Strategy: Planning

Neil Morris, head of strategic planning at Yorkshire Building Society, explains how adopting a robust approach to strategic planning and M&A activity has enabled the mutual organisation to grow and prosper following the recent financial crisis.


Since the Building Societies Act came into force in 1986, the UK has somewhat fewer building societies than it had before. Although competing with banks, building societies are “mutual” organisations – meaning they are owned by and run in the interests of their members rather than on behalf of external shareholders. The 1986 Act allowed building societies to “demutualise” with the consent of over 75 per cent of members and become banks. Abbey National was the first to do this in 1989 but has since been swallowed up by Santander. Other examples include Cheltenham & Gloucester Building Society which was taken over by Lloyds Bank in 1994, and in 1997 Alliance & Leicester, Halifax and Northern Rock converted to plcs.

Yorkshire Building Society, which can trace its origins back to 1864, was the first building society to commit to remaining a mutual when some of its rivals were deciding to become banks – significantly none of which remain successful independent businesses today. The Society considered that preserving its mutual status was central to its values and business model, both of which are built around genuine accountability to its members.

More recently in 2010, Yorkshire Building Society merged with Chelsea Building Society to become the second largest building society in the UK after Nationwide – but we’re getting ahead of ourselves.

September 2007 witnessed the first “retail run” on a UK bank in over a century which resulted in Northern Rock being rescued by nationalisation at the start of the global financial crisis. Northern Rock fell victim to its dependency on wholesale funding when its counterparties withdrew support, as confidence in the bank’s position evaporated in light of the emerging crisis in the so-called “subprime mortgage” market in the United States. In September 2008, Lehman Brothers, one of the banks at the centre of the subprime mortgage crisis, and the fourth largest investment bank in the US, filed for Chapter 11 bankruptcy protection.

When Neil Morris joined Yorkshire Building Society as head of strategic planning in March 2009, the financial crisis and subsequent global recession were still unfolding, and the executive team of the Society were focused on steering the society safely through the crisis. “My role was to help the executive team look further into the future,” says Morris, “which was a challenge because their concern was primarily to make sure the society didn’t put a foot wrong on a day by day basis.”

By the summer of 2009 Morris had worked with the executive team, through the strategic planning process, to formulate and appraise a range of strategic options. “One option was to carry on as we were,” Morris explained, “which in itself posed strategic risks. Another was to pursue significant merger and acquisition opportunities presented by the crisis, which we concluded should be seriously considered if the right opportunities arose that would benefit the Society and our members.” The Yorkshire in 2008 merged with the much smaller Barnsley Building Society (increasing the Yorkshire’s asset base by about 2 per cent).

The first “right opportunity” came in the form of Chelsea Building Society. “Everything happened in the right order,” says Morris. “We had taken time to work out what our strategic options were and when one of the favoured options became available, we were able to pursue it with conviction and commit resources to perform detailed due diligence, working with trusted advisors who understood our business.”

The recent merger with Chelsea was on a different scale altogether than the Yorkshire’s previous transactions and increased total assets by around 40 per cent. “It was transformational for us,” says Morris. “Our strategic planning processes continue to evolve to ensure they meet the needs of a larger and more complex business, and under my leadership the strategic planning team has grown in size to enable us to do this.” The team includes a strategic planning manager who prepares a monthly balanced scorecard linked to the Society’s strategic plan, and a strategic planning analyst who analyses and reports on strategically significant trends in the external environment – this information is provided to the Society’s Board on a monthly basis.

The strategic planning team’s toolbox includes all the models and approaches you might expect, but more recently emphasis has increased on external trend and scenario planning analyses to help ensure the resilience and flexibility of its strategy against a range of future environments. “Understanding long term trends is particularly important at the moment,” says Morris, “with an on-going high level of uncertainty in the business environment.”

One rather unconventional initiative that Morris employs is to engage MBA students from Leeds University Business School to carry out projects, one of which involved comparing the Yorkshire’s approach to strategic planning with best practice. The results were worthy of incorporation into the overall approach, and Morris is enthusiastic about this option. “I would recommend other strategic planners who have not done this before to establish a link with a business school because they can offer a good and cost-effective source of fresh thinking,” he said.

These initiatives have taken place in parallel to a broader change in approach towards a more inclusive strategic planning process involving staff at all levels in the organisation, rather than being primarily a top-down process led by the executive team. Morris has worked hard to ensure that strategy is understood (and bought into) at all levels of the organisation, so that everyone is pushing in the same direction.

“We now have a strategic engagement and development process with feedback loops between the executive team and the wider body of staff,” he says. “This started with one-to-one meetings with my peers in the senior management team to explore a range of strategic questions. Since then, head office and importantly customer-facing employees, regularly participate in strategy workshops, where they are asked for their opinions and observations, enabling us to compare and contrast perspectives with those of the senior team.”

Staff involved in the strategy workshops have responded fantastically to the invitation to contribute, says Morris, and the executive team value the insights they provide. Further development of this strategic engagement activity is an ongoing part of the Yorkshire’s strategy process.

The Yorkshire has continued to pursue its selective M&A strategy to supplement organic growth in its core business. Following structured deal appraisal processes, which Morris has been closely involved in, Yorkshire Building Society announced on 21 April 2011 a proposed merger with Norwich & Peterborough Building Society, the UK’s ninth largest society with assets of £3.7 billion. Subject to N&P members’ approval the merger will create a society with three million members and 224 branches. The N&P name will be retained as a separate and distinct brand within the Yorkshire, similar to how the Chelsea and Barnsley brands have been handled in the past.

Most recently, on 25July 2011, the Yorkshire announced it had entered into an agreement to acquire the mortgage and savings business of Egg Banking plc (a subsidiary of Citigroup Inc.) in a deal that will, subject to the required legal and regulatory approvals, see the Yorkshire acquire a £2.5 billion savings book and a £430 million mortgage book along with the Egg brand.

Yorkshire Building Society’s previous experience of merger integration and employee inclusive strategy initiatives look like a solid foundation for continued growth.