Belinda Anderson
Nedcor’s strategic planning around technology must be applauded for its clever thinking and planning.
The approach is a two-pronged one that cannot really be separated. On the one hand, there is its technology and operations (T&O) division, which is in the process of commercialising. And on the other, there is a collection of investments in technology companies, listed and unlisted. The two interlink because the companies it has invested in provide the IT expertise and infrastructure to help the T&O division operate, and in such a manner to reduce costs to the overall group. The plan is to make money by outsourcing its processing or operational services to other institutions.
In its recently released 2000 annual report CEO Richard Laubscher says: ”The forming of alliances with best-of-breed companies, the commercialisation of T&O and strategic investments in leading IT companies are the pivotal strategies taking us into the future.”
And chair Chris Liebenberg grounds the thinking in the global economy: ”The speed of IT change, its increasing reach and the rapidly reducing unit costs of processing are driving businesses to come together across geographic and national boundaries and blurring the definitions of what were previously discrete entities. This is particularly so in banking.”
Nedcor’s IT investments include stakes in Internet Solutions, Aplitec, Miraculum, the IQ Business Group, Dimension Data plc and Nihilent. According to Rick Tudhope, the general manager of corporate and strategic activities, they make up roughly 30% of the net asset value of the overall Nedcor group, but after the meltdown in the IT markets they make up about 10% to 12% of the market value of the group. Nedcor likes to take ownership of some part of the company instead of simply forming alliances so that it might reap greater than arms-length rewards.
Nedcor has not previously elaborated too much on how it plans to turn its technology focus into visible returns. But as the strategy gains momentum it is becoming clearer to the market.
Laubscher says the focus on technology and process improvement must be ”not only to service the Nedcor group, but also to create a possible outsourcing destination for other local and international financial institutions.” Nedcor is pioneering the concept of outsourcing the operational, processing side of banking in South Africa.
The head of marketing and communications at the T&O division, Colin Wheater, says Nedcor would be less likely to penetrate the local market than the international one, at least initially. But it is in talks with a number of banking institutions offshore about the possibility of outsourcing its services to them.
Wheater says the idea has its roots in improving its own processes using technology and it has been able to save some money for the company in the process. Though difficult to quantify the cost savings the division has already brought to Nedcor, the group’s cost-to-income ratio is significantly lower than other banking institutions, which is a good indication that it has been successful in keeping costs down.
Tudhope says the lack of volume in the local market is what has led to it looking offshore. ”Commercialising the T&O division gives us a different avenue to bring in the kind of volumes we need to get the required efficiencies.”
For the strategic thinking Nedcor certainly needs a pat on the back. As for the meltdown in the IT markets, the effect has certainly been negative for Nedcor’s share price. The counter traded to a high of almost R180 in January, before dropping to R130 earlier this month and moving back up, to about R150. But the group remains happy with most of its technology investments from a strategic perspective, except for the 8,2% stake in Dimension Data. ”We would regard this as one of the mature investments and one that we will review,” says Tudhope.
He says the relationship with DiData has progressed to the level of being able to explore joint opportunities, but its stake has ended up being too small to be valuable enough to Nedcor. ”We are no longer the biggest shareholder, but one of the many shareholders.”
Illustrative of this is DiData’s willingness to ally with other South African financial institutions. Last week’s announcement of a joint venture with Coronation, in what they are billing as online treasury outsourcing, is perhaps the best example.