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Equip your employees with the sufficient navigation tools to understand the organisational model or cut down on complexity.

In the current economic climate, companies are under pressure more than ever to simplify operating models in order to cut costs and increase the company’s value. This isn’t an easy task. But Neil Kelly, Head of Global Corporate Payment Solutions for the UK & Ireland, has identified two key factors to successfully master the complexity challenge: consistency and standardisation.

Organisations too complex to comprehend

Three years ago, one in three of a company’s employees could have easily described their firm’s strategy, structure, operations and products and services. Today that figure has fallen to one in five as a global survey of the Economist Intelligence Unit (EIU) shows. The research study, conducted amongst 300 senior executives in October and November 2010, found that 28% of the survey respondents described their business as “substantially more complex” than three years ago. Furthermore, according to the survey’s findings, complexity has significantly increased the risk exposure of nearly one in five (18%) firms in the survey, and at nearly one in four (23%) financial services firms. Given these figures, it is unsurprising that complexity is top on senior management’s agenda.

Client demand pushes complexity

Asked for the key driver for the increased complexity the majority of respondents quoted growing client demand. Neil Kelly confirms that this result matches his own observations: “Operating under constant time and market pressure, the preferred route for most companies seemed to add new products and new systems in order to satisfy client needs across the globe. Furthermore, companies entering new markets have to apply to different tax regimes, different regulatory environments and different accounting standards, which yet again might require different supporting systems,” Neil points out. Neil concludes that the majority of companies considered adding new systems and introducing additional operating models to be the quicker and easier solution rather than improving and tweaking the systems already in place.

Provide navigation tools or cut down complexity

As a result, by adding layer over layer most companies have now ended up with 3D or 4D organisational models which are too difficult to comprehend and, in particular, difficult to control, Neil concedes. “As the CEO of a company you have two choices: equip your employees with the sufficient navigation tools to understand the organisational model or cut down on complexity,” Neil says. However, being forced to reduce the complexity of products and systems after years of “generous growth” is a difficult task, finds Neil: “It requires confidence to boil down your business.”

Our Global Transaction Services business, itself, is only too familiar with the dilemma of trying to reduce complexity whilst feeling the need to offer a wide range of products and product variations to suit all clients across countries, across sectors and across different company sizes, as Mr Kelly points out. “Our global clients choose us in order to benefit from our global network and our product capabilities, whereas relatively smaller companies are typically looking for rather simpler solutions around how to collect money, how to set up an account in another country or how to pay locally. Hence our range of products and services varies widely which obviously increases the complexity,” Neil explains. One way to cut through it is to “unwrap” the global products and repackage them for clients with more basic needs. Or to put it in Neil’s words: “Our challenge is not so much to add another F1 car to the F1 cars we already have in our garage. The challenge is to fit the F1 engine into a VW.”

Changing regulation could present a business opportunity

Another key driver for complexity, according to the EIU study, is – not surprisingly – increased regulation. Each recession brings a new raft of financial regulation, more stringent than the last, and the recent financial crisis is no exception. “Trying to simplify complexity seems to be nearly impossible to some of our clients when having to deal with constantly changing regulatory requirements,” Neil mentions. He understands it as his team’s role to advise their clients on regulatory changes and how they affect the clients’ business. “Many clients tend to see new regulations as a threat, because they don’t understand them in detail,” Neil has observed. This is why he regularly organises client roundtables to discuss the challenges and – even more importantly – the benefits and opportunities which can arise from new regulations, such as, more recently, around PSD (Payment Services Directive) Regulations, XML standardisation, compliance, or initiatives such as SEPA (Single Euro Payments Area).

Consistency and standardisation as a starting point

So what is the best starting point for a treasurer facing the complexity challenge? For Neil it is all about defining one consistent operating model which can be used across countries, across businesses and across client groups. “You can only simplify when you are consistent and when you standardise.”

Once an operating model has been agreed, other components fall into place. “We have worked with a number of treasurers on this challenge. Within the financial context they have all faced the same circumstances: dealing with too many different payment flows around the world, too many different reporting standards, too many different payment types, interfaces or bank relationships.” According to Neil they all shared the same aim: “They wanted visibility and the ability to operate the same way in every country.”

Standardisation and consistency is also at the very top of the agenda within the financial services industry. Whether SEPA (Single Euro Payments Area) as a self-regulatory initiative by the banking sector of Europe, or ISO 2022 XML, the industry’s aim is to strive to adopt one common payment standard, Neil points out. Meanwhile we provide services for our clients to convert their single file format into the required format to process payments. However, with companies switching from one network bank to a small group of global and strong regional banks as their partners in order to reduce their risk exposure, standardised formats have never been more important.

RBS can help with navigation tools and simplifying complexity

“With our teams we can help with both: navigating in a more complex environment and simplifying complexity,” says Neil. The client teams understand themselves as the arms and legs of the treasurer. The treasurer’s position within an organisation has been elevated substantially since the financial crisis, Neil points out. For instance, many more treasurers now have access to the board of directors because these boards need to know where the cash is and what risks are being run on a counterparty basis. “We can help these treasurers to keep their business up to date with changes in risk and regulation. They can rely on us to provide the right tools to manage cash flows, reporting and payments across the globe and, most importantly, to do this consistently, so that they gain better visibility and control over their global cash positions at any time of the day and anywhere in the world,” explains Neil.

But probably even more important in the current economic climate, we can advise treasurers on simplifying their operating model. “We can get involved in the task of reducing complexity from the very start. We can help identify complex systems, the factors causing the complexity and negatively affecting the business performance, and we can then help to draw up a simpler operating model before determining the appropriate systems to put in place,” Neil summarises.

RBS faces same challenge as its clients

Finally, RBS benefits from its in-house expertise while tackling its very own complexity challenge: “We have to go through the same exercise as many of our clients,” Neil points out. He suggests having a look at the RBS group website (www.rbs.com) which, he says, is quite powerful in demonstrating that RBS means business when it comes to reducing its own complex organisation. “You can see the tasks we’ve completed to date, and the tasks still ahead against deadlines. It’s very transparent, it shows our commitment and it helps our stakeholders and all employees at RBS to understand the scope of this project and the changes which will follow as a result.”