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637
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Information Systems
Date
Nov 24, 2024
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docx
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Uploaded by kiuma
Today banking sector has been under the challenge of increasing costs. The steady rising
operating costs have been due to heavy IT investments and compliance requirements. Even with
the smack of the covid-19 pandemic, there is an increasing challenge of making it past the
uncertain environment marked with dwindling margins, rising competitions, and growing
customers' demands and expectations (Fernandes, 2020). A regulator's compliance crisis has
increased the threshold amount the banks hold and a specific amount to devote in complying
with regulations such as high paid compliance employees. Secondly, with the ongoing
digitization move, banks have invested heavily in IT infrastructures. Banks have also faced high
litigation costs and fines. These costs have increased while revenues have continually gone
down.
To survive the menace, the bank needs to employ a strategic approach to reducing costs
while maintaining efficiency and effectiveness. The banking sector has been traditionally
regulated, offering little room for innovation. Consequently, banks have relied on risk premium,
market-based approach, or cost of funds strategy to determine to price. However, these
approaches have not been comprehensive and have missed o cost of technology, product
innovation, infrastructure, and other related expenses. To amend this, the bank wishes to simply
its offerings, digitize its operations, pursue low-cost organic growth, and scale-up through
partnerships.
The bank wishes to simplify its products and services and other underlying processes
radically. With the innovation of new products, the bank has seen the rise of large portfolios that
accommodate the old products and services. These many offerings are costly and are a great
hindrance to digitization. It is necessary for the bank to sheds off some of its outdated products
and services for successful digitization. The bank, therefore, wishes to reduce not only some of
these offerings but also simplify the process used in selling and supporting these products and
services. Consequently, the bank hopes to save costs and avoid pilfering its resources on poorly
designed digitization costs (Jáč, Sedlář, Zaytsev & Zaytsev, 2013).
Another strategy to reduce cost is the digitization of bank operations. The customer holds
high expectations with the delivery speed of doing business in the current digital age. Most
customers want to access the services via an online platform as opposed to getting teller services.
The bank, therefore, needs to digitize its functions and processes promptly. Applying
technologies such as artificial intelligence and robotic will see the costs of wages to workers go
down. The reduced cost used to pay employees will see to it that the operation costs are lowered
and that customers will enjoy services at lower e costs and faster (Moşteanu, Faccia & Cavaliere,
2020).
Towards cost reduction, the bank also wishes to embrace low-cost organic growth. The
bank has earlier focused on acquiring and increasing its market share at the expense of profit
margins. This focus is not sustainable in the long run, and hence, the bank wishes to embark on
low-cost growth and maintain the product and service quality. This will ensure that the costs
continually reduce with increasing customer volume. The bank should also scale up through
partnerships with other financial institutions to consolidate the operations and reduce costs.
The cost-cutting strategy is the strategy that the bank wishes to embrace continually.
However, this strategy alone is inefficient and needs to be coupled with other strategies such as
product differentiation and reduction in the intensity of competition. Cost reduction is vital in
maintaining profit margins while ensuring the customer obtain quality products and services.
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Reference Jáč, I., Sedlář, J., Zaytsev, A. A., & Zaytsev, A. V. (2013). Principles of creating a cost-cutting
strategy at an enterprise by means of the lean production concept.
Moşteanu, N. R., Faccia, A., & Cavaliere, L. P. L. (2020). Digitalization and green economy-
changes of business perspectives. In Proceedings of the 2020 4th International
Conference on Cloud and Big Data Computing
(pp. 108-112).
Fernandes, N. (2020). Economic effects of coronavirus outbreak (COVID-19) on the world
economy. Available at SSRN 3557504
.