In 2017, investment banks continue laboring under cost and regulatory pressures and wrestling with digital technologies. “Business as usual” is no longer an option, and the investment banking industry has shifted gears accordingly; there is growing interest in digital technologies, utilities and ecosystems, as banks look beyond their own four walls to accelerate the creation of new capabilities.

This year’s top 10 challenges facing investment banks play out in three key areas:

  • Simplification—banks are simplifying to cut costs, improve growth and serve clients better.
  • Digitization—banks are digitizing to attract the right talent and improve the client experience.
  • Innovation—banks are innovating to improve the research function and make the most of fintech and distributed ledger technology.

In this series, I will take a look at the top 10 challenges related to each of these key areas, beginning with simplification.

Investment banks have been on this journey for some time, but simplification remains a high priority. It is the key to improving growth opportunities, serving clients better, reducing the burden of legacy technology (including investment drain and barriers to new technology adoption), creating shared-service efficiency via common processes, and reducing errors and reconciliation from duplicative effort.

This year, we identified four challenges related to simplification.

Challenge 01: Pruning for Growth and Distinctiveness

Investment banks need to identify and strengthen core businesses that could drive growth and increase competitiveness in a market featuring increased regulatory burdens and a shrinking revenue pool. More than ever, banks need to decide “where to play” and radically simplify their operating model accordingly.

Challenge 02: Getting Fit: Aggressive Cost Reduction

Investment banks have faced a challenging landscape over the past eight years, characterized by declining revenues, high costs, developments in digital and regulatory pressure—and the changes could continue. Through it all, the drive to reduce costs has been constant. And it might not go away: the focus on cost reduction remains razor sharp as companies continue to seek sustainable cost efficiency.

Challenge 03: Turning Automation into Intelligence

The gray matter inherent in banks’ investment strategies is the lifeblood of any industry leader. That gray matter, however, is no longer contained solely in human form. As artificial intelligence (AI) technologies advance, investment banks have much to reap from the transformational insights AI enables.

Challenge 04: Pressing the Reset Button on Location Strategy

Deciding where to have a geographic presence is a key question for investment banks in 2017. With challenging market pressures and changing regulatory requirements, investment banks are frequently looking for creative ways to boost competitiveness. One of the ways investment banks could do this is by identifying optimal operating locations—taking into account geographic presence, operational consolidation and diversification.

In my next post, I will take a closer look at the challenges related to digitization.

In the meantime, I invite you to access the Top 10 Challenges for Investment Banks Introduction and Infographic.