EXECUTIVE POST GRADUDATE PROGRAMME IN MANAGEMENT - 2009-10

Corporate Performance Management

Wells Fargo Online Financial Services (A)
Individual Assignment
Submit to: Prof Dr Keyur Thaker

Submitted By:

Tapas Pattanaik – EPGP# 036

Date : 27th April 2010

In partial fulfilment of the requirements for CPM module of Executive Post Graduate
Program in Management
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Contents
1 Case Summary....................................................................................................3
2 Case Highlights:..................................................................................................3
3 Performance Measurement at Wells Fargo.........................................................5
4 Why Balance Score Card (Why did Wells Fargo OFS decided to develop a
Balanced Score Card?)...........................................................................................6
5 Proposed Balance Score Card for OFS (Develop the objectives, linkage map and
measures for the remaining two strategic themes – Increase revenue per,
customer Reduce cost per customer) ...................................................................8
5.1 Linking Strategy to Balance Score card........................................................8
5.2 Objective, linkage map and measures for remaining two strategic themes. 9
5.3 Linking Balance Score Card to departmental score cards...........................11
6 Learnings from the case...................................................................................12
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1 Case Summary

Wells Fargo & Co. is a diversified financial services company with approximately 5,400
branches across North America. The company offers consumer and business banking
services, as well as investment services and products, real estate and consumer loans
(Wells Fargo is one of the largest mortgage bankers in the US) and international financial
services. In October 2000, Wells Fargo completed its merger with First Security Corporation,
creating the largest banking franchise in the western US. Wells Fargo now has assets of
more than $312 billion and approximately 134,000 employees, serving 20 million customers.
It ranks fifth in assets (Citigroup is No.1), and third in market value among banks in the US.
In February 2002, Fortune magazine ranked Wells Fargo among the top 10 percent of
America’s most admired companies from all industries for the second consecutive year.

Coming to the OFS group of Wells Fargo, it is responsible for developing and maintaining
and supporting online services to customers. The new division is highly agile keeping in
pace with the changes in the technology. Due to rapid and frequent changes in the strategy
of OFS it was finding it difficult to maintain balance between various objectives and the
activities of employees. Hence there was chance of loosing focus. It had implemented
balance score card to measure performance. However due to the legacy culture of Wells
Fargo the metrics were finance oriented. Hence OFS managers felt the need to include
other metrics as well while measuring performance. Being a support organization it had very
limited source of revenue. Also as the technology was changing rapidly it needed
investments whose ROI was not tangible and was not measurable in short term. So
measuring only finance metrics meant doing injustice to the division. However the division
was clear in terms of its strategy and it was in line with Bank’s strategy. The OFS
management felt that balance score card would be a right choice for them to develop a set
of multidimensional KPIs and integrate it to multiple divisions within OFS. The balance score
card would help in propagating the message from top to bottom.

2 Case Highlights:

• Wells Fargo is known for its focus on Innovation and Cost Management. In banking
Industry innovations often enabled the bank to reduce operating costs. On the
innovation front Well Fargo has set an example by offering services to customer on
extended weekdays and Saturday hours. It was pursuing non traditional delivery
channels such as installing ATM Machines in grocery stores and it also planed for one-
stop-shopping banking centre which included service branch in star-bucks coffee outlet,
dairy cleaner and photocopying service all under one roof.
• The commercial bank industry entered into a period of consolidation in late 1980 and
due to major changes in regulation the consolidation happened in banking industry
leading to competition. To succeed in an increasingly competitive environment,
commercial banks were pursuing innovative ways to attract customers and reduce
costs, many of which required investment in technology.
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• To give personalized services banks introduced electronic banking. With the

propagation of internet, it allowed customers to access their bank account information
through internet by connecting to their bank’s website directly using web browser sitting
anywhere in the world. Looking at the growth of internet Wells Fargo wanted to take the
first mover advantage in providing high value services as most of the current banking
services were offering standard, packaged marketing information and only 6% were
giving direct access to account.
• Wells Fargo Online Financial Services
In 1989 Wells Fargo introduced its first electronic banking product that was used by
20,000 users in 1994.This was prompting bank to look for ways to improve its online
banking offerings. In 1994 Wells Fargo decided to provide online services to customers
and it was the first major US bank to offer Internet access

• Linking OFS to Bank

OFS team had realised that in recent years have become more customer focused. Now
the customers are demanding more services and they are treating banking as a chore.
This change in customer perception had led Wells Fargo to focus more at
convenience which included banking at the branch, through telephone and ATMs.
Online banking strategy was to lock in customers first. Gradually online services
expanded to multiple areas such as credit card balance check and payment, transaction
in stocks and bonds, transfer funds etc. In 1998 over 450 000 Wells Fargo customers
used one of the online banking services and the company believed that the
number would go up to 1 million in two years, The bank was enrolling 1000
customers per day out of which 80% were internet based.

The first mover advantage had come to Wells Fargo. However the maintaining or
growing the market share was a challenge in front of Wells Fargo as other competitors
were also following the same path.

• Wells Fargo Online Banking Customers

The Wells Fargo online banking services appealed to an attractive customer segment. They
are medium to high income group. The online customer stayed with the bank longer than
average, the attrition rate of online banking customers was 50% below the bank’s average.
Second the cross selling opportunity was higher. Also the cost associated with online
banking was less. As given in the case, the online banking cost per transaction is $0.1
the ATM transaction is $.27 and telephone transaction is $0.54 and branch transaction
is $1.04

• The OFS organization

The OFS group consisted of five areas – Operations, Development, Marketing, Finance,
Human Resources. Operation group consisted of higher number of employees. Three type
of employees were there – Technical Support Agent, Phone Support agents and email
support agents. The goal was to migrate customers to email agent for support.
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• Revenue Model for OFS organization

The following were the source of income for OFS

• Charging other bank departments for its services

• Charged for a services session – Customer logged onto service for informational
purpose – no transaction , 2nd any transaction

• Bill Paying service

• Min balance requirement charges

• Access fees for Money and Quicken users

• Fees from 3rd arty such as internet service provides, for sourcing customers for them
in joint marketing programs

• Cross Sell and up sale products

3 Performance Measurement at Wells Fargo

At Wells Fargo the performance measurement is primarily done with reference to

financial measures. However OFS team being a cost centre didn’t believe that these
metrics effectively measure the performance of the organization due to the following
reasons

1. Over dependence on financial measures led to short term decision making

2. Online system is in the long term strategy of the bank even though in short term it
might not give financial gains

3. Online system provides a lots of opportunity of cost saving and helps in retaining
customers

4. Potential future benefits require investment

5. Financial measures looks at the P&L on an absolute basis which restricts in investing
in decisions that leads to indirect gains for the bank

Apart from performance measurement the following reasons led to implementation of

balance score card Wells Fargo OFS team

1. Technology is an ever changing area hence keeping in pace with the technology
needs frequent change in action plan and priorities. Frequent changes in priority
required a robust method of planning and monitoring to keep the team in
synchronization of the strategy of the company

2. To develop a culture of agility yet sticking to the main vision and mission of the
organization
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3. The online vision at Wells Fargo was clear however it was difficult to translate the
same to the ground people for proper execution.

Hence there was a need of a tool to the activities that was taking the team towards its vision.

4 Why Balance Score Card (Why did Wells Fargo OFS decided to
develop a Balanced Score Card?)
As discussed above the existing performance measurement system was inadequate to
measure performance correctly. The main requirement of OFS is was to

1. OFS team needed a tool that would enable the to communicate with senior
management with other departments and with the employees

2. A set of objective that would bridge the gap between strategy of OFS team and the
day to day activities

3. To keep the work flexible yet aligned with the main objective. Impose discipline and
develop a culture that promote work towards the bigger goal

4. A set of clear metrics to measure performances to track the effectiveness and

efficiency of each activity and individual.

With these objectives OFS team had a look at the balance score card. Balance score card
well fitted to their requirement. Balance score card had the following feature where I think
was a great fit for this organization.

1. Balanced in multiple aspects of the business including finance

2. Other tools focused heavily on one dimension of business where as balance score
card focused equally on four dimensions – Finance, Customer, Internal Process
,Learning & Development .
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3. Other tools didn’t put same focus on quantitative measures for evaluating
performance as a scorecard

4. Balance score card creates a bridge between the vision and strategy to personal
objectives of employee

As shown in the figure below Balance score card translates “What we want to
be( Vision) to “What I need to do”.

The management team decided to go for balance score card for the following reason

1. It was giving importance to all parameters required for success of their division

2. It would create a culture to give importance to training & development and investment
in technology as now the objective is not only financial measure but measures
around multiple areas

3. Short term financial targets would not anymore drive the behaviour of managers
rather they would be able to focus on multiple aspects without any apprehension.

4. It links performance of the company to various indirect sources as well. Hence equal
importance can also been given to those areas for example investment in training pf
OFS agents

5. It lays clear cut path from Vision to execution

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5 Proposed Balance Score Card for OFS (Develop the objectives,

linkage map and measures for the remaining two strategic
themes – Increase revenue per, customer Reduce cost per
customer)
5.1 Linking Strategy to Balance Score card
Vision of Wells Fargo

“We want to satisfy all our customers’ financial needs and help them succeed
financially”

Value adds is through service of finance advice

Strategy:

a. The customer value cross- selling

b. Technology : The personal touch

c. Focus on customer centric approach not product centric

Keeping in mind these vision and strategy of the bank, OFS team has aligned to their
strategy which in terms of balance score card the whole operation will be aligned to the
strategic objectives

1. Add and retain high value and high potential value customers

2. Increase revenue per customer

3. Reduce Costs per customer.

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5.2 Objective, linkage map and measures for remaining two strategic
themes

The team working on the balance score card parameters has come up with different metrics
to link to the strategic themes of the organization. After much debate it has been able to
reduce the number of metrics from 41 to 25.

The team was facing difficulty in directly linking the training attribute to other parameters.
Hence this was kept as a generic area for the overall performance and direct one to one
relationship was not mentioned. This metrics was measured on an annual basis

The figure below shows the linkage map proposed for the rest of the two strategic themes.

Metrics for “Increase Revenue per Customer”

Strategic Increase revenue per

Theme customer
BSC
Perspecti
ve Objective Measures
Increase Revenue per
Financial Maximize Profit customer
% customers sold through
Cross Selling & Up selling
Online
% customers registered for
additional services
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Average Discount given to

Customer Increase revenue per customer
Customer Satisfaction
Increase interaction customers
through online
Internal Maximize Reliability
online customers
Number of offers given to
online customers
Average number of transaction
done by online customers
Average transaction value
online customers
Increase in number of
transactions, value added
services
Increase in average
transaction value per customer
transaction
Higher CSI for interaction
through net
Number of cases of proactive
communication (Online)
% of customers diverted from
Non online to online
% conversion of existing Non
online customer to online
customer
Transaction Security Index
should be 100% - no case of
online fraud

Develop and Implement Acquisition cost per enrolled

Cost Effective Marketing Program
Continue Leadership in superior
product
development and features
developments
Develop Superior Service
Capability
customer
Number of products available
online - compared to
competitor
Number of touch points of
customer for a transaction
online
Time taken for processing a
service of cross sell/up-sell

Metrics for “Reduce cost per customer”

Strategic
Theme Reduce Cost Per Customer
BSC
Perspecti
ve Objective Measures
Financial Reduction of Cost Cost per transaction
Cost per customer
Avg handling time of customer
Customer Cost per customer online
First touch point resolution rate
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Customer Satisfaction # of customer complaints

CSI on online banking
Increase interaction customers % customer availing online
through online services
Ratio customer handling trough
email/phone/in person
# of emails handled per day by
Internal Productivity of the agent email agents
# of customer touches per
Quality of service resolution
First email resolution rate
Develop Superior Service Number of multi skilled email
Capability agents

Attachment – Excel of the above metrics and score card

BSC_OFS.xlsx

5.3 Linking Balance Score Card to departmental score cards

The above discussed can be further linked to the performance measurement scorcard at
various level of the organization. Sample performance score card is given below of the VP
customer service. This is not an exhasutive score card.
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6 Learnings from the case

Learning:

Wells Fargo case clearly helps in understanding how balance score card be helpful in trying
to communicate the vision, strategy of the company to the ground level. This tool is
extremely helpful in keeping the work force focused despite the changes occurring within the
organization.

Balance score card induces cultural changes in the organization and it provides a guideline
for the areas of focus at the same time it tracks the progress in various areas so that results
can be monitored equally in all direction. In this case even if there is pressure on financial
parameters through balance score card equal importance is also given to customer service.
Hence managers can take the right decision for the company that would help the company
in long run rather than short run. It helps to relieve the pressure from manager in terms of
not to over focus on certain areas and ignore other areas.

This helps to understand how CPM can be used to overall streamline operations in an
organization which is entrepreneur in nature and rapidly growing. The essence is how to
monitor and align people in a very agile environment to achieve the overall result. CPM
through balance score card helps managers in motivating people to work towards the
objective. It also emphasises how fair and transparent performance appraisal system can be
designed. The case also gives importance to involve people at the ground level hence
performance measurement is from both side top to bottom at the same time bottom up
approach is followed to measure KPIs in balance score card.