Increasing IT and back office productivity: How you can accelerate your IT cost reduction to enable you to reduce costs by 5-15% within 90 days

Will your IT Cost Reduction programmes deliver enough savings for you to survive the Credit Crunch?
Here’s why they won’t (and what you can do about it)

Holding IT costs steady is no longer good enough
As a senior executive you are almost certainly under severe pressure to accelerate the delivery of significant cost reductions within your IT and back office functions without compromising service quality severely. Simply implementing cost containment strategies that hold IT and back office costs steady is no longer a sustainable approach if you are to survive the pressures of the Credit Crunch on your earnings. How has this difficult situation arisen and what can you do to respond successfully?

Over $1 trillion of value already destroyed by the Credit Crunch
The ‘credit crunch’ has wreaked havoc across financial institutions; not only in the USA but across Europe and Asia. Some estimates suggest that the total losses, related to US sub-prime mortgages and leveraged loans, could hit $1 trillion (source Guardian 12 August 2008). The UK saw its first bank run since 1866 with the collapse of Northern Rock, which required the UK government to nationalise the bank and ensure its survival with a £24 billion loan.
In his quarterly report, Mervyn King,the Governor of the Bank of England, declared that “the nice decade is behind us” (14 May 2008). In response, major financial institutions are being forced to reexamine their business models and seek to make structural reductions in their operating costs, in order to ensure their long-term viability. Those banks who are unable to make the adjustments face being taken over by stronger rivals as we’ve seen with the takeover of Alliance & Leicester bank in the UK by Santander. The CEO agenda in those financial institutions that are determined to be survivors rather than acquisition victims has moved to focus on how to deliver significant cost reductions in IT and back office processes.

IT and back office costs dominate the operating costs of financial institutions
The reason for this is simple; IT and back office costs are amongst the largest cost drivers within financial institutions. Typically IT represents 20-30% of operating costs and back office admin a further 10-20 % of operating costs. At the same time your IT and back office functions need to support a dynamic business environment that has to cope with fluctuating workloads, staff shortages and ever increasing demands from the rest of the business. Your success as a senior executive will depend on how well you can deliver significant cost reductions while meeting these conflicting demands. One thing is certain; you cannot deliver significant sustainable cost reductions by using the same solutions you have turned to in the past. For a start, let’s take a more detailed look at some of the problems you are probably facing right now.

7 COMMON PROBLEMS

Problem 1 - The complexity of large-scale IT systems
IT systems and back office processes within financial institution are extremely complex and everything appears to be connected to everything else. So where do you start? You can't afford to set off a damaging domino effect on service quality by inadvertently cutting out a critical function. But if you are overly cautious, you risk your cost reduction programme delivering too little too late. But who wants to rush across a minefield?

Problem 2 - Large-scale complex projects are high-risk
Delivering strategic projects within IT and back office operations is a difficult, high-risk endeavour. Everyone knows that the capability to translate 'strategy' into 'execution' is critical to business performance, but that doesn’t make it easy. Far from it. The failure rate on strategic projects can run as high as 60-80% (see the Working Council for CFOs at www.executiveboard.com). The greater your project complexity, then the higher the risk your project will suffer budget overruns, time delays and shortfalls against the benefits case. Failure to deliver sufficient cost reductions frequently occurs when your overall cost reduction programme is overly dependent on too many large-scale projects with protracted timescales and over extended teams.

Problem 3 - Offshoring and outsourcing can create significant service delivery issues
Offshoring offers significant savings of 20-65% whilst outsourcing offers attractive savings of 20-30% savings on your current costs. Yet implementing these strategies puts you at substantial risk of seriously damaging service delivery to critical revenue earning business units and clients. The savings from both strategies can unravel as offshored units demand additional staffing and outsourcers exploit their negotiating power to hold you to ransom on 'change requests'.

Problem 4 - Over reliance on ‘silver bullet’ enterprise level solutions
Many financial institutions turn to large, global technology firms for advice on how to reduce technology costs. It shouldn't be surprising that they frequently advise you to undertake large-scale complex ‘enterprise level’ IT transformation programmes requiring significant investments on your part. Alternative strategies that emphasise simpler, lower cost approaches that still deliver significant cost reductions can often be overlooked. Your promised cost reductions can so easily evaporate as the implementation timescales for these ‘silver bullet’ programmes slip further and further.

Problem 5 - IT infrastructure costs are profoundly difficult to rollback
Your largest IT operating costs relate to IT infrastructure and yet this is your most difficult area to tackle. The situation is made more difficult by the remorseless increase in demand for IT storage, network capacity and the latest technology devices. If you turn for advice to large global technology firms to help you reduce your significant IT infrastructure, network and desktop costs the proposed solutions can require significant capital investments that are unlikely to be agreed to by your CFO.

Problem 6 - Financial Service companies are a lot more complicated than car plants
Strategies, tools and techniques that work in car plants may not work as well in financial services. Complex regulatory and compliance obligations, 'invisible' products and services rather than physical products and dependency on large-scale IT legacy systems all combine to make delivering meaningful cost reduction in IT and back office operations supreme challenges. Methods such as Six Sigma and Lean may provide initial benefits however such approaches cope poorly with the variability and complexity of the IT and business architecture of financial institutions and trying to force a square peg solution into a round hole problem causes disappointment.

Problem 7 - Investments in automation and workflow have a mixed track record
You understand the potential of automation and workflow to increase productivity - but these investments have a mixed track record. Many automation projects end up recreating the manual processes they replaced and unsurprisingly the productivity improvements and cost reductions achieved are disappointing. The key challenge is to refocus the project team’s efforts to streamline and enhance key processes from a customer perspective first and foremost. This should come before starting coding with automation and workflow software tools.

So what can you do to get sustainable results?
For over 25 years we have assisted financial institutions that are frustrated with IT and back office cost reduction programmes that promise the world but fail to deliver measurable and sustainable results. Leading financial institutions and technology companies including: AOL, AXA and Citicorp have all increased their profitability using proven approaches and methodologies that build on the processes and systems that you most likely already have in place. Fundamentally, anyone can cut costs using 'slash and burn' approaches that give short-term relief to budget pressures, however the only way these cost reductions can be sustainable is by improving the underlying productivity of your people and processes.

We don't believe that this needs to be an overly complicated process, nor should it take many months and years to implement. In fact our clients will attest that our system will enable you to achieve:

Productivity increases of 10%-15% in 90-120 days within key service processes in your IT and back office operations.
Reduce your costs by 20-30% through more aggressive use of Outsourcing.
Reduce labour costs by 25-65% through more extensive use of Offshoring.
Reduce the service quality gap by 50% between Offshore and Outsourced operations and inhouse operations within 90-120 days.
Reduce the cost of external products and services by an average of 13%.
Eliminate demand on IT services by 10-25% by business departments (and have them be happier about your IT support).
Reducing the overall IT project and investment portfolio spend by 25% whilst increasing cost reductions delivered to IT and business operations.

If you've been concerned by the slow pace of cost reduction, then you owe it to yourself to request a free copy of our most recent report. It will take you less than 15 minutes to read and these are just some of the invaluable insights that you will learn:

The one factor that prevents your cost reduction programmes delivering rapid results. Change this and all the other pieces fall into place.
Why do Lean and Six Sigma approaches get stuck after initial success? The answer may surprise you.
What is holding back your ability to pursue outsourcing and offshoring strategies with much greater pace and impact?
Why do so many banks find IT transformation programmes fail to deliver their promised results?
Why most investments in automation, image and workflow solutions are likely to turn into little more than a sinkhole of wasted money.
Why so many of your IT and back office productivity initiatives result in a lot of noise but very little in terms of cost reduction. The good news is that by focusing on this one area you can improve your revenues in less than 120 days.
These are the two issues your cost reduction plan should relentlessly focus on. Ignore them and your strategy will flounder.
Ultimately, sustainable cost reduction is about increasing your productivity. In order to be successful you must focus on stimulating this one factor.
Why the productivity of your IT and back office operations is likely to be decreasing. The answer has to do in large part with the natural impact of new product, compliance and technology changes. And yet, what is the key factor that is frequently ignored that is undermining your long-term efforts to reduce costs and improve service?
The three questions you must ask yourself before embarking on any cost reduction initiative.

If reducing your IT and back office costs significantly is mission critical, I can guarantee that you'll find the information in our report to be helpful and immense value to you. Remember, it's free and you can request it by clicking here.