Capco Institute Blog

Financial services companies have long considered rigorous profitability measurement to be more a “nice to have” capability than an imperative. But today’s conditions are altering that view. Regulatory changes, growing competition and post-financial crisis reverberations continue to constrain institutions in their quest for profits. The loss of fee revenue, new restrictions on proprietary trading and other industry shifts are compressing margins and compelling institutions to explore new routes to bottom-line performance.

To stay competitive, institutions are restructuring products and services, offering new investment vehicles, and working to improve mobile and online account access. Such initiatives could prove essential to maintaining revenue and retaining customers. But how profitable will these efforts actually be? Many institutions simply don’t have clear visibility into the economics of each transaction as it flows through the business.

One innovation — strategic cost management — can help financial services companies measure profitability more accurately and in richer detail in two key ways: it helps capture and update cost information across multiple dimensions, and it extends cost modeling to include the customer dimension in cost and profitability analysis.

Using rapid prototyping, a key element of multidimensional measurement, an organization can build cost models that can be tested and expanded over time. An incremental approach allows an institution to introduce functions in phases and obtain early benefits that pave the way for future steps.

Factoring customer behaviors, patterns and interactions into the equation along with product, channel and market views can bring new levels of insight and precision to profitability analysis.

Best of all, strategic cost management can deliver encouragingly quick results. Using a straightforward approach that drives action can help financial services executives pilot their organizations to a more profitable future.

How is your organization measuring profitability? Join the discussion.