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Five Success Factors for Merger Integration in Pensions and Social Security
Pension and social security organizations are vital support structures to those in need as well as all of society. Facing big challenges, they need bold responses, and mergers are often one option on the table, particularly given the past tendency toward siloed delivery of pensions and other benefits. The rewards can be great. So can the risks.
Mergers are not quick fixes to today’s cost pressures. To balance risk and benefit—and preserve continuity of operations—mergers in pensions and social security must be part of the long-term transformation of organizations, structures, roles and products.
Pension and social security agencies have evolved rapidly over the last century. They are supporting societies and economies very different from those they once served. Significant demographic shifts—whether aging populations and changing dependency ratios, or flexibility and frequency of labor market change—have changed the game. While many organizations have worked hard to respond to change, despite their best efforts, most have reached a crisis point.
The challenges are well documented. In the short term, agencies must maintain or improve service while reducing costs. In the mid to long-term, they need a sustainable and scalable economic footing for the future. Clearly, incremental, small-scale change is insufficient to meet these challenges. The time has come for dramatic transformation.
Mergers—both internal (for example, business units delivering specific products) and external across agencies—are one such transformation initiative being considered by Europe’s pension and social security community. One reason is that these organizations have typically evolved in silos. They are often segmented by the specific customer base they serve. What’s more, they are usually large and complex organizations that offer complex products to vast numbers of people.
The possibility of cutting through this complexity through a merger is of interest to agencies focused on cost, customer service and policy outcome improvements. A merger could mean two different pension schemes sharing and reducing operational costs. Customers benefiting from multiple products could interact with a single government agency. Governments encouraging citizens to work longer could integrate working age and pension support. There are potential benefits here, but also significant risk.
While mergers can reward organizations with cost, performance or outcome improvements, this is never without risk. In fact, Accenture research reveals that half of private sector mergers have failed to realize their expected value.1
In the pension and social security environment, the nature of risk is unique. These organizations are vital support structures with size and scale as well as tremendous political and social importance. It’s about the “daily miracle” of getting payments to millions of vulnerable people whose livelihoods depend on them. Any disruption to operations—like those that can come with mergers—can have serious consequences.
1 Accenture, Seven Catalysts for Merger Integration Success, Andy Tinlin and Alberto Vega
So how do pension and social security organizations improve the 50/50 odds? They must go beyond simply joining two or more large and complex business units. Getting on the right side of the risk-benefit balance demands genuine transformation.
Following these five success factors is essential:
Mergers aren’t inherently good or bad, but, if they are not part of a wider transformation, they pose a huge operational risk for little reward. Pension and social security organizations shouldn’t focus on mergers for mergers’ sake. They must look first at their transformation agenda.
How can they deliver better value in cost savings, efficiency gains or service and outcome improvements? With mergers, the key is not to minimize their impact; it is to maximize it in a positive direction.
For More InformationMark Jenningsmark.email@example.com +44 7803 247 003
September 3, 2012
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