Transform your bank’s operations model: A best practices discussion

Your approach to transforming your bank’s operations model depends on your goal – to improve customer experience, streamline processes, or reduce back-office costs. We suggest five best practices: customer-back process transformation, product and service simplification, aggressive digitization, governance and performance management transparency, and delivery model optimization. Along with aligning your operation’s performance goals to your business priorities, these will meet your objectives.

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Transform your bank’s operations model A best practices discussion

John Plansky Partner +1-617-521-8801 john.plansky

Johannes Bussmann Partner +49-89-54525-535 johannes.bussmann

Sarah Butler Partner +86-21-2327-9800 sarah.butler

Ashish Jain Partner +1-312-578-4753 ashish.jain

New York
Jon Hagstrom Partner +1-212-551-6130 jon.hagstrom

Vanessa Wallace Senior Partner +61-2-9321-1906 vanessa.wallace

Gagan Bhatnagar Partner +44-20-7393-3747 gagan.bhatnagar

Andreas Lenzhofer Partner +41-43-268-2156 andreas.lenzhofer

This report was originally published by Booz & Company in 2013.
Strategy& 2

Executive summary
There is no single method for successfully transforming your bank’s operations model. Your approach to transformation depends on your goal – be it to improve customer experience, streamline processes, or reduce costs in your back-office operations. Although every bank’s approach will differ, we suggest five best practices for transforming your bank’s operational model: •  •  •  •  •  Customer-back process transformation Product and service simplification Aggressive digitization Governance and performance management transparency Delivery model optimization

These best practices, along with aligning your operation’s performance goals to your business priorities, will help your bank enhance its most distinctive operations capabilities and meet your transformation objectives.



Banks are transforming their operations. Your approach should depend on your primary business objectives:
Drive efficiency and reduce volume Example: Leading global financial-services firm

Operating strategy
•  In-source operations and maintain shared services •  Standardize client-facing processes end to end, reducing process steps by 60% and cycle time by 80% for customer onboarding •  Consolidate and rationalize IT, including trading platforms and mortgage servicing systems

Simplify and standardize operations around the world Example: London-based bank

Culture of continuous improvement


Common processes

•  Standardize IT platforms by country, with minimal customization (This bank standardized 14 countries in one year.) •  Reengineer core investment management functions •  Install lean business processes •  Consolidate regional data centers through IT global shared services •  Outsource to cut costs: for example, 50% of the IT development teams in China, India, and Brazil

Improve customer experience Example: Local bank dedicated to customer service

•  Maintain shared services within LOBs with emphasis on client relationships •  Standardize client-facing processes end to end; reduce process steps by 60% and cycle time by 80% for customer onboarding •  Consolidate and rationalize IT



These five critical best practices are common across all successful operations transformation initiatives:
Customer-back process transformation Product and service simplification
•  Redesign end-to-end processes based on desired client experience •  Analyze trade-offs between the level of customization and the value perceived by the client •  Use a structured, consistent methodology to drive change

•  Minimize customization where the client sees no value (aspects increasingly driven by regulation) •  Align cost-versus-complexity trade-offs with the strategic direction of the business •  Standardize processes and supporting platforms to drive digitization of client experience

Aggressive digitization Governance and performance management transparency Delivery model optimization

•  Use digital media to create better front-end client interactions (paperless statements, tablet interfaces, etc.) •  Implement straight-through processing to avoid manual processing •  Form partnerships with niche and nontraditional service providers to build and deploy digital capabilities •  Establish and reinforce clear accountabilities, decision rights, and stakeholder roles •  Define goals and incentives that are clearly aligned with strategic imperatives •  Adhere to a metrics-driven culture with key performance indicators (KPIs), unit cost management, etc.

•  Move to shared-services or utility models to maximize scale and reduce costs within regional banks •  Integrate and align process-centric IT operations capabilities •  Increase integration of third-party providers into the delivery model to add variation to cost and to build capabilities

Source: Booz & Company global benchmarking study of most well regarded operations organizations Strategy&


Customer-back process transformation

Focus on those few core banking processes that have the greatest impact on your business:
…prioritize a few… …and address them in successive waves

From too many legacy processes…

Universal processes*

Prioritization: Select 1–3 processes for each transformation wave

Potential prioritized processes Wave 1 •  •  •  •  Card fulfillment and servicing Commercial lending Mortgage origination Deposit account origination, operations, and servicing Wave 2 •  •  •  •  Consumer lending Lead management Treasury management Onboarding and servicing Wave 3 •  •  •  Client problem resolution Real estate lending Others to be determined

Criteria •  Client experience

Consumer bank processes

•  Efficiency opportunities •  Risk reduction •  Monetizing current investments and programs

Commercial bank processes

* Universal processes are shared across multiple LOBs Strategy&


Customer-Back process transformation

One bank’s process redesign delivered enhanced customer experience, faster service, and reduced cost to serve
Challenges Approach: Implemented a third-party IT solution (Kovax TotalAgility) Results

Heavy process overhead, too many manual workflows, lack of visibility

Automated workflow with assigned responsibilities Shared view of the process and relevant policies to all participants Automated interfaces between users through integration of the bank’s systems with email servers

•  80% reduction in client onboarding cycle time •  50% reduction in management overhead •  40% increase in throughput capacity •  >60% of manual steps eliminated •  Improved visibility of client status in onboarding process •  New ability to capitalize on lessons learned in previous client onboarding

Strategic objectives
Faster and cheaper access to commission streams

Limited execution time

Automated dynamic resource assignment based on workload, skill set, and availability

Required data for execution ready at each step

Automated management reporting at each workflow step

Source: Kovax product case studies Strategy&


Product and service simplification

Simplify product architecture and technology
Case Study: An Australian bank redesigns its product offerings
From a cumbersome product environment… With a complex, inflexible product-centric architecture in place, this bank maintained more than 1,000 mortgage products and 50 residential secured products. Any minor feature change resulted in the creation of new products, leaving the bank behind competitors in creating valuable services and offerings. …to a modular architecture favoring innovation The bank established a simpler, four-tier product architecture (consisting of a customer offer, product bundle, product innovation, and core feature list). The bank set standards for product features, enabling it to innovate without affecting the stable component core. Results: a US $200M revenue increase and $50–$100M in IT simplification benefits.

Simplify product architecture
•  Rationalize product sets based on what clients value most Pursue modular product architecture –  Tiered, component-based design –  Shared common components across product lines –  Isolated components that drive cost of complexity

Best practices


Simplify technology
•  •  Rationalize portfolio, targeting one application per major process Limit the number of businessspecific apps and put in place a higher percentage of generalpurpose apps Design shared, central architecture with standardized, consolidated platforms

Case Study: JP Morgan Chase overhauls its IT infrastructure
From costly strategic IT Investments… In 2004, CEO Jamie Dimon allocated over $600M to the bank’s IT initiatives and a subsequent investment in network overhaul ($2B by 2008). This created significant ongoing IT spending: $8.5B in 2010. IT spending made up 8% of the bank’s revenue vs. the average of 4% held by its peers in the industry. …to rationalization across silos The bank implemented a single platform for consumer and small business banking deposits, eliminating more than 50 fragmented systems. Also, the bank retired more than 50 legacy investment banking platforms, consolidated Chase, Bear, Bank One mortgage servicing systems, and consolidated data centers from 90 to 30.

Best practices




Aggressive digitization

Digitizing front-end client interactions and processes can further improve client experience and reduce costs
Target state Streamlined and automated process
Real time or online

Electronic data flow Elimination of manual steps

Support assistant Support assistant

Handling of exceptions Optimized approval process

Current state Highly manual and disjointed Support assistant process
Middle office

Back office

Middle office


Back office Financial advisor

Overall process cost reduction
Field Technology Integrated Platforms
Multiple manual steps Low value-adding activity (99% approval rates) High redundancy (multiple faxes) High re-work rate due to errors Highly manual steps (lack of integration)


Back office

Support assistant

Back office

Support assistant

Back office

Back office

Process Redesign



Governance and performance management transparency

Align operations and LOBs through governance and performance management transparency
Data-driven management §  Standardized key metrics, such as:
Dedicated relationship management Robust reporting and metrics

LOB “business partners” §  Ops staff members dedicated to each LOB to ensure ongoing communication –  –  –  Attend all LOB staff meetings Monitor LOB service needs Assess and escalate performance issues Operations

–  Unit costs for supported products –  Service quality measurement –  Budget variances §  Maximum disclosure and transparency to establish trust

LOB Expertise & sustainability §  LOB collaboration on prioritization §  Dedicated product management team to build expertise §  Robust allocation methodology to minimize risk to operations and showcase project impact on costs §  IT engagement to minimize footprint
Effective execution of initiatives Structured governance

Top-down engagement §  Operations included on senior agenda §  Periodic meetings to evaluate performance, progress of initiatives §  Collective engagement with LOB leadership on issues, alignment to strategy



Delivery model optimization

Choose an operations delivery model that aligns with your business strategy and enables you to maximize scale
Shared services
Head of wholesale ops Lending ops Treasury Head of services retail ops ops Lending ops Deposit ops Transactional ops Head of Operations

Head of card or mortgage head of card ops Head of Head of wholesale mortgage Head of IB Head of Ops operations consumer Head of Product wholesale Ops Securities ops Lending Head of Ops Treasury ops consumerLending Lending services ops ops ops ops Deposit ops Transactional Third-party ops providers Head of IB Model description •  Operations embedded within LOBs – report to LOB head •  Accountability and performance management within LOB Choose this model to achieve: •  Functions of sufficient scale within LOBs to allow for reasonable economics •  Shared services created within LOBs

Transaction ops Deposit Retail ops Lending Retail Wholesale ops Retail Wholesale Wholesale Third-party providers Head of operations

Third-party providers

Model description •  Operations centralized and set up as shared services •  Structured by LOBs for single point of accountability •  Some services provided by each area cross LOBs Choose this model to achieve: •  Limited scale in individual LOBs •  Large degree of commonality in most processes

Model description •  Organized by major functions and activities •  Each function or activity serves multiple LOBs •  Limited customization by business Choose this model to achieve: •  Low cost-to-serve and speed-to-market •  Mature operations with standardized processes •  Simplified product and service structures •  Established collaborative culture between LOBs and operations

Source: Booz benchmarking study, interviews with senior retail bank leaders, Booz & Company analysis Strategy&


Delivery model optimization

Increasingly, banks are looking to third-party providers to perform a wide-range of operations functions
End-to-end procurement outsourcing
Results achieved Phases of outsourcing and objectives
Leverage Develop sustained competitive advantage •  Enriched date for sourcing and contracting Improved leverage in buying power

Example: Capabilities outsourced in sourcing and procure-to-pay (P2P)

Spend data management Strategic sourcing

Transparency Create Improved P2P Process Efficiency Center-led capability Process automation Portal-enabled interfaces •  •  •  • 

Control Enforce pricing and billing compliance End-to-end processing Variabilization of fixed costs Vendor and billing compliance Buyer spend behavior compliance

Multi-year agreement for outsourced, end-to-end, P2P services More than $6 billion in addressable spend Affected 4 million annual transactions across 200 legal entities Transformation of systems and processes to “best practice” Services delivered through a combination of on-site resources and multi-client service centers in Bratislava, Bangalore, and Dalian Savings of more than several million euros

•  • 

Vendor management Demand management
•  • 

•  • 


Day-to-day purchasing Performance management Accounts payable




Banks with successful operations transformation programs achieve four benefits:

Enhanced client experience
•  Eliminate customer pain points •  Improve responsiveness to clients •  Streamline process

Operational and cost efficiency
•  Reduce cost by driving out variability •  Create capacity and scale •  Provide cost-effective services

Continuous improvement
•  Define standard processes •  Train the organization in process-oriented thinking •  Instill a culture of continuous improvement into organization

Risk mitigation
•  Ensure consistent and auditable controls •  Align operating model to changing regulations



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This report was originally published by Booz & Company in 2013.
© 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see structure for further details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.