Page 195 - DMGT520_ORGANIZATION_CHANGE_AND_DEVELOPMENT

Organization Change and Development

Notes
Key Geographies: UK and Eurozone, the Asia Pacific where we had our roots, the Middle
East where one of our early acquisitions British bank of Middle East was headquartered
and increasingly in South and Central America with acquisitions in Brazil and now Mexico.
One of the key things that have come about from the large acquisitions that we have made
has been an influx of group talent, and that has helped to diversify the base of senior
management both in terms of gender, and ethnicity, and in terms of background.
That’s been a true benefit to the group. We continue to focus very much, as we expand, on
maintaining centralized controls and in having common systems architecture. The other
thing is to take the skills of the things that we have acquired and try and transport them to
the other parts of the world. This is true, for example, of the acquisition, in the US, of
Household International, which is a consumer finance company. It is from Household that
we are conceivably developing the finance model for India, although there are some real
differences. The Household model is extremely data intensive, and data is in quite short
supply in India. But nevertheless, we found those skills to be very transferable, very
useful.
In terms of technology, there has been a drive to a common architecture. We aim to be in
the Top Four bracket in terms of performance and, as you would expect from true Scots, to
lower half of cost. But that paradigm has shifted dramatically with the development of
outsourcing agreements, IT and the developments of IT platforms in places like ICICI and
HDFC. It is no longer possible to compete in a place like India on a global technology
platform. The local technology platform is of a much, much lower cost, and the challenge
for us is the need to grow the volume in low-cost countries and to develop a model that
would thrive on outsourcing but without outsourcing those key areas which really touch the
customer. The points where we touch the customer drive our revenue.
So understanding what to outsource and what not to outsource is something that we face
now and we haven’t developed a full answer to it, so that’s an ongoing project. We have
some centralized systems: universal banking, which is the main CIF system, a world
within a card system rolled out with the group, and then the Internet platform. In terms of
costs, there is a lot being done on global outsourcing. In Hyderabad, we have two centers
and we have built another one in Andhra Pradesh, in Vishakhapatnam. Interestingly, this
model developed an outsourcing routine working from the high-cost countries in the UK
and US. Increasingly, this model has to deal with the very rapid growth in transactions in
what we would describe as low-cost countries – India, China, and Indonesia – that the
model itself is not designed to cater for that. For example, we can process in our bank in
India cheaper than we can process in the global processing center. So now we have to find
a way of merging these models.
One of the intricacies in this particular question is the issue of transfer pricing in a global
processing center. Downtime is dead time. In an airline seat, once the seat pushes back the
gate, that seat is gone. So to what extent will authorities accept marginal pricing for dead
time in heavily capital intensive processes is something that the authorities themselves
will have to deal with. A lot of process re-engineering: we have gone down the Six Sigma
routes which many of our banks have, although it’s Six Sigma with some other sense
attached to it. Six Sigma can’t be attached to every process because it is very cost intensive.
So using a bit of common sense in process is key, but with compliance and other
requirements almost by the end of the month, processes look like some Irish or Scottish
whisky with bits poking out all over the place. Having the discipline to review our
processes from time to time, actually we find ourselves a lot of money.

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