A New Yardstick of Bank Quality

Ask bankers worldwide what constitutes "quality" for their organizations and you'll get a different answer from nearly every person.

All, however, will agree on one point: Quality programs are becoming a mandate throughout the financial services industry.

Many banks are finding they can draw on the experiences of American manufacturers that have successfully adopted total quality management, or TQM, concepts.

These concepts have been successfully used to define, measure, and manage quality throughout an enterprise.

The challenge for the banking industry is to see if the same concepts can be successfully transferred.

Reference Points Lacking

Though many banks have begun to emulate some TQM principles that manufacturers follow, lack of experience and of data-base reference points has been a hindrance.

War stories abound on the victories of individual organizations - including banks - that have successfully applied TQM principles. But the particulars of one case may not apply universally.

The International Quality Study now in progress will fill in many of the knowledge gaps.

A Wide-Ranging Search

The study, cosponsored by the America Quality Foundation and Ernst & Young, is examing quality management practices in commercial banking and three other industries - automotive, computers and telecommunications, and health care - in the United States, Canada, Germany, and Japan. The study will:

* Document current quality management practices.

* Identify "best practices," creating a data base that can be used as a benchmark.

* Identify quality management practices that transcend industries.

* Analyze how cultural factors affect quality management practices.

Data from more than 75 leading banks in the four countries cover business organization, service development, delivery process and customer satisfaction, and quality and strategic positioning.

Many Viewpoints

Industry-specific needs were identified through focus groups and interviews of bank executives on three continents.

These discussions and the pilot testing of the questionaire brought to light the many key issues that the study will examine in detail.

A wide range of quality models exist in banking organizations. To a large extent, each reflects an answer to the fundamental question: What sets a "quality" bank ahead of its competitors?

The Error-Avoidance Model

Is it precision? Because banking is an information-intensive industry, some organizations tend to focus on back-room operations.

These banks strive for error-free environments that can effectively and efficiently process millions of transactions. After all, avoiding fouled-up checking balances and the like keeps customers happy.

Eliminating inefficiencies and costly error-correction increases profitability. Organizations that take this approach usually emphasize emphasize quality-assurance activities linked to information systems, technology, and operational issues.

The Human Equation

Is quality people? Because banking is a customer-oriented service industry, some banks stress that quality starts at the front door.

Quality is inherent in the activities of tellers, loan officers, and other customer-contact employees. These employees constitute the bank, in eyes of customers

Quality must be linked to human-resource issues such as hiring practices and employee training.

The Eye of the Beholder

Or is quality perception?

Some bankers say quality exists only in the minds of customers.

Go out to your community to seek quality, these bankers advise.

Find out what customers really want and how they perceive your organization.

Then marry the two, so that expectations correspond to perceptions.

This emphasis on perceived quality emphasizes the links to marketing initiatives.

Integrated Quality

We are also finding a few banks where "quality" encompasses all three factors - precision, people, and perception.

These banks stress that quality stems not from single actions but from integrated cross-functional activity across all levels in an organization.

And we see another key similarity: Their commitment to quality starts at the highest levels of the organization. For example, at one such bank, the chief executive officer conducts weekly two-hour meetings at which all reports are devoted exclusively to quality.

The study will show how these organizations integrate quality in every aspect of their business.

National Differences

The study will also draw insights from each country's particular strengths.

For example, our Japanese participants acknowledged that they could gain insights from the American emphasis on understanding what makes the customer tick.

U.S. banks appear to be leaders in recognizing that quality is customer-driven. Here, quality is defined by such terms as "commitment," "meeting and exceeding customer expectations," and the "customer's ego."

Few American bankers, however, place emphasis on the operational or compliance dimensions of quality. Sophisticated quality process tools are not widely applied.

U.S. organizations might be well advised to study the precision of Japanese methods. Is this precision an inherent cultural trait of the Japanese work force? Or is it more the outcome of specific management practices?

Professional Training

In Germany, we see banking organizations that place strong emphasis on their county's system of education and training. The guild system is integral to the hiring, training, and selection of German banking professionals.

German bankers will tell you - sometimes repeatedly - that the pride and craftsmanship of their employees is a competitive advantage.

That strikes to the heart of a major concern voiced by almost every U.S. banking executive.

While U.S. organizations stress personalized customer service, too often a lack of qualified entry-level personnel short-circuits these efforts.

Basic math and communication skills were seen as becoming scarcer among rank-and-file workers.

Mr. Wilsted, professor of strategic management at the University of Colorado, is project leader of the International Quality Study project at Ernst & Young.

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