Chamical Bank Case

CHEMICAL BANK CASE

Executive Summary

The retail bank division of Chemical Bank was performing a radical organizational transformation into a market-focused and customer-focused organization after the 1991 merger with the Manufacturers Hanover Corporation. The new vision of the bank was to shift its image from a narrow provider of traditional financial services to a broader and innovative provider of superior financial service and advice for targeted customer groups. The objective was to position the bank in order to remain competitive in a very challenging and changing business environment characterized by intense price competition, outflow of deposits to mutual funds, rapid technological change and more sophisticated and demanding clients.

Micheal Hagerty, head of this division, envisioned Balanced Scorecard (BSC) as a powerful tool to achieve the organizational and cultural transformation required by the Retail Bank in order to articulate and implement this new vision, mission and strategy across all levels of the organization. A main objective was to create a performance focused organization.

The process of implementation of the BSC systems proved very successful for the Retail Bank because it allowed managers and overall organization to stay focused on key consumer segments and profitability targets. In addition, the process helped the Retail Bank to clarify its main strategy statements, develop clear and well-articulated business objectives for each business dimension and implement a performance measure system to monitor progress. The final outcome was learning and more unified organization and a deeper understanding of key business value drivers and activities.

The process of implementation posed many challenges that the Retail Bank needs to overcome such as in communication, compensation linkages, information infrastructure, and data reliability to measure performance among others.

Case Background

The case presents an industry facing an intense change during the last two decades. Rapid evolving technologies, shrinking spreads, and alternative Channels were some of the characteristics of the new environment. As a result, the industry passes from 14,000 banks during the 80Ò's to 10,000 banks in the 90Ò's.

In 1991 Chemical bank and The Manufacturers Hanover Corporation merged and form The Chemical Bank. It was in order to improve its performance in the new highly competitive market. This new bank turned from an excellent collecting and processing deposits bank to an efficient market oriented organization provider of financial products to a target group. It means that, the new bank must have the capability to segment the market and focus on the most attractive customer groups.

The new company found the Balance Score Card as a useful system to achieve the objective mention before. The BSC was implemented in order to provide the necessaries links between objectives and measures. The implementation of the BSC was based on 3 key pillars to drive returns:

o Shift Customer/ Profit Mix.

o Improve Productivity.

o Create an Enabled Organization.

The 03 key pillars respectively correspond to the BSCs Customer, Internal Business and Learning and Growth perspectives.

Finally, the case presented a BSC system in process. We found that it is very important a high level of commitment of the senior management in order to follow an a hundred percent system implementation.

Summary/Conclusions

Micheal Hagerty's team in Chemical Bank implemented BSC as a tool to maintain strategic direction aligned with relevant strategic target is successful. Chemical Bank aimed at a breakthrough strategy that redefined the banks business through focusing on consumer banking.

BSC provided specific, measurable, actionable and timely objectives of superior service for specific consumer targets. It also managed to pull together two companies with different management styles ( i.e., a centralized Manufacturers Hanover with a decentralized Chemical Bank) to one common objective.

Regardless of BSC success in Chemical Bank, there are specific opportunities that need to be reinforced during BSC implementation. For example, BSC is usually a senior and middle management tool. An adequate use of BSC demands the involvement of employees and contributors and all levels (specifically at the lower end). Also, avoid implementation complexity by defining fewer targets and measure accomplishment with simple indicators. Proven success is found where BSC objectives are linked to compensational motivators. Finally, since training is the basis of BSC, employees demanded to learn and develop new skills need to be appropriately evaluated. This will allow an efficient deployment of the BSC plan as its execution progresses to its final target.

The Chemical Bank team persevered and fulfilled its new business strategy. BSC helped in maintaining focus on common objectives through all areas of the organization. Its mentors and collaborators were determined, smart, and flexible when obstacles were met while its business grew and its organization changed for the better.

CHEMICAL BANK CASE

QUESTIONS:

1. What is Hegarty attempting to accomplish with the Balance Scorecard?

Michael Hegarty, head of the Retail Bank Division of Chemical Banking Corporation was trying to accomplish a major cultural, organizational and strategic change in the Retail bank in order to transform the bank into a "customer focused organization" whose mission was to provide superior financial advisor and services to a targeted customer group. This dramatic and extensive strategic change was indispensable to place the bank in a better position to compete in a market characterized by intense price competition, continuous change, rapidly technological change and increased customer demand for value.

Hegarty