The
Industrialization
Realization
ROE squeezed.
Cost/income ratio not squeezed enough.
Surplus capacity. Compliance complexity.
Think industrialized!
The Industrialization
Realization
ROE squeezed.
Cost/income ratio not squeezed enough.
Surplus capacity. Compliance complexity.
Think industrialized!
By Ido Gileadi, Partner, Capco, and Dr. Peter Leukert, FIS Executive, Head of Capco Institute
Industrialization in
banking: unavoidable
but full of opportunity
What do we mean by industrialization?
The popular shorthand describes a
combination of profound changes—
social, economic and technology
advances—that coincide to trigger rapid
modernization of an activity. The 19th
and 20th centuries, for example, saw an
ever-increasing industrialization of
manufacturing inspired first by steam
power, then electricity, and more
recently computing.
Today, key industrialization drivers
include globalization, the emergence of
scores of new, high-growth economies
and tens of millions of new middle-class
populations. Meanwhile, technologies
from cloud computing to permanently
networked mobile devices have totally
transformed the way most other
industries manufacture goods and
services as well as interact with
consumers.
Industrialization is
not outsourcing.
We believe that piecemeal outsourcing (as
opposed to genuine
industrialization) has
potentially exposed
the banking system
to greater dangers.
Many banks find
themselves unable
to innovate critical
processes while
contractually locked
into legacy
technology.
For financial services, this is an
opportunity on an unprecedented scale.
But it requires an equally profound
rethink of what banks are for and how
they work in order to move to efficiency
levels achieved by other sectors.
2
In this paper, we envision a transformed
industry, made agile by industrialization,
will progress in four key areas:
• Cost cutting that finally cuts it:
With an ability to plan cost reduction
on a rational and productive basis,
rather than today’s tactical, reactive
and frequently limited actions.
• Sustainable business basis: With
costs, earnings, capital and growth
moving back into alignment.
• Efficient straight through
processing: While at the same
time improving response to new
regulatory rules.
• Innovating to service customers’
needs: By responding costeffectively to demands for
“everywhere and anywhere” banking
from an increasingly sophisticated
and mobile customer base.
In this paper, we look at the challenges
facing the industry as it attempts to
embrace industrialization and how this
can enable banks to reattain pre-crisis
levels of return on equity (ROE). We
then look in more detail at the steps
progressive businesses can take to
industrialize activities not just in
operations but also across the entire
organization, including the front office.
The traditional “cut
first, evaluate after”
approach makes it
difficult to optimize
what remains.
Instead, banks need
to adopt a balanced
approach that combines
cost management,
return profile and
risk-based capital.
Industrialization is
not new. But the
circumstances that
demand it are more
pressing than ever
Why argue the urgency of industrialization?
After all, banks have survived the worst
crisis of this generation. But survival
alone does not indicate an assured
future. In the depths of crisis, politicians
and their electorates asked “What are
the banks for?” A sustainable long-term
answer must begin with the commercial
fundamentals. It must also recognize
that the traditional financial services
model is threatened by the increasing
strength of new non-bank entrants.
Level
Why industrialization and
“hyper-industrialization”
are inevitable in banking
Pure cost cutting will not solve this
problem. Successful industrialization
changes the basis of the industry that
implements it. Such change is surely now
imperative in banking. In fact, many
banking professionals acknowledge that
it is no longer a question of getting the
existing model “back on its feet.” Instead,
banks have to use this opportunity to
make more profound changes to their
operating and business models.
It’s not as if banking is the first sector
to experience a near perfect storm of
competition, regulation and plummeting demand. Many traditional heavy
industrial and manufacturing operations
have re-engineered to achieve growth
and drive ROE.
The automotive industry, having
industrialized production line
techniques, then migrated to the next,
“hyper-industrialization” stage. This
includes outsourcing manufacture of
the majority of components, rapid
production changeover and extensive
cross-industry collaborations to achieve
huge economies of scale. It also
involves using a common platform
model to collapse the release cycle of
new models, capture economies of
scale and appeal to a more fragmented
consumer base. As a result, vehicle
manufacturers progressed from
manufacturing to inventory to a much
more market-responsive approach,
while cutting unit costs significantly.
Value chain
If you really want to make it,
the last thing you do is make it!
IT offers an even more advanced
example. Companies such as IBM and
HP have all but abandoned manufacturing activity in favor of services.
Apple, currently one of the world’s most
valuable businesses, is a very-highvalue-add assembly operation for
components manufactured externally.
The real powerhouse behind the brand
is its ethos, embodied in its design and
innovation. It is these capabilities that
keep the new products coming and
maintain the seemingly unassailable
power of the brand.
Will we see the impact of these trends
in the banking industry? Recent history
has constantly distracted from the debate.
Before 2008, super-normal profits
disguised operational inefficiencies and
“blunted” the urgency of the industrialization journey. Since then, some
institutions have engaged with industrialization as a concept. But the injection
of liquidity by central banks has again
delayed a sense of necessity for change.
Turbo charge? Or
“industrialization lag?”
Figure 1 illustrates the “industrialization
lag” between banking and many
other sectors.
Most IT companies and many car
manufacturers have reached Level 4 of
industrialization progress. Meanwhile,
most banks are still improving their
Characteristics
1
Traditional
manufacturing
•  Many expensive process breaks in value chain
•  All process steps executed in-house
2
Manufacturing
partially sourced
•  Many expensive process breaks in value chain
•  Non-core process steps outsourced to third parties
3
Straight through
processing
•  Inefficient process breaks are eliminated
•  Non-core process steps outsourced to third parties
4
Business partner
solutions
•  Smart sourcing solutions
•  Manufacturer offers business partner solutions
Figure 1. Industrial evolution in manufacturing
3
That, at least, is the theory. In the next
section, we look at how banks are
preparing to embrace industrialization
and the barriers that must be overcome
to achieve this goal.
straight through processing (STP) rates
and still have some way to go to reach
the next stage. The opportunity now is
to learn from steps already taken by
other major industries. The key objectives
must be to:
• Do the right things. Increase
specialization.
The “new normal” is
here. Are we ready?
• Do things at the right cost.
Reduce costs.
• Do the right things right. Increase
reliability and predictability of services.
Where do we stand today?
How ready are banks for a
“new normal” of complex
compliance?
• Do and be seen in the right light,
once again. Re-establish the brand
proposition.
How well prepared are banks for the
coming wave of industrialization? In
search of answers, we compared the
economic development of the five
largest banks in each market in
Germany, Switzerland, the UK and
the U.S. (Table 1).
All things to all customers?
Or the best things to the
right customers?
Many banks still work, with great
conviction, on the basis of being all
things to all customers. The outcome is
too many products, demanding too much
depth, while blocking the operational
streamlining required to deliver growth
and profits. Yet there is another way.
Figure 2 illustrates the possibility of
real focus on core competencies, while
handling risk and responsibility for
commoditized products and operations
through partnerships. In this scenario,
banks concentrate on customer interaction and channel integration. Other
functions will only be considered if they
truly are core.
The following key trends emerge from
the data:
• Regulations cost. Banks are still
coming to terms with the
complexities and costs of new
regulations. Adapting operations to
new rules is a considerable demand
on financial and human capital,
while further complicating efforts
to streamline processing.
• Swiss challenges. Swiss banks
have faced a series of legal disputes,
while seeing revenues diminish
Today
…in 3-7 years…
Customer
relationship
Bank
Bank
Product
management
Bank
Processing and
infrastructure
through outflow of ultra-high-networth individuals’ capital.
• Sourcing works. U.S. banks, which
traditionally outsource much of their
mid- and back-office operations
and turn a higher percentage into
variable costs, have recovered more
strongly than their peers in Germany,
Switzerland and the UK.
• UK is making progress. The UK
ranks second, from a compound
annual growth rate (CAGR)
perspective, followed by the
German and Swiss banks.
• Central bank measures put
industrialization on hold. Injecting
billions in liquidity into the system
returned profits to pre-crisis levels
in many banks. (However, this led
to many re-engineering projects
being put on hold, delaying the
industrialization journey.)
Say goodbye to business
as usual
Any apparent return to “business as
usual” needs to be seen in the light of a
focus on costs. Here, the reality is far from
comfortable. Costs have grown faster
than revenues (between 2007 and 2011)
and currently stand at roughly $2,500
billion for the entire sector (Table 2).
This has a critical impact on the ROE
metric. Financial services typically
aspire to ROE levels of 15 percent and
above. However, those in our survey still
…in 7+ years
Third
party
Bank
Third
party
Bank
Third
party
Bank
Third
party
Third
party
Continued disintermediation as consumers’
behavior to buy banking
fundamentally changes
Social and technological
drivers further reshape
relationships between
consumers and banks
Bank
Economic and technological
drivers to industrialize
bottom end of value chain
Third
party
Figure 2. The bank’s functions today, tomorrow and beyond tomorrow
4
German banks
Swiss banks
UK banks
U.S. banks
Commerzbank
Credit Suisse
Barclays
Bank of America
Deutsche Bank
Julius Bär
HSBC
Citi
DZ Bank
Raiffeisen Schweiz
Lloyds TSB
JPMorgan
Hypovereinsbank
UBS
RBS Group
U.S. Bancorp
LBBW
ZKB
Standard Chartered
Wells Fargo
Table 1. Banks that are part of the comparative analysis
Years 2007–2011
German
banks
Swiss
banks
UK
banks
U.S.
banks
CAGR revenue
3.2%
-5.3%
6.4%
9.2%
CAGR cost
6.2%
-3.9%
7.3%
11.6%
20% 10% -­‐10% 2007 2008 2009 2010 2011 -­‐20% -­‐30% -­‐40% U.S banks ROE
German banks ROE
UK banks ROE
Swiss banks ROE
Figure 3. Return on equity of sample banks, 2007–2011
Sample of 8 global banks
representing 15% of total global
banking cost base
33% expense reduction
needed to deliver 15% ROE
if income declines by 10%
21% expense
reduction needed to
deliver 15% ROE
15% rise in
Profit
Expenses
2011
2011
2006
2006
The 2011 average cost/income ratio
(CIR) for financial institutions stood at
56 percent. Based on a study of the
top eight banks worldwide, the sector
needs to reduce costs by at least $500
billion (equating to 20 percent of the
current total cost figure of $2,500 billion)
to be able to deliver the ROE required
by the industry (Figure 4).
Banking costs too much.
And there’s too much to
go around.
Table 2. Return on equity of sample banks, 2007–2011
0% lag behind this figure in the post-crisis
recovery. In most cases, an increase of
at least 6 percent needs to be achieved
(Figure 3).
expenses between
2006 and 2011
Expenses
Target 15% ROE, income declines 10%
Target 15% ROE, stable income
2011
Income
At the heart of the current environment
is surplus capacity. This is a “structural
issue” that the extensive mergers and
headcount reductions of recent years
have not resolved. As a result, available
banking resources continue to outweigh
demand by some way. Estimates state
that one of the top eight banks could be
taken entirely out of the equation, yet
still leave enough capacity between the
other seven to match industry demand.
This is not necessarily inevitable, if the
new industrialized bank models manage
their current book of business efficiently
and evolve the operating model to
innovate in new markets. By so doing,
they can use current surplus capacity to
service the amazing wealth creation in
Asia and other emerging markets, as
well as capture the huge unbanked
market globally.
2006
58% rise in
Equity
shareholder equity
between 2006 and 2011
100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000
Figure 4. Cost reduction is still top of the agenda. Between 21% and 33% cost reduction
STILL needed to deliver 15% ROE
5
Regulation has prevented
advancement, but it can still
provide opportunity
There are many who believe that
financial services has been able to
avoid the industrialization reality
because of the high cost of entry and a
“too big to fail” mentality. Bankers might
argue that regulation is antiquated and
complex, preventing the industry from
innovating these arduous processes.
Barriers? What barriers?
We believe that, until recently, the increasing
cost of regulation has been an obstacle to entry
that protects legacy banking. But this barrier is
crumbling. The reality now is that “digital innovators”
unburdened by the regulatory cost of legacy
banking are poised to enter the market.
Also, recent post-crisis regulation has
required plans known as “resolution
planning” or “living wills.” These require
clarity on how a financial institution
would be liquidated in the event of
failure. While this is challenging to the
industry, it provides an opportunity to
ensure that industrialization is designed
with full consideration of future crises.
These plans are still under development,
but of course should be part of any full
industrialization journey. The regulations
will also force the industry to really
focus on what is core vs. non-core in
both good times and bad. Arguably,
this may lead to fewer future failures
in an industry made up of sounder
long-term business models.
Steps toward the
industrialized
banking model
As well as operations, banks must bite
the bullet and explore opportunities for
industrialization in the front office.
What actionable strategies are available
to banks as they seek to industrialize
their business? Peripheral “tinkering”
is not enough to secure real change.
Incremental cost reductions will be
achieved only through a true
industrialized approach bundling
processes, on a large scale, across
divisions and countries.
This only works top-down
It is reasonable at this point to ask:
Why is industrialization different from
traditional outsourcing? The quick
response is that industrialization
involves rethinking the full reason for the
existence of the activities concerned.
This rethink is followed by developing
a deep understanding of all the
component elements of the activity.
Then, finally and in pursuit of real
efficiency, processes are innovated
using all the tools and partnering
models now available.
Even more importantly, if it is really
going to work, industrialization requires
a change agenda direct from the
leadership and backed by full
commitment to the journey.
Industrialization is NOT an
unknown quantity
Some of the tools have been extensively
tested in different sectors. For example,
Kaizen and zero-based budgeting were
first and famously applied by a major
Japanese auto manufacturer. The car
manufacturing giant decided to reverse
the conventional process—it would no
longer build a car and then price it.
Rather, it would determine the consumer’s price point and design the
car components based on what the
customer was actually prepared to pay.
6
If you can build cars “in reverse,” you
can do the same with financial services.
For example, a bank can analyze how
much a client would pay for a mortgage,
a securities trade or a discretionary
mandate, and then define what it may
offer at this price. Once the bank has
defined the services and quality level,
the value chain offered is divided into
comparable process steps and the cost
evaluated by applying an activity-based
cost evaluation. “Make or buy?” is the
next question to be answered before
the final definition of the service
offering’s components.
To achieve
multiple benefits of
industrialization, the
banking industry
must become
excellent at
measurement. This
includes detailed
analysis of the cost
of processes and
multidimensional
profitability. As with
other industries that
have industrialized,
the detail will inform
the result.
Laying the industrialization
foundations
Some sound principles need to be
established to effectively achieve the
desired level of industrialization. These
include:
• Full leadership and management
commitment.
• Full cross-organizational
involvement.
• Revenue, cost and risk-based
capital all addressed within an
integrated plan.
• Design of a target operating model
with full consideration of core and
non-core businesses.
Making it happen for real
We now look in more detail at how
industrialization of key operational areas
can work in practice toward the ultimate
prize of real innovation.
This will be a difficult journey for some
areas within each bank, especially
operational units having to relinquish
process authority to another
department. But only by working across
entrenched boundaries and creating
large data pools can banks offer
cross-divisional products and services
(accompanied by dedicated pricing
strategies). At this stage, we focus on
the operations model and the client
service model (Figure 5).
• Readiness to bring all areas within
scope—front office and change the
bank—not just back office and run
the bank.
• Use of all the tools of outsourcing,
in-sourcing, partnerships and other
resourcing models.
The real prize of
industrialization is
innovation. Traditional
outsourcing has
focused on
infrastructure and the
back office, whereas
more wholesale
transformation across
the bank and
especially in the front
office will trigger
sustainable growth
based on more
solid customer
relationships.
• Innovation optimization.
Focus of this document
Focus of this document
Industrialized banking model
Flexible
elements
Model
Industrialized banking model
Client service model
IT model
Operations model
Business architecture
Application architecture
IT infrastructure
Technical infrastructure
Functional architecture
Process architecture
Client-centric service
Technical excellence
Operational excellence
•  Customer and its needs are reflected
in application
•  Client understands the services and
products offered
•  Enterprise-wide product catalog
•  Strategic pricing principles and
deployment of enabling pricing
technology
•  Multichannel approach
  Mobile banking is supported
•  IT supports operations on its way to
straight through processing (STP)
•  Support of the reduction of the
overall operational risk exposure
•  Scalability of processes to enable
future consolidation
•  High variable IT expenditure/total IT
costs
•  Low IT cost per transaction
•  Bundling of large data volumes in
service centers
•  Streamlined, automated and realtime services with a minimum of
paperwork
•  Automated IKS, ensuring
compliance and online supervision
of errors occurred
•  International operations are bundled
and centralized in a few hubs
Figure 5. Industrialized banking model
7
individual country lines (while still taking
into account a degree of regional
autonomy in smaller locations that may
be subject to specific regulation).
Straight through processing.
Costs, errors and process breaks
down—predictably.
A pillar of the industrialization process,
as well as minimizing costs and risks
caused by process breaks, successful
STP deployment enables compliance
with standards set by regulators and
clients (such as T+1 and ISO 150222).
In most cases, the STP approach
requires standardized interfaces
between software and system solutions.
A high STP rate, combined with a
state-of-the-art core banking solution,
enables operations and IT departments
to process data volumes, while reducing
the resources required to manage
the process.
Industrialization of operations
Now let’s break out some of the
activities that can be considered for
industrialization, starting with operations
(Figure 6).
Centralized service centers. Quality
up. Costs down.
The result of a continuous drive to
rationalize production procedures and
achieve greater efficiencies, this
approach is already common in the
manufacturing sector. Here, shared
service provision, increased use of
sourcing and the implementation of
quality improvement techniques such as
Six Sigma have been part of the COO’s
agenda for some time. But there is a
cultural as well as an operational
realization to be made. Centralized
services are most effectively developed
along whole processes, rather than
Operational simplification.
Economies of scale. Lower, and
more transparent, costs.
Operational simplification aims to
reduce complexity of procedures, while
standardizing and optimizing wherever
possible. Here, reducing complexity
depends on minimization of the number
of product versions required by the
business. In credit, for example, this
involves reducing the range of collateral
types used to reduce overall risk
exposure. Other approaches include
Operations
Centralized service
centers
Straight through
processing
Operational
simplification
Effective risk
management
Transaction
management
Consolidation of large
batch activities in
operational centers
offering multi-product/
segment capabilities
Processes are
standardized, automated
and posted in real time,
enabling paperless
processes and less
manual interventions
Standardized products and
services across channels
and segments
Implement an effective
and automated risk
management, allowing
flexible controls and
providing reports based on
consolidated information
Transactions are managed
according to their
contribution and clients
guided to the appropriate
and most efficient channel
•  Lower costs
•  Better quality
•  Lower costs
•  Less process breaks
•  Less errors
•  Lower costs
•  Economies of scale
•  Increased variable share
of total costs
•  Lower costs
•  Lower capital
requirements for
operational risk
•  Profitability increase
Figure 6. Operations industrialization initiatives
8
setting an upper threshold for product
adaptations by internal clients or
reducing internal regulations relating
to competency and authority. Further
steps include the creation of integrated
workflows and reduction in job
duplication.
Effective risk management.
Lower costs. Reduction in riskcovering capital.
High-quality decisions are driven by
effective risk management. This, in turn,
depends on a full understanding of the
actual risk exposure. The mid-office
can achieve this through deploying an
accurate risk dashboard that provides
operational capacity information.
Transaction management.
Increased profitability.
The payment and credit card business
is going through a period of sustained
consolidation. This is well established
in the U.S., with Europe and Asia now
on the same path. The anticipated
impact includes creation of new banks,
de-mergers and new entrants. (We can
expect fewer, larger transaction banks
once the new pattern is established.)
In addition, commercial payment
institutions such as Visa, PayPal and
Western Union will attempt to vertically
integrate their business model and enter
processor and payment service provider
(PSP) markets. In the transaction
processors markets, further
consolidation and globalization is also
expected.
Effective net sales time optimization
(ENSTO). Squaring the service quality/
cost-reduction circle.
Back- and mid-office managers and
employees might well argue that
they have achieved a great deal of
progress already in the last decade.
They have. But the real issue remains:
Unfortunately, the achievements to date
are not radical or industrial enough.
Only by fully industrializing all processes
that are defined as core competencies
can a bank achieve the required cost
reductions. The remaining activities
need to be outsourced to a third party,
providing a commoditized and low-cost
offering. A lot has already been done in
this regard in and around operations,
but industrialization does not stop here.
Now, front offices are the new frontier
where the benefits of innovation will
be realized.
This is achieved by centralizing nonclient-facing back-office activities in
service centers. Standardizing support
processes improves back-office
performance and the quality of client
documentation. It also raises overall
productivity, while decreasing the cost
of service, as the result of lower overall
outlay on salaries. In the front office,
client advisors are required to adhere
to standardized client counseling
processes, which leads to a more predictably consistent client experience
as well as cost reductions.
Industrializing the front office
The front office remains largely untouched
by industrialization. Client relationship
management is still an art, requiring
carefully judged communication
between individual staff and clients.
This is not a “one size fits all” activity.
However, as margins diminish—
especially in private banking—growing
numbers of institutions are considering
front-office industrialization strategies
(Figure 7).
Further sales control development.
Driving client contact and revenues.
This helps to clarify the relationship
between the team head and the client
advisor. In particular, it delivers a clearer
understanding of the proprietary client
book, while highlighting gaps between
budget and realized revenues. Both
parties can analyze strengths and
weaknesses in relationships between
client and advisor. It is also a useful
tool for the team head to compare
individual team member performance.
Client service/Front office
Effective net sales time
optimization
Further sales control
development
Industrializing the nonclient-facing parts of
customer interaction and
hereby offering more value
to the final customer
Sales control enables the
team lead to compare its
client advisors and
increases the quality of
service delivery
An important tool that
enables the client advisor
to focus on clients
providing the highest
revenue and having the
greatest potential
A customer-centric approach,
allowing the bank to increase
volumes and revenues
An industrialized
approach focusing on
clients’ needs while
providing first-class
support to client
advisors
•  Increased client contact
•  Increased revenues
•  Reduced costs
•  Increased client contact
•  Increased revenues
•  Increased client
contact
•  Increased revenues
•  Lower costs
•  Lower capital requirements
for operational risk
•  Increased client
contact
•  Increased revenues
Client book
management
Figure 7. Front-office industrialization initiatives
9
Customer
value
Campaign
management
Client book management. Are you
talking to your best customers?
Research indicates that client advisors
spend most of their time with so-called
“buddies.” Easy to handle, often they
don’t represent much remaining
potential for new service uptake and
revenue growth. By integrating client
book management, it becomes possible
to define the number of overall client
visits, identifying those clients who
generate the highest revenues or who
demonstrate the most potential for
future growth.
process areas. Again, consider the
automotive industry as an example.
It took many years after the manufacturing conveyor belt, followed by the
optimization of supply chain logistics,
for the “protected areas” of automotive
design itself to be addressed. Now, the
design function accesses the best talent
and tools, regardless of their location.
For financial services, this “access all
areas” approach to design, innovation
and talent will create the most
conducive environment for leading
product design, redesigned customer
interfaces and new partnering models.
Customer value. Drive revenue without
driving them away.
This concept focuses on the overall
value delivered by the client relationship. It enables the bank to reduce overcapacities and effectiveness losses on
the cost side. This approach to client
valuation helps increase retention,
margins, cross-selling rates and net
new money. Critically, it also succeeds
at increasing client satisfaction and the
bank’s reputation.
Campaign management. Target profit
through meeting customer needs.
This is an in-depth analysis of unfulfilled
client needs, conducted by the bank’s
controlling unit. Once topics and
potential clients are defined, it becomes
possible to set high-level goals and
define client and product selection
criteria. Before starting the campaign,
client advisors take part in productspecific training to make the most of
the advisory process. The success of
the campaign is tracked and
communicated weekly.
Innovation—The ultimate prize
Innovation is the ultimate prize. And
we can be very optimistic that some
amazing innovation will be driven by
industrialization of financial services.
Nor will it be restricted to “traditional”
Conclusion:
Industrialization is
an opportunity,
NOT a threat
Banking industry leaders realize that,
in no sense, can they continue to
count on super-profits from a return
to overheated markets, and still less
on limitless central government
liquidity injections.
The “to do” list is both clear and
challenging.
Get ROE on track. Returning to 15
percent ROE, or greater, remains a
critical target. Achieving it—taking even
the most positive income forecast—
requires additional whole-industry cost
cutting of 20 percent ($500 billion).
The less optimistic scenario is that it
may require savings of as much as
33 percent ($825 billion) if revenue
levels fall.
Manage surplus capacity. Surplus
capacity in the sector needs to be
addressed effectively (given studies
indicating that 12.5 percent of capacity
could be removed from the market
today, without compromising
industrywide ability to meet market
demand).
10
Industrialization offers an actionable
route to tackle these immense and
pressing issues. It delivers greater
operational efficiency, higher-value
products and services, and the
effective management and application
of surplus capacity.
Low-hanging fruit. Ripe for
industrialization?
That’s all well and good. But where
do the opportunities lie? And what
activities are genuinely ripe for
industrialization in the coming months
and years? Figure 8 describes activities
that invite three strategy waves:
standard-low value, medium
complexity-medium value and,
ultimately, complex-high value activities.
Currently, most banks are focused in
the “improve cost management” space.
But, as this paper argues, a return to
acceptable levels of ROE requires
banks to look at opportunities to
leverage utilities and suppliers (medium
complexity-medium value). Reference
data, market data, asset servicing,
and settlement and clearing—to
name a few—fall into this category.
Things really heat up when you look
at strategies that support the
commercialization of assets. Although
complex, this really boils down to a few
fundamental questions: What is unique
about our customer proposition? Which
services and products could be better
funded, designed and delivered by
collaborating with a commercial
partner? How can we acquire a healthy
slice of commercial revenues from
services that traditionally focus on
internal customers? While this requires
new ways of thinking and a profound
culture shift in many departments,
it still remains the most viable strategy
for tackling falling demand, surplus
capacity and stagnating ROE.
Industrialization will change
the face of banking
We anticipate that a wave of “first
movers” will adopt the industrialization
model in the next two to three years.
They will sharpen their competitive
edge. Their products and services will
be assembled from best-in-class
components, increasing the probability
that they will outperform competitors’
in-house products.
Their advantages will increase the
pressure on “non-industrialized”
competitors. They will also start a
process of “climate change” among
wider industry stakeholders. Examples
of early success will galvanize
shareholders to insist on concerted
efforts to regain ROE of 15 percent or
more. There will also be industrialization
adoption pressure from regulatory
bodies, which expect higher
capitalization or a business model
with less inherent risk.
Industrialization—making
the “new normal” into the
new opportunity
Yes, banks need to prepare for a tough
future with every likelihood of falling
revenues, greater global competition
and ever more demanding customers.
This has been termed the “new
normal”—the way things are going to
be. BUT it is also the “new opportunity.”
A real focus on operational and
front-office costs and processes,
together with adopting the
industrialization methodologies
described in this paper, is a robust and
rational route to survive and flourish.
Many sectors have been forced to
industrialize to survive and this has
allowed leaders to thrive—financial
services can do the same. In our next
Thought Leadership paper, we’ll look in
more detail at banking activities already
undergoing industrialization and call out
examples from the first wave of
Figure 8. Activities ripe for industrialization
11
innovators. In the meantime, look out
for news of Capco Industrialization
Executive Events later this year. You can
also download the Capco Journal of
Financial Transformation from our
website, where you’ll find many more
papers discussing industrialization and
innovation in banking.
Ido Gileadi is a partner at Capco and is responsible for large transformation
deals involving synergy between Capco and FIS. Ido has extensive
experience in technology and business development implementation and
operations in the financial services, manufacturing and health industries.
He joined Capco in 2004 and has held numerous leadership roles during his
tenure, including head of India operations in 2007, NA CEO from 2008–2009
and, most recently, Capco’s Canada region lead. Prior to joining Capco, Ido
was the CIO/CTO of BCE Emergis, responsible for the firm’s development,
implementation and operations units.
ido.gileadi @capco.com
Dr. Peter Leukert, Capco Partner, is a key leader in the strategy and thought
leadership for Global Financial Institutions at FIS­—where he leads the Capco
institute. He is regarded as a leader in driving Industry solutions to address the
understanding, measurement and management of IT complexity. Prior to
FIS-Capco, Peter was global CIO at NYSE Euronext responsible for the IT
powering group exchanges. Before this, Peter served as CIO of Commerzbank,
the second largest bank in Germany. During his tenure at Commerzbank, he
co-led the integration of Dresdner Bank which was successfully completed
within 1000 days and led to substantial annual cost savings. Peter started his
career at McKinsey & Company. He holds a Ph.D in financial mathematics.
[email protected]
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