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

June 12, 2006

“Industrialization” Targets Simplified Operations, Increased Differentiation and Better Execution in Banking; Allows Simultaneous Pursuit of Expense Reduction and Revenue Gains For High Performance

NEW YORK; – Banking institutions around the world are borrowing techniques from the manufacturing sector that are enabling them to simultaneously cut costs and boost growth, according to a new survey from Accenture.

Applying proven approaches from successful manufacturers, these banks are simplifying internal operations and increasing their differentiation in the marketplace -- a strategy Accenture calls “Industrialization.”

The concept is inspired by parallels between the banking and manufacturing industries where standardized operating platforms are used to reduce cost and complexity – while at the same time providing product components that can be tailored to the needs of different customer segments. This approach seeks to address the inefficiency and high costs resulting from years of increasing complexity as banks expanded capabilities, offerings and channels, thus gaining the flexibility needed to develop tailored solutions.

Expectations of significant benefits from Industrialization
A majority (51 percent) of senior executives at major banks in North America, Europe and Asia Pacific are projecting revenue gains of 10 percent or more from efforts to increase marketplace differentiation. One-third (32 percent) of these executives also expect to see a reduction across their total cost base of 10 percent or more from simplifying internal processes.

“We began developing our Industrialization point of view after seeing leading banks starting to embrace advanced manufacturing techniques,” explained Trevor Gruzin, managing director of Accenture’s Banking practice in North America and Asia-Pacific. “This survey research confirms our theory.”

Gruzin continued: “This has been a quiet revolution. We are working with more than 50 banks on Industrialization engagements and believe we’re at a tipping point. For the last decade, most bankers would 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 1,000 largest-asset banks, including half of the top 100 institutions.

Industrialization is well underway
Many of the surveyed bankers said they are already funding Industrialization initiatives and expecting significant investment returns. Ninety-four percent of respondents said they are already investing to improve differentiation, while 92 percent reported execution initiatives and 87 percent cited simplification projects.

“We were a bit surprised by the depth and breadth of the take-up of Industrialization,” said Noel Gordon, managing director of Accenture’s Banking practice in Europe, Middle East and Africa. “With little fanfare, many bankers have come to believe that to beat the competition they needed a new map and a different way of looking at it.”

Asked to project the role of each of the three elements of Industrialization in improving their bank’s performance over the next three years, 88 percent of respondents said execution was extremely or very important, compared with differentiation at 74 percent and simplification at 65 percent. Asked how they will allocate investment among these three areas over the next three years, respondents indicated an average of 38 percent of funding to execution, 33 percent to differentiation and 29 percent to simplification.

Bankers surveyed said they are executing a broad array of Industrialization projects, indicating no consensus approach to achieve their goals. When asked to list current initiatives aimed at simplification, 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 growth through 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 give customers more of what they want without reinventing the wheel every time,” Gruzin said. “They’re leveraging increased flexibility by bundling standardized products, services and channels to give specific customer segments a more targeted and useful experience.”

Execution is the key to success
Survey respondents also indicated that they understand that execution is important to success. While the most-cited execution undertaking in the survey was operational risk management (91 percent) – not surprising given the industry’s regulatory agenda – the next three initiatives most frequently cited related to aligning the workforce:

* 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 said their bank’s simplification initiatives are driven by the chief executive officer, and 44 percent said these initiatives are driven by other C-suite executives.

Industrialization in banking
One example of opportunities for Industrialization is redundancy across a bank’s lending function, where different products usually have their own platform. Accenture engagements regularly address significant duplication across credit products -- typically 60-75% of operational capability. By way of example, banks can create a single credit risk assessment platform for multiple products. This would eliminate the need to review a customer’s credit history with each new product consideration, enabling efficient offerings to specific customer groups with similar credit attributes.

Another example of Industrialization is the consolidation of retail and wholesale payments systems onto a shared and simplified platform to support both operations – even though they have different requirements. Similarly, banks in Europe with multi-country operations are consolidating operations to support common processing across their entire group rather than running systems on a country-by-country basis.

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

The chosen sample of banks was extracted from the global top 1,000, in order to ensure that the most important banks were contacted in each of the targeted countries. Interviewees were selected on the basis of their role as decision makers and influencers on corporate strategy and/or development. Typical responsibilities of the interviewees include strategy director, corporate development director, line of business director, CFO and CMO.

The fieldwork was managed by TNS, an independent survey research company, except in Japan, where the local Accenture leadership conducted interviews directly.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With more than 129,000 people in 48 countries, the company generated net revenues of US$15.55 billion for the fiscal year ended Aug. 31, 2005. Its home page is www.accenture.com.

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Joe Krakoviak
Accenture
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Shazia Ejaz
Accenture
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Christine Yee
Accenture
+65 6410 6481
christine.y.yee@accenture.com

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Accenture

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