First Euro Case Study

© 2003, Tyler Mangan Limited t:m

Creating the Strategy Focused BankA Discussion Document

Jonathan Chocqueel-Mangan

February 2003

t:m tyler manganclear thinking: decisive action

© 2003, Tyler Mangan Limited 2 t:m

The pace of change in the banking industry has increased along many dimensions

• Financial– Increased assets and efficiencies

through merger and acquisition– Geographic diversification to mitigate

risk– Exit of low margin products and

customer segments– Increasing focus on fee-based products

• Customers– Increased wealth, higher levels of credit

and higher levels of debt– Preference for one-stop shopping– Increased demand for integrated,

alternate channels and self service– Demand for financial advice not just

products

• Competitors– New entrants for new sectors (e.g.

supermarkets)– Increase competition from products

and transaction specialists, brokerages and venture capital

– Alliances and partnering– More effective use of e-commerce

• Channels– Channel diversification (interactive,

IVR, ‘Virtual Banks’)– Cross Selling and the deepening of

relationships with the most profitable customers

– Migration to lower cost channels


Many banks are seeking to migrate from traditional banks to diversified financial services companies

Strategic Goals• Increase revenue form fee based

products and services• Expand the ‘share of wallet’ for

existing customers through cross selling

• Differentiate services levels depending upon customer profitability

• Provide consistent service experience across channels

• Exploit partnerships to create better product development

• Improve operational efficiency• Manage risk

Strategic Goals• Increase revenue form fee based

products and services• Expand the ‘share of wallet’ for

existing customers through cross selling

• Differentiate services levels depending upon customer profitability

• Provide consistent service experience across channels

• Exploit partnerships to create better product development

• Improve operational efficiency• Manage risk

Potential Obstacles• Be all things to all people (The

Martini Complex)• Lack of alignment between

business units and support functions

• Poor communication throughout the workforce

• No link between strategy and budget

• No link between strategy and performance management process

• Under appreciation and management of enterprise wide risk

Potential Obstacles• Be all things to all people (The

Martini Complex)• Lack of alignment between

business units and support functions

• Poor communication throughout the workforce

• No link between strategy and budget

• No link between strategy and performance management process

• Under appreciation and management of enterprise wide risk


A wide range of Financial institutions have been executing their strategies using the Balanced Scorecard

• Halifax Bank of Scotland• The Industrial Bank of Japan• J.P. Morgan• Lloyds TSB• Nationwide Building Society• Nordea• People’s Bank• Royal Bank of Canada• Royal Bank of Scotland• Wells Fargo

• Abbey National• ABN Amro• AMP• AXA Financial / The Equitable• Barclays Bank• Chemical Bank (Chase Bank)• Citibank• Deutsche Bank• Fannie Mae• First Chicago (Bank One)

Short-List of Balanced Scorecard Users in Financial Services


There are a number of critical components to a Balanced Scorecard – not just measures

Objectives

• Increase cross-business sales

Statement of what strategy must achieve and what’s

critical to its success

Target

• Yr 1 40%• Yr 2 45%• Yr 3 50%

The level of performance or

rate of improvement

needed

• CRM system

Key action programs

required to achieve

objectives

InitiativeMeasurement

• % customers with products from >2 LOBs

How success in achieving the

strategy will be measured and

tracked

Strategic Theme: Broaden Revenue Mix

Financial

Learning

Customer

Internal

Strategic Map: Diagram of the cause and effect relationships between strategic objectives

Grow Fee based Income

Offer a one stop shopping experience

Increase cross-business sales

Understand our customers

Expand Fee-based knowledge


The Balanced Scorecard identifies individual strategic themes which define the bank’s overall strategy

The BSC articulates a business’ unique set of hypotheses about what drives value creation across these dimensions

Sample Banking Strategic Themes

Product Development

Focus on developing and

bundling innovative &

tailored financial products and

services.

Marketing / Sales

Focus on relations with customers to

build the value proposition (e.g.,

cross-sell services).

Risk Management

Rapidly approve loans while

maintaining the highest level of credit quality.

Manage enterprise-wide

risk.

Customer Service

Offer seamless customer service

across all channels:

branch, call center, and

internet.

“Customized Financial Solutions”

“One-to-One Marketing”

“Effectively Manage Risk”

“Provide Seamless Customer Service”

Operations

Focus on productivity

management, operating

performance, and improving the efficiency

ratio.

“Enhance Productivity”


Case Study – First Euro

• Expected consolidation in the market place– High share in local market would be attractive to a larger European rival

• Recent re-organisation aligned retail distribution channels– 230 rural and metropolitan based branches, 400 offsite ATMs– Telephone banking and internet services becoming more popular– 1.5 million customers– 4700 staff

• Substantial investment in Business Transformation Programme• Balanced Scorecard introduced initially to:

– Improve Resource Allocation– Solve Interdependencies– Clarify Roles– Eliminate Duplication


“Segment & Focus”

“Trusted Adviser/Provider”

“Sustainable Profitable Growth”

“Enable our People”

Customer Service Operational Excellence

Propositions / Customer Relationships

Technology

First Euro’s Strategic Themes . . .


. . . and the corresponding Strategy Map

Sustainable profit growthRevenue growth in Key

Segments

Achieve strategic costbase

Streamline and optimise business

processesBalance growth and

risk

Risk and capital management

Enhance productivity through lowering cost to

serve

“Provide me with good value and innovative solutions”

“Be my valued, Trusted Financial

Adviser / Provider”

“Provide me with consistent, personalised, easy, and

convenient service”

Deliver Propositions to meet existing and future

customer needs Understand Customer needs

Execute right delivery experience for each

proposition

Enable delivery channels to provide

high quality, differentiated services

Provide Channel clarity internally and externally

Migrate routine transactions to cost efficient channels

Deliver reliable, easy to use SVC information

Exploit technology driven by the business needs

Modernise technology and communication

capability

Deliver performance management systems that recognise and

reward high performance

Enable achievement of personal career goals in line with

business need

Create an open and supportive

culture where staff are entrusted and empowered

Establish organisation skills in coaching,

mentoring, selling and relationship management


Initiative alignment focused their change programme

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Reports communicated the key issues, provided focus, and fostered collaboration and learning

1

Retail’s Purpose

To take care of our customers better than anyone else and enjoy doing it

In fulfilling our purpose we will achieve:

Sustainable, Profitable Growth

In fulfilling our purpose we will focus on:

Propositions/Customer RelationshipsCustomer Service

Operational ExcellenceTechnology

Underpinning the purpose, is our need to:

Enable our People

Our Balanced Scorecard will enable us to focus on the critical implementation and performance issues:

Objectives

Statement of what strategy must achieve and what’s critical to

its success

Target

The level of performance or

rate of improvement

needed

Key action programs required to

achieve objectives

InitiativeMeasurement

How success in achieving the

strategy will be measured and

tracked

4

Issues• Deliver propositions to meet existing and future

customer needs– There are a number of initiatives in progress from different

work streams all impacting on this objective. There is potential for duplication of work and a possibility that all thesynergies are not being recognised

– Could greater value from these initiatives be realised by appointing a project coordinator?

• “Be my Valued, Trusted Financial Adviser/Provider”– Customer satisfaction from both our personal and business

high value customers is below target. This may prevent us from reaching our income growth targets

– Should we try to accelerate the delivery of the segmentation projects through increasing their priority?

• “Streamline and optimise business processes”– With the implementation of the new policy for cheque

encashment, while costs will be reduced, there is a risk that customer satisfaction will fall in the short to medium term, particularly for our higher value customers.

– Should implementation be delayed to enable an acceptable exception for high value customers to be identified, or could the implementation be softened to minimise the fall in satisfaction?

5

Overview

Streamline and optimise business

processesImplement a commercial credit and operational

risk framework

“Be my valued, Trusted Financial

Advisor / Provider”

Deliver propositions to meet existing and future

customer needs

Understand Customer needs within the context

Execute right delivery experience for each

proposition

Migrate routine transactions to cost efficient channels

Deliver reliable, easy to use,

SVC information

Become a technology and ‘e’ leader driven by

business needs

Create an achievement and support culture where staff feel

valued and empowered

Deliver a perf. mgmt system that recognises

differentiated performance and

rewards appropriately

Implement an effective

recruitment and retention strategy for all key staff

segments

Create a committed workforce as a

result of constant two way

communication

Sustainable market exceeding

“Provide me with good value and innovative solutions”

Enable delivery channels to provide

high quality, differentiated services

Enhance productivity through lowering cost to

serve

Achieve strategic cost base

Risk & Capital management

“Provide me with consistent, personalised, easy, and convenient service”

Income growth bygrowing market share in

Increase organisational core

competency levels in coaching, mentoring,

selling, and relationship management

Key Segments

profit growth

of brand values

Absolute profit growth

C/I ratio

Income growth

Fore-cast

This month

Last month

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Results were both tangible and intangible

Tangibles:• Group profitability increased by 23%,

– Asset and liability bases increased 9% and 6% respectively

• Planning cycle reduced by 25%– From 4 months to 3 months with no net increase in staff time

• ‘Half the management meetings in half the time’Intangibles:• ‘There was a need to bring focus to the new group, bringing the

management of the different regions together, thinking about the same business issues. The Balanced Scorecard helped to facilitate this process’

• ‘We’re convinced that branch staff are more focussed about their contribution to the group’s success’

First Euro remains independent


Critical Success Factors

• Short Term (Up to 12 months)– Consistent and coherent vision for performance management– Leadership commitment and support– The ‘Right’ Project Team and Team Leader– Integrated Scorecard design– Mobilisation and communication

• Long Term (12 months +)– Cascading the Balanced Scorecard to link business units and support

functions– Establish the link to the budgeting process– Establish the link to the planning process– Evaluate the link to compensation– Keeping it fresh!


Three stages of the vision . . .

• Performance measurement– KPIs and data analysis– Management and operational reports

• Performance management– Management Decision making and governance– Communication to staff– Link to individual performance management– Senior management rewards– Link to budgeting and project prioritisation– Communication to customers

• Strategy Management– Operational and strategic planning– Communication to stakeholders– Link to reward across the business

Technology can come in at any stageIt’s effect and long

term value is dependent upon the

vision


Discussion Topics!

• What is the vision for Balanced Scorecard in your organisation?– Why are you doing it?– What is the case for change?– How far is the horizon?– What are the interim steps along the way?

• What have been the typical barriers to successful delivery for other change projects within your organisation?– What processes and activities are in place to break down these barriers?– What will your customers say today about the Balanced Scorecard?– What would you like them to say in 12 months’ time?

• What are the Critical Success Factors for your Balanced Scorecard implementation?


We can bring examples from a wide range of blue chip clients

© 2003, Tyler Mangan Limited t:m

For more information contact Jonathan Chocqueel-Mangantel(m): 07767 498411tel(o/f): 01737 226857

email: [email protected]

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First Euro Case Study

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royal bank

cross selling