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.
You are asked to lead a team that would help ABC XY Bank prepare for changes by managing complex organizational and workforce transitions once the business and IT solution is in place. One of the challenges is to help ABC XY leadership and the integration teams in carrying out an effective transition to a new way of working. How would your team go about doing it?
To help you in making the transition, here is Accenture's Transformational Change Management Framework
Please visit accenture.com for further references.
Please visit accenture.com for further references.
Managing Changes At ABC XY Bank Indonesia
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Case Definition
ABC XY Bank is the result from merger between Bank X and Bank Y by ABC financial group in Indonesia. The business and IT solutions have been in place and now ABC XY Bank has been ready to operate in a new business system with total assets of more than USD 10 billion, very wide distribution network, and very huge number distribution network in Indonesia. ABC XY Bank is the 5th largest bank in Indonesia whose vision is to be Southeast Asia’s most valued universal bank.
Now, after the integration takes place, ABC XY Bank management is facing complex organizational and workforce transition. In fact, during the transition period, companies will face an event called valley of despair. Valley of despair is a phenomenon where a company’s performance is declining as a natural reaction to a major change when a new business model or system is implemented. Since ABC XY Bank is implementing a new business model in its operation, ABC XY Bank will face a transition period and valley of despair event.
The Challenge
The challenge is to help ABC XY Bank creating a strategy to manage those complex organizational and workforce transitions. The strategy will be about helping ABC XY leadership creating an effective management system for its organization and workforce so that it can pass through this transition period effectively and minimize negative impacts from valley of despair event. In the consulting world, this kind of strategy is often called change management strategy.
The Key Areas
In creating change management strategy for ABC XY Bank, there are there are three key areas to be prioritized, those are:
A. Minimizing the duration of the “valley of despair”
B. Minimizing the depth of negative impact on performance
C. Accelerate time to achieve the highest competence/performance
The Main Problems
The combination between Bank X and Bank Y, which are totally different among each other, will result in big changes for Bank X and bank Y itself once they are unified in Bank ABC XY. The problem is that they will not be accustomed to these sudden big changes. As the impact, Bank ABC XY’s performance will be declining and declining until a very worst condition called “valley of despair”. This impact is not good for Bank ABC XY’s performance thus a change management strategy to prevent bank ABC XY from having valley of despair and help Bank ABC XY achieving its highest performance should be carried out. To create the strategy, the main potential problems must be identified. Analyzing from some facts about Bank ABC XY, several main problems to be addressed are identified:
ü ABC XY Bank is using new business system/model (the management should be well-fitted with the business model)
ü ABC XY Bank is having new organization and management structure (the management structure must be able to balance and coordinate Bank ABC XY performance)
ü ABC XY Bank employees is facing new working condition and culture (the working condition and culture must be suitable for the employees and make them comfort)
ü ABC XY Bank leadership is including new CEO, top executives, commissioning, and board of directors (the new management system can be easily controlled by the top executives of Bank ABC XY)
ü ABC XY Bank is having new market products, market branding, market segments, and market share (the new management must be able to handle the keep changing market conditions)
ü ABC XY Bank is having new customers with double amount (the new management must be capable of providing services for all of the customers)
ü ABC XY Bank is having new values and vision (the new values and vision must be sustained in the new management system)
ü ABC XY Bank is having wider distribution network (the new management system must be able to maximize ABC XY Bank’s benefit of having wider distribution network)
The Solution
The solution will be giving an effective change management strategy to Bank ABC XY. Figure 1 illustrate the positive impact of implementing a change management strategy against bank ABC XY performance.
Figure 1: Impact of Implementing Change Management Strategy
From the graph, it can be seen that implementing change management strategy will help Bank ABC XY achieving the best performance for itself.
The Change Management Framework
Figure 2: Accenture Transformational Change Management Methods Framework
The Change Management Strategy (The 4 Main Steps)
(In this case, writer will act as the leader for Accenture Change Management Team)
The change management strategy is created based on Accenture Transformational Change Management Methods Framework. The change management strategy is classified into four main steps, those are:
1. NAVIGATE
The leader will plan and manage the move from the existing operating model to one best operating model enabled by Bank ABC XY. In creating the new operating model, Leader will define and monitor business cases and issues, create a detailed roadmap, define the scope for changing the operating model, identify possible risks and how to handle it, and plan for budgeting and cost management. Finally, Leader will create a detailed planning about the new management model, completed with the vision and execution details. This planning will navigate the change management process.
2. LEAD
Using the planning, Leader, together with the integration team, will ask for support and commitment from Bank ABC XY’s staffs, especially the top executives. Top executives’ involvement is very important. Leader will mainly plan the management vision and journey together with the top executives. Leader will communicate frequently with the top executives so the top executives must commit and support Leader. Leader will have to ensure that the top executives agree, commit, and want to support the new management operating model proposed. Leader will function the top executives as role models for the new management operating model proposed. This role models mechanism is intended to spread the new management model to other employees of Bank ABC XY. Leader will lead the integration team to drive the CEO to keep focusing on the three critical dimensions that drive success for Bank ABC XY: time to results and critical milestones to keep Bank ABC XY’s program on track, financial impact and the leading indicators that show progress toward the desired results, and behavior that supports the project’s goals or puts the project at risk. By focusing on these three areas, Bank ABC XY will gain the visibility, accountability, and transparency needed to track progress and identify risks early on—and their leaders are able to lead more effectively thus Bank ABC XY will be able to achieve high performance in doing its business.
3. ENABLEMENT
After the new management model is established and supported by the top executives, Leader will try to enable its application in Bank ABC XY. The enablement will be mainly about putting the right tools in place to provide Bank ABC XY’s organization employees with appropriate knowledge, skills, and support to perform their work successfully after the new management model is fully applied. Enablement process will involve organization design, resource management, stakeholder identification, employees training and education, effective communication design, and performance management. Besides that, Leader will also build a disciplined reporting system to enable the CEO to control the new management model in a good manner.
4. OWNERSHIP & COMMITMENT
After the new management model/system is applied and running well, Leader will try to develop and manage change management network, implement and manage communication plans, and measure the effectiveness of the change effort through sustainable surveys and reports. This step is intended to develop a shared sense of ownership and commitment for the new management/organization model so the management model application will be sustainable. The Leader will try to counter resistance and fear from Bank ABC XY’s employees about the new management/organization model and align them to overall strategic direction of the organization. If it is required, personal counseling can be held to alleviate any management-change related fears. Finally, to keep the new management sustainable, a monitoring and fine tuning will be done.
References
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http://www.leaderx.com/multimedia/Valley_of_Despair_(Team).pdf (accessed on January 9th 2010 20:00)
http://www.isixsigma.com/index.php?option=com_k2&view=item&id=105:ways-to-shorten-the-trip-through-the-valley-of-despair&Itemid=156 (accessed on January 9th 2010 20:00)
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Keenan, Perry & Harold L. Sirkin. 2001. A Road Map for Change. USA: BCG
Accenture. 2003. Managing Change at HP Norway. USA: Accenture
Wells, Denise Lindsey. Strategic Management for Senior Leaders: A Handbook for Implementation. Virginia: The TQL Office
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Kind regards,
Hendra Kwik
