1This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Applying the KANO model for developing an objective based

performance measurement and

incentive plan

Das MadhavanVP, Engineering and PlanningCiti CardsKansas City, MODas.Madhavan@Citigroup.com(816) 505-6568

Raj ShroffVP, Engineering and Planning Citi CardsKansas City, MORaj.Shroff@Citigroup.com(816) 505-6569

June 2005

2This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Topics

1. Background

2. Why this project ?

3. Approach

4. What is the KANO model ?

5. KANO questionnaire for the project

6. Basis for KANO questionnaire

7. KANO analysis

8. Building the foundation

9. Historical Data Analysis

10. The Objectives Matrix Method for Performance Measurement

11. Primary Components of Objectives Matrix

12. Benefits of Using the Objectives Matrix Method

13. Alternative Matrix Development and Selection

14. Implementation Planning

15. Post Implementation Evaluation

3This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Background

Who we are ?

Engineering and Planning: An Internal Consulting Group within Citi Cards

Provides strategic consulting across Citi Cards and beyond

Staffed by MBBs and BBs

Offices located in Kansas City, New York, and Hagerstown

Project Focus

Development of performance standards & associated incentives

Area of Implementation: Fraud Department

Objective: Improve associate productivity and quality, while also promoting knowledge sharing

4This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Fraud Department is a critical customer touch point that could impact customer experience positively or negatively

The associates need to make judgmental decisions on making proactive customer calls

The management would like to enhance customer experience while meeting business objectives

Well aligned with Citigroup’s “five point plan”

Set appropriate productivity/quality thresholds, while fostering an environment for strengthening employee capabilities

Retain high performing associates

Maintain effective communication within the organization

Why this project ?

5This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Approach

Assess employee needs Focus Groups Kano Model: Basic (Must-be), One-dimensional (Performance), and

Attractive (Delightful) Needs Identify gaps, develop and implement action items This is imperative for ensuring that right success elements are in place

prior to implementation of performance measurement system

Baseline current performance Historical data analysis

Exploratory Deductive

Set performance qualification criteria & goals

Develop an incentive plan

Acquire Unit Manager and Associate Buy-in

Acquire senior management approval, including HR and Legal

Develop communication, pilot, roll-out and tracking plan

Acquire employee feedback post pilot phase

6This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

What is Kano Model ?

Proposed in 1984 by Dr. Noriaki Kano of Tokyo Rika University

Based on his study of Herzberg’s “Motivation – Hygiene” Theory

The model distinguishes between three types of customer requirements

• Basis for entry into the consideration set

• High dissatisfaction, if requirements are not met

• Fulfillment of requirements will not increase satisfaction

Must-Be requirements

• Satisfaction is proportional to the level of fulfillment

• Requirements are usually explicitly demanded

• Requirements can cause reactions ranging from dissatisfaction, through indifference, to satisfaction

One Dimensional requirements

• The very minimal presence can create satisfaction

• These are unexpected, thoughtful, and delightful surprises

• Not much dissatisfaction, if the requirements are less functional

Attractive requirements

Relevant data is generally obtained by administering a KANO questionnaire

7This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

What is Kano Model ?

Basic Features:Minimum features which represent the core functionality of a product or service

Performance Features:Attributes that lead as well to satisfaction as to dissatisfaction

Delightful Features:Initiate satisfaction if they are offered. They increase the noticed benefits of the core functionality

The bigger the descending slope, the higher the benefits rating. The customer dissatisfaction increases if the basic requirements are not fulfilled .

Exceeds all customer requirements

Does not meet customer requirements

Dissatisfaction of the customer

8This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Developing a Kano Questionnaire

“Functional” Form versus “Dysfunctional” Form

How would you feel if the service had feature “X”

How would you feel if the service did not have feature “X”

Kano Questionnaire choices:

I like it I expect it I am neutral I can tolerate it I dislike it

ExampleQuestion Choices

Upon calling into a call center, how would you feel, if IVR is present ?

I like it (5) I expect it (4) I am neutral (3) I can tolerate it (2) I dislike it (1)

Upon calling into a call center, how would you feel, if IVR is not present ?

I like it I expect it I am neutral I can tolerate it I dislike it

9This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Kano questionnaire for the project

QuestionAssoc-1 Assoc-2 Assoc-3 Assoc-4 Assoc-5

1a How would you feel, if the RPH thresholds were increased from the current levels ?

1 1 4 2 3

1bHow would you feel, if the RPH stayed at the current levels ?

3 5 3 3 3

2aHow would you feel, if the adjustment factors were revised to lower levels ?

1 2 2 1 3

2bHow would you feel, if the adjustment factors stayed at the current levels ?

3 5 3 3 3

3aHow would you feel, if efforts were made to educate you on how adjustment factors were computed ?

5 5 4 3 5

3bHow would you feel, if efforts were not made to educate you on how adjustment factors were computed ?

2 3 4 2 4

4aHow would you feel, if the people who set the adjustment factors knew how the HRAM process works ?

3 5 4 5 4

4bHow would you feel, if the people who set the adjustment factors did not fully know how the HRAM process works ?

3 1 2 1 1

5aHow would you feel, if you were given prior notice in regards to changes in the adjustment factors ?

5 5 5 5 4

5bHow would you feel, if you were not given prior notice in regards to changes in the adjustment factors ?

1 2 2 2 2

Functional

Dysf

unct

ional Rating Scale

5. This would be very helpful for me

4. This is a basic requirement for me

3. This would not affect me

2. This would be a minor inconvenience

1. This would be a major problem for me

10This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Basis for Kano questionnaire for the Project

Voice of Employees (Associates) at the focus groups. A few examples:

Primary focus on productivity, which may not be conducive for coaching or helping your neighbors.

Adjustment factor may not be representative of actual work.

The way the performance measurement system is setup today, there is no reason to over-perform.

Whenever an associate is used for coaching, his/her time is counted as “non-prod” time.

Quality monitoring is neither consistent nor fair.

Write-ups or missed opportunities are not fair. Reasoning given is unclear.

With quality monitors- - no discussion of how-to-do things better, only focus on what-to-do.

There is no communication between different groups resulting in inconsistency on procedures.

11This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Basis for Kano questionnaire for the Project

Management concerns. A few examples:

Associates not applying clear, concise, accurate notes on the account.

Lack of proper risk assessment resulting in potential losses to the Bank’s financial interest by utilizing educated risk assessments.

Not attempting customer contact at all available numbers or failure to call financial institutions or Creditors.

Incorrect/incomplete processing of requests made by customer such as, address change, add/remove authorized users, request for or cancellation of card/PIN/checks.

Failing to update any discrepancies.

12This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Kano Analysis

14

3

11

13

2

1

12 159

4

5 6107

8

0

1

2

3

4

5

0 1 2 3 4 5

Dysfunctional (X)

Fu

ncti

on

al (Y

)

Must Be

One DimensionalAttractive

Indifferent

Several methods of analysis

Pictorial format much easier to understand

The chart is divided into four quadrants

The quadrants are obtained by using overall mean scores for “X” and “Y” questions

The point is plotted at the intersection of the mean scores for individual “X” and “Y” question

13This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Building the Foundation Initiatives identified as a result of Kano Analysis:

Clearly define policies and procedures

Communicate changes in the environmental elements in a timely manner

If possible, move away from adjustment factors or minimize its use

Ensure a more supportive environment, in which associates improve their skill-set

Establish attainable baselines and goals for performance measurement

Restructure Unit Manager jobs so that they spend more time on the floor

Ensure the Quality monitoring group understands how decision making in Fraud Department works and are able to render consistency in their judgments

Ensure that the Quality monitoring group meets regularly with the associates to discuss scoring, feedback, etc.

14This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

181776191612211417719181415N =

Team

70

18

70

17

70

16

70

13

70

12

70

11

30

61

30

60

30

58

30

57

30

56

30

55

30

54

30

53

30

51

RP

H

30

20

10

0

51

59

204201

174

175

97

Historical Data Analysis

13785N =

MDJX

RP

H

30

20

10

0

147

174155

175

158

51

4243

59

Median

75th percentile

25th percentile

Outliers

Outliers

Median75th percentile

25th percentile

Between site differences are significant at 99 % Confidence Level, but not at 95 % Confidence Level (ANOVA)

Team to Team differences are not significant within both sites at 95% Confidence Level (ANOVA)

15This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Historical Data Analysis

Processes at the two sites seem to be stable with a very few special causes

Control Chart: RPH

Sigma level: 3

134

127

120

113

106

99

92

85

78

71

64

57

50

43

36

29

22

15

8

1

26.284

19.292

12.300

5.307

-1.685

RPH

UCL = 21.1544

Average = 12.2995

LCL = 3.4446

HAG

Control Chart: RPH

Sigma level: 3

81

76

71

66

61

56

51

46

41

36

31

26

21

16

11

6

1

25.899

18.553

11.208

3.862

-3.483

RPH

UCL = 17.1404

Average = 11.2078

LCL = 5.2752

JAX

16This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

The Objectives Matrix Method for Performance Measurement

Originally developed by Dr. James L. Riggs of Oregon Productivity and Technology Center at Oregon State University. He named it the Objectives Matrix (OMAX)

An improvement focused performance measurement and reward system that integrates multiple mission critical performance measures in a balanced fashion

Can be designed to measure individual, group, or process performances

The measures included should be within an individual’s control

Widely used by many of fortune 500 companies (TI, Raytheon, HP, Boeing, Pepsi, Mutual of Omaha, Coldwell Bankers, Northrop, etc.)

17This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Primary Components of Objectives Matrix

Matrix Criteria – Quantifiable metrics that measure the performance

Milestones – comprises three components:

Baseline performance level

Performance goal for each criterion

Milestones expressed as a percentage ranging from 0% to 100%

Current Performance – The current level of performance for each criterion in the current measurement period

Current Milestone – The current performance level of each criterion translated to a percentage of goal attainment

Relative Weight – A weighting factor assigned to each criterion that indicates its relative importance

Weighted Milestones – The current milestone of each criterion multiplied by its relative weight

Performance Index – The sum of all weighted milestones

18This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Objectives Matrix Example

Baseline should be satisfied for all measures to qualify for the incentive plan

Current mile stone = (Base – Current)/(Base – Goal)

Maximum payout of $200/Mo, if goals for all the criteria are met

Cri

teri

a

Cri

teri

a

Defi

nit

ion

-0.2

0

-0.1

0

Curr

ent

Perf

orm

ance

Base

Milestones

100%

Goal

Curr

ent

Milesto

ne

Rela

tive w

eig

ht

Weig

hte

d

milesto

ne

Quality Phones PMW 98.0% 96% 97% 98% 98.5% 99.00% 99.5% 100% 0.5 50 25

UPH (Predictive)

cases worked Total hours

26 25 27 29 31 33 34 35 0.1 15 1.5

UPH (Preview)cases worked Total hours

194 170 174 185 196 207 218 229 0.41 15 6.10

AdherenceHrs completed Hrs scheduled

94.0% 96.5% 95.0% 96.0% 97.0% 98.0% 99.0% 99.5% 100% 0.3 10 3

AttendanceHrs avlbl-Hrs unavlb

Hrs available99.0% 98.0% 98.5% 99.0% 99.25% 99.5% 99.75% 100% 0.5 10 5

Performance I ndex 40.6

19This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Benefits of Objectives Matrix Method

Easy to comprehend

Process focused with clearly defined objectives and goals

Capable of normalizing the units of different measures

Flexibility in accommodating measures of quality, timeliness, employee attitude, and productivity

Results/Outcome orientation as against simply measuring activities

Ability to measure trade-offs and produce a single measure of performance

Can be useful in action planning for individual employees

20This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Alternative Development and Selection

Tear 1 (75th percentile and above)

Metric $ AvailableCurrent

Performance Gate 1 2 3 4 5 GoalProductivity 150 27.04 24.04 25.00 26.00 27.04 28.12 29.25 30.42

111.93$ 117.53$ 123.41$ 129.58$ 136.05$ 142.86$ 150.00$ Quality Opportunities 150 1.00 1.00 0.00

150.00Team Work 75

Tear 2 (50th percentile and above)

Metric $ AvailableCurrent

Performance Gate 1 2 3 4 5 GoalProductivity 75 21.50 18.99 19.75 20.54 21.36 22.22 23.10 24.03

55.97$ 58.76$ 61.70$ 64.79$ 68.03$ 71.43$ 75.00$ Quality Opportunities 75 0.00 1.00 0.00

30.00$ 75.00Team Work 50

Tear 3 (25th percentile and above)

Metric $ AvailableCurrent

Performance Gate 1 2 3 4 5 GoalProductivity 50 8.00 15.00 15.60 16.22 16.87 17.55 18.25 18.98

37.31$ 39.18$ 41.14$ 43.19$ 45.35$ 47.62$ 50.00$ Quality Opportunities 50 1.00 1.00 0.00

0.00 50.00Team Work 50

Option 1

Learning and Growth Perspective

Internal and Customer PerspectiveFinancial Perspective

21This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Alternative Development and Selection

Option 2

Option 2

Simple to execute

Is our starting point

Option 1

Requires additional segmentation work based on RPH

Bit difficult to execute

Is our end vision

Metric $ AvailableCurrent

Performance Gate 1 2 3 4 5 GoalProductivity 150 19.00 15.00 16.88 18.99 21.36 24.03 27.04 30.42

26.70$ 35.60$ 47.46$ 63.28$ 84.38$ 112.50$ 150.00$ Quality Opportunities 50 1.00 1.00 0.00

-$ 50.00Team Work 25

J AX 25 15 5 5 2 0 0

HAG 42 11 8 4 3 0 1

J AX (1 opp+ 0 opp) 4+3=7 5+8=13 1+2=3 1+2=3 0+1=1 0+0=0 0+0=0

HAG (1 opp+ 0 opp) 3+11 = 14 3+7=10 2+5=7 1+3=4 0+1=1 0+0=0 0+1=1

# of people qualifying based on RPH alone

# of people qualifying based on RPH & Quality

22This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Implementation Planning

Receive formal approval from HR, Legal, and the senior management team

Develop an Employee Communication Plan

Develop an Employee Training Plan

Develop an MIS Reporting Process

Develop incentive fulfillment process

Capture Lessons Learned

Refinement and Institutionalization

23This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Post Implementation Evaluation

Employee Surveys

What is your overall impression of the incentive plan ?

Do you agree that the right criteria were selected for your performance improvement ?

Do you agree that you have complete control over the criteria ?

Do you agree that criteria weighting was done appropriately ?

Do you agree that the baseline/goal for each criterion was reasonable ?

Do you agree that the incentive amount was adequate ?

Overall, do you agree that the reward system reflected your performance accurately ?

Do you agree that your overall performance has improved due to the incentive program ?

What other changes do you suggest we make to the performance measurement/incentive system ?

24This presentation and the information contained in it are the confidential and proprietary work product of Citi Cards and may not be copied or distributed without the specific written consent of Citi Cards. Copyright c 2005 Citicorp Credit Services, Inc.

Q & A