application of total quality management on service quality in banking, The

Ronald A Frick

By Ronald A. Frick*

QUALITY AS A BANK STRATEGY

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.

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

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.

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

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.

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

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

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;

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?

10. What can be done to help and support the improvement effort?51

Once unit-level quality takes hold, banks may be ready to create quality teams. Some organizations create quality teams before other aspects of quality are in place. Management support is essential. A group of employees who know that any idea they want to implement must be presented to and approved by a management committee is not going to want to waste their time or their boss's time with small ideas.52 Trained quality teams with management support can unleash powerful results.

Quality Teams

A quality team is a group of employees who are responsible for a whole work process that delivers a product or service to an internal or external customer.53 For example, in commercial lending, a work team could include account officers, credit personnel, loan clerks, and documentation specialists who all work toward getting loans approved, closed, and booked. Stressing a teamwork approach requires the involvement of every employee, Deming called for complete dedication and commitment to a single clearly defined objective.54 In banking, the team concept is a key element in service improvement.

Advances in service quality today rely heavily on an organization's ability to discover ways to be more responsive to customers and the marketplace.55 Employee involvement in quality teams is essential for identifying obstacles to sales and service improvement and cost containment.56 Many organizations, including banks, are realizing that empowered teams provide a way to accomplish goals and meet the needs of a changing work force and a changing customer.57 Quality teams, with team leaders trained in problem solving and participative management, must be granted authority commensurate with responsibility.58

Quality teams may be formed along unit lines (functional), but more often are from a variety of areas (cross-functional). Typically, teams encompass five to seven members and meet an hour or more per week on company time.59 Usually due to their knowledge of the issue being investi gated, employees are assigned to a team.

Major quality problems are interdepartmental in nature, experience has shown that the most effective means to deal with these problems is through interdepartmental teams.60 As opposed to task forces, quality teams work within a structured problem-solving process to uncover the root causes of problems, to apply effective solutions, and to ensure solutions endure. In a sizable company, like Florida Power and Light Company, 1,600 quality teams are at work solving key problems.61 Many of the more significant opportunities for real improvement appear in crossfunctional work processes and must be tackled by cross-department teams.62

A trained quality team working on the right issue can deliver amazing resuits, but support from management is an essential investment for farreaching returns. There are ten kinds of support needed according to Thomas H. Berry, and each merits equal attention. They are:

1. Training and a continuous learning process;

2. Team leaders with excellent communication skills and motivational skills. Good leaders must be chosen;

3. Facilitators with advanced quality knowledge, above-average skills in communications, leadership, and group facilitation. They are the internal consultants;

4. Diagnostic support through statistical people to help understand statistical process control (SPC) tools;

5. Management visibility to be aware of each team leader and project and conduct occasional supportive visits;

6. Celebration and recognition when a team completes a project is strongly recommended;

7. Cash. If red tape ties them up, teams will back off;

8. Time and support without looking over shoulders or looking at the calendar;

9. Open kimono so people will expose problems. If management overreacts and places blame, they will destroy the quality process. People who identify problems should be corporate heroes;

10. Limited management interference that offers ideas in a non-directive manner. Management's role is to challenge a team to find verifiable solutions.63

In an empowered organization, the best guidance comes from the team's understanding of the organization's vision and values. Rule books and procedures are not empowerment.64 Ultimately, customer satisfaction is the outcome of effectively trained, empowered teams; competitive advantage is the ultimate benefit.65

Quality People

Throughout this thesis, the references to people are many. People are quality, and quality is a personal thing. The role of employees is critical to the success of any quality process. Total quality management is a peopleintensive process for delighting customers.66 To make total quality management work, banks must select the right people, train them effectively, recognize and reward them, and provide them with strong leadership. Communication is critical-open and honest communication. Satisfied employees enhance customer satisfaction. "Employees are the key to customer satisfaction, and customer satisfaction is key."67 According to quality expert Leonard L. Berry:

America's best-managed service companies are characterized by a fundamental core belief in the potential for human beings to achieve. Their managements view each position as one from which careers can be built, set high service standards for all employees, invest in employee's sense of self-worth and dignity, and operate within thin rule books.68

If a total quality atmosphere is to prevail and bank management corn mits to its success, "management must learn to look at the effect of some of their decisions on their people."69 Employees must be given more authority and responsibility to make customer-driven decisions. As previously discussed, empowerment is critical to the quality process. Truly customerdriven, customer contact employees will accept accountability and produce unbelievable results.

People are not just overhead or part of an efficiency ratio. According to Phillip Crosby:

If you create a climate where people don't care and are not willing to put forth the effort to meet customer requirements, then you need twice as many of them. Create a climate of consideration; consideration of people for each other, for the employees, for the customer, for the supplier, and for the community, and create a climate of consideration in that organization-the rest will take care of itself.70

It is the people of the bank who delight customers. Bank management must continually ask: Are we treating our employees as if they were our best customers? If not, it is unlikely the banks employees will treat their customers any better. The following transformation points can help banks move in the right direction:

To your customers, your customer-contact employees are your company. Their actions shape customer perceptions;

Take your employee recruitment and selection very seriously;

Search for the right attitude first; a customer-delight value system;

Use a recruitment team, not just the personnel staff;

Promote from within whenever possible;

Develop a customer-delight college for continuous learning: The tools, The techniques, The trials and triumphs;

Require that everyone attend customer-delight training;

Adopt the new managerial role as coach, lead blocker, adviser, and cheerleader;

Be a great communicator and aggressive problem-solver;

Manage by using the unit-level quality process;

Watch for and help reduce stress in customer-contact people: Vary their routine, Establish an employee assistance program (EAP), Provide child-care support;

Establish a multifaceted reward system;

Build spirit into corporate life;

Provide for gain sharing or profit sharing tied to key customer-delight measures;

Provide celebration and recognition;

Promote the right people. Promotions advertise values;

Reinvent your approach to appraisals: Follow a 1040EZ approach, Avoid labels such as superior, distinguished, and so on, Unhook appraisals from the salary-increase system;

Remember that it is your people who delight your customers.71

Robert Fulghum has a rather simplistic way of approaching the wisdom in the value of treating people right. These are some of the things he learned:

Share everything. Play fair. Say you're sorry when you hurt somebody. Live a balanced life-leam some and think some and draw and paint and sing and dance and play and work every day some. When you go out into the world, watch out for traffic, hold hands, and stick together.72

It is unlikely that bank management and bank employees can ever get this simplistic, but by thinking this way, imagine the possibilities.

Quality Training

After making sure banks have selected the right quality people, they must make sure they train them the quality way. Total quality management involves "a new way of thinking' that must apply to every aspect of a busi ness."73 Training is no different. Training alters actions; to shape and change attitudes, behavior must be altered.74

In 1990, the Conference Board initiated a study of key quality training issues with 13 members of its U.S. Quality Council. The Council member firms suggested that their "quality training strategy is aligned with critical company priorities."75 The Council members also suggested the following key guidelines for companies initiating or reassessing quality training:

1. Set training strategy by gathering data through a top-down/bottom-up approach;

2. Focus the training effort. "Just-in-time" training works best and allows employees to apply their skills immediately;

3. Classroom training is a primary vehicle for training is a primary vehicle for training delivery, but alternative approaches can be successful;

4. Continuous improvement is the rule with quality training as with quality processes.76

Quality improvement training helps prepare employees for the quality experience. Keystone Financial, Inc. provides Quality Awareness Training and Team Leader Training on an ongoing basis. Developed in conjunction with the Robert E. Nolan Company, Quality Awareness Training has the following objectives:

Explain why quality is important to customers, employees, and the bank;

Details Keystone's quality process;

Helps employees describe their role in the quality process.77

Team Leader Training focuses on problem-solving skills, group facilitation, leadership, and brain-storming, among other topics. Managers need specific training as well, in order for them to support their units in the qual ity process.

Quality training can be provided internally by bank personnel or by external sources or a combination of both. Either way, it must be continuous. Probably the best first step after quality awareness training is to have "employees focus inward and please internal customers."78 Internal customer satisfaction is a key to external customer satisfaction. Some banks start with basic training in communication skills, some focus on customer service skills, and still others develop elaborate bank-wide programs. For example, Key Bank of Utah receives extensive training in interactive listening skills.79 Every employee received intensive customer service training and an outside consulting firm facilitated "a two-day Senior Management Commitment Workshop."80 First of America Bank Corporation started with senior- and mid-level executives to embed service as a culture.81The bank also established a Quality Service University (QSU) to develop ongoing service training and research.,82 First Chicago Corporation has several mandatory courses focusing on management practices for all management personnel and Customer Focus training for all customer contact personnel.83 Classroom training is provided primarily by corporate training, with the remainder delivered by the "train the trainer approach.84 First Chicago also uses on-the-job training, coaching, to assure the practice of newly-earned skills, and quality seminars and conferences, that provide outside endorsements of the quality process taking place at the bank.85

Regardless of the approach, quality training is a critical aspect of the quality process. Failure to commit appropriate resources can be detrimental. Training should start with new employees at orientation and should be evaluated frequently. Like the rest of the quality process, training should change as the bank evolves with quality.

Quality Communication

To champion total quality management throughout the bank, the process, the changes, the impact, and the results must be clearly and regularly communicated. A continuous learning environment applies not only when discussing training, but also to knowing your customer.86 Share the knowledge.

Quality communication works best from top down in a series of meetings. Follow-up is critical, either through regular meetings or by way of a tracking system. Tracking systems are discussed later on. Communication is basic to business, yet banks seem to do a poor job in communicating effectively, particularly with employees. Whether in the rush of competition or a preoccupation with continuous meetings, communication is suffering.

One way to improve internal communications is through an employee newsletter. Surveys, videotapes, and bulletin boards are also effective. Keystone Financial, Inc., utilizes a separate newsletter called Quality Progress to communicate quality to employees. The use of novelties and different logos is another effective way to help promote quality. Regardless of the method, communication must be clear and continuous.

Finally, external communication links the company to the environment. Customer input is crucial through telephone contact, focus groups, or other research methods. Input from customers should be handled as a priority. Advertising is external communication, and advertising quality is also important. Customers should know their bank is working hard to improve quality to ultimately benefit them. Vendor quality and involvement in the process is also critical to the success of total quality management.87

In every aspect of the quality process, the final judge of service quality is the customer. Each employee and every unit must identify and support internal and external customers. Measuring quality is important and communication helps measure success or failure. In 1987, Fidelity Bank introduced their Fast Forward Suggestion Program as a way of bringing employee feedback and customer dissatisfaction issues to management's attention.88 Programs such as Fidelity's help measure the impact of quality on internal and external customers.

Quality Measurement

Implementing a total quality management strategy in a vacuum assures failure. One of the recent banking buzzwords is reengineering. Simply put, reengineering is reevaluating. For a quality process to be really effective, banks must measure results. Measuring results means setting goals or standards based on customer-driven expectations. These standards then become the guidelines or benchmarks on which we measure success or failure. Failures are as valuable as successes, as long as the bank learns from them and used the knowledge to improve and change.89

Change is inevitable in the business of banking, or in any other business for that matter. Goals and standards need be measured only if banks are willing to change. Key indicators or goals will not be met "unless customers are delighted.90

Every business measures differently. As a part of the financial services industry, banks typically measure, or are measured by, profitability, capital adequacy, liquidity, and efficiency. While these terms do measure financial success, they do not measure customer satisfaction. They only indicate success as defined by the stockholders. If banks are to truly commit to total quality management, they must measure customer delight as well as stockholder delight.

Measuring customer satisfaction, both internal and external, requires measuring the growth of the customer base and repeat customers. Banks should measure the number of customers or dollar amount of sales by employee to track efficiency.91 In addition, the number of customer complaints, responses to customer satisfaction surveys, and vendor quality should all be quality measures. Employee involvement and perceptions of quality, as well as how many projects' quality teams have successfully completed, can help keep the quality process focused and on track.92

An effective quality process uses measurement as a tool to create what Bob Waterman calls "directed autonomy."93m Measuring change precipitates more change and a better process. Tracking change allows us to know when to recognize employee efforts.94 Electronic spreadsheets are the simplest way to track quality input; however, they may be difficult for the average user to learn. On-line input systems are also effective. Whatever system tracks data, it must be monitored and used to provide feedback to employees; otherwise it will deter involvement.

Perhaps the banking industry leader in quality measurement is First Chicago Corporation. The largest and oldest national bank operating under its original name and charter, The First National Bank of Chicago, First Chicago Corporation's principal banking subsidiary, has been measuring quality since 1981. They have tracked and charted performance in 500 key customer-sensitive areas.95 The bank surveyed corporate clients about each of nine operating services, and learned that timeliness, accuracy, and responsive service was what they wanted. Today, First Chicago continues the use of a Quality Performance Chart Book that they share with customers to measure themselves against standards.96 Does it work? Since 1982, the bank has improved the error rate in one of its operating units from one in every 3,000 transactions, to one in 10,000.97 In addition, the First Chicago quality process has resulted in savings of $9 to $12 mil lion annually.98

Impact of Quality on the Bank

If measurement is to be valuable, the bank must utilize feedback to improve the quality process. Quality impacts competition by providing banks with a competitive advantage. Quality impacts employees by focusing them on the customer, by challenging them to better serve the customer, and by making the workplace a better place to be. Finally, quality impacts the customer by providing products and services designed to meet customer expectations.

Measuring customer feedback should be frequent. Total quality management should produce satisfied customers. If it does not, consideration should be given for modifying the process. The ultimate goal of any quality program must be to exceed customer expectations. The effective use of communication and measurement and an understanding of what customers really want can have a positive impact on customers' responses to quality initiatives.

Superior service quality gives banks strategic, sustainable, competitive advantage. Sustainable, competitive advantage is:

The positioning of an organization so that it can achieve superior profitability over the long-term, in spite of industry and competitive forces.99 Like a total quality management process, sustainable competitive advan tage is a long-term solution. According to Michael Porter, there are two types of competitive advantage: low cost and differentiation.100Banks choosing a differentiation strategy and implementing total quality management commit to innovation and continuous improvement. Being customer-driven means relentless change that can also mean significant investment in systems and technology, human resources, and incentives. This commitment to quality may require things such as upgraded phone systems for customer-service representatives or laptop computers for the sales staff.101 Along with investments in technology and human resources, differentiation requires strong service leadership and empowerment for front-line service personnel.102

The quality process impacts employees. Getting employees to support a quality process can be difficult at first, but management can help in the transition. According to a Business Week Special Issue on Quality published in October 1991:

What really stands in the way of turbocharging employees and managers are the trivial things, like going to staff meetings, writing reports, and ordering supplies. Alleviating these impediments can be as simple as drawing attention to them.103

Employee feedback is critical to any quality process. Rewarding employees for active participation and performance is a critical part of any quality process. Recognition and reward programs are critical and should follow these guidelines:

Any program should compliment and supplement a sound base pay program;

Base pay alone is not enough to ensure dedication to and enthusiasm for the principal priorities and values of the corporation;

Base pay and other rewards must be tied closely to performance to be meaningful;

Recognition reinforces the cultural platform;

Recognition activities promote management visibility and improve communications among organizational levels;

Cash need not be involved in a successful recognition process;

Heed these principles of recognition:

1. Should be perceived as real and relevant;

2. Sincerity should mark your recognition program;

3. Recognition should be timely or just in time;

4. Variety should be built in;

5. Management must be directly and constantly involved in recogni tion events and activities;

6. Peers should be involved and events should be publicized;

7. The process should not be implemented before soliciting input from employees who will be its customers.104

The impact of a total quality management strategy can be significant for any bank. The return on investment in quality improvement is among the highest available to managers.105 Quality improvement is not easy and adds significantly to the workload of managers and employees, but the results are positive and may be necessary for survival in an increasingly competitive industry. While not exhaustive, the following checklist outlines the critical steps to evaluate a total quality strategy in an organization and provides a good framework on which to measure success:

Develop an infrastructure for the quality process;

Set realistic expectations-at least 18 months to integrate;

Reevaluate the banKs position periodically;

Attempt to build quality as a way of life into the banKs culture;

Avoid the perception that quality is just another program and a management fad that will go away;

Spend time getting senior management on board;

Revise executive compensation to a reward system based on profitability along with customer and employee satisfaction;

Do not initiate the process until planning is complete and the bank is ready to involve all employees.106

Quality is not a "quick-fix" business strategy, and it is easy to give up on quality. Avoiding the following list of traps can help prevent the quality process from getting off track:

Trap 1: Short-Term Focus. Believe that TQM is a long-term journey, not a destination, and add a sense of urgency;

Trap 2: The Closed Kimono. Don't place blame. Find fame when your employees bring quality programs out into the open;

Trap 3: Quality Improvement Equals Staff Reduction. If quality improvement can result in a reduced staffing level, utilize attrition rather than termination;

Trap 4: A Green Eyeshade Only Attitude. Believe that improved customer satisfaction will bring great benefits. Don't look only at the dollars and decimal points;

Trap 5: Delegation. Total quality management leadership is too im-portant to delegate;

Trap 6: Ignoring the 85/15 Concept. Believe that management must be involved to resolve 85 percent of your quality programs. Total quality management is not a "fix the worker" program;

Trap 7: al [Quality Improvement] Teams Are the Only Way to Achieve Improvements. Use QI teams extensively, but supplement and complement them with other continuous improvement strategies. Minimal and selected use of quick-hit strategies is okay, but be careful.107

This chapter presented some of the key aspects of a total quality management strategy for banks and provided a framework on which to build a quality strategy. All components are necessary, but banks can build on this framework and modify it to fit their own organizations. Implementing a quality strategy is committing to fundamental change and hard work for the benefit of the customer; it is also committing to long-term sustained profitability for the bank.

1 Leonard L. Berry, David R. Bennett, and Carter W. Brown, Service Quality: A Prom Strategy for Financia Institutions, Homewood, IL Dow Jones-Irwin, 1989, p. 20.

2 Armand V. Feigenbaum, Linking Quality Processes to International Leadership," in Frank Caropreso (Editor), Making Total Qualily Happen, New York: The Conference Board, 1989, p. 6. 3 Barry I. Deutsch, iA Conversation with Philip Crosby," Bank Marketing, Volume 23, April 1991, p. 24. 4 Ray F. Boedecker, Eleven Condtions for Excellence: The IBM Total Quality Improvement Process, Boston: American Institute of Management, 1989, p. 62.

5 James R. Houghton, "Leadership and Total Quality," in Frank Caropreso (Editor), Making Total Qua/fly Happen, New York: The Conference Board, 1989, p. 21.

s James H. Reynierse and John B. Harker, "Employee and Customer Perceptions of Service in Banks: Teller and Customer Service Representative Ratings," Human Resource Planning, Volume 15,1992, p. 44. 7 Boedecker, op. ct., p. 61.

8 Robert A. Broh, Managing Quality for Higher Profits, New York: McGraw-Hill, Inc., 1982, p. 184. 9 Edward E. Furash, "Banking's Critical Crossroads," The Bankers Magazine, Volume 176 (March-April 1993), pp. 2G23.

10 Anat Bird, SOne Bar's Approach to Total Quality Management," The Bankers Mane, Volume 176 (May-June 19, p. 64. 11 Houghton, op. cit., p. 23. Davidow and Utlal, op.cit., p. 85.

13 Willian H. Davidow and Bro Uttal, Total Customer Servce: The Ulyimate Weapon, New York Harper & Row Pubishers, 1989, p. 98.

14 Ibid., p.94. 15 Houghton, op. cit., p. 22. 16 Tom Peters and Nancy Austin, A Passion for Excellence, New York: Random House, 1984, p. 99. 17 Thomas H. Berry, Managing the Total Quality Transformation, New York: McGraw-Hill, Inc., 1991, pp. 113-114. 18 Ibid.

19 Leonard L Berry, Mistakes that Service Companies Make In Quality Improvement," Bank Marketing, Volume 23, April 1991, p. 69. 20 Boededcer, cp. cit., p. 61. 21 and Uttal, cit., pa(. 85.

22 Otis Port and John Carey. "Questing for the Best," Business Week Special 1991 Bonus issue, October 25,1991, p. 86.

23 Boedecker, op. cit, pp. pp 156-157. 24 Ibid., pp. 70-71.

2 Keith H. Hammonds and Gail DeGeorge, Where Did They Go Wrong," Business Week, Special 1991 Bonus Issue, October 25, 1991, p. 38. 28 Deutsch op. cit, p. 26.

27 Patrick L. Townsend and Joan E. Gebhardt, "The Quality Process: Little Things Mean a Lot," Review of Business, Volume 12 (Winter 1990/91), p. 4. 28 Boedecker, op. cit. p. VII.

29 Vicki Burton Dunscombe, Total Quality Management: AppIications in the Banking Industry (Newark, DE: The Stonier Graduate School of Banking, 1992), p. 186.

30 Townsend and Gebhard, op. ct., p. 4. 31 Dus, p 169.

32 Keystone Financial, Inc., Quality Initiative Action Plan, April 24, 1992, p. 10 33 Ibid., p. 56 34 Thomas H. Berry, op. cit., ppl 16-17. 35 Ibid. 36 Dunscombe, op. cit., p. 171. 37 Ibid., p. 26.

George E. Redd, III, "Fighting Internal Complacency: Key Bank of Utah's Ongoing Quest," in "Four Bank Stores: Quality Service In Action," Bank Marketing, Volume 23, Apr 1991, p. 62. 39 Thomas H. Berry. op. cit, p. 45. 40 Ibid., p. 75. 41 Ibid, p. 76.

42 Ibid., p. 78. 43 Ibid,, pp 81-87.

44Mary Colby, "The Qualily Service Manager: A New Strategic Direction for the 90's," Bank Marketing, Volume 24, April 1992, p. 28. 45 Ibid., p. 29.

46 Ibid., pp. 93-94. 47 Ibid., pp. 94-96. 48 Ibid., pp. 45-46.

49 Ibid., pp. 99-105. 50 Ibld., pp. 105-106.

51 Ibid. 52 Townsend and Gebhardt, op. cit., p. 5. 53 Richard S. Wellins, William C. Byham, and JEanne M. Wilson, Empowered Teams, San Francisco: Jossey-Bass, Inc., 1991 p.3. 54 Kerry Rottenberger and Richard Kern, "The Upside-Down Deming Principle," Sales & Marketing 55 Wellins, Byham, and Wilson, op. cit., p.11. 56 Broh, op. cit., p. 34. 57 Wellins, Byham, and Wilson op. cit., p. 10. 58 Townsend and Gebhardt, op. cit., p. 5.

59 Thomas H. Berry, op. cit., p. 44. 60 J.M. Juran, Juran on Leadership for Quality: An Executive Handbook. New York: The Free Press, 1989, p.56. 61 Thomas H. Berry, op. cit., p. 56. 62 Ibid., p. 58.

63 Ibib., pp. 70-73.

64 Wellins, Byham, and Wilson, op., cit., p. 86. 65 Thomas H. Berry, op. cit., p. 63. 66 Ibid., p. 194. 67 Ibib. 68 Leonard L Berry, op. cit., p. 68. e9 Deutsch. op. cit., p. 26.

70 Ibid., pp. 26-27.

71 Thomas L Berry, op. cit., pp. 194-195.

72 Robert Fulghum, All I Reat Need to Know I Leaned In K en, New York: Ballantine Books,

1986, pp. 45.

73 Boedecker, op. aP clt., p. 125. 74 Thomas H. Berry, op. cit, pp 116120.

75 Kathryn L. Troy, Quat Training: What Top Combs Have Le, New York: The Conference Board, 1991, p. 7.

76 Ibid. 77 Keystone Financial Inc., Quality Awareness Training, 1992, p.1. 78 Port and Carey, op. cit., p. 14. 79 Redd, op. cit., p. 62. 80 Ibid. 81 Connie Flemenschneider and Robert Hall, "Quality Service University; First of America Takes Action for Service Improvement," Bank Marketing, Volume 23, November 1991. p. 33. 82 Ibid.

3 Troy, op. ci,p. at, 12. 8s bid.

8 Thomas H. Berry, cp. ci clt dt., pp 120-121. ei Thomas H. Berry, op. dt, p. 49.

Os Jane Made Nigro, "Centralizing Customer Service Operations: Fidelity Bank Relies on Technology," in "Four Bank Stories: Quality Service in Action," Bank Ma/le&ng, Volume 23, April 1991, p. 63. 8 Rex Bennett, "The Customer-Driven Competitve Edge," Bank Marketing, Volume 24, May 1992, p. 50. 90 Thomas H. Berry, op. cit., p. 50. 91 Ibid., pp. 50-51.

92 Ibid. 93 Townsend and Gebbardt, op. cit., p. 6. 94 Ibid. 95 Stephen R. Steward, The First Natinal Bank of Chicato: Pleasing Customers by Banking on Quality (Houston: American Productivity & Quality Center, 1990), p.2. 95 Ibid., p.7. 97 Ibid, 98 Ibid., p.2.

99 Rex Bennett, "Achieving Strategic Competitive Advantage," a course taught at the American Bankers Association's Stonler Graduate School of Banking, University of Delaware, June 1993. 100 Michael E. Porter, The Competitive Advantage of Nations, New York: The Free Press, 1990., pp. 37-38. 101 Larry Armstrong, "Beyond 'May I help you'," Business Week, Special 1991 Bonus Issue, October 25, 1991, p. 101. 102 Dunscombe, op. cit., p. 195 103 Port and Caraey, op. cit., p. 11.

104 Thomas H. Berry, op. cit, p. 169. 105 Juran, op. cit., p 40.

106 Bird. op. cit., p. 68. 107 Thomas H. Berry, op. cit., p. 209.

*Northern Central Bank, Williamsport, Pennsylvania

Excerpt of the,sis submitted in partial fulfillment of the requirements for graduation from the Stonier Graduate School of Banking conducted by The American Bankers Association at the University of Delaware, Newark, Delaware.

For more information on this and other theses, contact the ABA/BMA Center for Banking Information, 1-800-338-0626, ext. 5040.

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