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Management and Strategy News
Embedding Productivity in Financial Institutions: KPMG Study
24-Sep-2012
by KPMG
Following the 2008 economic crisis, many financial services companies
worked relentlessly to cut costs. But today, many of those same costs
are creeping back up again. Like a weight watcher on a crash diet, these
companies need to realize that sustainable lifestyle adjustments, rather
than extraordinary efforts, are the only way to make changes that
endure.
According to a KPMG study,
Embedding Productivity Disciplines: Why financial services firms needs a
lifestyle change that lasts shows that financial institution
executives need to transform their approach to cost-efficiency by taking
action on two fronts. First, they need to drive ever higher productivity
through excellence in continuous improvement. Second, they need to focus
on the levers and elements of their business that can boost revenue by
delivering the right mix of higher margins and reduced capital
intensity.
“This may seem daunting; but there is no realistic alternative,” says
Martin Blake, partner and New South Wales Chairman, KPMG in Australia.
“To succeed, those organizations that do not have a system for doing
more with less year after year will have to deliver much higher revenue
growth than those that do – and such growth may be unachievable. In a
low-growth, capital-constrained business environment, continuous
improvement in productivity is not an option, it is a strategic
necessity.”
KPMG’s research reveals that achieving success in this area depends on
an organization’s capabilities in the following critical productivity
disciplines:
Productivity strategy
The organization’s corporate strategy needs treat productivity broadly,
as a key source of competitive advantage and revenue generation, rather
than as a narrow set of cost-cutting exercises.
Transparency
Organizations need to ensure their people understand what drives revenue
and costs and embed these drivers in their performance management and
management information systems.
Customer value creation
In KPMG’s experience, good customer service is actually 25 percent
cheaper to deliver than poor customer service. Management and staff must
understand what the customer perceives as value so they can satisfy
customer needs consistently and eliminate non-value-adding, wasteful
activities.
Continuous improvement
Most cost reduction programs fall short because they do not reduce the
amount of work required per unit of output over the longer term, so
costs tend to grow back over time. In our experience, leading
organizations take a continuous improvement approach to day-to-day
operations through a combination of sustained executive focus and
support for team-led change.
Investment management
Many financial institutions allocate internal investment through a
divisional, bottom-up bidding process. Ideally, however, these decisions
should be based on, and aimed at, delivering the desired future
operating model. KPMG’s study found that leading organizations use their
understanding of revenue and cost drivers to create a line of sight
between strategy, investment spend and benefits across the organization.
Tools and techniques
The organization needs to establish mechanisms, such as internal and
external benchmarking, to help its people understand value, gain insight
into core processes, and drive learning and improvement cycles.
Culture
The success of any productivity strategy depends on the trust and
willing engagement of staff. People in the organization need to believe
that they can make a difference and that they will be supported in doing
so.
Using these productivity disciplines, KPMG’s Financial Services team has
developed a broad ranging framework for assessing current capabilities
and guiding cultural change initiatives in financial institutions.
“Our research suggests it is time for the financial services industry to
move beyond one-off initiatives and adopt a lifestyle change that
lasts,” says Adrian Harkin, partner with KPMG in the UK. “This means
taking a leaner, more customer-focused approach to doing business in
which learning and continuous improvement is the norm, adding customer
value is everyone’s primary goal and tight cost control works together
with innovative revenue generation to improve productivity.”
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