How Can Financial Institutions Strategically Manage Costs Post-Pandemic?

COVID-19 continues to impact every aspect of our society and business. Financial services institutions are at the center of the crisis providing — the much-needed financial stability that is critical to revitalizing our economy.

While the current imperative is operational resiliency, customer and employee satisfaction, and preserving the balance sheet, we expect an increased focus on profitability and margin improvement in the medium to long term. Financial institutions should prepare for the new normal and ensure capital is allocated strategically with limited resources amid extraordinary stresses.

Institutions that adopt a strategic and cost disciplined approach — leveraging emerging technologies, adjusting for continuously evolving work, workforce and workplace dynamics, and customers’ needs and expectations — will emerge as winners. Strategic Cost Management (SCM) provides an integrated end-to-end approach to optimize cost structure, while maintaining focus on the growth journey.

What are the Building Blocks of a Successful SCM Journey? 
  • Start with a strategic review of the business: Develop cost objectives based on a strategic evaluation of the business priorities, customer preferences, workforce capabilities and the risk and regulatory environment. This initial strategic discovery stage is critical for setting the appropriate guard rails for cost objectives including identification of areas that are an investment toward the business’ top objectives versus those that limit the resources needed to achieve these objectives.
  • Align cost reduction levers to key priorities: Develop logical focus areas (or spend reduction levers), assign accountability and establish targets that align to cost objectives. Ensure rigor and discipline around tracking opportunities, identifying interdependencies and reliably communicating barriers around benefits realization.
  • Integrate cost insights into ongoing decision making: The long-term success and sustainability of a cost reduction initiative is determined by the extent to which the cost impacts and insights are integrated into ongoing business and financial planning routines. Enhanced spend visibility across multiple dimensions is critical, resulting in more strategic business reviews, decisions, and trade-offs.

Financial institutions are at various stages in their quest for efficiency, with many having attempted cost reduction initiatives. However, our research indicates that many cost reduction programs fail to meet their objectives. 

Why?

The lack of a strategic mindset and disciplined execution can result in suboptimal and unsustainable results. 

Financial institutions should adopt a methodical approach founded on principles of customer focus, intelligent risk-taking, clear accountability, and open communication. Further, breaking the cost program down into logical milestones and using opportunities to create near-term wins to fund the longer-term strategic objectives will help establish a solid foundation for sustainable change. 

Tactically, foundational principles of SCM can be realized by mobilizing and executing a program that continuously demonstrates value and sequential progression toward the set objectives. Broadly, such a program can be organized in three phases which are all supported by rigorous project and change management principles, methodologies and tools. 

  1. Ideation: Development and assessment of cost savings opportunities that align with future-state strategy.
  2. Formulation: Advancement and approval of a prioritized portfolio of initiatives and roadmap for execution.
  3. Execution: Deployment of a portfolio infrastructure to drive change execution and governance, ensuring integration across all initiatives.

Guidehouse’s SCM methodology has been developed by partnering with many global financial institutions and has continuously evolved to incorporate industry trends and capabilities. We continue to actively leverage this methodology to identify and implement sustainable and actionable cost optimization opportunities across a variety of functions (Front-to-Back), at the corporate and business-unit level. 

About the Experts

Back to top