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Waiting for Winter: Embrace Operational Efficiency Strategies in the Strong Times to Prepare for Any Market Scenario

The classic Aesop fable, “The Grasshopper and the Ant,” tells the centuries old tale of a grasshopper who refuses to plan for winter during the easy days of summer. In contrast, the ants spend the summer gathering food and ensuring they were prepared when the weather turned. As the cold winds of winter blow in and the food disappears, the hungry grasshopper resorts to begging the ants for food.

For financial services leaders, a decade of a growing economy and digital transformation has left many banks in stronger financial positions. While financial services leaders have invested in new technologies, many of their current operational practices began as a result of the 2008 recession. Refreshing their strategic approach to operational efficiency can provide financial institutions with a competitive advantage, particularly as the economy booms and technology takes center-stage in banking.

Why Operational Efficiency Matters

In the wake of the Great Recession, financial services leaders faced an explosion of new regulations. These new rules and regulations, combined with rapidly evolving technology, placed a significant burden on financial services organization of all sizes. Many were not prepared for these changes and the impact on their business. As a result, operational efficiency often meant cutting back on spending, investing significantly in compliance education and reconfiguring their workforce presence.

According to Harvard Business Review, “Less apparent to the outside world is how much banks are also investing in controls, especially in their compliance, risk, and finance divisions. Banks now spend an average of $300,000 per year on these functions per “front office” employee who works with clients, such as sales and trading personnel. [In 2007], that figure was lower than $200,000.”

Today, however, financial services leaders face a different combination of industry pressures that will challenge how they approach efficiency. Customers have different expectations and preferences. Additionally, new technologies and non-bank fintech competitors have transformed the very nature of banking.

Financial services leaders sometimes make the mistake of assuming efficiency is a cost-cutting strategy. A focus on cutting costs alone is not the answer for long-term success. Leaders should build an operational strategy that balances cost savings with upgraded capabilities in order to respond to market demands and prepare for the future. This balanced approach to operational efficiency helps organizations to be nimble in responding to changes in market, economy and competition.

Build a Balanced Operational Efficiency Strategy

A balanced operational efficiency strategy can incorporate several phases. Leaders may look at their business lines and realign their products and services to better serve their customer base. This may mean investing in technology for some lines, increasing staffing or abandoning business lines that no longer serve the mission.

Leaders should also look closely at channel optimization. Digital channels are increasingly important to consumers, and financial services leaders need to ensure that new services and platforms are easy to use, secure and meet the demands of the customer base. A perfect example is the disconnect between consumer expectations for online account opening and the availability of that service. BAI’s Banking Outlook “Trends in 2020” found that 70% of consumers under the age of 55 prefer the ability to open a deposit account online. Unfortunately, only 53% of financial services organizations provide this capability despite the high demand. By optimizing channels, financial services providers help employees operate more efficiently by empowering self service, which reduces the time spent on basic services and enables them to focus service calls to those consumers who specifically want in-person service.

Technology investments also play a critical role in maximizing operational efficiency. New technologies impact efficiency in three areas: customer experience, staff productivity and process improvements. As mentioned above, customers have shown an increasing appetite for self-service capabilities. Technology that enables self-service is not only more efficient for the organizations, but consumers often prefer the option. PYMNTS reported that, “a recent study found that customers typically spend nine minutes to acquire a check from a bank teller, but only 40 seconds to complete the same task with a self-service kiosk.” The time and cost savings enabled by investing in self-service technology provide competitive advantages.
Technology that improves staff productivity and process improvements is just as critical to an operational efficiency strategy. For example, automated workflow technology can give managers greater insight into the activities being performed and better identify bottlenecks or problems that need to be addressed.

A balanced strategy for operational efficiency can also have a positive impact on the culture and employee engagement of financial services organizations. Involving the employees directly impacted by operational changes creates buy-in and a sense of ownership with the initiatives that impact their work. Some of the most significant opportunities to enhance efficiency and productivity are setting clearly defined expectations, improved motivation systems and better training and supervision – all leading to more efficient and effective employees.

Proactively Review Operational Efficiency Strategies

Just as the ants in Aesop’s fable knew they could not wait until the first cold front of winter to begin collecting food, financial services leaders should not wait until the next economic crisis to tighten up operational efficiency. A strategic approach to operational efficiency should be proactive, not reactionary.

Instead, leaders must prepare their organizations for any changes, large or small, so they are prepared for whatever market conditions come their way. Taking a proactive approach to planning also gives financial services leaders a competitive advantage. Those competitors who take the approach of the grasshopper and continue to coast on outdated processes, technologies and employee engagement will struggle to adapt when the next “winter” does come.

Leaders should be intentional in their approach to operational efficiency. Designate a task force or committee comprised of leaders across the organization to meet regularly and discuss challenges and develop solutions.

Financial services executives should also remember they are not alone. They can team up with outside resources to ensure they are considering all the variables in different efficiency projects. Leaders can meet with peers for private roundtable discussions, join a benchmarking comparative analytics research group or leverage industry experts and reports.
Finally, leaders should remember that efficiency is not a purely cost-based measurement. They should factor in the human element. This includes considering the training needs for new or changed processes, obtaining buy-in and adoption from employees and keeping the customer’s experience at the center of all initiatives. The best software in the world is useless if no one uses it or cannot figure out how to operate it.

In this new decade, keeping operational efficiency a constant and intentional focus will ensure preparedness for any business or market scenario. A strategic focus on operational efficiency is more than cleaning up numbers.

It is just good business.

 

 

 

 

Karl Dahlgren is managing director of BAI, a nonprofit independent organization that delivers the financial services industry’s most actionable insights.

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