Shotgun Weddings, Mergers And Other Boardroom Entertainment

Merger Integration
Shotgun weddings, mergers
and other boardroom entertainment
Industry Consolidation and Strategic Alliances
Strategic Management Society, Berlin, October 4, 1999
IBM Unternehmensberatung GmbH
Mitglied im Bundesverband Deutscher Unternehmensberater BDU e.V.
Mitglied der IBM Consulting Group
© 1999 IBM UBG
Draft
Seite 1
Merger Integration
Banking at all levels is at a crossroads today; what is clear is that fundamental,
structural change has begun, driven in part by the emergence of the e-marketspace
Business
BusinessBanking
Banking
Businesses
Businesses
Corporate
CorporateBanking
Banking
Primary
PrimaryValue
Value
Proposition
Proposition
Competitive
Competitive
Threat
Threat
EE-Marketspace
-Marketspace
Opportunity
Opportunity
„„ Payment
Paymentsystems
systems
„„ Credit
Creditsources,
sources,capabilities
capabilities
„„ Risk
management
Risk management
„„ Investment
Investmentbankers
bankerswith
with
„„ Credit
Creditrisk
riskmanagement
management
„„ Payment
Paymentsystems
systems
„„ Structural
Structuralbypass
bypassby
by
Cash
CashManagement
Management
Services
Services
„„ Systems,
Systems,processes
processes
„„ Reduced
cost,
Reduced cost,risk
risk
„„ Non-bank
Non-banktechnology
technology
„„ Reduced
Reducedcost
costtotodeliver
delivervia
via
Small
SmallBusiness
BusinessBanking
Banking
„„ Credit
Credit
„„ Cash
Cashmanagement
management
„„ Peace
Peaceofofmind
mind
„„ Non-bank
Non-bankcompetitors
competitors
„„ Out-of-market
Out-of-marketbanks
banks
„„ “Retail
“RetailEnabler”
Enabler”
„„ Business
Businessprocess
process
Capital
CapitalMarkets
MarketsProduct
Product
Businesses
Businesses
„„ Capital
Capitalaccess
access
„„ Risk
management
Risk management
„„ E-market
E-marketbased
basedstructural
structural
„„ Reduced
Reducedcost/improved
cost/improved
Payment
PaymentSystems
Systems
„„ Transaction
Transactionproducts,
products,
„„ MSFDC
MSFDC
„„ Non-bank
Non-banktechnology
technology
„„ Expanded
Expandedplatform
platform
„„ Merrill
MerrillLynch
Lynch
„„ I.I.Bankers
Bankers
„„ Technology-based
Technology-based
„„ E-marketspace
E-marketspacebusiness
business
International
InternationalBanking
Banking
services
services
„„ Information
Information
Private
PrivateBanking/Business
Banking/Business „„ Need
Needanticipation
anticipation
Banking
Customers
„
Broad
set
Banking Customers
„ Broad setof
ofproducts,
products,
services
services
„„ “Peace
“PeaceofofMind”
Mind”
© 1999 IBM UBG
better
bettertechnology
technology
„„ Non-bank
Non-banktechnology
technology
„„ E-commerce
E-commerce----various
various
„„ Information
Informationintermediation
intermediation
businesses
businesses
technology
technologybusinesses
businesses
businesses
businesses
bypass
bypass
businesses
businesses
businesses
businesses
Draft
„„ E-commerce
E-commerce----various
various
„„ Intermediation
Intermediationbusiness
business
extensions
extensions
Internet
Internet
outsourcing/EDI
outsourcing/EDI
profits/enhanced
profits/enhancedcapabilities
capabilities
supporting
supportingbusiness
businessprocess
process
outsourcing/EDI
outsourcing/EDI
expansion-expansion--new
newservices;
services;
new
revenue
new revenuestreams
streams
Seite 2
Merger Integration
Increasingly, financial services retailing will require management of three overlapping business processes:
customer capture, product/service delivery (customer “service”), and customer relationship development
“Customer Capture”
„
„
„
„
„
Home ownership
Home
improvement
Employmentrelated
Major assets
acquisition
Family
constellationrelated
Location-specific
Location-specific
“Life
“LifeEvents”
Events”
„
„
„
„
“Service Delivery”
Time-in-life
related transfer
“Peace-ofmind”-related
Expert advicerelated
Specific
product needrelated
„
„
„
„
„
Customer management
Product
management/sales
Transaction processing
Service delivery/access
Record keeping
„
„
„
„
„
“Need
“NeedState”-related
State”-related
purchases
purchases
No bank capabilities
“Customer Relationship
Development/Extension”
Next logical
product, service
customer service
“crisis” identification
“New” product,
service
“Virtual retailer”
services
Information storage,
retrieval services
Data
DataMining-based
Mining-based
Targeting
Targeting
Current Bank Retailing Infrastructure
„
„
„
„
„
Trusted advisor
Personal
agency
“Concierge”
services
Homeowner
services
Professional
services
Customer
Customer
Empowerment
Empowermentvia
via
Information,
Advice
Information, Advice
No bank capabilities
Most
Most banks
banks are
are out
out of
of alignment
alignment with
with
marketplace
marketplace requirements
requirements
© 1999 IBM UBG
Draft
Seite 3
Merger Integration
Are mergers here to stay?
© 1999 IBM UBG
Draft
Seite 4
Merger Integration
Are mergers here to stay?
Retail banking market share of the 5 largest banks per country
73
Niederlande
54
Finnland
78
58
Portugal
48
Belgien
Österreich
35
Spanien
35
Irland
Frankreich
19
Italien
79
76
57
44
44
44
41
43
40
1990
1997
25
14
17
Deutschland
0
© 1999 IBM UBG
20
40
60
Draft
80
100
Seite 5
Merger Integration
A general idea on the tasks involved in integration
Become one
Leverage one
Act as one
Prepare one
Why
Who
Creating the vision
Defining new
leaders
© 1999 IBM UBG
What
Creating a new
business
architecture
Draft
How to
Creating a new
IT architecture
Seite 6
Merger Integration
During the merger transformation, banks are vulnerable to competition
Work and productivity impact during
significant change
21%
21% Personal
Personal
19%
19% Social
Social and
and
gossip
gossip
During the change
8 hours
1.7 hours
21%
21% Personal
Personal
1.7 hours
1.5 hours
40%
40% Social
Social and
and
gossip
gossip
60%
60% Productive
Productive
work
work
High
Organization Performance
Before the change
8 hours
Organization performance
3.2 hours
1.9 hours
4.8 hours
Performance
Length of
performance
disruption
Depth of
disruption
Loss of
Productivity
due to a major
change
23%
23% Retraining
Retraining
3.1 hours
15%
15% Productive
Productive
work
work
Low
1.2 hours
Time
Source: Bureau of Labor Statistics Study - 1990
© 1999 IBM UBG
Draft
Seite 7
Merger Integration
Change Management and Communication are key to retain key employees
Counter the “employee drift”
Training
high
Headhunting
Meaning lost
Motivation
Communication
Secured
employees
Lost
employees
Headhunting
low
low
Relevance lost
high
Competence
© 1999 IBM UBG
Draft
Seite 8
Merger Integration
We recommend a „Legacy“ or „Application Suite“ phased approach
Merged Entity
Holding
Company
Approach
Application Suite
Legacy
Best of Function
as e
d
Ph
Ba
ng
Bi g
ase
d
Ph
ng
Bi g
Ba
ase
d
ng
Ph
Ba
Bi g
sed
Ph
a
Risk
Criteria
Bi g
Ba
ng
Method
Stability
Scalability
Decision Making
Speed
Implementation
Speed/Efficiency
Ongoing Efficiency
Functionality/Intro
of new functions
Potential Risk:
High Risk
© 1999 IBM UBG
Med.-High Risk
Draft
Low Risk
Seite 9
Merger Integration
Mergers hold significant potential for cost reduction
3.500
700
2.800
45%
savings via consolidated operating platforms
processing centers
25%
savings in application
development staff
IT related savings via branch
closings
IT related back office savings
15%
15%
2.000
il
1.500
ly
n
o
ve
i
t
a
r
lust
merged
hardware
savings
550
software
services
maintenance
personnel
network
Bank1 est.
hardware
personnel
Bank2 est.
software
network
© 1999 IBM UBG
combined savings effected
services
occupancy
maintenance
occupancy
total
700
Data IBM estimated
Draft
Seite 10
Merger Integration
IBM approaches Merger Integration with a “4 phases model”
Phase 4: Continuous
Improvement
De
l i ve
Dr r Va
i ve l u
rs e
As
se
ss
m
en
t
s
ou nt
u
e
tin em
n
v
Co pro
Im
d
ose
l Cl
Dea
Execute Non-Critical Path
Projects
Assess Business Results
Process Improvements
Phase 1: Assessment
Du
Dilig e
ence
al
itic ts
r
C
njec
No Pro
h
t
Pa
Acquirer Baseline
Target Assessment
Company Comparison
Validate Hypotheses
Gap Analysis
Action Plan
Execute Defined Projects
Track Progress and Synergy's
Identify Non-Critical Projects
r
nito d
Mo ss an
gre
pro reset
Phase 3: Integration
In
te
gr
at
io
n
et
rg an
a
r T Pl
ge l &
r
e e
M od
M
Imp
leme
nt
De
BE fine T
Sol O
utio
n
MI Cycle
n
sitio
Tran ing
n
Plan
Phase 2: Merger
Target Model & Plan
Establish Program Office
Create TO BE Business Model
Define Enabling IT Solution
Build Transition Roadmap
Results were published in ICM in Mach 99
© 1999 IBM UBG
Draft
Seite 11
Merger Integration
We are facing competition from BCG in the corporate program office,
they also try to adress the IT program office context
Business Unit
CEOs
Executive Steering Committee
Integration
Executives
Corporate Program Office
Business Unit
Integration Executives
Event 1
Program Mgmt
Event 2
Program Mgmt
Target Environment
Program Mgmt
Event 1
Working Group
Event 2
Working Group
Target Environment
Working Group
BU Integration Directors
ensure consistency is
applied across programs
Business Unit
Program Managers
BU Program Managers
are assigned to each
program and participate
Operations
Business Unit
Project Teams
Technology
Staff Organizations
Staff Organizations
support the BUs with
integration activities
© 1999 IBM UBG
Finance
Accounting
Draft
Audit
Human
Resources
Legal
Facilities
Seite 12
Merger Integration
IT Program Office definition - BNP
BNP Integration
Manager / IBM
Program Manager
Business Domain
Interface Teams
Key Business Units (4)
Develop LOB Transition
Planning Process
Convergence Analysis
Facilitate Workgroups
Application Selection Process
Evaluation/Selection Criteria
Master Planning Process
© 1999 IBM UBG
Coordinate BNP Transition Planning Process
Align with Corporate Program Office
Prepare kickoff meetings
Implement IT PO Processes & Tools
Status Reporting and Project Tracking
Define Master Schedule
Change
Management
Team
IT Merger
Team
Define IT Transition Process
IT Impact Assessment
IT Target Model
Data Center
Network
Distributed
Disaster Recovery
Systems Mgmt Processes
Help Desk
Capacity Projections
Draft
Establish Change Mgmt
Transition Process
Prepare Communication
Plans
Develop Network Maps
Review IT Policies
Assess IT Methods
Evaluate key processes
Define target org model
IT Finance
Team
Draft IT Finance Transition
Process
Baseline LOB and Central IT
Expenses
Pro-Forma IT Financials
Synergy Validation
Synergy Tracking/Rptg
Definition of Quick Hits
Confirmation/allocation of
integration costs
Seite 13
Merger Integration
We currently focus on pre-implementation activities, and uses "threads" of competencies
IT Merger
Team
Business Domain
Interface Teams
Threads
Business
Integration
Assessment Phase
Application
Suite
Integration
2. Assess
6. Determine
Environment
Company A
I.T.
Impacts
Technology
Integration
4. Compare
1. Program
Unmerged
Environments
Change
Mgmt.
Team
IT
Business
Integration
IT
Finance
Team
Launch
Financial
Integration
© 1999 IBM UBG
Merger Target Model and
Master Plan Phase
3. Assess
Environment
Company B
Draft
5. Define
8. Develop
Merged
Business Model
Transition
Plan
7. Develop
Merger
Model
Seite 14
Merger Integration
Takeout
Takeout
Technologie
Technologie
Geschäftsfelder &
&
Geschäftsfelder
Einrichtungen
Einrichtungen
Unternehmer
Unternehmer
Threads are broken down to activities on a time line
Gegründetes
Executive
Steering Committee
Due Diligence
Executive Steering
Committee Review
Ausgewählte
Führungsmannschaft
Gegründetes
Program Office
Eingerichtete
Integrationssteuerung
Realisierte
UnternehmensScorecard
Ankündigung
Merger
Rechtlich
abgeschlossener
Merger
Integration Governance
Entwickelter Plan
für die
Entäußerung
von Rechten
Rationalisierte
Geschäftspolitik
Rationalisierte
Produkte
Identifizierte
Aspekte
der Entäußerung
von Rechten
Vorläufige
Kapazitätsschätzung
Vorläufige
Einschätzung der
Infrastruktur
Stop des
Hiring
Eingesetzte
Integrationsleiter
Ausgetauschte
Finanzinformationen
Stop des
Umbruchs
DepositSystemstruktur
Einrichtung einer
(DV-)Anlage
Rationalisierte
Kann-Aktivitäten
Ausgetauschte
Datenformate
Zentralisierung
der
Steuerung
Einrichtung einer
(DV-)Anlage
Anforderungen
Integrierte Kernsysteme,
Administrations-systeme
&
Loosely Coupled Systems
(z.B. Trust, Card)
Operationales
Interfacing
Festlegung der
neuen
Kostenstruktur
Festlegung von
Standards für
Meßgrößen
Festgesetzte
Quick Hits
Daten analysieren
Festgesetzte
Produkte,
Preise, Systeme
und
Beziehungen
Verschmolzene
Unternehmenskommunikation
Identifizierte
Alt-Anwendungen
Daten-austausch
Data Mapping
Festgelegter
Termin für die
Systemumwandlung
Abgeschlossener
Detailentwurf
Eingeführtes
Utility Sourcing
Start der
Programmierung
des Systems
Quick Hits
Restrukturierung
Berechnung
der Einsparungen
Ziel
Finanzielles
Modell
Projektverfolgung
1. Quartal
© 1999 IBM UBG
Festgesetzter
Infrastrukturplan
Ausgewählte
Application
Suites
Unternehmensweite Umnumerierung (“Corporate
Numbering Structure”)
Gegründetes
Technology
Program Office
Program Office Control
2. Quartal
Draft
Seite 15
Merger Integration
12 plus one “golden rules” which may be suggested to consider in Merger Integration
• Ensure senior management involvement in integration activities
• Appoint strong executive to clearly lead the integration program
• Build a robust plan detailing integration activities
• Compress change duration by taking bold strokes early
• Set out credible milestones and maintain pressure for progress
• Provide for real incentives to reach targets
• Get task forces interacting as soon as possible
• Move quickly with regard to personnel changes
• Keep momentum with regard to personnel, customers and markets
• Emphasize the transfer of critical capabilities to capture value
• Adopt best practices in key functions from either bank or external source
• Define sucess criteria and frequently use them in the communication of success
• Plus one... Communicate, communicate, communicate!
© 1999 IBM UBG
Draft
Seite 16