Sep 26, 2023

Prioritising Strategic Scale Over Cost Reduction

Luke Tones
Prioritising Strategic Scale Over Cost Reduction

Asset managers (AMs) are seeing their revenues tighten due to competition, market volatility, regulation and client demands — all of which erode margins.

To grow and achieve scale, many now focus on maximising their unique selling point and leveraging the value it brings to clients. Cost is often a secondary consideration outside of finance departments, although this is likely to change as the market is currently in flux.

Firms that are successful in managing costs focus less on immediate ‘cost out’ and more on reducing the marginal cost of growth. With this as a priority, these firms can grasp their current cost hotspots: what drives cost, what is scalable and what is not. They link this to their forecasts and growth strategy to understand where they need to invest, ensuring their transformation departments deliver the underlying platform that scales with the business strategy.

Factors affecting enterprise cost maturity

The relative maturity of cost management differs across firms. Whilst there is an appetite to control costs, businesses often focus too centrally on managing current costs tightly rather than transforming to manage cost increases. Firms are less able to gain a broader perspective if they do not know what drives cost growth or do not understand where cost is within their business.

The cause of these mistakes often comes down to businesses not fully understanding or articulating their strategy and vision across the company. Or perhaps it is caused by a lack of discipline on delivering to tight business priorities or due to years of under-investment.

As such, AMs should critically assess their business against eight key vectors, as illustrated below.

These decisions permeate across the organisation, and adjustments are made based on them, e.g. redirection of change spend.

Start small, think big

Understanding where you are today and how you compare to the wider market is often the best way to align your firm around an agreed starting position as a basis for improvement.

Within the industry, businesses typically occupy one of three positions.

  1. Market-leading

These firms have no immediate issues with their current cost base and have confidence they can scale and maintain, ensuring controls and planning cycles keep the operating platform scalable.

  1. In the pack

Businesses in this segment also have no immediate issues with their current cost base but recognise that they cannot scale easily. They need to understand what drives costs to align transformation efforts with their strategy effectively.

  1. Lagging

Any firms in this position have immediate issues with their current cost base and recognise that they are unable to scale. They need to understand their drivers of cost and align their strategy, combined with a realignment of their current cost base.

At AIVIQ, we are specialists in helping clients understand their current position. We provide asset management-specific recommendations that support transformations to save and scale rather than issuing a simplistic cost-cutting list.

If you are an asset manager interested in discussing how Aiviq can help you scale strategically, contact us today.

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