THE CETREL CASE

Dr. Jean-Marc Fandel November 2014

2003 / 2004 Cu#ngCost

2005 / 2006 PrudentGrowth

2007 Externalshock

2007/2008 AllianceforGrowth

2009/2011 Execu:ngWell

20012/2013 Integra:ng

CompanyPresenta:on&Challenges

FairProcess

Theenvironment

Howdoyougetotherstodowhatyouwant?

Somereflexionsalongtheroad

From500’000cardsto3’000’000cardsFrommonolinetodiversifiedITservicesFromcoopera:vetoacommercialcompany

CETREL S.C. in 2002 •  A cooperative of Luxembourg banks

•  Active in electronic payments – real time 24/7

•  Numerous stakeholders

–  Cardholders –  Merchants –  Banks

Challenges •  Complex activity

•  High prices, because of a “protected”market

•  Banks restructuring, saving cost

•  Cetrel untouched

–  No effort to improve cost position –  Lacking efficient project management –  Neutrality questioned

2003-2004 “Cutting cost” •  Objectives

–  Lower cost to serve to the banks –  Maintain quality of service and project delivery –  Ensure regeneration of assets

•  Key actions – working in the system

–  Introduce cost transparency (ABC) –  Strict cost control ( internalise work and lay off contractors) –  Upgrade the organisation (assessment and recruitment) –  Reorganize in clearly defined areas (PS / BS / IT) –  Close long standing issues (Close 2nd site; sell IP)

“When change is happening faster outside of your company than inside, you put your company in danger” (Jack Welch)

The environment •  Competition among banks (ie. banking groups)

•  Competition from new entrants (international players)

•  Consolidation of the industry through M&A

•  Regulatory compliance taking the elevator

2005-2006 “Prudent Growth” •  Objectives

–  No change

•  Key actions – working on the system –  Introduce Lean Management to free up resources –  Introduce an 18 month training program for SM and MM to

sharpen and develop our management skills (“shared principles of management”)

–  Go international with processing –  Introduce ITIL, PMO, BCP, SLA –  Develop new business ideas / diversify on the basis of a 24/4

highly resilient IT infrastructure (Luxtrust, Cetrel Securities SA)

How to mobilize people ?

•  Authority –  Balance of power –  One-off

•  Persuasion –  Minimize cognitive discrepancy

•  Rational behavior (align behavior with beliefs) •  Rationalizing the behavior (align beliefs with behavior)

–  Perfect understanding •  Necessity to incl. feedback loop

•  Engagement –  Start changing behaviors on a small scale –  Fabricate successes

Some reflexions along the roadmap (1)

•  What will change and what will remain ? –  In order to protect what we value dearly, we have to be capable

to change what we value less –  Always refer to the past and the protection of the things we

value –  People hate insecurity more than change

•  Recognize the loss and be prepared to compensate that loss (negotiate) –  There will be a loss –  Depending on your position, you will have a another view of

things to come –  Stay close to the troops (their reality is not yours)

•  Seek input before deciding, allow for a fair “share of say” –  You do not have all the answers

•  Do not adapt to change –  Imagine a new future taking the new constraints into

consideration –  Develop a clear and engaging vision (a land of milk and

honey…) / dissatisfaction with today, satisfaction with tomorrow

•  Hold workshop to fish for ideas, give time to recognize and

acknowledge the issue –  Sell the problem not the solution

•  Replace authority or persuasion by engagement –  Stop, start, continue –  Allow for autonomy in reaching the best solution

•  Change behaviors, ensure early successes. The change in beliefs will follow, man will seek to rationalize past behavior

Some reflexions along the roadmap (2)

•  We lost the local clearing & settlement business to EBA due to their projection of vastly lower unit cost.

–  Were the banks our friends or enemies ?

•  Pressure due to foreign competitors was increasing.

–  How are we going to compete against vastly lower rates ?

•  Bigger clients demanded that migration/on boarding was pre-financed by the supplier. Our ownership did not allow for this.

–  How do we get our owners accept a growth strategy and invest in a scalable IT platform ?

The year 2007

•  The company has developed over the last 2 years –  Acquired international client base and increase volumes –  Diversified it service offer to generate additional revenues

•  Economies of scale / size play an important role in being able to produce at competitive prices

–  Owners cannot bring more volume –  Clearing and Settlement is the first victim

•  Prefinancing growth is not an option for the banks as they see themselves as “banks” and not “financial service providers / Industrialists”

The context

Fair Process

•  Engaging –  Involve relevant people, ask for their input in framing the issue, conclude with a

clear framing of goals and challenges

•  Exploring

–  Generate multiple options, thoroughly examine them, including the implementation; use clear criteria to eliminate unpromising options

•  Explaining –  Make a clear decision, take time to fully explain its content and rationale, clarify

expectations to properly execute, roles and rules

•  Executing –  Devote all efforts to loyal execution; give feedback, give rewards or sanctions. In

case of fatal setbacks, move to next stage

•  Evaluating –  Seek critical revisions and lessons to improve decision and process for the next

time; getting the learnings

growth

profit control

Choose 2 out of 3 !

2007-2008 “Alliance for growth” •  Objectives

–  Conclude an equity alliance to ensure a sustainable future –  Share ownership and maintain joint control –  Ensure lowest possible cost to the owners

•  Key actions –  Transform the cooperative into an SA, simplify corporate

structures and reduce shareholder ship –  Perform a European wide search for the best industrial partner –  Develop a joint roadmap for taking the company forward –  Entry of SIX into Cetrel 50% via a capital increase

2009-2011 “Executing well” •  Objectives

–  Leverage the SIX presence to acquire new contracts (in issuing and acquiring; other financial technologies)

–  Migrate merchant processing onto SIX platform –  Transform CETREL IT platform for bank processing

•  Key actions –  Post acquisition workshops on working together –  Emphasize on large scale project management –  Introduction of Strategic Performance Management ABM/

BSC

EXECUTION

Develop the strategy

Mission, Values, Vision Strategic Analysis Strategy Formulation

Translate the strategy

Strategy Map Measures Initiatives / Stratex

Align the organsation

Business Units Support Units Employees

Plan the operations

Improve key processes Sales & Capacity Plan Budget

Strategic Plan

Strategy Map Balanced Scorecard Stratex

Operating Plan

Dashboards Sales Forecast Resource Requirement

Test & Adapt

Profitability Analysis Strategy Correlations Emerging Strategies

Monitor & Learn

Strategy Reviews Operating Reviews

Processes

Initiatives

1 2

3

4 5

6

KPI’s

KPI’s

Results

2012-2013 “Integrating” •  Objectives

–  Change of decentralized organisational structure to a centralized structure at SIX Group level

–  Integrate Cetrel into the newly formed SIX Payment Services Division

–  Maintain quality of service during transformation and integration

•  Key actions

–  Reengineering local procedures and processes to SIX standard –  Emphasize on large scale project management and manage,

build vs run issues –  Spin-off the IT and project management from all SIX

divisions to a new division “Global IT”

As of 2014

•  Cetrel is a 100% subsidiary of SIX Payment Services

•  The Luxembourg location has become –  center of excellence for card issuing –  merchant service hub for Luxembourg and Belgium –  a service center for financial information

•  SIX has through other acquisitions now some 1’500 employees in total, spread through Switzerland, Austria, Luxembourg and Poland.

•  The perspective is to become one of the three top tier processors in Europe through acquisition and integration onto one single IT platform.

Some concluding “reflexions”

•  When you want to drink sweet coffee, you have to wait until the sugar melts

–  Rhythm and tempo / Dynamic

•  You do not grow flowers, by pulling on them

–  Create / Use Context

•  Love it, loathe it or change it

–  But, do it !