Simplifying banking: short-term steps to achieve long-term success

By Gavin Neilson


There are many reasons why banks are complex businesses. They operate in an environment of changing regulation, often deal with a complex set of products that have changed over time, use legacy and aged infrastructure and applications, and regularly operate across different jurisdictions.

However, in many cases, banks have ended up inflicting further complexity on themselves through their own decisions and by failing to address its creeping effects over time. The result is they have passed a tipping point where complexity is destroying business value. Its effects are far-reaching. It adds cost, slows the business down, destroys customer service and makes it tougher for customers to engage with it – as well as hiding risks and increasing the chances of regulatory non-compliance.  

Yet there are practical ways to tackle this complexity challenge – to develop simpler ways of working that are better for customers, easier and cheaper to operate, easier to manage and that respond more effectively to market and regulatory change.

There are two distinct phases in the simplification process.

Phase one: clear out the clutter

The first task is to clear out the clutter by tackling visible complexity head on. This should deliver rapid benefits and is a necessary first step to clear the way to longer term change. Many banks have started this work but for a number of reasons few have completed this phase successfully.

Phase two: redesign to create a simpler business

The second step is to redesign to create a simpler business. This means rethinking your business so it aligns with core simplicity principles that focus on what really creates value and what is the simplest end-to-end way of delivering that value. By designing these simpler ways of working and embedding them into the business, you can unlock greater improvements and reduce the speed at which complexity will creep back into the operation.

Simplicity delivers real benefits

Our experience working with a number of clients across the financial services sector has shown how this two-phase approach to simplicity can drive real improvements in performance and reductions in costs.

Our work focuses on driving simplification in four key areas: creating market simplicity; building simpler operations; simplifying the way change is managed; and simplifying the way the business is led and managed.

Creating market simplicity

When we support organisations in creating market simplicity, we start by reducing excess variety and complexity in what they offer by identifying where there are redundant and duplicated products. We then help to implement programmes to end these products and transfer customers to the remaining product offer. This is a challenging process, but in one recent case, we reduced the excess variety by nearly 90%, took more 30% out of product management costs and dramatically enhanced the bank’s capital and risk positions.

The second phase in this work is to redesign the product set along with the channel experience to create a cohesive offer that is both simple and appealing to customers. This is achieved by ensuring that the structures and policies of the products, and the channels they are serviced through, are simpler for both customers to use and for the organisation to operate.

Building simpler operations

The starting point in building simpler operations is to look for excess complexity. This is often found in standard operating procedure (SOPs), duplicated operations or particularly complex areas of legacy technology, where tactical fixes can unlock significant simplification in operational processes. We recently helped a Nordic bank simplify their SOPs, leading to a major improvement in their governance and control processes, improvements in access to critical data and a reduction in duplication.

The second phase in this area of work focuses on redesigning core operational areas end-to-end, using simplicity as the guiding principle. We adopted this approach in our work with a UK clearing bank where we simplified end-to-end PPI operations, which yielded 40% productivity improvements in six months.

Simplifying the way change is managed

Managing change effectively requires a focus on reducing the complexity in the current change portfolio. By rethinking that portfolio and identifying how common components of change can be developed to deliver multiple changes we were able to simplify the regulatory change portfolio of a multinational bank and reduce costs by 20%.

The next phase in this work is to design a simpler approach to managing and delivering change. We used this approach to help a financial service regulator use agile techniques to transform their approach to business and technology change, delivering productivity improvements of more than 50%.

Simplify the way the business is led and managed

Most business are plagued by complex and cumbersome decision-making, confused accountabilities and burdensome reporting requirements. All these factors can be improved rapidly in the first phase of activity. This can be seen in our work with a multinational bank to help them rethink their business intelligence and reporting. We created simpler and easier reports that were more relevant to the decisions they made and at the same time reduced the effort needed to compile and manage the reporting environment.

The next phase in this work is to seek out simpler ways to lead and manage the business. We recently worked with a European bank to harmonise their business models across 10 operating units to improve control, enable growth and release £75 million of value.

Many organisations have set themselves a goal of simplifying their business but few have succeeded in delivering a sustainable simpler business. Yet the need for simplicity is only going to get more important as the pressures on banks increase.

What our work has shown is that there are clear practical steps that can be taken both to deliver short-term improvements and to bring about the more fundamental operational redesign which will provide long-term value from simpler organisations. However banks need to act now, they simply cannot afford the costs of complexity.

Find out more about the author of this article, Richard Coughlin.

About the authors

Gavin Neilson PA financial services expert

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