Capital limits, increasing regulatory requirements and deleveraging have had serious effects on investment banks’ revenue. In recent years, investment banks had developed a strategy of knee-jerk responses to changes in the market, but today’s market calls for a different approach—a strategic approach to cost reduction.
Strategic cost reduction for investment banks
Accenture believes that 2012 will be a key year for investment banks, as they take stock of their business: the clients they serve, the businesses they offer and how they operate. Strategic cost reduction must be at the heart of this analysis.
Accenture believes that investment banks should focus in five key areas:
- Operating model. Banks must shift to a more flexible operating model that enables agility, and one that combines short-term wins with longer-term structural changes.
- Customer-centricity. Banks should identify the services and products that clients want and will pay for, and how much each offering costs to deliver. Customer segmentation can also enable banks to better align clients with service channels, integrate business services and provide personalised advice.
- Labour. Though the prime target for efficiency gains, slashing headcount can endanger future revenue generation. Accenture recommends appropriate use of outsourcing and offshoring as a way to reduce costs and capitalise on highly educated workforces overseas.
- Review processes. Investment banks must be aware of the commoditisation of their products. As margins narrow, they need to reduce costs through automation and removal of duplication.
- Culture. Every individual, activity and unit of an investment bank must have a constant focus on costs. This cost-awareness culture must be embedded throughout the enterprise, with clear buy-in from senior executives.
Above all, investment banks must remember that cost reduction is not a one-off exercise. High performers will succeed in implementing—and maintaining—a constant culture of cost consciousness.
Download Challenge 10: Achieving Sustainable Cost Reduction (pdf; opens in a new window).