While the world is busy flattening the curve in the fight against the COVID-19 pandemic, financial services organizations are busy bending a curve of their own – the cost curve – as many businesses fight for survival.
Work being done at the national level to help the industry meet the enormous liquidity challenges created by the economic fallout from the coronavirus is a start. However, many institutions are also looking at ways to reduce expenditures. It’s tempting to go for easy cost savings by cutting temporarily underutilized capacity – aka your people. But when dealing with capacity, like financially underperforming investments, it becomes too easy to let go of assets – aka your people – when times get tough.
Banks, insurance companies, wealth and asset management firms, among others, may be tempted to cut costs through the reduction of human capital without considering the long-term impact. Using the traditional/linear cost and revenue curves (see graphs below), we see that when a firm pursues layoffs as an immediate response to the sudden and unforeseen reduction in revenue, they may be able to stifle the effects for the short-term but at the cost of maximizing capacity for the long-term when the market bounces back.
What then should an institution do?
First, pause, and take a deep breath before acting. Look at the longer-term view to see how to get the best value instead of destroying your capacity for delivering value in exchange for immediate cash flow.
Capacity should be viewed as value-generating potential. Instead of damaging a key conduit needed to deliver value to your clients, figure out how to refocus your capacity (people) on the existing value stream during these times of disruption.
This is easier said than done when you’ve had to close your doors, react to interest rates dropping, watch the equity markets decline, refocus human capital to Small Business Administration (SBA)/ Paycheck Protection Program (PPP) requirements or felt deep uncertainty about when normal consumer behavior will resume. However, there are still ways you can bend your revenue curve up or your cost curve down, despite today’s challenges.
The following model outlines how re-focusing on the value stream through your existing resource pool (aka capacity) will enable a sharper and quicker rebound in the revenue, which we’ve seen historically.
- Repurpose idle capacity to optimize infrastructure. Many institutions have repurposed idle capacity to SBA/PPP activities. For those who have not, this can be a rare opportunity to take care of all the things you intended to do, but never get around to completing.
- Get your staff cross-trained to create flexibility. One institution recently cross-trained associates to support the move away from branch visits to more virtual, digital interactions. While another organization, a national bank in this case, reorganized IT support staff by product and are now moving towards a cross-trained employee model.
- Implement process improvements. Many organizations are taking the opportunity with their idle capacity to problem solve underlying root causes of challenges that have plagued them for a while. Other firms are continuing to invest in effortless financial transactions, such as online banking or other digital initiatives, to make it easier for commercial customers to engage with the organization.
- Repurpose idle capacity to innovate. If you’re not leveraging capacity for SBA/PPP work, tackle the loss of demand by enabling your existing workforce to identify overlooked opportunities. Things we’ve seen:
- Create a culture of innovation. Financial services organizations aren’t always historically seen as innovative and/or early adopters, but some firms are investing in policies that will generate new ideas from the ground-up.
- Improve the customer experience. Focus on creating seamless interactions with your customers through a consistent omni-channel experience, while allowing for personalized and customized experiences that financial services clients are seeking today.
- Leverage data and analytics. Some banks and asset managers are using AI and business intelligence to find additional ways to cross-sell products to clients or decrease costs across the organization.
Approach disruption in a way so you don’t lose the opportunity to position your firm to differentiate and take advantage of the situation when demand picks back up. As we’ve seen in previous crises and downturns, financial services organizations are capable of not only surviving but thriving during challenging times. Resist the temptation to cut expenses and instead repurpose capacity in a way that will prepare your business for the future and what the “new normal” will be.