But Erste faced two major issues with CS: one of quality, the other of quantity. In terms of quantity, "it was clear from our due-diligence analysis that we would have to downsize," he says, noting that CS had 16,000 employees, compared with Erste's 6,000. And quality? That was cultural. CS was no different from any other state-owned, "almost monopolistic" institution with roots in communist Europe. In other words, customer service was essentially non-existent, as was any sort of sales-driven culture among managers.
Of the two, the quantity issue was relatively easy to address. First, he says, "whatever one might think about the previous management, they had already reduced the headcount in the years before we bought the bank. So there was a clear expectation inside and outside the bank that a foreign, listed company would continue to trim down the number of employees." That helped make working with the local unions more straightforward. Second, the Czech economy at the time was doing well, so "there was a good absorption capacity in the market." Finally, the cull was conducted across many small, unprofitable branches, so "it was not one massive lay-off in one location, which makes it easier for people to find a new job and reintegrate."
Quality, meanwhile, was going to be much trickier to control. Although only a stone's throw away from each other, Erste and CS couldn't have been further apart as far as culture was concerned, from work ethics to incentive structures. Erste needed to close the gap quickly.
This goal required a deliberate process. Erste's due-diligence team identified areas at the Czech bank that needed fixing. The result was a series of 23 projects and numerous sub-projects — some short term, others long term and each co-led by department heads from CS and their equivalents from Erste. The quick wins were important. "One hundred quick measures for the first 100 days signalled to employees, customers and the outside world that something was changing," says Ortner.
An underlying theme of those changes was tackling CS's reputation for lousy customer service. Along with ongoing training programmes, other measures in Erste's plan of action included monitoring service at individual branches using customer feedback surveys, appointing a customer ombudsman team — a first in the Czech Republic — and increasing accountability by developing a bonus programme based on hitting both financial and non-financial targets, including customer-satisfaction levels.
Today, says Ortner, CS has more than 5m customers — out of a population of 10.5m that means "every second Czech citizen has a relationship with us", and the bank has made steady improvements in customer satisfaction.
Old Habits Die Hard
As M&A experts note, cultural issues that aren't ironed out quickly can escalate and weigh down company performance long after a privatisation is completed. Ask Margaret Ewing. When she left publicly listed Trinity Mirror to join UK airports operator BAA as its new finance director in 2002 — 15 years after its privatisation — she found an organisation clinging to the past.
For starters, she recalls being struck by a strong sense of public duty among staff, most of whom had worked with BAA before its privatisation and "felt huge pride in their organisation." That in itself wasn't such a bad thing.
At the same time, however, Ewing could see that BAA's staff also needed to balance that sense of public duty with a "private company, shareholder-focused strategy." That wasn't happening on several levels. A case in point was capex management. "When I joined, the concept of ROI for each capital project was simply not considered," she says. "The fact that we weren't making a sensible return or the fact that you might make that investment more cost-effective really wasn't thought of."
One way that Ewing began changing the culture in finance was to transfer routine reporting and other basic processes to a shared service centre in Glasgow, which had been set up before she joined. That left her with an immediate finance team based around two new roles: business performance managers and decision support managers.
Ewing admits that she had to adjust her own expectations about how much, and how fast, BAA was capable of turning the corner. For example, although only two of the 200 finance staff were union members, Ewing had to consult with the three unions recognised by BAA when she wanted to reorganise finance. She also had to get agreement from every line manager who worked with the finance function.
Beyond finance, there was a lot of other, belated post-privatisation work to be taken care of. "Fifteen years down the road from privatisation, there was a huge amount of excess resource at the middle-management level that needed to be removed from the organisation," she says. But as she notes, although civil service and government compensation packages tend to be relatively low in terms of basic salary, the pensions and other benefits can be very significant. "When you try to take headcount out, the cost of removal can be quite prohibitive," she notes. "You try to do it as much as you can by attrition and natural wastage. And you try to do it by economies of improved efficiency. At the end of the day, you have to take the risk and address the issue head on." Hence a programme announced in 2005, of 700 redundancies over the next few years.
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