Published Wednesday 5th August 2020
The delivery of sustainable cost savings cannot come at the expense of the customer experience or regulatory compliance. This presents a significant barrier to delivery for many organisations – cost saving programs often find themselves in the second tier of priority, deprived of focus and resources.
The Challenge
Financial Services organisations throughout Europe are operating in a complex market sector. There are a wealth of intricate challenges that are fundamentally changing the way the industry functions, and further developments are inevitable.
New market entrants with a lower cost-base and established competitors are not the only issue. External influences such as regulatory compliance and the growing demands of customers are also having a significant impact on operational processes and ultimately profitability.
Successful organisations are reshaping their business models to accommodate these changing times, overcoming barriers by developing and implementing inventive and sustainable solutions.
Regulatory Compliance & Risk Management
Compliance has come under major scrutiny in recent years, triggered by escalating corporate guidelines with roots in the financial crisis of 2008.
This is particularly true of the Financial Services sector, where organisations have put increasing emphasis on higher standards for ethical and moral conduct, alongside the rise of more cross-company and cross-industry collaboration. Finance leaders are trying to keep pace with an ever-evolving risk landscape, with market volatility and risk of competition growing, alongside an expanding cyber-security risk.
Financial Services businesses have no option but to comply with national and international regulations, both to operate in the sector and to remain competitive. Control of such factors within your own infrastructure is often a priority – but managing and monitoring suppliers can be significantly more difficult.
Transparent supplier relationships are key in optimising your business, as is establishing a supply chain of competent outsourcers who understand your business, your sector and collective expectations. Properly managed, these suppliers will monitor and respond to the constant changes within the regulatory environment to ensure they (and you) have a competitive advantage.
With the right insight, Financial Services organisations can navigate the maze of complex regulations and find the most suitable solutions for the business. Ongoing reviews help identify emerging opportunities and any inconsistencies within your operations, and ensure you are always receiving best value and compliance within this continually changing space.
Customer Expectations
Business is becoming more about the user experience. Demanding consumers with higher expectations of service and value expect quick and easy access to products and information.
Both wholesale and retail clients now expect a digital experience from their financial institutions. It’s about differentiated customer offerings, providing what customers want, when they want it, and how they want it. This isn’t just a matter of cosmetics. Organisations need to change their back-office operations to support it.
It is apparent that those who research and implement innovative concepts and systems, to improve both their infrastructure and customer experiences, develop a stronger advantage in the marketplace. The barriers come in the resistance to adopt technological advances into the business model, the costs to incorporate these and the risks arising from limited expertise in the area.
Digitalisation is a challenge, and the way forward is not always evident. Adopters have a great opportunity to drive more value into their customer relationships, capital resources and product offerings.
Leading financial institutions are pursuing various avenues to leverage the advantages of Financial Technology (FinTech), from partnering and buying, to sourcing and direct investment. One best practice that underpins a successful approach to FinTech is the definition of a focused strategy. This will often include an alignment between business objectives and the FinTech approach, readiness for change, an understanding of cultural barriers and a deep knowledge of the supplier marketplace.
Digitalisation is changing the way products are purchased, with new business models embracing direct-to-consumer approaches. At the rate the industry is evolving, financial products and services – and the technological infrastructure behind them – will look remarkably different in a decade. Financial Services institutions that take the time to define their FinTech strategy, and align it to their future vision and business goals, will be best positioned to make the most gains.
Cost & Supply Chain Management
Cost reduction is the number one change imperative for Financial Services organisations as they compete for profitability in a record-low interest rate and a capital-constrained market environment. Aggressive cost reduction targets continue to be announced – since 2015, over 90 percent of major European banks reported further cost reductions as a key pillar of their 3-5 year strategic plans.
These market leaders see further savings as a primary lever in their struggle to beat established rivals, ward off the threat of new entrants and deliver value to customers and shareholders alike. However, for established organisations, outperforming their competitors on cost is a considerable challenge.
In the face of such market pressures, and to survive, many companies target short-term savings and quick wins to remove cost from their business. These interventions alone are rarely enough to sustainably achieve the required savings year-on-year.
If not planned and executed correctly, they can often do more harm than good – removing spend that drives value for the business, failing to sustain savings in the long-term and ultimately damaging business performance and the customer experience. To achieve a competitive and sustainable cost base, firms must find the right mix of tactical cost reduction solutions to drive short-term gains, and more strategic initiatives to realise the transformational cost reductions needed to compete in the emerging Financial Services marketplace.
Once an organisation has identified the mix of tactical and strategic initiatives it will use to achieve its longterm cost reduction targets, it needs to focus on effective delivery of the required changes.
Most cost reduction programs do not fail because of a lack of opportunities identified or the absence of a vision for transformation, but because of insufficient resources and poor implementation.
Sustainable supplier management and cost reduction has become an imperative to drive profitability, manage risk and increase shareholder value.
Businesses must act quickly to find less costly, more efficient ways to operate.
About the Author: Richard Placito, leads and implements business process and cost management programmes for organisations across the UK and worldwide. Clients enjoy rapid, effective and engaging outcomes that deliver real value. Richard works across several market sectors and chairs the EMEA Financial Services Practice on behalf of ERA.