10 business trends to watch in 2017 – Costs reduction (5/10)

Almost a decade after the global financial crisis, financial institutions still have to cut costs to contain the low growth, low margin and highly-regulated environment. Outsourcing and offshoring have helped in the past, but they’re no longer enough. Businesses must now turn to technology and digitalisation to move forward.

What key factors drive the industry’s focus on slashing costs?

In recent years, financial institutions have taken advantage of shared services, process optimisation, outsourcing, and offshoring to keep costs in check. Even with these changes, margins are still tight. Few firms have a good handle on costs across the enterprise, where cost problems exist, and how to manage them. As a result, firms are looking for fresh ideas. The conversation has turned to a few key areas of investment, including technology, preparing employees for change, and finding ways to transform their business models.

  • With interest rates at historic lows, firms are focusing more on noninterest income.
  • Customers are putting pressure on financial institutions to innovate. New market entrants are providing a better user experience, often at a lower cost. Existing firms feel the pressure to meet these customer demands while simultaneously modernising their environment.
  • Regulations have been a significant cost burden for all industries.
Companies must invest to save

In 2017, financial institutions will take a harder look at what they really want to be good at, so they can focus on their core mission and eliminate, reduce, partner for, or outsource almost everything else.

We’ll see leading firms continuing their move toward using digital technology to cut costs, both in the short and long-term. They’ll look to tactical tools such as robotic process automation (RPA), document processing, as well as more innovative technology like blockchain and machine learning.

We expect financial institutions to move their new initiatives beyond the proof-of-concept stage. It’s important for firms to create minimally viable products to understand and address customer feedback. Once they’ve found an offering that demonstrates value, they can build on their initial success.

Cuts in vital areas might reduce costs now, but they may also undermine the future of the business. To support growth, companies should invest strategically. For example, investing in emerging technologies around data and advanced analytics can lead to enhanced offerings and growth, as well as streamlined operations and reduced costs.

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