Case study: service quality, business process
re-engineering and human resources: a case in
point?
                       ...
quality as a competitive differentiator
                             service quality Customer satisfaction is the
        ...
occasion been a principal attraction and in
                             adoption rate in 1992 of 10 per cent of organi-
K...
Figure 1
Karin Newman, Alan Cowling
and Susan Leigh              Types of business process change
Service quality, busines...
Company documentation was supplemented
                             research-based empirical studies of service
Karin Newm...
Figure 2
Karin Newman, Alan Cowling
and Susan Leigh              Corporate transformation at Northbank 1992-1996
Service q...
bureaucracy prevented bank staff from              focus to a whole customer focus supported by
Karin Newman, Alan Cowling...
(1992-1995) in order to establish the direction   roles in the new bank” policy for all 14,500
Karin Newman, Alan Cowling
...
satisfaction was made visible to employees         additional staff training in product knowl-
Karin Newman, Alan Cowling
...
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  1. 1. Case study: service quality, business process re-engineering and human resources: a case in point? Karin Newman Middlesex University Business School, London, UK Alan Cowling Middlesex University Business School, London, UK Susan Leigh Middlesex University Business School, London, UK Features a case study of a organisation and a radical new human Introduction major bank which aimed to resources philosophy and set of processes. achieve corporate transfor- The findings are contrasted with the manner Much attention is currently being directed at mation and a dramatic in which other UK banks have pursued customer retention in the quest for greater improvement in service qual- improvements in service quality, based on the profitability in retail banking (Roth and Van ity. The links between service available evidence. der Velde, 1991; Rust and Zahorik, 1993). The quality, customer satisfaction Following a literature review highlighting evidence indicates that two different strate- and corporate profitability in the importance of service quality to customer gies are being pursued. One emphasises cost UK banking are outlined in satisfaction, retention and corporate prof- cutting and the development of a greater order to set in context the itability with a particular emphasis on find- variety of services to tempt customers, whilst many quality improvement ings related to UK financial services, a the other places the emphasis on service initiatives undertaken by UK quality, relationship marketing and customer chronology of types of quality initiatives in retail banks in recent years. satisfaction (Brent and Finegold, 1996). This retail banking with special emphasis on busi- Business process reengineer- second strategy in turn requires that ness process re-engineering is presented. ing has proved to be the most employees who interact with customers, do so This is followed by the aforementioned case popular of service quality in a manner which generates customer satis- study of a five-year corporate transformation initiatives but most have been faction and retention, which in turn requires programme in a major UK retail bank featur- limited to single processes well motivated good quality staff who are ing “pressures to act” for a programme of rather than corporate trans- satisfied with their employment conditions. change to employee communications, human formation as portrayed in the This line of thinking owes much to Bowen resources strategy and the introduction of case study. The five-year and Schneider’s classic study of the relation- national quality standards. The discussion corporate transformation ship between customer satisfaction and staff relates elements of the transformation pro- programme focuses on attitudes (Bowen and Schneider, 1985). gramme to points in the literature with spe- employee communications, There is currently a dearth of research- cial emphasis on quality, people and the low the redesign of work, recruit- based empirical studies investigating the profile of marketing in comparison to human ment and reward processes links between customer satisfaction, mea- resource management. Future developments and the introduction of con- sures to improve service quality, and staff in service quality and segmentation as well sumer research-based satisfaction in the UK, although those that as a working definition of service quality for national quality standards. have been carried out tended to support the UK retail banking are proposed. The bank was rewarded for its significance of service quality (Blanchard efforts, coming top for three and Galloway, 1994; Boaden and Dale, 1993; consecutive years in the Clark, 1997; Cowling and Newman, 1995; Relevant aspects of previous Which? service quality sur- Knights and McCabe, 1997; Newman and research veys and, according to its own Cowling, 1996). The point is – how can this data, which contributed to a Service quality as an antecedent of best be achieved? Recent years have also rise in customer satisfaction customer satisfaction, retention and witnessed a debate on the efficacy of business and customer retention at a business performance process re-engineering (BPR) and, in particu- time of declining employee In 1960 Levitt made a major contribution to lar, the extent to which BPR may fail to satisfaction. Future develop- the academic marketing literature with his achieve its goals through lack of attention to ments in service quality proposal that customer satisfaction should be the human aspects of change (Bartlett and segmentation and a working the primary goal of any business (Levitt, Ghoshal, 1995; Mumford and Hendricks, 1996; definition of service quality 1960). In parallel with the marketing litera- Willmott, 1994). Discussions with a senior are proposed. ture, customer satisfaction is also seen as a executive in a major British bank created an goal of the quality management literature. opportunity for the authors of this paper to The gurus of manufacturing quality, Crosby develop a research-based case study that (1979), Deming (1986) and Juran (1988), presents and examines a corporate transfor- International Journal of acknowledge customer satisfaction as a goal mation process based on BPR, one of the aims Bank Marketing 16/6 [1998] 225–242 of quality programmes. Similarly, the ser- of which was a radical improvement in ser- vices marketing literature recognises the vice quality, and where a principal ingredient MCB University Press [ISSN 0265-2323] pivotal role of customer satisfaction and was a shake up in the structure of the [ 225 ]
  2. 2. quality as a competitive differentiator service quality Customer satisfaction is the . Karin Newman, Alan Cowling result of purchasers’ perceptions of service (McCabe et al., 1997; Porter, 1997) in an indus- and Susan Leigh Service quality, business quality (Parasuraman et al., 1985; Rust and try which has “suffered de-regulation, compe- process re-engineering and Zahorik, 1993; Storbacka, 1994). Customer tition and the erosion of technical product human resources: a case in satisfaction is a direct antecedent of customer boundaries in markets which, in many senses point? retention (Rust and Zahorik, 1993; Storbacka, may be seen as oversupplied” (Knights et al., International Journal of 1994). Customer retention is the key to busi- 1994). Bank Marketing ness performance. The consequence of high 16/6 [1998] 225–242 levels of customer retention are increased Financial services industry motivations for revenue, reduced customer acquisition costs quality initiatives and lower costs of serving repeat purchasers In the context of the UK financial services, a leading to enhanced profitability: a 5 per cent survey of mid-1994 reports the following main increase in customer retention can increase motivations for quality initiatives: competi- profitability by between 25-85 per cent tive pressure to improve service quality (74 (Reichheld and Sasser, 1990). But customer per cent), enthusiasm of the CEO and senior satisfaction per se is insufficient, for between management (70 per cent), competitive pres- 65 and 85 per cent of customers who defect are sure to reduce cost (51 per cent) and customer satisfied customers (Reichheld, 1993). What is demand for quality (51 per cent) (McCabe et needed is “complete customer satisfaction” al., 1997) For the subject of our case study, for it is this that “is the key to securing cus- quality offers an opportunity to “differentiate tomer loyalty and generating superior long ourselves from our competitors by the quality term financial performance” (Jones ad of service we provide” (Northbank[1], inter- Sasser, 1995). Likewise, the competitive strat- nal document, 1992). For another high street egy literature suggests a link between excel- bank “quality service is the essential ingredi- lent service quality and competitive strategy ent of its battle plan” (Goodstadt and Marti, leading to a differential competitive advan- 1990). For Peter Ellwood, group chief execu- tage. Using the PIMS data Buzzell and Gale tive of Lloyds TSB, the most profitable of the (1987) have demonstrated that firms offering high street retail banks, excellence of service superior service attained higher than normal is the key to increasing sales to existing cus- market share and that organisations in the tomers: “We’ve got some 15 million customers top ten quintile of relative service quality on who have an average of six or seven financial average achieve an 8 per cent higher price products each, only just over two of which are premium (Buzzell and Gale, 1992). Conse- with us” (Peter Ellwood, 1998). A prerequisite quently quality improvements are cited as for attaining improved market penetration of leading to competitive advantage (Gale, 1994). an existing customer base’s savings, invest- The attractions offered by service quality as a ment, credit, loan,insurance and pension route to improved business performance business is quality of service – the antecedent underlie the widespread adoption of service to customer satisfaction. quality initiatives in many service industries (Oakland and Oakland, 1989). Types of quality initiatives in UK Service quality and customer retention in financial services financial services There is no universal accepted definition of Research on both sides of the Atlantic into the quality but there is an emerging consensus importance of customer retention supports a around three main facets or dimensions of link between service quality and customer quality: quality which embodies a level of retention in financial service companies. quality or set standards; quality which con- Customer retention has been found to be a veys prestige and exclusiveness; and, by far major determinant of market share and prof- the most numerous of definitions, quality in itability in banks (Roth and Van der Velde, terms of customer expectations and customer 1991; Rust and Zahorik, 1993). In the UK a satisfaction. For this case study that of recent survey of 121 banks and building soci- Parasuraman et al. is adopted: eties observed “of particular note in this Service quality as perceived by customers is study is the overwhelming significance of the degree and direction of discrepancy quality of service as that factor which most between customers’ service perceptions and clearly demonstrates the strongest indicator expectations (Parasuraman et al., 1985). of a financial services firm actually retaining In UK financial services, quality initiatives its customers” (Appiah-Adu et al., 1998). Addi- are a comparatively recent phenomenon with tionally, and of major concern to UK financial the first reportedly starting in the early 1980s. services, which have traditionally enjoyed The introduction of service quality initiatives high rates of customer retention based on customer inertia, is the attraction of service increased since the early 1980s, peaking at an [ 226 ]
  3. 3. occasion been a principal attraction and in adoption rate in 1992 of 10 per cent of organi- Karin Newman, Alan Cowling sations, whilst total quality management the case study featured below was one of the and Susan Leigh Service quality, business initiatives peaked in 1992 with 13 per cent of acknowledged reasons for its adoption. process re-engineering and organisations reportedly adopting it. The human resources: a case in earliest initiative for BPR was reported in point? Types of BPR for service quality 1989. This has increased, with 6 per cent International Journal of and improved business reporting its adoption in 1991, 15 per cent in Bank Marketing performance 1992 and 23 per cent in 1993. By mid-1994, 75 16/6 [1998] 225–242 per cent of financial organisations had appar- There is an abundance of discussion of BPR ently adopted some form of BPR (McCabe et in the academic and practitioner literature al., 1997). and yet there is no consensus on a definition and no monolithic model for its implementa- BPR for service quality and improved tion. For the purposes of this case study the business performance definition proposed by Hammer and Champy The prime attraction of BPR has been the (1993) is deemed most appropriate; BPR is: promise of improved business performance ...the fundamental rethinking and radical based on improvements in cost, quality, ser- redesign of business processes to achieve vice and speed (Hammer and Champy, 1993). dramatic improvements in critical, contem- At the level of the firm, one of the principal porary measures of performance, such as claims for successful BPR is that it cost, quality, service and speed. contributes to the creation of a competitive Similarly, there are many definitions of busi- advantage (Gulden and Reck, 1992) derived ness processes but for the purpose of this from superiority in process performance, paper that of Harrington (1991) seems the particularly those which deliver products and most appropriate: services to customers (Davenport, 1993; Drew, 1994; Hammer and Champy, 1993; Hammer A process is any activity, or group of activi- and Stanton, 1995). Process efficiency and ties that takes an input, adds value to it and effectiveness reduces costs and improves provides an output to an internal or exter- product/service quality (Johansson et al., nal customer. 1993), and thereby differentiates the organisa- BPR entails an examination of processes that tion from its rivals leading to increased rev- influence how well the company sells, pro- enues (Hauser and Eisele, 1995). vides service, produces goods and brings new At the market interface, BPR focuses the products/services to the market (Hammer organisation on the customer allowing and Champy, 1993; Maull and Childe, 1994; improved customer responsiveness and an Obeng and Crainer, 1994; Obolensky, 1994) in increase in customer orientation (Johansson order to maximise customer value (Godkin et al., 1993). This, when accompanied by supe- and Parish, 1995). Choice and design of riority in process performance, contributes process, according to Hammer and Champy to customer value and this in turn increases (1993), depends on how the process affects the customer satisfaction and encourages cus- customer in terms of timeliness, cost, product tomer retention (Harvey, 1995; Johansson et features and quality of product/service. al., 1993). It is now widely accepted in the literature that improved customer retention Types of business process change reduces costs and improves profitability . Venkatraman’s (1994) model, focusing on At the strategic level BPR programmes information technology-driven BPR, has been should be guided by a mission statement and supplemented by Davenport (1993) Johansson corporate plan (Obolensky, 1994) which acts et al. (1993) and others. A generic model com- as the mobiliser and shaper of values, beliefs, binining elements of Venkatraman’s five- people, management systems and informa- stage taxonomy and subsequently adapted by tion technology thereby gearing the organisa- Drew (1996) for financial services is presented tion’s competencies for a better strategic fit in Figure 1. with customer requirements (Johansson et The breadth or scope of change relates to al., 1993). From the marketing performance the number of processes and the number of literature, according to Narver and Slater affected functions. Process innovation (1990) a higher degree of market orientation includes streamlining of part of an end-to-end is the main driver of most BPR progammes process and is essentially local in its impact encompassing customer orientation, competi- resulting in incremental improvement – for tor orientation and interfunctional co-ordina- example, BPR of complaints handling. Above tion. The two main criticisms of BPR are that the line, business process redesign, business it has a high failure rate and that it reduces scope redesign and corporate transformation headcount (Mumford and Hendricks, 1996; Willmott, 1994). The latter, however, has on represent successive degress of corporate- [ 227 ]
  4. 4. Figure 1 Karin Newman, Alan Cowling and Susan Leigh Types of business process change Service quality, business process re-engineering and Wide human resources: a case in Corporate point? Transformation International Journal of Bank Marketing Business 16/6 [1998] 225–242 Scope Redesign Organisational Breakthrough Improvement/ Impact/Scope of Discontinuous Change Change Business Process Redesign Evolutionary Change/ Process Innovation Continuous Improvement Narrow Internal External Increasing Customer Impact Based on Venkatraman (1991) and (Drew) 1996. transformation is cross-functional by nature wide discontinous change offering the poten- tial of major or breakthrough improvements and is more often than not supported by new information technology At this level, BPR is . Business process redesign/re-engineering integrative of business functions, and entails This is the classical approach described by a change in mindset, beliefs and values Davenport (1993) and Hammer and Champy (Godkin and Parish, 1995; Hall et al., 1993). It (1993) involving an identification of processes offers the prospect of a better strategic fit for process analysis, redesign and subsequent with the environment, in particular higher implementation. The scale of the programme levels of customer responsiveness and its impact is dependent on how many (Lowenthal, 1994). The main focus is on core processs are included. For a bank this streamlining and redesign of work and organ- might range from a single process redesign of isational structure to achieve dramatic a mortgage application to a cluster of improvements in cost, quality, service and processes such as personal lending, mortgage speed. The case study featured below is an processing and credit card issuing process example of corporate transformation. improvements. Business scope redesign Northbank: a case study in service This is typically based on the application of quality, BPR and improved business new technology which may redefine the scope performance of the business by encouraging diversifica- tion into new markets with new products or Case study objectives services. For example the application of com- This case study aims to provide empirical puters combined with the telephone and support and insights to the theoretical and dedicated call centres revolutionised sales of practitioner literature on service quality, car insurance for a branch-based bank. BPR and human resource strategy and mar- Corporate transformation keting. Specifically the research objectives were to obtain information on a whole bank Corporate transformation involves a radical re-engineering project designed to transform departure from previous practice and struc- the bank into a “new bank” , a customer- tures and redefines the business from the focused organisation offering service quality customer’s viewpoint. It involves a funda- as a route to competitive differentiation, mental change to the nature of work based on the new processes. Supporting such funda- facilitated by redesigned core processes, job specifications, appraisal and reward struc- mental change requires a holistic and strate- tures linked to customer satisfaction and gic approach to human resources, training business performance measures. This case and development, management structure and definition of core processes. Corporate study is valuable because of the dearth of [ 228 ]
  5. 5. Company documentation was supplemented research-based empirical studies of service Karin Newman, Alan Cowling quality in banking in this country It is also of . with personal interviews lasting some one to and Susan Leigh Service quality, business interest because of the significant strategic two hours with senior national managers. process re-engineering and role of human resources selection and train- Interviews with the head of the service qual- human resources: a case in ing of employees in order to become more ity department, the service quality adviser, point? customer focused. It demonstrates a recogni- the director of human resources, the head of International Journal of tion of the crucial role played by employees in UK personal sales, together with a regional Bank Marketing customer satisfaction and service quality and retail director in the Midlands, were balanced 16/6 [1998] 225–242 the vital role of employee communications in with a site visit to one of the redesigned bank publicising the corporate “vision” to gain branches and an interview with a local commitment, the strategy (in terms of facts, branch manager. The inclusion of a regional information and data) to inform and to and local perspective is thought to increase empower employees to perform reinforced by representativeness and reduce bias in the training and new standards of service mea- interpretation of oral and written evidence surement performance. The approach to generated by the centre. achieving service quality also contrasts with other recent UK studies (Blanchard and Case study structure Galloway, 1994; Goodstadt and Marti, 1990; The case begins by setting the firm in context, Howcroft, 1993; Lee-Mortimer, 1992; Newman the motivations and drivers of change focus- and Cowling, 1996; Snape et al., 1996), as ing upon structural reorganisation, process brought out in the final discussion. redesign, customer-focused IT investments, a service quality improvement programme of Case study methodology national standards, job redesign for new The approach used here is a case study processes and competencies supported by method which describes and analyses the training, marketing and communications context, content and process of change in a innovations – the chief building blocks for UK bank undergoing a five-year corporate creating a market-oriented organisation and transformation programme. There are many attaining a competitive differential based on definitions of case study For Yin (1981) a case . service quality. study attempts to examine contemporary phenomenon in a real-life context, while Barton (1995 ) observes that a case study is “a Introduction to Northbank history of a past or current phenomenon, Northbank is among the ten largest retail drawn from multiple sources of evidence”. banks in the UK and has around 650 The limitations of a single case study, includ- branches. The bank has recently completed ing biases such as exaggeration of the an ambitious five-year corporate transforma- salience of a data item or misjudgement of the tion programme, led by a new chief executive representativeness of a single event, are well and newly appointed senior management known but it is not our intention to test the- team. The main elements of the programme ory but to explore contemporary events to are depicted in Figure 2 and incorporate both confirm existing theory and to build business process redesign, structural reor- theory As Eisenhart (1989) has stated, . ganisation, re-engineering of jobs, recruit- “Theory building should begin as close as ment, training and rewards, investment in possible to the concept of no theory under information technology, and a quality consideration and no hypotheses to test”. improvement programme of national stan- A triangulated approach based on company dards with the establishment of a service documentation, interviews with company quality department reporting directly to the managers, academic and practitioner confer- board. The consequent innovations in mar- ence papers as well as independent stock- ket, customer, distribution channels and broker reports has been employed. The case service quality contributed to the bank’s study was compiled from a variety of com- ability to survive and achieve breakthroughs pany documents including the annual report in business performance and dramatic and accounts, some service quality documen- improvements in levels of customer service. tation, including a brochure on service stan- This multifaceted organisation-wide dards and some of the quality club publica- change programme has culminated in the tions, some human resource strategy docu- bank being ranked number one in service ments related to employee opinion surveys in quality by a leading British independent 1991 and 1994, a template for the new roles consumer survey organisation and the bank and job specifications generated by the was the only high street bank to be included process redesign and service quality mea- sures and finally some issues of the staff in the top category for customer satisfaction newspaper over the period 1991-96. three years running (Northbank, 1996; [ 229 ]
  6. 6. Figure 2 Karin Newman, Alan Cowling and Susan Leigh Corporate transformation at Northbank 1992-1996 Service quality, business process re-engineering and “Our overall aim is to buid the Best Retail Bank in Britain. One of the human resources: a case in Corporate Key element of this strategy is to differentiate ourselves from our Objective point? competitors by the quality of service provided” [1992] International Journal of Bank Marketing Corporate Business Re-engineering and Quality Improvement Programme 16/6 [1998] 225–242 Strategy Re-organisation of Service Quality HR Department & Marketing: Communication Bank Structure Functions: New Markets & • New Service • Videos Re-design Customers • Retail, Quality • Roadshows New Management commercial & Department • Focus groups •Segmentation & Structure corporate • National • Letters targeting HR Planning customer streams Standards • In-house • New products • Delayering • Monitoring & magazine • Repricing • New jobs • Staff Cuts Measurement • Briefings • New delivery • Defining Achieved • Customer • Competitions patterns Competencies & Through Advisors • Selling training Identification of • Quality • Customer care • Selection & core Bank incentives managing Processes & • Service Quality performance Re-design; Club • Recruitment of Transfer of ‘back customer office’ to regional services staff centres • Reward linked to performance & Investment in IT customer satisfaction • Branch based PC system & ‘state of the art’ cash points Some Branch Performance on Staff Satisfaction Operational Measures of Customer Sales Profits Performance Service Standards & Process & Cycle Times Number of Products Measures Customer Satisfaction Cost to Income Ratios Which?, 1995). Retail banking returned to a competition increased and the building soci- profit of £61m in 1992. In spite of the heavy eties emerged as serious competitors to the banks. The onset of the recession at the end of investment in new technology, costs were the 1980s, combined with a decline in prop- driven down through greater efficiency and erty prices, effectively halted the expansion the closure of some 55 branches in 1994. As a of retail banking in the UK. The slow-down of result the cost to income ratio fell from 62.5 the economy, rising unemployment, declining per cent to 59.2 per cent in 1996. This com- property prices, and increasingly intense pares very favourably with Natwest’s 70 per competition in the financial service sector cent income to cost ratio but falls well short combined to increase provision for bad debts, of Lloyds TSB at 52 per cent or Abbey squeeze the banks’ margins and reduce oper- National at 42 per cent, owing to the still dom- ating profits. No bank was immune to the inant share of mortgages in the business effects of the recession; however, in 1991 (BZW, 1996). By September 1995, the bank had Northbank’s share price collapsed and profits doubled its customer base since 1991 and slumped, disappointing both city analysts increased the average number of products and shareholders and raising fears for the sold per customer by some 88 per cent. The bank’s independence. telephone bank launched in 1994 had The appointment of a new group chief exec- acquired some 550,000 customers by Septem- utive in 1990 – a man who joined the group ber 1996. bank’s directorate from industry only three In its annual report and accounts for 1996, years earlier – heralded a change in manage- Northbank comments with some satisfaction ment style. Using his new-found authority the both upon its financial achievements, and the new chief executive ordered a corporate-wide successful conclusion of “...a period during review of the operations of the branch bank- which significant foundations were laid for ing division which revealed major long-term benefit in working towards contin- weaknesses of structure, operations, manage- ued excellence in customer service and added ment and marketing, including: value banking for customers”. • Poor organisational design – the bank had a Pressures to act cumbersome hierarchical structure of some Deregulation of the financial services indus- 15 layers of management below executive try, following the 1986 Financial Services Act level together with a command and control in the UK, had led to a more competitive management style which was seen to operating environment as intra-banking impair performance. The internal [ 230 ]
  7. 7. bureaucracy prevented bank staff from focus to a whole customer focus supported by Karin Newman, Alan Cowling performing either speedily or effectively a major investment in a PC branch network. and Susan Leigh Service quality, business and limited opportunities for branch staff process re-engineering and The corporate transformation programme empowerment. human resources: a case in These findings justified the creation of a • Poor quality people in key positions – senior point? secret planning exercise detailing the need managers were traditionally recruited International Journal of for fundamental change in management style straight from independent schools and Bank Marketing and operations.One decision, to “clear out the worked in the bank all their lives. Branch 16/6 [1998] 225–242 old guard” of senior managers, many of managers were noted for their low golfing whom had joined the bank from school, was handicaps. implemented on a single day The size and . • Lack of vision and investment in IT – invest- characteristics of the executive board and ment in information technology, apart from senior management were to be changed sig- an expansion of the automated teller nificantly Over 30 mainly university edu- . machines, had been limited since 1973, cated graduates were recruited from organi- affecting both branch functioning and the sations other than banking. They were sup- availability and quality of management ported by a well respected internally pro- information. moted managing director, a lifetime banker, • Poor distribution network – as a result of who accepted the need for fundamental cor- numerous mergers and acquisitions the porate change. The seriousness of the bank’s bank’s branch network was in need of ratio- problems combined with a chief executive nalisation. All too often, branches were with experience of planning and leading located within a few 100 yards of one organisational change in industry made BPR another; or branches were situated in areas and a service quality improvement project a which, as a result of economic or social natural choice. decline, now served too few customers. The transformation programme conceptu- • Unreliable lending and poor pricing policies alised, planned and managed by top manage- which had contributed to large-scale debts ment, was to embrace a reorganisation of and poor quality lending. almost every aspect of the bank’s business • Unimaginative products – a very narrow (structures, products, services, job titles and and unexciting product range and a lack of roles, training policies, technology and customer targetting had contributed to marketing/sales) in order to meet a multiplic- flagging customer interest. ity of aims. After survival and a return to • Low priority given to customer service – the profitability the next priority was to enhance ability of front-line staff to serve an increas- shareholder and customer value by improv- ingly discerning customer was impaired by ing customer service and reducing operating product proliferation without sufficient costs. It was decided at the outset that the staff training, an outdated IT support sys- business re-engineering programme had to tem and a paucity of customer information be self-financing over the five-year period and which made the job of matching financial all potential solutions were evaluated in products or services to customers almost terms of cost/benefits using a model of net impossible. The inability to segment cus- present value. In essence the change project tomers, the lack of product knowledge and was a five-year profit-improvement poor market intelligence impaired market- programme designed to achieve a profit ing and customer service provision and increase in the retail bank of £100 million a contributed to the spiral of decline. year in three stages. A newly formulated • Poor service quality – at the beginning of the vision or mission statement neatly encapsu- 1990s a city research group survey observed lated these aims: “Our overall aim is to build that Northbank’s reputation for providing the best retail bank in Britain. One of the key the cheapest banking services was let down elements of this strategy is to differentiate by poor quality of service. ourselves from our competitors by the quality Such findings, together with the results of a of service we provide.... Delivering quality major customer segmentation study of the service consistently across the whole of the branch banking division (BBD), led to the branch network results in satisfied group bank being structurally reorganised customers, stronger relationships and ulti- into three customer banking streams – retail, mately a more profitable business” commercial and corporate – supported by an (Northbank, Internal document, 1992). operations division. The retail bank for high The programme was managed by a change street or retail customers is the primary management group (CMG) led for the first focus of this case study This structural reor- . two years by the chief executive and compris- ing the retail bank’s board of directors. The ganisation was a precondition for a focus on group met weekly over the next three years retail customers and a shift from an account [ 231 ]
  8. 8. (1992-1995) in order to establish the direction roles in the new bank” policy for all 14,500 Karin Newman, Alan Cowling staff. and elements of the change programme. A and Susan Leigh Service quality, business The cascade briefing was underpinned by high level analysis of banking processes iden- process re-engineering and an initial phase in which selected managers tified the core business processes: credit, human resources: a case in were trained and monitored for communica- service, personal sales, commercial and cor- point? tion effectiveness. Performance was subse- porate business. Business process initiative International Journal of quently measured by surveying staff. In addi- teams were led by experienced and commit- Bank Marketing tion, daily circulars were sent out to branches ted line managers. Each of these team man- 16/6 [1998] 225–242 and departments. The bank house journal, agers was supported by an external consul- which in the past had consisted of over 20 tant who acted as a personal coach and advi- pages detailing operating, sales and person- sor to the team. The team membership was nel information, was repackaged by a new supplemented with newly appointed young thrice weekly publication entitled “focus”, in university postgraduate and first job-change which information was categorised by sub- graduates who had the requisite skills in ject in a clearer and more action-orientated operations research, statistics and applied linguistic style. Over the period 1993-1995, a economics. In parallel to the process teams, staff opinion survey recorded that 76 per cent functionally focused teams were established of staff felt well informed in 1993 rising to for information technology, property and over 80 per cent in 1994 at the height of the human resources. At its peak in 1993 the programme falling away to 56 per cent a year change programme teams numbered some later as the intensity of communications 250 permanent staff and temporary contract diminished. specialists. Internal communication plays a significant role in determining the success of a service Employee communications organisation and is vital to the acceptance by Winning commitment from branch banking employees of any change in their working staff was a vital precondition for the success environment. In this case communication of of the business re-engineering programme. the vision, facts, information and data relat- The first step of this process was the new ing to the key strategies on service quality, vision statement. The process of communicat- availability of jobs and the competencies and ing the new bank’s vision statement began at skills required for the new jobs combined group level with the launch of the first finan- with focus groups to add explanations of what cial results video and a series of question and was happening and collect staff fears, anger answer sessions hosted by Northbank’s chief and concerns appear to have been successful executive. Bank staff who had until this time in reducing employee resistance. As the HR seen little of top management were director put it: galvanised by the change in management We knew what had to be done (but) this style. A nationwide roadshow, led by the man- involved a whole lot of people who were aging director, the HR director, and the head stuck in their ways, who had been doing of the re-engineering team addressed all things pretty much the same way for 300 levels of staff. The employee communication years…. What we did was to engage with programme included a personalised letter them in a genuine dialogue and at the end of the day we emerged with a very clear pic- from the retail bank’s managing director to ture of the way it would work (Northbank all staff explaining the changes, the creation HR director, 1996). of a special newsletter and a telephone hot- line for enquiries. The communication exercise also contri- A top-down cascade method of communicat- buted to the change in the prevalent culture, ing milestones and critical steps in the or in the way “we do things around here” change programme was adopted. For example (Schneider and Rentsch, 1988). The old cul- the HR strategy of “new roles in the new ture was seen to be an obstacle to the new bank” involved three separate cascade brief- ways of customer service and sales, team- ings. In the first round 3,000 senior managers working and multiskilling. The new culture were briefed at six roadshows by top manage- had to be so embedded that employees and ment. In the second round, these managers, customers would sense the change at the supported by videos and written material service encounter where new designer uni- from the centre, briefed their own middle forms and name badges worn by counter staff managers. The advantage of this format was were to be matched by a visible improvement that the briefers received the key messages in their courtesy, perceived commitment, direct from top management, thereby reduc- professionalism, a customer friendly new ing the potential for rumour and misinterpre- branch layout as well as by considerable ser- tation. In 1994 three separate communication vice innovativeness. The commitment of senior staff to service quality and customer cascades were held to announce the “new [ 232 ]
  9. 9. satisfaction was made visible to employees additional staff training in product knowl- Karin Newman, Alan Cowling through the introduction of national stan- edge and customer service reinforced the and Susan Leigh Service quality, business dards of measurable service quality In conse- . bank’s new customer service and sales focus. process re-engineering and The re-engineering of core processes aimed quence, the staff opinion survey records an human resources: a case in to obtain significant improvements in service increase from 68 per cent in 1994 to 85 per cent point? quality and gain radical improvements in in 1995 of staff rating their immediate boss’s International Journal of efficiency and a reduction in costs. Informa- commitment to customer service and 76 per Bank Marketing tion technology underpinned the reengineer- cent of staff agreed with the statement that 16/6 [1998] 225–242 ing of banking practice from a fragmented the bank has high customer service stan- manual “system” to a seamless, automated dards. Similarly 81 per cent agreed that the and speedy national system of processes and BPR programme was of significant benefit to administration. To reduce costs and increase bank customers (Northbank, internal docu- effectiveness in the new operating culture of ments,1994 and 1995). sales and service quality, the number of man- agers was reduced from approximately 3,500 The three phases of corporate to around 1,900, and the layers of manage- transformation ment in what had been a traditional hierar- In Phase 1 (1992-1994) the retail bank focused chical structure were pruned from 19 to five. on: Phase 2 (1994-1995) was designed to cut out 1 Reducing bad debts and improving the surplus cost, increase revenues and improve quality of its loan business with the cre- service quality Consequently, retail banking . ation of a new central unit “specialised branch staff numbers fell by around 1,000. lending services” to oversee personal Revenue increases would be achieved by loans. developing new savings and investment prod- 2 The recruitment of new staff to improve ucts as well as the national launch of tele- the quality of the bank’s management as phone banking in April 1994. Service quality well as secure a “customer orientation”. was to be improved by a £100 million IT sys- tem investment programme to facilitate a The goal of increasing revenues was to be reduction in unit costs and improvement in achieved by the introduction of a new pricing service quality The vast majority of customer . strategy which included the removal of the transactions including funds transfer, cheque cross subsidy on products, the introduction of book requests, direct debits, standing orders, a new service pricing structure based on etc., would be handled by a teller using a competitive pricing of individual products, single PC and screen thereby improving cus- new product innovation to diversify the prod- tomer service, reducing errors and improv- uct portfolio,including an innovatory range ing turnaround. The new technology would of fixed and capped rate mortgage products, integrate services nationally and thereby unit trusts, and PEPs as well as a wide range improve business performance. The design of credit cards designed for newly identified and testing of the new branch technology was customer segments. To widen distribution completed in 1994 and rolled out in subse- and enhance customer convenience, a 24-hour quent years. A new branch design was intro- seven-days-a-week telephone banking service duced to make the bank branch look less like was piloted in 1993 augmenting traditional a bank and more like a retail outlet. The user- distribution through the branches. The reali- friendly bank format was tested in five differ- sation that customers would defect to com- ent prototypes around the country and cus- petitors “if we fail to meet their expectations tomers’ reactions were monitored. The tradi- as far as machine availability and cleanliness tional use of branches as customer service are concerned”, together with the anticipated points as well as for administration was ques- reduction in operating costs, justified the tioned. The outcome was the removal of back investment in a thousand state-of-the-art cash office administration and processing from points which were installed in branches as the majority of branches to 15 specialist ser- well as in novel places such as garage fore- vice centres leaving staff free to concentrate courts, airports, railway stations and super- on customer service and sales. It is interest- markets. The investment in new technology ing to note that the removal of back office was integral to serving the needs of the cus- functions from the branches has highlighted tomers more quickly and efficiently whilst at a need to improve internal marketing, includ- the same time reducing transaction costs. ing a need to provide an internal quality The strategy of offering increased product service to branch staff. choice and greater convenience was expected Re-engineering and human resource to lead to increased sales to customers, cus- management tomer acquisition, customer satisfaction and As Zeithaml and Bitner (1996) succinctly retention. The appointment of over 500 observed, “ The offering is the employee”. A branch-based customer advisers and [ 233 ]

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