Two Industries Under the Gun: Retail Banking & IT

Each year, Booz & Co. publishes an assessment of twelve major industries, reviewing recent developments and looking out a few years.  Not surprisingly, the past year has been a time of trauma for each industry.  And, none of them look to the future with giddy optimism, particularly retail banking and IT.

Retail Banking

For the foreseeable future, retail banks face a cloudy future. Fortunately, some nimble players will be able to exploit emerging opportunities to increase revenues and maintain margins. 

Banks face lower consumer demand driven by higher personal savings rates, weakness in the commercial real estate and capital markets, and tighter regulations around high margin products like credit cards and overdraft protection. At the same time, retail banks will be challenged to keep operating costs under control tracing to higher regulatory costs, steadily increasing  distribution (e.g., branch) expenses and the need to maintain a secure and reliable IT infrastructure.  Record levels of consumer debt will also require banks to remain vigilant on risk and maintain substantial reserves against defaults.  

On the revenue side, savvy banks will shift from customer acquisition to building deeper client relationships and leveraging them through cross-selling and up-selling.  Appealing customer segments look to be: the growing retired/affluent cohort, rebounding small businesses and the emerging Generation Y bulge.  To drive these opportunities, banks should:  improve new segmentation understanding and targetability;  elevate product and service appeal as well as; enhance the bank’s client experience (i.e. service, support, appeal).

To reduce operating costs, retail bank will need to continue tactical initiativess (e.g., pruning unprofitable branches) as well as further leveraging breakthrough strategies like expanded back office outsourcing; offloading IT services to a Cloud Computing model and; streamlining operations through complexity reduction initiatives.

Information Technologies

This sector – semiconductors, consumer electronics, software, computing, and network infrastructure & services – faces serious revenue and margins threats on all fronts. It is time to batten down the hatches.

Developed markets will maintain sluggish IT growth rates as many of its largest buyers – Financial Services, Consumers and Manufacturing – will continue to be constrained by reduced demand.  Only one major industry buyer, healthcare, is expected to post solid growth.   The IT industry will continue to be battered by pricing pressure due to high penetration of open source software, the aggressiveness of low cost offshore service and hardware providers as well as the challenge of getting buyers to pay for increasingly undifferentiated (and over-engineered) products and services.  

IT companies will succeed by going with the customer flow and running a tighter operational ship.  That means aggressively pursuing growth opportunities in emerging markets and products (e.g., mobile computing), optimizing their channel structures and sales & marketing spend to improve efficiencies and distribution; continuing to “productize” their hardware/software/services solution offerings and; pursuing selected high potential/low risk M&A transactions that extend market penetration and continue to drive scale economies. 

However, future IT prospects may well be decided by how IT firms respond to the challenges posed by rapidly growing IT firms like Acer, Wipro and Huawei found in the emerging BRIC (Brazil, Russia, India, China) markets.  As the BRIC firms move up the IT food chain, they will soon rival many of their Western competitors in terms of product commercialization, R&D and marketing capabilities. Given their significantly lower cost structure (today), their rise will also put pressure on margins.

Coming soon will be our review of two more industries under the gun, packaged goods and engineered products.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.


1 comment so far

  1. […] } Due to the recession, changing consumer demographics and a growing regulatory burden, the Financial Services (FS) industry will need help reaching historical profit levels over the next couple of years.  New strategies are needed that can reduce cost, streamline […]

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