Lloyds Banking Group

Case Studies

Lloyds Banking Group

Operating Model Design and Strategic Outsourcing Review

Following the acquisition of HBOS in 2009, LBG embarked on a two year programme to integrate and optimise the operating model supporting the merged investment administration and accounting units of Scottish Widows and HBOS Investment Funds, which are responsible for circa 1,200 funds with combined assets in excess of £200bn.

A major part of the programme was to review the in-house model used by the legacy HBOS business, and to undertake a market assessment of an outsource solution. If LBG chose to outsource the HBOS business as well, this would effectively extend and re-tender the existing accounting, middle office and custody arrangements in place between Scottish Widows Life & Pensions business, SWIP (the Group’s asset manager), and State Street.

Business Challenge

The legacy Scottish Widows and HBOS businesses had large, complex fund ranges, administered on different operating models.  The HBOS business had itself integrated a number of life businesses onto a single operating model and vendor platform with a skilled team based in Aylesbury for in-house operations, accounting, change, and IT.  Whilst the HBOS business had experience of outsourcing specific components of its business, such as custody and OEIC fund accounting, this was very different to the long-standing strategic outsourcing arrangement with State Street which underpinned the accounting and operational components of the Scottish Widows and SWIP businesses.

Solution Approach

A multidisciplined programme team was assembled to design the new combined insurance company operating model for fund administration and operations.  A significant part of the programme involved assessing the capability of potential outsourcing partners to economically achieve the strategic objectives of both the newly combined insurance businesses and SWIP.  An RFP document was sent to potential partners, then assessed in detail via workshops, targeted meetings and site visits. The team then negotiated key commercial terms with a shortlist of providers to arrive at a preferred outsource partner. When the selected partner was evaluated against in-house options, LBG determined that the outsourcing option was preferable.  A contract was negotiated and due diligence completed, ahead of a lift out of the legacy HBOS administration and accounting businesses. 

Knadel Value

Knadel provided expert advice and consultancy support to the programme leadership team and key workstreams, such as Operations and IT, throughout the 18 month programme. Our team on the ground varied from three to ten individuals, responding to the needs of our client as the project went through different phases.  We took responsibility for a range of specific deliverables, including contract completion and managing the Day One Lift out, as well as providing specialist advice in areas such as operating model design, detailed due diligence, and contract negotiation. Knadel was able to bring specialist knowledge, proven tools, templates, and approaches, as well as a hands on, pragmatic consulting style.  This enabled the in-house staff seconded to the project to move more quickly and leverage market experience.  Knadel provided guidance and focus to a range of stakeholders at critical decision making points.

Outcome and Business Benefit

Knadel were instrumental in helping LBG develop an effective, integrated target operating model by renewing and extending its strategic outsourcing partnership with State Street.  The benefits included the realisation of shareholder value, enriching and deepening the relationship with State Street – making State Street a vital partner to support the achievement of integration benefits as a result of the HBOS acquisition - and an approach which could be re-used on similar projects in the future. 

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