Why FS firms are not yet fit for growth

22 February 2018

In order to survive the challenging market of the past couple of years, financial services industry leaders have been focused on managing costs. To their credit, they have made progress in expense reduction and efficiency. However, there is still a long way to go. Strategy& research estimates that major UK retail banks need to remove an additional £4.5bn of cost to reach their own cost-to-income targets but, even then, they will remain adrift of new entrants and best in class international banks. 67% of banking and capital markets CEOs say they will engage in cost reduction in the course of 2018, according to PwC’s 21st Global CEO Survey. As they do so, they will need to move beyond the expense reduction and process efficiency programmes of the past, whose benefits are both capped in potential and liable to disappear as executive attention drifts away.

Building on our experience helping financial services clients tackle these challenges, we have developed an approach we call Fit for Growth. Fit for Growth is not a one-time event, but a long term way to control costs and deploy resources efficiently year after year. For example, it can help CEOs integrate their cost reduction goals with the roll-out of new digital and technology capabilities – simultaneously cutting costs and laying a platform for future growth. There are four steps

1. Focus on differentiating capabilities

Identify the three to six differentiating capabilities that enable your firm to compete most effectively in the areas where it chooses to do business. Examples of differentiating capabilities include the ability to exploit big data, real-time risk management, and  “industrial processing model”.

2. Align cost structure

Deploy your investments to the differentiating capabilities while cutting non-essential costs. Most retail banking Fit for Growth programmes yield savings in the range of 25 to 30 per cent, by addressing costs in non-core areas of the business, using levers such as process transformation, infrastructure consolidation and skills optimisation. A significant slice of these savings is redirected toward the critical capabilities that ultimately drive revenue gains.

3. Reorganise for growth

Adjust the organisation to re-focus on key capabilities, changing the organisational model, processes and systems to unlock potential and enable agility for growth. In financial institutions, common focus areas include embedding digital services to predict and meet customer needs and creating end-to-end customer journeys to enhance sales and service.

4. Enable change and cultural evolution

Embed the change by addressing the potential inefficiencies rooted in the organisation’s culture and reinforcing behaviours that can lead to higher productivity and engagement. For example, a large corporate bank undertaking a Fit for Growth initiative promoted three critical behaviours and introduced associated hard metrics to track progress over time. According to the bank’s CEO, the cultural dimension “was the single most important piece of the bank’s Fit for Growth journey.”

In our upcoming blog posts, we’ll share further examples of how the Fit for Growth approach can help financial services firms address the most critical challenges they face. Watch this space. For more information on Fit for Growth and to find out how you can put your money where your strategy is visit our website.

Simon Westcott

Simon Westcott | Director
Profile | Email | +44 (0)7595 610434

Miles Puttergill | Senior Manager
Profile |miles.puttergill@strategyand.uk.pwc.com | +44 (0)7900 163384

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