Mergers in the case company

For this section I have interviewed a Governance Lead in the OP Financial group on 20th of February 2019. He has years of experience on mergers and he works as a support person for banks planning to consolidate. In his interview, we went lightly through history of mergers in the OP Financial Group, main motives for mergers,

objectives, advantages and challenges as well as effects on the personnel and possible changes mergers create for the customers.

3.4.1 History of mergers in the OP Financial Group

The history of merger in the OP Financial group includes over a thousand

consolidations. Small village cash offices have amalgamated to bigger municipality cash offices and then they have transformed to banks and then later some of the banks have merged and become sub region banks and eventually banks for the entire county.

This is also how the concept of being local have evolved. Every bank has gone through a merger, it might have happened earlier in the history or it might be relatively recent.

Figure 8. Number of banks in the OP Financial Group (2020)

3.4.2 Motives and objectives

Mergers are somewhat connected with the history of the concept of locality. The perception of being local has changed and it has been natural for banks to change in the same pace. The main motives for mergers are securing and improving service ability. Every bank consolidating has their own list of motives that they think are the most important drivers for a merger. The biggest influence on the background is the financial industry as whole. Strict regulation and demanding competitive situation are most often unbearable to handle for a small bank as well as the pressure of being

cost-0 500 1000 1500

1903 1913 1923 1949 1959 1969 1979 1989 1999 2009

Number of banks in the OP Financial Group

2010:213 banks 3/2020: 143 banks

effective. Most often in small banks one third of the resources go to tasks that are away from the work that creates value for the customer.

In a small organization, there are also a lot of pressure for individual workers, not to mention the CEO, as they are needed to do almost everything, no matter what they are actual good at or what they interest are. The transition pace in the financial industry is fast and it is hard for a small bank to live up to the standards and needs of the

customer rather lone the demands from the authority and form the OP financial Group. Vulnerability and the well-being of the employees are such challenges in a small bank which make them consider to merge. The competitive situation is brutal in the financial industry nowadays. Other financial operators have a lot less branches around the country, which makes them more cost-effective. Customer are not ready to pay considerably higher prices just because they want to keep their own branch alive.

The main merger objectives in OP financial group are secure service ability, growth and effectiveness for the banks operating in the same economy area. Furthermore, in the demanding financial competitive and market situation mergers secure and amplify that banks can offer services that are cost-effective yet diverse, resilient and personal.

3.4.3 Advantages

Mergers are different in sizes, depending how many and how big banks merge. The biggest advantage in a bigger bank, it is possible to offer a larger scale of financial services and more personal services for their customers, simply because there are more employees with a variety of special skills. Also after a merger banks are often able to offer flexibility in their service hours.

“No matter the size of the merge, comparing old to the new, all banks feel that they can provide their customer with better and larger scale of services after a merger.”

(P1)

“One of the biggest advantage for customers is that in a bigger bank the employees have time and resources to be actively in contact with the customer” (P1)

Sharing of the best practices is also an advantage in a merger, this way they will be spread around the organization and the bank can find the best way to create a superior

customer experience and create a coherence procedures. In addition, the support from the co-workers is considered a positive impact of a merger, because employees feel that together they can serve the customer in the best possible way.

3.4.4 Challenges

There are two types of challenges within a merger; challenges involving the decision-making process and challenges of the option continuing to operate as independent bank. The biggest dilemma is that government, who are best aware of the challenges and of the future, initialize the merger process but the people, the co-operative membership, who make the merger decision do not know or understand a lot about the background, motives and arguments. The challenge is that how does the

government is able to communicate all the merger motives for the co-operative membership in a way that they would deeply understand the challenging in situation the bank is in now and especially in the future without a merger. Other big arising challenge in a bank merger are that people fear that the bank is no longer local for their customers, when in fact we come back to the beginning where we need to rethink what locality actually means. In the final merger meetings, the body of delegates feel that the branch itself is what concretize the feeling of locality, especially the cash office is associated with locality. This is overall a distorted paradigm, but it is a fact that in the decision-making ceremony this is what is being emphasized.

“The most often asked questions when the government and the co-operative

membership is being heard in a merger meeting are: is the locality going to become weaker? Are the decision making going further from the customers? How do the customers feel about the consolidation of the organization and its procedures? Are the services in my own branch going to end and will my contact person change or be further away from me?”(P1)

Also, the fear of losing a tight community when losing an independent bank is relevant. Local banks sponsor a lot of events and take care of the community in that way. These can be classified as emotional aspects which lot of customer have for their bank. In some level people think it is an absolute value to have an independent bank in your hometown. But it is good to remember that there is a big number of customers

that do not have emotional relationship with their bank and perhaps think they are all the same and mostly use online services.

3.4.5 Effects on the personnel

As mentioned before after a merger the bank shares a bigger work community. This gives security, possibilities to specialize and even enables new career paths for some.

People can find areas where they are good at. In a small bank employees, might be forced to do tasks that they do not see natural for them. Usually employees see a bigger organization more attractive than a small one, but this of course is very

personal depending on the nature of the person. After a merger, one of the main goals is to create a coherence organizational culture, which naturally brings changes to all employees. This might also bring insecurity and fear of not being good enough in front of the new co-workers or valuable for the organization.

“Change is always somewhat scary; it brings up insecurity and questions from the employees: is my manager going to change? Is my work environment going to change, do I have to commute more and what about all the fringe benefits and everything else?” (P1)

“The worlds are different between the banks even if you have worked within the group for ages” (P1)

3.4.6 Effects on the customers

Customers do not need to do anything after a merger, all their services remain the same. This one of the fears that customer might have when they hear about the merger for the first time. Also, customers are afraid of if their contact person is going to change and will there be any familiar faces in the bank anymore. Most often the old personnel stay at least in the beginning, it is natural that within time there will be some changes made. Nevertheless, usually customers are delighted that there are new professional services available for them.

Being able to secure the service ability is the biggest step towards bettering the customer experience. In addition, experts and utilizing new customer service channels, actively being touch with the customers all add to long term goals of

improving the overall customer experience. In long term, mergers can secure that the bank can secure their customers banking services even during the turbulence in the financial industry. Importantly in the merger meeting it is documented that the common will is to secure and develop the new operation are fairly and uniformly.