Magazine article Management Today

MCA Management Awards 2009: Business Strategy Winner

Magazine article Management Today

MCA Management Awards 2009: Business Strategy Winner

Article excerpt


They say fortune favours the brave, but launching a bank? In a credit crunch? Still, having established a successful personal finance business 10 years ago as a joint venture with the Royal Bank of Scotland (RBS), Tesco decided a fully fledged retail bank was a logical next step and bought out RBS's shareholding.

Of course, other retailers have joint ventures or distribution agreements with banks and insurance companies. Tesco's agreement with RBS had allowed the retail giant to launch its own-brand banking and insurance range, as well as roll out ATM machines and the Tesco Compare website. Tesco Personal Finance had notched up 5 million customers, earning more than pounds 200m in profits, and became the UK's third-largest car insurer in the process. But Tesco wanted to offer customers its own current accounts and mortgages.

No other retailer had set up its own full-service bank in the UK. But although the supermarket had an unrivalled brand, customer knowledge and chain of outlets, it still relied on RBS for product, processing capability and technology. Some 2,500 RBS employees were involved in servicing Tesco customers, while another 200 in the Edinburgh head office handled sales, marketing and product development. Ownership and profits were split equally between the two parties. Untangling that arrangement would be tricky - particularly in the 12 weeks Tesco wanted it completed. The supermarket chain was convinced that the prevailing economic climate represented a substantial opportunity for a new bank to win new customers.

Navigant used its financial services experience to strike a deal by which RBS became Tesco's supplier. First, the consultancy helped Tesco plan precisely which services RBS would provide during the transition period and how to ensure that service to customers would not be interrupted while the changes were taking place - regulatory approval for the deal hinged on assurances that Tesco's customers would not be negatively affected.

And Navigant worked with Tesco to create an operating model for the new business. About 15 consultants from Navigant worked alongside four people from the retailer's corporate finance function. A deal as large and complex as this involves lawyers, actuaries and accountants too, so Navigant's consultants liaised with them all to support negotiations and help draft the contracts. …

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