Dr. Philipp Wackerbeck, Dr. Utz Helmuth, Dr. Bernhard Skritek, Dr. Andreas Putz
October 6, 2017
Almost a decade has passed since the financial crisis, yet European banks continue to struggle to return to economic health. Greater efficiency and profitability remain a challenge, while at the same time banks are under pressure to invest in new digital technologies. Those looking to rationalize their value chains and “modularize” their operations should use an approach we call Fit for Growth*, which involves reducing or eliminating the less strategic aspects of their operations and investing the savings in capabilities that directly promote growth.
Outsourcing remains key to this effort — but the outsourcing options now available go far beyond simply sending IT operations to India. Activities as complex as procurement, analytics, trading, marketing, and several finance functions can now be outsourced profitably and with confidence, often to “nearshore” locations in Central and Eastern Europe. The larger banks are also actively setting up subsidiary technology, trading, and other operations throughout Western Europe to take advantage of proximity and local talent.
Any decision to outsource, however, must be subjected to a careful analysis, including a detailed business case. The financial implications of any outsourcing strategy are complex: Maintaining dual activities while the project is set up, funding a governance function to manage operations, and paying taxes and covering other expenses — all while maintaining mandatory profit levels — can add up, offsetting any gains.
If the process is done right, however, the rewards should outweigh the risks. And every bank should take advantage of outsourcing’s potential for creating a more focused, streamlined organization and for reinvesting the money saved in new, growth-promoting digital capabilities.
* Fit for Growth is a registered service mark of PwC Strategy& LLC in the United States.
Banks throughout Europe are seeking innovative ways to improve earnings and boost growth. High on their list should be a concerted effort to rethink and streamline their business models, focusing on strengthening the capabilities that define their strategic identity. Key to this effort is optimization of the costs involved in carrying out the many activities that don’t directly contribute to generating customer value. That’s where the new outsourcing comes in. New digital technologies, together with more advanced new service centers, offer a real opportunity to redefine which activities need to be kept in-house and which don’t. Is it time for your bank to go modular?