Investment banks have faced a challenging landscape over the past eight years, characterized by declining revenues, high costs, developments in digital and regulatory pressure—and the changes could continue. Through it all, the drive to reduce costs has been constant. And it might not go away: the focus on cost reduction remains razor sharp as companies continue to seek sustainable cost efficiency.
Leadership matters. After an examination of the cultural and institutional personas of successful and unsuccessful cost reduction initiatives, we believe that the pre-requisites for success should include:
Many banks still may need to rethink their business models in parts or as a whole through:
But before transitioning to an ongoing spend-and-performance management technique, they must first undergo a cost-resizing exercise.
New digital technologies are not only disrupting traditional sources of competitiveness, but also raising the bar on what’s possible and setting new benchmarks for cost reduction. Cloud-based services and the “everything-as-a-service” model could be redefining how investment banks approach their operating models and IT systems.
The new digital ecosystem offers many opportunities to reduce costs and generate new revenues, but this requires a strategic approach to technology investments for banks that could include the following:
that addresses historical barriers to change.
to drive efficiency gains instead of using backward-looking benchmarks that could underestimate the need for—and potential value of—change.
that balances all three dimensions (growth and customers, sustainability and trust, profitability) of competitive agility.
In the short term, that means finding opportunities to simplify, rationalize and automate, while at the same time clarifying—and changing if needed—the business model, moving toward a client-led approach and building a strong network of alliances. In the long run that could mean eliminating legacy systems, adopting blockchain and shared digital infrastructure, and refocusing human resources.
By moving beyond tactical cost reductions towards more strategic initiatives, investment banks might not only reduce costs and improve efficiency, but also set themselves up for sustainable growth in the future.