How Will Competition Change Human Resource Management in Retail Banking? A Strategic Perspective

The proposition that the way firms manage their labor forces should be consistent with their organization strategy might seem both obvious and noncontroversial. What this means in practice in a turbulent industry such as consumer financial service, however, is by no means obvious. Human resource management practices in banks are changing under pressures from an increasingly intense competitive environment. The nature of these changes remains unclear, and questions center around what forms the changes will take and around the effects of those changes. This paper draws on early interviews in a multi-year project on productivity in financial services firms. While the data are not sufficient to answer the question, the author believes they provide clear indications of directions to take in conceptualizing and further investigating the issues. The paper describes the issues involved with strategy, human resources and performance in retail banking. It then describes the challenges associated with applying a model relating strategy to human resource decisions and suggests some considerations for the emergent field of strategic human resource management drawing on a capabilities-based approach. It concludes with suggestions regarding further research in the study of strategic human resources in financial services. The author suggests that in retail banking, uncertainty lies both in understanding the potential value of particular business strategies and in seeing what sort of outcomes different human resource management (HRM) systems will produce. The author notes that few of the aspects of the set of human resource performance practices that are referred to in the literature as high performance workplace practices (HPW) have been embraced by retail banks. What is not known is whether HPW practices cannot deliver on valuable outcomes, or whether banks have simply failed to realize their potential. The author suggests that corporate strategic issues may influence the ability of the retail bank to meet its strategic goals, and they may influence the time horizon available to retail banks. The author suggests that in a less turbulent climate, there might be more investment in human resources. Current pressure to contain costs in the immediate short run, leaves retail banks in a difficult position. HRM must also be considered in relationship not only to corporate and business strategy, but also to technology and the design of process. In short, do certain kinds of HRM suit different technologies? The author points out that HRM practices do not function solely to serve strategic goals. Choices of particular HRM practices may reflect organization power and politics and institutionalized norms of best practices as much as they reflect strategic goals or performance imperatives. While the U.S. retail banking sector has not been organized into unions, the author suggests that the industry may see more workers beginning to push for at least some of the high performance workplace practices regardless of strategic concerns of banks, should the current period of relative labor surplus prove to be transient.

Union Participation in Strategic Decisions of Corporations

This paper reviews workforce participation in strategic decisions - those that affect the basic direction of the company - when workforce interests are represented collectively through unions. We consider the problem of corporate governance and review the rationale for what we term strategic partnerships' between management and labor. The paper describes the prevalence of such partnerships in the U.S., focusing on two institutions through which unions have engaged in discussion of strategic issues: negotiated union-management partnership agreements, and union representation on corporate boards. We offer detailed accounts of specific strategic partnerships and of union involvement on corporate boards, showing that unions face a range of challenges in constructing partnerships that extend possibilities for effective representations of workers' interests.

Where Do Women's Jobs Come From? Job Resegregation in an American Bank

We document changes in the gender composition of jobs in a large American bank. This change was occasioned by a restructuring initiative that created new positions. Through interviews with employees and direct observation of work in four geographic regions, we identify five factors that underlie the process of resegregation: managers built gendered assumptions into the new jobs; managers framed employees' choices based on these assumptions; employees responded to these cues and to the characteristics of the jobs; management made job assignments that were consistent with both their assumptions and employees' choices; and both managers and employees developed shared gender norms associated with the new positions.

Opening the Box: Information Technology, Work Practices, and Wages

There is substantial debate about the effects of technological change on wages. We argue that the relationship between technology and wages is context-dependent. To test this proposition, we use data gathered from 303 U.S. bank branches and examine empirically the association between different kinds of information technology (IT), work practices, and wages for the job of customer service representative in bank branches. We also test for interaction effects between IT and work practices. Our results suggest that context sometimes matters: the wage outcomes for IT that automates basic tasks are moderated by high-involvement work practices, while IT that improves the quality of organizational information is related positively to wage outcomes independently of context.

Designing the Future of Banking: Lessons Learned from the Trenches

This case study in retail banking reviews the work of a Wharton School research team which has been tracking the process of change at one of the larger American commercial banks. The bank is referred to by the pseudonym "National Bank." The team's research focuses on how a bank chooses what changes to make and how to implement changes as new technologies, increasing competition, and more demanding customers force it to rethink product offerings and distribution channel design. In the case of "National," these forces resulted in a massive re-engineering effort designed to restructure the branch delivery system. The goal of the redesign was to streamline branch processes and relocate many administrative tasks and routine servicing of accounts to centralized locations. The physical layout of branches was changed so customers would be encouraged to use ATMs and call centers rather than consult with branch employees. Branch employees' efforts were to be directed toward sales rather than service and information systems and call centers were expanded. As pilot experiments developed and the project matured, the bank's initial focus on changes in physical layout of branches, information systems, and design of key business processes gave way to focus on changes in key jobs in the branch systems, human resource practices that supported these jobs, and on employees' reactions to the changes. As these changes were implemented, several problems arose and were addressed. First, rural branches in the early pilots felt that the new changes were inappropriate for their market, leading to a decision to abandon the original model of standardization across the entire system. Second, implementation of new technology proved a slower process than had been expected. Third, branch employees often found it difficult to successfully refocus on sales rather than service. Fourth, some customers were unhappy with changes that routed all their calls to a centralized location rather than to the their local branch. Finally, it was difficult to implement the human resource practices necessary to support the new organization. New position levels changed employee expectations of moving up in the hierarchy and caused some internal dissatisfaction and confusion. Employees feared layoffs. In dealing with these problems, a second pilot redesign was tested in urban and suburban markets, incorporating a number of process modifications to address these issues. New challenges have arisen, including introducing the changes to branches that have been acquired recently through mergers and acquisitions and introducing standardized innovations within a decentralized management system. These and a range of human resource issues continue to be addressed by the team. Despite the many challenges to implementing an effective new delivery paradigm at National, a number of the early pilots have demonstrated success in moving routine transactions to more official channels, while achieving the goals of increased sales and customer satisfaction. As a result of their ongoing analysis of National's redesign process, the authors have identified six key factors for success: Have a good phone center in place early and believe in it as a critical component of retail service delivery; Acknowledge the importance of human resource issues; Not only acknowledge but address the human resource issues early and clearly; Clarify employees' roles and develop new skills when needed; Not all employees need the same kinds of commitment; Be ready and willing to adapt your model, but be confident to resist attempts to maintain the status quo for the wrong reasons.

Performance in Consumer Financial Services Organizations: Framework and Results from the Pilot Study

Financial services comprise over 4 percent of the gross domestic product of the United States and employ over 5.4 million people. By offering vehicles for investment of savings, extension of credit and risk management, they fuel the modern capitalistic society. While the essential functions performed by the organizations that make up the financial services industry have remained relatively constant over the past several decades, the structure of the industry has undergone dramatic change. Liberalized domestic regulation, intensified international competition, rapid innovations in new financial instruments and the explosive growth in information technology fuel this change. With this change has come increasing pressure on managers and workers to dramatically improve productivity and financial performance. This paper summarizes the first year of a multi-year effort to understand the drivers of performance in financial services organizations. Financial services are the largest single consumer of information technology in the economy, investing $38.7 billion dollars in 1991 (National Research Council, 1994). While this investment has had a profound effect on the structure of the industry and the products it provides, its effect on financial performance of the industry remains elusive. Why this "productivity paradox" (Brynjolfsson and Hitt,1993) exists is an important part of this project. The authors describe the differences in productivity in services from manufacturing. In the service world, the consumer co-produces the product with the firm, ofte nadding labor to the creation of the service. In addition, the scope of the service enterprise typically is quite vast, with components of the service production process being both producers and deliverers of the service. In addition, the quality of the services provided is forever changing. Thus, the authors suggest that productivity gains from human resource improvements or technology investments may not show up in standard performance measures, but may rather be used to improve the quality of the service provided. What appears to be a stagnation in productivity may actually be an increase in value delivered to the customer. Delivering value to the customer may provide the institution with sales opportunities and much needed information about the institution's customer base. The pilot survey conducted by the authors examines the relationship between technological advancement and the relational part of service delivery by studying time spent with the customer in relation to technological sophistication and time spent on the entire delivery process. The authors adopt the view that processes are the central "technology" of an organization. As with any technology, the process must be maintained. After a process has reached its useful life, it should be scrapped or rebuilt. Thus, the authors suggest that researchers should take a life-cycle view of processes when undertaking efficiency studies. The authors rely heavily on a process-oriented methodology in their analysis of performance drivers in financial services. The study does not focus on traditional measures of productivity or financial performance. Rather, the authors base comparisons on intermediary measures which evaluate the drivers of performance from the perspective of all participants in the co-productive process. This pilot study starts with consumer financial services and in particular, retail banking. The authors review the relevant literature on financial services performance and then propose a conceptual framework for the study. The framework assumes that industry conditions and firm strategy are given. The authors focus is to examine the components of performance that managers can affect, given a strategy and industry operating conditions. Thus, their initial focus is guided by their desire to direct attention to issues of implementation and their effects on performance. The authors attempt to bridge the gap between traditional productivity measures and difficult-to-measure financial performance by developing a set of value creation components as an intermediary set of performance indicators. Based on pilot interviews, these indicators reflect effective performance in ways that are more meaningful than the more traditionalmeasure of productivity, as they are the goals toward which bank management strives. The key values the study attempts to measure are customer convenience, precision, efficient cost structure, adaptability and market penetration. The survey conducted by the research team benchmarks two types of management decisions that are presumed to drive these outcomes. The first set of management choices are implementation choices, human resources choices, technology implementation processes and product/servicedelivery processes. The second set of choices relates to management infrastructure, resource management processes, the information architecture of the firm, the performance management and control systems and the organizational structure of the firm. Based on interviews and the work of previous productivity studies, the research team developed a pilot survey focused on the practices of the functional areas, business lines, product groups and the retail distribution network. The pilot measured the outcomes and choices made by managers in seven large commercial banks. The pilot results will lead to a large scale survey of practices for the entire retail banking sector. Based on early pilot results, the researchers concluded that managers in consumer financial services firms typically assume that improvement in one area of performance is largely at the expense of decreased performance in other areas. The authors believe this is only partly true. Based on the pilot results, the authors believe that better management practices can move outcomes in a number of areas simultaneously. Through effective process design, use of technology and management of human resources, institutions can improve performance in multiple categories. The successful financial services organizations will be those which find processes and practices that enhance multiple measures of performance. The results of the large scale survey of practices will be available in early 1996.

Inside the Black Box: What Makes a Bank Efficient?

A decade of econometric research has shown that X-efficiency dominates scale and scope as the drivers of inefficiency in the U.S. banking industry. However, this research falls short in explaining the causes of the high degree of X-efficiency in the industry. This paper summarizes a four-year research effort to understand the drivers of this inefficiency. Key findings from this research, based on the most comprehensive studies to date of management practices in the retail banking industry, give insight into the drivers of X-efficiency. The paper provides a comprehensive framework for the analysis of X-efficiency in financial services. This paper was presented at the Wharton Financial Institutions Center's conference onRetail Banking, Services, Efficiency, Technology Management, Human Resource Management