accenture banking cost management survey

8/4/2019 Accenture Banking Cost Management Survey

1/12

Claims 2.0: RethinkingHigh Performance in Claims

White Paper

Achieving Sustainable

Growth through Strategic

Cost ManagementInsights from the Accenture Cost Management Survey

Research Report for

the Banking Industry


2/12

Accenture recently surveyed 1,405

executives at large companies in the

United States, Canada, France, Germany,

Italy, Spain and the United Kingdom

to understand their cost managementexperiences and plans.

In the survey, we asked questions

such as:

What action has your company taken

in the past 12 months in regard to

cost management?

Did your company achieve its business

objectives with the cost management

activities? What results have you

already experienced?

2

What additional cost management

activities, if any, are planned for the

next 12 months?

What objectives does your company

expect to meet with these future

cost management activities? Which

business functions will be most

strongly affected?

To gain perspective on important cost

management trends, we engaged

survey respondents from nine major

industry segments, including banking,

capital markets and insurance. In

particular, 455 financial services

executives provided insights on theircurrent and upcoming cost reduction

initiatives and cost management programs.

The Accenture Cost Management

Survey underscores the importance

for bank executives of:

Managing aggressive cost

reduction initiatives.

Developing and continuing

sustainable cost management

programs.

Understanding the short- and

long-term effects of cost

reduction initiatives and cost

management programs.

About the research


3/12

3

This report details the survey findings

as they relate to the North American

banking industry.

For most banks, return on equity in

recent years has fallen from 25 percent

to less than five percent. Institutions

are now under severe liquidity pressures

due to loan losses, often anemic organic

growth, a tight credit environment and

generally weak economy. High cost bases

and inflexible, redundant operations

are no longer acceptable.

To restore profitability as the economy

rebounds, many banks recognize theneed to be strategic with cost reduction

effortsand aggressive. By balancing

short-term, tactical cost reduction

initiatives with longer-term, sustainable

cost management programs, most banks

can work to achieve cost reductions of

20 percent to 40 percent.

Current realities

Bankers around the world have already

shown their resolve to face the current

global financial challenges usingaggressive cost reduction initiatives.

Banking executives indicated in the

survey that their industry has already

been pursuing significant cost

reductions (Figure 1) and that these

efforts will continue at a pace exceeding

most other industries going forward.

Butand this may be one of the most

significant findings for the banking

industrymany executives also suggested

that their current approach to costcutting might not be sustainable or

have the desired long-term effect.

For most banks, return on equity

in recent years has fallen from 25

percent to less than five percent.

High cost bases and inflexible,

redundant operations are no

longer acceptable.

Key findings

Figure 1. Strategic cost management survey: comparative cost reduction achieved

urrent situation for North American banking institutions:ow much has your organization reduced its costs in the last 12 months?

Source: Accenture, January 2010

All Industries

Insurance

Capital Markets

Banking

39%

49%

40%

11% 6%3%1%

Key MessageNearly half of NorthAmerican banking executivesindicated their costreduction efforts throughlate last year at leastequaled or even exceededthe global average forbanking and otherindustries (11%)

0%

10%

0%

0%

0%

0%

Costsincreased

0% 1% -5% 6% -10% 11% -20% 21% -30% >30%

Costs decreased

In particular, executives were uncertain

whether their banks are prepared

to meet increasing expectations for

sustainable growth as they continue tocope with the challenges of the global

economic environment. We will return

to this topic later in the report, but

first a few more findings on what has

recently happened.


4/12

The majority of the more than 100

North American banking executives

we surveyed reported that through late

last year they had:

Reduced their overall expenses by

at least six percent, with nearly half

of respondents achieving reductions

of 11 percent to 30 percent or more, a

level higher than their counterparts in

capital markets and insurance.

Executed three or more waves of

cost cutting. An average of 3.34

rounds for US banking respondents

was much higher than the average for

all nine industries surveyed, including

capital markets and insurance. It alsoexceeded the average of 2.7 rounds for

their Canadian counterparts (Figure 2).

Targeted staff-related expenses. The

most popular cost reduction tactics

include (Figure 3) making layoffs (67

percent of responses), eliminating

jobs (66 percent), reducing employeecompensation (55 percent) and cutting

employee benefits (45 percent). For all

but one of these categories (employee

benefits), the percentage of reductions

by those in the United States exceeded

the amount of reductions by banks

elsewhere by at least 11 percent.

Used cost management initiatives

mainly to reduce operating expenses.

Future plansLooking to the future, more than three

quarters of banking executives told

us that they are not finished reducing

their costs. At least 65 percent of bank

executives said they will initiate further

cost management actionsa level of

cost reduction activity much higher

than that of respondents from

other industries.

And going forward, nearly a majorityof banking executives (49 percent)

intend to reduce costs further by at

least six percent, with some aiming

for up to 20 percent or more in

additional cost reductions.

However, the motivation for upcoming

cost management actions appears to be

shifting: 70 percent of banking executives

said that future cost reductions will

be to enhance profitability. In contrast,

respondents ranked Survive Global

Economic Downturn as a rather

distant third priority, possibly signaling

renewed favor for long-term, strategic

actions over short-term tactical

maneuvers (Figure 4).

4

Figure 2. Strategic cost management survey: number of cost reduction rounds

Current situation for North American banking institutions:How many rounds of cost reduction has your organization implemented since the global economic downturn started 18months ago?


All Industries

Insurance

Capital Markets

Banking

39%

45%

3%

13%

Mean reduction rounds for:U.S. banks = 3.34Global banks = 3.24Canadian banks = 2.70

Response higher (by 2%) thanaverage global banker response

0%

10%

20%

30%

40%

50%

60%

70%

Do not know/

not applicable

1 to 2 3 to 5 >5


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5

Figure 3. Strategic cost management survey: actions already taken by banks

Current situation for North American banking institutions:Which of the following cost management actions did your organization implement in the last 12 months? (based onmultiple responses)


= Response level of bank executives worldwide%57%

51%

48%

45%

45%

44%

37%

33%

30%

22%

23%

20%22%

23%

25%

32%

38%

41%

42%

45%

55%

58%

66%

67%

Product redesign

Customer self-service options

Strategic sourcing

Shared services

Facility-real estate rationalization

Process redesign

Advertising reduction

Employee benefits reduction

Employee compensation reduction

Organizational structure changes

Job eliminations

Employee layoffs

Figure 4. Strategic cost management survey: US bank plans for additional expense reduction

Future aspirations for North American banking institutions:

What objectives do you plan to achieve by taking additional cost management actions in the next 12 months? (based onmultiple responses)


13%

16%

22%

25%

25%

26%

41%

46%

70%

71%

More variable cost structure

Improve decision-making speed

Drive asset productivity

Provide greater expense visibility

Foster cost management culture

Free up cash quickly

Eliminate process redundancies

Survive global economic downturn

Increase profitability

Reduce operating costs 66%

62%

46%

35%

29%

31%

22%

23%

26%

10%

= Response level of bank executives worldwide%

Key MessageOnly 14% of Canadian executives indicated

Survive Global Economic Downturn as an

objective compared with 50% of their U.S.

counterparts


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6

Used appropriately as a major financial

performance lever, strategic cost

management programs can help

banks achieve an acceptable level of

profitability andultimatelydeliverattractive returns to shareholders.

Strategic cost management programs

may also be increasingly important

as loan loss write-downs continue to

occur and banks experience ongoing

pressure to boost capital levels.

Responses to the survey also indicated

that, going forward, bankers intend to

reduce costs across a broad range of

functional areas (Figure 5), including

operations and IT as well as in humanresources, finance and accounting,

and procurement.

Future aspirations for North American banking institutions:In which functional areas do you plan to make cost reductions in the next 12 months? (based on multiple responses)


13%

13%

16%

19%

20%

29%

33%

35%

38%

38%

39%

Strategy & Business Development

Legal

Customer Service

Research & Development

Procurement

Finance & Accounting

Human Resources

Marketing & Sales

General Management

Information Technology

Operations & Production 31%

36%

36%

33%

31%

36%

25%

19%

21%

17%

14%

= Response level of bank executives worldwide%

Figure 5. Strategic cost management survey: functional areas of focus for banks


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7

During the economic downturn, most

banksperhaps by necessityhave

emphasized tactical cost reduction

initiatives over strategic cost reduction

programs that have sustainable, long-term business benefits. However, those

organizations that recognize the

opportunities created by a general

shift toward strategic, sustainable

cost reduction programs will be best

positioned to achieve high performance

going forward.

The current situation emphasizes how

important it is for banking executives

now to take a strategic view toward

managing cost reductions. In the

survey, most banking executives (78

percent) believe that cost reductions so

far have permanently changed the way

their organizations will operate.

Survey results also indicate that cost

reductions already made in such areas

as human resources, IT, and research

and development have actually harmed

more than helped their banks ability toachieve short-term performance goals.

When asked about the long-term impact

of their cost reduction activities,

banking executives told us that cost

cuts related to IT and customer service

departments did more harm than good

and those related to risk have at least

hindered as much as helped their

banks ability to achieve long-term

performance goals. On a more positive

note, cutbacks made to functions

such as supply chain management,

procurement, and finance and accounting

are viewed as having helped the

organization much more in the long

run (Figure 6).

A majority of banking executives

indicated that they are not

certain whether their cost

reduction efforts to date will

be sustainable going forward.

Challenges andopportunities for banks


8/12

Perhaps because of some of the

negative effects of the recent cost

cuts, nearly half of banking executives

reported that they are undecided

whether to continue previous initiativesimplemented over the past 12 months.

Nonetheless, banking executives said

that, moving forward, they again will

be focused on tactical initiatives such

as reducing employee-related costs.

Less popular were such strategic

considerations as undertaking process

redesign (26 percent), adopting shared

services (25 percent) and rationalizing

customer mix (25 percent).

However, a similar emphasis on short-

term thinking and tactical solutions

helped create the current business

reality, and the time may be right to

reconsider the overall approach.

For example, before the full impact

of the global financial crisis, many

banks were focused on driving growth

through product innovation and

focused relatively less attention ondeveloping efficient operating models

or achieving customer centricity.

Complex and disjointed organizational

structures were erected that embedded

duplicative efforts and created, in some

cases, siloed sources of cost scattered

throughout the company. These isolated

organizational structures were also

inherently inflexible and disallowed

economies of scale. So the tunnel vision

for immediate growth resulted, perhaps

inadvertently, in the creation of inflexible

and expensive operating models.

Had the pre-crisis focus instead been

on sustainable growth, the banking

industry may well have had efficient

and flexible operating models that

would have put it in a much differentsituation going into the global

economic downturn.

Although in a weak economy, there may

be similar temptations to focus only on

immediate needs and reassure investors

by cutting costs indiscriminately10

percent across all departments, for

examplethe approach of sharing the

pain equally across the organization

often cuts muscle as well as fat and

risks hampering a bank's ability to

bounce back as the economy recovers.

The fact that most banks have so far

initiated three or more rounds of cost

cutting hints at limited effectiveness.

Leading banks today have an opportunity

to take a strategic approach to cost

management and work toward achieving

sustainable growth.

8

Figure 6. Strategic cost management survey: long-term impact of implementation

Current situation for North American banking institutions:For the following functions where you decreased costs, please indicate how cost management actions impacted yourorganizations ability to achieve long term (more than 12 months old) performance goals?

Hindered

No impact

Improved

No action taken

Do not know/not applicable

8%

10%

15%

16%

21%

22%

22%

22%

24%24%

25%

26%

40%

54%

35%

38%

35%

46%

48%

51%

32%

28%41%

32%

41%

22%

25%

48%

42%

42%

29%

22%

19%

40%

36%31%

35%

22%

31%

8%

3%

7%

4%

6%

4%

7%

4%

9%

5%

5%

10%3%

4%

11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Legal

Supply Chain Management

Procurement

Finance & Accounting

Strategy & Business Development

Risk

Research & Development

Operations

Marketing & SalesHuman Resources

General Management

Customer Service

Information Technology

2%

2%

2%

2%

3%


9/12

9

Figure 7. Strategic cost management

It is critical for banks today to find

the right balance between painful but

sometimes necessary headcount cuts

and the more strategic efforts to

streamline processes, rationalize systems,outsource non-core activities and

improve the operating model.

Journey to strategiccost management

To achieve high performance with

strategic cost management, Accenture

recommends bankers create maximum

impact and sustainable results by using

a timely combination of (Figure 7):

1. Tactical Cost ReductionsSeek

rapid cost takeout of non-strategic

expenses, the low-hanging fruit,

to fund ongoing strategic cost

management initiatives.

2. Proactive Cost GovernanceCreate

or fortify a proactive cost governance

model to sustain cost reductions using

an organizational mindset that is

focused on continuous improvement.

3. Strategic Cost Management/

Operational TransformationImplement

structural changes to the operating

model and business processes to

maximize value, sustain cost reductions

and move to a more variable (vs. fixed)cost structure. Many times, these

strategic initiatives can be funded with

savings from tactical cost reductions.

Balancing short-term, tactical

cost reduction initiatives with

longer-term, strategic cost

management programs, most

banks can achieve cost reductions

of 20 to 40 percent or more.

Recommendations

Rapid Cost TakeoutTactical ActionsSustain Cost Reduction

Strategic Actions

Impact and

Sustainable Value

Creation

Time

6/12 months > 12 months

12

3

1 2 3

Cost management model

optimization to achieve

sustainable cost reduction,

ensuring effective execution

Near term cost reduction

with low complexity and

investment

Optimize non core capabilities

Search for cost variabilization

Transform/invest in core

capabilities

Tactical ActionsRapid Cost Take Out

Bolster CostGovernance

Strategic/OperationalTransformation


10/12

10

Six recommended actions

By using a smart combination of

tactical cost reductions, proactive

cost governance and strategic costmanagement initiatives, a high-

performance efficiency bank can be

created. This type of bank usually

benefits from having implemented

the following six recommended actions:

Create a lean organizational structure

to minimize management layers, clearly

define roles and make extensive use of

shared services to de-duplicate activities.

Rationalize the banks product

portfolio so that it offers standardizedcomponents and reusable product

features that can be grouped into

tailored customer offerings that

drive profitability.

Optimize the operating model

architecture by moving progressively

from a high fixed-cost base to a

variable lower-cost base using off-

shoring and outsourcing. Strategic

sourcing provides the flexibility

to dial up or dial down costs

and capacity according to market

conditions and business goals.

Streamline and automate processes,

encouraging a culture of end-to-end

process ownership and continuous

improvement.

Deploy a multi-channel mix of

capabilities for an effective customer

experience that delivers satisfying

self-service options for simple sale and

service transactions while focusing the

right amount and quality of professional

resources on interactions with the

most profitable customers.

Modernize and simplify the technical

architecture to implement capabilities

that extract intelligence from data

analytics to enhance customer targeting

and service, capitalize on the mobile

revolution and revamp the banks

capacity for managing risk.

Accenture believes that, despite recent

cost reduction initiatives, expenses at

most North American banks are still at

least 20 percentand in some cases

40 percenttoo high. With savingsgenerated from tactical cost reductions,

many banks can create self-funding

programs for strategic operating model

or process improvements that have

long-term business benefits.

With flexible and streamlined

organizational structures, a bank

can improve its ability to meet evolving

customer needs. It can also be prepared

to lead the way in the changing

financial services landscape with

its new non-banking competitors such

as telecommunications companies,

retailers, electronics makers and

internet providers.


11/12

11

Accenture provides clients with a solid

approach to cost reduction. Our proven

assets, multi-sector track record in

financial services and other industries,

and award-winning Accenture GlobalDelivery Network help us deliver effective

cost reduction programs and meet

a range of IT and business process

outsourcing needs.

Accentures end-to-end strategic cost

management capabilities facilitate

smart planning as well as efficient

implementation and optimization

of ongoing operations. Our key

differentiators include:

Senior teams of industry experts

who closely co-operate with client

management teams and other key

stakeholders to set priorities and

optimize savings in the right areas.

Implementation focus enables a

make-it-happen attitude to achieve

business results, leverage existing

initiatives and provide a combination

of quick wins and longer-term savings.

In-house, full-service portfolio of

resources for operational and financial

restructuring and other business

functions to be performed on site, near

shore and/or offshore, as appropriate.

Holistic approach to address costs

using an end-to-end, cross-functional

transformation that focuses on change

management and the promotion of a

performance culture to create strategic

cost management rather than ad hoc

cost reductions.

Strategic cost management can

and shouldbe a continuous process

implemented with a long-term view

to enabling cost reductions while

sustaining sources of revenue generation,

creating effective risk management

capabilities and developing a nimble

organization that is able to adapt to

economic, financial and regulatory

changes. In this way, strategic cost

management can help a bank achieve

sustainable growth and be well

positioned for high performance in

the future.

Proprietary assets and specialized

methods for:

Cost management benchmarking

and planning

Cost reduction across the banking

operating modelfrom distribution

through to back office and IT

Cost governance

Business process management

improvements, including using

Lean Six Sigma

Savings realization and

certification

Why Accenture


12/12

Copyright 2010 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Deliveredare trademarks of Accenture.

About Accenture

Accenture is a global management

consulting, technology services and

outsourcing company, with more than181,000 people serving clients in

more than 120 countries. Combining

unparalleled experience, comprehensive

capabilities across all industries and

business functions, and extensive

research on the worlds most successful

companies, Accenture collaborates

with clients to help them become

high-performance businesses and

governments. The company generated

net revenues of US$21.58 billion for

the fiscal year ended Aug. 31, 2009.Its home page is www.accenture.com.

Matt Podrebarac

Lead for Strategic Cost Management

Services

North America Banking

+1 973 301 1087

[email protected]

Julian Ortiz

Senior Director for Process and

Innovation Performance

North America Financial Services

+1 310 426 5183

[email protected]

Terry MooreManaging Director for Financial Services

North America Banking+1 678 657 8730

[email protected]

Contact us

accenture banking cost management survey

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