Remote Bank

‘Can the Balanced Scorecard be deployed within a small organization?’ and ‘Is it useful for a startup?’ are two often asked questions. Illustrated through this study of ‘Remote Bank’, as we shall call it, the answer is an unequivocal yes. Moreover, in this case, in addition to small and startup, the scorecard was the central management tool from day one of an organization offering a brand new market offering – remote banking. 

Remote Bank, now a subsidiary of a major UK-headquartered banking organization and with about 450 employees, was launched in the late 1990s with a staff complement of just 50. It was tasked with providing customers of its then parent, a telephone-based alternative to traditional branch-based banking services. Today, Remote Bank offers the full suite of remote services from telephone to online.

Senior Management Commitment

When, along with two other senior managers, the then Chief Executive Officer (CEO) architected the company in the year pre-launch, he was already fully committed to using the Balanced Scorecard as the core tool by which he would steer Remote Bank. His commitment was the result of his assuming leadership of the new organization soon after participating in a scorecard implementation project as part of a Masters degree. The CEO held no doubts of its potential efficacy, even though back in the late 1990s virtually all of the published scorecard success stories were from large organizations. “A company of any size has to formulate strategic objectives and should tie key measures to those objectives to track progress toward a strategic vision. The scorecard does that very well.”

The original Balanced Scorecard was designed in a two-month period by the CEO and his two senior management partners. It was these three that would lead the subsequent implementation efforts. Note, that in designing the scorecard system the leadership team had little external reference points, or guiding best practices to draw from. Although the senior team was familiar with the important success metrics for a branch network, the metrics for a remote operation were far less obvious. As the CEO puts is, “We were looking at a blank piece of paper.” The scorecard played an important role in pin-pointing what would be important in this new customer-facing environment.

Although the Balanced Scorecard system has naturally evolved over time, unsurprisingly given the remarkable advances in the remote banking industry, essentially the result of breathtaking advances in internet-based options, we will take a snapshot of the scorecard at the turn of this decade, as there are key learnings to report.

Setting the Vision

The strategic focus of Remote Bank was captured in a vision statement that read: ‘To create a world-class direct bank, which will exceed customer expectations and rapidly become the preferred way to bank.’

Five core goals were identified that would deliver this vision.

1.    Consistently exceed 90 per cent customer satisfaction in our chosen markets
2.    Become a best-in-class direct sales organization
3.    Achieve lowest cost delivery through self-service channels
4.    Recruit and retain the highest quality staff
5.    Develop superior business processes and IT systems

Shaping the Strategy Map

The vision and core goals were reshaped onto a Strategy Map that consisted of the four perspectives of financial, customer, internal and people.  Four financial objectives included ‘grow product sales/revenues’ and ‘low cost per transaction’.  There were just two customer objectives: ‘increase customer confidence in buying products “direct” through superior delivery in terms of convenience, speed and value,’ and ‘increase customer satisfaction through superior delivery of day-to-day banking services’.

To achieve the financial and customer outcomes, the internal perspective is arranged according to three themes: of ‘sales’ (a revenue growth strategy), ‘operations efficiency’ (a productivity strategy), and ‘service’ (a quality strategy). Each theme has a vision component: Sales is simply ‘to increase the number of direct sales’. That of service is ‘to deliver service excellence across all direct touchpoints’. That of operations efficiency is ‘to improve operating efficiency by shifting customers to self-service facilities.’

The people perspective has a sales theme (supporting the sales theme in internal) a technology and information theme (supporting operations efficiency) and service (for the service in the internal perspective).

Recognizing that it is the output of the work at the internal and people perspectives that deliver the financial and customer outcomes, most of the objectives are found within these two perspectives: 14 for the internal perspective (such as cross-sell (sales),  shift to self-service facilities (operational efficiency) and deliver quality service (service) and 15 for people, develop sales culture (sales), manage system performance (technology and information) and invest in skills development (service).

Monthly and Weekly Meeting

The commitment to the Strategy Map and the accompanying Balanced Scorecard of metrics was further demonstrated by the fact that the company’s monthly management meetings were focused around the scorecard perspectives. However, the management team decided to add more regular scorecard updates. “We found that the monthly meetings were too far apart, even though there were actions taken,” the former CEO explains, “What we did was launch a weekly scorecard which identified some of the key indicators we needed to track on a weekly basis.”

So, we can see that Remote Bank did much to be applauded.  There was clear management commitment, and a Strategy Map and Balanced Scorecard had been architected by the senior team that supported a strategic vision and core goals. Moreover, the team was careful to communicate the purpose of the scorecard to staff.

A Failure of Strategy

Yet, there was soon to be a major problem. Remote Bank was failing to realize the expected financial returns. Put another way, the organization was failing to implement its strategy.  And this points to a critical learning in using the Balanced Scorecard system. It will tell you when your strategy isn’t working as quickly as it will tell you that it is.

Indeed, for Remote Bank the problem was clearly evidenced through the scorecard. Although objectives within the people, internal and customer perspectives were flashing green, those from the financial perspective were red. The scorecard was sending the unambiguous message that there was a fundamental flaw in the organization’s strategic hypotheses.

Investigations by the senior team quickly identified the flaw. The former CFO explains.

“We believe that excellence in customer service is of paramount importance. Therefore our strategy was based on a person-to-person differentiated service – essentially ensuring that our operations delivered outstanding services to our customers, which they did consistently.”

“Although this strategic focus led to extremely high levels of customer satisfaction – always achieving over the mandated 90% minimum threshold – the downside was that cost became unacceptably high. There was a disconnection between customer satisfaction and financial success. So as a leadership team we faced a conundrum: “how could we continue to achieve exceptionally high customer satisfaction scores while keeping costs to an acceptable level”?

And note that at this early state in the remote banking offering, high customer satisfaction rates were seen as critical for the industry’s survival. Customer satisfaction rates in branch networks were notoriously low, so wooing customers to the unknown word of remote banking would only be achievable through significantly superior service performance.

New Customer-Facing Initiative

Consequently, the leadership team moved to reduce the cost of service by launching the then recently introduced IVR (Interactive Voice Recognition) system. Cost fell – but so did customer satisfaction scores, to below the 90% threshold.

Analysis of monthly customer satisfaction data showed that this dip was linked to IVR. “Customers were worried that we would move fully onto an IVR environment, that their relationship with the bank would be completely impersonal and what they had become used to would be removed,” says the CEO.

So Remote Bank redesigned its IVR processes so that all customers had to experience IVR as a first point of call, which was designed to be very user friendly and would therefore help customers learn about the advantages of IVR, but an option was integrated into the system that would allow the customers to break out and talk to an agent at any time.”

This led to a return to customer benchmark scores while IVR usage also increased.

“By virtue of the fact that we were tracking the right objectives and indicators on the scorecard, we could see how actions in one area have consequence elsewhere,” comments the CEO. “This enabled us to make the right decisions around which initiatives to launch to correct identified problems.”

Lowering Staff Turnover

The objectives and measures within the people perspective provide another powerful example of how the scorecard can be used to sharpen the strategic focus of the organization. A key people objective is to retain staff (which appears in both the sales and service themes), with the staff turnover rate used as a strategic measure. Given the nature of the work a typical person can operate efficiently as what is a call centre agent for about two years. Consequently, Remote Bank aims to retain people in the post for this timeframe. However, through using the scorecard the senior management team realized that a high percentage of new recruits left the company within the first six months. This led to a change in the recruitment strategy to include:

-   The use of psychometric testing
-   Skills matching
-   Engaging employees on permanent contracts from day one, replacing the previous policy of employing people on temporary contracts first
-   A review of job rotation, development opportunities, etc.

The latter point resulted in staff being rotated more widely, including secondments to the parent organization. The job rotation rate is a strategic measure in the people perspective. According to the former CEO these measures have, in addition to resolving the problem of early staff departures (which fell by 100% in little over a year)  led to increased staff productivity and staff satisfaction.  Indeed the former CEO comments that a contributory factor to customer satisfaction levels falling below the benchmark figure was the high turnover rate. Clearly, inexperienced operators would not possess the same product knowledge as more established staff.

Conclusion

Still in use in 2007, one significant measure of success has been that the scorecard maintained its importance despite two of the three key architects leaving the company. Says a new member of the team:

“As a management team we continue to use the scorecard because we know it works. I really believe that if we didn’t have the scorecard we wouldn’t be managing the business as well as we should be.”