The Maven's circle.

Banking Consoldation

Banking consolidation

In a discussion with a President of a retail bank, territory focused, and with more than 4,000 branches came out that his bank is “condemned” to grow to reach the economy of scale needed to compete today.

The bank lacks scale and competition, and they have failed to invest enough in technology or to cut the costs for their clients.

Merger will have the scope:

• To cut costs at home
• Well placed to do deals abroad
• Could catalyze further mergers that would bring gains of their own

And, most of all, he claims that “instead to become a possible prey, he would like once in a while also to be the predator”

Then he questioned me whether it is better for his bank to grow internally or externally (through acquisitions).

To grow only internally it takes too long and I do not think there is the time, but to grow externally there is not only the “conqueror” solution (to become either predator or prey), instead exists even the “affiliate” way to become a commercial entity with solid relationships with peer or larger banks.

Reading the article on The Economist (The alliance against Google- August12th) there is a similar debate about the merge between Microsoft and AOL to face Google superpower. Some thinks that if Microsoft will acquire AOL this would help Microsoft strategically. Others are not so sure, in fact they do not see a terribly good merger. There would be big cultural differences between a “media” company and a “software” firm.

Paul Saffo, a Silicon Valley analyst and a fellow of the Institute of the Future, a research group, thinks that any merger between groups with “big cultural differences”  is a “grand dramatic gesture” that would only hasten their decline.

Big mergers also run counter to a number of other trends on the Internet today, which are collectively known as “Web 2.0”.

“This is the age of mash-ups not mergers, open over closed” says Mr Saffo referring to the open Internet standards that allow users to combine, or “mash” services.

Another argument against full-blown mergers is that the bigger and more self-absorbed the established powers become, the less likely they are to spot new insurgences and innovations.

Then I would like to remind, Web 2.0, the new Internet trend

The Web 2.0 lesson: leverage customer-self service and algorithmic data management to reach out to the entire web, to the edges and not just the center, to the long tail and not just the head.

This leads to the model of a "dumb, minimal, network" with smart terminals, a completely different model to the previous paradigm of the smart network with dumb terminals. This paradigm shif will help implement new mash-up organizations.

Conclusion

Here are the results of my thinking, based on following facts, to propose an answer to the retail bank’s President dilemma:

• Key issues
  • Consolidation does not automatically equal success, larger banks, more products, higher profit or efficiencies. It can also mean losses and redundancies and statistics show that more than half of Financial Services’ M&A do not succeed

• Key findings
  • According to M&A experts, about 60% of M&A deals are unsuccessful because they approached the deal with overconfidence and instead of taking into account all the facts, they choose to purse their goal of global expansion (conqueror approach).
  • Estimating the costs and benefits of merging with or acquiring a Financial Institution is a major problem particularly as combining different systems and corporate cultures can be difficult ad costly.
  • The key to a successful merger to take account of stakeholder interests: Employees need to know they will benefit as individuals, whilst shareholders need to understand the rationale of the deal.

• Web 2.0 and the New Collaborative technology
  • One of the most influential effects of collaborative technology is that they “push authority way out to the edge”.
  • Organizations must be willing to push power to the edge.
  • Leverage technology means that organizations must work from the “edges in” (not like the old approach from the “middle out”).
  • You push your sensing and your collaboration tools out to the edges of the organization.
  • Your organization almost becomes an organic form where everything that’s touching the outside world is collecting and sifting information.
  • After empowering the people at the edge, organizations must create safety net systems in case activity spins out of control.

Therefore to grow externally through Affiliations is another option to be considered and it is based on developing and managing good relationships with all the bank’s stakeholders either internally (employees) either externally (clients, shareholders, suppliers,…).

Moreover, the now available New Collaborative Technology could help implement the new mash-ups based organization.

Your comments and ideas are welcomed

Lucio Vollaro

International Services

The services’ delocalization process is destined to grow.

I read this important statement both from Gartner (www.gartner.com) and from UNCTAD (www.unctad.org) the United Nations Organization Conference on Trade and Development.

Then talking with a DB’s Top Officer I understand that Deutsche Bank has moved in India ½ of its Back Offices workplaces.

I think that Global Operations have been a relevant theme for hundreds of years (e.g., Silk Route, Marco Polo,)

Today leading International Banks understand the need to address both Product Repositioning and Cost Alignment through Integrated Global Operations strategies

But globalization demands New Operational Models (Demand Management, Manufacturing Sourcing, New Products Introduction, Global Logistics,..) given the new scale of operations and the increasing number of stakeholders playing intervening in value chains

Globally Integrated Banks are companies that fashion their strategy, management, and operations to both integrate production and deliver value to Clients internationally..

At the Integrated Global Operations-base there are the dramatic progresses of IT and TLC that has been made it possible by shared technologies and shared business standards.

Globally Integrated Banks are actively managing different operations, expertises, and capabilities to open the Bank up in multiple ways, allowing it to connect more intimately with Partners, Suppliers, and Customers and, most importantly, enabling it to engage in multi-faceted, collaborative Innovation

Globalization trends are also changing the shape of Global R&D footprints.
The long term health of European Banks will depend on the ability to create Global R&D-networks combined with cost-efficient  operations from sourcing to distribution

As customers are demanding more innovative products, international Banks are already investing in Global R&D, and will accelerate the investment pace.

In the July 3^rd Business Week edition I read the 2006 IT investments of the leading US Banks that reminds that there is e relation between IT investment and Innovation:

• JP Morgan, IT investment 2006 is $2.9billion in 2007 (+12.4% - 2006/2005)
• Morgan Stanley, IT investment 2006 $2.4billion in 2007 (+14.4% - 2006/2005)
• Merrill Lynch, IT investment 2006 $2.2billion in 2007 (+20.0% - 2006/2005)
• Citigroup Global Market, IT investment 2006 $1.7billion in 2007 (+13.0% - 2006/2005)

Conclusion

•         Most leading Banks in Western Europe and the USA are developing Global Operations Strategies or are rethinking the current model.

•         Operations strategies will vary depending on business and each Bank’s managerial capability

•         Successful Globally Integrated Banks have solid Partners to help deliver the best ICT services at a competitive price

•         Operating in the global landscape demands new, specific Operating Models affecting end-to-end process, HR and ICT capability.

The Globally Integrated Bank also presents the following big challenges for Leaders

1.      Skills: securing a supply of high value skills (through off-shoring). The real competitive factor for a bank is directly related to the quality/quantity of skilled ICT people a bank can utilize

2.      Trust: a Bank’s standard of governance, transparency, privacy, security, and quality need to be increased

Comments are welcome

Lucio Vollaro

TLC technological changes will affect transversely all Industries

TLC technological changes will affect transversely all industries.

I read this is interesting comment in the interview to Francesco Caio (Il Sole 24 Ore June 21, 2006).

In the interview Francesco Caio was saying that:

Today is authorized an universal communication for all type of information thanks to broadband, easy to use terminals, and Internet Protocol. As a consequence the barriers between Media and TLC are breaking.

Working with Financial Services CEOs I’m observing also that the role of technological innovation in the market and particularly in the Financial Services sector is destined to dramatically grow either for the retail/private part, either for the corporate part. The growth will be particularly focused on the extended connectivity between Financial Institutions and the Stake holder’s world and towards the Corporations and the Local/Central Public Administration.

The reasons reside in the set of social and business trends that I am profiling from a:

• Social point of view the principal phenomena in act are: population aging, growth of the number of single, I-Generation (Internet usage is growing vertically), “global tribalism” (there is a growing interactive participation i.e.blogs…), social differences increase
• Business point of view will continue: growing the migration from “product” production to “service” furnishing, embracing of the dynamic pricing modality, the development of global micro-business, the company approach characterized from a pro-active transparency

So let’s examine how are then affected the different industries' profile:

• TLC operators: will enter TV distribution and even the TV contents. Consumer is the king in choosing the content of the services and he will be ready to pay the giver of contents (media) more than the “go-between” (carrier). So the good Media have something to say, and the TLC operators will concentrate in the network management, where there are improvement margins.
• Financial Services: to marshal a privileged access to the world of the technological evolution will become, during the next years, a relevant success factor to the same level of the capacity to recognize and develop, in a short time, new solutions to implement in the bank’s commercial network or to directly to offer to the bank’s customers.
• Media companies will embrace Internet. Myspace (Murdoch) million of users use the site to share their profiles, photos. The Guardian, National UK newspaper, has given priority to media information on-line. The construction of palimpsest starts to creak in fact, nowadays, Television News and Shows can be seen on-demand.
• Advertising is migrating towards Internet. They are experiencing a fragmentation of the audience. Individuals and families are spending more time on Internet. Media and Advertising Top Executive met last month in London to capitalize on the surging popularity of “social networking” web. The old saying: “Half the money I spend on advertising is wasted; the trouble is I don't know which half!” still applies to the advertising on paper since half of the advertisement is useless because does not reach the desired target. Different story is for the advertising on Internet, Google allows its client to understand if the message has been used!

Those trends, combined to the recent technological tendencies, will make fundamental the investment in the research and the technological innovation in all Industries as a mean to integrate the different expansion needs and to maximize the competitive advantage.

Please comments are welcomed

Lucio Vollaro

Media Companies are developing new Business Models to preserve profitability

Discussing about this interesting topic with International Media Top Managers it came clear that on-line advertising spending is increasing.

Every year people think the Internet must slow down because the growth rate looks high, but it keeps going overtaking National newspaper advertising spending is another milestone

Media Companies must be able to attract advertisers in the Web through:

• creating large "virtual" squares
• building alliances with search engines
• increasing the value of the information to deliver to the public

In fact on the Net the winner is who is able to create relationships between different contents

The Information is becoming a vehicle to bring the people on the services (newsletters, updated who's who,, alert,...)

The ultimate idea is to set out a progressive strategy as a corollary of the information.

If a media company is strong on the Clients (i.e. Lawyers) its objective is to increase the "catching" on the Clients. The key is to create for that Client a portal of services that goes well beyond the information.

Any ideas and comments

Lucio Vollaro