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Secrets to Mid-Market HR Outsourcing Success Refining the business process outsourcing process: the value of talent management BPO: The Year Ahead- A Perspective on Evolving Worldwide Requirements Best-of-Breed, Software-on-Demand, and Integrated ERP Suites - What is Best for BPO? An Investor's Guide to BPO Economics Consolidation in the Utility Industry Best Practices: Selecting a BPO Service Supplier Emergence of the Mid-Market in Business Process Outsourcing |
Banking Mergers Boost Outsourcing Activity By Knut Meyer, Everest Group
The merger mania is not limited to large global banks. Many regional banks have grown through acquisitions during the last few years. First was the Wachovia and First Union combination announced in April 2001 and fully integrated by August 2003. Now Regions Financial Corp. and United Planters Corp. announced their merger in January 2004 to create the 12th largest bank holding company in the US, making it a financial superpower in the southeastern United States. Regional banks are making acquisitions for a number of reasons. But big drivers are to combine businesses, gain additional geographic and customer reach, and the ability to offer a wealth of financial services to their customers who prize one-stop shopping. The United States has 7,830 banks before these mergers are completed, according to the US Comptroller of the Currency. That's almost half the number of banks that made loans and took deposits in 1984. Put another way, today the 10 largest banks in America control 62 percent of total bank assets, compared with 29 percent 20 years ago. The Challenges of ConsolidationEach bank has its own IT systems, human resources, corporate culture, and procurement policies. Integrating two or more disparate entities and sustaining the strategic benefits of the combination always represent a supreme challenge. Many banks in the past conducted extensive and lengthy merger integration programs to combine IT systems, businesses, and branch networks. The goal was to gain cost reductions through eliminating overlapping processes and corporate staff functions. However, the results were often mixed. The current competitive economic environment with its time-to-market and cost pressures make this an expensive option, particularly for regional banks with a myriad of systems and duplicate processes. If a bank made 10 acquisitions in the last five years, it now can't afford to keep 11 marketing or human resources (HR) departments (one corporate and one for each bank.) Redundancy and duplication have to go. For example, aggregating demand for all the bank divisions in one enterprise procurement function allows the corporation to gain volume discounts, synergies, and scale economies. Many banks in the past have tried to integrate acquisitions themselves, often with limited success. Consumers complained loudly after service levels disintegrated with Wells Fargo's acquisition of Norwest in 2000, and during a succession of acquisitions by Fleet Bank. Other banks have found the change management issues daunting. How Outsourcing HelpsOne of the most effective ways to merge two disparate banks and focus on combining the core businesses, cultures, and organizations is to outsource non-core processes to a supplier with deep domain expertise in technology and key business processes as well a keen knowledge of financial services. Outsourcing has many advantages in this situation. An outside entity has an easier time imposing new policies and procedures. Suppliers centralize the process, eliminating redundancy. And suppliers can effect these changes faster than internal merger integration groups and committees. A long drawn-out integration with limited strategic, operational, and financial results can negatively impact stock performance, market reputation, and customer service (losing customers is one of a bank's biggest risks). Outsourcing solves the IT challenge by unifying the IT architecture. Sometimes old acquisitions are still using non-compatible and outdated software in today's world of electronic banking. Other banks bought systems that worked when purchased but are outdated now. Outsourcing is a cost-effective way to gain access to the best banking systems available today, run by experts who are intimately familiar with them. Outsourcing is just as valuable for regional banks because it gives them access to technology and best practices business processes that previously only the behemoths could afford. Suppliers can provide this to the regionals at lower risk levels and without the intensive capital investments required. Business processes outsourced by banks in merger mode or after extensive merger integration efforts cover the entire outsourcing spectrum. In addition to IT, banks are jumping into BPO. We expect to see a significant increase in HR, finance and accounting, facilities, marketing, and procurement outsourcing at banks as a result of this merger mania. Publish Date: April 2004
For more information... Related Articles Copyright © 2004 - Everest Partners, L.P.
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