Global operating model restructuring for compensation-cost reduction

A global bank based in the U.S. wanted to develop a new global operating model to optimize its back-office costs and reduce its operations risk profile. These seemingly contradictory objectives were achieved by building a multi-site operating model the eventual footprint included sites in North America, UK, India, and South East Asia.

Final site locations were selected based on detailed location / site assessments that leveraged A.T. Kearneys proprietary Location Assessment Toolkit (which is an accepted Global Standard). For example, the toolkit helped establish one of the major captives in India, using an innovative collaborative model with a major supplier.

Challenge
The success of the project relied on creating a common processing taxonomy across products and then identifying commonalities in individual function value-chains. Similar product classes (for example, auto and home loans, or cards) generally have similar life-cycle value chains when it comes to middle- and back-office functions, such as account management & maintenance services, reconciliations, customer support, payments, accounting and reporting, etc. These processes needed to be defined and assessed in detail.

Approach
While nomenclature of process steps varied across product classes, we identified activities and steps that were conducted using similar procedures/practices by personnel with similar skill sets. With these similar procedures/practices, we created candidates from which scale and scope efficiencies could be extracted, resulting in either scale-based utilities or skill-based Centers of Excellence, respectively.

We then developed options for the eventual outcome of a function or a step within a process: left in current locations, reengineered, consolidated into a shared utility across several processes or products, or some other configuration.

Objectively and collaboratively assessing the nature of the work (rule-based or not) ensured a mutually acceptable solution that was practical and actionable. Assessment criteria included technical level, customer and risk impacts of centralization, re-engineering, out-locating, etc.

The project involved detailed implementation planning and support. We were involved in overseeing the transitions to the new offshore sites, which leveraged our significant experience and expertise in large scale program and change management. Business cases were developed and A.T. Kearney helped the client establish a robust governance mechanism to ensure value capture.

Results
Our overall experience with this U.S. bank and with retail and wholesale institutions, card issuers, and insurance and re-insurance brokers across N.A. and Europe suggests that banks can reduce factor costs by up to 40 percent, if lower cost locations and complex functions are in the mix.

Sustainability of reduced costs is ensured by focusing on total cost of ownership, long term demands, FX changes, and real available resource pools and attrition.