Problem Definition
Your client is an international Corporate & Investment Bank (CIB). It is France based and has already expanded to Poland (Warsaw), Asia and Americas. Your client now wants to look into the development of the existing hub in Warsaw and is contacting you to help him assess this option. How would you help him?
Comments
Since this is a candidate-led case, the candidate should drive the case from start to finish.
This case is about cost efficiency / nearshoring. The interviewee should be able to estimate the nearshoring potential (number of FTEs at stake) and assess cost savings as well as Return on Investment (ROI)
Note: FTEs means full time equivalent (= number of full time resources working on a given perimeter)
- Hub in Warsaw is leveraged for nearshoring purposes on support functions to reduce operational costs.
- Operating savings in France can reach up to 50m€ in a running mode (43m€ savings on salaries + 7m€ savings on environment costs)
- 3 implementation costs to investigate: departure (=severance packages) for French staff (50m€), project costs (8m€), shadowing period of 6 months to mitigate operational risk (42m€)
- ROI can start to become positive after 2.5 years
Detailed Solution
Paragraphs highlighted in green indicate diagrams or tables that shall be shared in the “Case exhibits” section.
Paragraphs highlighted in blue shall be verbally communicated to the interviewee.
Paragraphs highlighted in orange indicate hints for you on how to guide the interviewee through the case.
I. Savings
The cient already has a footprint in Warsaw which is only leveraged to nearshore French support functions.
a) What is the nearshoring potential in Warsaw ?
Not all locations can be eligible for nearshoring out of the 4 client's locations.
- Warsaw is not relevant because it is the target nearshoring hub
- Nearshoring seems more difficult in Asia and Americas because of timezone and / or language constraints and thus higher operational risk and more difficulty to find relevant people in Poland (e.g. speaking Japanese)
- France seems to be the location with highest potential, focus will be given on this country only
Some functions have higher potential than others.
- Front Office is not eligible since Front Office representatives must have proximity with clients, out of eligibility scope
- Support functions seems to have higher potential; we can focus for example on IT, Operations (Back-Office) and Finance for instance.
Share "Nearshoring potential by function" exhibit.
- IT: 500 FTEs at stake // note : FTE means full time equivalent - number of full time resources in other words
- Operations / Back-Office : 1000 FTEs at stake
- Finance: 300 FTEs at stake
Out of all each eligible functions (total of eligible FTEs = 700 on the 3 perimeters), the volume of people eligible for nearshoring needs to be assessed.
- IT: 60% of FTEs are eligible for nearshoring (=300 FTEs)
- Operations / Back-Office: 10% of FTEs are eligible for nearshoring (=100 FTEs)
- Finance: 100% of FTEs are eligible for nearshoring (=300 FTEs)
b) What could be the savings on the scope with nearshoring potential?
Salary (including all costs) is the main driver, thus, the level of salary in both Paris and Warsaw must be analyzed. Moreover, environment cost is the second element to be compared between Paris and Warsaw.
Share "Comparison of HR costs between Paris & Warsaw" exhibit.
- IT
- Averaged salary in Paris: 140k€
- Averaged salary in Warsaw: 50k€
- Back-Office / Operations
- Averaged salary in Paris: 120k€
- Averaged salary in Warsaw: 50k€
- Finance
- Averaged salary in Paris: 100k€
- Averaged salary in Warsaw: 70k€
Total salary savings is 43 millions €
- IT: 27 mn€
- Back-Office / operations: 7 mn€
- Finance: 9 mn€
On top of salaries, environment costs (participation in building costs, ...) must be compared (Paris vs. Warsaw).
- Averaged savings for each FTE is 10k€
- Savings due to different environment is 700 FTE x 10k€ = 7Mne
- Total savings is 43mn€ + 7mn€ = 50mn€
II. Implementation
a) What is the social impact ?
- Not easy to lay off staff, especially in France, because of local labor jurisdictions and labor unions
- Voluntary departures will be preferred but will systematically encompass severance packages (= departure packages)
b) What are the implementation costs and what about ROI (Return on Investment)?
Share "Implementation costs overview" exhibit.
- As mentioned before, the amounts of severance packages must be determined: 50mn€
- To mitigate operational costs, Paris teams cannot be directly unplugged
- A shadowing period (transition period / time with both Paris & Warsaw teams) must be secured. This period will last 6 months.
- Since weighted average of salary is 120k€, the cost of shadowing period = 700 x 120k€ x 0,5 (Half year only) = 42mn€
Finally, overall impementation costs as well as ROI could be computed levering all data provided so far.
- Overall costs for implementation = 50mn€ + 42mn€ + 8mn€ = 100mn€
- ROI can be positive from after 2.5 years
- Y1 : Costs = 100mn€ and savings = 25mn€ (only 6 months)
- Y2 : savings = 50mn€
- Y3 : savings = 50mn€ (break even after 6 months of the third year)
Difficult Questions
1) Why do you thing the Bank has a hub in Warsaw?
The Bank has developed a hub in Warsaw for nearshoring purposed and thus to reduce operating costs
2) What are the most eligible functions for nearshoring in Porto?
Front Office representatives need to be close to the clients. This highest potential will be on support functions
3) Do you think that all locations of our client are eligible for nearshoring? What is the location with the highest potential (France, US, Apac)?
There are a lot of feasibility constraints for US & APAC (timezone, language). Thus, France is the best candidate for nearshoring out of the client's existing locations.
4) How to reduce operational risk implied by new staff being on boarded in Warsaw?
Keep onshore staff for 6 months (= shadowing period)
5) What could be the different costs implied by a nearshoring project?
- Project costs
- Severance packages for leaving staff
- Shadowing period
6) What can we do instead of staff lay off?
