Transcript
No Compromise
Advocating for Customers, Insisting on Efciency
Operational Excellence in Retail Banking 2014
The Boston Consulting Group (BCG) is a global
management consulting frm and the world’s
leading advisor on business strategy. We partner
with clients from the private, public, and not-for-
proft sectors in all regions to identify their
highest-value opportunities, address their most
critical challenges, and transform their enterprises.
Our customized approach combines deep in sight
into the dynamics of companies and markets with
close collaboration at all levels of the client
organization. This ensures that our clients achieve
sustainable compet itive advantage, build more
capable organizations, and secure lasting results.
Founded in 1963, BCG is a private company with
81 ofces in 45 countries. For more information,
please visit bcg.com.
May 2014
Christophe Duthoit, Michael Grebe, Nicole Mönter, Rob Sims, and Ian Walsh
No Compromise
Advocating for Customers, Insisting on Efciency
Operational Excellence in Retail Banking 2014
2 No Compromise
AT A GLANCE
BCG’s fourth annual global Retail-Banking Operational Excellence benchmarking
found that top-quartile banks improved operational efectiveness while also
becoming more customer-centric than their competitors.
Creating Value Through Operational Excellence
The benchmarking efort included 18 of the world’s 35 top retail banks in the
Americas, Europe, and Asia-Pacifc, collectively referred to here as premier-league
banks.
The Four Key Focus Areas Of Premier-League Banks
We identifed four areas of focus by leading premier-league banks: competitive
advantage through customer centricity, increased sales performance through
digitization, excellence in organizational and process efciency, and complexity
reduction that drives business results.
Enabling Banks And Customers With A Target Operating Model
Leading retail banks deliver on these and other customer-centric imperatives in a
rapidly digitizing world by developing and delivering against a target operating
model, allowing them to make step-change improvements in products and services.
The Boston Consulting Group 3
Top-performing banks
are rejecting tradition-
al tradeofs and
compromises be-
tween boosting
efciency and advo-
cating for customers.
A
plodding recovery, weak macroeconomic conditions, and dim growth
prospects continue to challenge the world’s leading retail banks. In response,
these banks are taking action to improve their operational efectiveness and
productivity.
The most efficient and profitable among them are going a step further. While con-
tinuing to achieve gains in efficiency, they are also becoming more customer-centric
than their competitors. Often they are developing digital capabilities to address
both challenges. (See “Customer Centricity in Financial Services Goes Digital,” BCG
article, August 2013.)
These top-performing banks are rejecting traditional tradeoffs and compromises
between boosting efficiency and advocating for customers. At the same time, they
are mitigating conduct risk. In short, they are showing that it is possible to achieve
excellence on all three dimensions, which they now see as a necessity rather than a
choice. In order to achieve this advantage, they are optimizing their operating mod-
els in three ways: by boosting organizational and process efficiency, increasing em-
ployee productivity, and enhancing the customer experience.
These conclusions, and the report that follows, reflect the latest perspective from
The Boston Consulting Group’s client work, supplemented by the findings of
BCG’s fourth annual Retail-Banking Operational Excellence benchmarking.
The benefits the top-quartile banks receive by optimizing their operating models
emerge clearly in data from the benchmarking, which was conducted in 2013.
• Collectively, these leading performers achieve a cost per customer of approxi-
mately half the benchmark median. They do so by developing scalable models
of efcient customer service, by migrating most low-value transactions to
alternative channels (95 percent compared with the median of 80 percent), by
tightly limiting staf in nonclient-facing roles (16 percent compared with the
median of 31 percent), and by streamlining management overhead to just 4
percent of total full-time-equivalent (FTE) staf.
• Their income per customer is more than $1,000—nearly 30 percent above the
median. They achieve this through more efective lead fow and discussions
regarding high-value clients (resulting in 25 new accounts per branch salesper-
son per week compared with the median of 12) and greater share of wallet (2.9
products per customer compared with the median of 2).
4 No Compromise
• The most competitive retail banks satisfy customers with responsive, digitally
enabled services and products.
• They achieve cost-to-income ratios—a key measure of efciency and
proftability—at or below 40, compared with the median of 54.
Of course, efficient doesn’t mean cheap, just as customer centricity isn’t simply low-
er fees and cheerful counter staff. The most adroit institutions are developing capa-
bilities to deliver a better customer experience at lower cost, often customized by
client segment.
• Leading retail banks provide simple, reliable, and quick paths for customers to
switch products held elsewhere to the bank.
• They focus on excellent on-boarding, early tenure management, and fast-cycle
development of products that fully function at launch.
• Top performers provide quick, error-free service in the customer’s preferred
channel while providing visibility to all channels.
• They rapidly and reliably execute transactions and requests. When mistakes are
made, they admit them immediately and correct them proactively and
appropriately.
Four Levers Are Crucial in Achieving Operational Excellence
Our 2013 benchmarking, like its predecessors, examined the evolving operational
practices of the world’s leading retail banks in the Americas, Europe, and
Asia-Pacific—a group of institutions we call the premier-league banks.
1
Our objective
was to learn how these top banks maximize end-to-end operational performance
and to identify industry-leading trends and capabilities in operational excellence.
Eighteen of the 35 premier-league banks were included in the benchmarking,
accounting for roughly 192 million customers, 32,000 bank branches, and assets
totaling $5 trillion.
Our previous reports in this series documented that four levers are paramount for
banks in delivering operational excellence: client excellence, efficient and effective
processes, streamlined organization, and strong underlying capabilities. (See the
sidebar “Exploiting the Four Critical Levers of Operational Excellence.”) In this
year’s benchmarking, we again assessed premier-league-bank performance against
these four levers. Metrics included FTE staff ratios, processing-center data, cycle
times by product line, and customer service by channel. Banks provided additional
input during review sessions and at a summit meeting for participants.
Even with the heightened focus of recent years on productivity, none of the
high-performing banks included in the benchmarking achieved top-quartile results
in all dimensions—a reflection of each institution’s starting point and focus. This
reality highlights the difficulty of excelling in all areas simultaneously. It also sug-
gests that further gains are possible, even among high performers.
The most adroit
institutions are
developing capabili-
ties to deliver a better
customer experience
at lower cost, ofen
customized by client
segment.
The Boston Consulting Group 5
Operationally Strong Banks Outperform Financially and in
Customer Advocacy
This year’s benchmarking results amplified an earlier insight: the operationally
strongest retail banks deliver superior financial performance. The findings also un-
derscored the fact that there is no single silver bullet; achieving true operational ex-
cellence requires a bank to execute at a high level across multiple dimensions, in
alignment with its own specific business model.
The strongest overall performance on our four levers of operational excellence was
concentrated among the most efficient and profitable set of premier-league banks,
that is, those with the lowest country-adjusted cost-to-income ratios (CIRs).
2
Of the
18 banks ranked in our benchmarking, the 9 most efficient and profitable, based on
CIR, achieved 38 top-quartile rankings across all four levers of operational excel-
lence. That was double the number of top-quartile rankings achieved by the 9 less
profitable and less efficient banks. (See Exhibit 1.)
The 9 most profitable banks also demonstrated wide-ranging operational excellence.
Six of them achieved top-quartile performance in at least three of the four levers:
client excellence, efficient and effective processes, and streamlined organization.
Excelling with the four levers of
operational excellence is critical for
retail banks that hope to raise their
overall performance level. The
following are some best practices and
success factors.
• Client Excellence. Succeed in
“moments of truth” for the
customer, providing efective sales
and service across channels,
contacting and assisting custom-
ers proactively, and delivering
easy-to-buy, easy-to-sell, easy-to-
service products with key features
that are instantly functional.
• Efcient and Efective Processes.
Design processes that are simple,
fast, and, ideally, paper-free and
that get things right the frst time
so customers do not experience
delays or errors. When fulfllment
cannot be provided at the point of
sale, have the ability to hand of
the task to operations through
data or images, then route it to
the right individual for completion.
• Streamlined Organization. Achieve a
lean organization with a clear
sales-and-service focus, as few
layers as possible between the
frontline and executives, high
single-point accountability, and
minimal bureaucracy.
• Strong Underlying Capabilities.
Establish robust enabling capabili-
ties that allow the bank to contin-
uously improve its end-to-end
operating model and cost perfor-
mance through complexity
reduction, rigorous management
of performance, linkages to
incentives, and other initiatives.
ExpLoiTiNG ThE Four CriTiCAL LEvErs oF
opErATioNAL ExCELLENCE
6 No Compromise
The benchmarking found that as banks adapt to the new new normal of weak mac-
roeconomic conditions and dim growth prospects, customer centricity has become
an increasingly important competitive differentiator. The most efficient and profit-
able half of the total field of 18 benchmarked premier-league banks surpassed the
premier-league median in client excellence. More crucially, these leading banks
have opened a gap with other banks by boosting efficiency and reducing complexi-
ty throughout their organizations.
Many of these banks are delivering on customer advocacy and other imperatives by de-
veloping their target operating models, as discussed in the final section below.
How Leading Retail Banks Are Achieving Operational
Excellence
This year, we identified four specific focus areas that are helping the leading pre-
mier-league banks achieve operational excellence while driving efficiency for the
customer’s benefit:
• Competitive advantage through customer centricity
• Improved sales performance through digitization
3
4
11
2
10
11
14
2
0
5
10
15
20
25
30
35
40
45
38
Bottom-CIR banks
1
(CIR > 50%)
19
Strong underlying capabilities Streamlined organization
Efficient and effective processes Client excellence
Number of top-quartile rankings
Top-CIR banks
1
(CIR < 50%)
Source: BCG 2013 Retail-Banking Operational Excellence benchmarking.
1
Country-adjusted cost-to-income ratio, which equals a bank’s CIR plus an adjustment factor (the global
average bank CIR minus the country average bank CIR).
Exhibit 1 | The Operationally Strongest Premier-League Banks
Achieved Superior Financial Performance
The Boston Consulting Group 7
• Excellence in organizational and process efciency
• Complexity reduction that drives business results
Significantly, these focus areas span all four of the key levers of operational excel-
lence. (See Exhibit 2.) They are also unified by customer centricity, which is now a
key part of leading banks’ efforts to drive top-line growth, reduce costs, and attract,
serve, and retain clients.
Competitive Advantage Through Customer Centricity
The benchmarking clearly highlighted the business benefits of meeting customers’
financial needs and their rising expectations for fast and responsive service. Cus-
tomer centricity is more than just good service. It is also about tailoring proposi-
tions to customers’ profiles and needs, rationalizing product offerings, and simplify-
ing product features. (See The “New New Normal” in Retail Banking: How Banks Can
Get Back on Course, BCG Focus, August 2012.)
Attracting and serving high-income-producing clients and expanding share of wallet
have therefore become key differentiators. Increasingly, premier-league banks are
Strong underlying capabilities
Complexity
management
Performance
management
Continuous
improvement
Effective front/back
office collaboration
Client excellence
The four focus areas
End-to-end performance
Competitive advantage
through customer
centricity
Improved sales
performance through
digitization
Excellence in
organizational
and process efficiency
Complexity reduction
that drives business
results
Multichannel delivery
Branch
excellence
Online
excellence
Call center
excellence
Efficient and effective processes
Efficient new-product
processes
Efficient
administration
processes
Process automation
and sharing
Streamlined organization
Lean
organization
Sales-focused
FTE distribution
Adequate
operations footprint
(locations, sourcing)
Four levers of operational excellence
Source: BCG analysis.
Exhibit 2 | The Four Focus Areas of Leading Retail Banks Span All Four Levers of
Operational Excellence
8 No Compromise
turning to big data, sophisticated analytics, and digital capabilities to achieve those
goals. (See the sidebar “Connecting with Customers Through Big Data.”)
However, we believe that the main challenge for banks, before tackling big data, is
to develop “rich data”—that is, customer information that is complete, current, co-
herent, and consistent. That is far more important than external data feeds in al-
lowing banks to extract key insights. Indeed, our benchmarking revealed that banks
achieving a balanced focus on both the quantity and the quality of leads were able
to generate nearly twice as many sales per client per year for each lead generated,
compared with banks that focus primarily on generating the largest possible num-
ber of leads. (See Exhibit 3.)
premier-league banks are adopting
big-data tools and approaches—min-
ing massive quantities of previously
untapped customer and consumer
data—to identify the most attractive
customers and serve them better.
The most competitive banks are
succeeding in targeting prospects,
winning their loyalty, and increasing
revenue as they improve lead genera-
tion productivity. some banks are
using information about which
products a customer already holds—
either in-house or with competitors—
together with data about lifestyle,
income, and recent transactions to
suggest better-performing or less
expensive alternatives.
one particularly strong bank, for
example, is pulling data from multiple
sources—internal and external—to
tailor services and oferings, progres-
sively, to each customer’s preferences
and needs. This also allows the bank
to ensure that communication is
delivered through the customer’s
channel of choice, to highlight ofers
that match the customer’s situation
and risk profle, to alert staf—both
physically and virtually—to opportuni-
ties in real time, and to enable
proactive intervention when needed.
Some best-practice banks mine their
databases to identify events in the
lives of their customers that might
trigger demand for new products and
services. one bank with top lead-man-
agement capabilities, for example,
contacts clients three months before
they are scheduled to pay of a
mortgage to discuss investment
products, and two weeks afer a
household move to discuss insurance.
The most capable banks are develop-
ing data and analytics to accelerate
their understanding of sales trends,
incorporate more accurate forecast-
ing, and create more powerful
marketing platforms and initiatives.
Longer term, some banks are combin-
ing data-driven insights with custom-
er-centric approaches to plan the
evolution of their business models.
(see “A New virtuous Cycle for Banks:
Linking social Media, Big Data, and
signal Advantage,” BCG article,
February 2012.)
CoNNECTiNG WiTh CusToMErs ThrouGh
BiG DATA
The Boston Consulting Group 9
Another customer-driven differentiator is the ability to improve the speed and
responsiveness of sales and service. For example, the top-quartile performers in the
benchmarking had a median cycle time for current and transaction account
openings of 5 minutes for existing customers and 15 minutes for new customers,
respectively three and a half times and twice the median.
3
The performance gap for
real estate-secured loans was similar.
The leading banks have also improved the operational excellence of their call cen-
ters. For example, the top performer achieved a call wait time of 12 seconds, com-
pared with the top-quartile average of 17 seconds and an overall median wait time
of 30 seconds. Some banks are taking the further step of segmenting service by cus-
tomer type, aligning cost to serve with customer value.
Overall, banks have continued to increase their focus on customer-facing roles, with
top-quartile banks now dedicating 82 percent of resources, excluding overhead, to
those roles.
For the most customer-centric banks, focusing on clients translates into 30 percent
higher income per customer on average, illustrating why advocating for customers
is increasingly a competitive differentiator. Some market leaders have made step-
X =
Fewer leads per client... ...but a higher conversion rate...
...resulting in an improved
sales ratio per client
1.4
0.8
5.4
24
6
4
2
0
2.1
Ø 2013
Ø 2012
2.6
No
focus
Quantity
focus
23.1
Quality
focus
Balanced
focus
Number of leads generated
per client per year
1.7
0.7
6.2
25
5
0
3.5%
Ø 2012
Ø 2013
4.8%
No
focus
Quantity
focus
Quality
focus
24.0
Balanced
focus
Percentage of leads
resulting in a sale
0.02
0.17
0.20
0.33
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.14
Ø 2012
Ø 2013
0.17
No
focus
Quantity
focus
Quality
focus
Balanced
focus
Number of sales per client per year
for each lead generated
Source: BCG 2013 Retail-Banking Operational Excellence benchmarking.
Exhibit 3 | Increased Selectivity in Lead Generation Is Boosting Conversion Rates and
Sales Ratios
10 No Compromise
change improvements in the customer experience by redefining their operating
models around client expectations. As they do so, a number of best practices have
emerged:
• Base communications on the needs of individual customers, making explicit
service-level commitments.
• Align multichannel distribution with natural customer pathways.
• Tailor customer value propositions, ofen at the segment level, to match revenue
potential and cost to serve.
• Achieve a single view of individual customers and their needs and behaviors,
and implement “next best actions” based on that view.
• Incorporate a customer perspective into leadership, culture, KPIs, and employee
incentives.
Improved Sales Performance Through Digitization
The digital engagement of clients with their banks is expanding quickly, underscor-
ing both the potential opportunities and the perils of interactive technologies,
which have disrupted incumbents in a succession of industries from music and pub-
lishing to printing and photographic imaging.
Almost all the benchmarked banks experienced strong growth in online transac-
tions and interactions, as customers increasingly choose interactive, self-service
channels, especially for simple tasks. More significantly, mobile interactions and
transactions have skyrocketed, quadrupling the previous year’s totals. For top-quar-
tile banks, the online and mobile share of transactions is now equivalent to that of
ATMs, at about 43 percent. The largest gap between top-quartile and median per-
formers was in the share of online versus branch transactions.
This expanding digitization is enabling stronger sales performance in two distinct
ways. First, multiple interactive channels fulfill the needs of customers—giving
them what they want, when and where they want it. Second, digital channels lower
operational costs and boost productivity because they require fewer in-person,
branch-office interactions and therefore fewer administrative FTEs. Moreover,
banks with a high proportion of customers originating online reap a compounding
benefit, because those clients tend to prefer transacting online. This allows further
reductions in administrative staff and activity, increasing resources for high-val-
ue-added client-advisory services. (See Exhibit 4.)
As a consequence of this evolution in channel usage, branches increasingly focus on
high-touch transactions. Banks are investing in getting the most out of those branch
transactions that are not growing robustly. For example, one bank achieved a 30
percent increase in sales conversion by implementing customer-advisory best prac-
tices. It won 80 percent of that increase from scheduled appointments and a focus
on the right customers, with the remaining 20 percent achieved through better cus-
tomer-flow management and a sharper focus on sales.
For top-quartile
banks, the online and
mobile share of
transactions is now
equivalent to that of
ATMs, at about
43 percent.
The Boston Consulting Group 11
Excellence in Organizational and Process Efficiency
Banks are making significant strides in improving organizational and process
efficiency. Yet new challenges to productivity keep surfacing, many resulting from
the rising tide of regulation aimed at reducing risk and enhancing customer pro-
tection.
In this environment, banks excelling in process efficiency are widening the produc-
tivity gap with average performers. This is particularly true as measured by account
openings, as well as the proportion of risk FTEs to new products per account open-
ing, where the performance of top-quartile banks was triple the median.
The benchmarking also found a widening gap in customer management between
top-scoring banks and the rest. Top-quartile performers had twice as many
customers per operations FTE as the premier-league median, owing to increased
operational efficiency, organizational streamlining, and the shifting of FTEs to
customer-facing roles. The best performers dedicated an average 82 percent of FTE
resources to customer-facing roles. Benchmarked banks achieved a median 3 percent
reduction in management FTEs and a 7 percent increase in customers per FTE.
Delayering initiatives have proven to be a very powerful lever for many banks in
reducing management staff and simplifying the organization. These initiatives re-
duce the number of layers in the hierarchy and increase spans of control at appro-
priate levels. At the same time, delayering brings managers closer to customers and
Branch users
Online users
0.2
0.4
0.6
10 0 40 30 20
Share of transactions online
Share of current accounts originated outside of branches (%)
Increased online activity also boosts FTE productivity and sales efficiency
Clients who open accounts online tend to prefer online transactions, giving a cost
advantage to banks with large numbers of these customers
Source: BCG 2013 Retail-Banking Operational Excellence benchmarking.
Exhibit 4 | Banks That Succeed in Boosting Online Account Openings Reduce Their
Transaction Costs
12 No Compromise
frontline staff. This improves decision making, enhances accountability, speeds com-
munication, and creates a more competitive cost structure.
In order to achieve the desired process and organizational efficiency, every bank in
our benchmarking is performing end-to-end process reviews aimed at achieving
continuous improvement. The review frequencies vary considerably, however, and
only a third of the banks perform annual reviews.
Some banks are excelling in operations productivity, opening a large gap with the
average performers. That said, systematic measurement of operations performance
and productivity is now the norm. More than 80 percent of the benchmarked banks
measure performance and regularly report it.
Process reviews are increasingly used to improve business performance as well.
One-third of the benchmarked banks review new products to verify the existence of
a sound business case and to eliminate nonrevenue-generating products.
Finally, several of the most competitive financial institutions are doubling down on
lean programs both to ensure their own survival and to gain a long-term advantage.
(See Lean That Lasts: Transforming Financial Institutions, BCG Focus, September
2012.) The most forward-looking companies are embracing “lean that lasts,” com-
prehensive and sustainable change based on an operating philosophy of continuous
improvement that motivates the entire organization and creates a genuinely lean
company. For example, one strong bank that had become frustrated with diminish-
ing returns from process-only changes was able to unblock progress across the orga-
nization by improving cooperation between the front office and operations units.
The breakthrough was achieved by establishing end-to-end goals, incentives, and
feedback loops that focused on customer outcomes.
Complexity Reduction That Drives Business Results
Complexity reduction initiatives are on the rise, with banks expanding rationaliza-
tion of their product portfolios both to restrain costs and to provide customers with
clear, uncomplicated choices. The benchmarking showed a 10 percent median reduc-
tion in actively sold products. Half the banks surveyed anticipated further rational-
ization.
Product rationalization in one silo can have substantial secondary effects by elimi-
nating related products in other portfolios. One bank, for example, undertook a re-
duction in the complexity of its mortgage products by targeting all product parame-
ters: it slashed mortgage loan types from nine to one, cut down-payment methods
from seven to five, and reduced available interest periods from 14 to 6. Ultimately
this initiative triggered 10 to 90 percent reductions of related products in securities,
loans, current-account packages, and savings accounts as well.
Banks are also starting to turn their attention to the elimination of nonvalue-creating
complexity and costs at the intersection of business and IT. (See Simplify IT: Six Ways
to Reduce Complexity, BCG Focus, March 2013.) This has led many banks to shelve
low-value products that require extensive IT resources. The savings potential is sub-
stantial, given that 20 percent of a bank’s products typically generate 80 percent of
Every bank in our
benchmarking is
performing end-
to-end process
reviews aimed at
achieving continuous
improvement.
The Boston Consulting Group 13
its revenues. The prerequisite for success in joint business and IT simplification is un-
derstanding the true IT costs and revenues generated by each retail-banking product.
Finally, several banks reported initiatives to simplify and clarify internal and exter-
nal communications throughout the organization. The first objective is to facilitate
customer understanding and decision making and allow the bank to address its cli-
ents directly and separate from the general public, regulators, and competitors. The
second objective is to respond to growing regulatory pressure for straightforward
and factual communication that is free of marketing and promotional messages.
For such initiatives to succeed, it is critical to embed the value of simple communi-
cations into the company culture, with attention from top executives, and to estab-
lish companywide systems that sustain the new standards.
Enabling Customers and Banks with a Target Operating
Model
How do the world’s premier retail banks deliver on these and other customer-
centric imperatives in a rapidly changing, digitizing world? Our research and client
work show that many of the best banks have developed a target operating mod-
el—a specific and agreed-upon medium-term operating model that is aligned with
the bank’s business model and aimed at creating step-change improvements in the
way products and services are delivered to customers.
The necessary first step in developing a target operating model is to achieve clarity
on the bank’s business model—that is, its customer-value proposition and strategy
based on such fundamental parameters as target customers, customer economics,
product lines, and channel mix. Together, these parameters define the business
context that determines how the target operating model should be designed and
implemented.
With that understanding in place, a target operating model can be created that meets
the needs of the business model. In addition to fulfilling functional needs, the model
must support a bank’s allowable-cost requirements, which determine both revenue
and cost per customer, sometimes measured in FTEs. For example, one bank de-
signed its operating model to provide clarity and accountability on allowable FTEs in
separate parts of its business where there was no redundancy or overlap. In this case,
the FTE roles, responsibilities, and costs were factored into the design of the target
operating model and helped make it a success as a future framework.
While the specific components vary by bank, target operating models are often de-
scribed in terms of people, processes, and technology. Most models address similar,
fundamental questions about how the bank will be structured to deliver products
and services and what key changes are required. For example:
• People. What are the major organizational units and how will they be struc-
tured? What governance mechanisms—such as decision rights and commit-
tees—will guide day-to-day operations and key change programs? What people
and talent processes are required?
Many of the best
banks have developed
a target operating
model aimed at
creating step-change
improvements in the
way products and
services are delivered
to customers.
14 No Compromise
• Processes. Which processes need reengineering? What shared services and
centers of excellence should be created? Which processes will be conducted at
the enterprise level and which by the business units? Which processes will be
outsourced or ofshored?
• Technology. What core platforms will be used for each major product or service?
Where are investments in automation or workfow required? What changes are
required in data management and infrastructure?
The process of answering these questions and others produces a blueprint of the
target operating model. Mapping the path to that goal results in a program of
changes that require a clear roadmap, score cards, and quantitative and qualitative
targets in order to embed and sustain the changes within the organization. This
disciplined and rigorous planning ensures that executives are aligned around a
common purpose, that allowable costs are transparent, that initiatives are well
defined, that accountable leaders are named, that working-level resources are
committed, that milestones and timing are locked in, and that benefits are realized.
When structured well, this approach provides greater certainty of execution and
ultimately unites the organization around a common goal.
The challenge of designing an operating model is acute in a rapidly digitizing
world. Clients have grown accustomed to real-time information access through mul-
tiple interactive channels including online, mobile, and even social media. They ex-
pect more advice, transparent pricing, tailored solutions, quicker responses, and
simplified choices. This increasing sophistication on the part of customers requires
banks to keep pace with digital innovation.
The target operating model, as it adapts to this changing environment, must be spe-
cific and robust, yet supple enough to accommodate the bank’s priorities and in-
vestments. It must also be sufficiently firm to protect the bank against decisions
that diverge from the target state. It is no coincidence that the most competitive
banks are expending the time and effort required to design a target operating mod-
el that establishes the foundation for deep and lasting advantage in the digital era.
Notes
1. These banks were chosen based on the size of their retail-banking operations and the all-around
strength of their capabilities, including operations.
2. CIR is a key measure of both efficiency and profitability. Country-adjusted CIR equals the bank’s
CIR plus an adjustment factor (the global average bank CIR minus the country average bank CIR).
This measure provides a like-for-like CIR comparison of banks in different countries by removing
country-specific variances.
3. Cycle time is defined as the period from when an application is processed to when the related
account is usable and funds are available.
The target operating
model must be
specifc and robust,
yet supple enough to
accommodate the
bank’s priorities and
investments.
The Boston Consulting Group 15
About the Authors
Christophe Duthoit is a senior partner and managing director in the paris ofce of The Boston
Consulting Group and the global leader of the banking technology and operations segment. You
may contact him by e-mail at
[email protected].
Michael Grebe is a partner and managing director in the frm’s Munich ofce and the global topic
leader for simplify iT. You may contact him by e-mail at
[email protected].
Nicole Mönter is a principal in BCG’s Brussels ofce and the global manager of the retail-banking
segment. You may contact her by e-mail at
[email protected].
Rob Sims is a partner and managing director in the frm’s Toronto ofce and the global topic leader
for operational excellence in retail banking. You may contact him by e-mail at
[email protected].
Ian Walsh is a partner and managing director in BCG’s London ofce and the global leader of the
retail-banking segment. You may contact him by e-mail at
[email protected].
Acknowledgments
The authors would like to express their gratitude to the fnancial institutions that participated in
the interviews and benchmarking that served as the foundation for this report. They also thank
Michael Leyh and Kai Angermeier for research and other contributions. Special thanks go to
Jonathan Gage for his editorial leadership, as well as to other members of the editorial and
production team, including Katherine Andrews, philip Crawford, Gary Callahan, Kim Friedman,
Abby Garland, Gina Goldstein, and Sara Strassenreiter.
For Further Contact
if you would like to discuss this report, please contact one of the authors.
To fnd the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.
Follow bcg.perspectives on Facebook and Twitter.
© The Boston Consulting Group, Inc. 2014. All rights reserved.
5/14
Abu Dhabi
Amsterdam
Athens
Atlanta
Auckland
Bangkok
Barcelona
Beijing
Berlin
Bogotá
Boston
Brussels
Budapest
Buenos Aires
Calgary
Canberra
Casablanca
Chennai
Chicago
Cologne
Copenhagen
Dallas
Detroit
Dubai
Düsseldorf
Frankfurt
Geneva
Hamburg
Helsinki
Ho Chi Minh City
Hong Kong
Houston
Istanbul
Jakarta
Johannesburg
Kiev
Kuala Lumpur
Lisbon
London
Los Angeles
Luanda
Madrid
Melbourne
Mexico City
Miami
Milan
Minneapolis
Monterrey
Montréal
Moscow
Mumbai
Munich
Nagoya
New Delhi
New Jersey
New York
Oslo
Paris
Perth
Philadelphia
Prague
Rio de Janeiro
Rome
San Francisco
Santiago
São Paulo
Seattle
Seoul
Shanghai
Singapore
Stockholm
Stuttgart
Sydney
Taipei
Tel Aviv
Tokyo
Toronto
Vienna
Warsaw
Washington
Zurich
bcg.com
Abu Dhabi
Amsterdam
Athens
Atlanta
Auckland
Bangkok
Barcelona
Beijing
Berlin
Bogotá
Boston
Brussels
Budapest
Buenos Aires
Calgary
Canberra
Casablanca
Chennai
Chicago
Cologne
Copenhagen
Dallas
Detroit
Dubai
Düsseldorf
Frankfurt
Geneva
Hamburg
Helsinki
Ho Chi Minh City
Hong Kong
Houston
Istanbul
Jakarta
Johannesburg
Kiev
Kuala Lumpur
Lisbon
London
Los Angeles
Luanda
Madrid
Melbourne
Mexico City
Miami
Milan
Minneapolis
Monterrey
Montréal
Moscow
Mumbai
Munich
Nagoya
New Delhi
New Jersey
New York
Oslo
Paris
Perth
Philadelphia
Prague
Rio de Janeiro
Rome
San Francisco
Santiago
São Paulo
Seattle
Seoul
Shanghai
Singapore
Stockholm
Stuttgart
Sydney
Taipei
Tel Aviv
Tokyo
Toronto
Vienna
Warsaw
Washington
Zurich
bcg.com