Customer service and employee morale are currently the top priorities of bank chief executives, according to a recent survey conducted by Price Waterhouse LLP.
The study, "Management Challenges in the Financial Services Industry: The View of Senior Executives," found that the banking industry is no longer preoccupied with credit quality the way it was two years ago, and that bankers are now ready to focus outward on customers.
Institutions also know they need to deliver services more effectively to compete with brokerage and finance company competitors. Mutual fund companies, for example, are able to manage assets with far less employees than banks, according to industry observers.
At the same time, executives are concerned about morale. Banks are investing heavily in technology and laying off thousands as the industry consolidates.
Executives are "now at a point where they are saying, we have to keep who we have left and go forward," said Martin Baumann, deputy chairman of Price Waterhouse's world financial services practice.
This creates a quandary, though. To serve customers better, banks must dramatically restructure, which almost always demoralizes the staff. And that winds up hurting customer service.
"What your customer experiences in your bank is directly related to the way you treat your employees," said Alan Silberstein, Midlantic Bancorp's executive vice president and director of retail banking.
He should know. A bad loan portfolio pushed Edison, N.J.-based Midlantic to the brink of failure. The bank laid off 2,000 employees as part of a major restructuring in 1993. Employee morale sank, and customer runoff was rampant.
Midlantic solved the problem by going out of its way to ask customers what they wanted, and then designing products to meet those needs.
In the same vein, other banks are dumping high-level executives who get in the way of efficiency. As part of reorganizing, banks are trying to instill a sales culture and entrepreneurial spirit in their work force, Mr. Baumann said.
"Younger, talented people will feel like members of the team a whole lot sooner than they used to," now that management structures have been flattened out, he added.
A new trend to serve customers better is to divide whole markets up by regions or business lines and to develop and market services that meet the needs of those regions and businesses, Mr. Baumann said.
At Midlantic, this new strategy has attracted new customers and kept employees stimulated and happy, according to Mr. Silberstein.
One of the biggest changes made in Midlantic's employee base on the commercial side was the creation of "relationship managers." These people identify sales opportunities in particular markets and industries, including health care, telecommunications, gaming, and retail stores.
They are also in charge of building a team of product specialists inside the bank who service particular needs such as developing a trust or cash management product, managing a 401(k) account, or building an ATM on a company site.
Banks have found themselves so bloated with bureaucracy that teamwork has not been a part of their vocabulary. Those that specialize in particular services had no method inside the bank to find customers other than searching for them on their own.
But, Mr. Silberstein said, the relationship managers bring a new sense of teamwork and efficiency to the process.
Philadelphia-based CoreStates Financial Corp. is the most recent example of a bank that has restructured, dramatically reducing its work force and attempting to change its culture.
CoreStates is following a recent industry trend, converting its branch structure into a hub-and-spoke system. In each of its markets, the bank will have one full-service branch surrounded by several satellite branches that offer only special services demanded by that market.
Pittsburgh-based Integra Financial Corp. redesigned its company last year by pushing bureaucracy out of the holding company and giving autonomy to management. The company has divided itself into five separate lines of business, each with its own president who will run his or her own "company."
Instead of dividing the company into subsidiaries, in which a president runs the entire bank operations, Integra has divided its market into 10 community banks, each with its own president.
Price Waterhouse polled senior executives at 100 commercial banks, investment banks, and securities firms about what factors were most important in their success over the next three to five years.
While boosting morale and improving customer service were at the top of the list, other important issues fell in priority, such as maintaining sufficient capital, managing interest rate risk, defending against foreign companies, and developing management succession plans.
Banks are well aware of the challenge ahead of them to improve their service, the survey found. For instance, technology works for bank competitors, but sometimes it works against banks, Mr. Silberstein said.
Customers are used to setting up accounts at mutual fund companies over the telephone with customer representatives they have never met. But bank customers place a heavier value on relationships, Mr. Silberstein pointed out.
"It means that banks are expected to do things that in the end are less efficient," he said. "On the other hand, you have a special bond with customers."
Retaining employees and improving customer service will continue to be top concerns for executives as they downsize even more in the coming years. The Price Waterhouse survey revealed that 34% of executives expect employment to decrease at their institutions.
Even banks like Midlantic that have already restructured feel the pressure to do more as competitors slim down. "It's interesting to watch everyone else become more efficient," Mr. Silberstein said. "We wonder, is this the next wave we're missing out on? We've checked, and we're not."
