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  • 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. 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. 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. 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. 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. 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. 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. (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. 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 ]
  • 10. employability The essential elements are . significant feature of services is the role of Karin Newman, Alan Cowling detailed below: people in creating the service “product” and and Susan Leigh Service quality, business 1 Job and organisation redesign: In order to the service experience for the consumer. In process re-engineering and support the fundamental changes in this, front-line employees are critical in shap- human resources: a case in process and service delivery, a substantial ing consumers’ perceptions of the service point? number of roles within the bank were encounter – it is the employee who is the International Journal of analysed on the basis of skills, competen- embodiment of the service and the company . Bank Marketing cies and key behaviours. Realistic job 16/6 [1998] 225–242 Its expertise (knowledge, competence, adapt- descriptions set out exactly what was ability, creativity), attitude (friendliness, required and expected of the job holder. empathy, problem solving) and socio- Each role was described under the follow- demographic character (Czepiel et al., 1985) ing headings: create and shape the consumers’ image and • Purpose of job – a brief statement as to perception of the company Given the pivotal . why the job existed and what it con- role of the employee, their selection, training, tributed to the organisation. and rewards are crucial to consumer percep- • Major activities and responsibilities – tions and ultimately consumer satisfaction. the main components of the job as it In recognition of the scale of the challenge would be performed on a day-to-day represented by re-engineering human basis. (This was not intended to be an resource processes to match the changed exhaustive list of tasks or how they business processes, the bank recruited a should be performed, but to contain key professional HR change manager from out- indicators.) side the industry with a background in engi- • Measures of success – the areas for neering and a qualification in occupational which objectives would be agreed and psychology to give a lead. This manager soon against which the job holder’s perfor- concluded that in order to achieve a high mance would be assessed. performing and capable organisation an • Skills and experience needed at entry – interdependent, reinforcing, and robust a generic indication of aptitudes or architectural framework was necessary Each . experience that would be required at element had to dovetail and reinforce the entry level for the role. others in the same direction. As he • Skills and experience required for commented to the researchers: excellence – a generic indication of In other organisations the rewards pro- aptitudes or experience which would grame didn’t tie into what they wanted distinguish a high performer in the people to do. Their behaviours and the way role. people were trained and educated was at a • Key competencies required – a list of tangent (Northbank HR director, 1996). the key competencies that the job holder would be expected to demon- Tailoring of employee incentives, rewards strate in performing the role. For exam- and training to the need to deliver customer ple “of critical importance to customer service, a quality service and customer satis- satisfaction and loyalty is our willing- faction is one of the hallmarks of this case ness to hear about and our ability to study and adds weight to the need for the resolve problems” marked a significant marketing academic literature to take the shift in employee behaviour. “people element” in service industries more 2 Selection: A rigorous and legally defensible seriously . approach to selection was designed, devel- Working with the re-engineering team oped and implemented. The radical during an intensive 13-week period between changes in the selection procedure October 1993 and February 1994 a strategic involved training 1,000 managers over the plan for human resources was designed and launch period. launched. The objective was to redesign the 3 Performance management: A new perfor- job roles in the bank to match the redesigned mance management system was designed, processes and new ways of doing things in developed and implemented which order to get a radical improvement in both ensured that each individual was more sales and customer service. The strategic HR closely focused on achieving results. Indi- plan, launched in early 1994, initiated a viduals and teams were to be measured redefinion of job roles, selection of the right and rewarded on the basis of branch cus- people to the new job roles based on objective tomer satisfaction ratings as well as for predetermined skills and competencies, sales performance. appropriate training, and the introduction of 4 Developing capability: The training depart- a new work philosophy based on the ment was refocused away from providing standardised off-the-shelf courses towards individuals being responsible for their own [ 234 ]
  • 11. delivering relevant and directly related facing role for a minimum of four years in Karin Newman, Alan Cowling training. order to build expertise and customer rela- and Susan Leigh Service quality, business tionships. A policy of increasing full-time 5 Building specialist skills: This aimed to process re-engineering and jobs, in an industry accustomed to employing build expertise and skills in order to serve human resources: a case in a large pool of female part-time workers, aims customers’ needs better than competitors. point? to increase the professionalism of the staff. It means staff stay longer in specialised International Journal of Interpersonal relationships in the service roles and career streams. Bank Marketing encounter are important in determining the 6 Taking personal responsibility for career 16/6 [1998] 225–242 performance of service organisations in cus- development: The bank would now actively tomers’ eyes. Satisfied and loyal and produc- encourage and support staff to take tive employees are able to create value which responsibility for their own career plan- in turn leads to customer satisfaction. In ning, skill development, and employability . service marketing, success is largely depen- 7 Strengthening teamwork: Good customer dent on the combined outcome of internal service and a positive working environ- marketing, interactive marketing and exter- ment depend on teamwork. The team nal marketing (Kotler, 1997). This proposition bringing everything together for the cus- has been recognised by the bank and specific tomer is even more important when staff actions taken. Internal marketing means are changing the way they work and using equipping front-line employees with the new skills. Plans to strengthen teamwork resources to deliver good service supported were seen to be the key to ensuring that all by efficient processes, training which is streams worked together to deliver for the designed to enable staff to give a good service, customer rather than creating internal and a climate dominated by the need to sat- rivalry . isfy customers. As the bank’s documentation 8 Business and resource planning: In design- reveals “we approach all tasks with the aim of ing the performance management system, getting it right first time. In order to gain and the HR team recognised the need for maintain a competitive advantage we must stronger and more reliable resource and strive to get it right first time and by so doing skills planning tools. These are being we will bring about high levels of customer developed and trialed ready for use in the satisfaction and reduce the time and cost next stage of the change programme. associated with correcting mistakes”. A man- 9 Rewarding performance: During the two agement commitment to customer satisfac- years from 1994 to 1996 the common tion expressed through training, role clarity, approach to reward was phased out. The incentives and rewards linked to customer new reward structure was designed to satisfaction is the key for their customer reward achievement, the application of focus. The bank’s commitment to customer new competencies, customer orientation, perceived service quality was to be signalled contribution to the achievement of rev- by the introduction of new standards of enue targets and customer satisfaction employee courtesy, professionalism ( service ratings. This approach introduced a with a warm and friendly style), rapid (two greater flexibility in terms of the mix days) and error-free customer correspon- between fixed and variable pay . dence. These standards of behaviour project- In addition, as the redesigned processes came ing a caring, helpful and professional image into operation, it became clear that not only together with improved communication with would jobs have to be reprofiled, but that the customers were expected to help to build number of management jobs would be customer relationships. The strategic recog- slimmed. The new managerial roles distin- nition that customer perceived service qual- guished clearly between sales and service ity is largely determined by people and the responsibilities. Many old-style managers condition of the service encounter was cru- were replaced by a younger more sales ori- cial to the bank’s turnaround and its ented manager. acknowledged high level of service quality . This re-engineering of HR procedures, the redesign of jobs, training for requisite compe- Achieving quality standards tence, and the introduction of measures of The achievement of a high level of quality of customer satisfaction and business perfor- service as a competitive differentiator was a mance into appraisal and reward systems has central objective. All the elements of the underpinned the improvements in service transformation programme described above quality achieved in the last five years. Man- were essential prerequisites for the attain- agement and customer service staff have ment of the bank’s service quality objective. been more clearly focused on customer needs. The drive for superior service quality was There is now a commitment to continuity of reinforced by the establishment in 1992 of the service quality department which at its staff by retaining job holders in a customer- [ 235 ]
  • 12. committed to service quality However, in . height employed nine people and reported Karin Newman, Alan Cowling contrast front-line staff felt handicapped by direct to the board. Their remit included and Susan Leigh Service quality, business the quality of support they received. Only 37 advice on quality-related issues, process process re-engineering and per cent of front-line staff felt well supported analysis and the introduction of uniform human resources: a case in by the bank’s operations and processes yet, standards covering objective and perceived point? overall, over 80 per cent agreed that the BPR service quality elements “designed to help International Journal of programme was of benefit to customers dur- everyone focus on those things which we Bank Marketing ing 1993-1995. know affect customers’ views about us and 16/6 [1998] 225–242 However, a few practical problems have the service we provide”. The introduction in been identified by regional staff. The mystery June 1992 of a set of national service stan- shopper is easily identified in branches with dards covering efficiency, problem solving, small catchment areas and regular cashline, courtesy, telephone, queuing, corre- customers. More seriously, the picture of spondence, names, badges and branch branch performance is based on a small num- appearance, demonstrated management’s ber of contacts and is therefore not a mirror commitment to quality of service. Employees’ of general performance on a day in day out performance and branch performance on basis. The bank has been re-examining the these service standards was monitored by a weighting of the mystery shopper (25 per quarterly customer questionnaire sent to a cent) and customer questionnaire (75 per sample of each branch’s customers. Survey cent) scores to overall branch performance data were augmented from 1994 with data and the value of the latter. Issues of concern collected by mystery shoppers. Customer have included the length of the questionnaire, perceptions of service were tracked and the low response rate, attempts to measure branches received detailed feedback on their the past three months in arrears when cus- performance in order to reward good perfor- tomers have forgotten many service encoun- mance and to identify areas of weakness and ters, and the high wastage rate derived from guide remedial action. sending the questionnaire to too many cus- To maintain staff ’s attention on service tomers who use few of the services and rarely quality and customer service the bank visit the branch. It is also interesting to note branch division receives Service Matters, a that an unintended result of this measure- magazine designed to raise staff awareness of ment system is that where only a small num- service quality issues. Its contents include ber of points separates branches at the top of service quality awards, a service quality the regional league table from those at the newsdesk, training news, briefings, competi- bottom, as has happened on occasions, there tions, examples of best practice, and bench- can be a disproportionate impact on variable mark examples from other organisations. pay There is also concern that the results are . There is also a service quality club. This was being used to penalise branches instead of as launched in 1992 and it is possible to belong a diagnostic tool to identify problems, develop in an individual capacity or in a group capac- action plans, and to target training. The ity Individual membership is for any member . researchers were also advised that the bank of staff with more than ten “E” encores is still trying to resolve tensions that arise (recommendations for exceptional service by between providing a service to customers and customers) per year. Branch membership is selling to customers. for all branches with a customer service Phase 3 (1996-7) was to be a period of consol- index (CSI) score of over 90 or for branches idation and completion. The roll-out of the whose CSI score had improved by more than “new branch” PC-based system with its three five points in a quarter. Members receive a components comprising customer service, certificate, a lapel pin and a chance to win cashier/teller and account opening was being merit points as recognition of their contribu- completed releasing branch staff to further tion. concentrate on customer value activities and The introduction of national quality stan- service. Branch numbers continued to fall to dards and regular measurement of branch around 665 from over 800 in 1991. Staff num- performance to these standards, combined bers continued to decline though the overall with the direct link of performance to vari- fall in UK banking employees from 20,260 in able pay, has put service quality and the cus- 1992 to 18,970 in 1996 masks the scale of the tomer into focus as a key work and business fall in branch numbers. Additionally the performance indicator. The employees’ ver- creation of computerised service centres dict on the degree of customer orientation is increased the efficiency of the branches and recorded in an employee survey of February at the same time released staff to focus on 1994 in which 82 per cent felt they had high customer service and new business. The customer service standards, 69 per cent felt launch of the customer loyalty royalties “putting customers first” comes naturally scheme in April 1996 rewards members with and 70 per cent felt management was [ 236 ]
  • 13. preferential rates on overdrafts, personal customer-centred focus and informed by Karin Newman, Alan Cowling considerable market and customer research. loan terms, a bonus on investment and pen- and Susan Leigh Service quality, business The success of this programme to date has sion schemes and a fee-free credit card. The process re-engineering and been dependent on persuading people to act introduction of national standards incorpo- human resources: a case in in different ways, upon senior management rating both objective and subjective quality point? commitment to high quality service, upon measures, which research had shown were International Journal of successful business redesign and a shift necessary for customer satisfaction, ensured Bank Marketing towards a customer and sales culture. both relevance and a necessary minimum 16/6 [1998] 225–242 The case reinforces the importance of the standard of service for the entire customer key success factors mentioned in the busi- base. In February 1995, a director announced ness process literature including: top man- “It’s official, after years of hard work (the agement leadership and commitment bank) now provides the best personal bank- (Hammer and Champy, 1993; Hurst et al., 1989; ing service in the UK…But…we must push Kotter, 1995); top-level responsibility for forward and not rest on our laurels. The com- implementation (Hall et al., 1993); excellent petition is hot on our heels and, more impor- project management, cross-functional team- tantly, we have to stay constantly ahead of our work and training (Davenport, 1993); cus- customers’ rising expectations” (Northbank, tomer focus (Davenport, 1993; Gulden and internal document, 1995). The annual review Reck, 1992); organisational learning (Senge et and summary financial statement for 1996 al., 1994) and frequent and effective communi- commented: “throughout our retail network cation (Hall et al., 1993; Hammer and Stanton, we saw our sales and customer staff meeting 1995; Larkin and Larkin, 1996). our customers’ requirements with banking and financial services products at a higher Contrasts with other UK retail banks’ level than ever before and a good and improv- pursuit of service quality ing level of service ...the year was not only Northbank would appear to be unique in its one of financial success but also a period approach to service quality by virtue of its during which significant foundations were holistic approach to corporate transforma- laid for long-term benefit in working towards tion. As already indicated, all major retail continued excellence in customer service and banks have pursued enhanced service quality added value banking for our customers” in one form or another (Wilkinson et al., (Northbank, internal document,1996). The 1996). Published work has described vari- innovation in products/services, processes, ously how one major bank has put the empha- people and systems based on research into sis on a customised version of Parasuraman customer expectations combined to produce a et al.’s SERVQUAL service quality measuring corporate turnaround showing a reduction in instrument and was able to provide evidence costs, service excellence, and rising of enhanced customer satisfaction and profitability . improved business performance, whilst another bank adapted a Crosby total quality management model for its purposes Discussion (Newman and Cowling, 1996). NatWest Bank’s Key success factors: practice and theory quality initiative was amongst the earliest, The goal of corporate transformation is to beginning in 1983. Its standards of service make planned fundamental organisation- campaign highlighted the importance of wide changes in how a company conducts its quality to staff and in 1986 with its quality business in order to cope with a challenging service programme it established a national and turbulent marketplace (Nadler and Tush- performance standards measurement sys- man, 1989). Transformation programmes tem. This was followed by the introduction of need also to be focused upon an overriding quality service action teams and in 1990 there goal (Champy, 1996), and in this case the for- were over 3,000 of these (Goodstadt and Marti, mulation of a simple new vision to “…build 1990, Wilkinson et al., 1991). The Co-operative the best retail bank in Britain”, served to Bank introduced total quality management encourage staff to listen and to accept change (TQM) in 1989 (Smith et al., 1992) and quality to their conditions of service, performance was placed as a line management function. measures and rewards. The transformation TQM has been introduced by Girobank with process put into place some of the essential notable success (Henderson, 1992; elements of Kotler’s (1977) marketing effec- Lee-Mortimer, 1992). Lloyds Bank has also tiveness dimensions, customer philosophy, adopted a quality initiative called “service marketing information, operational challenge” to “ensure that all customers efficiency, strategic orientation and receive prompt, efficient and courteous ser- vice “ (News from Lloyds Bank, 1993). Another integrated marketing organisation. The new major bank embraced internal marketing strategies and operations were guided by a [ 237 ]
  • 14. There is a relative absence of appreciation (Howcroft, 1993) in its quest for service qual- Karin Newman, Alan Cowling ity However, because these banks have . of the role of people in the mainstream mar- and Susan Leigh Service quality, business adopted such different methodologies, and keting and HR literature. There is a need to process re-engineering and used different ways of measuring customer direct HR policies to focus on customer ser- human resources: a case in satisfaction, it is not possible at this stage to vice and customer value. Human resource point? make a judgement as to the most efficacious strategy and marketing strategy would be International Journal of route. Furthermore, management theory enriched from a multidisciplinary approach Bank Marketing reminds us that what is good for one organi- focusing on customer value and the contribu- 16/6 [1998] 225–242 sation may be inappropriate or less effective tion of people. Exceptional prescience is for another. shown by Grönroos who, more than a decade ago, highlighted the importance of internal Low profile of marketing in service quality marketing and service quality and the link In a seminal article on the role of marketing with people: “Internal marketing...objective in service quality, Morgan and Piercy (1996) is to get motivated and customer conscious concluded that marketing’s role was limited personnel” (Grönroos, 1988). to the use of publicity to advertise quality The case clearly demonstrates the pivotal improvements, the application of quality role of people and the need to link people with improvement processes to marketing func- service quality and this was largely tions such as advertising and the input of conceived, planned and managed wholly by market intelligence to the cross-functional the HR department working closely with the quality team. Others have also expressed change managers. The evidence on staff satis- concern with the low visibility of marketing faction, though limited, is revealing. In 1994, professionals in quality improvement pro- at the introduction of the “new roles for new grammes (Cravens et al., 1988; Schmalensee jobs” strategy an employee staff opinion 1991). survey shows that 46 per cent of staff were The case study supports these concerns. “moderately” satisfied, 9 per cent were highly Whilst customer focus and service excellence satisfied and 28 per cent had low satisfaction. were the focus of the redesign of processes, One year into the staff redeployment and the HR redesign, the conception and imple- training programme staff satisfaction scores mentation of national quality standards, the had fallen. Only some 36 per cent were now ATM and branch PC network, etc., these pro- “moderately” satisfied, only 5 per cent were grammes were planned, initiated and man- highly satisfied and 32 per cent had low satis- aged by senior managers with only a tactical faction. It is interesting to note that this contribution by marketing. The minimal record of low and declining staff satisfaction contribution of marketing and the lack of coincided with an improvement in technical involvement of marketing personnel in shap- and functional service quality as well as cus- ing and managing these programmes is strik- tomer satisfaction and that the bank was ing and is mirrored in the academic litera- ranked number one in service quality and ture where service quality is largely absent customer satisfaction by a leading indepen- from the maintstream marketing literature, dent consumer survey in 1995 (Which, 1995). A being mainly the preserve of selected recent similar inverse relationship between American and Scandinavian service market- employee satisfaction and customer satisfac- ing literature. tion was observed in two other retail banks consequent upon the introduction of major The strategic role of people service quality programmes (Newman and Services are characterised by intangibility, Cowling, 1996). Further research into this heterogeneity, perishability and inseparabil- phenomenon in UK retail banking is clearly ity This accentuates the role of people and the . called for, which at first sight seems at odds functional aspects of service quality The . with the classic Bowen and Schneider study complexity of financial services accentuates referred to in the introduction (Bowen and consumer uncertainty in product and service Schneider, 1985). provider selection and may contribute to the findings of a recent Consumer Association survey report of June 1998 which portrayed Unresolved questions and future consumers’ awareness of financial services as research a lethal mix of ignorance and apathy (Which?, The case also raises some unresolved ques- 1998). In such circumstances the functional tions and future areas for research. Given the aspect of service quality, people and the way fact that this was a top-down radical change the service is delivered, dominates programme, how sustainable is the change? customers’ perceptions of service quality, How far have employees absorbed the change albeit technical quality (reliability, compe- tence) has to be of an acceptable standard. in leadership style, new staff roles and [ 238 ]
  • 15. change in their employment expectations? automated no frills banking service based on Karin Newman, Alan Cowling Have the staff completed their individual high technical service quality might be and Susan Leigh Service quality, business psychological transition to the new ways of offered. For customers who are willing to pay process re-engineering and working, reductions in bank staffs and and are profitable providing a high quality human resources: a case in change in business culture? Are there pockets branch personal banker would be appropri- point? of low morale and resistance (Jermier et al., ate. For mass retailing of financial services of International Journal of 1994; Strebel, 1996)? How will the bank resolve sufficient quality to meet customer expecta- Bank Marketing the tension between sales and customer ser- tions a “supermarket banking” service might 16/6 [1998] 225–242 vice or between “hi-tech low touch” delivery suffice. Alternatively a bank with a more via the telephone or computer and “high- widely profitable customer base may, with an touch” delivery in the branches? Is a differen- astute combination of technology and com- tiation strategy based on quality of service munications, provide a private banking ser- sufficient to cope with a highly complex, vice for the mass market or alternatively competitive and turbulent financial services adopt a mass customisation strategy A ratio- . environment (Howcroft, 1991; Mathur, 1992)? nal choice of segmentation strategy or mix of Indeed Northbank is not alone in pursuing a strategies will depend on two preconditions: quality service strategy; for example, “The pricing of services related to the cost of ser- NatWest way is to bring quality to: our cus- vice quality; and a real-time customer data- tomers, our investors, our people and the base which can identify current profitable community” (NatWest, 1993); and the Mid- customers, potential profitable customers land which advertised that it was taking steps and their life-time value available on a to “ensure our customers receive the highest branch PC network giving on-screen informa- possible level of service…including new prod- tion on each customer’s financial history, ucts, new cash machines, newly refurbished personal background and all transactions branches, putting customers first…for cus- with the bank, thereby creating a virtual tomer satisfaction, financial planning man- relationship between the bank and its cus- agers and better trained people” ( Midland tomer (Gandy and Chapman, 1996). HSBC, Sunday Times, 1997); Barclays Bank is It is the absence of such real-time holistic “firmly committed to the highest standards of customer databases that have made sophisti- service, professionalism and integrity” cated customer segmentation and targeting (Barclays Bank, 1995); whilst Lloyds TSB so impractical in financial services. However, states, “Our aim is to offer unequalled excel- some financial providers are close to lence of service” (Lloyds TSB, 1995). installing such customer databases in their branches, other customer contact channels as well as processing and telephone centres in Future developments in retail order to offer the prospect of a virtaul per- banking service quality sonal banking service giving them a powerful In retail banking, unlike most other service tool with which to match the quality of industries, customers are not all equal. A service, products and channels of distribu- study of US banks revealed “that in any given tion to target customers. These developments period, 40-60 per cent of these relationships will offer improvements to both marketing lose the bank money in an absolute sense. and customer service and suggest a new That is, revenues fall short of the true costs to definition of service quality for financial serve” (Timewell, 1994).In the UK, a recently services: service quality is consistently converted building society estimates that meeting or exceeding customer expectations only between 10 and 20 per cent of its cus- at a price which is acceptable to customers tomer base is profitable. The implications for and at a return which is acceptable to the service quality and marketing strategy are company . profound. First, it means high service quality or ser- Note vice excellence marked by personal service 1 Northbank is used as a pseudonym for reasons and expensive branches is not feasible for the of confidentiality. entire customer base. “We can’t afford to provide high service quality to all customers, References it’s just not profitable” (retail network direc- Appiah-Adu, K., Fyall, A. and Singh, S. (1998), tor, Abbey National, 1998). This suggests a “Marketing culture and customer retention in segmentation strategy offering different the financial service industry”, paper pre- levels of service quality linked with appropri- sented to the American Marketing Associa- ate distribution channels (Meadows and tion, August. Dibb, 1998). For example, for the unprofitable Barclays Bank (1995), Annual Report and customer and for those who want it, a remote Accounts. [ 239 ]
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