Commercial Bank Service Delivery

craft edge INDUSTRY intrusting SERVICE Checking Accounts & adds friendship/BRAND work providet SOURCE HBS Premier Case disposition WRITTEN BY Frances X. Frei, Corey Hajim PUBLICATION DATE Dec 02, cc2 PROD. 603080-PDF-ENG Readers comments would be oftentimes appreciated and replied to Analyze business Banks serve lurch system forward to Retailtainment. Base your analysis on the following heads Service OfferingFunding Mechanism Employee counsel System guest focus System ANALYSIS employment Banks Service Deli actually System trade Banks entire trusting and operational philosophy is anatomyed around creating a sell experience for the guest. This was unusual for the entire banking industry and thus a broad source of distinguishableiation from both the operational viewpoint and from the good delivery design perspective.This meant that the entire note value proposition from the nodes standpoint depended on the design of the helper environment/theater including the 3 overhaul marketing mess up variables This rout out be implementn from employee comments and facts in the case more or less these variables Product We deliberate the value of a bank is non its impart establish and rather the bewilder base Vernon Hill ( death chair & CEO) Price We atomic number 18 broadly the lowest ratepayers in every market Vernon Hill (Chairman & CEO) Place eciding where to effect a forking was just as important as what the construct expressioned like.. Promotion Commerce spent $500,000/ furcate in NYC on forward motion and Red and blue painted Commerce vans with an emblazoned logo People This is non a job for someone who s interested in organism cool or indifferent John Manning (Employee Trainer) Process the way we look at credit and credit quality is a lot tougher Falese bodily Evidence They i. . nodes know what the deal is whenever they visit one of our banks John Cunningham (CMO) The Chairman and CEO, Vernon Hill has been abl e to do this by consciousness 2 very important aspects or critical success factors of the banking business Understanding the constitution of the Servicescape Despite trends (cross selling & non-interest revenue) in the banking industry moving towards the more far delivery mode (Pg. Most banks actively boost customers to move their legal proceeding from full- portion channels to self-service channelsmonetary penalties for using the more expensive channelscharging $3 to visit the teller), he understood that beca occasion banking as a service depended so heavily on the service attributes of searchability, experience and toleration and the nature of the servicescape was in essence that of an Elaborate- Interpersonal type Reducing the hearing Gap (from Gap Model of Service Quality) In comparison to separate banks in the industry which competed on keeping a low-interest ratio, he rightly understood the customers real need by competing kind of on service, contraption and diff erentwise intangible service differentiators (Pg. 6 the competition is beating on the 3% i. e. ustomers wanting a amplyer interest rate we refractory to compete on the 62% i. e. customers wanting convenience) Keeping this in brainpower we suffer now look at the 4 dimensions its Service spoken communication system prior to Retailainment Service Offering In light of this, the banks entire service offering can be fancy as in the figure below Here we can see that the service offering in itself is split into CORE OFFERING This is non very different from what other banks in the industry offer. However, from an execution standpoint their focus was different, because their strategic intent for both operations and emersion was that Bank Value is charge Base NOT bring Base. Their hollow out offering i. e. anking services included Deposits or Checking bills (first 3 years no monthly service fees and surplus 1st order of checks) Sr. zero(prenominal) Type Minimum Balance Details 1 Standard Checking $ coke no(prenominal)monthly service fees 2 Interest Checking $1000 No monthly service fees, Unlimited check writing, Interest 3 50 Plus Club $100 No account maintenance arouse for checking account with interest, free checks, money orders, notary service and travelers checks 4 Consumer Checking none No per check charge for first 8 checks/month for $3 monthly fee circuit card 1 Commerce Banks Deposit Product Line adds Commerces value is not in its loan base but in its deposit base.So for Commerce, loans are not tending(p) out as easily as other banks in the industry which believe that harvest-festival is in loans since deposit growth can occur sole(prenominal) with the lowest interest rate. However, credit quality checks for loan approval is very stringent ATMs Withdrawals were available at whatsoever ATM and purchases anywhere Visa was accepted. Transactions were immediately reflected in accounts and statements exchange second-stringer Line solely accoun ts could be combines with a hard currency Reserve Line to ensure protection from overdrafts SUPPLEMENTARY SERVICE Commerce has 8 supplementary services (4 facilitators and 4 differentiators) which take for superior customer service FACILITATORS DIFFERENTIATORS InformationCommerce decided to use Live agents over the phone instead of phonate Response Unit (VRU)to talk to customers Consultation Branch pluckr (also the Loan officer) consults/advises loan applicants and helps to manage both loans & deposits Order Taking (Banking context Cash withdrawal & loan application process) Loans were assigned to service branch instead of Head office for easy access for customer Weekend banking facilities were provided to allow customers to bank on Satur daylights & Sundays Hospitality Helpline phones at ATMs Employee escorts with umbrellas during rains Lollipops and dog biscuits at causal agency through with(predicate) banking windows Coffee and newspapers in waiting lobbies Billing Ba nking context Loan approval and monthly statement generation process) Loan applicant had to in person sign-off by on loan papers at service branch Online Monthly statements Safe Keeping (Banking context Peace of mind about account balances and check deposits) Immediate updating of ATM withdrawals in online statements A Check View feature on Commerces website recompense (Banking context Loan repayment process) Payment is easier for customer and assured for bank, since loan customer also has a deposit at service branch Exception handling (Banking context Coin currency & Irregular hours ) penny arcades to handle coins Midnight timing at busy locations 10 here and now incur to increase banking hours by 20 minutes in a day operation parry 2 Commerce Banks auxiliary Services mix As a result of this unique service offering design, Commerce has produced above average results in its undifferentiated stub offering Comparison Parameter Commerces Value manufacture or Competitor V alue Deposit harvesting (1996-2001) 30% US Banking Industry-20% (98-01) Deposit Growth (2001) 40% US Banking industry 5% Online habitude 34% Wells Fargo much lower plunder Income growth (1998-2001) 200% (Double) US Banking industry 20% Table 3 Commerce Banks Performance Comparison Funding Mechanism Commerces funding mechanism can be looked at from 2 perspectivesCommerces own startup and growth strategy (how it funded its own growth) Commerces banking and lending operations (how it functions as a bank) Startup and Growth Strategy Founded in 1973 with $ 1. 5 million as startup expectant (assumed to be seed capital not VC funding) Chairman & CEO, Vernon Hill did not believe in M&As as a growth strategy but as a cost-cutting measure Started operations as a community bank in southern New tee shirt Used the retail franchise expansion model (without encyclopaedisms) to grow grow into branches in Pennsylvania, Delaware and New York Concentrated on seeing customer as a revenue-gene rator (not cost center).However, cross-selling was not encouraged since main revenue menses was considered as deposits Expansion into New York was done organically (Branches were wholly have and run by Commerce and promoted heavily (Spends $500,000 per branch) By 2001, Commerce had $ 1 billion in core deposits Banking and Lending Operations Commerces 2 basic product categories were Deposits (Debits) and Loans (Credits). Its operations as compared to the Industry can be analyzed as below Product Category v Commerces Philosophy Focus is consumer business (Deposits) Best value from both (conventional & electronic) channels Low-expense ratios are bad Outgoing friendly service Industry Trend Cross-Selling products Preference to electronic channels Non-interest income revenue displace customers out of remembering(bank) DepositsRates need not be the highest in the industry (only 3% want this) Longer operating hours allow for more time for customer service (62% want this) Non-interest income revenue (i. e. ATM charges) must be apply as competitive advantage to grow and not simply be an addition to the bottom line They are transaction-oriented and low growth cardinal or more types of checking accounts $5 monthly fee for Internet Banking facilities Loans appoint to customer service branches that received credit for deposits Loan-deposit ratio low slopped credit quality checks Customers mostly commercial real estate projects, mortgages and consumer loans Loan officer is also branch managerLoan delivery is centralized leading to customer and loan officer disconnect Loans are 90% of deposit base (2001) Lower credit quality loans (i. e. sub-prime mortgages) get approved Loans not cogitate to deposits RESULT Deposit Growth (2001) 40% Online Usage 34% Net Income growth (1998-2001) 200% Loan & Deposit growth (1998-2001) 20% Deposit Growth (2001) 5% Non-interest income growth 27% Interest Income growth 11% Customer attrition 1/3rd of customer base Table 4 Com merce Banks Funding Mechanism Employee Management System Commerces Employee Management System can be broken up into Hiring Training Work Autonomy Workplace employment Rewards Appraisal or Performance Measurement HIRINGPolicy emphasizes internecine (among employees) and external (customers & employees) meshing Extensive interviews (2000 interviews for 40 positions in Manhattan branch) Experience about local and entrepreneurs given high importance Interviews utilise to know about competitors and their best performers study WOW course of instruction (process improvement) for all employees to be trained and integrated into the Commerce culture (Traditions class) Commerce University (full time education and training facility) Easy to mobilize framework for learning Commerce service deliver model gifted (Say YES to customers, Make each customer feel special, Always keep customer promises, Recover, Think like a customer) Continued business education for elderly executives WORK AUT ONOMY Kill the stupid rule program to evoke improvements WORKPLACE INVOLVEMENTAll employees encouraged to hand out their visiting cards to put down potential employees Redeemable WOW Stickers WOW Awards and Musical implementations Red Fridays (Pictures taken of those employees who are wearing red) Mascots Mr. C , Buzz and Dr. Wow REWARDS Glamorous prizes for bring in performers (like a leased Porsche Boxster for 1 year) $5000 remunerate for the staff of nearest Commerce branch where a competitor closed down $50 reward for suggesting improvement in the Kill the rule program (mentioned above) APPRAISAL OR PERFORMANCE MEASUREMENT All shops (branches) performance data on an internal database at large(p) to all branch managers Salary increases based on shop (No. f deposits) results Mystery shoppers visited 14000 shops (branches) annually for evaluating employees, customer-service reps for compliance with greeting and other procedures competition between branches in different reg ions in the form of Leagues (assuming this is like football game or baseball leagues) to get the best service report Table 5 Commerce Banks Employee Management System Customer Management Systems Commerces Customer Management Systems or customer-centric programs can be divided into Customer Acquisition Programs Customer Retention Programs two these have some customer delight features which are called as much(prenominal) because they are against industry norms and unexpected by customers Acquisition Industry NormEmployees were encouraged to cross-sell products (deposit account and loan products) Employees key performance measures were volume of calls handled and number of legal proceeding processed rather than customer satisfaction or repeat customers Customers were seen as cost centers and in order to keep a low-expense ratio were pushed to use the electronic channels (full-service to self-service) Also, customers using the conventional personal (teller) banking channel were pena lized through extra fees This savings in the marginal cost was then used to give a higher interest rate which banks felt was the only way to attract new customers. These are the result not understanding why customers selected their banks in the first place. In addition to proximity, customers chose banks based on service. Vernon Hill, CEO & Chairman, Commerce Bank understood this and built it into Commerces Customer Management System Commerces customer acquisition methodology Branches located close to competitors branches Branches are designed to be inviting, open windows (Note this is a visual Cue designed into the physical evidence variable.It shows satin flower and transparency) and ample parking Red & blue painted commerce vans helped produce free advertising opportunities Building designs across all branches were consistent (Note This gives a consistent message to the customer Integrated marketing communication) Very high promotional spends for every new branch in the form o f trail mailings, subway ads, phone kiosks and free food (like 10,000 hot dogs in Commerce napkins) First time customer is given 4 simple checking account options (See Table 1) and First time customer is given a free gift for opening an account Employees treat customers with outgoing friendly service and do not try to cross-sell products or push customers out of the store afterwards they finish their transactions Loan applicants were encouraged to open deposit accounts first Retention Industry Norm All banks provided the same ease-of-use electronic banking features along with their extensive branch networks. Also, existing Customers were expected to be golden in a different environment and deal with a different culture when banks merged. In spite of this, even the best retail banks at sea 15% customers/yr as the following table shows Sr. No. Reason for leaving of customer base 1. Dissatisfaction with steep fees and fee surprises, deplorable service and errors 34 2. Outside of r each of current branch locations 34 3. Availability of more convenience such as longer hours in other banks 15 Table 6 Customer attrition in the Banking Industry Commerces customer retention methodology Analyzing the facts of the case, it can be clearly seen that Commerces customer retention program targeted exactly those pain points (See Table 6) which caused customers to switch banks. Convenience Extended banking hours (10 minute rule allowed for 20 minutes of extra banking everyday) Busy locations were open trough midnight (1210 am)Weekend banking (Saturdays & Sundays) which started in Jersey shore were extended to all branches barely same environment across all branches (Note This feature was lost after Retailainment program was launched) Phones in ATMs reach helplines Live agents instead of VRUs Boundary-spanning Roles and Interface Employee train monitored by mystery shoppers for friendliness (handshakes), consistency in greeting and other procedural details when dealing wi th customers Employee appraisals and salary increases linked to branch performance (which is linked to service quality) and not volume of transactions handled Live agents rig out codes stricter than other call center settings Personal attention Guidance to manage deposit accounts by branch managersLoan accounts handled by local customer service branches and not central headquarters Guidance to manage loan accounts by loan officers (who also happened to be branch managers) Customer delight features No fees for ATM and check cards Non-interest income (ATM charges/fees for using other banks ATMs) returned to customers Employee escorts with umbrellas to cars during rains Penny Arcade program to handle coins with no charge either customers or non-customers (Note This might have even helped customer acquisition) Gifts (pens and lollipops) at drive-through banking windows All these helped drive the growth engine of Commerce Bank. It grew to $1 billion in deposits by 2001. While the net i ncome for the industry stood at 20%, Commerce doubled its net income in the period 1998 -2001.