Industrialization: The pathway

to high performance banking

An Accenture global survey on

industrialization in banking 2005-2006
Industrialization:
The pathway to high performance banking
02
Executive summary
04
The big idea:
Industrialization in banking
08
Banks know they need to
differentiate on the outside
and simplify on the inside
10
Banks are driving differen-
tiation by tailoring or
bundling products for
customer segments
14
There is no silver bullet—
instead, banks are simpli-
fying across multiple
dimensions
18
Banks are investing
in leadership and cultural
skills to boost their
execution capabilities
20
Banks expect handsome
dividends from industri-
alization
23
Where to from here?
24
About this study
1
Executive summary
Banks are on the industrialization path

Accenture has worked with many banking clients globally to help

them simplify internal operations to reduce cost and complexity
whilst creating greater capacity for differentiation in the market-
place. We call this concept of reducing complexity whilst increasing
differentiation “industrialized banking”.

Based on our experience in this area and our ongoing work in the
marketplace, we have developed a firmly held view that the shift
towards industrialized banking is gaining momentum around the
world. Until now, there has been no hard data to support this view.
To address this data gap, Accenture has undertaken a global banking
survey which examined the actual—and intended—take-up of indus-
trialized banking. In this survey, we interviewed 107 senior executives
in banking institutions in North America, Europe and the Asia-Pacific
region and asked them about their journey towards industrialization.

The research findings strongly endorse our experience that an

accelerating shift towards industrialization is under way.

2
The study confirms that banks:

Know that they need to differentiate on the outside and simplify

on the inside—almost 90 percent are already investing in both.

Are looking to tailor or bundle products for selected customer

segments to drive differentiation—over 84 percent are investing
in better understanding their customers and in finding new ways
to serve them and sell bundled products to them.

Are looking to simplify across multiple dimensions, right across their

organizations—91 percent are currently simplifying their processes, 81
percent are simplifying their IT systems, 74 percent are rationalizing
their product offerings and 74 percent are centralizing their operations.

Are highly focused on the need to boost their execution capability—

over 80 percent are working to develop their internal leadership and
create a culture that is receptive to change.

Are tightly managing their execution capability—76 percent of indus-

trialization programs are being managed by the CEO or just a small
group of executives and 57 percent are being conducted on an
enterprise-wide basis.
Expect a significant return to their bottom line from their move
to industrialization—over 50 percent expect to generate at least
a 10 percent revenue benefit through differentiation and a third
expect simplification to result in enterprise-wide cost reductions
of more than 10 percent.

The results of the study are presented in detail

in this report.

3
The big idea: Industrialization in banking

To explain the findings from our research, we first need to establish

what we mean by industrialization in banking. In essence, industrial-
ization means simplifying the bank’s operating model on the inside
(to reduce costs) whilst creating the ability to differentiate on the
outside (to grow revenues).

When we talk about simplification on the inside, we are referring to

the “componentization” or “standardization” of products, processes
and technology, and the use of these components to create modular-
ized customer service platforms.

These modularized platforms can cut across business and product

silos. This not only reduces the cost base but also creates the
flexibility required to customize products and services for different
customer segments.

The inspiration behind the concept of industrialization in banking

is drawn from a number of manufacturing industries in which
standardized operating platforms are used during the manufacturing
process to create consistency in product manufacturing plus
economies of scale—whilst at the same time providing customers
with products that have been customized for specific segments.
Examples of this approach can be found in many consumer-focused
sectors—including the automotive industry.

4
Exhibit 1:
Inspiration for industrialization in banking comes from other industries including the automotive industry

Market Platform Brand & model

segment
Volkswagen Skoda SEAT Audi
Upper Class Platform D Concept ‘D1’ A8

New ‘W8’ A6
Medium/High Platform B/C New ‘W8’
Passat A4

Beetle, Golf, Bora TT, A3

Toledo
Medium Platform A Octavia
Leon

Polo Felicia Cordoba

Small Class Platform A0 A2
Lupo Fabia Arosa

Simplified Differentiated brands

platforms
Source: Accenture, Helsinki University of Technology

Industrialization also means Mastery in the execution of This commitment to execu-

becoming masters in the exe-
cution of transformational
change programs, as well as
in the execution of day-to-
day activities to support the
organization’s operational
strategy. Again, inspiration
comes from other industries.
operational strategy can be tion mastery can be applied
found, for example, in the in the banking sector.
fast food sector. McDonald’s
is a case in point. McDonald’s
has created and embedded a
well-recognized corporate
culture over a 50-year peri-
od. Its culture has made it
possible for the organization
to prepare and serve meals of
consistent quality to nearly
50 million customers each
day in 30,000 local restau-
rants across the 119 coun-
tries in which it operates.
This has become a central
tenet for its success.

5
Adapting industrialization
to banking
Accenture has worked with many
banks around the globe to adapt
the concept of industrialization
to the banking industry—with
considerable success.
Industrialization applies particu-
larly well in banking. Using the
concept of industrialization, we
have helped our banking clients
reduce the number of distinct
processes and systems by con-
solidating common capabilities,
reducing product complexity and
increasing differentiation in the
marketplace. In fact, we are
working with many banks where
simplification is being done in a
way that also enables differenti-
ation and drives organic growth
to achieve high performance.
Accenture has seen firsthand
how industrialization can gen-
erate significant operational
and financial benefits in its
work with many of the world’s
leading banks.
An example of how industrial-
ization can work efficiently in
banking can be found in lending
products and credit cards.
Traditionally, banks have han-
dled credit risk assessment on
a product-by-product basis. But
the process of assessing risk is
not product-dependent—it is
much the same for a mortgage,
a personal loan or a credit card.
By creating a single credit risk
assessment platform within
a bank, the risk assessment
process could be significantly
streamlined. A customer’s credit
history can also be held in a
single database. This can elimi-
nate the need for a customer’s
credit history to be reviewed
each time he or she is being
offered a new product. It also
enables the bank to make
targeted offerings to specific
customer groups who have
similar credit attributes.
Three elements to industrial-
ization in banking
The three elements of industri-
alization in banking are summa-
rized in Exhibit 2.

Exhibit 2:
Industrialization in banking comprises three core elements

... a clear view of what makes them unique—whether

it be product, sales, service, brand or business model
Differentiation
“on the outside” ... an ability to deliver consistently positive experience
for customers in each market segment

... simplicity in everything they do:

What does “industrialized Simplification – standardized or componentized products,
banking” mean? “on the inside” processes and systems
– identifying where they need scale and how to get it

... prioritize execution as a core capability:

Execution mastery – managing the investments and risks of change programs

– creating a culture to drive operational strategy

Source: Accenture

6
Simplifying on the inside
whilst differentiating on
the outside
The shift to industrialization in
banking is happening in many
ways. For example, banks are
consolidating their retail and
wholesale payments systems
onto single platforms to support
both their retail and wholesale
banking operations. Similarly,
banks in Europe with multi-
country operations are re-
platforming their operations
to support common processing
across their entire group rather
than running their systems on
a country-by-country basis.
Exhibit 3 shows how one bank
we have worked with is adopt-
ing the differentiation and
simplification elements of
industrialization. This bank
has identified various product
characteristics and developed
product templates and product
offerings using these character-
istics. All this is done on a
standardized basis “on the
inside” of the organization.
Once these product offerings
have been established, differen-
tiated offerings can be made
“on the outside” to different
customer segments by choosing
various product combinations
and utilizing the preferred
distribution channels for each
customer segment.
Momentum towards
industrialization
In this global banking survey,
we examined how well the
three elements of industrializa-
tion in banking are currently
understood by the world’s
leading banks and how much
operational momentum has
built up behind the shift to
full industrialization in the
banking industry.

Exhibit 3:
How one bank has successfully adopted the industrialization model

Simplification Differentiation
“Assembly shop” that creates and processes basic product and channel characteristics “Marketing shop” creates offers by
choosing products and distribution
channels for each segment

Product Products Channels Differentiated offers

characteristics

Reusable product Common product Common channels Personalized product and channel
characteristics configuration offerings for each segment

Product 1 Product 2 Channel 1 Channel 2

Segment 1

Segment 2

Product 3 Product 4 Channel 3 Channel 4

Segment 3

Source: Accenture, Client case study

7
Banks know they need to differentiate
on the outside and simplify on the inside

The banks we surveyed rated all three elements of industrialized

banking—differentiation, simplification and execution—as critically
important. This view is in stark contrast to much of the past decade,
during which time the banks have flip-flopped between cost take-
out initiatives and growth initiatives—but not both together.

Surprisingly, in outlining where future spend would occur, the banks

gave almost equal weight to the need to invest in differentiation,
simplification and execution.

Interestingly, the banks indicated that their investment in differenti-

ation, simplification and execution has already started.

90%
Almost 90 percent are already
investing in both differentiation
and simplification initiatives.

8
Exhibit 4:
The world’s leading banks say that they need to focus on both simplification and growth initiatives,
whilst maintaining high standards in execution

Thinking about the areas of differentiation, simplification and execution, what impact will each area have
on the performance of your bank over the next three years?

% Extremely/very important

88%
90
80 74%
70 65%
60
50
40
30
20
10

Execution Differentiation Simplification

Exhibit 5:
Investment spend will be distributed evenly across each industrialization element—this confirms
the importance of all three elements
Please estimate the breakdown of the investment planned by your organization in the next three years
between differentiation, simplification and execution.

38% 33%

Differentiation

29% Simplification
Execution

Exhibit 6:
The banks are already investing in the industrialization process

Is your organization taking initiatives directly focused on increasing differentiation, simplification

and improving execution?

94% 87% 92%

6% 8%
13%

Yes No

Differentiation Simplification Improving execution

Source: Accenture research

9
Banks are driving differentiation by tailoring
or bundling products for customer segments

As we expected, the leading banks are investing in differentiation

initiatives that will improve the effectiveness of their sales force,
increase their understanding of their customers and allow them
to tailor or bundle products that are attractive for their different
customer segments.

The high priority accorded to sales force effectiveness, improved

understanding of customers and product bundling was not unexpect-
ed. These are all critical elements in the shift to the new banking
industrialization model, in which banks are aggregating and bundling
standardized products, services and channels to create a customized
experience for different customer segments.

84%
Over 84 percent are investing in better
understanding their customers and
in finding new ways to serve them
and sell bundled products to them.

10
Exhibit 7:
Banks are investing in differentiation initiatives that will improve the effectiveness of their sales
force, enhance their understanding of their customers and deliver products that are bundled and
tailored for specific segments
Among the following specific initiatives directly focused on improving differentiation, which ones are
you undertaking in your bank?

Percentage undertaking initiatives

Improving sales force effectiveness 95%

Improving customer segmentation

90%
and customer insight capabilities

Product development / R&D 85%

Product bundling / tailoring

84%
to segment needs

Pricing for customer value 76%

Strengthening campaign, event,

76%
alert management
Extending internet banking
70%
and mobile banking

Redefining target customer experience 69%

Focusing branch on sales, moving

68%
transactions to direct channels

Enhancing contact centers 67%

Redefining / clarifying
66%
brand positioning

Revising geographic coverage 64%

Redesigning branches 63%

Source: Accenture research

11
Exhibit 8:
Service, sales and the tailoring of products and services for customer segments will remain important
elements of success over the foreseeable future
Focusing on differentiation, what impact will the following initiatives have on the performance of your
bank over the next five years?
Service 96%
Sales 89%
Products and offerings 67%
Source: Accenture research
Service, sales and tailoring
products and offerings drive
differentiation
Our respondent banks indicated
a continuing strategic focus on
three drivers of differentiation:
• Service
• Sales
• Products and offerings
This finding highlights the
importance of creating a
unique customer experience,
improving the effectiveness of
the sales force and delivering
tailored products and services
for customers.
12
% Extremely/very important
Results of organic growth
survey confirmed
Interestingly, this aligns with
a separate global survey on
organic growth in retail banking
which Accenture undertook
in 2005, in which we asked 118
senior marketing and distribu-
tion executives in major retail
banks in the US, Europe and
Asia-Pacific about their view of
the near future in the industry.
The consensus in that study
was that banks need to provide
customer-focused, flexible and
easy-to-understand products,
and make them available on a
modular basis to satisfy specific
circumstances and life stages.
Respondents said that this
approach would improve their
ability to sell their products and
services. Most of the marketing
and distribution executives
interviewed in the survey also
felt that product bundling
promises success.
Exhibit 9:
Banks, globally, are seeking to address the inflexibility of their core banking systems so that
they can respond quickly to customer requirements across multiple customer segments

What current problems are you facing with your core banking systems?

% of executives citing area as priority

Flexibility 70%

Cost 47%

Integration 47%

Simplification 23%

Technology 14%

Timing problems 13%

Source: “Redefining Core Banking” Accenture and SAP Core Banking Survey 2005

The need for flexibility in core

banking systems

Another survey, conducted in

2005 by Accenture and SAP,
investigated the views of 147
executives from 70 banks
worldwide about issues related
to core banking systems. In that
research, the respondents’
number one issue with core
banking systems was flexibility
[see Exhibit 9 above]. As this
showed, the banks simply do
not have the flexibility they
need to better serve their
customers, improve speed to
market or develop tailored
offerings to customers across
multiple segments—and they
are seeking to address this.

13
There is no silver bullet—instead, banks
are simplifying across multiple dimensions

The road to high performance is an extremely challenging journey

for a bank, requiring major changes across the whole of the enter-
prise. The world’s leading banks agree with this viewpoint. They have
told us that simplification can’t just happen in one or two isolated
areas. Rather, to be effective, simplification must occur across many
fronts concurrently.

A further finding from our survey of the leading banks is that the
shift to outsourcing is gaining momentum as a way of simplifying
the business. Just a few short years ago, outsourcing was low on
bank agendas. However, our research shows clearly that outsourcing
has now been accepted by banks as a valid and, in many cases,
necessary approach for delivering change across multiple dimensions.

14
Exhibit 10:
Simplification must occur across the board

Among the following specific initiatives directly focused on simplification, which ones are you undertaking?

Process 91%

IT
81%

Product 74%

Centralization 74%

Channel integration 62%

Source: Accenture research

74%
Over 74 percent are undertaking significant
simplification initiatives across the whole
of their organization.

15
76%
The majority (76 percent) of industrialization
programs being undertaken by the world’s
leading banks are being managed either by
the CEO or by only a small group of executives
from the corporate office.

17
Banks are investing in leadership and cultural
skills to boost their execution capabilities

Globally, operational risk management is currently the top-ranking

execution initiative—a fact which is hardly surprising given the glut of
externally mandated changes such as Basel II, Sarbanes Oxley and so
on. However, banks are also placing significant emphasis on getting
the culture and leadership issues right to ensure that the transforma-
tion to an industrialized organization can be executed smoothly. Over
80 percent are working to develop their internal leadership and create
a culture that is receptive to change.

In terms of execution of the bank industrialization programs, more

is happening on a bank-wide level than we expected. 57 percent of
industrialization programs are being conducted on an enterprise-wide
basis. This highlights the importance of this topic for CEOs.

The majority (76 percent) of industrialization programs being

undertaken by the world’s leading banks are being managed either
by the CEO or by only a small group of executives from the corpo-
rate office. This confirms the widespread desire to tightly manage
execution capabilities.

18
Exhibit 11:
Together with risk management initiatives, banks are investing in their people to ensure they can
successfully execute their change programs
Among the following specific initiatives directly focused on execution, which ones are you undertaking?

Operational risk management 91%

Culture that is receptive to change 86%

Internal leadership development 82%

“Can do” proactive culture 78%

Major program management

approach 65%

Exhibit 12:
Industrialization is a bank-wide initiative

What is the scope of your simplification model?

17%

26% Enterprise-wide
57%
Business unit/line of business level
Cross enterprise/shared services functions

Exhibit 13:
Execution is being tightly managed by the head office—by the CEO or just a small group of executives

What is the preferred governing method of your organization to drive the initiatives focused
on simplification?

24%
32%

CEO led and driven approach

A small group of executives from the C suite
44%
A decentralized model led by business unit directors

Source: Accenture research

19
Banks expect handsome dividends
from industrialization

More than 50 percent of the banks participating in our

research expect to generate significant revenue benefits
through differentiation initiatives. And a third expect
simplification to result in enterprise-wide cost reductions.

Differentiation on the outside Simplification on the inside

A componentized or modular- The world’s leading banks

ized approach is a key part of
industrialization. This approach
is expected to generate solid
revenue growth by enabling
greater flexibility to innovate,
delivering the right products
to each customer segment—
faster—and improving the
overall customer experience
through a focus on customer
service. Over 50 percent of the
banks expect revenue benefits
of at least 10 percent through
these differentiation initiatives.
Cross-selling rates can be
expected to rise. Customer
acquisition rates will rise. And
churn rates can be expected
to fall. These differentiation
benefits to revenue lines were
also confirmed by the organic
growth survey Accenture under-
took in 2005.
expect that simplification on
the inside will produce both
a reduction in the enterprise
cost base and an increase
in revenues.
A third of the banks surveyed
expect simplification to result in
enterprise-wide cost reductions
of more than 10 percent (with
much greater reductions expect-
ed in some specific areas).
Of the banks surveyed, more
than a quarter expect to achieve
incremental revenue benefits
of more than 10 percent. These
revenue benefits will be gener-
ated through the flexibility that
simplified operating platforms
will bring.

20
Exhibit 14:
Differentiation—Banking executives are confident that better differentiation will pay handsome returns
How much impact do you expect your differentiation initiatives will have on revenue growth?

0-5% 9%

5-10% 40%

10-15% 23%

15-20% 17% 51%

>20% 11%

Exhibit 15:
Simplification—Reductions are expected on the total cost base of the banks—given that these
cost reductions are expected across the entire enterprise, these cost savings will be significant
How much impact do you expect your simplification initiatives will have on cost savings?

0-5% 22%

5-10% 46%

10-15% 14%

15-20% 11% 32%

>20% 7%

Exhibit 16:
Simplification—The world’s leading banks expect that simplification will also generate significant
revenue growth
How much impact do you expect your simplification initiatives will have on revenue growth?

0-5% 34%

5-10% 40%

10-15% 16%

15-20% 4% 26%

>20% 6%

Source: Accenture research

21
51%
51 percent expect to achieve incremental
revenue growth of more than 10 percent
from differentiation initiatives.
Where to from here?

This study has confirmed our experience about the shift to

industrialized banking. The messages from the study are clear:

• Banks understand the benefits of industrialization; and

• They are already on the industrialization path.

To help banks industrialize, Accenture has created the High

Performance Bank, a framework comprising a number of Accenture
developed reusable assets and tools that support industrialization
programs for our clients. The Accenture High Performance Bank
framework can help any bank—regardless of its situation—take the
steps necessary to reduce operational complexity and drive organic
growth to achieve high performance.

We bring an unrivaled breadth of practical experience in this area.

We invite you to contact us to learn more.

23
About this study

Covering four continents and The chosen sample of banks was

13 countries
This Accenture Banking High
Performance Business research
program involved interviews with
107 senior executives in banking
institutions in North America
(Canada, US), Europe (France,
Germany, Italy, Netherlands,
Spain, Switzerland, UK and
Ireland) and Asia-Pacific
(Australia, China, Japan). The
interviews, held between June
and October 2005, focused on the
respondents’ priorities regarding
industrialized banking. The 107
interviews with leading bankers
were conducted by phone, either
in English or in local language
when requested by interviewees.
extracted from the global top
1000. Interviewees were select-
ed on the basis of their role as
decision makers and influencers
with regard to corporate strate-
gy and/or development. Typical
responsibilities of the inter-
viewees include strategy direc-
tor, corporate development
director, line of business direc-
tor, CFO and CMO.
The fieldwork was managed
by TNS, an independent survey
research company, except
in Japan, where the local
Accenture leadership conducted
interviews directly.

Number of
respondents

Europe Total 64
France 11
Germany 11
Italy 15
Netherlands 2
Spain 13
Switzerland 7
UK and Ireland 5

North America Total 29

Canada 4
US 25

APAC Total 14
Australia 5
China 3
Japan 6

Total 107

24
About Accenture:
Accenture is a global management
consulting, technology services and
outsourcing company. Committed
to delivering innovation, Accenture
collaborates with its clients to help
them become high-performance
businesses and governments. With
deep industry and business process
expertise, broad global resources
and a proven track record,
Accenture can mobilize the right
people, skills and technologies to
help clients improve their perform-
ance. With more than 129,000
people in 48 countries, the company
generated net revenues of US$15.55
billion for the fiscal year ended
Aug. 31, 2005. Its home page is
www.accenture.com.
Copyright © 2006 Accenture
All rights reserved.

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are trademarks of Accenture.