Case Study
Managing a Merger for a Regional Bank
Background
ABC Group is the fifth largest financial services provider in Southeast Asia by total assets, with a vision to be "Southeast Asia's most valued universal bank". It offers consumer banking, investment banking, Islamic banking, asset management and insurance products and services. Its key regional offices are located in Malaysia, Singapore, Indonesia and Thailand.
ABC Group acquired two banks in Indonesia: Bank X and Bank Y. In term of assets, Bank X was the sixth largest bank in Indonesia whereas Bank Y was the tenth. To comply with the Indonesia Central Bank's "single presence policy", ABC embarked on a plan to merge these two banks. The merger would create the fifth largest bank (ABC XY Bank) by total assets of more than USD 10 billion and also among the top five in terms of distribution network in Indonesia.
ABC Group acquired two banks in Indonesia: Bank X and Bank Y. In term of assets, Bank X was the sixth largest bank in Indonesia whereas Bank Y was the tenth. To comply with the Indonesia Central Bank's "single presence policy", ABC embarked on a plan to merge these two banks. The merger would create the fifth largest bank (ABC XY Bank) by total assets of more than USD 10 billion and also among the top five in terms of distribution network in Indonesia.
Challenges
Due to the nature of the banking business, two of the most important aspects of a bank merger is managing its people and the IT and operations merger integration.
The speed of completing the merger depends on the speed of the IT & Operations integration, whereas true "one-bank" service happens only upon completion of the IT & operations integration. The IT & Operations integration timeline will also drive the timeline for most other activities.
The two legacy banks posed several unique challenges that had to be addressed:
The speed of completing the merger depends on the speed of the IT & Operations integration, whereas true "one-bank" service happens only upon completion of the IT & operations integration. The IT & Operations integration timeline will also drive the timeline for most other activities.
The two legacy banks posed several unique challenges that had to be addressed:
- The two legacy banks have similar size customers and transactions that would make the combined banks operate with double the volume.
- Bank X and Y are strong players in their respective market segments. Bank X is a strong corporate market player whereas Bank Y tends to focus more on the consumer and commercial markets.
- The two banks have huge customers base, 3.3 Million customers in total.
- Geographic spread (more than 650 branches, 1267 Automated Teller Machines (ATM), 237 Self Service Terminals (SST) located in across country)
- Distributed and decentralized systems in the two banks (more than 100 applications need to be aligned and integrated or rationalized)
- Need to retain and integrate two different legacy systems for credit card business alignment - Bank Y's merchant acquiring system and Bank X's card issuing system
- Different network architectures (hub & spoke vs. star topology)
- Selection of talented employees to continue the management and operations and how employees would work in a new environment
ABC needed to quickly integrate its new acquisition to realize merger synergies (both cost and revenue) and carry out the merger integration exercise without destroying any value or losing key customers. This process involved the integration of business units, operations and IT of both banks.
Questions
Question 1
You are leading the Accenture team to develop the IT Strategy for the integration services for the merger of the two banks. Using Accenture's proven "Merger Integration Framework and Methodology" what steps and what areas will you prioritize to ensure that the strategy fits with the overall goals?
To help you in making a decision, here is Accenture's Merger Integration Framework and Methodology
Please visit accenture.com for further references.
Please visit accenture.com for further references.
Solution
Case Study
Managing a Merger for a Regional Bank
A. AREAS PRIORITIZATION
1. Development of IT infrastructure whose capacity is able to serve customer with double amount
2. IT infrastructure should be focused on customers and key customer retention
3. Network Architecture for Bank XY (Star Topology is chosen)
4. Legacy System for Bank XY (Merchant Acquiring System is chosen)
5. IT System Integration (integration of infrastructure which is in geographical spread, integration of network architecture, integration of legacy system, integration of system applications)
6. IT System Synergizing (to maximize potential benefits from the merger)
7. Training Program about New IT System for Customers and Employees
B. STEPS PRIORITIZATION
1. ESTABLISH MERGER FRAMEWORK
1.1 Detailed Due Diligence in Progress
Due diligence is the examination of a potential target for merger, acquisition, privatisation or similar corporate finance transaction normally by a buyer (definition from Wikipedia).
I will ask Accenture due diligence practicioners to find a detailed IT due diligence for the merger between Bank X and Bank Y. The detailed IT due diligence that is asked will be:
ü Identification and estimation about impact of merger between Bank X and Bank Y against its IT
ü Sectors where IT can be applied to create more value for ABC XY Bank (ABC XY Bank value is to be "Southeast Asia's most valued universal bank")
ü IT due diligence
ü Identification about IT dis-synergies and potensial risks that may happen as the impact of the merger
1.2 Overall Financial Targets
I will ask Accenture financial analysis practicioners to find information the overall financial targets of Bank ABC XY. The overall financial targets of Bank ABC XY should be found and informed to me. The overall financial targets must take several aspects into account, those are:
o ABC XY Bank will have total assets of more than USD 10 billion
o ABC XY Bank will be top five in terms of distribution network in Indonesia
o ABC XY Bank will have 3.3 million customers in total
o ABC XY Bank will have 650 branches, 1267 ATM, 237 SST in Indonesia
The overall financial targets are very important because it will be considered in the IT strategy development for the merger.
1.3 Agreement in Principle
After understanding the financial targets, I will conduct a meeting with senior managements of both Bank X, Bank Y, and ABC Group to discuss about the principle that will be used in the IT strategy development. This meeting is required to assure that both bank X, bank Y, and ABC Group agree with the principle that is used.
1.4 Preliminary Recommendations for NewCo Top Level Executives and Board of Directors
Finally, I will ask Accenture Talent and Organization Performance Practicioners to give preliminary recommendations about how Bank ABC XY’s organizational structure will be.
1.5 Identified NewCo Top Level Executives and Board of Directors
The recommendation will be developed until it results in a mature decision of the NewCo Top Level Executives and Board of Directors. It will be the final decision of NewCo Top Level Executives and Board of Directors.
1.6 Established PMO
Project Management Office (PMO) in a business or professional enterprise is the department or group that defines and maintains the standards of process, generally related toproject management, within the organization. The PMO strives to standardize and introduce economies of repetition in the execution of projects. The PMO is the source of documentation, guidance and metrics on the practice of project management and execution. (definition by Wikipedia).
PMO is established to achieve better results in accomplishing the project goals (in this case, the project goals is to succeed the merger integration). PMO will act as facilitator in the project. PMO will provide merger integration project-requirements, such as project timeline, project budgetary, project goal, and so on. PMO will also create Key Performance Indicators (KPI) which is required as the standards to evaluate the project.
1.7 Defined Integration Team Structure
Consider that I am a leader of Accenture IT strategy team, my focus is to deal with IT-related problems. The IT-related problems are:
1.) Combined bank operates with double volume
2.) Bank X is a strong corporate market player and Bank Y focus more on the consumer and commercial markets
3.) Two banks have 3.3 million customers in total
4.) Geographic spread: 650 branches, 1267 ATM, 237 SST in Indonesia
5.) More than 100 systems’ applications need to be integrated
6.) Two different legacy systems for credit card need to be integrated (Bank Y's merchant acquiring system and Bank X's card issuing system)
7.) Different network architecture (hub spoke vs star topology)
8.) Selection of talented employees to continue the management and operations and how employees would work in a new environment
From Accenture available dedicated teams, I will choose teams those are related with IT problems to help me deal with the problems, those are:
ü Application Architecture Team
Application Architecture Team will deal with:
· Problem number 5: it will integrate the 100 systems’ application
· Problem number 8: it will conduct an IT training to prepare the employees to work in the new environment
ü Data Architecture Team
· Problem number 2: it will integrate different markets of Bank X and Bank Y
· Problem number 3: it will handle 3.3 million customers’ data in total
· Problem sumber 6: it will integrate the two different legacy system
ü Technical Architecture Team
· Problem number 1: it will handle double volume capacity
· Problem number 4: it will handle the geographical constraint through technical approach
· Problem number 7: it will integrate and align the different network architecture
Even though each team have their own role, but each team will still help each other to bring the best result for the project. In some cases, these teams will also need helps from other team which are not chosen (such as people team, business process team, organization team, etc), but they are still the main actor in the IT project.
Besides that, I will choose a manager for each team. The manager will be responsible in leading team and providing report to me. To keep the communication efficient, I will communicate to those three teams through its manager.
1.8 Defined Guiding Principles and Integration Approach/Feasibility
After the team is defined, together with the manager and the team, I will define the guiding principles which will be used along working on the project. These principles will help avoiding confusion among team members and stabilize the team works. Besides that, I will also set time-based milestones to keep the project on the track.
1.9 High Level Communications Plan/Approach
To enable a good communication, a high level communication should be planned. The high level communication I planned will be as follow:
1.10 High Level Integration Roadmap
At the final step, before conducting the integration planning, high level integration roadmap will be planned as the main reference for the merger integration process.
2. Conduct Integration Planning
2.1 Target Operating Model
Target Operating Planning is created by combining the current operating model of Bank X (card issuing) and Bank Y (merchant acquiring).
Based on my analysis, hub spoke network is more efficient compared to star topology network, but the best solution is to use star topology system since it is much reliable and expandable. About the legacy system, Bank X’s card issuing IT system only involve few stakeholders while Bank Y’s merchant acquiring IT system involve many stakeholders. Thus, it is much easier and more efficient to change Bank X’s system rather than changing Bank Y’s system. Based on this analysis, I prefer to change Bank X’s system so I will apply Bank Y’s system (merchant acquiring system) in Bank ABC XY.
2.2 Defined Synergies by Team
I will capitalize fully on synergy opportunities owned by Bank ABC XY. I, together with my team, will develop IT strategy to maximize the potential benefits gained from the merger process to help Bank ABC XY achieving high performance. The example of the potential benefits is Bank ABC XY’s huger customer amount and Bank ABC XY’s lower operating cost. These potential benefits, combined with right IT strategy, can be used as the capital to gain more profits and market shares.
2.3 Synergy Tracking Approach
This step is very important. It is about implementing robust approaches to Bank X-Bank Y synergy tracking and reporting. This step is required along the conducting of integration planning to improve the performance of the synergies. The tracking will be useful in evaluating the synergies efficiencies, as well as eliminate the synergies weakness so that the potential benefits resulting from the merger can be maximized. This synergy tracking approach will be useful to identify the IT strategies required to maximize the potential benefits.
2.4 Integration Plans/Key Milestones
Integration Plans time-based milestones should be created to keep the merger integration process on the track, and keep the merger integration delivering best result, as well as maximize the IT teams’ works. The milestones are also required to make IT teams becoming bold to change the IT system in Bank ABC XY.
2.5 Established Customer and Employee Programs
After the new IT system running well, soon I will develop a planning for training about the new IT system to both customers and employees so once the IT system has worked perfectly and been fixed, the training is ready to be done. The training is very important since it will help the customers and employees to adapt with new bank environment.
2.6 Updated Integration Roadmap
When there are some additional important things, about the IT systems, found through the phase of conducting integration planning, the old integration map can be updated with those additional important things.
3. Execute Integration Plans
Phase of executing integration plans is about executing the IT integration plans, refering to the updated integration roadmap. This phase involve 4 aspects, those are:
3.1 Deployed Integration Plans
This aspect is about implementing IT System integration plans in Bank ABC XY, referring to the updated integration roadmap. I will guide the IT team to do the implementation.
3.2 Ongoing KPI Reporting
After the IT integration plans of ABC XY Bank are applied, its performances will be monitored and controlled using KPI (Key Performance Indicators) Reporting, which is created by PMO. Through this KPI reporting, I will monitor and evaluate the integration plan, as well as doing revision if needed.
3.3 Ongoing Synergy Tracking
The synergy tracking of ABC XY Bank which has been done in the phase of conducting integration planning will still be continued until this phase and I will just monitor and control it.
3.4 Integration Results
Finally, the execution of the IT integration plans will provide the results for Bank ABC XY. I will compare the results with the milestones and find out whether the results fit Bank ABC XY’s goals or not. If the results aren’t good, I together with the team will improve it by revising the integration plans/roadmap and repeat the execution.
4. Additional Aspects
According to the client’s (ABC) request, the integration process of the new acquisition should be:
4.1 Quickly
4.2 Synergic (both cost and revenue)
4.3 Without destroying value
4.4 Without losing key customers
4.5 Involving integration of business units, operations, and IT of both banks
Thus, for fulfilling these 5 aspects whom ABC Group requested, there are several additional aspects to be concerned, those are:
4.1 Building a quantified project timeline
Ø so that the integration process can be finished quickly, suitable with ABC Group’s request.
4.2 Optimization of team synergies defining, synergy tracking approach, and ongoing synergy tracking steps.
Ø so that the merger integration will be synergic (both cost and revenue).
4.3 Focus on preserving value of Bank X and Bank Y in establishing merger framework for ABC XY Bank.
Ø so that it will not destroy value of both Bank X and Bank Y.
4.4 Focus on customers and key customer retention
Ø so that in the merger integration process, Bank X and Bank Y will not losing its key customers and market shares.
4.5 Requirement of detailed due diligence process
Ø so that detailed information required for integration of business units, operations, and IT of both banks can be obtained.
REFERENCES:
Accenture. 2006. Pernod Richard IT Merger Integration Propels High Performance. USA: Accenture
Accenture. 2008. A Major US Bank: Banking Merger and Integration. USA: Accenture
Accenture. 2008. Mergers & Acquisitions: Planning and Executing for Success. USA: Accenture
Accenture. 2009. Comcast Integrated HR Platform Helps Enable High Performance. USA: Accenture
Accenture. 2008. BBVA: Banking Acquisition and Integration. USA: Accenture
Accenture. 2010. Accenture Merger, Acquisition, Divestiture and Alliance Services. USA: Accenture
Accenture. 2008. Asian Banking Group: Banking Merger and Integration. USA: Accenture
Tinlin, Andy and Alberto Verga. 2009. Seven Catalysts for Merger Integration Success. USA: Accenture
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