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FRONTIERS IN FINANCE / September 2010 / Topics   Taking a leap of faith   Rebuilding a bank to maximize its value         ...
Topics / FRONTIERS IN FINANCE / September 2010                                                                            ...
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Taking leap faith

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Richard McCarthy, partner KPMG UK, legt in het artikel ‘Taking a leap of faith’ uit dat de organisatiestructuur van een bank, bij een veranderend bankklimaat, gestoeld moet zijn op een instelling om waarde toe te voegen voor de klant, ondersteund door een drastische transformatie van de corporate-governancecultuur.

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Taking leap faith

  1. 1. FRONTIERS IN FINANCE / September 2010 / Topics Taking a leap of faith Rebuilding a bank to maximize its value M At a time when the any banks currently such as automotives, consumer face a challenging and goods and telecommunications. environment in which uncertain business Many automotive manufacturers have financial institutions operate environment. Given entrenched the philosophy of quality, is changing dramatically, significant changes in reliability and safety at the heart of many banks should consider the regulatory, economic and customer their operations, and subsequently landscape, they are being forced to customers have been satisfied to pay radically transforming how rethink the business models they for a premium service. The challenge they do business. An ethos have used in the past to generate is how banks can implement this within of adding value to the high performance. But reacting to the their different business environment? customer1 needs to be regulatory challenges and economic In practice, a back to basics approach conditions is no substitute for a strategy starts with drawing up a matrix of embedded throughout the to rebuild their bank. Banks need a new what the customer’s needs are, and organizational structure and vision that can give them a clear sense of the possible values and risks for the demonstrated in every direction and a greater degree of control. customer, as well as for the bank, discussion and action. A In considering strategies for this by geography, customer segment changing landscape, the need to focus and product. Only with a detailed focus on adding value to the closely on customers is becoming more understanding of where exactly the customer is not confined to important than ever. Those banks that value and risks are generated can a a department, but is about are most likely to achieve long term bank take decisions on it’s scope, everything the bank does, as success – including compliance with location and operational design. In Richard McCarthy explains. new regulatory regimes and winning particular, this knowledge enables the public and political opinion – are actively future structure to be determined not developing and implementing a strategy by a reaction to new regulation or that simplifies, streamlines and focuses recovery and resolution planning, their operations on one pre-eminent but rather by the strategic necessity driver – adding value to their customers to create a simpler organization and and clients. legal entity structure that is very clear The concept of customer-centricity is about how it is looking to maximize well-established in many other industries, value for the customer, is easier –© 2010 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 38
  2. 2. Topics / FRONTIERS IN FINANCE / September 2010 effectiveness to ensure they can deliver and government fiscal and industrial demonstrable value to customers2. This policies. The good news is that many means forming individual relationships, governments and regulators in emerging understanding each customer’s financial markets understand the importance position and targeting products and of strong capital markets – a sure services appropriately. opportunity for banks to show how The need for client centricity is they can add value to customers in just as important for corporate and these regions. Richard McCarthy investment banking. As investment A customer-centric business approach banks look at geographies, markets is inherently complex, and fundamental and clients all the signs point to the changes in IT architecture may well and cheaper – to run, and is more emerging economies – Singapore, be required as banks adopt modern transparent to regulators. China, India and Indonesia. But these techniques such as multidimensional Having a clear customer-focused are precisely those countries whose customer segmentation. But the vision and operational framework can governments are most prescriptive change goes beyond the use of new also make it easier for banks to meet and controlling. They have a clear tools. To be successful, an approach some of the tougher challenges they view on how they want to manage to add value to clients has to saturate are facing. For example, in the EU different industries as part of their every aspect of the organization – from state-aid mandated disposals, business economic growth plans and they set marketing, to products and processes, leaders sometimes focus on the the regulatory environment accordingly. and, perhaps most importantly, the valuation and operational separation They understand the role of the attitudes of staff. of the business and assets to be sold. markets as a conduit for investment The shift in corporate culture from Perhaps more important is: Who will and recognize the necessity for more maximizing revenue from customers be the customers of the business complex financial products such as and clients to maximizing value for being retained and how and with derivatives. But they will expect banks customers is therefore a major one. what products will they be serviced? to concentrate on helping deliver their Becoming a streamlined, customer- In retail banking, some profit macro-economic goals. Banks will need centric organization will affect every opportunities have disappeared or to be seen to add value externally, to aspect of a bank’s culture and are becoming increasingly contentious. their clients, to domestic industries operations, and should be deeply For example, there is pressure on fee and to national economies. To develop embedded throughout the corporate structures and constraints on credit a strategy that copes with this new governance structure across the entire card lending are tightening. To maintain world, banks will have to understand entity. Such an organization will not profitability, retail banks have to not only the needs of customers, but only find it inherently easier to comply reconsider their products and channel also national regulatory environments with new regulation, it will also find its competitive position and reputation enhanced. In addition, by viewing their Are you maximizing value? products, service levels and corporate Questions to ask your business… behavior through the eyes of the customer, banks may also be able to • Are you concentrating on maximizing value to the customer rather than from create more positive perceptions of the the customer? balance between the value they provide • Do you have a simple operating structure that enables you to have a single and the rewards they receive. Despite view of your customer’s banking needs? the economic uncertainties, banks • Do you have a clear understanding of your target customers and their should take a leap of faith; to reorganize requirements, and does this integrate a compelling value-add for customers their business structures and capitalize in emerging markets or are you following the crowd? on the opportunities of maximizing • Do you truly understand the profitability of your business by product, customer customer value. and geography, and where you make high returns is it linked to the customer value you have generated? • How will you ensure that risks of your products and the associated price For more information please contact: structures are transparent? Richard McCarthy • To what extent are you working with other industry participants, governments Partner and regulators to set up new industry structures, such as exchanges or KPMG in the UK mortgage funding vehicles? Tel: +44 20 7694 2785 • Are you tinkering with your operating structure to satisfy regulator challenge e-Mail: richard.mccarthy@kpmg.co.uk or are you thinking it from the ground up? • When exiting non-core businesses are you focusing enough on the retained entity strategy rather than just the disposal in isolation? • Are you utilizing successful models from other industries regarding optimizing 1. Hereafter collectively referring to customers, clients and product costs and brand management? end-users. 2. See article ‘Extending your reach: Effectiveness of distribution channels in retail banking’ on page 16.© 2010 KPMG International. KPMG International is a Swiss cooperative. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 39

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