How does Europe's second-largest and the world's fifth-largest bank take the creation of value to another level when it's already clearly surpassed its former status as regional player? For the Royal Bank of Scotland (RBS), it's simple: launch an internal initiative on "The Strategic Use of Innovation" permanently embedding continuous improvement objectives and approaches into all shared services.

As much of an overstatement 'simple' may be, the integrated scheme is producing tangible results, and the RBS executives presenting their case for the 2004 Global Innovators Award can quantify them.

According to Barry Varcoe of RBS, the key innovation taken by the bank, which has a market capitalization of $94 billion, is the application of a "manufacturing model" to a large back office shared services operation. If broken out on a stand-alone basis, the Global Facilities & Logistics aspect of those internal operations would make it the UK's second-largest workplace organization.

The stakes are indeed high, Varcoe acknowledges, especially when your're charged to improve on an already successful strategy focused on cost-to-income ratios that continually drive net profits higher against a backdrop of rapid global expansion well beyond the UK.

"Our vision is to be the most admired provider of workplace logistics in the world," Varcoe explained. Varcoe and his RBS partner John Hinks devised a structured approach to repeated introduction of new innovations to meet this objective.

The model is based on four key areas linked to the institution's concentration on enhanced cost-to-income ratios, thus also linking corporate real estate and 22-million square feet of space managed to the company's business plan:

These four steps or stages are aimed at "redefining the (financial services) industry's expectation" of asset management, added Hinks. HR and the bank's suppliers are also getting involved, he said.

Hinks described the model as "Serial Innovations," reflecting the need for ongoing change and improvement but also recognizing the reality of the pace of change. "We're moving from cost-income control to value," he stated. "This gives RBS our major integrational advantage."

It's a competitive edge that is responsive to market conditions while being performance-based, utilizing what Hinks termed "smart data" to instill recognition of opportunity to innovate. The model take statistical process controls used in manufacturing and apapts them to the financial services environment. In their efforts to make the practice pervasive throughout the bank, Varcoe and Hinks are instilling change through process mapping, knowledge networking, pockets of innovation built into open floor plans, and a new Innovations Council. Results indicate early success, with internal customer satisfaction ratings increasing from 68.5% to 82%, near their goal of 85%.

They've also enhance the value of the bank's supply chain, introducing a reverse auction system that treats support services as commodities and bringing a 9% savings to its $500 million in service contracts for five years.

It all culminates on a performance scorecard linked to the business drivers of the bank and to the four key areas of focus for improvement. "This is not a single innovation," Varcoe concluded, "but sustained innovation on an ongoing platform."

– Richard Kadzis, CoreNet Global