In many markets, the cost-driven, acquisition-based growth model that has sustained financial institutions for some time has already reached a point of diminishing returns. The new challenge for institutions is therefore to sustain growth from within.

In this search for organic growth, we believe that the most important emerging theme is the imperative to align institutional strategies and organizations to customers’ increasingly complex needs. This theme is especially critical in five areas:

Traditionally, financial institutions viewed marketing as relatively unimportant, a holdover from a time when acquiring and keeping customers was fairly easy. In an increasingly competitive environment, however, these skills have become essential. A focus on sales alone is no longer sufficient; instead, to create the solutions that customers are seeking, institutions must develop proprietary customer insights and cultivate more sophisticated capabilities in branding, distribution, and customer-lifecycle management.

Consumers and businesses are facing substantial new financial risks, and need new tools to help them manage these risks more effectively. At the same time, demographic shifts are creating entirely new categories of customers, whose needs often differ dramatically from those of more traditional clients. Because an expanding marketplace now offers customers an unprecedented range of choices among financial services, institutions must respond to these multiplying demands with well-designed, comprehensive solutions, or risk losing customers to competitors.

Organizational Approaches

Many financial services companies are already finding themselves hard pressed to manage the scale and diversity of their businesses. These strains will only intensify as institutions expand the geographies and customer segments they serve. Moreover, many existing structures are proving inadequate to the needs of enterprises whose primary assets are talented individuals. Accordingly, to meet these demands, even the best-managed companies may require different organizational approaches to decrease complexity, increase productivity, and facilitate the development and exchange of knowledge.

Operating Models

To support these new organizations, institutions must continue to improve their propositions to customers and their operational efficiency through deeper reconfigurations of their business processes – creating utilities where appropriate and more aggressively matching operations to locations with appropriate costs. The first stage of outsourcing and offshoring, focusing largely on repetitive, low-skilled tasks, is being played out; the next step is to move to more skilled activities, such as market analytics in consumer banking.

Risk Management

As the market evolves to become more flexible and dynamic, institutions should also reexamine their risk management practices, which currently tend to focus on risk avoidance and mitigation. In so doing, financial services players forgo the rewards that risk can offer. Instead, institutions should balance risk and reward under a portfolio approach, which can accommodate a variety of risk profiles while providing the opportunity to increase returns markedly.