Decision Driven Organization
FORUM FINANCE
Middle East, Turkey and North Africa
6th Edition
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Forum Finance Newsletter 6th Edition,
August 2012
Copyright © 2012 Bain & Company, Inc. All rights reserved.
Content: Philippe De Backer, Julien Faye, Jenny Davis-Peccoud,
Bianca Leodari, Cornelia De Ruiter, Graham Eckert
EDITORIAL | Forum Finance
In this issue of Forum Finance, we look at the ability of
organizations to make and execute decisions effectively.
When Bain & Company conducted a global survey of
nearly 800 companies, we found that there was a 95%
correlation between decision effectiveness and financial
results. We will look at some of the common challenges
financial institutions face, and at how to improve
decision effectiveness through a simple five-step
approach.
This newsletter also features an interview with Dr.
Bernd van Linder, Managing Director of Saudi Hollandi
Bank. He will share his views on the Saudi Arabian
banking market perspectives, the untapped potential in
SME banking, and much more.
We welcome your feedback and questions.
We are also pleased to announce that we have recently
held our last Majlis events in Dubai and Abu Dhabi on
the topic of ‘Decision Driven Organization in Financial
Institutions’ by our guest speaker Jenny Davis-Peccoud,
a senior director at Bain who is head of Bain’s
Organisation Practice in EMEA. The events were very
successful, and we will be holding the next event on
this topic in Riyadh in September. We will also be
conducting our next installment of Majlis events on the
topic of ‘Repeatability’ in October, where we will be
joined by James Allen — co-head of Bain & Company’s
Global Strategy Practice and author of Bain’s latest
book, ‘Repeatability: Build Enduring Businesses for a
World of Constant Change’.
Please contact us for more information.
Philippe De Backer
Partner
Head of Global Financial Services Practice
philippe.debacker@bain.com
3
POINT OF VIEW | Building an organization that can decide and deliver
BUILDING AN ORGANIZATION
THAT CAN DECIDE AND DELIVER
financial institution’s ability to make the right decisions
quickly and execute them effectively can make all the
difference between getting ahead of rivals and being
overtaken by them.
Jenny
Davis-Peccoud
Bianca
Leodari
Julien
Faye
Senior Director,
Head of Bain’s
Organization
Practice in EMEA
Manager,
Middle East
Financial Services
Practice
Partner,
Head of Middle East
Financial Services
Practice
if you wish to contact any of the authors above please email them on
firstname.lastname@bain.com
The Middle Eastern banking market is becoming
increasingly competitive on product delivery, operating
efficiency and customer experience. In this context, a
In a global survey of nearly 800 companies, Bain &
Company found a 95% correlation between decision
effectiveness and financial results. The best decision
makers generate average shareholder returns that are
nearly six percentage points higher than those of other
companies. The leaders also excel at enlisting the active
engagement of their employees, which in turn enables
them to attract and retain top talent (see Figure 1).
Our work on organizational effectiveness across the
Middle East has pointed to a set of recurring decisionmaking challenges among the region’s financial
institutions:
Figure 1: Effective decision making produces superior financial returns and better employee engagement
Five-year total shareholder returns
Employee engagament
NPS®
20%
30%
“How likely are you to recommend your organization
as a place to work to a friend or relative?”
23
15.7
15
10
20
9.8
10
5
0
-5
0
Low/Mid
High
Decision effectiveness ranges
-10
Low/Mid
Decision effectiveness ranges
*Net Promoter® score is a metric for employee engagement and identifies promoters (scores of 9 and10), passives (7 and 8) and detractors (0 to 6).
It is the difference between the percentage of promoters and the percentage of detractors.
Source: Bain decision and organization effectiveness database (2012), n=167
4
High
POINT OF VIEW | Building an organization that can decide and deliver
duplication of efforts, confusion and conflicts. At one
regional bank, the central information technology
department and the business lines all believed they had
decision rights for critical IT purchasing decisions,
resulting in major project delays and overruns.
Why are we doing this? A basic and frequent challenge is
a lack of clarity about organizational goals and priorities.
A survey we conducted at one leading regional bank
found that nearly half of the employees felt they lacked
the proper understanding of the strategic context to
make the required decisions and the necessary tradeoffs.
Shifting sands. Mergers, acquisitions and other
discontinuities can have disruptive consequences if
decision-making processes and responsibilities are not
quickly aligned. How much authority to concentrate in
the center versus how much to delegate to the business
units is one major source of contention, but the list of
potential areas of friction is long. Following a recent
merger at one bank, for example, the failure to integrate
support functions, reassign decision-making powers
and rewrite clear processes led to the duplication of
human resources activities, making the HR function
less responsive and ultimately increasing staff turnover.
Allergy to delegation. The excessive centralization of
decision-making authority can create bottlenecks and
divert resources away from the most important
decisions. At a regional asset management firm, for
example, risk management procedures mandated
investment committee sign-off for even the smallest
investments. This not only stripped line employees of
authority best left in their hands, but it undermined
effective risk control, as the sheer volume of approvals
turned investment committee decisions into mere
rubber stamps.
How can an organization address these challenges and
improve its decision effectiveness? In their book, Decide
& Deliver, Bain partners Marcia Blenko, Michael C.
Mankins and Paul Rogers draw on Bain’s extensive
research and work with leading companies to outline a
Victim of governance. A failure to formalize and
document decision-making roles and processes—
whose job it is to provide input, who makes the final
call and who to execute the decision—leads to a
Figure 2: It’s not just about making the right decision but making it quickly, effectively and efficiently
Quality
x
“How often do you choose
the right course of action?”
Right decision
Speed
x
“How quickly do you make
decisions vs. competitors?”
Speed relative to competitors
80
80
100%
25%
Lower is better
80
79
80
On par with...
Slower than...
40
20
Mid
20
70
16
62
48
Low
Effort
Do you put the right amount
of effort into making and
executing decisions?”
Effort ‘tax’ for suboptimal
amount of effort
64
60
0
—
Effective execution
100%
Faster than...
100%
Yield
“How often do you execute
decisions as intended?”
High
60
60
54
15
12
45
40
39
20
0
Low
Mid
High
40
10
20
5
0
Low
Mid
High
0
9
Low
Mid
High
Decision effectiveness benchmarks
Note: High decision effectiveness range = top quintile of decision effectiveness scores; Low = bottom quintile; Mid = all other
Source: Bain decision and organization effectiveness survey (Jan. 2012), n=1065
5
POINT OF VIEW | Building an organization that can decide and deliver
five-step solution for overcoming boosting decisionmaking speed and effectiveness:
1. Score your organization’s decision effectiveness against
four criteria.
Our research suggests that most organizations have
the potential to more than double their ability to make
and execute critical decisions. To unlock that potential,
companies first need to assess their performance on
four dimensions: the quality of the decisions they make,
the speed with which they make them, the yield from
their decisions (that is, how well they are executed) and
the effort that goes into decision making (see Figure
2).
One tool that helps executives pinpoint where decision
making may be breaking down is the “Decision X-ray.”
This diagnostic approach, which we have applied at
several organizations in the region, draws upon a large
database of metrics on organizational effectiveness to
rank regional financial institutions across 10
dimensions, relative to local and international
benchmarks (see Figure 3).
2. Identify your critical decisions.
As the number of decisions a financial institution must
make increases, leaders must be clear about which
decisions are most critical for their company’s success.
These include the big, high-value decisions (such as
the allocation of capital among business units) but also
the smaller, more frequent decisions (such as the
ongoing asset and liability management decisions) that
have a major impact on an organization’s health.
3. Make each critical decision work.
Having defined its most urgent priorities, an
organization needs to reset the decisions that are not
working. Doing this is akin to performing surgery—
opening up the patient and repairing the organ in order
to restore him or her to health. We think of this as
fixing the what, who, how and when of the decision. At
the regional asset management firm, for example,
delegating the lower-value decisions to front-line
departments away from the central investment
committee gave an immediate boost to organizational
effectiveness.
Figure 3:The ‘Decision X-ray’ helps organizations diagnose decision bottlenecks and set priorities to
address them
Client diagnostic results
6 prioritized actions
Clarity (Priorities)
1. Values, operating
principles and leadership
team effectiveness
Alignment
Client
Roles
High
Structure
2. Critical decision design/
roles and structure
Processes
Low/average
Information
3. Top 150 leadership
development
People
Performance
(Incentives)
4. Performance management
5. Recognition and rewards
Leadership
6. Leadership behaviors
Culture
1
Weak 2
Average
Source: Bain decision & organization effectiveness database (Jan. 2012), n=1065
6
3
Strong
4
POINT OF VIEW | Building an organization that can decide and deliver
4. Build an organization that supports decisions.
Navigating in an environment of increasing regulatory
oversight and continuing pressure to perform requires
getting not just the big decisions right, but also the
routine operating choices that are made every day
throughout the business. Successful organizations
scrutinize the formal elements of their structure and
processes, as well as the “softer” issues such as their
people and culture. For example, effective riskmanagement decisions require solid governance,
policies and tools. But as many banks have learned the
hard way, it also depends critically on individual
behaviors and daily choices made on the trading floor.
5. Embed capabilities and sustain results.
Once an organization has developed an infrastructure
to support decision effectiveness, it must make the
changes stick. Sustaining transformational change is
never easy—especially when it requires changing
behaviors and how people work together. Successful
companies build a foundation by mapping out goals
and involving influential leaders early on. They
maintain momentum by celebrating early wins and
embed decision behaviors by helping people at all
levels learn new decision skills, sharing best practices
and tracking progress closely. Cultivating the ability to
make and implement quick, effective decisions is what
sets apart winning organizations that consistently
outperform the competition.
7
INTERVIEW | Dr. Bernd van Linder, Saudi Hollandi Bank
INTERVIEW
Dr. Bernd van Linder, CEO,
Saudi Hollandi Bank
The main challenge
for the banks is to
remain profitable in
an environment of
low interest rates
and fierce
competit ion
8
INTERVIEW | Dr. Bernd van Linder, Saudi Hollandi Bank
Julien Faye: Let us start with your views on the Saudi
Arabian banking sector. What do you see as the key
trends ahead?
Bernd van Linder: The economy at large and the
banking sector in particular show signs of great
strength. This strong performance is a solid foundation
for ongoing growth in the near to medium term, which
should benefit and shape the banking sector.
The banking sector can leverage some key developments
in the economy, the financial sector and its governance.
First, the demographics of the Kingdom are very
supportive, with a young, growing population.
Combined with historic investments in education and
strong private sector growth, this drives a rapidly
expanding middle class who demand a wide range of
banking services. This demand has translated into
solid growth of products such as mortgages, insurance,
and services for small and medium enterprises (SMEs).
Finally, recent global experience has shown the need
for proper governance of the banking sector.
The banking sector in the Kingdom is overseen by a
supportive and capable regulator who ensures that the
banks keep their primary focus on supporting the
domestic economy.
The main challenge for the banks is to remain profitable
in an environment of low interest rates and fierce
competition, not just from the traditional players but
increasingly from specialized financing companies.
JF: How do you think the financial crisis will impact
Saudi Arabia? Do you see capital adequacy and
liquidity emerging as issues?
BvL: The Saudi government has continuously expressed
its commitment to make the required investments in
the domestic economy. Combined with the
abovementioned economic developments, this should
make the economy in the Kingdom highly resilient to
any fall out emerging out of the global financial crisis.
Sustained slow or absent growth in developed markets
and a slowdown in growth of emerging markets can
impact the demand and price of commodities,
particularly oil, which in turn could affect the budget in
the medium to long term. Should this happen, the
government can apply its vast reserves to support the
investment programme until demand picks up on the
back of a global recovery.
Given that most of the Saudi banks are highly geared
towards the economic climate in the Kingdom, with
locally sourced liquidity and capital, I don’t expect any
impact on capital or liquidity positions. Likewise, given
their generally strong capital and liquidity position, the
Saudi banks should face no major challenges in
becoming Basel III compliant.
Bianca Leodari: Focusing on SHB, how would you
describe your positioning? What has driven your
success so far?
BvL: SHB celebrated its 85th anniversary last year. We
were the first bank in the Kingdom, and even acted as
the Central Bank for a period of time. Our initial raison
d’être was the support of the Hajj pilgrims coming
from Indonesia; over the years, we have developed into
a solid financial services group, providing the full range
of services across corporate banking, retail banking,
investment banking, treasury and insurance. Whereas
traditionally we are primarily a corporate bank, recently
we have begun focusing on further developing our
retail banking platform.
We are small enough to be
very close to our customers,
but big enough to offer
every product they need
SHB has always placed relationships at the centre of
our model . Throughout our 86 year existence, we have
built very close relationships with our clients and
created a mutually beneficial culture of respect and
loyalty. We are very close to our customers, support
them during their growth phases, and stay with them
throughout the business cycle. We are also proud of
being a very accessible bank: our organization structure
is flat which allows for an engagement with the bank
on all levels. We are small enough to be very close to
our customers, but big enough to offer every product
they need.
JF: Many of your competitors are increasingly
focusing on costs, productivity, and efficiency – which
was not the case in the past. How do you think about
scale and operating efficiency?
9
INTERVIEW | Dr. Bernd van Linder, Saudi Hollandi Bank
BvL : Scale is a requirement for success for certain
businesses: you need a certain scale to be successful in
mass retail banking. Scale is less of a factor in corporate,
SME and mass affluent banking, which are the main
areas of our strategic focus.
Having said this, a minimum operating efficiency level
needs to be achieved, and a strong focus on costs is an
absolute requirement for this. Once you have this in
place, it’s all about leveraging your platform to generate
revenues. Ultimately, revenue growth, not cost
reduction, drives success.
BL: Talking of revenues, what “white spaces,” or
areas of growth for SHB, do you see ahead?
BvL: Among the many areas of growth in the Kingdom,
there are two that particularly match the capabilities
and ambition of SHB. Firstly, home finance is expected
to show strong growth in the foreseeable future on the
back of strong demographics, subsequent demand for
housing, and the low levels of home ownership when
compared to other markets. We have the product and
service offering to be competitive in this market.
Secondly, SME banking is an underbanked area; there
is a substantial number of SMEs in the Kingdom who
have unmet banking needs, and we believe that we are
in a good position to serve them with the right
combination of newly developed products and tailored
client service. SME banking also allows us to focus on
those geographical areas where our presence is
strongest, which are primarily the three main urban
areas in the Kingdom.
JF: Local market share is what matters in this business:
you define your “micro markets” and focus on your
presence there.
BvL: Exactly. We focus on our core locations, where we
can provide a market leading service to our SME
clientele.
Another exciting opportunity is bancassurance, which
we participate in through our 20% ownership of a
listed insurance company called Wataniya. Wataniya’s
strong shareholder base and its competitive product
offering, combined with our distribution network,
should allow for fast growth. This also ties in nicely
with the SME offering, where a tailored bancassurance
solution offers a sizeable opportunity for cross-selling.
10
JF: Considering your size vs. larger Saudi banks, how
do you trade-off between organic and inorganic
growth?
BvL: Our main focus is on domestic growth, given that
the opportunities in the Kingdom are probably more
attractive than in any other country in the world. We
have invested heavily in our people, systems and
organization to ensure we have a sustainable platform
for growth. By being focused geographically and on the
segments in which we believe we can compete well,
pursuit of organic growth is paying off and set to
continue. Having said this, our shareholding in
Wataniya shows that we are open for inorganic growth,
provided that the right opportunity comes along.
BL: If you were to summarize for fellow executives
your views on how to develop a successful banking
model, what would you say?
Banks should ne ver forget
that they have a crucial
and important role to play
in society. In this role,
sustainability and a long
term perspective are key
ingredients
BvL: Like any service industry, banking is all about
people. Having the right team in place is the first
prerequisite for success. Secondly, it is crucial to build
and maintain trusted and mutually beneficial
relationships with all stakeholders, be it our clients, our
regulators, our shareholders and society as a whole.
Your long-term relationships will determine your
success so it is important to stay close to them, to
understand what they need, and to make sure you
match their needs with a high quality offering. Lastly,
banks should never forget that they have a crucial and
important role to play in society. In this role,
sustainability and a long term perspective are key
ingredients for a value adding contribution. Those
banks that understand their role well have a future in a
rapidly changing banking environment across the
globe.
Bain’s business is helping make companies more valuable
Bain & Company is the management consulting firm that the world’s business leaders come to when they want
results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and
acquisition, developing practical insights that clients act on and transferring skills that make change stick. The
firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the
stock market 4 to 1. Founded in 1973, Bain has 49 offices in 31 countries, and its deep expertise and client roster
cross every industry and economic sector.
Who we work with
Our clients are typically bold, amibitious business leaders. They have the talent, the will and the openmindedness required to succeed. They are not satisfied with the status quo.
What we do
We help companies find where to make their money, make more of it faster and sustain its growth longer. We
help management make the big decisions: on strategy, operations, technology, mergers and acquisitions and
organization. Where appropriate, we work with them to make it happen.
How we do it
We realize that helping an organization change requires more than just a recommendation. So we try to put
ourselves in our clients’ shoes and focus on practical actions.
For more information visit: www.bain.com
Follow us on Twitter @BainMiddleEast
Contact information for Bain Middle East, Turkey and North Africa Financial Services Practice
Julien Faye
Partner
Bain & Company
Telephone: +971 4 365 7350
julien.faye@bain.com
Philippe De Backer
Partner
Bain & Company
Telephone: +971 4 365 7360
philippe.debacker@bain.com
Emmanuel Yoo
Partner
Bain & Company
Telephone: +971 4 365 7380
emmanuel.yoo@bain.com
Karaca Kestelli
Partner
Bain & Company (Turkey)
Telephone: +90 532 3377 670
karaca.kestelli@bain.com
For more information, please visit www.bain.com
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