Lloyds Banking Group’s cost reduction journey
The bank’s Sourcing leader explains how Lloyds shifted its focus towards speed and innovation, but why cost will always remain a key factor.
The imperative to deliver significant value to shareholders remains particularly acute in the financial services sector. But the agenda is becoming more holistic and focusing more on ‘value’ than cost.
In 2008, Lloyds Banking Group became synonymous with the banking crisis. Since then, it has been on a long journey to reform, rebuild and refocus its operations. At the heart of the journey has been a fresh emphasis on Procurement and management of the supply chain.
Toby Munyard, Vice President at Efficio, talks to Michael Whitby, Group Sourcing Director at Lloyds Banking Group, about the road the bank has travelled since its transition into state ownership.
Q: How have you demonstrated the value Procurement brings to the wider business?
Michael Whitby: We can’t control our revenue but we can control our costs. Chief Executive António Horta Osório has created a very cost-aware business since his arrival in early 2011.
Our £12 billion budget was cut into 14 Cost Management Units, which Group Sourcing is an integral part of – including IT, Operations, Marketing, Property and People – with each given an accountable executive sponsor. We know what we spend and we use four levers of value – demand, specification, sourcing and supply chain – to support the business’s needs.
We tweaked the model in 2016. Now £10 million+ projects go to cost board instead of £2 million+. Before this we didn’t even have a data cube; now 97% of spend goes through our chosen processes.
Procurement five years ago meant getting a discount or a rebate on a deal already done. Now Procurement means influencing things before the deal is signed.
Q: How has your Procurement function evolved to focus more on customer and business engagement than merely cost reduction?
Procurement five years ago meant getting a discount or a rebate on a deal already done with little true influence. Now Sourcing is sponsored from the CEO and Group ExCo and fully integrated and influencing across the e2e business sourcing process in collaboration with our internal clients and budget holders.
Q: What challenges are presented by the way banks’ services are delivered to customers?
Delivery of financial products is changing – we’re using a lot less cash, for example, and we have to make decisions and provide services faster, but the cost agenda never reduces. Sourcing is changing so fast.
Automation is the future. We’ve got to make it easy for people – for example, so they can access more of our services via their iPhone instead of talking to us, but there’s a lot of building to do first to create the capability that will allow us to offer and facilitate this.
Q: While the race is on to develop the ‘next big thing’, what challenges are your traditional suppliers facing?
In five years’ time, 40-50% of our current major suppliers will perhaps not be with us. The running of the business is changing so the drive to look at costs never finishes.
Consider a print company: we might have spent millions of pounds a year with them a few years ago but, unless they have gone digital, as our needs have changed we won’t need to use them anymore.
Q: How do you leverage the supplier management function to help identify opportunities for the business as a whole?
We started by chasing numbers with our suppliers. But we’re now in forward-looking dialogue with them. You can glean a lot of insight by asking your suppliers what they think about future change – asking them simple questions like “What does the branch of the future look like?” can really help. After all, it’s their specialist knowledge and capability that will help us differentiate, in part, our customer propositions.
Q: How does regulation impact on your ability to innovate?
The current level of regulation is costly, both in monetary terms and in the inertia it creates. It makes the big players much more difficult to deal with. The customer wants innovation, but too much regulation can stifle or suppress it. However, it is part of our market sector and something that we have to work with to find solutions.