Santander / Abbey: integration strategy - overall assessment

In order to reach an overall assessment of the Santander-Abbey integration strategy, it is useful to apply the framework used in class to summarize the above mentioned integration procedures. We will analyze the following factors: people and asset retention, the degree and speed of integration, the process adoption and the knowledge transfer.

i. People and Asset Retention

Santander’s focus was clearly in Abbey’s assets and asset retention was high. Abbey provided Santander with access to a profitable market through a well established branch network with a strong brand and a high-quality customer base as well as a valuable portfolio of loans and mortgage business.

People retention and the loss of human capital do not seem to concern Santander. It believed that Abbey was poorly managed and inefficient. Layoffs were seen as a way to reduce redundant capabilities and increase profitability. They amounted to approx. one quarter of Abbey’s 26,000 pre-merger workforce.

ii. Process adoption

One of the reasons of Santander’s main focus on assets as opposed to people was probably its belief that the Santander’s business model was superior and that the preservation of tacit knowledge at Abbey would not play an important role. The actual value of the operation resided in Abbey’s assets, which allowed Santander to become a strong player in the UK market, not in Abbey’s processes, systems or people.

This is why the flow of knowledge and information is mainly from Santander to Abbey and the adoption of Abbey processes is low. Process transfer from Santander to Abbey is high, ranging from the implementation of Santander’s IT platform Partenon by 2007, the gradual integration of back-office activities, the adoption of strategies at Abbey in order to improve customer service levels and the refocus from back-office to front-office activities.

The implementation of Santander’s IT platform is a good example of how to use technology as a driver of consolidation. Santander believes its Parthenon platform will help drive down costs and drive up business, meaning that the process of standardizing technology is a boost rather than a drag on earnings.

iii. Degree of integration

Considering that the merger is the first big cross-border merger in the European banking sector, the size of both players, the potential for cost reduction due to staff redundancies as well as the difficulties of integrating two very different cultures – the Spanish “Latino” culture as opposed to the “British” culture- we believe that the current degree of integration which is medium is appropriate. It makes sense for Santander to appoint someone from its organization to be Abbey’s new CEO given the turnaround it will bring to Abbey, streamlining activities and exporting the “Santander Way” .

The degree of integration is medium: despite the fact that Abbey’s new CEO comes from Santander, the roll-out of Santander IT processes at Abbey and that Abbey has changed its brand image to include the Santander logo, no intense interaction and teamwork among low- and midlevel managers of Santander and Abbey has taken place yet.

iv. Speed of integration

The speed of the integration has been high. Santander had a clear time-frame since the very beginning. The initial phase (which included negotiations, due diligence, shareholder and regulator approval) was concluded within 100 days after the announcement of the deal. Achieving a secondary listing for the Santander stock in the London Stock Exchange, a major concern for Abbey shareholders, was timely executed in this phase without major complications.

The transfer and application of knowledge with respect to brand management, marketing and customer service as well as the reduction of redundant capabilities was rapidly put into practice in order to avoid loosing momentum and due to the urgency of rapidly delivering the expected synergies. IT platforms, a major source of cost synergies, will be totally integrated by 2007. This delayed timing is due to the inherent complexity of exporting and preparing the organization to adopt such a comprehensive IT system.

v. Knowledge transfer

As highlighted above, the preservation of tacit knowledge at Abbey was not a major concern for Santander. Santander is interested in a knowledge flow from Santander to Abbey.  The new CEO’s main objective is to successfully turn Abbey into a profitable business by increasing service levels and widening the customer base. To that purpose, Abbey employees are provided with special training, overlapping capabilities at Abbey are cut or reduced and complemented by the group’s capabilities.

:: The Santander / Abbey deal :: I. Background: History | Santander | Abbey | reactions; II. Acquisition objectives | synergies | complexities; III. Integration strategy | assessment; IV. The deal: evaluation | bibliography | index