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Save-to-transform as a catalyst for embracing digital disruption Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the banking sector

Global Cost Report 2019-2020 Banking

Contents

Executive summary 4

About the study 8

How is banking different? 10

Firmographics 14

Banking survey results: Detailed insights 18

Digital and technology solutions applied to cost management in banking 34

Save-to-transform as a catalyst for embracing digital disruption 40

2

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in the banking sector

Digital technology and digital disruption have burst onto the scene as key levers for cost management and business transformation around the world and throughout the banking industry. In Deloitte’s 2017 Biennial Global Cost Survey,1 digital disruption was identified as an emerging risk by respondents in the United States but was barely visible elsewhere. Now, however, digital risks—including digital disruption and cybersecurity—rank among the top external risks for banks in all regions.

Banks today face significant challenges from every direction. The ongoing environment of low or even negative interest rates continues to create intense margin pressure and barriers to growth. At the same time, increased competition from Neobanks and FinTechs continues to nibble away at the edges of the traditional banking business, posing a constant threat of disruption. Meanwhile, customer preferences and expectations are endlessly shifting and rising as new and incumbent digital innovators redefine how services are presented and delivered.

In this challenging environment, cost management remains a strong imperative for the entire global banking industry; however, the prevailing mindset seems to be expanding from save-to-grow to save-to-transform. Most banks continue to have very positive expectations for revenue growth, and many are using cost reduction as a tool to help fund their required growth investments. However, in today’s increasingly digital world, more and more banks also recognize the need to transform their operations and capabilities with infrastructure investments in key digital innovations, such as robotic process automation, cognitive technologies, business intelligence, and cloud-based ERP systems.

These digital technologies and innovations can deliver dramatic improvements in competitiveness, performance, operating efficiency and, increasingly, cost savings. Equally important, they can also strengthen a bank’s positioning for adverse future events, including economic downturns and digital disruption.

With digital innovation emerging as a critical enabler for both cost reduction and business transformation, we are delighted to present the results from our latest global cost survey. The study includes responses from more than 1,200 executives and senior leaders around the world with direct involvement in cost management, including 188 respondents from major banks.

This report provides an up-to-date view of the cost management practices and trends shaping the future of banking and global business. It also takes a detailed look at how the latest digital technologies and cost management strategies are acting as a catalyst for transformation in a world being actively redefined by digital disruption.

Foreword

1. Thriving in uncertainty in the age of digital disruption: Deloitte’s first biennial global cost survey report, December 2017.

Sam Balaji Global Consulting Leader

Omar Aguilar Strategic Cost Transformation Global Market Offering Leader

3


Executive summaryHow is banking different?

Cost reduction is slightly more prevalent in banking than globally across industries. In the banking sector, 72% of the surveyed companies plan to undertake cost reduction initiatives over the next 24 months, slightly higher than the global average (71%).

The save-to-transform mindset is even more prevalent in banking than globally. The save-to-transform mindset is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement. Compared to the global respondent pool across industries, banking respondents report higher priority levels in all those areas.

Digital leaders have a bigger impact in banking than globally across industries. On average, banks with a designated digital leader have a much higher level of technology implementation (+275%), even higher than the implementation impact of a digital leader globally across industries (+118%).

Banks are more positive than average about growth. Over the past 24 months, 89% of banking respondents had a positive revenue outlook—higher than the global average across all industries (86%). Similarly, for the next 24 months, the banking sector’s revenue outlook is even more positive (90%) than the global average (86%).

Expected implementation rates are higher than average for automation and cloud technologies. In the banking sector, implementation rates for digital technology over the next 24 months are expected to be slightly higher than the global averages across industries for automation (+3%) and cloud solutions (+4%), but lower for cognitive technologies (-5%) and business intelligence (-12%).

Banking survey results: Detailed insights

Cost reduction is particularly prevalent among banks in the United States and Europe.Banks in the United States are the most likely to undertake cost improvement initiatives over the next 24 months:

84%United States

65%Asia Pacific

77%Europe

48%Latin America

Cost program failure rates are very high.According to the survey results,80% of banks failed to fully achieve their cost reduction targets.

87%The failure rate is highest in Europe.

64%The failure rate is lowest in the United States.

LATAM banks have the most aggressive cost reduction targets.

71%The vast majority of surveyed banks have cost reduction targets above 10%.

90%Latin American banks have the most aggressive targets, pursuing cost reduction of more than 10%.

52%US banks have the least aggressive targets, pursuing cost reduction of more than 10%.

Latin America (LATAM) is the only region where banks expecting to pursue cost reduction are in the minority.

4



Growth expectations in banking are very positive.Surveyed banks have a very positive growth outlook:

89%reported revenue growth over the past 24 months

90%expect revenue growth over the next 24 months

Tactical and strategic cost actions are balanced in banking.Over the past 24 months, the banking sector has focused almost equally on strategic and tactical cost actions. This differs a bit from the global pattern across industries, which was somewhat more tactical in focus. Looking ahead, banks expect to continue implementing tactical and strategic cost actions almost equally over the next 24 months.

Cybersecurity is the top external risk.

64%Cybersecurity is the top-rated external risk, especially in the United States where it is rated far higher than any other risk (88%)

61%.

digital disruption and credit risks are tied for second

Talent and information systems are the top internal risks.In banking, the top internal risks are:

23%recruitment, development, and retention of talent

23%reliability and functionality of information systems.

Strategic priorities align with save-to-transform.Top-rated strategic priorities over the next 24 months:

79%product profitability

77%technology implementation

Capability development patterns in banking resemble the global patterns across industries.Capability development is fairly similar for the banking sector and global respondent pool. Global respondents slightly favor automation:

48%all industries

44%banking

Banking respondents slightly favor cognitive and artificial intelligence:

42%all industries

46%banking

Cost reduction drivers vary widely by region.In the banking sector, cost reduction drivers vary widely by region and are expected to evolve significantly over the next 24 months, particularly in the United States and Europe.

Strategic priorities vary significantly by region.Strategic priorities for cost reduction vary significantly by region but are fairly consistent over time. Europe’s priorities over the next 24 months are generally the most consistent with a save-to-transform mindset.

Growth investment is expected to be the top cost reduction driver.

72%Over the next 24 months, the top driver for cost reduction in banking is required investment in growth areas.

75%digital enablement

75%sales growth

75%cost reduction

5



Lessons learned.The top lessons learned in banking and globally across industries:

No. 1invest in technology improvements to enable data availability, reliability, and decision-making processes

No. 2design a solid tracking/reporting process

No. 3assess, validate, and adjust targets reasonably to reflect reality throughout the implementation phase

Cost management maturity in banking resembles the global average across industries.Overall cost management maturity levels in banking are close to the global averages across industries. In particular, the percentage of banks that rate themselves high maturity (34%) nearly matches the global average (35%). However, maturity ratings vary widely by region.

Banks that consider themselves high maturity:

5%Latin America

49%Europe

Cloud leads the pack, except in Asia Pacific.In banking, the most widely implemented technology covered by the survey is cloud. However, implementation levels vary widely by technology and region.

45%cloud

37%business intelligence

37%cognitive

High levels of technology implementation are expected.The technologies expected to be most actively implemented over the next 24 months in banking are automation and cognitive; the technology expected to be least actively implemented is cloud, most likely because current implementation levels for cloud are already very high.

64%automation

60%cognitive

49%cloud

Digital and technology solutions applied to cost management in banking

Most technology implementations meet or exceed expectations.

88%Percentage of banking respondents who had their expectations met or exceeded when implementing each of the technologies covered by the survey.

Reasons for applying digital technologies.The top reason for applying cloud is to tighten data security and improve business control. The top reason for applying both RPA and cognitive/AI is to reduce costs and increase productivity.

Digital leaders make a difference.

+275% On average banks with a designated digital leader achieve much higher levels of technology implementation, although the impact varies by region and technology.

Implementation challenges are the top barrier.Implementation challenges are the top barrier to successful cost reduction both in banking and globally across industries.

65%all industries

62%banking

6


Digital rises to the top of the agenda.Two digital risks—cybersecurity and digital disruption—are now recognized as the top external risks in banking. Meanwhile, technology implementation has emerged as the sector’s top-rated strategic priority over the next 24 months.

Save-to-grow.Most banks have been firmly grounded in save-to-grow mode where cost and growth are the main business levers, with talent (including capabilities) as another key component. In this mode, cost reduction is a high priority, with cost savings used to fund growth initiatives and strategic investments that support a differentiated business strategy.

Save-to-grow expands into save-to-transform.Many banks are now shifting into save-to-transform mode, with the save-to-grow mindset expanding to include a strong focus on digital enablement and technologies. This shift can transform a bank and help it capitalize on digital opportunities, while at the same time positioning the business for potential adversity that may be on the horizon—such as an economic downturn or credit crisis—using digital innovations to unlock new levels of cost savings, efficiency, and financial performance.

Save-to-transform as a catalyst for embracing digital disruption

7


LATAM21 responses

Europe47 responses

Canada3 responses

South Africa2 responses

APAC20 responses

US25 responses

Deloitte Consulting LLP (Deloitte or Deloitte Consulting) engaged Dynata to conduct a global cost-management survey to better understand business leaders’ perspectives on current and future cost-reduction initiatives within large companies, multinationals, and other companies that are representative of the regions surveyed.

Study objectives

Understand factors, approaches, actions, and targets related to cost initiatives

Assess the effectiveness of the cost actions, including lessons learned from previous efforts

Understand the drivers and scope of past and future cost initiatives

Provide context on how digital disruption and advanced digital technologies are affecting cost management

Assess industry results, and provide insights on different behaviors related to cost reduction

MethodologyData was collected through detailed online surveys conducted between November and December 2018.

January February March April May June July August September October November December

About the survey

FirmographicsThe global survey of more than 1,200 executives and senior leaders with direct involvement in cost management decisions and actions included 118 respondents from major banks.

88



9

How is banking different?

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Likely Neutral Unlikely

71% 72%

20% 21%

8% 7%

30% 28%

37% 38%

31% 33%

5% 3%

14%18%

81% 80%

Global Banking

Likelihood

% o

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72% of banking respondents plan to undertake cost reduction initiatives, compared to 71% globally

71% of respondents reported targets above 10%, compared to 68% globally

80% of respondents failed to fully meet their targets, compared to 81% globally

Lessthan 10%

10% to lessthan 20%

Morethan 20%

Exceededgoals

Met goals Did notmeet goals

Success analysisCost targets

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7% 6% 7% 5%

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90%

Global Banking

% o

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89% of respondents have witnessed an increase in revenue in the past 24 months

90% of respondents anticipate an increase in revenue over the next 24 months

Increase Anticipateflat top line

Decrease

Most findings from this year’s global cost-management survey are directionally consistent across all industries and major geographic regions. However, there are a handful of key differences between the banking sector results and the global survey results, which include data from all industries.

Cost reduction is slightly more prevalent in banking than globally across industriesIn the banking sector, 72% of the surveyed companies plan to undertake cost reduction initiatives over the next 24 months, slightly higher than the global average across industries (71%). Similarly, the percentage of banks with cost reduction targets of 10% or higher is somewhat above the

global average (71% in banking versus 68% globally across industries). Failure rates in banking are also similar to those of the global respondent pool, with 80% of banks failing to fully meet their cost reduction targets (versus 81% globally) (see figure 1).

Figure 1. Cost reduction trends

Banks are more positive than average about growthOver the past 24 months, 89% of banking respondents had a positive revenue outlook—higher than the global average across all industries (86%). Similarly, for the next 24 months,

the banking sector’s revenue outlook is even more positive (90%) than the global average (86%) (see figure 2).

Figure 2. Change in revenue

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Global Banking

Next 24 months

% o

f tot

al r

espo

nden

ts

43% 42% 37%

In process of implementationNot implemented but planned

Business intelligence(not including cognitive or AI)

Cloud solutionsAutomation: Robotic process automation

Cognitive technologies: AI and machine learning

-12%

+3%-5%

+4%

38%

24% 24% 20%

14%

20%21%

17% 14%

39% 39%35%

44% 39% 35% 35%

62% 63%59%

47%

64%60%

52%49%

0

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Sales growth

Cost reduction

Balance sheet management

Productprofitability

Organization and talent

Technology implementation

Digitalenablement

% o

f tot

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espo

nden

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Next 24 months

72%75%

68%

75%

61%65%

73%79%

68% 66%

73% 77%69%

75%

Global Banking

The save-to-transform mindset is even more prevalent in banking than globallyThe survey results indicate that the save-to-transform mindset is even more prevalent in banking than globally across industries. This cost management philosophy is characterized by a simultaneous strategic focus on sales growth, cost reduction, product profitability, technology implementation, and digital enablement. Relative to the

global averages across industries, banking respondents report higher priority levels in all of those areas: cost (+7 percentage points), digital enablement (+6 percentage points), profitability (+6 percentage points), technology (+4 percentage points), and growth (+3 percentage points) (see figure 3).

Figure 3. Strategic priorities (next 24 months)

Expected implementation rates are higher than average for automation and cloud technologiesIn the banking sector, implementation rates for digital technology over the next 24 months are expected to be slightly higher than the global averages across industries for

automation (+3%) and cloud solutions (+4%), but lower for cognitive technologies (-5%) and business intelligence (-12%) (see figure 4).

Figure 4. Technology implementation levels (next 24 months)

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Global Banking

Automation: Robotics process automation

Average Cognitive technologies: AI and machine learning

Business intelligence (not including Cognitive or AI)

Cloud solutions

12%

45%

17%

37%

9%29

%

7%35

%

10% 15

%

29%

39%44

%

45%

54%

53%

17%

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15%

11%

118%

275%

222%

400%

190%

193%

129%

309%

77%

260%

No designated leader

Designated leader

Digital leaders have a bigger impact in banking than globally across industriesOn average, banks with a designated digital leader have a much higher level of technology implementation (+275%),

even higher than the implementation impact of a digital leader globally across industries (+118%) (see figure 5).

Figure 5. Impact of a designated digital leader*

*Averages calculated for global and banking results are weighted averages

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FirmographicsGlobal information for banking was collected to provide meaningful insights across regions. Within the financial services industry, the banking sector had the largest number of respondents (118), representing nearly half (46%) of all financial services responses (see figure 6).

Figure 6. Respondents’ breakdown by industry and sector

Industry breakdown:Total respondents (%)

FSI sector breakdown:Number of responses by sector and region

27%

13%

7%2%

12%

18%

21%

Banking

Private Equite, Hedge Funds, Mutual Funds & Investment Management

Insurance

Real Estate

Other

Consumer and Industrial Products

Financial Services

Technology, Media and Telecommunications

Life Science and Health Care

Energy and Resources

Public Sector

Other

Total

39

37

100

68

7

5Canada

South Africa

APAC

Europe

LATAM

US 25

21

47

20

2

3 1 1

2 2 1

17 25 3 3

17 22 13 1

1 12 2 1

8 3 3

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Management-level breakdown(% of respondents by level)

Management-level breakdown(% of respondents by level and region)

19%

53%

13%

16%

Executive Managment (enabling functions)*Executive Management (business units)**CFO, COO President, CEO

APACEuropeLATAMUS

12%

16%

8%

64%

5%

10%

85%

26%

6%

26%

43%

20%

30%

15%

35%

53% of responses were from executive

management positions, followed

by 19% from President or

CEO roles, and the rest from CFO and

COO roles

Only relevant executive positions with cost management decision capabilities were surveyed: 66% of respondents were executive management, 19% were Presidents or CEOs, and the remainder were CFOs and COOs (see figure 7).

Figure 7. Respondents’ breakdown by management level and region

* Executives Management (enabling functions): VP or above in finance, logistics, IT, HR, marketing, etc.** Executives Management (business functions): VP or above business units, regions, or countries

15

Of the banking respondents surveyed, 61% had revenues in excess of $5 billion. In all regions, more than 50% of respondents had revenues above $1 billion, with 100% of US respondents and 94% of European respondents above that threshold (see figure 8).

Figure 8. Respondents’ annual revenue (US dollars)

$200M toless than $500M

US LATAM Europe APAC

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$500M toless than $1B

$1B toless than $5B

$5B toless than $20B

$20B toless than $60B

Over $60B

0% 0%

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5% 4%

20%

32%

10%

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15%

36%

62%

30%

35%

28%

14%17%

4%0%

17%

5%5%

Note: The survey was conducted in local currencies. For analysis purposes they have been converted to US dollars.

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Lessthan 1,000

US LATAM Europe APAC

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1,000to 2, 499

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50,000to 99,999

Morethan 100,000

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Looking at headcount, 67% of banking respondents globally had more than 5,000 employees; 32% of US banking respondents had more than 100,000 employees (see figure 9).

Figure 9. Respondents’ employee headcount

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Likely Neutral Unlikely

Global Banking US LATAM Europe APAC

71% 72%

84%

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72% of banking respondents plan to undertake cost reduction initiatives

1

2

4

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3

3

Survey findings1 On average, 72% of banks plan to undertake cost reduction initiatives, similar to the global results across industries (71%).2 Banks in the United States are the most likely to undertake cost reduction (84%), followed by Europe (77%) and Asia

Pacific (65%).3 In Latin America, more than 50% of banks are either neutral or unlikely to undertake cost reduction initiatives.4 APAC banks are either neutral (35%) or likely (65%) to undertake cost reduction initiatives, with none reporting unlikely

positions toward cost reduction.

Cost reduction is particularly prevalent among banks in the United States and EuropeBanks in the United States are the most likely to undertake cost improvement initiatives over the next 24 months (84%), followed by banks in Europe (77%) and Asia Pacific

(65%). Latin America is the only region where banks expecting to pursue cost reduction are in the minority (48%) (see figure 10).

Figure 10. Likelihood of cost reduction over the next 24 months

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Survey findings1 On average, 71% of banking respondents plan to undertake cost reduction initiatives above 10%, slightly higher than the global

average across industries (68%).2 The percentage of banks with targets above 20% is higher in Latin America (52%) and Europe (38%) than the overall banking

average (33%) and global average across industries (31%).3 The United States (at 52%) has the lowest percentage of banks with targets above 10%, much lower than the global average

(68%) and overall banking average (71%).

10% to less than 20% More than 20%

30%

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Less than 10%

30%

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37% 38% 38%32%36%

55%

33%

16%

38%

52%

15%

Most banking respondents (71%) reported targets above 10%

Note: Respondents that selected "no specific targets were established" were not plotted in the graph

31%30%


28%

11

2

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3

Survey findings1 The overall failure rate for cost reduction programs in banking is 80%, on par with the global average across industries

(81%); European banks have the highest failure rate (87%), US banks have the lowest (64%).2 Asia Pacific has the highest percentage of banks that exceeded their cost reduction goals (10%), while the United States

and Latin America have no banking respondents that exceeded their goals.3 Eighteen percent of banks met their cost reduction goals, higher than the global average across industries (14%), largely

driven by the results in the United States (36%) and Latin America (19%).

Met goals Exceeded goals0

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Did not meet goals

81% 80%

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LATAM banks have the most aggressive cost reduction targetsThe vast majority of surveyed banks (71%) have cost reduction targets above 10%. Banks in Latin America have the most aggressive targets, with 90% pursuing cost

reduction of more than 10%. US banks have the least aggressive targets, with only 52% pursuing cost reduction of more than 10% (see figure 11).

Figure 11. Cost targets

Cost program failure rates are very highAccording to the survey results, 80% of banks failed to fully achieve their cost reduction targets. The failure rate is highest in Europe (87%) and lowest in the United States (64%) (see figure 12).

Figure 12. Cost program success and failure analysis

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Survey findings1 Over the past 24 months, APAC banks had the lowest percentage of positive revenue results (80%).2 Latin America has the highest percentage of banking respondents expecting a decrease in revenue over the next 24

months (10%), twice the percentage that reported decreased revenue over the past 24 months (5%).3 The survey results show a decline in growth expectations for banks in the United States (-4 percentage points) and in Latin

America (-5 percentage points).

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Increase Anticipate flat top line Decrease

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Growth expectations in banking are very positiveSurveyed banks have a very positive growth outlook, with 89% reporting revenue growth over the past 24 months and 90% expecting revenue growth over the next 24 months. Both of those numbers exceed the global averages across

industries (86% for both). LATAM banks had the most positive revenue results over the past 24 months (95%) (see figure 13).

Figure 13. Revenue performance and expectations for growth

21


Survey findings1 Cybersecurity is the top risk among banking respondents, followed by digital disruption and credit risks; cybersecurity and

digital disruption are also the two top-rated risks globally across industries.2 Credit risks are seen as a bigger threat in banking (61%) than globally (57%).3 New market entrants are seen as a bigger threat globally (57%) than in banking (53%).

Region-specific findingsA United States – Cybersecurity concerns are the top-rated external risk in the United States (88%), far higher than in other

regions; commodity price fluctuations are the lowest-rated external risk in the United States (28%) and in all regions.B Latin America – Macroeconomic concerns are the leading risk only in Latin America (57%); cybersecurity is the is the

lowest-rated external risk in Latin America (33%), much lower than in other regions.C Europe – European banks have a relatively high level of concern about external risks across the board, with the two

top-rated risks being political climate (72%) and digital disruption (72%), and the lowest-rated risk being macroeconomic concerns (57%).

D Asia Pacific – Unlike in other regions, commodity price fluctuations are the top-rated external risk in Asia Pacific (75%), followed by cybersecurity concerns (70%); new market entrants are the lowest-rated risk (55%).

Cybersecurity is the top external riskIn banking, cybersecurity is the top-rated external risk (64%), especially in the United States where it is rated far higher

than any other risk (88%). Digital disruption and credit risks are tied for second, both at 61% (see figure 14).

Figure 14. Top external risks

Political climate Macroeconomic concerns Currency fluctuations Commodity price fluctuationsCredit risks Cyber security concerns New market entrants Digital disruption

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1 1

A

AB

B

DDC C

22

33

22


Lack of strategic plans or execution to provide clear direction to the business

Liquidity and financial position to support business plans

Recruitment, development and retention of required talent to support business initiatives

Reliability and functionality of information systems to support business processes and decisions

Lack of controls, processes and systems to ensure business continuity

Lack of regulatory, legal and/or management controls

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23%25% 26%

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A

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3 3

Survey findings1 Talent (23%) and information systems (23%) are the two top-rated internal risks for the banking sector.2 Those same two risks top the list globally across industries, with talent at 25% and information systems at 26%.3 For all internal risks, ratings by banking respondents are slightly lower than the global averages across industries.

Region-specific findingsA United States – Unlike in Europe and Asia Pacific, lack of strategic plans/execution is the lowest-rated internal risk

for banking respondents in the United States (4%); all other internal risks in the United States are rated almost equally (16%–20%).

B Latin America – Talent and reliability/functionality of information systems, which are the two top-rated risks globally and in banking overall, were not cited by any banks in Latin America; for LATAM banks, lack of controls (19%) is the top-rated internal risk.

C Europe – European banks generally cite higher levels of internal risk than do their counterparts in other regions; reliability/functionality of information systems is the top-rated internal risk (43%, the highest rating for any internal risk in any region); lack of controls is the lowest-rated (19%).

D Asia Pacific – The two top-rated internal risks in Asia Pacific are talent (40%) and lack of strategic plans/execution (35%); reliability and functionality of information systems is the lowest-rated risk in Asia Pacific (10%), which is very different than the global and overall banking results.

Talent and information systems are the top internal risksIn banking, the top internal risks are recruitment, development, and retention of talent (23%) and reliability and functionality of information systems (23%). Internal

risk ratings by banking respondents from Europe and Asia Pacific were generally higher than elsewhere, especially for information systems and talent (see figure 15).

Figure 15. Top internal risks

23


% of total respondents

Sales growth Cost reduction Balance sheet management Product profitability

Organization and talent Technology implementation Digital enablement

Global

0 10 20 30 40 50 60 70 80 90

0

10 20 30 40 50 60 70 80 90

Next 24 monthsPast 24 months


Banking

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

69%

61%

73%

69%

73%

69%

73%

69%

63%

81%

69%

72%

78%

79%

75%

65%

79%

66%

77%

75%

75%

68%

61%

73%

68%

73%

69%

72%


1 1

1

1

3 3

2

23 3

1

1

2

2

Survey findings1 The three top-rated strategic priorities for banking respondents over the past 24 months were product profitability (81%),

sales growth (79%), and digital enablement (78%); globally, sales growth (73%), product profitability (73%), and technology implementation (73%) topped the list.

2 Over the next 24 months, the two top-rated strategic priorities in banking and globally across industries are product profitability and technology implementation.

3 In banking, the ratings increase significantly from the past 24 months to the next 24 months for cost reduction (+6 percentage points) and technology implementation (+5 percentage points).

Strategic priorities align with save-to-transformThe save-to-transform cost management approach uses cost reduction to fund investments in growth and transformational digital technologies, while in turn using many of those same digital technologies to boost the efficiency and effectiveness of cost reduction programs. In banking, the top-rated strategic priorities over the next

24 months are product profitability (79%) and technology implementation (77%), followed very closely by sales growth (75%), cost reduction (75%), and digital enablement (75%). This broad set of balanced priorities typifies the save-to-transform mindset (see figure 16).

Figure 16. Strategic priorities (banking versus global across industries)

24


Strategic priorities vary significantly by regionStrategic priorities for cost reduction vary significantly by region but are fairly consistent over time. Europe’s priorities

over the next 24 months are generally the most consistent with a save-to-transform mindset (see figure 17).

Figure 17. Strategic priorities (by region)


Sales growth Cost reduction Balance sheet management Product profitability

Organization and talent Technology implementation Digital enablement

US



Europe

60%64%

96%

76%96%

76%

96%81%

66%79%

72%79%

85%

89%74%

68%79%

66%87%85%

83%72%

60%84%

68%84%

80%

76%-21%


+20%

LATAM

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

APAC

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

57%52%

81%

43%38%

67%

43%70%

60%75%

75%55%

70%

75%80%

65%75%

75%75%

80%

75%67%67%

81%

52%43%

38%

52%+22%

+11%

+36%

+17%

+27%

+22%

-43%

E

E

F

A

AA

B

G

H

CC

DD

D

Region-specific findings over next 24 monthsA United States – The two top-ranked strategic priorities are product

profitability (84%) and technology implementation (84%), while balance sheet management is ranked lowest (60%); this is similar to the overall results in banking and globally across industries.

B Latin America – Unlike in all other regions, the lowest-ranked priorities in Latin America are technology implementation (43%) and digital enablement (38%); product profitability is the top-ranked priority (81%).

C Europe – Technology implementation is the top-ranked priority in Europe (87%, highest of any region); talent is ranked lowest (66%).

D Asia Pacific – The two top-ranked priorities are cost reduction (80%) and digital enablement (80%), at levels that surpass the overall results in banking and globally; balance sheet management is ranked lowest (65%).

Comparison to past 24 months

E United States – The focus on cost reduction is expected to increase by 20%, while the focus on sales growth is expected to decrease by 21%.

F Latin America – Latin America expects an increased focus on all strategic priorities except profitability and digital enablement.

G Europe – The focus on technology implementation is expected to increase by 11%.

H Asia Pacific – In Asia Pacific, the focus on technology implementation is expected to increase by 36%, the largest increase in any region.

25


Survey findings1 In banking and globally across industries, the four top-rated cost reduction drivers over the past 24 months were

unchanged. Regulatory structure, investment in growth areas, intensified competition, and international growth opportunities.

2 Over the next 24 months, the two top-rated cost reduction drivers in banking and globally across industries are investment in growth areas and intensified competition.

3 In banking, the focus on growth investment is expected to increase by 8 percentage points from the past 24 months to the next 24 months.

Growth investment is expected to be the top cost reduction driverOver the next 24 months, the top driver for cost reduction in banking is required investment in growth areas (72%). That is a significant jump from the past 24 months, when growth investment (at 64%) was in a virtual four-way tie with

changed regulatory structure (65%), intensified competition (64%), and increased international growth opportunities (65%) (see figure 18).

Figure 18. Cost reduction drivers

Preferences of respondents (in percent)

Global

70 80 90 70 80 90


Preferences of respondents (in percent)

Banking

80 90 70 80 90

52%

56%

59%

66%

65%

63%

52%

50%

58%

65%

64%

64%

65%

50%

53%

58%

68%

72%

69%

67%

54%

53%

57%

61%

67%

66%

65%

55%


Significant reduction in consumer demandDecrease in liquidity and tighter creditUnfavorable cost position relative to peer group

Change regulatory structureRequired investment in growth areasIntensified competition among peer group

Increased international growth opportunities

1

1

1

2

2

1

1

1 2

1 3 2 3

1

26


Cost reduction drivers vary widely by regionIn the banking sector, cost reduction drivers vary widely by region and are expected to evolve significantly over

the next 24 months, particularly in the United States and Europe (see figure 19).

Figure 19. Cost reduction drivers by region

Region-specific findings over next 24 monthsA United States – The two top-rated cost reduction drivers for US banks are

investment in growth areas (68%) and international growth opportunities (68%); unfavorable cost position is the lowest-rated (28%).

B Latin America – The top-rated cost reduction driver for LATAM banks is changed regulatory structure (67%); reduction in consumer demand is the lowest-rated (29%).

C Europe – The top-rated cost reduction driver for European banks is investment in growth areas (77%); the lowest-rated is decrease in liquidity (55%).

D Asia Pacific – The two top-rated cost reduction drivers for APAC banks are changed regulatory structure (75%) and intensified competition (75%); the lowest-rated are reduction in consumer demand (65%) and decrease in liquidity (65%).


US



Europe

32%36%

56%

52%60%

56%

40%62%

64%64%66%66%

74%

60%55%

66%66%

77%

74%68%

60%36%

28%60%

68%64%

68%

52%


+30%

-22%

+16%+31%

+21%

A

LATAM

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

APAC

0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

29%

43%71%71%

48%

38%

24%60%

85%70%70%

80%80%

60%

65%

70%75%

70%75%

70%

65%43%

57%67%

62%48%

57%

29%

Significant reduction in consumer demandDecrease in liquidity and tighter creditUnfavorable cost position relative to peer group

Change regulatory structureRequired investment in growth areasIntensified competition among peer group

Increased international growth opportunities

+20%+50%+33%

+50%

-18%

E

E

F

F

A AG

H

C

C

D

D

DB

B

Comparison to past 24 monthsE United States – Reduction

in consumer demand and investment in growth areas are expected to increase by 30% and 31% respectively.

F Latin America – Liquidity and international growth opportunities are both expected to increase by 50% as cost reduction drivers.

G Europe – Investment in growth areas is expected to increase by 16% as a cost reduction driver.

H Asia Pacific – Unfavorable cost position is expected to decrease by 18% as a cost reduction driver.

27


Created a new executive position and/or full-time positions to drive cost management

Set-up or improved ERP infrastructure

Developed or implemented automation technologies

Developed or implemented cognitive and artificial intelligence technologies

Implemented new policies and procedures and strengthened the compliance mechanisms

Improved processes for forecasting, budgeting, and reporting to enable effictive cost management

Implemented zero-based budgeting or process

0

10

20

30

40

50

60

70

80


Top

pref

eren

ces

of r

espo

nden

ce (i

n pe

rcen

t)

34%

41%

48%

42% 41%

34%

12%

31%

38%

44%46%

41%

27%

6%

32%

36%

40%

28%

48%

44%

48%

33%

19%

29%

14% 14%

0%

32%

38%

47%

40%

60%

40%

35%

50% 50%

55%

30%

15%

21%

9%

0%

21

3

3

A

A

B

B

C

D

D

Capability development patterns in banking resemble the global patterns across industriesCapability development is fairly similar for the banking sector and global respondent pool. Global respondents slightly favor automation (48% across industries versus 44% in

banking), while banking respondents slightly favor cognitive and artificial intelligence (46% versus 42% globally across industries) (see figure 20).

Figure 20. Capabilities developed over the past 24 months

Survey findings1 In banking, the most commonly developed capabilities are cognitive/AI (46%) and automation (44%).2 Globally across industries, the most commonly developed capabilities are automation (48%), cognitive/AI (42%), ERP

infrastructure (41%), and new policies/procedures (41%).3 Zero-based budgeting (ZBB) continues to be the least developed capability in banking (6%), even lower than the global

average across industries (12%).

Region-specific findingsA United States – The most commonly developed capabilities in banking are new policies/procedures (48%) and improved

processes for forecasting, budgeting, and reporting (44%); compared to other regions, the United States has the lowest percentage of banking respondents who developed cognitive solutions (28%).

B Latin America – ERP infrastructure is the most commonly developed capability (48%), followed by automation (33%).C Europe – Cognitive technologies are most commonly developed capability (60%), higher than the overall average for banks

(46%) and the global average across industries (42%).D Asia Pacific – APAC respondents generally reported the highest levels of developed capabilities, with new policies/

procedures being the most commonly developed (55%); relative to other regions, Asia Pacific reported the highest levels of ZBB implementation (15%).

28


Tactical and strategic cost actions are balanced in bankingOver the past 24 months, the banking sector has focused almost equally on strategic and tactical cost actions. This differs a bit from the global pattern across industries, which was somewhat more tactical in focus (see figure 21).

Tactical actions tend to produce incremental improvements and relatively small cost savings, whereas strategic actions have a much broader and deeper impact. Examples of strategic actions include: centralizing business activities (action 1 in the chart); structurally reconfiguring the business (action 2); and outsourcing/offshoring (action 3).

Figure 21. Implemented cost reduction actions over the past 24 months

Survey findings1 The three top-rated cost reduction actions implemented in banking over the past 24 months were increased centralization

(39%), streamlined organization structure (39%), and improved policy compliance (39%).2 Similar to banking, two of the three top-rated actions implemented globally across industries are streamlined organization

structure (36%) and improved policy compliance (37%).3 Banks have focused almost equally on strategic and tactical cost actions—similar to the global pattern across industries,

but generally with higher levels of implementation.

Region-specific findingsA United States – The most implemented cost actions are increased centralization (48%) and streamlined organization

structure (48%), both of which have the highest implementation ratings for any cost actions in any region; the least implemented cost actions are reduced external spend (24%) and aligned incentives (24%).

B Latin America – The most implemented cost action is changed business configuration (43%); the least implemented is automation/cognitive technologies (14%), which has the lowest implementation level for any cost action in any region.

C Europe – European banks had relatively high levels of implementation across all cost actions; the most implemented actions were improved policy compliance (45%) and automation/cognitive technologies (45%); the least implemented was streamlined business processes (32%).

D Asia Pacific – The most implemented cost action was streamlined business processes (40%); the least implemented was changed business configuration (15%).

Averages

Global USBanking LATAM Europe APAC

32% 34% 36% 35% 26% 39% 33%35% 39% 32% 37% 23%

% o

f tot

al r

espo

nden

ts

35%

31%

31% 36

%37

%37

%32

%32

%30

%

39%

36%

0%39

%36

% 39%

31% 36

%34

%

48%

40%

28%

48% 44

%36

%24

%32

%24

%

33% 43

%19

%38

%29

%29

%24

%14

%24

%

36%

36% 38

%34

%32

%45

%36

% 45% 43

%

30%

15%

25%

35% 40

%30

%30

%30

% 35%

3 3

2 1 1 1 A A

A A

B

B

C

C C

D

D

Action 1 Increased centralization – Integrated business units and functions into the corporate center

StrategicAction 2 Changed business configuration – Divested underperforming assets, adjusted number of products/services, geographies, customers, etc.

Action 3 Outsourced/Off-shored business processes to low cost service providers

Action 4 Streamlined organization structure – Increased spans of control, and modified reporting relationships

Tactical

Action 5 Streamlined business processes

Action 6 Improved policy compliance

Action 7 Reduced external spend by leveraging scale to source purchased materials/services and reduced demand for materials and services

Action 8 Implementation of specific automation or cognitive technologies

Action 9 Aligned incentives of executives or employees to cost reduction objectives

29


The balance between tactical and strategic cost actions is expected to continueLooking ahead, banks expect to continue implementing tactical and strategic cost actions almost equally over the next 24 months (see figure 22). Change business

configuration (action 2) is the top expected action both in banking (66% in-process or planned) and globally across industries (65% in-process or planned).

Figure 22. Expected cost reduction actions over the next 24 months

StrategicIn process of implementationNot implemented but planned

Averages

Global USBanking LATAM Europe APAC

35%

62% 61% 59% 56% 63% 56% 69%58% 53% 68% 55% 62%

% o

f tot

al r

espo

nden

ts

42%

44%

43%

42% 46

%40

% 43%

41%

19% 21

%

16%

18%

16%

19%

18%

22%

35%

46%

43%

42%

43%

35%

37%

38%

18%

20%

12%

15% 18

%

15%

25%

26%

30%

56%

40% 44

% 52%

28%

28%

20%

4%

16%

12% 16

% 12%

16%

36%

28%

38%

33%

62%

24%

38%

38%

52%

33%

29%

29%

10%

19%

33%

19%

19%

38%

36% 45

%36

%

51%

45%

43%

30%

40%

21%

13%

15%

13%

13%

11%

19% 17

%

40% 45

%40

%

55%

45%

40%

35%

60%25

%

20%

15%

20%

10%

20% 30

%

30%

11 1

A

A

2 2 2B

B

C

CD D

D3

Action 1 Increased centralization – Integrated business units and functions into the corporate center

StrategicAction 2 Changed business configuration – Divested underperforming assets, adjusted number of products/services, geographies, customers, etc.

Action 3 Outsourced/Off-shored business processes to low cost service providers

Action 4 Streamlined organization structure – Increased spans of control, and modified reporting relationships

Tactical

Action 5 Streamlined business processes

Action 6 Improved policy compliance

Action 7 Reduced external spend by leveraging scale to source purchased materials/services and reduced demand for materials and services

Action 8 Implementation of specific automation or cognitive technologies

Survey findingss1 In banking, the cost actions most expected to be implemented over the next 24 months are change business configuration

(66% in-process or planned), followed by automation/cognitive technologies (64% in-process or planned) and streamline business processes (61% in-process or planned).

2 Those same three cost reduction actions top the list globally across industries.3 Strategic and tactical cost actions are expected almost equally in banking.

Region-specific findingsA United States – The top-rated cost action to be implemented over the next 24 months is change business configuration

(72% in-process or planned); the lowest-rated is increase centralization (36% in-process or planned).B Latin America – The top-rated cost action is outsource business processes (72%); the lowest-rated is streamline

organization structure (43%).C Europe – The top-rated cost action is streamlining organization structure (64%); the lowest-rated is reducing external

spend (49%).D Asia Pacific – The top-rated cost action is automation/cognitive technologies (90%), which is rated far higher than any

other action in any other region; the lowest-rated are outsource business processes (55%) and streamline business processes (55%).

30


Lack of understanding/acceptance of the solution by the audience

Erosion of savings due to infeasible target setting

Weak/ unclear business case for cost improvement

Poorly designed reporting and tracking

Lack of an effective ERP system to enable date availability, decision-making, process improvememt, performance management

Management challenges in implementing initiatives

0

10

20

30

40

50

60

70

80


Perc

enta

ge o

f res

pond

ents

57% 58% 61% 62% 65%59%

40% 40% 44%

28%36%

44%

52%

38%

52%57%

62% 62% 60% 57%62% 64% 60%62%

85%

65%

75%

65% 65%

80%

53%59% 56% 55% 62%57%

1 12

3

3

A A

AB

B

CC

DD

Implementation challenges are the top barrierImplementation challenges are the top barrier to successful cost reduction both in banking (62%) and globally across industries (65%). On average, APAC banks rate the barriers to cost reduction much more highly than their counterparts

in other regions, while US banks are at the opposite end of the spectrum and seem much less concerned about barriers (see figure 23).

Figure 23. Barriers to successful cost reduction

Survey findings1 In banking, the three top-rated barriers to successful cost reduction are implementation challenges (62%),

weak/unclear business case (59%), and poorly designed reporting/tracking (59%).2 The three top-rated barriers globally across industries are implementation challenges (65%), lack of an effective

ERP system (62%), and erosion of savings (61%).3 Lack of an effective ERP system is a much less common barrier in banking than globally across industries

(-7 percentage points).

Region-specific findingsA United States – On average, US banks rate the barriers to cost reduction far lower than do their counterparts in other

regions; their top-rated barriers are poorly designed reporting/tracking (44%) and implementation challenges (44%); their lowest-rated barrier is erosion of savings (28%).

B Latin America – The top-rated barriers are lack of an effective ERP system (62%) and implementation challenges (62%); the lowest-rated barrier is lack of understanding/acceptance of the solution (38%).

C Europe – European banking respondents rate all the barriers almost equally; the highest-rated is erosion of savings (64%); the lowest-rated is lack of understanding/acceptance of the solution (57%).

D Asia Pacific – On average, APAC banks rate the barriers to cost reduction significantly higher than do their counterparts in other regions; the top-rated barriers are weak/unclear business case (85%) and implementation challenges (80%).

31


Designate a full-time position to drive efficiency and cost improvement initiatives

Develop, validate and sponsor a clear business case for cost improvement

Deploy change management activities to raise awareness, acceptance, and benefits of initiatives

Design a solid tracking and reporting process

Assess, validate, and adjust targets reasonably according to the reality throughout the implementation phase

Invest in technology improvements to enable data availablity, reliability, adn decision-making process

0

10

20

30

40

50

60

70

80


Perc

enta

ge o

f res

pond

ents

65% 66%70% 69% 72%

58%

48%52%

40%

60%56%

76%

48%

38%

29%

48%

71%62% 60%

74%66%

77%70% 70% 70%

60%

75%

65%70%

75%

62%57%

67% 68% 71%

61%

123

3

A

A

B

BC

C D D

Lessons learnedThe top lessons learned in banking and globally across industries are: (1) invest in technology improvements to enable data availability, reliability, and decision-making processes, (2) design a solid tracking and reporting process,

and (3) assess, validate, and adjust targets reasonably to reflect reality throughout the implementation phase (see figure 24).

Figure 24. Lessons learned for effective cost management

Survey findings1 The top lessons learned in banking are: invest in technology improvements (71%), adjust targets to reflect reality (68%), and

design a solid tracking/reporting process (67%).2 Those same three lessons top the list globally across industries.3 Deploy change management activities is a lesson rated significantly lower in banking than globally across industries (-9

percentage points).

Region-specific findingsA United States – The top-rated lesson is to invest in technology improvements (76%); the lowest-rated lesson is to deploy

change management (40%).B Latin America – The top-rated lesson is to adjust targets (71%); the lowest-rated is to deploy change management

initiatives (29%), which received the lowest rating of any lesson in any region.C Europe – The top-rated lesson is to design a solid tracking/reporting process (77%); the lowest-rated lesson is to designate

a full-time position to drive efficiency and cost improvement (60%).D Asia Pacific – One top-rated lesson for APAC banks is to deploy change management (75%)—a sharp contrast from the

rating in other regions, particularly the United States and Latin America; the lowest-rated lesson is to develop a clear business case for cost improvement (60%).

32


Cost management maturity in banking resembles the global average across industriesOverall cost management maturity levels in banking are close to the global averages across industries. In particular, the percentage of banks that rate themselves high maturity (34%) nearly matches the global average (35%). However,

maturity ratings vary widely by region. For example, only 5% of LATAM banks rate themselves high maturity, a figure that is much lower than the 49% of European banks that consider themselves high maturity (see figure 25).

Figure 25. Cost management maturity levels

% o

f res

pond

ents

Lowest High

High

Intermediate

Low

Lowest

Cost policies and procedures are continually reviewed and examined to ensure best practices around efficiency and cost management

Relevant cost policies and procedures are typically well known, and personnel are trained and generally comply

There may be written cost policies and procedures documented but not readily available and essentially not followed

Few or no formal cost policies or procedures are employed or documented, or they are significantly fragmented

15% 20% 31% 35%

13% 18% 36% 34%

17% 19% 15% 49%

4% 12% 52% 32%

20% 35% 15% 30%

10% 5% 81% 5%

Europe

US

LATAM

APAC

Global

Banking

Survey findings1 In banking, 34% of respondents rate themselves high maturity and 36% rate themselves intermediate maturity.2 Similar to banking, 35% of companies globally across industries rate themselves high maturity.3 In banking, 13% of respondents rate themselves at the lowest maturity level, which is similar to the global average across

industries (15%).

Region-specific findingsA United States – The percentage of US banks that consider themselves high maturity (32%) is similar to the overall

averages in banking (34%) and globally across industries (35%); however, the United States had the lowest percentage of banks that rate themselves lowest maturity (4%).

B Latin America – Although Latin America has the smallest percentage of high maturity banks (5%), it also has the smallest percentage of banks that rate themselves low or lowest maturity (15% combined).

C Europe – Europe’s percentage of high maturity banks (49%) is larger than the overall averages in banking and globally; however, Europe also has the second largest percentage of lowest maturity banks (17%).

D Asia Pacific – Asia Pacific has the largest percentage of banks with low maturity (35%) and lowest maturity (20%); however, its percentage of high maturity companies (30%) is close to the overall averages in banking and globally across industries.

33


Digital technologies are having a major impact on all aspects of business and banking, including cost management. Breakthrough innovations enabled by digital technology are enabling companies to operate and compete more effectively in an increasingly digital world. They also have the potential to enable new levels of cost savings.

Digital and technology solutions applied to cost management in banking

Save-to-transform as a catalyst for embracing digital disruption | Deloitte’s Second Biennial Global Cost Survey: Cost management practices and trends in Latin America

34

Global Banking US LATAM Europe APAC0

10

20

30

40

50

60

70

% o

f tot

al r

espo

nden

ts


Cognitive technologies: Artificial intelligence and machine learning

Business Intelligence (Not including Cognitive or AI)

Cloud Solutions

25% 25%

35%

29%

37%

28%

19% 19%

30%

38%

45%

40%

44%

52%

14%

10%

45%

14%

20%

35%

53%

40%

45%

12

49%

37%

1

2

3

3

A

A

B

B

C

C

D

D

D

Survey findings1 In banking, cloud was the most widely implemented of the surveyed technologies over the past 24 months (45%);

automation was the least widely implemented (29%).2 Cloud was also the most implemented technology globally across industries (49%), followed by business intelligence (35%).3 Implementation of cloud is slightly higher globally across industries than in banking (+4 percentage points).

Region-specific findingsA United States – Similar to the overall banking and global results, the most widely implemented technology among US

banking respondents was cloud (52%); the least widely implemented was automation (28%).B Latin America – LATAM banks have the lowest level of technology implementation; their most widely implemented

technologies over the past 24 months were business Intelligence (19%) and cloud (19%); the least widely implemented was cognitive (10%).

C Europe – The most widely implemented technology was cloud (53%); the least widely implemented was automation (30%).D Asia Pacific – In contrast to the overall banking and global results, cognitive was the most widely implemented technology

in Asia Pacific (45%), followed by automation (40%); business intelligence was the least widely implemented (20%).

Cloud leads the pack, except in Asia PacificIn banking, the most widely implemented technology covered by the survey is cloud (45%), followed by business intelligence (37%) and cognitive (37%). Cloud is also the most widely implemented technology globally across industries (49%) (see figure 26).

Implementation levels vary widely by technology and region; they tend to be highest in Europe and the United States, and lowest in Latin America.

Figure 26. Technology implementation levels (past 24 months)

35


0

10

20 30 40 50 60 70 80 90 1000

10

20 30 40 50 60 70 80 90 100

Cloud

Resp

onde

nts

(in %

)

0

10

20 30 40 50 60 70 80 90 100

APAC

Europe

LATAM

US

Banking

Global

63% 80% 76%

56%

56%

68%

68%

59%

52%

61%

40%

60%

40%

50%

50%

50%

50%

50%

78%

67%

56%

61%

89%

44%

33%

56%

57%

53%

69%

79%

50%

50%

59%

71%

17%

43%

43%

67%

67%

67%

67%

86%

71%

57%

71%

75%

38%

25%

38%

43%

48%

64%

58%

34%

57%

72%

31%

23%

38%

69%

75%

50%

50%

75%

56%

40%

60%

72%

86%

29%

57%

71%

RPA Cognitive & AI

Reduce Costs and Increase Productivity

Increase revenue Enhance product/service capabilities Tighten data security and Improve business control

1

1

C

C

2

2

B B

C

D D D

3

3

A

Survey findings1 The top reason for applying cloud in banking and globally across industries is to tighten data security and improve

business control.2 The top reason for applying RPA, both in banking and globally, is to reduce costs and increase productivity.3 Similarly, the top reason for applying cognitive/AI in banking and globally is also to reduce costs and increase productivity.

Region-specific findingsA United States – The United States is the only region where banking respondents rate “increase revenue” as the top

reason for applying cognitive and AI (60%).B Latin America – LATAM banks rate all reasons equally for RPA (all 67%) and cognitive/AI (all 50%).C Europe – Similar to the global and overall banking results, the top reason for applying RPA and cognitive solutions is to reduce

costs and increase productivity; the top reason for applying cloud is to tighten data security and improve business control.D Asia Pacific – In Asia Pacific, the top reason for applying all the surveyed technologies is to reduce costs and

increase productivity.

Top reasons for applying digital technologiesThe top reason for applying cloud is to tighten data security and improve business control. This is true both in banking and globally across industries. The top reason for applying

both RPA and cognitive/AI is to reduce costs and increase productivity (see figure 27).

Figure 27. Reasons for applying technologies

36


Global Banking US LATAM Europe

Unable to assess results at this point

Results according to expectations

Results below expectations

Results above expectations

Cloud

APAC


RPA

APAC


Cognitive & AI

APAC

35%

36%45%

50%

61%

33%

6% 11%

67%

22%

50%

48%

7%

47%

16%

44%43%

64%

29%

7% 12%

50%

38%

57%100%

38% 38%25%

14%

72%

14%

44%40%

12%

54% 75%51%

9% 8%

41%44%

23% 12%

1%

1% 0% 0%

0% 0% 0%

100%

0% 0% 0%

0% 0%

2%

29%

56%

13%

2% 0% 0% 0%4%

1

2

3

3

A

A

A

B

B

B

C

C

C

D

D

Survey findings1 When implementing cloud, 51% of banks had their expectations met and 38% had their expectations exceeded.2 When implementing RPA, 44% of banks had their expectations met and 44% had their expectations exceeded.3 When implementing cognitive/AI, 48% of banks had their expectations met and 45% had their expectations. exceeded;

only 7% had results below expectations—much lower than the global average across industries (16%).

Region-specific findingsA United States – Except for 8% of respondents implementing cloud, all US banks had their expectations met or exceeded

when implementing each of the three technologies.B Latin America – Across all three technologies, all LATAM respondents said their expectations were met or exceeded; no

respondents had results below expectations.C Europe – For all three technologies, Europe is the region with the highest percentages of banking respondents who said

their expectations were exceeded: cloud (44%), RPA (64%), and cognitive/AI (61%).D Asia Pacific – Relative to other regions, Asia Pacific had a low percentage of banking respondents whose expectations

were exceeded.

Most technology implementations meet or exceed expectationsWhen implementing each of the technologies covered by the survey, more than 88% of banking respondents had their expectations met or exceeded (see figure 28).

Figure 28. Results of implementing technologies

37


0

10

20

30

40

50

60

70

80

APACEuropeLATAMUSBankingGlobal

Top

Pref

eren

ces

of R

espo

nden

ts (i

n %

)

In process of implementationNot implemented but planned

38% 39

%

39%

33% 44

%

39%

35%

35%

24%

24%

62% 63%

47%

64%60%

52%49%

20%

14%

20%

21%

17%

14%

40%

55%

10%

25%

50%

50%

15%

5%

59%

65%65% 75%

55%

43%48

%43

%

10%

29%

43%

57%

29%

86%

90%

52%

71%

34%

36%

19%

19%

36%

30%

15%

11%

51%55%

53%

40%

32%

40%

16%

12%

44%

24%

12%

20%

56%56%

44% 44%

Automation: Robotics Process Automation

Cognitive technologies: Artificial intelligence and machine learning

Business Intelligence (Not including Cognitive or AI)

Cloud Solutions

23

3

1

1

A

A

B

BC

C

C

D

D

Survey findings1 In banking, the most actively implemented technologies are expected to be automation (64%) and cognitive (60%); the

technology expected to be least actively implemented is cloud (49%).2 As in banking, the technologies expected to be most actively implemented globally across industries are automation (62%)

and cognitive (63%).3 Implementation expectations for business intelligence are 7 percentage points higher globally across industries than in

banking.

Region-specific findingsA United States – Similar to the overall banking and global results, the technologies expected to be most actively

implemented over the next 24 months in the United States are automation (56%) and cognitive (56%), followed by business intelligence (44%) and cloud (44%).

B Latin America –On average, LATAM banks expect the highest levels of implementation activity over the next 24 months compared to other regions; automation is highest (90%); business intelligence is lowest (52%).

C Europe – The most actively implemented technology in Europe is expected to be automation (55%); the least actively implemented technology is expected to be cloud (40%).

D Asia Pacific – Automation, cognitive, and business intelligence are all expected to have equal levels of implementation activity over the next 24 months (all 65%); cloud is expected to be the least actively implemented technology (55%).

High levels of technology implementation are expectedIn the banking sector, the technologies expected to be most actively implemented over the next 24 months are automation (64%) and cognitive (60%); the technology

expected to be least actively implemented is cloud (49%), most likely because current implementation levels for cloud are already very high (see figure 29).

Figure 29. Technology implementation levels over the next 24 months

38


0

10

20

30

40

50

60

70

80

Global Banking US LATAM


Average Cognitive technologies: AI and machine learning

Business intelligence (not including Cognitive or AI)

Cloud solutions0

10

20

30

40

50

60

70

80

Europe APAC

No designated leader

9% 7%

17%12%

25%

7%

0% 0%

10%15%

25%

7%

20%17%

11% 13%

30%

15%

25%

40%

0% 0% 0% 0% 0% 0%

A

A C BD

C

B

A

A

D

Designated leader

118%

275%

222%

400%

190%

193%

129%

309%

77%

260%

37%

45%

29% 35

%

29% 33

%

33%

44%

29%

44%

43%

17%

40%

50%

39% 45

%

52%

33% 50

%

22%

53%

54% 57

%

67%

55%

39%

Survey findings1 Banks with a designated digital leader achieve much higher levels of technology implementation (+275%).2 Globally across industries, the impact of a designated digital leader on technology implementation levels is very high

(+118%), but not as high as in banking.13 The difference in digital leader impact for banking versus the global average is highest for cloud (+260% in banking versus

+77% globally across industries).

Region-specific findingsA United States – A designated digital leader appears to have the largest impact on business intelligence implementation

(0% to 52%); the smallest impact appears to be on implementation of automation (+4 percentage points).B Latin America – For cloud, the level of implementation increases from 0% to 67% with the presence of a designated

digital leader.C Europe – A designated digital leader appears to have the largest impact on business intelligence (0% to 50%).D Asia Pacific – Cognitive technologies see a significant increase in implementation due to the presence of a designated

digital leader (0% to 50%).

Digital leaders make a differenceBanks with a designated digital leader tend to achieve much higher levels of technology implementation (+275%); however, the impact varies widely by region and technology (see figure 30).

Figure 30. Impact of a designated digital leader

39


Cost management practices and approaches have grown increasingly sophisticated over time, with digital solutions—although still maturing—now representing the most advanced level of cost management. Companies that relied on more traditional cost management methods in the past are now finding that digital solutions can open the door to a whole new level of savings—as well as enable new and more innovative business models.

The rise of digital technologies and innovations is also contributing to a shift in how banks around the world approach cost management, with the save-to-grow mindset from 2017 steadily expanding into a save-to-transform mindset where investments in digital enablement and transformational technologies play a key role.

Save-to-transform as a catalyst for embracing digital disruption

40


Cybersecurity and digital disruption as external risks Technology implementation as a strategic priority

0.0

12.5

25.0

37.5

50.0

62.5

75.0

87.5

100.0

0.0

12.5

25.0

37.5

50.0

62.5

75.0

87.5

100.0

59% 58% 58%61%

54%

64%

53%

61%

72%

77%73% 73%

Credit risk Cybersecurity Digital disruption Other Past 24 months Next 24 months

Cybersecurity concerns (64%) and digital disruption (61%) as perceived as the top external risks in banking

Technology implementation is the top strategic priority for banking (77%) over the next 24 months

GlobalBanking

+7%

External risks

% o

f tot

al r

espo

nden

ts

% o

f tot

al r

espo

nden

ts1

1

2

B BA

A Cybersecurity is identified as the top external risk by respondents in banking (64%).

B Digital disruption is the next most prominent risk (61%), tied with credit risk (61%).

1 Over the next 24 months, technology implementation is the top strategic priority for banking (77%), higher than the global average (73%).

2 Technology implementation is expected to increase by 7% as a strategic priority compared to the past 24 months.

Digital rises to the top of the agendaCybersecurity and digital disruption are now both recognized as the top external risks in banking. Cybersecurity leads the way at 64%, followed by digital disruption at 61%. Meanwhile, technology implementation

has emerged as the banking sector’s top-rated strategic priority (77%) over the next 24 months–a 7% increase over the past 24 months (see figure 31).

Figure 31. Digital-related business trends

41


TurnaroundSave-to-turnaround. Focus on immediate actions to reduce costs, maximize liquidity, achieve stability, and capture savings to avoid further deterioration of the business.

FundSave-to-fund. Focus on actions that help improve cost and competitive position; avoid cuts that might inhibit future growth rebalance costs to fund investment in business strategy enablers.

GrowSave-to-grow. Enable or develop a scalable cost/business platform to fuel growth and investment in core capabilities while supporting a differentiated business strategy.

TransformSave-to-transform. Invest in digital technologies and technology infrastructure to make operations more efficient and effective, enabling new and more agile business models to prosper in a digitally disrupted market.

Turnaround Fund Grow Transform

Cost levers

Liquidity Cost Growth Growth

Cost Growth Cost Cost

Talent Talent Talent Talent

Growth Liquidity Liquidity Liquidity

Prio

rity

+

-

Save-to-growIn the recent past, most banks were firmly grounded in save-to-grow mode. Cost and growth were the main business levers, with talent (including capabilities) as another key component. In this mode, cost reduction is a high priority,

with cost savings used to fund growth initiatives and strategic investments that support a differentiated business strategy (see figure 32).

Figure 32. The continuum of cost management approaches

42


1. Save-to-turnaround 2. Save-to-fund 3. Save-to-grow 4. Save-to-transform

Scope Narrow Broad

Competitive situation

• Losing market share • Structural operating flaws • Liquidity concerns • Flat profit growth

• Adjusting to demand levels • Growth concerns • Healthy balance sheet • Excess cash flow/reserves • High growth potential

Playbook

Defense-oriented playbook

• Short-term tactics to improve balance sheet • Cash flows • Stabilize business through any cost and/or liquidity

improvements • Compensate sales decline

Growth-oriented playbook

• Achieving profitable and sustainable growth through structural cost efficiencies and improvements

• IT investments • Innovation • Actions to strengthen performance and competitive position

Cost levers priority

Save-to-turnaround Save-to-fund Save-to-transform levers

Growth Talent Cost Liquidity Growth Talent Liquidity Cost Growth

Technology

Talent CostLiquidity

New

Low Low HighHigh Low High

Save-to-transformNow, many banks are moving into save-to-transform mode, with the save-to-grow mindset expanding to include a strong focus on digital enablement and technologies that can transform a business and help it capitalize on the vast

opportunities in an increasingly digital world. Shifting into save-to-transform mode means that in addition to cost, growth, talent, and liquidity, technology is also a high priority (see figure 33).

Figure 33. Save-to-grow expands into save-to-transform

Save-to-transform not only helps a bank capitalize on digital opportunities, it can also position the business to withstand potential adversity that may be on the horizon–such as an

economic downturn or credit crisis–by using the power of digital solutions as the key to unlock new levels of cost savings, efficiency, and financial performance.

43


Save-to-transform can not only help a company capitalize on digital opportunities, it can also position the company to withstand potential adversity that may be on the horizon by using the power of digital solutions as the key to unlock new levels of cost savings.

Looking ahead

44


45


ConclusionBanks around the world continue to view cost management as a high priority, and most have achieved admirable levels of operating efficiency. Yet, in spite of their ongoing efforts, too many remain mired in middle-of-the-pack performance. Reaching the next level will require greater focus on strategic cost actions, as well as increased adoption of breakthrough technologies such as automation, cognitive/AI, and business intelligence. These digital innovations have the potential to generate the substantial cost savings necessary to fund and implement business improvements that are not only for growth but transformational for the existing business model.

AuthorsOmar Aguilar PrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP USA: +1 215 870 0464 International: +1 267 226 [email protected]

David Izquierdo SánchezSenior Consultant Monitor Deloitte Deloitte Consulting [email protected]

Sakshi Kastiya Consultant Strategy & Operations Deloitte Consulting India Private Limited [email protected]

46


US Contacts

US Strategic Cost Transformation(MarginPLUS™) Leaders

Caleb LongenbergerPrincipal Strategy & AnalyticsMarginPLUS Co-LeadDeloitte Consulting LLP +1 513 560 3407 [email protected]

Faisal ShaikhPrincipal Mergers & AcquisitionsMarginPLUS Co-LeadDeloitte Consulting LLP+1 484 885 4699 [email protected]

US Financial Services Leaders

Brian JohnstonPrincipal US Financial Services Consulting Leader Deloitte Consulting LLP +1 571 643 5206 [email protected]

Mark ShillingPrincipal US Banking & Capital Markets Consulting Leader Deloitte Consulting LLP +1 404 408 9918 [email protected]

Deron WestonPrincipal US Regional Banking Consulting Leader Deloitte Consulting LLP +1 678 644 6186 [email protected]

US Banking & Capital Markets Team


James BakerPrincipal Strategy & AnalyticsDeloitte Consulting LLP +1 202 365 3147 [email protected]

Kristin KorzekwaManaging Director Mergers & AcquisitionsDeloitte Consulting LLP +1 404 821 7744 [email protected]

Aly ZeinManaging Director Strategy & AnalyticsDeloitte Consulting LLP+1 703 659 3206 [email protected]

Vinayak ViswanathanManager Mergers & AcquisitionsDeloitte Consulting LLP +1 347 681 7340 [email protected]

Global Strategic Cost Transformation

Omar AguilarPrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP+1 215 870 0464 [email protected]

Global Strategic Cost Transformation

Omar AguilarPrincipalStrategic Cost Transformation | Global Market Offering LeaderDeloitte Consulting LLP+1 215 870 0464 [email protected]

Global Financial Services

Richard WiddasPartnerFinancial Services | Global Consulting LeaderDeloitte Touche Tohmatsu Limited +44 7966 202610 [email protected]

Rob GalaskiPartnerBanking & Capital Markets| Global Banking Consulting LeaderDeloitte Canada+1 416 601 4594 [email protected]

AMERICAS

BrazilHeloisa MontesPartnerStrategy, Analytics and M&A LeaderDeloitte Consultores+55 11 5186 [email protected]

Caroline YokomizoPartnerStrategic Cost Transformation | Brazil Leader Deloitte Consultores+55 11 99258 [email protected]

Sergio BiaginiPartnerCore Business Operations | FSI Country LeaderDeloitte Consultores+55 11 99936 0269 [email protected]

ChilePablo TipicPartnerStrategic Cost Transformation| Operations Transformation Chile LeaderDeloitte Advisory SPA+569 6844 [email protected]

Bianca SantillanaDirectorFinancial Services| Operations TransformationDeloitte Advisory SPA+56 9 5768 0388 [email protected]

MexicoEduardo PachecoPartnerStrategic Cost Transformation | Mexico Strategy, Analytics and M&A LeaderDeloitte Consulting Mexico+52 55 5080 [email protected]

Fernando LopezPartnerFinancial Services |Operations TransformationDeloitte Consulting Mexico+52 55 5080 6311 [email protected]

CanadaRob GalaskiPartnerFinancial Services | Managing PartnerLeaderDeloitte Consulting LLP +1 416 601 [email protected]

Jeff Todd PartnerBanking Transformation| Canada practice LeaderDeloitte Canada+1 416 727 3742 [email protected]

ASIA PACIFIC

AustraliaTony O’DonnellPartnerFinancial Services | Operations TransformationDeloitte ToucheTohmatsu+613 9671 [email protected]

China – Hong KongDavid Wai Kit WuPartnerFinancial Services | Operations TransformationDeloitte Advisory (Hong Kong)Limited+86 21 [email protected]

IndiaGaurav GuptaPartnerBusiness Model Transformation | Operations TransformationDeloitte Touche Tohmatsu IndiaLLP+91 12 4679 [email protected]

JapanYusuke KamiyamaPartnerMergers & Acquisitions (M&A) | Strategy, Analytics and M&A Deloitte Tohmatsu ConsultingLLC+81 8 [email protected]

Tetsuo TakasagoPartnerStrategic Cost Transformation | Operations Transformation LeaderDeloitte Tohmatsu ConsultingLLC+81 7 [email protected]

New ZealandPaul ShallardPartnerOperations Transformation | Core Business Operations LeaderDeloitte Limited+64 21 645 [email protected]

SingaporeWendy LaiPartnerBanking and Capital Markets (FS) | SEA Core Business Operations LeaderDeloitte Consulting PteLtd+65 6232 [email protected]


Global Contacts

Global Contacts


Hans-Martin KrausPartnerBanking and Capital Markets| Operations TransformationDeloitte Consulting GmbH+49 151 [email protected]

Netherlands

Willem Christiaan van Manen PartnerOperations Transformation | Business Model Transformation LeaderDeloitte Consulting B.V.+31 6 1004 2582 [email protected]

Leonne JongejanPartnerFinancial Services | Business Model Transformation Deloitte Consulting B.V.+31 8 8288 [email protected]

Nordics

Anders Harritz Lund (Denmark)Senior ManagerStrategic Cost Transformation | Offering LeaderDeloitte Denmark+45 30 93 69 [email protected]

Alan Saul (Denmark)PartnerFinancial Services | Industry Leader Deloitte Denmark+45 22 20 21 [email protected]

Tuomo Saari (Finland)PartnerStrategy, Analytics, M&A| Finland offering LeaderDeloitte Finland+35 84 0505 9159 [email protected]

Ilkka Huikko (Finland)PartnerFinancial Services | Industry LeaderDeloitte Finland+35 84 0740 3529 [email protected]

Bjorgvin Olafsson (Iceland)PartnerDigital Transformation | Banking and Capital Markets Deloitte Iceland+35 4844 2707 [email protected]

Bjorn Grenman (Norway)PartnerEnterprise Model Design & Transformation| Norway offering LeaderDeloitte AS+47 911 61 [email protected]

Kirsti Merethe Tranby (Norway)PartnerFS Consulting lead | Nordic Banking & Capital LeaderDeloitte AS+47 9740 76 63 [email protected]

Jonas Malmlund (Sweden)PartnerDeloitte Sweden+46 75 246 33 [email protected]

Steve Payne (Sweden)PartnerFinancial Services | Nordic FSI Leader Deloitte Sweden+46 70 080 33 [email protected]

Ireland

Alan FlanaganPartnerFinance Transformation | Enterprise Technology and Performance LeaderDeloitte Ireland+35 314 172 [email protected]

Italy

Umberto MazzuccoEquity PartnerBusiness Model Transformation | Mergers and AcquisitionsDeloitte Consulting SRL+39 02 8332 [email protected]

Spain

Gorka BrionesPartnerStrategic Cost Transformation | Strategy and Business Design Deloitte Consulting, S.L.+34 9 1443 [email protected]

Juan Perez de AyalaPartnerStrategy and Business Design | Consulting and FSI Consulting leadDeloitte Consulting, S.L.+34 9 1443 2673 [email protected]

SwitzerlandAntonio RussoPartnerAnalytics and Cognitive | Consulting Offering LeaderDeloitte Consulting AG+41 7 9102 4673 [email protected]

Patrik SpillerPartnerMonitor Deloitte | Strategy and Business Design LeaderDeloitte Consulting AG+41 7 8649 5605 [email protected]

United Kingdom

Lorraine BarnesPartnerBanking and Capital Markets (FS) | Core Business Operations UK LeaderDeloitte MCS Limited+44 77 6589 [email protected]

Mark KellDirectorStrategy and Operations | Financial Services LeaderDeloitte MCS Limited+44 7841 569668 [email protected]

EUROPE

Austria

Alexander KainerPartnerStrategy, Analytics and M&A | Austria offering LeaderDeloitte Services Wirtschaftsprüfungs GmbH+43 664 805 372 [email protected]

Belgium

Catherine HannossetPartnerStrategy, Analytics and M&A| North West Europe M&A Capability LeadDeloitte Belgium+ 32 494 56 68 [email protected]

Kasper Peters PartnerFinancial Services | Belgium Consulting practice LeaderDeloitte Belgium+32 472 027020 [email protected]

Croatia

Zlatko BazianecPartnerStrategy and Business Design | Consulting Country LeadDeloitte Croatia+385 1 2351 [email protected]

France

Olivier PerrinPartnerBusiness Transformation | Monitor Deloitte Deloitte France+33 6 87 14 17 [email protected]

Germany

Alexander MoggPartnerDigital Transformation | Operations TransformationDeloitte Consulting GmbH+49 151 5800 [email protected]

Hans-Juergen Walter PartnerFinancial Services | Country LeadDeloitte Consulting GmbH+49 175 5882 651 [email protected]

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