Revolution starts at the bottom: James Essinger on a different route to market for East European banks

AT A TIME when many of the West's largest management consultancies and legal firms are trumpeting their interest in Eastern Europe, a Geneva-based management consultancy formed by an ex-ICL and Midland Bank executive has been quietly assisting a substantial number of East European banks to modernise for operation in a market economy.

The consultancy - Innovation and Development in Organisation and Management (Idom) - was established in 1988 by Alex Dembitz, a Hungarian whose family came to Britain in 1956 after the Soviet invasion of their homeland.

A former MBA student at the business school Insead and a European Community scholar, Mr Dembitz originally formulated plans for a consultancy which would provide expertise on management issues to banks in the West.

However, the political and economic changes that swept Eastern Europe during the following two years convinced him that this region, not the West, was the proper sphere for his operation.

His first target was Hungary, where he won Idom's first clients with the help of his Hungarian mother tongue and an understanding of the need to build up considerable reserves of trust with potential customers before they could be expected to sign a contract.

From the outset, the central tenet of Idom's strategy in Eastern Europe was that traditional banking consultancy tactics, based on the consultant helping to define the bank's strategy and then force this down through the bank's infrastructure - the so-called 'top-down' approach - was futile when the infrastructure itself was completely outdated and inappropriate for market economy activity.

Instead, Idom advocated a 'bottom-upwards' approach. This begins by dealing with the bank's immediate needs in order to compete effectively within a market economy.

As Mr Dembitz says: 'Our clients do not need lengthy, verbose reports detailing complex strategic objectives. They need to create departments which can handle market economy banking functions such as treasury, loans, risk management and account administration.'

Gyorgy Ivanyi, executive chairman of the Inter-Europa Bank - one of Hungary's most dynamic commercial banks and an early Idom client - says: 'I first heard of Idom in 1988, at a time when Hungary was already set to convert to a market economy, even though the necessary new laws and procedures were not yet in place.

'At that time I was being visited by Western management consultancies eager to assist us with our imminent transition. These consultancies advocated basing our new information technology framework around a different new in-house system for each department.

'Alex Dembitz, however, convinced us that this was a hopelessly expensive and complex approach, and that what was needed was an externally developed banking package which could unify all the bank's technological resources into a single system,' Mr Ivanyi explained.

The packages usually specified by Idom are IBS, Ibis, Kapiti or Midas, although the consultancy prides itself on its objectivity in selecting systems.

Marie Marvanova, vice-chairwoman of the Czech Republic bank CSOB, for which Idom has been implementing a package, says: 'In a nutshell, we chose Idom because they understood where we were coming from and where we needed to go, and other consultancies did not.'

Idom now employs more than 150 consultants and has offices in Bratislava, Budapest, Geneva, London, New Jersey, Prague and Warsaw. Yet there is more to the consultancy's success than simply an insistence on understanding clients' needs.

Herbert Windsor, a senior Idom consultant based in Budapest and Warsaw, says: 'Overall, I think the reason Idom has done well in a relatively short time is that we identified and are determined to deal with the two major problems that face East European banks as they head for the opportunities of the market economy.'

East European banks lack a modern system that can effectively handle the volume and diversity of transactions they need if they are to survive, let alone compete. Moreover, there is a serious shortage in the region of bankers with the expertise needed to rectify this problem.

In addition to specifying and implementing the package, Idom consultants - who are almost invariably professional bankers rather than technologists - work with client bankers to pass on their knowledge of how the package can best be used in the marketplace.

As Mr Windsor explains: 'This is not simply a matter of organising training courses. Our aim is to have local bankers work side by side with us, so that by the time we have finished our work there is a qualified and expert team in place, which knows how to use the new system and procedures to best effect. This seems to me what creating a new infrastructure for East European banks really means.'

(Photograph omitted)