After several investment banks posted improvements in their returns in the third quarter of 2016, it begged the question: Are we finally done with cost reduction? Have cost competitiveness and profitability been conquered? If our conversations with investment bank executives are any indication, the answer is however no.
The journey to now
Cost reduction has been a recurring theme in our annual Top 10 Challenges for Investment Banks series for years. In 2012, we examined how organizations could embed a permanent culture of cost consciousness and adopt a customer-centric approach to value. Our focus shifted to restructuring, streamlining and rationalization in 2014, and narrowed to rationalization and decommissioning in 2015. Last year, we took a closer look at value-based cost reduction and opportunities to leverage closed-loop and zero-based budgeting.
A roadmap for the path ahead
For our 2017 challenges, it is clear that there is still more work to be done if investment banks want to achieve truly sustainable cost efficiency. Here’s what we believe needs to happen:
- Lay the groundwork for change. That means rethinking your business model: simplifying operations, embracing utilities, exploring partnerships and redefining your role in the wider ecosystem. It also means rethinking your operating model and IT systems: rationalizing applications, migrating to “______ as a service,” and leveraging robotics process automation.
- Build strong governance, leadership and culture. Establish a top-down mandate and truly front-to-back processes that can address root causes and minimize downstream effects. Ask yourself what your customer will pay for, determine which capabilities are critical to own, and look for the rest in the marketplace. Finally, have a plan for your cost savings. Know in advance how you want to spend that money.
- Create competitive agility. Use tools like closed-loop and zero-based budgeting to identify effective, value-adding investments that are going to continuously refuel your growth over time.
- Be strategic about technology investments. Focus on fintech partnerships that supplement your offerings, big data and predictive analytics that provide valuable customer insights, artificial intelligence that makes it possible to automate complex tasks, and distributed ledger technology that delivers big efficiency gains.
You’ve probably seen and heard much of this before. What’s new this year is the belief that technology—digital technologies in particular—can provide value and efficiency at the same time, so long as the foundation for success is in place.
So, what do you think? Are you ready to get aggressive about cost reduction? Contact me at email@example.com to get started.
In the meantime, check out the full report: Challenge 2: Getting Fit: Aggressive Cost Reduction