Cost reduction in financial services
Moving beyond traditional cost reduction in financial services
In a new report titled: The productivity agenda – moving beyond cost reduction in financial services, PwC sets out the important challenges and opportunities facing the financial services industry and the ways in which senior executives should respond if they wish to move beyond simple cost cutting and improve profitability in the long term.
With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Cost-cutting will only deliver so much. If financial institutions are to improve profitability in the long term they need to fundamentally improve the productivity of the enterprise.
Pieter Crafford, Financial Services Advisory Leader for PwC South Africa says: “A number of external factors have put significant pressure on the financial services industry in recent years, leaving many organisations with increased pressure on cost structures. Traditional cost reduction measures can only deliver limited results. Financial services organisations need to tackle the productivity challenge heads on in order to move to a sustainable and low cost business model.”
PwC’s report is part of a series of thought leadership publications dealing with important issues as well as the resultant opportunities facing the financial services industry. In particular, we explore the ways in which senior executives at some of the most innovative and successful institutions are responding.
Based on a detailed global survey of the financial services industry, PwC has identified six areas where financial institutions can focus their productivity efforts to boost long term sustainability:
- Better understanding the workforce. Our experience indicates that by simply tracking hours by task, organisations can improve productivity by 15% to 20%. The implementation of service catalogues and multi-tier sourcing can bring another 20% improvement. Of the organisations that didn’t track work by hours and tasks, 62% believed such tracking would yield productivity benefits.
- Rethinking change functions. Forty percent of financial institutions are spending 20% of their entire budget on so-called ‘change the institution’ efforts. However only 15% said they were satisfied with their ability to execute change.
- Embracing the platform economy. Only 21% of financial institutions employ crowdsourcing tools today. Platforms can run challenges that tap the collective brainpower and resources of a crowd, driven by a sense of competition to develop the best response. We predict that gig employees will perform 15% to 20% of the work of a typical financial institution within five years. This translates into significant cost savings across the board, along with the potential to improve the level of talent and innovation delivered from the employee base.
- Improving workforce digital IQ. As people live and work longer, and unemployment rates remain low, digital training and retraining of existing workforces is particularly crucial. Despite its importance, research shows that current efforts are not achieving the desired results. Of the financial services leaders polled in PwC’s 2018 CEO Survey, 75% reported they were concerned about shortages of digital skills within the industry.
- Bringing an agile mind-set to the mainstream. To keep up with digital-only competitors and rapidly deliver a seamless and instant customer experience, 77% of financial institutions are turning to agile delivery methods in some way throughout their organisations.
- Mastering digital labour. Over 50% of CEOs believe artificial intelligence (AI) will have a bigger impact than the internet. Getting the balance right between tasks performed by AI and tasks performed by people will be key to the future success for financial institutions.
Andy Wilson, Financial Services Intelligent Digital Lead for PwC Africa, comments: “To be competitive in tomorrow’s financial services industry, banks and insurers, must be able to rapidly deliver a simple, seamless and instant customer experience at a competitive cost. An agile mindset is becoming key to success. Financial institutions are also confronting new disruptive technologies developing at an exponential pace, new forms of regulations, the continuous rise of fintechs and the threats of bigtechs.”
Sustainable productivity improvement is imperative for the financial services industry. The transformation will require technology and humans to work together in a fundamentally new relationship, one in which machines take over routine manual tasks but also assist humans in better executing their roles, creating new opportunities for institutions and their employees. There’s no one right way to approach the productivity challenge, but concentrating on these six areas is a great place to start the journey.
