Our last blog post debunked some infamous falsehoods about operational excellence in financial services. This time, we’re going to delve into another real-world case study from the files of The Lab Consulting. You’ll see, quickly, how you can apply its lessons toward cost cutting strategies in your bank, too.
This is the story of a major bank. You know their name, although we won’t mention it here. And this story concerns their Caribbean operations.
That’s a big tale unto itself. And that’s because this bank serves more than a million clients across 17 countries and territories in the region, from the Bahamas in the north to Trinidad and Tobago in the south.
Scattered across all this geography was a retail branch network that the bank’s leadership knew could be better. They asked The Lab, “What are retail banks doing to control costs and improve efficiency?” The mission was threefold:
- Increase the efficiency and effectiveness of the retail branch network.
- Shift as many activities as possible from the branches to the centralized back office.
- Standardize processes throughout the region.
It was a classic call for cost cutting strategies in a bank. As you read this story, see how many parallels you can draw between this bank’s operations and yours.
Banking services in the improvement spotlight
Over the course of a six-week analysis-and-design phase of the engagement, The Lab scrutinized processes throughout the bank. Areas studied included:
- Field operations
- Personal and commercial operations
- Service delivery
- Payments and trade operations
It was this essential scrutiny which paved the way for the ultimate five-step implementation phase. That’s because The Lab identified more than 225 activity-level improvement opportunities. Even better: more than 80 percent of them required no new technology (or cost thereof) to implement.
Cost Cutting Strategies in Banks, Step 1: Root out built-in waste
When The Lab studied this bank’s branch operations, and compared them to our proprietary templates, we identified numerous areas for improvement:
- Low-value activities were everywhere.
- Data entry was often redundant, manual, and error-prone.
- Free-form comment fields made it impossible to identify (or address) common errors.
- Low-value customer needs were being over-serviced.
Do the same, painfully sub-optimal processes exist in your branch network? Would you welcome opportunities for banking cost reduction?
This bank did. We helped them to re-design more than two dozen branch processes. The result: redundant activities were eliminated. Wasted effort was a thing of the past.
Cost Cutting Strategies in Banks, Step 2: Centralize processing
This might seem like a no-brainer question, but we’ll pose it anyway: Where do you think back-office operations should be performed?
Correct. In the back office.
But that wasn’t the case for this bank. Far too many common back-office activities were actually being performed in the branches. As you can probably imagine, this decentralization created lots of cascading problems:
- Branch work increased.
- Staffing levels inflated.
- Extra back-office work was required to correct all the inconsistencies generated by the branches.
Viewed from this 30,000-foot level, the problems—and the solutions—seem obvious. But it takes a trained eye to find these detailed problems that hide in plain sight. (Shameless self-promotion: The Lab routinely identifies five times more improvement opportunities than our clients can on their own.)
After these issues were discovered, more than 15 processes were transferred to the centralized back office. The results were profound:
- New and clearly-defined roles improved support operations both in the branches and the back office.
- The customer experience improved.
- More than 30 percent of processing capacity was recovered.
That’s a cost cutting strategy that really pays off.
Cost Cutting Strategies in Banks, Step 3: Make processes consistent
Here’s a reality that may ring uncomfortably familiar for you: This bank had made multiple acquisitions in the region over the course of decades. Yet some changes were in name only.
This made it really difficult to reduce operating expenses in the bank. Many processes were inconsistent. Many more were redundant. The Lab worked with the bank to standardize its payment processes, including:
- Account transfers
- Standing orders
- Over-the-counter payments
- Loan and credit-card payments
If your bank has been through the M&A mill, you probably have similar opportunities to reduce operating expenses in your bank.
Cost Cutting Strategies in Banks, Step 4: Rationalize staffing
The Caribbean operations for this bank lacked an effective staffing plan. There was no baseline, no consistency.
The Lab fixed that. We began with a detailed analysis of process steps at the individual activity level. These, in turn, were used to establish standard times required to complete individual tasks.
Armed with this information, we were able to generate a data-driven capacity model. This enabled the bank to match staffing levels to actual work volumes.
Is your staffing plan that precise? Are you aware of your exact needs, and capacity? Don’t be ashamed if you’re not; we encounter this problem all the time at banks seeking to reduce costs.
Cost Cutting Strategies in Banks, Step 5: Improve performance management
When The Lab stepped in, this bank’s existing management operating reports (MORs) were lacking adequate business metrics. They didn’t provide enough solid data to monitor individual and team-level performance.
(Sound familiar? Again, you’re not alone.)
The Lab worked with both branch and back-office managers and team leaders to implement data-driven MORs. These empowered them to (finally) establish, achieve, and maintain targets for productivity and service.
Bank cost cutting: The final tally
This bank’s Caribbean operations presented a tremendous improvement opportunity. Remember: a million clients across 17 countries.
And the work paid off. Handsomely. Consider:
- Productivity shot up 30 percent.
- Error rates dropped by an amazing 35 percent.
- The entire project broke even in just six months.
- Twelve-month ROI stood at a factor of 2.7.
- Annual savings hit $7.1 million.
And all of this bank cost cutting was accomplished without any new technology or capital investment.
Our next article will return to the subject of operational efficiency in the banking sector. But before you read it, consider the case story you just read. Think of the implications it held for our client in the Caribbean—and could hold for you. Then click to learn more about The Lab Consulting, including our unique self-funding engagement model and industry-leading money-back guarantee.