CPM in the Financial Services Industry

Last week I attended the Deloitte FSI Practitioners Day, a meeting of Deloitte professionals working in the Financial Services Industry. I was invited to make a presentation on the relevance of CPM for companies in the financial services industry (banking, insurance, hedge funds, pension funds etc.). I posed the statement that CPM in today’s business environment is mission-critical for the financial services industry. A number of observations led me to this conclusion.

First of all, despite the number of challenges facing the industry, opportunities for growth are plentiful – particularly through expansion in new markets, technology and personalization to enhance customer relationships and new products and advisory services to meet the needs of retiring baby-boomers.

To grow, the financial services industry needs to address a number of issues. First, spurred by falling cross-border investment barriers, financial services companies will expand abroad by acquiring or merging with companies in other countries. Banks are moving away from traditional outsourcing toward captive operations or a mix of captive and outsourced functions. China will be a critical market, but presents geopolitical risks and structural market challenges. Second, slow growth in existing markets will push financial services companies to reconnect with customers through a combination of state-of-the-art technology and personal service. Third, in an increasingly strict regulatory environment, financial services companies must adopt a principles-driven approach to policies, standards and systems to ensure compliance. Fourth, financial services companies now view operational and reputational risk to be greater concerns than market, credit and liquidity risk. Data privacy and security have become hot issues and will remain so for the foreseeable future. Fifth, an aging population will continue to drive the development of financial products and services targeted to older customers.

To survive in this dynamic, turbulent and competitive environment, companies in the financial services industry need to create a sustainable competitive advantage. This requires the right size. Size offers a way to capture economies of scale and deliver products more efficiently. US banking consolidation may have largely run its course, but Europe’s has barely begun, and the potential for cross-border consolidation has risen dramatically. Second, service matters – and technology offers a cost-efficient way to offer customers more convenience, value and the “mass personalization” necessary to build loyalty. Third, to improve compliance quality while holding down costs, financial services companies must be able to combine a top-down principles-based approach with enough flexibility to adapt to local regulations. Related to the compliance issue is the need to guard against operational glitches that could damage the bank’s reputation. Finally, financial services companies are facing an imperative to develop specialized products and advisory services aimed at an older population.

In short, to be succesful, financial services companies need to have a clear strategic focus based on challenging growth objectives, cost reduction initiatives, operational excellence, and customer centricity.

The CFO will play an important role in developing and executing this strategy. The traditional roles of the CFO are to balance capabilities, costs and service levels to fulfill the finance organisation’s responsibilities, and to protect and preserve the assets of the organisation. CFO’s today however, feel more pressure than ever to provide financial leadership in determining strategic business direction and align financial strategies, and to stimulate behaviors across the organisation to achieve strategic and financial objectives.

One of the key ways for the CFO to play his role as a strategist and catalyst is corporate performance management. By improving the connection between strategic initiatives and business plans, and by enhancing the planning process to increase collaboration in budgeting and forecasting, CFO’s provide strategic leadership. They act as catalysts of organizational change by promoting predictive analysis instead of backward looking, and by creating an integrated performance scorecarding and reporting process. It’s because of this contribution to the CFO’s role as strategist and catalyst, that CPM is becoming mission-critical for the financial services industry.