By Phil Towers and Gavin Neilson, financial services experts
You have just been to see your doctor and he’s told you that if you don’t shape up you’re due a heart attack. You decide to get some help and two personal trainers come to see you. The first tells you there are no alternatives to what you’ve already been doing – just eat a bit less. The second tailors you a diet and exercise plan that has worked for hundreds of others and shows you how to fit it into your busy daily routine. Which option do you go with?
It would seem the industry, as a whole, has been choosing trainer number one to restore their companies to health. In the last seven years since the financial crash, many retail banks have failed to adapt their operations to new market forces and the largest players in the industry have a high variance of products and services, complex operating models, ineffective operations performance management and undiscovered legacy architecture.
Fitness indicator 1: Cost Income ratio
One central indicator of the health of banks is their cost income ratio – and many are still struggling to lower their costs and become more efficient. We researched the major banks’ financial results and found their cost income ratios range from 51% up to 114% – with an average of 72% (22 percentage points above the target of less than 50% banks should be aiming for).
Fitness indicator 2: Customer trust
The other key indicator of a bank’s health is the level of customer trust. The Net Promoter Score (NPS) is now frequently reported as the gauge of customer advocacy and it is encouraging that banks are developing a range of programmes to redefine and reconfigure the customer interface. CEOs and CMOs are staking their reputations on rebuilding trust, but if banks do not have the operational capability to meet their customers’ newly raised expectations, a slump in NPS is on the cards.
Managing the twin challenges of cost reduction and rebuilding customer trust has never been more vital. Executives are looking to transform banking operations as a solution but many are unsure where to start. In our experience, the answer lies in thinking differently.
- Learn from the best. Look to other sectors, specifically manufacturing, and identify which design principles and learnings can be adapted to banking operations. Manufacturing is a sector that already ‘lives and breathes’ efficiency excellence and is very successful in cutting out costs with lean techniques. We have recently worked for with a number of premium German Premium Car Manufacturers, helping them to optimise their operating models and, using robust quantitative analysis and internal benchmarking, have achieved cost reductions of up to 30%.
- Go ‘end-to-end’, not ‘slice-by-slice’. Simplify the entire end-to-end customer journey, drive out variation and automate your consolidated processes. Whether creating simplicity for customers or internal operating simplicity, great business design will drive out complexity – improving business effectiveness and performance. In contrast, the best traditional ‘salami slicing’ cost reduction approach takes no consistent account of its impact on customer experience.
- Change how you change. Rethink your overall approach to change and reconsider why you are following a traditional waterfall approach. Agile is not just for app developers, it is something that can deliver benefits across an entire change organisation. We are currently helping a large pharmaceuticals company to deliver a scale agile transformation that is halving the organisation’s costs and doubling their productivity in a competitive, regulated environment.
- Get a grip on your capability. Change teams are already tired and will need both fresh blood and strong talent management to face the challenges ahead. In our latest talent research, we found that, while 63% of CEOs aspire to a talent management approach that drives a high performance organisation, just 15% believe they have one that comes anywhere close. This drives home the message that without taking a structured approach to talent management, change leaders are ignoring a key lever for success.
Banking operations has become an even more unforgiving environment in recent years, but the path to success is clear and there will be real economic benefits for those able to address the challenges and stay ahead of cost and customer expectations.
To find out more about our insights and approach to banking operations transformation, and meet one of our experts, contact us.