By V. Ramkumar, Senior Partner, Cedar Management Consulting International
editor's pickMonday 19, November 2018
The challenges and nuances of integrating banks extends far beyond the more obvious branding and simplistic definition of people, processes and technologies integration. Having assisted more than five integrations involving 10 banks that include regional, international, conventional, Islamic banks across both large and midsize books, the resultant learnings have not only been strong, but consistently validated as the quintessential best practices for any successful integration.
The Balanced Scorecard framework, extensively used in several leading global integrations including that of Chase and Chemical bank provides a holistic approach to determining the synergies of integration, and in addressing key questions that define the value proposition in a structured manner:
Even while these questions are being addressed as part of the end-state design, the typical pre-acquisition due diligence would need to validate the strategic fitment of integrated customer and product portfolio, quality of the book and overall synergies driven through the integration. However, once the initial intent to integrate is approved, and the target ‘Legal day 1’(LD1) of the new integrated entity is declared, the series of initiatives that need to run have a set of critical factors that need to be imbibed. Here we look at the five most critical success factors:
Success factor one: Strong governance with measurable and rapid execution
Fast-track execution is key to any successful integration. Extended timelines not only frustrate the stakeholders but also tend to dilute the confidence of the customer, and that is risky. Typically, the integration work streams run in parallel, in an agile approach, with defined milestones. A strong governance structure with at least two levels—a steering committee for strategic oversight that meets on a monthly basis and working committee that meets on a weekly basis for operational governance is fundamental. Both the forums need to include key stakeholders from all entities, and across respective work-streams would be critical. An important part of this approach is to identify key merger areas, interdependencies, define timeline targets, and monitor the execution.
Success factor two: Customer engagement, driving pro-active communication
Inevitably, any integration would result in a strong overlap of a section of the customer base and therefore defining the end-state customer segments and a consolidated perspective of exposure would be important. Active communication on all frequently asked questions, at each stage of the integration—both with the active customer base and also the overall community at large, are extremely important to minimise attrition and enhance loyalty. Seeking of explicit or implicit approvals, aligned with relevant regulatory framework, for consent of customers to be on-boarded is important. Pro-active engagement and positive communication on what are the benefits for the customer, what is the experience expected to be delivered during and post integration and more importantly, ensuring of consistency in the messaging across all touchpoints— branches, contact centre, website and all other channels including physical mailers, statement inserts, emails and social media are hallmarks of a good integration exercise.
Success factor three: Driving product synergies, key to cross-sell
Considering that the banks that merge typically operate in the same market addressing a similar segment of customers, it is but natural that there is a strong 30-40 per cent overlap of their respective product offering, both in terms of their features and positioning. A critical factor in driving product synergies would be to determine the end-to-end product bouquet with a well-defined approach to addressing adjacencies and complimentary value proposition. The quality in envisioning of end-state product adjacencies defines the effectiveness of cross-sell capabilities, an immediate 40-50 per cent revenue impact that is available to be tapped as a synergistic benefit of any integration. This also allows for a strong competitive positioning in the market place, a critical value proposition that is fundamental to any integration.
Success factor four: Managing people integration, cultural alignment and change management
A primary factor to executing organisational integration lies in the efficacy of the merged entity structure, defined across three levels—strategic, operational and tactical, with the alignment of respective grading and titling. While there would always be a 40-50 per cent straight fit, there would invariably be an overlap of roles and functions that need to be redefined or realigned. Any integration brings at least 30-40 per cent synergies through consolidation of back-end operations and support functions, that can only be achieved through a focused and concerted exercise. Engaging with other stakeholders, including shared services units and thirdparty vendors are also important. Active employee engagement, both by way of written communication and FAQs, and an interactive mode of engagement through town-halls and training efforts helps in effective change management. The quality of consistent customer experience, post any integration, is directly proportional to the effectiveness of training and the investment in institutional change management.
Success factor five: Integrating technology platforms, with minimal disruption
Arguably, the most effort and time consuming aspect of any integration, is the effective consolidation of technology platform across the merged entities. Any banking merger typically involves a two-stage process—pre and post LD1, where the interim and end state of the integrated entities operate in. It is but obvious that not all the legacy platforms of the merging banks will show-up in the end-state, and therefore the process framework that existed around these systems will also need to undergo a change. The end-state IT architecture, typically defined across eight layers of a bank’s IT enterprise, gets defined based on the basis of which systems lend themselves to be a better fit for the new integrated entity.
A careful calibration of retaining or replacing the platform is a strong pre-requisite for giving shape to the end state application architecture and the supplier eco-system that the integrated bank would be dealing with, for the medium to long-term. Alternative approaches of big-bang and phased migration of systems would need to be decided upon, not only on the basis of the complexities of system integration, but also driven by the timeline commitments that govern the framework of the overall integration. The benefits of synergies and the value proposition that any successful integration brings, ultimately lies both in the strength and agility of the new entity. Unless the efforts in driving such integrations are focused around the key factors that matter, the true value to be driven from the merger could easily be diluted. The focus and impetus, therefore, need to be holistic. The strength of the chain, eventually, is only as good as its weakest link!