When the Marquette Banks of Minnesota ran into difficulties in the 1980s, they did not reflexsively slash costs, as many others in their position would have done.

Instead, management saw quality as the key to a turnaround, and made the necessary long-term commitment to quality through a decentralized, super community structure.

Leadership came from the top, starting with chairman Carl Pohlad and a management team headed by president Thomas Herbst and executive vice president Albert Colianni.

They began by assuming that a push to enhance quality in all facets of the business would yield greater income as well as cost savings.

But the nature of those savings, they reasoned, would be sustainable -- in contrast to the one-time results of staff and other cuts -- thereby increasing efficiency and service levels at the same time.

A Foundation for Growth

The company adopted total quality management techniques and enhanced product and service levels, and reduced production costs. By the end of last year, Mr. Pohlad was able to sell his highly successful flagship, the $2 billion-asset Marquette Bank Minneapolis, to First Bank System Inc. for $200 million.

The surviving entity, Marquette Bancshares, became a new foundation for growth according to the super community model. It has $1 billion of assets and 12 Minnesota banks that remain locally managed, with independent boards of directors. The banks earned a consolidated 1.39% on assets last year.

"Each bank is known as a community bank," says Mr. Colianni. "The management style is decentralized under regional presidents, and the boards are important communication vehicles to the communities."

(Mr. Pohlad and his family own another 20 banks in nine states, with a combined $2 billion of assets. They are also known for their ownership of the Minnesota Twins baseball franchise.)

Two Strict Standards

Through it all, Mr. Pohlad's Minnesota management team had two unwavering requirements: Improve customer satisfaction and enhance profits. No business initiative would be approved if it did not measure up.

Accordingly, quantification of profit improvements and customer satisfaction became essential to management the Marquette way. More than $2 million a year -- more than 10% of net income -- was attributed directly to quality management initiatives.

In the first half of last year, the quantitative benefits of quality improvement exceeded the investment in the program fivefold. Profits were up 30%.

Requirements and Lessons

These were the key elements in Marquette's program:

*Complete commitment by senior management, which allocated the resources --and appointed an accountable leader - to make it happen.

*Careful quantification and monitoring of both program costs and related profits.

*Education of all employees to the quality initiative and to how it affects their day-to-day work lives.

There were also some lessons in how not to do things:

* Expectations were initially unrealistic. Marquette learned it takes at least 18 months to fully integrate a quality improvement effort in day-to-day management.

* People tend to regard a quality improvement programs as a fad. It needstobe away of life.

* Compensation systems can no longer be based only on profitability. Customer satisfaction must be measured, and factored in.

While a quality initiative -- especially the type necessary to penetrate a multi bank super community organization -- can be expensive, the benefits can far outweigh the costs within 12 months of implementation.

Not to be overlooked are the additional benefits of improved morale, esprit de corps, and service levels.

Ms. Bird is national director of financial institutions consulting at BDO Seidman, New York.

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