Banking and Capital Markets. The Journal. Looking after number one: Delivering the shareholder value from One programmes

Transcription

1 Banking and Capital Markets The Journal Looking after number one: Delivering the shareholder value from One programmes August 2010

2 2 PricewaterhouseCoopers The Journal Many banks are looking to One company initiatives to enhance customer service, cut costs and ultimately boost share values. However, the anticipated benefits have often failed to materialise as One programmes come up against a lack of organisational buy-in and sceptical indifference from analysts. How can banks deliver the full value from their One programmes? David Jessup PricewaterhouseCoopers (UK) +44 (0) david.jessup@uk.pwc.com Antony Ruddenklau PricewaterhouseCoopers (UK) +44 (0) anton.ruddenklau@uk.pwc.com Andrew Gray PricewaterhouseCoopers (UK) +44 (0) agray@uk.pwc.com How do we sustain profitability and growth in today s tough competitive environment? How can we enhance customer satisfaction and loyalty, while keeping a tight curb on costs? Many banks are looking to One company programmes to create the tighter strategic cohesion, sharper client focus and enhanced operational efficiency needed to address these questions and deliver transformational change (Figure 1 outlines some of the potential benefits). By promoting a single unifying vision, One initiatives can be especially useful in overcoming the legacy issues that affect so many banks. Many of today s banking groups have been formed through a series of mergers, creating overly convoluted operational structures and an accumulation of often incompatible systems and processes. This in turn creates costly inefficiencies and hampers customer service. Indeed, management and staff can often find themselves spending so much time grappling with the deepening complexities within their businesses that they have too little time to focus on their clients. Successive takeovers have also created a profusion of diffuse local brands and operations, each with their own distinct cultures, attitudes and ways of working, which can make it difficult to realise the benefits of scale and create a consistent group-wide customer experience. Harnessing the potential One financial services group is addressing these issues through the creation of a harmonised experience for customers wherever they are in the world, which is closely aligned to the development of a common global IT network. The technological developments are freeing up staff time, improving customer tracking and enabling the group to introduce new products in multiple markets without the difficulty and delay of having to adapt them to different systems. In addition to improving efficiency, moving to a single platform is also enabling the bank to concentrate its resources on maximising systems functionality, which can then be rolled out across the group. In the past, new and upgraded software would have had to be designed for each of the many separate networks, which either increased the costs or meant that investment was spread too thinly to be of real value. By cutting through some of the complexities facing larger banks, One programmes can help to simplify oversight, speed up reporting and strengthen control. They can also be used to standardise operational areas such as human resources. For example, a financial services group used its One programme as an opportunity to harmonise employment terms and performance management across its global operations, which has

3 PricewaterhouseCoopers The Journal 3 made it much easier to move staff around the organisation. Figure 1: Potential benefits of One initiatives However, other One programmes have been less successful. A case in point was a group that tried to create a common operating platform for its retail and investment business. While some aspects of the marriage worked, the initiative ultimately fell apart because of the inherent differences in the complexity and customer needs of the two divisions. Even where the overall objectives are sound, many groups have failed to realise their goals because of a lack of clarity about the scope of the One programme and difficulties in translating high-level aims into tangible actions on the ground. In this respect, it is important to ensure that the initiative is not just seen as an IT project, but will also have an impact on how the business is organised and how it serves its customers, which will in turn demand active engagement from HR and line management. However, while some breadth and flexibility is valuable, it is important to avoid needless proliferation caused by allowing pet projects to be tacked on to the initiative. Some groups have also found it hard to identify and quantify the specific benefits from the One programme, which can make it difficult to sustain momentum. A particular problem is how to distinguish gains such as cost savings or improved customer satisfaction that can be directly attributable to the One initiative and those that would have been achieved anyway. This underlines the importance of being clear about the scope of the programme, being able to measure costs and benefits at the outset and then tracking them over the course of the initiative. Revenue growth Cost control Organisational responsiveness and flexibility Talent management Capital management Risk management Branding and cultural factors Gaining access to new markets and customers Increasing client referrals between business units Improving product bundling and transferring product between business units Accelerating product development and roll-out Strengthening pricing discipline across the organisation Enhancing customer service and relationship management De-duplicating administrative tasks Achieving economies of scale Standardising products and processes Simplifying legal and corporate structures Setting up regional or global IT and infrastructure platforms Developing shared service centres Strengthening central management and monitoring of all activities Enhancing decision making by improving management information Speeding up the transfer of best practices Improving the ability to respond to unexpected crises Making the integration of acquired businesses more straightforward Improving the impact of talent allocation Harnessing ideas, innovation and expertise more effectively Reinforcing best practices through co-ordinated training Standardising review and reward systems across the company Aligning staff objectives with group-level targets Improving the efficiency of capital raising and return Achieving more effective capital allocation and management Strengthening working capital and liquidity management Enhancing external perceptions of transparency and creditworthiness Strengthening central control, oversight and accountability Improving resilience in time of crisis, through greater simplicity and transparency Allocating risk management responsibilities more clearly Developing an enterprise-wide view of credit, market, country and other risks Reducing operational risk by simplifying infrastructure Developing stronger, more unified branding Aiding the recruitment and retention of customers and staff Fostering a group-wide culture Gaining the maximum leverage from marketing initiatives Improving external perceptions of size, stability and permanence Source: PricewaterhouseCoopers

4 4 PricewaterhouseCoopers The Journal Ultimately, One initiatives require organisational support, co-operation and co-ordination to work, which may run up against the conflicting cultures and entrenched operational divisions within many banks. For example, the manager of a derivative operation in one particular market may be happy to apply the programme in his or her territory, but may be more reluctant to work with peers from other countries or product types. Delivering lasting change PricewaterhouseCoopers 1 has analysed a range of different One programmes from across the financial services industry to find out why some initiatives work and others fail. The resulting report identifies a number of common attributes that mark out the most successful initiatives. 2 Taken together, these themes can provide a firm foundation for lasting change (see Figure 2): Scope and drivers: What are we doing and why? Set clear priorities based on a rigorous assessment of the benefits, whether they are achievable and whether the contribution to business objectives justifies the necessary investment. Don t let the initiative be compromised by a whole series of extraneous projects. Figure 2: The foundation of successful change Scope and drivers What are we doing and why? Leadership Bringing the vision to life Communication Promise the right things and deliver 1 PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity 2 The meaning of One : The value of a unified vision, PricewaterhouseCoopers Supporting change Execution is critical Driving it through the business Dealing with IT Source: PricewaterhouseCoopers

5 PricewaterhouseCoopers The Journal 5 Leadership: Bringing the vision to life Good leaders are able to create and convey a bold and coherent vision capable of engaging the organisation. They also lead by example, embodying change rather than just demanding it. Communication: Promise the right things and deliver Win hearts and minds and allay any unfounded concerns. Explain to customers how the initiative should result in better service. Explain to staff how the initiative will affect their roles and responsibilities. Market communications are especially critical in translating progress into shareholder value. Supporting change: Execution is critical Develop a clear and realistic action plan. Take the time to identify the most useful set of metrics for gauging progress. Back this up with staff incentives where appropriate. Dealing with IT: Don t put the cart before the horse While upgrading and integrating systems may be a key element of the One programme, strategic transformation goes beyond technology. Assess what the business needs and gear systems developments to achieving this rather than allowing IT to drive the agenda. Driving it through the business: Getting processes right Quick wins can be achieved by harmonising processes within particular operations, before moving on to more demanding group-wide initiatives such as the possible development of shared services. Realising the rewards Even where progress has been achieved within the business itself, it has often proved difficult to convince analysts of the merits of the One programme. Clearly, analyst reaction will largely determine the impact on share prices. As equity values are in turn a key determinant of executive bonuses, a lift can help to secure their support and sustain the momentum of the initiative in other parts of the organisation. Drawing on a range of analyst reports and subsequent share price movements, our study has identified the key factors that influence market reaction and how firms can gear their One initiatives and associated market communications to achieving the best possible boost for shareholder value. Our study underlines the importance of clear presentation, which emphasises quantifiable operational benefits such as synergy savings. Commenting on a particular bank s One programme, an analyst said: Should the [One] strategy be successful there could be a substantial re-rating of the share price. Where clarity and detail are absent, the result could be in line with this comment from an analyst: It is not clear whether there is sufficient detail behind these numbers to give enough confidence to drive estimate upgrades. 2 Cost reductions can be achieved relatively quickly, are easy to demonstrate and can provide an immediate share value boost. Commenting on an investment bank, an analyst said: [The CFO] proposed that the [One] cost saving initiative was one year ahead of schedule We believe these early gains are some of the more positive announcements at the event. 2

6 6 PricewaterhouseCoopers The Journal In contrast, revenue forecasts are often treated with scepticism, especially as it can be difficult to determine subsequently whether they are the result of the One initiative or some other factor. Similarly, qualitative benefits are often too intangible to win over the investment community. An analyst comment on an insurance company is telling: The presentation was entirely qualitative and there wasn t too much for analysts and investors to get their teeth into, in our view. 3 To help sustain momentum and analyst interest it is important to set out a clear timeline of milestones and follow up with fresh announcements as targets are met. Trying to achieve a quick win for presentational purposes can be risky and could lead to a downward rating if the firm fails to deliver. It is better to be realistic than over-ambitious. Ultimately, the presentation of One programmes works best when it forms part of an ongoing story. Otherwise, companies risk a subsequent fall back in market sentiment and share values. This analyst comment highlights the challenge: We think that over the past three years management has delivered an exceptional turnaround It leaves them the difficult task of presenting another new trick to the market for upgrades to be forthcoming. 3 Unlocking value One initiatives can deliver a wide range of strategic and operational benefits and have the potential to unlock considerable value for shareholders. This includes sharpening efficiency, strengthening customer satisfaction and improving the agility and cohesion of the organisation. However, they are no panacea. Banks that have gained most from such exercises have set out a clear vision of what they want to achieve, the tangible benefits stakeholders should expect and the benchmarks against which progress can be measured. They have also looked at how to overcome potential cultural barriers by communicating the rationale and benefits of the programme, explaining how roles and expectations will change and seeking to foster greater organisational collaboration. If you would like to discuss any aspect of the issues raised in this article, please speak to your usual contact within PricewaterhouseCoopers or one of the article authors. 3 The meaning of One : The value of a unified vision, published in March

7 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. For information on the PricewaterhouseCoopers Journal marketing programme please contact Susan Carpenito, Senior Marketing Manager, Global Banking and Capital Markets, PricewaterhouseCoopers LLP (US) on +1 (646) or at For hard copies please contact Russell Bishop at PricewaterhouseCoopers LLP (UK) at

8 pwc.com 2010 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate legal entity.