Lessons from RBS's acquisition of NatWest

In March 2000 Royal Bank of Scotland (RBS) acquired NatWest, a bank three times its size. Shareholders were told that the merger would realise £1.1 billion in cost savings and income gains.

by European Management Journal
Last Updated: 23 Jul 2013

RBS identified 154 initiatives that would help it achieve its goals by eliminating duplicated administrative centres, harmonising operating processes and moving NatWest data (18 million accounts worth £158 billion) to RBS' systems. It was expected to take three years to implement and would involve sacking 18,000 employees.

High level plans were put in place, each of which had to contain one milestone per month. Project teams were required to report the status of their work using a ‘traffic light' system (Red denoted a project that was unlikely to meet its target to the agreed schedule or cost).

Risks were recorded at different rates of severity and managers had to get approval for any change to their project's plans from their seniors. Managers used a monthly reporting process to keep tabs on each project's progress.

In the first six months, RBS made £230 million in savings. It also fired 3,500 people from its manufacturing division (payment transactions, account management).  In 2001, RBS conducted a study into its governance processes to assess what had worked well in the first year. The reporting process was modified to give managers exactly the right information in an accessible format, so they could make quick decisions.

The bank set about transferring the bulk of NatWest's data to RBS, having experimented with small transfers in year one. A new set of milestones were put in place, covering process alignment, staff training, communications and data and systems readiness. It was important to make sure that all the separate projects worked towards one common goal. A further £100 million of savings was achieved in this year as a result of negotiating new terms with the bank's suppliers.

With further savings being achieved, the bank set a date for the final transfer of all data to the RBS system (October 2002). The plan was put on a single page including critical milestones and sent to all project staff. In trials, teams checked that the data had been properly transferred without error (half a million pieces of data for more than 2000 accounts).

Gruelling 13-hour shifts during the trials gave operating staff the skills they needed to carry out the actual transfer, which went smoothly. NatWest's systems were closed in February 2003, bringing with it significant savings.

By the end of March, most of the 154 projects had been completed and were producing £1.4 billion in annual costs savings and additional revenues of £890 million. The total cost of achieving these savings was £1.2 billion.

Managing the aftermath: Lessons from The Royal Bank of Scotland's acquisition of NatWest,
Graham Kennedy, David Boddy & Robert Paton
European Management Journal, Vol 24 No 5, October 2006

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