Source: Nick Russen, City Networks
As more banks look to simplify their back-office structure and reap the rewards of greater process control, Nick Russen, director, partners & distributors at City Networks discusses the challenges and benefits of centralisation.
Membership of the 'Hub Club' continues to increase at a pace. Hubbing of primarily back-office processes, such as matching, reconciliation & exception management, within banks is now recognised as a clear way of not only reducing costs, but also of helping to standardise business practices into a common set of procedures and service levels. The end result will be improvements in customer service, leading to increases in underlying revenues, reduction in operational risk, greater overall compliance and achievement of cost management objectives.
Having worked pro-actively with a number of our customers on Hub projects over the last few years, we are able to use our experiences to take a step-by-step approach to some of the most common models, the challenges and the underlying issues to be considered before embarking on joining the club.
What are the operational models?
Once the decision has been made to implement the Hubbing process into your organisation, the first important thing is to identify which form of approach is most suitable for your business. The Centralised Global Service Centre model performs operations, normally 24x7, in one central location, to agreed service levels. Management reporting is provided to the business units, or branches, serviced. In contrast, Regionalised Service Centre operations are performed, normally 18x5, in regionally centralised locations, to agreed services levels. Management reporting is provided to the business units serviced. The third model is the Distributed Processing Centre where operations are performed within the individual business unit, serviced by a centralized or regional IT infrastructure, allowing for remote access to the relevant software systems.
What are the challenges and how can we overcome them?
One of the most important aspects of any Hubbing project is to select a piece of the business that is challenging, yet likely to remain static for the period of the exercise from which you can obtain clear and measurable business benefits. Treasury confirmation matching is an excellent example of a task that will be performed in much the same way across the different business units with potential for in excess of 50% client staff savings in this area as a result of Hubbing.
It is important to get ‘buy-in’ from all business units from the start to help the whole project. One customer example of City Networks in account reconciliation has seen a bank hub 12 international branches using the Distributed Processing Centre approach outlined above. In this instance the project manager was able to deliver the project on-time and to budget by getting complete buy-in from the branches serviced early on.
The process should ensure the IT infrastructure is able to provide the necessary technology backbone to support the intended environment. Consideration should also be given to the changes in operational approach that will be required in one of more of the business units. Hubbing of the exception management process is an example of a situation where one or more of the business units will have to change their approach to the resolution of exceptions, from reactive to proactive. Although subtle at a high level, this is a challenge that must not be underestimated.
What should you ensure happens next?
A common failure of Hub projects is to only ever provide the service to the biggest business units, leaving the smaller within the group using their existing processes and procedures. Once the Hub is in place, and one or more business units are using it, it becomes easier and easier to add other business units, and this ensures adequate payback from the project investment.
Standardisation is key to any Hubbing project. Make sure that all operational units are handled in the same way, albeit inclusive of any local mandatory requirements, such as those imposed by regulators. An approach to ensure this is to deploy an umbrella best practice operational and procedural manual, and undertake a communications exercise to all parties affected. Ensure training is offered and does take place by implementing a business unit accreditation scheme.
Finally and probably most important is to invest in your best people. Hubbing will save on staff costs, but will also create uncertainty. You will want to ensure that you retain the best of the people you already have. By training these staff, you will not only retain them, but ensure you gain maximum business benefits from the project. Any delays in the changeover process may lead to staff losing heart and belief. Once you have agreed to do it, make it happen quickly. Above all, be decisive!
What questions should you ask afterwards?
Once you are comfortable each step has been taken to meet these challenges, it is time to go through the entire gambit of who, why, what, how and when questions and, if necessary go back and review what steps could have been made to improve the process. How would you have done it any differently, based on your experiences? Was the project delivered on-time? If not, where were the hold-ups? Were they to do with inadequate planning or more the execution? Have you gained the identified benefits?
In summary, pick the next project, and do it again. This is a club whose membership has no limits.