Accenture Survey Finds Banking Industry Borrowing Lessons from Manufacturing for Substantial Cost and Growth Benefits

Banking institutions around the world are borrowing techniquesfrom the manufacturing sector that are enabling them to simultaneouslycut costs and boost growth, according to a new survey from Accenture.

Applying proven approaches from successful manufacturers, thesebanks are simplifying internal operations and increasing theirdifferentiation in the marketplace -- a strategy Accenture calls"Industrialization."

The concept is inspired by parallels between the banking andmanufacturing industries where standardized operating platforms areused to reduce cost and complexity - while at the same time providingproduct components that can be tailored to the needs of differentcustomer segments. This approach seeks to address the inefficiency andhigh costs resulting from years of increasing complexity as banksexpanded capabilities, offerings and channels, thus gaining theflexibility needed to develop tailored solutions.

Expectations of significant benefits from Industrialization

A majority (51 percent) of senior executives at major banks inNorth America, Europe and Asia Pacific are projecting revenue gains of10 percent or more from efforts to increase marketplacedifferentiation. One-third (32 percent) of these executives alsoexpect to see a reduction across their total cost base of 10 percentor more from simplifying internal processes.

"We began developing our Industrialization point of view afterseeing leading banks starting to embrace advanced manufacturingtechniques," explained Trevor Gruzin, managing director of Accenture'sBanking practice in North America and Asia-Pacific. "This surveyresearch confirms our theory."

Gruzin continued: "This has been a quiet revolution. We areworking with more than 50 banks on Industrialization engagements andbelieve we're at a tipping point. For the last decade, most bankerswould admit they alternated between cost-cutting and growth strategies- but almost never pursued these approaches simultaneously."

Respondents included senior executives at 107 of the world's 1,000largest-asset banks, including half of the top 100 institutions.

Industrialization is well underway

Many of the surveyed bankers said they are already fundingIndustrialization initiatives and expecting significant investmentreturns. Ninety-four percent of respondents said they are alreadyinvesting to improve differentiation, while 92 percent reportedexecution initiatives and 87 percent cited simplification projects.

"We were a bit surprised by the depth and breadth of the take-upof Industrialization," said Noel Gordon, managing director ofAccenture's Banking practice in Europe, Middle East and Africa. "Withlittle fanfare, many bankers have come to believe that to beat thecompetition they needed a new map and a different way of looking atit."

Asked to project the role of each of the three elements ofIndustrialization in improving their bank's performance over the nextthree years, 88 percent of respondents said execution was extremely orvery important, compared with differentiation at 74 percent andsimplification at 65 percent. Asked how they will allocate investmentamong these three areas over the next three years, respondentsindicated an average of 38 percent of funding to execution, 33 percentto differentiation and 29 percent to simplification.

Bankers surveyed said they are executing a broad array ofIndustrialization projects, indicating no consensus approach toachieve their goals. When asked to list current initiatives aimed atsimplification, respondents most frequently cited:

-- Cutting complexity in their processes (91 percent)

-- Simplifying IT systems (81 percent)

-- Rationalizing product offerings (74 percent)

-- Centralizing operations (74 percent)

Respondents, asked to identify ways that they are pursuing growththrough differentiation, indicated the broadest undertakings are to:

-- Improve sales force effectiveness (95 percent)

-- Improve customer segmentation and insight capabilities (90 percent)

-- Create products and conduct research and development (85 percent)

-- Bundle products and tailor offerings to specific customer segments (84 percent)

"These are all indications that banks are trying harder to givecustomers more of what they want without reinventing the wheel everytime," Gruzin said. "They're leveraging increased flexibility bybundling standardized products, services and channels to give specificcustomer segments a more targeted and useful experience."

Execution is the key to success

Survey respondents also indicated that they understand thatexecution is important to success. While the most-cited executionundertaking in the survey was operational risk management (91 percent)- not surprising given the industry's regulatory agenda - the nextthree initiatives most frequently cited related to aligning theworkforce:

-- Culture receptive to change, 86 percent

-- Internal leadership development, 82 percent

-- Developing a "can do" proactive culture, 78 percent

Leadership is coming from the top. One-third of respondents saidtheir bank's simplification initiatives are driven by the chiefexecutive officer, and 44 percent said these initiatives are driven byother C-suite executives.

Industrialization in banking

One example of opportunities for Industrialization is redundancyacross a bank's lending function, where different products usuallyhave their own platform. Accenture engagements regularly addresssignificant duplication across credit products -- typically 60-75% ofoperational capability. By way of example, banks can create a singlecredit risk assessment platform for multiple products. This wouldeliminate the need to review a customer's credit history with each newproduct consideration, enabling efficient offerings to specificcustomer groups with similar credit attributes.

Another example of Industrialization is the consolidation ofretail and wholesale payments systems onto a shared and simplifiedplatform to support both operations - even though they have differentrequirements. Similarly, banks in Europe with multi-country operationsare consolidating operations to support common processing across theirentire group rather than running systems on a country-by-countrybasis.

Methodology

The research involved interviews with 107 senior executives inbanking institutions in North America (U.S., Canada), Europe (France,Germany, Italy, Netherlands, Spain, Switzerland, UK/Ireland) and AsiaPacific (Australia, China, Japan). The interviews, held between Juneand October 2005, were conducted by phone or in person.

The chosen sample of banks was extracted from the global top1,000, in order to ensure that the most important banks were contactedin each of the targeted countries. Interviewees were selected on thebasis of their role as decision makers and influencers on corporatestrategy and/or development. Typical responsibilities of theinterviewees include strategy director, corporate developmentdirector, line of business director, CFO and CMO.

The fieldwork was managed by TNS, an independent survey researchcompany, except in Japan, where the local Accenture leadershipconducted interviews directly.

About Accenture

Accenture is a global management consulting, technology servicesand outsourcing company. Committed to delivering innovation, Accenturecollaborates with its clients to help them become high-performancebusinesses and governments. With deep industry and business processexpertise, broad global resources and a proven track record, Accenturecan mobilize the right people, skills and technologies to help clientsimprove their performance. With more than 129,000 people in 48countries, the company generated net revenues of US$15.55 billion forthe fiscal year ended Aug. 31, 2005. Its home page iswww.accenture.com.