Banking

Who says you can’t save your way to prosperity?

Share this post:

Legendary Chairman Lou Gerstner took note, upon joining IBM, of the endless stream of meetings to measure progress towards quarterly revenue goals.  His conclusion: “You can’t fatten a pig by weighing it.”

The other side of that growth coin is reducing costs.  And there: the conventional wisdom is that you can’t save your way to prosperity.

While I agree with Lou on growth, to paraphrase Bob Dylan “…the times they are a changing…” regarding the belief that you can’t save your way to prosperity.  The key is less focus on conventional cost savings and greater focus on business transformation.

The landscape for banks and brokerages today shows significant improvement from the global financial crisis of 2008 – 2009.  However, in light of macroeconomic challenges, increased regulation, and competition from fintechs (particularly for the highest value retail, product, and payments opportunities) revenue growth has remained sluggish.

With revenues challenged, many banks have been focusing on operational efficiencies to drive financial performance.  Banks continue to simplify operations, strive for scale, and right-size their branch structure.  Banks have been closing branches at an unprecedented rate while cutting their workforces and delayering management.  This type of traditional cost-cutting we refer to as “engineered efficiency.”

Engineered efficiency moves are of value, but offer diminishing returns.  This type of cost-cutting does little to address the emergence of fintechs, which have rapidly gone from trivial annoyance to strategic threat.  Further, as banks are cutting costs, increased demands for security and regulatory compliance are adding them back almost as quickly.

And just when some may be hoping for a reduction in the regulatory burden (as a result of the recent election in the United States), there is a countervailing shift in consumer behavior – from expecting successful banking transactions to fastidiously demanding a rewarding, interesting, and satisfying experience.  Satisfying increasingly fastidious customers ultimately trumps regulatory relief.

To wit, we believe that further cost efficiencies will be difficult to attain from existing operating models.

What’s a bank to do?

Best-practice financial institutions are now adopting a new framework predicated upon “natural efficiency” to achieve radical transformational change at reduced costs.  Natural efficiency is a new, transformative approach to implementing complex organizational change. Unlike engineered efficiency – it’s much more strategic.

Examples of natural efficiency include:

  • Transforming into a digital, perceptive financial institution with insight- driven automation (see figure 1)
  • Using technology – especially hybrid cloud technology – to ruthlessly simplify and standardize while driving continuous innovation
  • Delivering frictionless and engaging experiences, using both in-house data and social media to anticipate customers’ wants and needs.
  • Adopting a culture that promotes engaging an ecosystem in IT development, spanning employees from all parts of the business, as well as customers, partners, and even regulators.
(figure 1)

Elements of Robotics Process Automation

 

IBM’s research indicates that while engineered efficiency can be expected to drive savings of 10 to 30 percent, the yield from natural efficiency can be greater than 2x, in the range of 30 to 60 percent.

Focusing on transformative customer experiences – delivered through natural efficiency – is the most effective and strategic way for financial institutions to compete and win in the digital marketplace. And yes – financial institutions may save their way to prosperity.  The times they are a changing…and now they have changed.

#      #      #

For a white paper on Radical Transformation in Financial Services, go to: https://www-01.ibm.com/marketing/iwm/dre/signup?source=mrs-form-10102&S_PKG=ov55254

More Banking stories

The challenge of managing hundreds of daily GRC alerts

Today we are inundated with alerts, breaking news, celebrity scandals and what their neighbor had for lunch.  The feeds are not limited to one medium; your computer, your television, your phone, your tablet and now even the watch you wear on your wrist. The flood of data that comes in can bury a person. How […]

Continue reading

GRC is everyone’s business

In my May 2019 blog, “Has GRC Reached Its Tipping Point? Observations From The Front Lines”, I described a set of common patterns that are driving business initiatives in Governance, Risk & Compliance. These highlighted that: Organizations are transforming their GRC frameworks, They are driving to realize greater benefits from already significant GRC investments, and […]

Continue reading

Ask the expert: 20 questions fraud fighters want to know

In our webinar yesterday, the first in the series AI Fraud Detection — Beyond the Textbooks, we ran out of time and weren’t able to address some great questions we had from the audience. Instead of waiting until the next episode, I hope these brief answers will be of help and interest to both those […]

Continue reading