Driving Cultural Change? You are What You Measure

As a consumer, the recent revelation about a major U.S. financial institution creating fraudulent customer accounts in order to increase employees’ and managements’ bonuses was incredibly disturbing. Customer trust is so hard to gain, and there is a huge lesson in this story as organizations contemplate where and how to leverage the wealth of customer data that they are gathering.

For those of you who may have missed the story (or were too busy moving your accounts to other financial institutions), here’s the story (note: the names have been changed to protect the guilty):

“Omega Bank, one of the nation’s largest banks, has been hit with $185 million in civil penalties for secretly opening millions of unauthorized deposit and credit card accounts that harmed customers.

Employees of Omega Bank boosted sales figures by covertly opening the accounts and funding them by transferring money from customers’ authorized accounts without permission.

An analysis by the bank found that its employees opened more than two million deposit and credit card accounts that may not have been authorized by consumers, the officials said. Many of the transfers ran up fees or other charges for the customers, even as they helped employees make incentive goals.”

However, these fraudulent behaviors should not be entirely a surprise. For my University of San Francisco MBA class, we were examining a 2010 Omega Bank annual report (as part of an exercise to identify an organization’s key business initiatives), and look what they found in the annual report:

“This year, we [Omega Bank] crossed a major cross-sell threshold. Our banking households in the western U.S. now have an average of 6.14 products with us. For our retail households in the east, it’s 5.11 products and growing. Across all 39 of our states, we now average 5.70 products per banking household (5.47 a year ago). One of every four of our banking households already has eight or more products with us. Four of every ten have six or more. Even when we get to eight, we’re only halfway home. The average banking household has about 16. I’m often asked why we set a cross-sell goal of eight. The answer is, it rhymed with “great.” Perhaps our new cheer should be: “Let’s go again, for ten!”

Called out in the Chairman’s Letter to Shareholders in the 2010 Omega Bank annual report, was the key business initiative of “increasing the average number of products (accounts) per household from 6.11 to 8 and eventually 10.” Yea, I didn’t make this up.

You Are What You Measure…

This points to a critical cultural challenge, and opportunity, as organizations seek to leverage data and analytics to power the organization’s key business initiatives. And this cultural conversion starts with this simple statement:

“You are what you measure, and you measure what you reward”

What this quote suggests is that the values of a business are reflected in how it pay (or reward) its employees. So it is of little surprise that if increasing the number of accounts held by household from 6.11 to 10 is a key business initiative – even called out in the CEO’s Letter to Shareholders – then many executives in the organization were going to make that initiative a priority. Consequently, employees and management were given individual financial incentives to increase the number of accounts held by household (called cross-selling) and some employees (and likely management as well) played “around the edges” of what was ethical to achieve those financial incentives.

And to be honest, that is not the BIG problem.

The BIG problem is found in the next paragraph of the Letter to the Shareholders:

“More sales don’t always bring better service, but better service almost always brings more sales. That’s why our service quality scores are an early indicator of our sales trends. Our service scores are rising. Almost eight of every ten of our customers said they’re “extremely satisfied” with their recent call or visit with our banking stores or contact centers. For the second year in a row, we ranked #1 among large banks.”

What I suspect (though I do not know) is that Omega Bank did not have individual metrics for a counter-balancing incentives program around “customer satisfaction.” So while the annual report calls out both cross selling and customer satisfaction as key business initiatives, the business initiative of real importance to management is the one for which they reward or pay you. So the business initiative that was of real importance (versus just saying the words) was cross-selling effectiveness because that’s how employees got paid.

Importance of Counter-Balancing Scores And Metrics

As you consider leveraging incentives to integrate your analytic results into your key business processes, take the time to consider counter-balancing financial incentives or rewards (or scores) so that the organization gets the desired behavioral change. For Omega Bank, measures and financial incentives around customer satisfaction, employee satisfaction, and/or likelihood to recommend could have nicely balanced the aggressive cross-sell effectiveness metrics and rewards and lead to a business initiative that read like such:

“Let’s increase customer cross-selling effectiveness (from 6.11 to 10.0) in a way that improves customer satisfaction and the likelihood that customer would recommend Omega Bank to a friend by 10%.”

Now that’s a business initiative that carefully balances the financial goals of the bank with the engagement and treatment goals for customers.

We saw this dilemma of counter-balancing metrics or scores during the 2007-2008 financial crisis. Again banking employees were incented to approve mortgage applications based upon the credit worthiness of the applicants (typically using the FICO score). If banks had a counter-balancing metrics or score on say, a reasonable value to the house for which the mortgage was being written (“Properly-valued Property” Score), then banks would have understood very quickly the riskiness in the book of business that they were underwriting.

Spend extra time in your brainstorming sessions considering what metrics or scores might be required in order to drive a more balanced, holistic financial, employee and customer behaviors.

How This Applies To Big Data

Number 1: “You are what you measure, and you measure what you reward”

If you want people in your organization to share data and analytics and knock down the data silos and mitigate IT shadow spend, reward them accordingly! If you incent or reward employees and management to share, then you are highly likely to get the behavioral and cultural change that you seek.

Number 2: Importance of counter-balancing metrics or scores

Be careful of metrics or scores that measure only one side of the equation. Generally speaking, you are likely to need one or two counter-balancing metrics or scores to ensure that the organization does not become motivated to achieve the metrics goal “at any cost,” and create unintended consequences.

The post Driving Cultural Change? You are What You Measure appeared first on InFocus Blog | Dell EMC Services.