Focus Groups Helped Bank of Boston Refocus Treasury

Before Bank of Boston Corp. set out to reengineer its treasury department in the early 1990s, it wanted to hear what its customers had to say.

The $43 billion-asset banking company, the second largest in New England, met individually and in focus groups with customers to find out what they expected - and wanted - from the treasury area, which focuses on foreign exchange, derivatives, and fixed-income trading.

What it heard was that customers, primarily corporations and other financial institutions, wanted Bank of Boston to focus more on helping them with risk management.

With that in mind, the bank embarked on a program to build on its existing customer relationships, rebuild technology on its trading floor, and put greater emphasis on providing solutions to customer needs like risk management.

With the reorganization now firmly in place, the treasury department expects to see substantial returns.

Bradford Warner, group executive of the treasury department, said revenues from the trading operation - now about $30 million a year - are projected to double in two years and reach more than $100 million within four years.

With a streamlined operation and more efficient technology, profits are expected to grow at an even faster rate. "Of every three dollars we generate, roughly two will drop to the bottom line," said Mr. Warner. "We will need only one dollar to cover our operating expenses."

Gerard Cassidy, a securities analyst at Hancock Institutional Equity Services in Portland, Maine, said time will tell whether the bank achieves its goals. But he noted that the potential in Latin American markets could make it happen.

"The current situation in Mexico notwithstanding, Latin America has enormous potential to offer rich revenue, and Bank of Boston is the premier bank in the region," he said. "Nationally, it is recognized as a player with a solid reputation that allows them to compete against Citi, Chase, and First Chicago as well, which may also help them reach their goals."

The treasury department's goals emerged after about six month of talking to customers and conducting surveys.

"For the most part, we found that our customers do not look to the bank for lending functions but rather risk management products and services," said Mr. Warner.

Bank of Boston also visited nonbank corporations to get ideas for its reengineering.

"We are benchmarking our approach to the future off of what the nations' industrial concerns have done," Mr. Warner said. "We went out and met with companies to see, hands on, how they were getting things done and tried to copy their initiatives."

By the spring of 1994, the bank had finished most of the strategic planning.

"We sat down and said that our strategy should focus on those three areas: solution orientation, risk management, and a leveraging of our international operation," said Mr. Warner. "Basically, we built a strategy around those themes and as a result we have made substantial investments in technology."

Thomas Hughes, managing director, global financial markets, said the bank's efforts have enabled it to handle a higher level of transactional value without compromising on business control and risk management processes.

Mr. Warner said that in the late 1980s, technology investments had been deferred as Bank of Boston entered a "survival mode" as losses from real estate loans and Third World debt mounted.

When profitability returned in 1992, executives realized the bank needed to retool to stay competitive.

"When you get down to it, there is very little in banking that is proprietary; we all do the same things," said Mr. Warner. "The strategy is built around really understanding our customers and servicing them effectively, and technology gives us the tools to do it."

The bank recently completed the installation of a $24 million client- server trading system for operations in Boston and in Sao Paulo, Brazil.

"We expect the new trading floor to shift the emphasis from traditional back-office duties to a more customer-oriented focus," said Stephen Scullen, director of treasury systems. "It will electronically link the traders directly with more up-to-date market data and a broader spectrum of customer information, due to the more integrated and user-friendly nature of the system."

Before the new system was installed, traders would manually fill out tickets that would later be entered into the bank's back-office system. Now, traders key in the information themselves, producing real-time responses and better analytical tools to manage the account, Mr. Scullen said.

"Overall, we are able to get a more well-rounded view of our customers and provide better service," Mr. Scullen said. "We now are able to get a total view of the account and more efficiently process transactions."

In addition to technology, the reengineering of Bank of Boston's treasury department resulted in a less hierarchical management structure.

"By leveling the management structure, there is a huge benefit because we are able to respond quickly to situations and don't have to deal with the bureaucracy of traditional corporate decision making," said Kathleen M. McGillycuddy, managing director of asset liability management. "We have a risk management process that performs the model and a committee that is able to react quickly to the markets' ever changing environment."

And Mr. Warner said treasury is making sure that everyday decisions will continue to be customer oriented.

"We firmly believe that we are on the right track, it is easy to cut expense in the short run, but in the long run we will see substantial revenue growth through our efforts," said Mr. Warner. "The health and survival of our company is to insure we have solid relationships with our customers."

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