Last week, Owen Jelf introduced the concept of high performance investment banking. This week, I’ll talk about how an investment bank can achieve success in a turbulent market: by choosing a business model that harnesses its inherent strengths.
Business models for high performance
In today’s competitive market, it’s critical for banks to justify the areas in which they operate, to concentrate on the ones where they can feasibly compete and above all, to put their clients’ agenda at the centre of their strategy.
Accenture has identified five business models that can enable high performance in investment banking:
- The Flow Monster depends on highly efficient technology, highly competitive pricing and strong sales relationships. It’s based on processing huge trade volumes at extremely tight spreads, and requires a critical mass. We expect that only three to five players will be able to compete with this business model.
- The Regional Champion is based on cross-selling risk management and financing to existing corporate clients. It’s a relatively simple model, but requires a strong foundation of loyal customers and the ability to apply intelligent segmentation for appropriate customer service.
- The Product Specialist typically corners the market on a particular type of product, or very specific types of trades, in a single jurisdiction. Product specialists must be able to develop differentiated products and bespoke technology—and they must be prepared to innovate, given the increasing pace of commoditisation.
- The Primary Markets Powerhouse is focused around advising on or structuring profitable, but infrequent, deals. It’s an attractive model because it’s non capital-intensive and the target market has low price sensitivity, but it requires long-term investment and depends on developing a strong brand.
- The Risk Master achieves excellence in risk management, and also takes risk intelligently in an increasingly complex market. This is the most complex of the models and takes the longest to develop, but as Accenture research has shown, risk mastery is a key performance differentiator.
In the past, many investment banks were guilty of “strategic tourism,” but in today’s market, focus is paramount. High performance in the new investment banking landscape will require discipline, a keen understanding of the bank’s value proposition to its clients—and a business model that makes use of supporting capabilities to create a competitive edge.
To learn more, download Focus for Success: The High Performing Investment Bank (pdf; opens in a new window).