Using performance measurement to assist culture change Case study – banking and financial services Sue Davey-Evans University of Portsmouth

Case Study Major banking/financial services organisation 2 year programme of change – redefining roles and changing culture in the customer facing network, 1,200 branches and 15,000 + staff Focus on the implementation of new performance measurement reporting Review implementation issues associated with change

Developments in Financial Services Life, pension, insurance Investment Portfolio management Business sector Financial Service Act, changed role of “banking” from traditional savings, deposit and lending Cost control - centralisation of processing Integration needed for customer service – “connecting” the products, people, systems - seamless customer interface Major growth area – separate business units Redefining role of network Team based approach to meeting customer need

Business Model - original Branch managers Traditional banking Accounts Lending mortgages Financial planning Managers Life pensions investment Private Banking Managers Investment Management Portfolio Planning Targets Performance related pay

Original – extract monthly reporting Financials Actual Plan Variance £ ££ Income x xx Costs: Staff x x x Premises x x x Other x x x x xx Profit x xx New business targets Actual Plan Variance Life, Pensions and Investment commission (£) x xx Investment funds(£) x xx Mortgages value x xx Current a/c nos. x xx Live a/c’s x x x FTE x x x Financial Results

Original – extract monthly reporting Financials Actual Plan Variance £ ££ Income x xx Costs: Staff x x x Premises x x x Other x x x x xx Profit x xx New business targets Actual Plan Variance Life, Pensions and Investment commission (£) x xx Investment funds(£) x xx Mortgages value x xx Current a/c nos. x xx Live a/c’s x x x FTE x x x Financial Results Jostling for space for product targets Targets set at product level Different basis of measurement Measurement influenced perception of importance interpreted by staff Behaviours followed measurement method

Performance Measurement – new business, followed individual business unit methods Life, pensions and investment business £ Embedded value income basis – actuarial method. Broadly, discounted present value of net cash flows from new business allowing for experience – claims, lapse, death etc.. Investment funds £ Annualised income from new funds Mortgage funds £ Value of new mortgages

Original – extract monthly reporting Financials Actual Plan Variance £ ££ Income x xx Costs: Staff x x x Premises x x x Other x x x x xx Profit x xx New business targets Actual Plan Variance Life, Pensions and Investment commission (£) x xx Investment funds(£) x xx Mortgages value x xx Current a/c nos. x xx Live a/c’s x x x FTE x x x Financial Results Good performance on profit line incorrectly seen as measure of achievement No real link between performance and profit Hides the reality No real connection to responsibility Accountability and controllability issues

Business Model – where we want to be? Strategy Customers Customer focus - Customer needs driven People Service and Sales Team Lending, Mortgages, Life. Pensions. investment Investment Management,Portfolio Planning, Business Performance Measurement

Issues Lack of integration at service and sales level Strategy and operational focus misaligned Lack of understanding of business dynamics across all levels of the business Change in behaviours needed Redefine roles and responsibilities Alignment from top to bottom of measures Horizontal as well as vertical link Improve knowledge and understanding – connect customer information systems, product systems and reporting Customer needs vs product push. Create performance measurement framework Changes

Financial Perspective Profitability Sales growth Value Added Innovation & Learning Perspective Employee skills Satisfaction Information systems Internal Business Perspective Service indicators Quality indicators Customer Perspective Customer satisfaction Loyalty Market share Customer acquisition How do we look to Shareholders? What must we excel at? Can we continue to improve & create value? How do customers see us? Balanced Scorecard

Change programme included… Using a balanced scorecard approach to integrate financial and non-financial measures Creating a common language across diverse product ranges – challenging the measurement framework and redefining what “good” looks like Improving the knowledge and understanding of the business – ensuring link with strategy. Linking performance measurement to recognition and reward to assist much needed culture change

How….Focus…. Small, multi- disciplinary team (5!) with clear focus on culture change – authority from the top Pooled significant resource of knowledge across all “product provider” areas, experience in tools and frameworks plus detailed practitioner experience re “customer facing” staff. “Champions” selected across the country (20) where culture was more advanced, performance deemed to be excellent in the areas where change needed and where strong leadership skills exhibited. This focus group acted as a feedback forum, pilot testing and as a communication route as implementation progressed

Where do we want to be? extract monthly reporting Customer satisfaction scoresx Staff satisfaction scoresx Meeting Customer Needs FVA Actual Life, pensions and investmentx Portfolio investment fundsx Mortgage fundsx Lendingx New business customersx Total FVAx Customer base FVAx Quality : Retention measures Penetration measures ….. Financials Actual YTD ££ Income xx Costs (exc allocations) x x Profit xx Service and Sales Scorecard

Where do we want to be? extract monthly reporting Customer satisfaction scoresx Staff satisfaction scoresx Meeting Customer Needs FVA Actual Life, pensions and investmentx Portfolio investment fundsx Mortgage fundsx Lendingx New business customersx Total FVAx Customer opportunity FVAx Quality : Retention measures Penetration measures ….. Financials Actual YTD ££ Income xx Costs (exc allocations) x x Profit xx Service and Sales Scorecard New basis of measurement – Financial Value Added (points not £) Product level targets removed FVA planned by customer base opportunity Target to achieve Total FVA Change perception Behaviours followed measurement method

Financial Value Added (FVA) (points) Reflects the value added today and in the future from new business. Broadly, discounted net future cash flows allowing for experience Points accumulated from a range of activities - lead, referral, sale etc… Recognises different team members role

18 months…. Focus on customer need – meeting these across full range of products and services Profit – information only, no plan Financial value added – not £, points Customer information systems identified potential for meeting customer needs resulting in total FVA Planning and budgets changed, communicated and aligned to all measures Job objectives and performance related pay linked Joined up planning, allocating responsibility, managing activity, objectives, measurement and reward

Culture change Move focus away from product push to customer need Recognition for customer needs delivered – not individual product targets Reports drilled down – summary at branch Analysed data by individual, customer, products, penetration etc Managers managed activity – daily, weekly reporting aimed at identifying steps in customer process Assisted control over quality and training requirements Recognition and reward aligned

Key learning points Learning - shared knowledge and understanding consistent, objective and holistic. Agreement on where we are now Focus on the controllable Adapt frameworks and tools - Keep it simple (KISS) Use a common language to “connect” all areas of the organisation focusing on behaviours required

Key learning points… Integration - ensure it is embedded in all aspects of management - planning, knowledge, communication, measuring individuals performance (Performance related pay) Get champions for the cause, celebrate success, share best practice, benchmark “what good looks like ”

“ Strategy without metrics are only wishes ” (Charles E. Phillips Jr., Co-President of Oracle) ‘What gets measured gets managed.’ (G.Bennett Stewart III, Stern Stewart)