Challenges for investment banks 2017 (Part 2): Aggressive Cost Reductions

Beat Monnerat, Senior Managing Director of Financial Services for Asia Pacific; Owen Jelf, Senior Managing Director for Capital Markets; Accenture

This vendor-written piece has been edited by Executive Networks Media to eliminate product promotion, but readers should note it will likely favour the submitter's approach.

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This year isn't going to herald some surprising change where investment banks can spend freely. Financial institutions should maintain a razor-sharp focus on cost reduction, but this isn't about a nip and tuck here and there, it is about strategy.  

Financial services companies should move beyond tactical cost reductions and focus on generating higher efficiencies. It is clear that seeking to achieve truly meaningful and sustainable efficiency is a complex and mammoth task -- indeed for the past few years, it has been a reoccurring theme in our Top 10 Challenges series.

Our view is that prerequisites for successful efficiency includes:

 

  • A top-down mandate capable of crossing business and operating silos, and enforcing a "bank first" view rather than a desk or product orientation.
  •  A truly front-to-back process to help verify that costs are fully understood, solutions address root causes and downstream effects are minimised.
  • An understanding of costs and cost drivers. Too often, target cost reductions on departmental operating budgets are established with insufficient understanding of the total cost details, with IT teams then bearing the brunt of frustrations of how to make it work.
  •  A re-examination of what is important to own and what customers will pay for. Many bank IT organisations continue to make a case for custom development and on-premises capabilities-even when those solutions don't differentiate or are inferior to alternatives already available in the marketplace. Accenture estimates that these expenditures account for up to 40 per cent of IT and operational costs.
  •  A plan for the savings generated-whether that's offsetting costs or generating new revenue.

 

The bottom line: cost reduction initiatives that set institutions up for sustainable growth should centre around technology and digital solutions, which have raised the bar for cost-reductions by making them part of growth initiatives as well. That means financial services institutions need to focus less on historical benchmarks and more on what is possible with a new cost model enabled by digital technologies.

The focus should be on simplifying, establishing meaningful alliances with fintech companies, other banks and other industries, working in wider ecosystems, and embracing utility service providers.

Banks also may need to rethink the operating models and legacy IT systems that support the business, using techniques like zero-based programs to identify, eliminate and prevent unproductive expenses. And they could migrate infrastructure and platforms to Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS).

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