Achieving Sustainable Growth through Strategic Cost Management

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White Paper
Achieving Sustainable
Growth through Strategic
Cost Management
Insights from the Accenture Cost Management Survey
Research Report for
the Banking Industry

About the research
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 management
experiences 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 their
current 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.

Key findings
Figure 1. Strategic cost management survey: comparative cost reduction achieved
Current situation for North American banking institutions:
How much has your organization reduced its costs in the last 12 months?
50%
40%
30%
20%
10%
0%
1%
Costs
increased
Source: Accenture, January 2010
11%
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 the
need to be strategic with cost reduction
efforts—and 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.
39%
40%
Current realities
49%
Key Message
Nearly half of North
American banking executives
indicated their cost
reduction efforts through
late last year at least
equaled or even exceeded
the global average for
banking and other
industries (11%)
0% 1% -5% 6% -10% 11% -20% 21% -30% >30%
Costs decreased
6%
3%
Bankers around the world have already
shown their resolve to face the current
global financial challenges using
aggressive 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.
But—and this may be one of the most
significant findings for the banking
industry—many executives also suggested
that their current approach to cost
cutting might not be sustainable or
have the desired long-term effect.
All Industries
Insurance
Capital Markets
Banking
In particular, executives were uncertain
whether their banks are prepared
to meet increasing expectations for
sustainable growth as they continue to
cope 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.
For most banks, return on equity
in recent years has fallen from 25
percent to less than fi ve percent.
High cost bases and infl exible,
redundant operations are no
longer acceptable.
3

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 18
months ago?
70%
60%
50%
40%
30%
20%
10%
0%
Source: Accenture, January 2010
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 also
exceeded the average of 2.7 rounds for
their Canadian counterparts (Figure 2).
4
3%
Do not know/
not applicable
39%
45%
Targeted staff-related expenses. The
most popular cost reduction tactics
include (Figure 3) making layoffs (67
percent of responses), eliminating
jobs (66 percent), reducing employee
compensation (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 plans
Mean reduction rounds for:
U.S. banks = 3.34
Global banks = 3.24
Canadian banks = 2.70
13%
1 to 2 3 to 5 >5
Response higher (by 2%) than
average global banker response
Looking 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 actions—a level of
All Industries
Insurance
Capital Markets
Banking
cost reduction activity much higher
than that of respondents from
other industries.
And going forward, nearly a majority
of 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).

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 on
multiple responses)
Employee layoffs
Job eliminations
Organizational structure changes
Employee compensation reduction
Employee benefits reduction
Advertising reduction
Process redesign
Facility-real estate rationalization
Shared services
Strategic sourcing
Customer self-service options
Product redesign
Source: Accenture, January 2010
67% 57%
66% 51%
58% 48%
55% 45%
45% 45%
42% 44%
41% 37%
38% 33%
32% 30%
25% 22%
23% 23%
22% 20%
Figure 4. Strategic cost management survey: US bank plans for additional expense reduction
% = Response level of bank executives worldwide
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 on
multiple responses)
Reduce operating costs 71% 66%
Increase profitability
Survive global economic downturn
Eliminate process redundancies
Free up cash quickly
Foster cost management culture
Provide greater expense visibility
Drive asset productivity
Improve decision-making speed
More variable cost structure
Source: Accenture, January 2010
16% 26%
13% 10%
26% 29%
25% 31%
25% 22%
22% 23%
46% 46%
41% 35%
70% 62%
% = Response level of bank executives worldwide
Key Message
Only 14% of Canadian executives indicated
“Survive Global Economic Downturn” as an
objective compared with 50% of their U.S.
counterparts
5

Figure 5. Strategic cost management survey: functional areas of focus for banks
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)
Operations & Production 39% 31%
Information Technology
General Management
Marketing & Sales
Human Resources
Finance & Accounting
Procurement
Research & Development
Customer Service
Legal
Strategy & Business Development
Source: Accenture, January 2010
6
16% 21%
13% 17%
13% 14%
20% 25%
19% 19%
38% 36%
38% 36%
35% 33%
33% 31%
29% 36%
Used appropriately as a major financial
performance lever, strategic cost
management programs can help
banks achieve an acceptable level of
profitability and—ultimately—deliver
attractive 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.
% = Response level of bank executives worldwide
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 human
resources, finance and accounting,
and procurement.

Challenges and
opportunities for banks
During the economic downturn, most
banks—perhaps by necessity—have
emphasized tactical cost reduction
initiatives over strategic cost reduction
programs that have sustainable, longterm
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 bank’s ability to
achieve 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
bank’s 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.
7

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 your
organization’s ability to achieve long term (more than 12 months old) performance goals?
Information Technology
Customer Service
General Management
Human Resources
Marketing & Sales
Operations
Research & Development
Risk
Strategy & Business Development
Finance & Accounting
Procurement
Supply Chain Management
Legal
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 initiatives
implemented 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 shortterm
thinking and tactical solutions
helped create the current business
reality, and the time may be right to
reconsider the overall approach.
8
Hindered
No impact
Improved
No action taken
Do not know/not applicable
40%
26%
25%
24%
24%
22%
22%
22%
21%
16%
15%
10%
8%
35%
54%
35%
38%
32%
51%
48%
46%
32%
41%
41%
28%
22%
48%
36%
42%
40%
42%
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 on
developing 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.
35%
31%
31%
25%
22%
29%
22%
19%
11%
2% 10%
8%
7%
3%
4%
2% 5%
3% 5%
9%
2% 3%
7%
2% 4%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
6%
4%
4%
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 different
situation 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 indiscriminately—10
percent across all departments, for
example—the 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.

Recommendations
Figure 7. Strategic cost management
Impact and
Sustainable Value
Creation
1
Tactical Actions
Rapid Cost Takeout
Tactical Actions
Rapid Cost Take Out
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 strategic
cost 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):
2
Strategic Actions
Sustain Cost Reduction
6/12 months > 12 months
1 2 3
Near term cost reduction
with low complexity and
investment
Bolster Cost
Governance
3
Cost management model
optimization to achieve
sustainable cost reduction,
ensuring effective execution
Time
Strategic/Operational
Transformation
Optimize non core capabilities
Search for cost variabilization
Transform/invest in core
capabilities
1. Tactical Cost Reductions—Seek
rapid cost takeout of non-strategic
expenses, the “low-hanging” fruit,
to fund ongoing strategic cost
management initiatives.
2. Proactive Cost Governance—Create
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 Transformation—Implement
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.
9

Six recommended actions
By using a smart combination of
tactical cost reductions, proactive
cost governance and strategic cost
management initiatives, a highperformance
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 bank’s product
portfolio so that it offers standardized
components 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 offshoring
and outsourcing. Strategic
10
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 bank’s
capacity for managing risk.
Accenture believes that, despite recent
cost reduction initiatives, expenses at
most North American banks are still at
least 20 percent—and in some cases
40 percent—too high. With savings
generated 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.

Why Accenture
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 Global
Delivery Network help us deliver effective
cost reduction programs and meet
a range of IT and business process
outsourcing needs.
Accenture’s 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 should—be 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 model—from distribution
through to back offi ce and IT
Cost governance
Business process management
improvements, including using
Lean Six Sigma
Savings realization and
certifi cation
11

Contact us
Matt Podrebarac
Lead for Strategic Cost Management
Services
North America Banking
+1 973 301 1087
matthew.j.podrebarac@accenture.com
Julian Ortiz
Senior Director for Process and
Innovation Performance
North America Financial Services
+1 310 426 5183
julian.ortiz@accenture.com
Terry Moore
Managing Director for Financial Services
North America Banking
+1 678 657 8730
terry.l.moore@accenture.com
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Its home page is www.accenture.com.