Building societies must collaborate to survive

Building societies must collaborate to survive

UK building societies should look to back office collaboration as an alternative to further consolidation through mergers and acquisitions says a new study by PricewaterhouseCoopers.

The study, "Strategic imperative or tactical response? - A survey of building societies’ attitudes towards sharing services", says back office collaboration would enable building societies to exploit their collective size and strength, whilst retaining individual society brands and local affinities as well as protecting their mutual status.

As part of the survey, PwC conducted face to face interviews with chief executives from 25 UK building societies between May and September 2001.

Stephen Thomas, director, PwC Consulting, says that 80% of those surveyed said that they had had discussions with other societies about sharing services. However, "in many cases survey respondents viewed sharing of services solely as a potential way of reducing their cost base," he says.

The consultancy argues that this high level of focus on cost saving is obscuring other important strategic benefits to be gained from sharing, such as strengthening independence and the regional/local franchise; providing the critical mass needed to keep abreast of technology and achieve business transformation strategies more rapidly; improving customer service; and better regulatory compliance and control.

As part of the study PwC identifies four basic models for collaboration between the societies:
* insourcing model – a larger society provides services to a number of smaller ones;
* cross share model – several societies provide each other with those services in which they have particular competence;
* outsourcing specialist model – several societies join forces to contract with an existing outsourcing company to provide them with a common range of services; and
* service centre model – several societies establish a joint venture company to develop, own and operate a shared service on behalf of the constituent societies.

Thomas concludes: "For some of the smaller building societies, the options available may come down to a straight choice between entering into a significant sharing arrangement or giving up their independence. Sharing back office and support functions would enable a society to provide the desired, cost effective service to its customers, while allowing them to perceive the society as being the same, local, independent entity as before."

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