The financial services industry is suffering through a downturn, like many sectors of the economy. The cause of this is soft rates, low investment yields, and changing regulations. In the near future, shifting customer expectations, pushed by Fintech, will add to the woes of the industry.
Tight margins mean that companies must focus on costs. Small, incremental changes, as have been done in the past, have proven to be short sighted and non-recurring. The industry needs transformation. Instead of focusing on the costs that are cut, companies should focus on allocating limited resources to areas that will stimulate growth and differentiation. This strategic cost reduction will help companies optimize their operations.
Get started on your transformation by getting a clear view of what needs to be fixed, in order to develop a strategy. Next, align your costs to that strategy. This should involve identifying good costs (the ones that differentiate and add value) from bad costs (typically inefficient legacy operations that cannot be justified). This review must encompass the whole organization. This means that front and middle office functions should be evaluated along with traditional operations and business support services.
Companies should then shoot for the stars. They must be bold, brave, and creative. Look to Fintech and innovation to make the changes that an entrepreneur would build. Do not compete with new technologies, but embrace them.Robo programs, and other new technology (digitized workflows, new media, and even the block-chain) can reduce payroll expenses (and headcount over time), marketing costs, and other office necessities.
Management must set the direction and show leadership. Strategic business transformation must be internalized and supported at the highest levels. The leaders can create the culture that they want. A culture of cost optimization will have longevity, and will become so prevalent over time that it will not seem like a culture.
Once this is done, start over. The transformation process is always ongoing. Technology and consumer demands are constantly changing, and evolutionary companies should always meet their customer’s growing demands. Most of all, be unreasonable!
As George Bernard Shaw wrote: “The reasonable man adapts himself to the world; the unreasonable one persists to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”