It may only be a slight exaggeration to say thatthe financial crisis has divided the corporateworld into two groups - companies that havegone belly-up and others that are striving tosurvive. For over a year now, business news hasfeatured little else bes
attempts to trim costs - through lay-offs,cutbacks, downsizing and other means.
For the banking industry, which finds itself in theeye of the storm, the need to raise efficiency hasperhaps never been more crucial. Although costcutting is the first thing that comes to mind,impulsive slashing of expenditure across theboard could actually do more harm than good.While there are several ways to trim the fat, notall of them are appropriate for all banks. Bankinginstitutions need to realize that there is no onesize-fits-all solution to cost cutting; they need todo a great deal of analysis to arrive at the onethat works best for them.
A successful banking efficiency optimization planmust look beyond mere cost cutting and drawupon a combination of the following strategies:
Raise cost consciousness:
Cost consciousness cannot be driven by thebean counters alone; rather, the entire bankingorganization needs to orient itself towards thisgoal. It is also time that banks looked beyondcutting costs in isolated pockets; for the needleto move, the philosophy of cost consciousnessmust pervade all activities at all levels. Topmanagement must play a lead role in securingthe buy-in of other employees, who must beencouraged to come up with innovative costcutting possibilities in their sphere of work.
Increase process efficiency:
In recent years, Business Process Re-engineering(BPR) has been a choice mantra of banks seeking totransform themselves. Since banking is so processdriven, the slightest inefficiency in processes canseriously dent the bottom-line. Therefore, bankinginstitutions need to get their processes right.Unfortunately, a number of banks continue to strugglewith legacy processes
designed at a time whenmarkets were less competitive and customers lessdemanding
are simply not efficient enough in the currentcontext. These banks may need to consider acomprehensive transformation strategy to re-examine their processes, from design toorchestration, and overhaul them if necessary.
That being said, even non-legacy banks can findseveral avenues to improve process efficiency.The reduction of error incidence is an obvioustarget. Efficiency also increases when processesare rendered capable and robust enough tohandle very large volumes of transactionswithout breaking down. Exception handling mustbe separated from routine processes in order toavoid operational bottlenecks.
Over time, cost inefficiencies may creep intobanking processes by way of excessive overheads.An example is the use of the maker-checkerprinciple, wherein one person is hired to perform anoperation, and another to verify or authorize it.While this is justified for operations highlysusceptible to security risk, when extended toroutine or non-core processes, it only serves todrain resources. A key point is that excessiveservice level targets could also create processoverheads. If customers are not to be kept waiting,the bank needs to maintain a larger service staff.During slack times, the overheads can begin tohurt. However, it is a tough call for banks to lowerservice levels in order to improve cost efficiency,since that runs a high risk of alienating customers.
Automation of processes can reduce both errorsand overheads. An efficient process design triesto minimize manual intervention and enableStraight Through Processing (STP). Besidesneeding to employ fewer people to perform thesame operations, banks can save time andreduce wastage.
Unfortunately, a number of banks defer or abandontheir IT investment plans when faced with toughmarket conditions. This is detrimental in the longrun, when most judicious technology investmentsstart to pay back by way of higher cost savings.
Being colossal entities, banks need a huge amountof resources to keep them going. On the flip side,
Banking Efficiency Beyond