Industrialisation in banking: Are challenges outweighing its benefits? - Banking blog

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Cost margins of Swiss banks are under pressure for some time now. Swiss banking executives view industrialisation as a means to increase scalability and reduce costs but also to accelerate innovation and free-up resources to focus on client relationships. Yet, industrialisation has not been fully embraced by banks. Cultural resistance and doubts with respect to the business case are the key hindering factors. If banks want to avoid falling behind more progressive competitors, they may decide to foster organisational acceptance and build up expertise from within.

Banks are faced by stiff challenges putting pressure on their cost margins. Many have – more or less successfully – exploited short-term measures to reduce costs in the past five years. What is next?

The banking industry has considered “industrialisation” for some time now to an extent that some banking professionals became sceptical about its benefits. Deloitte and Hochschule Luzern, Institut für Finanzdienstleistungen (IFZ), have recently asked Swiss banking executives about perceived benefits and challenges of industrialisation in banking. The answers may not be surprising, yet, they provide deep insights into the pain points to overcome.

A vast majority of the responding banking executives view industrialisation as a means to scale operations (92% of respondents) and to reduce costs (88%). Indeed, industrialisation is characterised by eliminating redundancies, reviewing sourcing options and standardising processes to increase efficiency, which allows banks to reduce resources for a given output level.

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Figure 1: Benefits and challenges of industrialisation

The freed-up resources could be re-allocated to focus more on fostering client relationships (expected by 77% of respondents) and to fuel innovation (69%) and agility (65%). Which relationship manager would not be relieved to spend less time with documenting client meetings, keying in orders and enriching order entries? And which innovation head would not be delighted to leverage state-of-the-art processes and systems to create new ways of how to serve clients?

Lastly, the increased use of standardised processes sourced from third parties can help institutes to improve compliance and reduce risks (confirmed by 58% of respondents). Not only smaller banks rely on access to latest technological developments as well as security solutions from third party providers to keep up with latest trends. Being embedded in value networks helps banks to attain a certain level of responsiveness to react quickly to fundamental developments without being innovation trendsetters.

Why have banks not yet embarked further onto the industrialisation journey? A look at the industrialisation challenges mentioned by the surveyed banking executives draws a clear picture. Unanimously, resistance to change and corporate culture was named as a challenge for implementing industrialisation measures. Still 80% of respondents believe that these measures are too costly to implement and 68% of respondents mention insufficient knowledge of tools and methods as a hindering factor for implementing industrialisation. While expertise can be brought in externally, we believe that banks are well advised to build up knowledge internally. Only change from within, guided by a clear vision by the leadership and backed by ambassadors within organisational teams, will have a sustainable impact.

A minority of respondents expressed doubts that industrialisation is compatible with individual client service. It needs to be acknowledged that implementing standard processes may limit the scope of how clients are served. However, why should efficient processes prevent relationship managers to understand what clients need?  And as a senior executive rightfully noted – standard processes allow better capturing of data, and better data will allow to improve client service ultimately.

Eventually, banks need to determine whether they still can afford not to exploit the benefits of industrialisation. Waiting for too long may leave banks outpaced by more innovative (banking and non-banking) players who have reached new levels of efficiency and agility.

Patrik Spiller 3

Patrik Spiller - Partner, Head of Monitor Deloitte Strategy Consulting

Patrik is the Partner leading the Swiss Financial Services Strategy Practice, with over 15 years banking industry experience. He focuses on operating model optimization and commercial excellence, improving bank’s revenue and cost base and delivery capability. He managed projects for most of the leading global banks, developing expertise in areas such as corporate strategy, IT strategy, organisational design, cost reduction, and offshoring strategies.

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Dr. Stefan Bucherer -  Senior Manager, Financial Services

Stefan is a Senior Manager in the Monitor Deloitte Financial Services Practices Zurich with more than 6 years experience in Strategy Consulting. He is co-leading the Enterprise Model Design service offering and specialises in complex strategic business model transformations in banking. His main expertise is in retail and private banking. He is publishing regular insights into areas such as the future of banking, industrialisation in banking and is co-author of the Deloitte Wealth Management Centre Ranking.

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