lean quality - megyesi gábor - return on_service_quality_investments

Return on Service Quality Investments- Some reason to invest in Service Quality in Bankin g

Gábor MegyesiErste Group Bank AGGroup Service Quality and Complaint Mgmt.

19.10.2011Erste Group Quality & Complaint Mgmt. | Gabor Megyesi

A Bank is ...

A Bank

− is a place that will lend you money if you can prove you don’t need it.

Source: Bob Hope actor & comedian (1903 - 2003)


Banking is ...

Banking

− is the business activity of accepting and safeguarding money owned by individuals or entities, and then lending out this money in order to earn a profit.

Source: www.InvestorWords.com


Service Quality is ...

Service Quality

− is the measure of how well the delivered service matches the client’s expectations.

Source: Wikipedia


Erste Group

http://www.erstegroup.com/


Group Customer Experience Unit

Research

Complaints

Measurement

Improvements

Client view on Erste and it’s services.

Client view on Erste service failures.

Inside view on Erste services.

Actions taken to improve Erste

services.

Deliver Improved services

Communicate

Business delivers new service.

Educate Clients on our improvements.

at Business

at Marketing

Our mission is: To help Erste becoming the Bank of choice on its markets.

The way we work:


Why would any CEO finance my quality programs?

− „Because it would be good for the Client!”

− To ensure a long term profitable relationship with their Clients.

− To reduce losses due to operational risks.

− To improve their Cost to Income ratio.

− ....

− Because he/she thinks it worth it.


Having another point of view

Business Interest: Profit

Clie

nt In

tere

st:

Ser

vice

Qua

lity

• Long lasting profitable relationship.• Good short term profits with good

outlook.

• Exploit and erode current client base.• Good short term profits with long term

losses.

• Losses with no future.

• Emerging organization.• Short term loss, investments into future

profit.


Know your customer: switch perspective

When working on your project:

− focus primarily on simple, non-financial, process related measures

When selling the project to business leaders:

− focus primarily on financial and cost-oriented measures


Evaluating an Investment

Like it or not:

Spending on quality is a financial decision for business leaders.

And so:

− a quality project is considered as an investment

− being an investment it must be financially accountable

− being accountable means it will be evaluated and compared to other investment options

− being evaluated will show that quality initiatives are not equally valid and that there might be better non-quality investment options


Return On Investment is ...

Return On Investment (ROI)

− is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of differentinvestments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

Source: www.investopedia.com


Have an impact! Show your impact!

Improve efficiency

− reduce operating costs

− reduce operating risks

Gain share of wallet

− increase repurchase

− increase X-selling

Improve market share

− lower attrition

− (improve acquisition)

X


Effect on share of wallet

service quality

aver

age

# of

pro

duct

s he

ld p

er C

lient

source: Erste Banks End of Year 2010

− product holdings per Client correlates with service quality

− on the individual Client level it depends on many other factors

− slightly different slope for different target groups (e.g. age, income etc...)

− on total bank level R2 turns up around 0,3 - 0,4

Reasoning goes:− 5% increase is expected in perceived quality due to the project− this will result in an average +0,15 product holdings in the target group− this will result in an average +8% profit per client


Effect on market share

− attrition correlates with service quality on bank level

− no general correlation with acquisition (as service is mainly experience based)

− above-expectation quality show no further improvement (possible to overspend)

− on total bank level R2 turns up around 0,2 - 0,3 on the slope

service quality

attr

ition

source: Erste Banks End of Year 2010

Reasoning goes:− 10% increase is expected in perceived quality due to the project− this will result in an average -2% attrition in the target group− this 2% not lost will deliver profits next year


Effect on market share- reasons to leave

− quality is a more compelling argument in reality than expected either by the bank or the Client

− reasons are highly target group dependent

− base actions on real causes not on theory

− there is always more than one reason to change

Reason to change bank

5561 65

59

4436

43 38

3228

2830

3947

43 52

4 63 7

0 4 00

9 6 4 416 13 15 10

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2008 2009 2010 2011

Hypothetical Actual

Fees Service Quality Economic situation of Bank Miscellaneous

source: IMAS Corporate Study to Erste Bank

Reasoning goes:− „fees” and „service” are about equal reasons to leave the bank− spending only on „fees” can only have a limited effect− spending should be balanced based on actual reasons to leave


Effect on market share- misleading expectations

− remember the Kano model, not all needs are equal, and good service is often taken for granted

− base actions on real research data not on theory or expectations

− it is possible to overspend on service quality

− a nonexistent correlation will not generate results

Reasoning goes:− ! do not overstate the expected gains − understand the actual correlation of service quality and loyalty− show the realistically expected gain in loyalty

service quality

loya

lty

below expectations meets exp. exeeds exp.

correlation often expected

correlation as it usually is


Effect on efficiency

− quality work with minimal resources (time, cost)

− efficient is not equal to effective, make sure taht you do the right thing

− think holistic: optimize the total process, not single stages

− lots of incremental savings will add up to one fundamental

− hard to realise FTE savings (more work or layoff)Reasoning goes:

− 40% less FTE saves 40% cost (if...)− 70% less paper usage saves ~ 60-70% printing costs− 90% less physical file movement saves ~ 95% of NVA time

Time Structure

Before After

Regulatory

Value Added

Non Value Added

Wait / Post

Cost Structure

Before After

Mistake

Post

FTE

Print

source: Erste SQ&CM


The case

− average product response time is higher than competition

− huge variation in response time, hard to manage customer expectations

− high number of dissatisfied customers, due to delays

− branch reports that it is hard to sell without favorable time promise

− back office reports frequent overtime due to product processing

− considerable operational risk due to complicated process


The task

The task:

− is to improve sales up to targeted market share with minimal resources.


Targets for the project

Current state

92%

5 - 11 day

40%

56+

12

9+

Desired state

90+%

less than 2 day

90+%

minimize

no target

minimize

Metric

Mystery Shopping

Cycle time (P95)

First Time Though

Process Steps

Value Added Steps

Unit Transfers

Measured before

Measured for the project


What the Client is asking for?

# of visits

0

10

20

30

40

50

60

70

80

90

100

1 vi

sit

2 vi

sits

3 vi

sits

4 vi

sits

5 vi

sits

6 vi

sits

7 vi

sits

8 vi

sits

9 vi

sits

10 v

isits

mor

e

acceptable surprising unacceptable

# of signatures

0

10

20

30

40

50

60

70

80

90

100

1 si

gnat

ure

2si

gnat

ures

3si

gnat

ures

4si

gnat

ures

5si

gnat

ures

6si

gnat

ures

7si

gnat

ures

8si

gnat

ures

9si

gnat

ures

10si

gnat

ures

mor

e


TTY

01020

3040506070

8090

100

15 M

INU

TE

S

30 M

INU

TE

S

45 M

INU

TE

S

1 H

OU

R

2 H

OU

RS

4 H

OU

RS

6 H

OU

RS

8 H

OU

RS

10 H

OU

RS

12 H

OU

RS

1 D

AY

2 D

AY

S

3 D

AY

S

4 D

AY

S

5 D

AY

S

1 W

EE

K

2 W

EE

KS

3 W

EE

KS

4 W

EE

KS

5 W

EE

KS

6 W

EE

KS


TTC

010

20304050

607080

90100

15 M

INU

TE

S

30 M

INU

TE

S

45 M

INU

TE

S

1 H

OU

R

2 H

OU

RS

4 H

OU

RS

6 H

OU

RS

8 H

OU

RS

10 H

OU

RS

12 H

OU

RS

1 D

AY

2 D

AY

S

3 D

AY

S

4 D

AY

S

5 D

AY

S

1 W

EE

K

2 W

EE

KS

3 W

EE

KS

4 W

EE

KS

5 W

EE

KS

6 W

EE

KS


source: IMAS Retail Study to Erste Bank


Time To Cash

1 2 1 0 0 09 8 9

27

2115

7 72 33501

2 7 10 12 12 12 121221

2938 40

46

67

81 8895 97100

210

102030405060708090

100

UP

TO

15

MIN

UT

ES

UP

TO

30

MIN

UT

ES

UP

TO

45

MIN

UT

ES

UP

TO

1 H

OU

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UP

TO

2 H

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TO

4 H

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TO

6 H

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TO

8 H

OU

RS

UP

TO

10

HO

UR

S

UP

TO

12

HO

UR

S

UP

TO

1 D

AY

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TO

2 D

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TO

3 D

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5 D

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1 W

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TO

5 W

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MO

RE

TH

AN

5 W

EE

KS

Time To Yes

2 4 4 2 1 0 0 010 7 9

4 616 14

5 5 1 381

6 61418 20 20 2121 21

3138

475157

738792 97 97100

20

102030405060708090

100

UP

TO

15

MIN

UT

ES

UP

TO

30

MIN

UT

ES

UP

TO

45

MIN

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ES

UP

TO

1 H

OU

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UP

TO

2 H

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RS

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TO

4 H

OU

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UP

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6 H

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TO

8 H

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TO

10

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UP

TO

12

HO

UR

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UP

TO

1 D

AY

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TO

2 D

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TO

3 D

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1 W

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TO

5 W

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KS

MO

RE

TH

AN

5 W

EE

KS

# of Visits needed

40

164 2 1 1

36

7693 96 98 99 100

0102030405060708090

1001

visi

t

2 vi

sits

or le

ss

3 vi

sits

or le

ss

4 vi

sits

or le

ss

5 vi

sits

or le

ss

6 vi

sits

or le

ss

mor

e

# of Signatures

5

2014 12 11

4 61

8 8

13

38

52

64

7479

84 85

93 100

18

5

0

10

20

30

40

50

60

70

80

90

100

1 si

gnat

ure

2 si

gnat

ures

or le

ss

3 si

gnat

ures

or le

ss

4 si

gnat

ures

or le

ss

5 si

gnat

ures

or le

ss

6 si

gnat

ures

or le

ss

7 si

gnat

ures

or le

ss

8 si

gnat

ures

or le

ss

9 si

gnat

ures

or le

ss

10 s

igna

ture

sor

less m

ore

What Banks are providing?

source: IMAS Retail Study to Erste Bank


Considerations when evaluating such a project

− which aspects of the service will be improved

− # of Clients effected

− # of effected Clients actually interested in the improvement

− importance on the purchase decision

− how much profit is made per product per Client

− how is the current cost structure of providing the service


Actions taken

Product / Services Values

• full scope, prudent communication (advertisements and at branch)• accuracy• right decision• speed, single contact sales

Value Stream Mapping

• 56+ process steps, only 12 value added• 9+ transfers between 7 units• 60% needs rework

To do

• establish single piece flow• eliminate non value added steps, loops• mistake proof, develop auto-checklist, simplify• minimize transfers between units• minimize file movement, administrator movement• minimize scanning and printing• train front and back office staff

Options• minimal: just enough to reach target, minimal chang e to historic process• limited changes: reorganize back-office, minimal changes elsewhere• optimal: fundamental changes, allowing beyond target benefits

Implementation• minimal option chosen and implemented• cross-functional monitoring• P&L calculated

Mystery Shopping • front office is up to service standards (92% vs. target 90+%)


Proving financial success

Direct Effects

− benefits*:

− 71% sales improvement

− 40% less FTE consumption**

− 85% printing cost saved

− costs:

− time spent (~ 500 expert hours)

− new manuals, checklists, documents

− trainings

* calculated 3 months after implementation for the volumes at that time, comparing the cost structure before and at that time

** free FTE is fully utilized at other processes + less overtime

RoI ~ 9

or the project yields9 times it’s execution costsin 12 months


Finances

Indirect Effects

− poka yoke (mistake proofing) results in less mistakes to correct and less risk cost due to non-corrected mistakes (reduced FTE need due to less rework has been calculated at direct effects)

− less rework causes less unexpected overtime for both branch and back-office employees, employee satisfaction is improving

− nearly zero complaints due to slow response time from the branch


Why not the “optimal” option?

What could have be the RoI for the other options:

− minimal: just enough to reach target, minimal change to historic process− RoI estimate: 10

− limited changes: reorganize back-office, minimal changes elsewhere− RoI estimate: 4 (slightly better benefits, considerably more costs)

− optimal: fundamental changes, allowing beyond target benefits− RoI estimate: ~1 (slightly better benefits, very high costs)

Potential benefits are limited, potential costs however are not.


Q & A


DISCLAIMERThis document has been prepared by Erste Group for informational purposes only. Not to be reproduced without prior permission.This document does not constitute an advice, offer or invitation to purchase or subscribe for any shares and neither it nor any part of it shall form the basis of or be relied upon in connection with any contract or commitment whatsoever.The information contained in this document has not been independently verified and no representation or warranty expressed or implied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of this information or opinions contained herein.Certain statements contained in this document may be statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.None of Erste Group or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its content or otherwise arising in connection with this document.

lean quality - megyesi gábor - return on_service_quality_investments

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