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Surveys show results. Customers register complaints. Employees leave. America is in the midst of a service crisis and the customer is the casualty. Financial service companies, including banks, are no different. Banks are struggling to improve service and proclaim that they are customer-focused, yet outstanding, exceptional quality service is still the exception rather than the rule. Two routes to profit growth in financial organizations are cost-efficiency and differentiation.' Excellent service contributes to both.

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In this chapter, the use of quality in banking focuses on strategy and moves the focus from quality to total quality management. While banks understand the value of service quality, getting started can be a struggle. This chapter discusses the implementation of the quality process, the need for commitment, and the impact of quality on the bank. The quality process is complex and frustrating at times, but focus is critical. The process begins with top management's commitment to quality.

Top Management Commitment

Management participation and leadership is crucial to building a service quality culture. This vision and leadership is also important in developing and implementing a total quality management strategy. Lack of management commitment could lead to service gaps or cause service gaps to widen. Quality must be a management priority. Igniting the explosion of quality leadership in a company means repositioning quality from a secondary to a primary management role.2 Although much of the research indicates the need for management commitment, renowned quality consultant Philip Crosby says he does not want "commitment" from top managers, he wants "participation."3

Quality service comes from inspired leadership. Employees and managers at all levels look to top executives to set an example and a tone for the rest of the organization. Top management must foster a general awareness that quality improvement will take its place as equal in importance to traditional cost, profit, growth, and sales goals.4 "Leadership is the backbone of quality, as it is for all planned cultural change.''5

Adopting quality as a bank strategy means cultural change. Change is difficult to accomplish without solid, committed leadership. The bank president and other senior executives set the pace. It is imperative that senior managers in service organizations provide the leadership to focus their company around a set of core values that include customer service and service quality.6

A quality strategy requires people and resources. Without the commitment of top management and their willingness to back it up with considerable resources at their disposal, quality improvement will not be possible.7 Without commitment, it is difficult for working-level employees to obtain the resources they need to deliver quality service.88

According to Edward Furash, bank management must have three crit cal characteristics:

1. A style of doing business that makes customers feel the bank is something special;

2. A management process that is systematic and transferable from region to region, bank to bank, and department to department;

3. A management style that also balances individual and unit freedom, creativity, and incentive with central control of risk, quality, and efficiency.9

Once senior management has a vision statement that reflects the opinion and brain power of the entire management team, they ask the employees for feedback.10 One of the most important functions of the total quality leader is the ability to empower people. It includes transferring power downward and outward and fostering wide employee participation in the quality process.11 Service quality is everybody's business, and effective leaders empower employees to make on-the-spot decisions that are in the customer's interest.12 According to William Davidow and Bro Uttal in Total Customer Service: The Ultimate Weapon, employees will commit to quality if they see management commitment and believe it is sincere.

What is remarkable about service leaders is the way they treat employees. Getting their hands dirty keeps top managers in touch with the problems of customers and the experience of the front line, and it shows everybody that serving customers is important.13

No company can produce outstanding service unless its top managers visibly, constantly, and sometimes irrationally commit to the idea.14 Total quality leaders know and understand that personal success comes from group success and that credit for success must be distributed throughout the group.15 Leaders of companies that produce outstanding service incessantly pronounce their beliefs and back up their words with actions, often creating corporate legends. These leaders allow creativity. Consistency of action is the only way to show employees that top management has committed to the quality process.16 Management's actions are critical to the success of any quality strategy. It is the behavior of management, much more than the language of management, that leads to success, and everyone watches from below.17 Far too often, management tries to implement a new process, attitude, or program by building it up and mandating compliance, while executive management continues with business as usual.18 This approach fools no one and the "new way" often fails. Executive rhetoric must be supported by deeds.19

Before a bank can embark on a total quality strategy, it is crucial for top management to set the stage. Quality improvement takes on many forms, but it must start with support and resources committed by top management. Management pronouncements must be clear, significant, and visible; otherwise, everyone will perceive quality as "just another corporate program that will pass."20 Management's goal is to nurture a service culture that will shape employee behavior more effectively than rules and regulations.21 Actually, Deming and Juran estimated that 85 percent of all quality problems are management's doing, and most barriers to internal collabo ration come from managers eager to defend their fiefdoms.22

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In Eleven Conditions for Excellence, Ray Boedecker outlines the importance of management backing up strong words with visible action. Boedecker suggests management take the following actions:

1. Incorporate quality into the bank's strategic plan;

2. Issue a policy stressing the importance of quality, the commitment of the organization to quality improvement, and everyone's responsibility for improvement;

3. Make organizational changes;

4. Form a quality council composed of senior managers who report to the CEO;

5. Initiate quality training activities;

6. Incorporate quality improvement goals in operating plans on a par with other traditional bank goals;

7. Listen to customers through various forms of market research;

8. Visit operating units and community offices to talk with managers and employees about their feelings on quality. Find out what problems they face in meeting customer expectations;

9. Make quality a periodic agenda item at meetings;

10. Insure that quality is a factor in all performance, compensation, and incentive programs;

11. Initiate a recognition and reward system to reward quality achievements for individuals and groups;

12. Review quality goals and targets and challenge them frequently;

13. Communicate personally to the entire organization what is being done to elevate the importance of quality, and why;

14. Educate the senior management group on quality improvement;

15. Visit other firms that have embarked on quality improvement programs;

16. Go public with details on the company's quality improvement plan 23

In the face of increasing competition, re-regulation, and thin margins, most banks believe they can and must improve service quality. Only when top management really believes in the process can total quality management begin in earnest. ff the chief executive does not commit to or realize a need for quality, Ray Boedecker suggests the following steps be taken:

1. Provide research on competitors and what they are doing in the way of quality;

2. Highlight the increased opportunities presented by exceeding customer expectations and quality improvement;

3. Document the relationship between the cost of non-conformance and the cost of prevention, and the cost of losing customers versus the cost of keeping customers 24

Quality service comes from inspired leadership, a customer-driven corporate culture, employee involvement, and effective use of systems and technology; all of which develop slowly. Quality service starts with top management commitment, action, and involvement. Once top management commits to quality at the bank, the quality process can start and the percentage of success increases.

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Introducing the Quality Process

After identifying the need for change, committing to a customer-driven focus on service, and gaining top management commitment, a bank must assess the level of quality in the organization. Customer and employee research is critical. After gathering the information, the bank can use the information and can begin to formulate a strategy for total quality improvement.

Quality is a process. Many different elements comprise the process. Most strategies develop from top-down, but bottom-up works as well. It is crucial to understand that there are many approaches, but all require patience and time. Companies have to implement quality strategies that make sense for them, and it may take years to figure out exactly what works and even more time to get it right.25

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Although a bottom-up approach can work, a top-down method works better for two reasons. First, managers will be able to support the effort due to adequate communication and some experience. Second, management may be capable of pursuing meaningful initiatives with non-management support. All the elements outlined below must be implemented over the course of time. There is no correct or incorrect order, although elements do interrelate. For bankers, the move to quality may be frustrating, but the rewards are great.

Process Versus Final Solution

Total quality management is a process, not a program. Despite the barriers a bank might face in working toward total quality, there are ways to persevere. Lessons in quality are plentiful. Research indicates that the quality movement is alive and well, yet skeptics still exist. Quality is hard work. A review of available sources includes a wide array of books, periodicals, audio- and videotapes, seminars, and consultants, all of which serve as a starting point in the process. Rather than plunge into quality, banks must understand the history and study the lessons learned over the years. Learning a total quality vocabulary is helpful. Understanding that quality has value may be enough to get the ball rolling. Most banks are wasting their time viewing quality as goodness and happiness. Banks spend prob ably 40 percent of their operating cost doing things over.26 Understanding quality could virtually eliminate that cost.

A common mistake most companies make is to rely on packaged programs or solutions. High-pressure, short-term, purchased solutions normally fail in the long run. In this approach, there is a flurry of activity in which the employer asks, or begs, employees for money-saving ideas. As soon as the month is over, the employees re-enter never-never land, where their ideas are never, never solicited.27 Total quality management can affect organizational change and customer-driven service; however, it requires commitment on everyone's part at every level and a well laid-out strategy and plan to implement the process.28

While there are many ways to approach quality, there is no right or wrong way. Quality is a personal thing. Any bank about to embark on the quality service journey has a great deal of work ahead.29 For those banks where a quality process exists, modifications may be necessary. As a process, quality constantly undergoes change. Banks should too. This change may start with fundamental changes in the organizational structure of the bank.

Organizational Structure

At the core of any structure is the customer. The wants, needs, and expectations of the customer must be the focal point for the bank, or any company for that matter. The traditional organizational pyramid depicted in Exhibit 1 focuses on the power of a few, where promotion means importance, and where customers receive the benefit of the process-last. Modification of bank organizational structures must make customers the focal point for quality.

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Keystone Financial, Inc., with headquarters in Harrisburg, Pennsylvania, adopted the theme "Focus on the Customer," at their 1993 State of the Company meeting. This focus was the result of the implementation of a quality process throughout the organization. The "quality wheel" shown in Exhibit 2 has the customer as its hub, with everything else revolving around it. The process starts by planning with the customer in mind and ends with the continuous improvement. This example is just one of several that show how the customer drives the structure. Exhibit 3 shows the Westinghouse model for a quality service approach.

Regardless of the approach, organizations need a structure, where bureaucracy is minimal and the customer is the center of the activity. Along with a new structure, a new vocabulary is often required.

The entire bank needs to have a vocabulary when it comes to quality. Setting basic definitions and goals is important. Once the vocabulary is established, it must be backed with a concrete plan that elicits, encourages, even searches out ideas of all sizes from everyone on the payroll.30

The key to the "right" organizational structure and the delivery of quality service is the business process. An ineffective business process ignores the internal and external customer, and an inefficient business process wastes valuable resources. A business process is a series of work activities that produce a service 31 To improve the different business processes within the bank, emphasis should focus on the customer, and departments should mobilize to provide for service as required by the customer. Keystone Financial chose the Business Process Review as one of the first steps in implementing their total quality management strategy in 1992.32 The Business Process Review uses an approach consisting of managers and supervisors directly responsible for the function being analyzed, as well as cross-functional involvement by other personnel throughout the company. The approach looks at the value of a particular banking function in terms of customer needs, rather than the best way to perform the function.33

In both business process and organizational structure, people are the keys to success. In reviewing both aspects of the process, banks must manage change and provide support and guidance. Organizational structure and business processes are critical elements in the total quality management strategy. People, with management support, must change the way they view the customer if the process is to succeed in exceeding customer expectations. Starting the process takes guidance from the top. Coordination by a quality committee helps.

The Quality Committee

Known as the Quality Committee or Quality Council, this group is the top level steering committee that will make key decisions and authorize the support needed to study, design, implement, and nurture the total qual ity process.34 The chief executive officer should chair the committee and include other senior executives. He or she should not delegate this responsibility to lower levels of the organization, and quality should be a regular agenda item for the regular senior management staff meeting.35 In any steering committee arrangement, involvement by the chief executive is critical for success. The group must be high-level and include all departmental constituencies. Involved line management must drive the quality effort. Staff ownership of a quality improvement effort is seldom successful.36

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After forming the Quality Committee, the group should develop a mission statement and should issue a policy statement.37 This statement should be shared with all employees, showing management's commitment to carrying out the policy. For example, Key Bank of Utah established an ongoing Customer Service Steering Committee and developed 17 customer service management objectives by which the bank would function.38 In 1987, First of America Bank Corporation in Kalamazoo, Michigan, formed a "Quality First Council," a 16-member steering committee that included the bank's CEO and chief operating officer to guide the next wave of service initiatives.

Quality Planning

One of the functions of the quality steering committee is to focus resources on common quality goals, after designing the mission and having a vision clearly communicated. The art of setting a corporate vision and focusing resources and energy on quality goals will propel the bank toward its vision of customer-driven, quality service. Quality planning requires that corporate activities reflect customer needs, that products and services are designed to meet those needs, and that systems are customer-friendly.39

Quality planning provides the framework within which quality efforts take place. Three important parts include:

1. Quality business planning;

2. Quality product and services planning;

3. Quality process planning.40

Business plans must include quality, customers' needs, and the importance of continuous improvement, or banks cannot build a solid foundation for total quality management. Total quality management must be incorporated and connected to the corporate battery.41 After asking key internal and external questions and developing assumptions on which banks can base action plans, management must move from strategic planning to business planning. To move forward, banks should figure out:

How to exploit their strengths and either remedy or minimize weaknesses;

What the critical success factors (CSFs) are for their business and how they can close the capability gaps. CSFs are the few things we absolutely must be able to do extremely well in order for our business to survive and prosper;

What the key contingency plans will be if some of our basic assumptions are in error;

What our goals will be for the midterm (3-5 years), and what annual objectives will be set in order to progress toward our midterm goals;

How we will measure success; and

How we will fund our activities to pursue our plan.42

Quality business plans help us develop and run our business. Quality of products and services planning helps develop specific products and services designed to satisfy customers' needs and obtain competitive advantage. Quality of products and services makes the difference to customers, including service, as they perceive it, before, during, and after the sale. Banks must research target customers and their needs. After determining features, the bank should decide how it will measure the successful application of those features and compare those features to the competition. After research is completed and the product or service is ready for implementation, bank management must reveal it to the entire organization, before entering the market.43

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Far too many banks organize for their own internal efficiency or effectiveness. The banks structure benefits systems and procedures, not customers. Banks must focus on why customers visit a bank, and the customers' view of the organization must dictate how to structure the bank and how processes are designed. It should be a pleasurable experience dealing with the bank, not an unpleasant road trip with roadblocks, detours, and dead-ends.

Along with organizing a steering committee and planning for quality, banks may also want to have a single coordinating source of communication and training. Having a responsible executive coordinate this effort is gaining popularity.

The Quality Manager

The Quality Manager position is a new position at most banks. Due to the growing significance of service quality in the financial services industry, a new job function-that of Quality Service Manager-is coming of age.44

The Quality Service Manager should be responsible for developing a customer service and training focus, quality measurement, and assistance in developing and implementing the quality process.45 The person should be a respected senior level manager and should serve on the Quality Committee. The level of the job and the person's credibility will usually indicate whether senior management is squarely behind quality.

In many instances, the Quality Service Manger recruits a total quality design team who will study total quality management concepts and recommend a strategy. If implemented, the Quality Service Manager, in conjunction with the Quality Committee, is responsible for coordinating and coaching the quality process and monitoring the results.

Unit-Level Quality

After forming the quality improvement structure at the macro level, banks must champion the cause with the troops. One hundred percent participation turns quality improvement into total quality management. According to Thomas Berry:

Quality improvement teams, quality planning, customer satisfaction, and a continuous improvement attitude and set of actions come together for the entire organization in unit-level quality. If management involvement is one quality fact of life, then 100 percent employee participation is another. Unit-level quality gets everyone involved.46

After commitment from top management, unit-level quality may be the most important signpost on the quality journey. It is the engine that drives the quality machine. There are critical points in the quality chain of events. Each party in the quality chain must know who its internal customer is, what the customer needs, and how to meet those needs every time.47 Everyone must understand the total service transaction and how he or she plays a critical role in delivery to the ultimate customer.

Unit-level quality should include 11 process steps based on the Deming wheel or Shewhart diagram. Also known as the P.D.C.A. Model, the model includes the following process:

Plan what you are doing;

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Do what you have planned;

Check on the results of your actions;

Act to modify what you do to better ensure the most positive (quality) results.48

After understanding the basic steps in the process, work units can embark on the planning phase by following these eight steps:

1. Define the units mission. Why do we exist?

2. Identify unit output. List activities performed and define the vital few;

3. Prioritize products and services. These should relate to the unit's mission. Diagram the work flow;

4. Identify customers of priority products;

5. Identify customers' needs in customer language. Use interviews, focus groups, surveys, and questionnaires;

6. Translate customers' needs to departmental language. If our customers say they need this, how do we go about providing it?

7. Set quality indicators. Measure based on numbers not percentages and use five or six indicators at most;

8. Set a plan to satisfy customers' needs. The plan should be brief, centered on the customer, and action-oriented. Everyone in the unit should sign the plan.49

The last three steps include doing, checking, and acting. Doing means implementing the plan. Checking means monitoring the quality indicators the unit has set. Checking keeps the unit in touch with and focused on the customer. Finally, acting is using feedback to improve and re-plan.

The benefits of the PD.C.A. Model are significant. Using P.D.C.A. gives a bank unit a consistent process for planning, doing, checking, and acting to improve results. Results target researched customer needs, and the resuits are measured objectively.50

To simplify the process, units should continually ask the following ten questions:

1. What is the mission of this unit?

2. What are the principal products and services this unit provides?

3. Who are the customers of these principal products or services?

4. What are the needs of these customers?

5. How were their needs determined?

6. What indicators do you track that will tell you how well you are doing at meeting the needs of your customers?

7. How does the work you do benefit the ultimate, external customer?

8. How well are we actually doing in meeting the needs of our customers? What do our indicators reveal about performance, and what are our customers saying about our performance?

9. What have we done or what are we doing to improve?