Industrial strength banking

There are many challenges facing the banking industry. But rewards await those bold enough to embrace the concept known as 'industrialised banking', writes Trevor J Gruzin of Accenture.

Since the mid-1980s, the world's leading banks have experienced dramatic growth due to an aggressive effort to differentiate themselves from competitors. Banks achieved this primarily through the development of new business models, products and customer interaction channels. By combining improved targeting of these new products and services with more sophisticated customer segmentation, banks could generate impressive growth.

Despite the success the industry enjoys today - as a result of low interest rates, a housing boom and strong deposit growth in most major markets - change is in the air. The global banking industry faces the beginnings of a new cycle of rising interest rates that will bring many challenges, including the end of hyper-growth in mortgage and consumer credit, heightened price competition for smaller volumes, and a rise in problem loans.

Even more troubling is that many banks are unprepared to deal with a less favourable business environment because they are saddled with complexity that is the direct result of their pursuit of differentiation and speed to market since the mid-1980s. During that time, banks handled both their systems and processes in-house only. But as market demands evolved, many banks cobbled together a patchwork of solutions from a combination of off-the-shelf products and in-house development supplemented by process workarounds and staff expansions.

Legacy of complexity

For many banks, this has resulted in multi-layered complexity, which makes them less efficient, compromises their ability to deploy new products and services to the market, and constrains the ability to differentiate. This complexity takes three forms:

• Customer complexity. Confusion caused by multiple products that meet the same need, and customer frustration caused by banks' inefficient responses to inquiries and service requests.
• Back-office complexity. Duplication of processes and resources, often supporting too many products (many of which are unprofitable). A typical bank operates over 40 processing centres, far more than it should.
• IT complexity. Duplication of capabilities across business units due to lack of technology standards and a multiplicity of interfaces.

Exacerbating the problem is that banks will likely see more competitive pressure in the next few years from specialists and the increasing strength of banking powerhouses. While it is true that banks have managed complexity issues for years, Accenture contends that favourable market conditions have enabled banks to bear this cost. In all likelihood, the new environment will be much less forgiving.

Industrialising the bank

As many banks face stagnating efficiency ratios and a business climate that shows signs of being hostile to growth, banks must take steps now to simplify their businesses and become more cost-efficient and flexible. But such simplification cannot come at the cost of decreased differentiation. On the contrary, in tougher economic times, differentiation is more important than ever. A bank must simplify its internal operations to reduce costs and create greater capacity for differentiation in the marketplace at the same time, done through a concept known as 'industrialised banking'.

Banks must reduce the cost of designing and building products while maintaining styling distinctive enough to appeal to different customer segments. To do this, they can industrialise their operations via platforms to simplify how they bring new products to market. For example, a bank can have one set of platforms that focus on customer segments and their needs, and another set of product-family platforms to perform servicing and manufacturing. A third set of platforms could provide the essential link between distribution and manufacturing: the service integration platform to enable multi-product fulfilment and servicing, and a cross-product platform to enable a bank to design and deliver new offerings at speed.

High performance is a challenging journey, but there are significant rewards to be had by those banks bold enough to persevere and leverage the know-how and assets on offer.

Further information

Accenture
Tel: +44 20 784 4000
Fax: +44 20 784 4444
Email: cathryn.mcgettigan@accenture.com
Website: www.accenture.com