significant pressure to transform and adapt to an ever-evolving landscape.

The driving forces behind this transformation include the emergence of agile fintech companies and challenger banks, the digital revolution marked by the shift from traditional bank branches to online banking, and intense competition with tech companies for skilled workers. These challenger banks have not only introduced innovative products and services but also set new standards for customer service and engagement, forcing traditional financial institutions to rethink their strategies and operations.

The digital revolution has further accelerated the transformation of the financial services industry, with 24/7/365 online banking becoming an essential component of modern financial services. This transition is not merely a trend but a fundamental transformation that institutions must adapt to to remain competitive and relevant in the eyes of consumers who are always on the lookout for the next best product.

The biggest challenge? A shortage of skilled talent

The biggest challenge facing financial institutions today, however, isn’t winning over customers. Rather, it’s a major shortage of skilled talent. 51% of business leaders in Financial Services identify skills shortages as one of their biggest talent challenges.

The problem for these firms is that they’re not just competing with others in their industry when trying to attract the best talent, but they’re also competing with tech giants like Google, Amazon, and Facebook—firms famous for their lucrative compensation packages—for skilled developers, data scientists, and AI experts. This is in addition to other niche roles unique to the industry such as fraud analysts.

This challenge is exacerbated by several factors. First, the industry is evolving rapidly. Secondly, there are evolving technological requirements which are difficult to keep up with. And third, employees’ expectations are shifting.

• A rapidly changing industry: The finance sector is changing quickly due to new products, evolving regulations, and increasingly fierce competition. Financial services providers need employees with the right skills to adapt to these changes quickly.

• Evolving technological requirements: Technology is playing a bigger role in the finance sector with each passing day. The scale of technical innovation is huge. Financial services firms therefore need employees with digital skills: data science, programming, cybersecurity, and data analysis. Finding these people is challenging.

• Shifting employee expectations: The way people view work is changing. Employees are now looking for more than compensation. They want flexible working terms, work-life balance, career development opportunities, and a positive culture where they’re always learning and building new skills.

The unique talent needs of specialized financial entities such as CBOE Global Markets further illustrate the industry's talent challenges. CBOE, a leading options and futures exchange, requires professionals with deep expertise in options, futures, derivatives, crypto, and high-speed trading technologies.

According to Crystal Stanfield, VP of Talent Acquisition at CBOE, the organization faces difficulties in hiring early-career talent due to the specialized knowledge required. To address this, CBOE has established an Options Institute to support ongoing skills development, yet they still need individuals with a foundational understanding of these complex areas. This case study underscores the broader issue of finding talent with the right blend of industry-specific knowledge and technical skills.

Linear career paths in financial services

All of the above is a challenge for an industry with historically linear career paths, where employees would follow a clear, step-by-step progression within their chosen fields. This approach, while providing stability and predictability, has also led to rigid structures and limited flexibility in career development. Employees would typically specialize in specific areas, gradually moving up the ranks with little opportunity or encouragement to diversify their skill sets.

On top of this, talent leaders within financial firms have historically lacked an understanding of their workforce’s skills because they had little need for it. When workers are following linear career trajectories, skills are largely irrelevant; experience and qualifications count for more. Unfortunately, the difficulty of reskilling employees for new roles such as cybersecurity or fraud prevention is exacerbated by this lack of skill awareness.

Financial institutions need to transform their workforce to address emerging threats and leverage new technologies, but without knowing the current skill sets of their employees, this task becomes nearly impossible. For example, reskilling a bank teller to become a cybersecurity analyst requires a deep understanding of the teller’s existing competencies and the gap between those and the skills needed for the new role. Without this information, efforts to reskill can be misdirected, inefficient, and ultimately ineffective.

The solution is a skills-based approach

The reskilling and general workforce agility challenges faced by financial institutions highlight the need to do away with the outdated jobs-based mindset in favor of a more flexible and informed approach to talent management. The solution, as organizations in many other sectors are realizing, is a skills-based one.

The skills-based approach to talent management is a seismic shift in how we think about work. It focuses on an employee’s raw skillset rather than their defined function or qualifications. Fundamentally, it puts people and their skills at the core of talent strategies and breaks down traditional jobs and roles into tasks based on the capabilities needed to achieve them.

There are three core objectives to the skills-based approach:

1. To prioritize skills over traditional role requirements, such as GPAs and college degrees. This broadens the talent pool and opens the door to people with hands-on experience who can do the work needed.

2. To deconstruct jobs into defined tasks and “work to be done.” This provides teams with visibility into the skills needed to complete tasks and organizes them according to these required skills vs. traditional job roles.

3. To provide an overview of the organization’s overall skills profile. This helps to inform talent acquisition and development processes and ensures that the right people with the right skills are matched to mission-critical tasks.

The skills-based approach is a cultural shift that requires buy-in from all levels of the organization, starting with leadership. Executives and managers must champion the value of a skills-based approach and foster an environment where continuous learning and skill enhancement are encouraged and rewarded.

Examples of both successful and unsuccessful attempts at implementing a skills-based approach can offer valuable insights. Gainwell Technologies, for instance, provides a successful case study. By focusing on skills rather than specific job titles, Gainwell has been able to create a more flexible and adaptive workforce. They have implemented comprehensive skills assessments and development programs, allowing them to reskill and upskill employees effectively to meet evolving business needs.

Conversely, there have been early attempts at this approach that have not worked as well. Some organizations have struggled due to a lack of clear strategy and commitment. Without a thorough understanding of the skills required and the existing capabilities within the workforce, these attempts can falter. Additionally, if the cultural shift is not embraced at all levels, resistance can impede progress, leading to inconsistent implementation and limited success. These examples highlight the importance of a well-planned and holistic approach to transitioning to a skills-based mindset.

Implementing a skills-based approach

The method we’ve seen work best has four parts. We suggest you start with the first two parts, which involve asking yourself what skills your organization needs, and what skills your organization has. This should be done for your total workforce, including contingent workers. You then need to consider what your skills gaps are and what actions you should take.

1. Identify skills needed: You must identify the skills that are needed in your organization before implementing a skills-based approach. This will involve a thorough analysis of your strategic objectives and the skills needed to achieve them. Engage department heads, team leaders, and key stakeholders to create a full list of skills vital for maintaining competitiveness and driving growth.

2. Assess current skills: The next step is to take stock of the skills currently present across your workforce. Conducting a skills audit and using the insights gained to build a skills inventory is the best way to do this. Utilize methods such as skills assessments, employee self-evaluations, and performance reviews to gather information and begin building a clear picture of your current skills inventory.

3. Identify skills gaps: Identifying the skills you need and those you already possess highlights the skills gaps that exist within your workforce. These are the areas where your organization lacks the skills needed to meet its strategic objectives. Identifying these makes it possible to conduct training and development initiatives that will best benefit the organization in the long term.

4. Take action: With a clear understanding of the skills you need, the skills you have, and your skills gaps, you can now formulate an action plan. Your plan should outline the steps you’ll need to take to bridge your skills gaps and enhance your organization’s general skills resilience. Consider a mixture of approaches, such as targeted hiring, reskilling existing staff for new roles, and leveraging external training resources.

Without the answers to those questions—What skills do you need? What skills do you have?— you don't know what skills your bank teller lacks to be more consultative. You don’t know who’s most ripe for reskilling into a cybersecurity role. You don’t know which of your employees has data science skills, because they very well may not have the words “data science” in their job title.  

We’re working with multiple large financial services companies to help them answer those questions, and make sure they stay competitive given the challenges we laid out in the very beginning of this post. Let us know if you want to discuss how to do the same.