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Cost-reduction, Restructuring Not Enough For Profitability Says PwC Reports

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A new report released by PricewaterhouseCoopers (PwC), a global financial advisory firm, has urged banks to look beyond the realm of cost-reduction and restructuring measures for profitability and long-term survival.  

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The document, which presents the results of ‘PwC 2018 Productivity in the Financial Services Sector Survey’, says traditional cost-cutting strategies come with inherent limitations. These, it argues, affect the overall impacts of the strategies on corporate performance and long-term sustainability.

To boost profitability and support sustainable growth, the report titled, ‘The Productivity Agenda – Moving Beyond Cost Reduction in Financial Services, urged senior executives to address issues affecting productivity.

The document also points out the impacts of digital evolution on traditional businesses, saying smart solutions would continue to threaten established businesses except there is a change of mind-set.

In the face of concern over the disruption of artificial intelligence (AI) in the industry, it called on managers to clearly spell out tasks that could be performed by AI as against those human capital is needed to execute.

The reports states: “As people live and work longer, and unemployment rates remain low, digital training and retraining of existing workforces is particularly crucial. Despite its importance, research shows that current efforts are not achieving the desired results. Of the financial-services leaders polled in PwC’s 2018 CEO Survey, 75 per cent reported they were concerned about shortages of digital skills within the industry.

“To keep up with digital-only competitors and rapidly deliver a seamless and instant customer experience, 77 per cent of financial institutions are turning to agile somewhere in their organisations…Over 50 per cent of CEOs believe AI will have a bigger impact than the Internet. Getting the balance right between tasks performed by AI and tasks performed by people will be key to future success for financial institutions.”

It adds:With banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Even in the asset management industry, where return on equity is higher than the financial services industry as a whole, there is downward pressure on margins and profitability. Cost cutting will only deliver so much. If financial institutions are to improve profitability in the long-term, they need to fundamentally improve the productivity of the enterprise.”

Analysing the research outcome, Financial Services Leader for PwC Nigeria, Sam Abu, says: “The cost cutting agenda adopted by many institutions since the financial crisis has, in essence, de-globalised the industry to make it more local or national, shrunk global footprints, divested businesses and shed clients.

“However, this process has run its course. If profitability is to get anywhere near the highs of 15 years ago, what is needed now is a fundamental focus on building a sustainable productive business model that can compete with both incumbent institutions and digital-only competitors,” Abu stated.

PwC has identified six areas where financial institutions can focus their productivity efforts to boost sustainable profitability. The specified areas are Better understanding the workforce, Rethinking change functions, and Embracing the platform economy.

Others are Improving workforce digital IQ, Bringing an agile mind-set to the mainstream and Mastering digital labour.  

It notes further: “Our experience indicates that by simply tracking hours by task, organisations can improve productivity by 15 per cent to 20 per cent, and the implementation of service catalogues and multi-tier sourcing can bring another 20 per cent improvement. Of the organisations that didn’t track work by hours and tasks, 62 per cent believed such tracking would yield productivity benefits.

“Forty per cent of financial institutions are spending 20 per cent of their entire budget on so-called ‘change-the-institution’ efforts.  However, only 15 per cent said they were satisfied with their ability to execute change.

“Only 21 per cent of financial institutions employ crowdsourcing tools today. Platforms can run challenges that tap the collective brainpower and resources of a crowd, driven by a sense of competition to develop the best response. We predict that gig employees will perform 15 per cent to 20 per cent of the work of a typical institution within five years. This translates into significant cost savings across the board, along with the potential to improve the level of talent and innovation delivered from the employee base.

“As people live and work longer, and unemployment rates remain low, digital training and retraining of existing workforces is particularly crucial. Despite its importance, research shows that current efforts are not achieving the desired results. Of the financial-services leaders polled in PwC’s 2018 CEO Survey, 75 per cent reported they were concerned about shortages of digital skills within the industry.”

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