As the market environment for financial services firms continues to be a tough one, focusing on complexity is a winning way to build a more lean, profitable and fit-for-purpose organization, which can be scaled for growth. With these companies still feeling the effects of the global financial crisis, many have focused on finding ways to create leaner organizations that have reduced costs and improved efficiency of operating models. Emmanuel Yoo, and Giovanni Pio, financial services practice, Bain & Company Middle East, noted that while no cure-all recipe exists to fix the unique situation of each business, their experience with some of the leading financial services players has pointed to the importance of reducing complexity and achieving scalability, thus preserving margins in high growth environments such as MENA. Most managers recognize that complexity hurts their businesses and tends to increase costs. When Bain & Company recently surveyed executives at 960 companies around the world, nearly 70 percent said complexity was driving up costs and hindering growth. For financial services companies – from corporate and retail banks to insurers and credit card issuers – product complexity is “an especially pernicious problem because it is so hard to identify,” Bain executives said. Goods manufacturers see tangible evidence of complexity all around them, but at service companies, complexity is all but invisible and can grow without restraint. Often a new “product” can be introduced simply by piggybacking on existing services and marketing campaigns and adding a few new seats and scripts to call centers To weed out complexity, managers should focus first on two key areas: Diagnosing, treating and tracking complexity in the product portfolio versus customer needs; and streamlining the organization by finding the right mix of “spans” and “layers”. The best way to understand how complexity-related expenses build is to start by calculating the cost of offering just one product – the stripped-down “Model T” version. Then, cost out each product variant as new features are added back in. This pedagogical exercise illustrates to management how complexity increases in a non-linear fashion-with most attention to be given to “break points” where complexity increases rapidly. Knowing where those break points occur – and how to avoid stumbling into them - can spell the difference between healthy profitable growth and subpar performance. Often the right fix for avoiding complexity cost traps is to reengineer processes that are driving up costs. But with no constraints on the variety and complexity of payment options, costs shot up and customer service began to suffer, reaching a “break point”. Careful customer segmentation can also help avoid complexity cost traps in two ways: optimizing the product and service portfolio and reducing complexity in distribution. The segmentation process requires companies to identify their core customers' needs and develop a focused value proposition to serve them. In the Middle East, banks have typically adopted a conventional approach to defining customer clusters, focusing exclusively on metrics such as current deposits and loans with the bank. A better alternative is to focus on customers themselves, taking into account criteria such as age, income, marital status and behavioral patterns. This allows banks to develop a deeper understanding of their customer base and how to serve it best. By improving its understanding of customer needs, a Middle Eastern bank found that its core customers did not value personal interaction with a relationship manager when using some of its basic services. By offering the possibility of online transfers and deposits, the bank was able to rationalize its distribution network, increase branch productivity and reduce the average time and cost to serve a customer at branches.
