Bank mergers are on the rise, particularly in Europe, where a fragmented landscape of national banks, combined with favorable regulations from the European Union, are spurring cross-border consolidation (Exhibit 1). Unfortunately, the operations and IT systems of most banks are seldom up to the challenge of easily and efficiently integrating the new acquisitions. Most banks run their operations on layers of legacy systems that were built up haphazardly over time without a road map, because of poor planning, disruptive events, or a lack of investment in governance and standardization. When a bank with an unreconstructed operating model attempts to integrate another financial institution, the task of matching up their systems may be so daunting that management continues to operate two virtually separate organizations side by side, failing to produce the cost savings and new revenues that justified the merger.

Some leaders in the European financial sector are taking a different approach: improving their organizations’ operations and IT before mergers happen. Rather than attack one department or function of a bank at a time, these leaders are rethinking an institution’s entire operating model—people, technology, processes, the way...