Successful companies are distinguished by their ability to both do the right things and do things right. While putting these words onto paper is easy, putting these words into practice is notoriously difficult. In today’s fast-paced and competitive business environment, financial institutions need to be agile, innovative, and cost-effective to stay ahead of the curve.
Often changes in the organisational environment are a necessary driver for critically assessing whether organisations still do the right things and do things right. Cost-cutting is a way of readjusting the organisational course by focusing on what is important (doing the right thing) and doing it efficiently (doing things right). Where numerous financial institutions are able to easily cut a couple of percentages in costs, in some instances, a more radical approach is required. If your aim is to cut double-digit costs, you need to take a holistic approach that considers structural redesign, creative thinking, external reviews, and radical cuts.
Delta Capita has identified five critical areas to evaluate, namely: business, IT and data, operations, support, and change. In this article, we will explore these areas further and see how you can achieve your double-digit cost-cutting goal.
Business – Making choices regarding your sales capabilities
Core considerations for any organisation primarily focus on products, markets, and clients. Therefore, the business should carefully weigh the advantages of customisation versus standardisation in their products and services. While customisation might increase absolute revenue, the operating costs tied to a splintered product landscape can lead to lower overall profitability. By analysing the profitability of product, market, and customer combinations (PMC), a company can evaluate the revenue generated by each element of the PMC. To reduce costs and increase profitability, it is essential to evaluate distribution chain efficiency by collaborating with suppliers, leveraging technology, and continuously monitoring performance to drive improvements.
IT and Data – The hidden 15 – 25% of costs
IT and data are traditionally viewed as organisational money savers. Nonetheless, critically reviewing the IT landscape is key to taking the next step and reaching double-digit cost savings. IT systems, infrastructure, and data management should be up to par with the latest trends and standards. De-duplicating systems, removing legacy applications, and prioritising reuse over buy over build can improve efficiency, reduce costs, and increase the company’s competitive edge. Outsourcing is another key consideration that can lead to a significant decrease in costs, but it’s important to evaluate the risks and ensure the chosen partner aligns with the company’s goals and values.
Operations – Digitising is key
Cost-cutting in the operations department is often tied to lean management. This includes streamlining primary processes and reducing complexity, to reduce manual intervention, errors, and delays, helping drive down costs. Value stream digitisation is a more fundamental approach that can lead to more radical cost reduction, sometimes at the cost of a higher initial investment. Centralising procurement is another critical aspect of reducing costs. By centralising procurement, companies can also gain greater control over their supply chain and improve the consistency and quality of their products and services.
Support/Overhead – The most hidden costs
By their very nature, support functions do not fall within an organisation’s core competencies or primary operations. In nearly all cases, they do not provide a competitive advantage. Hence, it becomes crucial to critically assess the value contributed by overhead functions and ensure you strike the optimal balance between service quantity and quality experienced by internal departments. To maximise the efficiency of overhead departments, one should be agile and explore opportunities for process optimisation or automation. Additionally, it's worth considering the possibility of outsourcing certain services as a means of streamlining overheads. As a general guideline, organisations should aim to minimise overhead activities and allocate resources solely to what is essential.
Change – Changing the change
Another hidden treasure of cost optimisation, especially looking at the enormous amount of money spent, is ‘change’ within Financial Institutions. This function and its processes and rituals are often taken for granted, where there is room for optimisation. Firstly, strengthen the alignment of the change portfolio to the strategy of the organisation. This may show flaws in changes not contributing (enough) to the current strategic focus or showing insufficient value for money. Secondly, look to improve change ownership and governance in the broader context of the organisation. Accountability and enhancing entrepreneurship are major contributors, in both owning changes at the top and realising changes throughout the organisation. Finally, move towards more agile change processes, where standardisation can play a stronger role.
The art of ‘Double-Digit Cost Take Outs’
Hitting a double-digit cost reduction goal for your company demands a comprehensive analysis of your entire organisation, as well as internal support from senior stakeholders. By focusing on the five key areas discussed, a company can become more agile and better equipped to adapt to changing market conditions and drive down costs. By providing an independent perspective, Delta Capita offers unbiased insights and creative solutions to help you achieve your cost-reduction goals.
How Delta Capita can help
Achieving substantial double-digit cost reductions while maintaining commercial viability is a challenge. At Delta Capita, we draw upon our wealth of experience to assert that, with dedicated management commitment, collaborative partnerships, and a commitment to integrity and professionalism, the successful implementation of such cost-saving measures is not only feasible but can also result in sustainable outcomes.
Our Delta Capita team has extensive experience in improving performance in the financial services industry. To find out more, contact us today or visit our Performance Improvement page.
Written by Emma de Jong (Consultant), with co-author Wouter Pijl (Head of Digital & Performance and Pensions).
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