A blitz of new technologies, increasing competition, and rising demand from customers for new services is forcing retail banks to rethink what they sell and how they sell it. While scrambling to offer new products and services from mutual funds to life and health insurance, national banks must also deal with technological advances that open up new ways of bringing these services to customers. This revolution in banking represents an immense reengineering effort with a vast, often unsettling human impact not only on customers but employees as well.

To track the impact of such changes, a team of Wharton School researchers, funded by the National Science Foundation, spent much of last year getting a close, inside look at how one nationwide bank chooses the products and services it offers and how it will bring them to customers.

Patrick T. Harker and Larry W. Hunter of the Wharton School recently discussed those findings in a paper, "The Future of Banking: Lessons Learned from the Trenches." The bank that Harker and Hunter studied, which they nicknamed National Bank to conceal its true identity, has branches in many states and a retail banking arm that is in many respects typical of the industry.

To spearhead its overhaul, National established an implementation team of more than 50 employees, drawn from diverse geographic areas and functional backgrounds.

Over time, an increasing number of administrative functions had accumulated in the branch systems, so that branch managers and service representatives spent a considerable amount of time on internal activities rather than in contact with customers. It soon became apparent to the team that bank professionals needed to spend more time on activities that were likely to lead to sales of new products and services.

National’s team redesigned the physical layout of the branches to encourage more customers to use automatic teller machines and in-branch telephones for routine transactions. Walk-in customers were greeted by a bank employee ready to show them how to use the new banking system. Incoming telephone calls from customers were routed to a central call center. The bank’s information systems were expanded to give employees a full picture of each customer’s activities, to enhance sales efforts.

National’s success, however, will rely heavily not just on technology but also upon significant changes in key jobs in the bank branches. The team eliminated the once-significant position of local branch manager, replaced with the new job of customer-relations manager, who was charged with coordinating customer service efforts in all the branches. This change, in turn, led to further changes in sales and customer service positions right down the line. Only the tellers were to remain relatively unaffected.

To test the changes, National began a pilot project in two small local markets. In the branches within these markets, hundreds of administrative and servicing processes were suddenly gone. Telephones fell silent.

Although most customers quickly migrated to the new technologies, the changeover did not always go so smoothly. Several problems emerged:

1. Due to resistance from rural customers, the team soon saw that the bank would realize the most meaningful efficiencies by focusing on branches in urban and suburban locations.

2. Implementation took much longer than expected. Problems arose in bringing up the databases and other systems intended to provide sales support.

3. Financial specialists found it difficult to adopt the aggressive selling that the redesign required.

4. Rerouting all phone calls away from the local branch proved difficult to achieve in practice. In response to complaints from customers and employees, the design team had to modify the original plan to allow customers to be connected directly to their local branch if they wished.

5. Employees seldom had time to develop the new skills critical to the success of the pilot project. In addition, the new jobs had effectively eliminated hierarchical career ladders in the pilot branches. All this left employees less certain about their future in the organization.

National’s implementation of its "bank of the future" found that some branches were better than others in carrying out the redesign. As a result of their analysis, Harker and Hunter sum up these success factors:

  • Have a good phone center. Make sure that telephone {or Internet-based) services are high quality operations before trying to move customers to these transaction channels.
  • Acknowledge and address the importance of human resources. Employees in the trenches must believe in the redesign process if they are to communicate that belief to the customer.
  • Clarify employees’ roles and develop team players where they are needed. Employees in the branch must work together to service customers while containing or reducing costs.
  • Not all employees need the same kinds of commitment. Training of customer relations specialists needs to focus most on building their commitment to the goals and philosophy of the organization. Sales specialists must also understand these goals and believe in them, but they must first and foremost be committed to selling.
  • Be ready and willing to adapt your model, but only for a good reason. Don’t capitulate to attempts to maintain the status quo.