Banks beset with budget and cost-saving mandates may soon find that sharing is saving.
By deploying process utilities, an expanded version of shared services strategy that has found much of its early traction overseas, banks in the U.S. may find means to gain scale, streamline processes, easily assimilate acquisitions, shave overhead and free up capital for other projects. "You can achieve a higher utilization of processes and increase the consistency of execution," says Scott Cade, a principal at Booz Allen Hamilton in Cleveland. "And if you have linked business processes together, you can more easily identify new revenue opportunities."
The strategy works by leveraging existing cost control initiatives — such as business process engineering, outsourcing, Six Sigma and offshoring — across historical divides between business units, geographies and functions. Processes that are common across all lines of business — but are siloed by department — can be organized into a single operation that's shared across the enterprise. If successful it eliminates redundancies, allows banks to shed multiple vendor contracts and enables cross silo best practices.
"Take credit scores, for example," says Bart Narter, a San Francisco-based senior analyst for Celent. "You get a score for a car loan, a credit card, a mortgage, etc. You do that for each type of loan, so why not have that activity organized under one unit? It's more efficient, and if you have one way to get a credit score at your bank, it gives you more leverage with the vendor."
More than half of banks polled by the Economist Intelligence Unit are planning a cost reduction or efficiency effort during the next three years — and half of those banks will use process utilities as part of the effort, according to the EIU research commissioned by Booz Allen Hamilton, which surveyed 499 banks in North America, Europe, Asia and in some emerging markets. Respondents say process utilities should remove six to 15 percent from the existing costs.
"Given the difficult economy, one of the things that all institutions are looking for is process efficiency," says Kathleen Khirallah, managing director and practice leader for the banking practice for TowerGroup, in Needham, MA.
Among the survey respondents who have adopted process utilities, the most popular function to migrate to a process utility, cited by 47 percent, was "account opening," followed by billing/statements, cited by a third of respondents. Of processes yet to be converted, a third said turning IT infrastructure and IT application development is at the top of their lists.
Deutsche Bank is an early adopter of process utilities, using it for common processes-reconciliations, derivatives documentation and some securities processing. The bank is also using what it calls a nearshore/offshore model in processing centers in the U.S., the U.K. and India to manage multiple common risk factors for customers around the globe. The bank would not make an executive available for an interview, but has stated that its goal for process utilities is to reengineer and standardize so it's continually moving common activities across bank departments into a lower-cost, more automated mode of operation.
Another institution, National Australia Bank, recently consolidated its formerly separate back office process in the United Kingdom into a single operating system — which enhanced teller operations and allowed the bank to open three dozen "integrated financial solution centers" designed to meet broad cross-product needs of middle market and high end customers in Britain. A third bank, Norway-based Dan Danske Bank, is using process utilities to standardized customer facing applications such as ATMs across its European network of acquired banks, and its internal systems such as accounting and finance. The bank is also standardizing all internal reporting — with local subsidiary CFOs all using the same performance indicators and procedures.
There are some hurdles to adoption in the U.S. — such as clashing business interests within organizations. "We're seeing revenue growth via strategies such as personalization of customer experience, customization of products and segmentation of customers," says Frank Schlier, a Pinehurst, NC-based vp for Gartner. "The business unit guy's going to want variability to achieve these goals, not a maximization of global practices across the institution."
A solution Schlier suggests is for department heads to identify obvious redundancies for standardization, and in return retain an amount of "local" control for fast response to changing market conditions. But in a recession, he notes, the C-suite usually wins these corporate tug of wars.
(c) 2008
