Realigning a Complex Joint Venture to Achieve Cost Savings and Service Delivery Efficiencies and Optimization

Executive Summary

An extremely large, complex and mature joint venture between a major financial institution and a third-party service provider was going awry in many respects, including knowledge retention, service definitions and pricing. The financial institution engaged Everest Group to help realign the joint venture, better define and manage its required services, reduce its costs, and better manage its services to reduce demand.

The Client’s Challenge

A leading North American financial institution had outsourced its core banking back office functions, (retail banking, charge cards, mortgages, wealth management, commercial banking, etc.), through a joint venture with a third-party service provider. As the agreement matured, the joint venture increasingly lost the cohesion it had initially benefited from when it transitioned the bank’s employees into the new entity. The result was an agreement of several hundred million dollars per year, but with limited retained understanding within the bank.

Additionally, due to disparate evolving needs across the bank’s lines of business, the portfolio of services provided by the joint venture grew more than five-fold in terms of service definitions and associated prices.

More troubling, the legacy lines of business had not maintained any meaningful knowledge of how to interpret the monthly invoices, which increasingly led to tension between the lines of business and the joint venture. Due to all these factors, the client needed to relearn its core back office processes, and also determine what changes to its services delivery model would help it best manage cost during a time of business transition.

Insight to Action

Entering an emotionally charged atmosphere, Everest Group began by developing an analysis tool to review historical charges, and conducting a market-based assessment of current pricing based upon original research. Armed with the information from these two initiatives, Everest Group assisted the client’s central service management team in re-educating the organization in its core back-office processes.

In parallel, Everest Group undertook an initiative to evaluate new pricing mechanisms and more robust service definitions. As the client better clarified its objectives for meeting changing regulatory requirements in check processing, the analysis expanded to evaluate possible changes to the scope of the joint venture. In an unbiased manner, Everest Group was able to look at options ranging from status quo to partial scope changes to full movement of services back into an internal service delivery model.

The joint venture ownership structure added a layer of complexity to defining what shareholder return truly meant to the client. For example, in what cases were service prices just costs or actually profits for the parent company? Similarly, should shared investments in processing operations improvements be considered a cost of continuing operations, or enablers to help the joint venture gain more customers?

Having seen the negative impact of quickly drawn scope for operational and financial responsibilities, Everest Group and the client collaboratively evaluated a wide range of options, e.g., strategic flexibility for adjusting ownership stakes and practical factors, such as segmenting the working space in existing processing centers. Throughout the process, Everest Group helped the client with fact-based analysis to evaluate all the options, and provided insights into likely incentives and behaviors associated with each of the possible paths.

Impact

Everest Group and the client developed a multi-stage plan for bringing some services back in-house, while optimizing other still externally delivered services. This resulted in a more flexible delivery model for the services brought in-house, which in turn enabled the bank to optimize some processes with end-to-end scope.

The services remaining in the joint venture were also renegotiated to include revised services definitions. The new definitions better aligned to the business lines’ business drivers, and helped them more effectively budget for future expenses. Additionally, the lines of business were able to determine how to adjust demand for services to reduce costs.

Finally, the renegotiated agreement included a clear plan for responsibilities and timing to implement new check processing standards.