Exploring the Overlap: Cost Optimization and Digital Transformation

EPAM Proprietary & Confidential. 1
EXPLORING THE OVERLAP: COST OPTIMIZATION
AND DIGITAL TRANSFORMATION
April 19, 2023
9:30am PDT
12:30pm EDT
5:30pm GMT
Alex Jiménez
Managing Principal,
Financial Service Consulting for EPAM
featuring
Tara Dwyer
Webinar Coordinator,
Community Banking Brief
moderated by

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March 22, 2023
9:30am PDT
12:30pm EDT
5:30pm GMT
Alex Jiménez
Managing Principal,
featuring
Tara Dwyer
moderated by

Alex Jiménez
Managing Principal,

Cost Optimization and
Digital Transformation

01
02
03
04
05
Economic Forces
Bank Responses
Incremental Change and Digital Transformation
What’s The Best Road To Take
Q&A

Let’s talk about the
E C O N O M I C F O R C E S

US Inflation Rate
Hit a 40 Year High
(August 1982 the last time over 7)
0
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1/1/22
7/1/22
1/1/23
US Inflation Rate (CPI for all Urban Consumers)
Recession
Current Environment
Source: US Bureau of Labor Statistics

The Real GDP Growth
Has Come Back Up
In Late 2022
Recession
Current Environment

Unemployment Rate
Has Remained Low
(Recessions usually have had
high increases in unemployment)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2000-01-01
2000-07-01
2001-01-01
2001-07-01
2002-01-01
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2003-07-01
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2020-01-01
2020-07-01
2021-01-01
2021-07-01
2022-01-01
2022-07-01
2023-01-01
US Unemployment Rate
Recession
Current Environment

What is the economy doing?
The Conference Board forecasts that economic weakness will intensify and spread more widely
throughout the US economy over the coming months, leading to a recession starting in mid-2023.
This outlook is associated with persistent inflation and Federal Reserve hawkishness. We forecast
that real GDP growth will slow to 0.7 percent in 2023, and then rise to 0.9 percent in 2024…
The recent collapse of Silicon Valley Bank and several other smaller banks has triggered alarm about
financial stability in the United States. While we do not think this risk is immaterial, we do not
expect the contagion to spread more broadly throughout the banking system…
Looking to 2024, we expect the volatility that has dominated the US economy over the pandemic
period to diminish. We forecast that overall growth will return to more stable pre-pandemic
rates, inflation will drift closer to 2 percent, and the Fed will bring rates back below 4 percent.
However, due to demographic challenges we expect tightness in the labor market to remain an
ongoing challenge for the foreseeable future.

How are
B A N K R E S P O N S E S

Bank responses we are seeing.
• Bracing for increased defaults and lower demand for mortgages and other loans as
interest rates have increased
• Increased loan-loss reserves to protect against deteriorating economic conditions
• Digital transformation is still a priority, but many projects are paused or delayed
• Cybersecurity and Personalization (including AI) projects are more likely to see
increased funding
• Infrastructure modernization, APIs, and regulatory-related technology projects are
being de-prioritized
• The goal of technology spend has changed from customer experience and new
business models to cost cutting

Traditional Methods
Traditionally, when looking for cost reduction companies rely
on the most obvious levers, such as layoffs, which often create
more problems than it solves. These methods amount to 2
percent of total costs and unintended consequences.
Digital Transformation
Proper management of digital tools can increase productivity
and be a profitable alternative to conventional cost cuts.
Research also show that applying digital technology and
analytic tools can reduce costs by 5 percent.
If organizations focus on cost cutting,
they can either go the traditional way or
reprioritize their digital transformation

Survey Question
How is the economic situation affecting your technology investments?
We are investing
more in technology
this year
We are investing
at similar levels as
last year
We are investing
less in technology
this year
I don’t know

Incremental change or
I N C R E M E N T A L C H A N G E O R T R A N S F O R M A T I O N

The difference between continuous improvement and
transformation lies in the different concepts of change at
play. Continuous improvement seeks to make changes to a
base state, changes that improve performance over time.
Transformation seeks to change the base state itself.”
Director, LeanIX
“

According to the theory of disruptive
innovation, the incumbents that fail to act
when faced with emerging and disruptive
business models are left behind floundering.
Transforming, even while growing, will allow
an organization to keep ahead of the
competition.
Transforming a
Business Model
I N C R E M E N T A L C H A N G E
O R T R A N S F O R M A T I O N
Time
Profit
Traditional Business Model
Transformed Business Model

The combination of incremental change and
transformation delivers a performance
advantage for incumbent organizations.
Time
Performance
Unchanged Business Model
Performance Advantage
Combining Incremental
Change and Transformation
I N C R E M E N T A L C H A N G E
O R T R A N S F O R M A T I O N

z
Automating an existing process, replacing existing
technology with a new one, rationalization of platforms, are
all components of digital transformation but not the Digital
Transformation as they only lead to incremental changes.
Digital Transformation is about Step Change, enabling new
business models, new revenue streams, enabling new
customers, and digitization of objects (e.g., airline boarding
passes, self-check-in kiosks, e-invoice).”
General Manager, Honeywell Building Technologies
“

Survey Question
What level of change is your bank pursuing?
Implementing
discreet projects
that digitize
processes
(incremental
change)
Developing new
business models
enabled by digital
technologies
(transformation)
We are somewhere
between 1 and 2
I don’t know

What’s the
W H E R E T O G O

Results of a Harvard Business study looking at winning strategies to survive a recession
W H E R E T O G O
Probability of pulling
ahead of competitors
Strategy deployed
Making fast and deep cuts only
Boldly invested more
Equally combined short-term and investments
Deploy optimal combination
21%
26%
29%
37%

Results of a Harvard Business study looking at winning strategies to survive a recession
W H E R E T O G O
Probability of pulling
ahead of competitors
Strategy deployed
Deploy optimal combination 37%
One combination has the greatest likelihood of producing postrecession winners: the one
pursued by progressive enterprises. These companies’ defensive moves are selective. They cut
costs mainly by improving operational efficiency rather than by slashing the number of
employees relative to peers. However, their offensive moves are comprehensive. They develop
new business opportunities by making significantly greater investments than their rivals do
in R&D and marketing, and they invest in assets such as plants and machinery.”
General Manager, Honeywell Building Technologies
“

How do we improve operational efficiency and invest optimally while continuing
(or starting) a transformation?
Assess your processes,
people, technology and
information
Find opportunities to
optimize costs while also
improving customer
experiences
Answer questions like . . .
W H E R E T O G O

Cloud Optimization
How are you managing your
overall cloud resources?
Do you have unnecessary
duplication?
Is your pricing optimized?
W H E R E T O G O

Automation Opportunities
Do you have processes
that can be digitized?
Can you apply technologies,
such as RPA, to reduce or
eliminate data entry?
Can you apply AI or
machine learning to
automate decisions?
W H E R E T O G O

Managed Services
Do you have the right resources to
manage cloud infrastructure, security
operations, network operations,
applications support, or service desk?
Should you consider a managed
services partner?
W H E R E T O G O

Operating and Delivery Model
W H E R E T O G O
Do we understand
how we are
creating value?
Do we have the
right measures of
success?
Do we have a clear
view of key data
flows?
Do we have
delivery models
that are well
understood with
clear owners?

Key Partner Spend
Do we have duplicative capabilities
throughout the organization?
Can we consolidate processes/
technologies to realize improvements
and cost advantages?
W H E R E T O G O

Data Management Optimization
Do we have a well thought
out data strategy including
goals and KPIs?
How well are we managing
data at rest and data in
transit?
Do we have appropriate
infrastructure and tools,
including data warehouse,
data lakes, tools, etc.?
W H E R E T O G O

D.O.W.N.T.I.M.E.
(Defect, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, and Extra Processing)
Waste Elimination
W H E R E T O G O
What percentage of our time is spent
in QA and correcting errors?
How are we managing and tracking
processes and people?

Tara Dwyer
/in/dwyertara
communitybankingbrief.com
Q&A
Alex Jiménez
Managing Principal, Financial Service
Consulting for EPAM
/in/ralexjimenez/
alexrjimenez.com
epam.com

Exploring the Overlap: Cost Optimization and Digital Transformation

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