A report by PricewaterhouseCoopers (PWC) titled ‘The Productivity Agenda- Moving Beyond Cost Reduction in Financial Services,” has warned that the impact of digital evolution on traditional businesses would require a change of mind-set and adoption of smart solutions, especially by banks, to stay above threats on their operations.
The report called for senior executives to address issues affecting productivity to boost profitability and support sustainable growth. The firm urged banks to look beyond the realm of cost-reduction and restructuring measures for profitability and long-term survival, warning that such strategies come with inherent limitations.
PWC said that in the face of concern over the disruption of Artificial Intelligence (AI) in the industry, managers should clearly spell out tasks that could be performed by AI and those human capital is needed to execute.
Sam Abu, the Financial Services Leader for PwC Nigeria said “the cost cutting agenda adopted by many institutions since the financial crisis has, in essence, de-globalised the industry to make it more local or national, shrunk global footprints, divested businesses and shed clients”.
He added that “however, this process has run its course. If profitability is to get anywhere near the highs of 15 years ago, what is needed now is a fundamental focus on building a sustainable productive business model that can compete with both incumbent institutions and digital-only competitors”.
The global financial advisory company identified six areas where financial institutions can focus their productivity efforts to boost sustainable profitability, this includes better understanding of the workforce, rethinking change functions and embracing the platform economy. Others are improving workforce digital IQ, bringing an agile mind-set to the mainstream and mastering digital labour.
According to the report, “with banks struggling to improve their return on capital, many institutions are being forced to restructure and cut costs. Even in the asset management industry, where return on equity is higher than the financial services industry as a whole, there is downward pressure on margins and profitability”.
the report stated that “cost cutting will only deliver so much. If financial institutions are to improve profitability in the long-term, they need to fundamentally improve the productivity of the enterprise”.