Financial Services

To Improve a Bank’s Efficiency Ratio, Invest in Digital Technology – and Your Employees | Sponsored

West Monroe Partners' new study reveals only 34% of mid-market banks have an efficiency ratio at or below the optimal 50%

By West Monroe Partners November 12, 2019

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Sponsored by West Monroe Partners

The adoption of fintech solutions and the shift to digitized operating models have upended traditional banks business and operating models, paving the way for more nimble, efficient organizations. But mid-market banks have a long way to go before they capture the productivity gains those technologies can deliver, according to a new survey of bank executives.

In 2019, West Monroe Partners and American Banker surveyed more than 150 director-level executives across U.S.-based mid-market banksentities with $1 billion to $250 billion in managed assetsto gauge the priority they place on boosting productivity. While respondents agree that improving productivity is a top priority, the survey revealed surprising insights about how banks perceive their efforts to increase productivitywhats working, where they are falling short, and how effectively implemented technologies can accelerate productivity and change the way banks think about an optimal efficiency ratio.

Consensus Around Efficiency Ratios, TechnologyBut Gains Are Lagging

The efficiency ratio is arguably the single most important indicator of how well an institution is being run. It sends a clear signal of the banks ability to achieve profitable growth and attractive shareholder returns.

The new survey data reveals that the efficiency ratio was among the most important performance indicators for mid-market bank executives; 98% of respondents say that improving efficiency is their number one strategic priority.

Until recently, the unwritten rule in the industry held that the optimal standard for an efficiency ratio was 50%. But the reality today is that successful implementation of new technologies is poised to deliver efficiency ratios much lower than that.

The survey also revealed widespread consensus on investing in technology; 61% of the executives say they are making investments in digital technology specifically to boost productivity.

And yet, the gains have not happened as quickly as they should. Nearly 80% of our survey respondents perceive that they have been extremely or very successful in improving efficiency/productivity at their banks in the past year, but only 34% have an efficiency ratio at or below 50%.

The lackluster gains in productivity are matched in the perceived effectiveness of new technologies; 43% say they dont believe they are getting the full value from their investments.

The good news is that this landscape provides fertile ground for mid-market institutions to make substantial productivity gains heading into 2020. The sector is aligned around the strategic need to boost productivity and its leaders understand that new technologies are the path to get there.

Implementing New Technology: People + Process

Technology by itself is not a silver bullet. In our experience, when new technology is not fully aligned with an organizations goals, strategy, people and even available skillsets, results will always lag.

Coupled with the focus on digitizing operations, banks must adopt a considered, strategic approach to how technology will be implemented and utilized by the people working with and alongside it.

Currently, though, just 34% of surveyed executives say that when they implement a new technology to improve a business process, they always redesign the process first. While the vast majority of respondents acknowledge they only sometimes or never take this step, our experience increasingly demonstrates the need to wed process improvement and tech implementation. When investing in new technology, the implementation and process improvement should go hand-in-hand.

Once a bank has a strategic plan to implement new automated processes, the focus should turn to the people in the organization. By its nature, automation takes jobs normally performed by humans and turns them over to a machine. This leaves a pool of workers who can be redirected to higher value tasks. A banks employees, its human capital, remain a vitally important part of the equation the formation of teams, roles, diverse talent, and training need to be considered. Its when people and technology can operate seamlessly together that banks will find the largest efficiency gains.


We agree that prioritizing productivity via technology is the right investment for the mid-market, but caution that technology alone is not a silver bullet. Optimizing technology investments can unlock hampered efforts to lower efficiency ratios and boost productivity. In fact, our results revealed an alignment of the mid-market around digital-enabled productivity so strong, we posit that an industry where digital technologies enable more end-to-end online transactions and fewer branch locations, and where automated processes speed up and streamline operationsthe mid-market could rewrite the formula around the optimal, achievable efficiency ratio.

About West Monroe Partners
West Monroe is a national business and technology consulting firm that partners with dynamic organizations to reimagine, build, and operate their businesses at peak performance. Our team of more than 1,400 professionals across nine offices is comprised of an uncommon blend of business consultants and deep technologists. This unique combination of expertise enables us to design, develop, implement, and run strategic business and technology solutions that yield a dramatic commercial impact on our clients profitability and performance. For more information, visit

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