A decade of volatility in the financial services industry and the global economy at large have brought to the forefront the need for clear and explicit strategies. Higher capital requirements for financial institutions make investors more selective; investors will readily discount financial institutions with unclear strategies, questionable portfolios, or perceived institutional risk. Portfolio quality and reliable access to deposits and other forms of funding are now valued more highly. As companies, households, and governments focus on reducing debt and face new austerity programs, consumer spending and economic activity also remain sluggish.

Kearney helps financial institutions in both mature and developing markets adapt to this new increasingly uncertain environment by both improving existing strategies and helping communicate new ones more effectively to investors. Research suggests that clearly communicating strategic performance increases valuations and access to capital.

For established institutions, the strategies may include rethinking business portfolios. For newer institutions, such as sovereign investment funds, hedge funds, or successful new institutions unaffected by the financial crises, the restructuring of established institutions may represent opportunities for asset purchase, business expansion, and growth. Institutions with more intractable problems will likely seek to divest businesses or go up for sale.

In working with clients, some of our areas of focus include:

• Corporate strategy. In the current environment, almost every financial institution needs to review and reconsider business models and change its strategy. Many institutions in the past 20 years have consistently added to the complexity of their business without aggressively seeking synergies, reviewing patterns of profitability, or improving information for managing both the business and customer relationships. The geographic scope of the business is often a critical strategic choice for transforming institutions, in some cases requiring expansion, and in others market exits.
• Business unit strategy. The leaders of individual business units typically—and reasonably—focus on their own areas. However, third-party evaluation can offer two important benefits: first, a neutral assessment of the business unit's capabilities, staffing, and opportunities; and second, the identification of potential synergies across the firm's operations.
• Value-based management. At its simplest, creating value in a financial institution centers on obtaining inexpensive and reliable funding, lending and investing in profitable assets, and managing risk successfully. These processes must be supported by a capital structure, culture, incentive systems, information technology, and decision-making processes that are transparent to management and capital suppliers. Sustainable growth requires identifying measures that create value both in the short and long term and ensuring that performance indicators are comprehensive and understood and followed by all employees.
• Merger and acquisition (M&A) strategy. Selecting and acquiring companies in uncertain times poses new challenges. Asset values and potential writeoffs are more difficult to measure in times of economic volatility. Due diligence requirements are greater (and may need to be done more quickly) where there is government pressure to save a troubled institutions. There are, however, strategies that often go unconsidered. One such approach is the "acquisition factory" in which companies pursue multiple smaller acquisitions, and standardize the assessment, due diligence, and integration processes. Kearney's Merger Endgame Database, which assesses 13,000 acquisitions, suggests that this approach can often lower risk.
• Strategic and operational due diligence. Traditionally, acquisitions are evaluated on external strategic analysis rather than internal operational due diligence. The higher the valuation and the faster cost savings and growth are required, the more likely it is that pre-purchase operational due diligence is important. Such reviews are best done by third parties to avoid disruption among employees in the event that the transaction does not occur. A pre-deal operational due diligence process reduces risk and increases the speed with which synergies, short-term organic growth, and pricing opportunities can be implemented.
• Acquisition integration. Successfully integrating a new acquisition often requires rapid decisions and extra staff to assess portfolios quickly and develop project plans to integrate business processes, measurement processes, and staff and systems. Identifying opportunities for business model innovation, geographic synergies, customer relationship management, and IT portfolios can stretch the internal capabilities of an organization and require additional but temporary staffing and expertise.
• Divestiture packaging. Divesting a business unit or transferring assets, particularly problem assets, can be accelerated though careful planning. A faster divestiture will minimize distractions for management, speed the deal closing, and help ensure that key internal staff stay on board.

Combined, these services can mitigate the broader macroeconomic volatility buffeting financial institutions, creating a smoother path for long-term success.