Achieving Sustainable Growth through Strategic Cost Management

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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
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Achieving Sustainable Growth through Strategic Cost Management

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