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A strategy for success

This interview was arranged when the economic outlook was brighter but things are changing rapidly in the recession and Colin Greaves, managing director of Newcastle Strategic Solutions, turns up anyhow to fight his corner.

This is understandable – in a sense, the business is his baby.

Greaves was working in a senior IT development capacity at the parent society in the late 1990s when it launched Newton Facilities Management as a joint venture with Melton Mowbray Building Society, which had a 25% stake in the new business.

“That was the start of it,” says Greaves. “We began by providing IT support for Melton Mowbray and then a few other building societies but then we started to get more enquiries on the mortgage application side when the market began to boom around 1998/99.

“Lenders were looking to us for systems but also for other things. Former Goldman Sachs trader Marty Finegold was a good example, when he was setting up the lender Kensington.”

Didn’t you package for Kensington? I ask.

“That’s right. Marty wasn’t precious about systems – he was only bothered about getting cases packaged. He started us down the outsourcing route. It wasn’t so much to do with our systems but more about our people and processes.

“In 2000 we began doing work for companies such as Mortgages PLC and we also started developing our internet presence. We were doing a lot of work on improving process efficiency. We brought all this together and started down our most successful stream to date – the savings business.”

As a result of the booming retail savings business, not long ago NSS seemed to be the only good news in a city that is home to Northern Rock.

Indeed, come the summer of 2008 NSS was celebrating the opening of purpose-built offices eight miles down the road from Newcastle’s head office, and planning to recruit 500 staff for its third party administration business. Specifically, it was managing savings accounts for Bradford & Bingley, Landsbanki and Heritable Bank. It was managing around half a million accounts for these clients.

But with the credit crunch taking its grip the fortunes of overleveraged Icelandic banks began to crumble and B&B’s branches and savings arm were sold to Santander. Are these the culprits behind NSS’ current problems?

“That was good business while it lasted,” Greaves concedes. “We had assets under management of around £10bn at one time. Then we saw the demise of some big Icelandic banks – Icesave and Heritable were both our customers. Of course, there has also been some contraction on the supply side of the market with Skipton and Scarborough getting together but it’s true that the overall market has shrunk.

“We did some work on processes with a view to winning an administration contract with National Bank of Dubai but again that died because of the pressures in play in the marketplace. Basically, there’s not much demand.”

I ask how long he thinks this situation will go on.

“That’s a good question,” says Greaves, without offering a direct answer.

“A lot of companies in this business have been switching their emphasis to counselling and debt management services – we are seeing quite a few organisations which suddenly have surplus resources and are looking to enter the market. So you can see that a lot of professionals regard the present market as an opportunity.”

Going back to last summer and the grand vision of creating 500 jobs I suggest that perhaps NSS had not imagined the downturn would affect its business.

“We’ve had to be bearers of awful news in that respect,” says Greaves. “It’s not nice to announce that some 150 jobs are at risk. But to put our position in perspective, we did announce that we planned to grow and create 500 jobs by 2012 so we are still 44 jobs ahead of where we started.

“I feel dreadful for anyone who is under threat of redundancy, but our business plan remains on track.

“There’s still a demand for retail business. The market is slow at the moment – there is regulatory fear and restraints on capital and liquidity but the underlying principle of providing outsourcing has not changed and as the market becomes more confident the subject will climb back up the agenda.

“After all, it’s an effective way of cutting costs and entering markets,” he adds.

“I hate the fact that we have had to let people go but from an organisational perspective outsourcing can give companies the comfort of not having to go through that sort of pain. It makes the cost of market entry and the cost of exit that much easier to bear.”

In fairness, the company is not a one-trick pony and one of its lines is pre-paid cards. They must be doing well, I venture.

“Pre-paid cards are buoyant,” says Greaves. “They’re good products when linked to debt management capabilities.”

Greaves is excited by the card proposition and there are plenty of initiatives coming to fruition.

“We are looking at things such as travel cards – we’ve got a few pilot projects running on that line,” he reveals. “We’re also looking at developing our European cards programme.”

So he is seeing significant growth in this area despite the fact that Santander has said Alliance & Leicester will be pulling out of the market, arguing that for the Spanish bank pre-paid cards are not a core business and it’s going to stick to what it does best.

“Santander’s move is not a criticism of pre-paid cards,” maintains Greaves. “It’s about the ability of the company to make them a core product.”

Changing the subject somewhat, I return to the demise of the Icelandic banks. I suggest to Greaves that the strange deal the government did with Santander was a double whammy. You not only lost some of your customers, I say, but the sale of B&B’s savings portfolio to Abbey involved a £4bn payout under the Financial Services Compensation Scheme – and presumably Newcastle had to contribute to that too.

“Yes, we had to pay up under the compensation scheme but we were fortunate in that we were favoured by the FSCS to undertake the distribution of the Icesave compensation,” says Greaves.

“That proved to be a good working relationship and it all went well. The FSCS said some complimentary things on its website about the work we did.

“The irony with the B&B and Icesave contracts was that they had been running for a long time and were due for renegotiation,” he adds. “With any strategy you have to assume that keeping business is as difficult as winning it and we were determined not to depend too much on a single contract. But it was such a boom time just before Icesave went bust that we had to take on additional staff to cope with the volumes.”

Greaves says that his organisation still has a large customer base and a healthy pipe-line, and that its business strategy remains unchanged.

“In an environment in which corporate customers are nervous about who their partners are we can provide a multi-channel approach which allows them to get in and out of markets quickly,” he adds. “We have a strong business proposition.

“Things are going to be pretty hard for the next few months but at some point the market will change and when it does our proposition will be valid.”

It’s an interesting point but looking back at the building society sector when the market was booming I recall that many took on extra staff to cope with the increased volumes because the necessary IT investment was not there. Of course, it didn’t matter too much back then because the high volumes kept cost-management ratios down.

I’m not sure what’s happened to those staff, I say, but following this experience does Greaves think societies might turn to him rather than let history repeat itself when the next upturn comes?

“Well, my best customer – I won’t use the word favourite but he’s definitely come up with my favourite quote – is Mike Heenan.

“Heenan is chief executive of Staffordshire Railway Building Society and he says that ‘Outsourcing my IT allows me to do what I’m employed to do, which is run a building society’.

“I think that if you are a good service provider, that is how you should be thought of It’s not appropriate for all firms to outsource but where it is they can often get better systems more cost effectively and at less risk.”

So, I say, you’ve got nice new premises, state-of-the-art IT and you’re ready to go as soon as the market takes off again.

“Absolutely,” Greaves responds. “Our pipeline has never been busier. Also, we’ve never been in discussions with more companies and we’ve never had letters of intent from more firms either – in other words, we are in a position where we’re doing some work but have not yet got to full contract.

“The most frustrating thing is the uncertainty in the market at the moment. If the situation deteriorates, will these LScontracts be delayed? On the other hand if the market starts to improve will they be brought forward?

“Of course, one can be too optimistic,” Greaves concludes. “Realistically, the market is very nervous.”

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