Bank Of America- Case Study

Case Study Brief

Introduction:

The Bank of America was formed in 1998 after the merger of California based Bank of America and the Nations Bank of North Carolina. At the end of the 20th century the bank stood as the second largest bank in the American market with close to 4500 branches operating in 21 states. Most of these branches were located in high growth markets of the south and west coast. Globally, it employed 1, 40,000 employees across 190 nations, over $8 billon in revenues, $360 billion in deposits and some $600 billon in assets.

However the markets had been consolidating for sometime with the total number of banks in America having reduced to 7000 from an figure of 14000 first recorded in 1985. Intense competition characterized the market and the challenge for national banks was to be able to localize product and service offerings for their customers.

Financial services had traditionally been looked upon as commodities by banks and lack of experimentation marked the sector. The sector was however slowly realizing that traditional methods of cost reduction and other control mechanisms could only take growth so far. Ð''Organic Growth', a higher wallet share of existing customers was a concept of much relevance in the highly competitive market. For achieving this Bank of America had given more freedom to individual bank managers to undertake more responsibilities. Others like Washington Mutual (WAMU) had introduced new models of customer experience, benchmarking their services with other service oriented industries retailing.

Banks traditionally functioned without dedicated R&D departments and new product innovations were the domain of marketing departments which lacked formal processes, methodologies and resources needed for genuine effort. IT systems in place in banks were more support oriented.

In the late 1990s though, Bank of America structured an Innovation and Development (I&D) Team within its force. This step was taken in response to the recognition of continuous experimentation and testing as an important aspect by the management and as a necessary step to stay in tune with the innovation charged atmosphere of the internet age. The management felt that the resulting ideas would help it improve on its customer connect and servicing capabilities.

The Innovation and Development Team

The I&D team and branches under them were meant to be test beds for new ideas for improving customer satisfaction and growth in revenues. However, it was realized that testing in a realistic environment also meant working with risks. To reduce these risks the I&D experiment was limited to 20 branches of the bank in Atlanta. The experiments were to be studied here and various aspects of meeting and exceeding customer expectations to be dealt with.

The difficult questions to be answered included budgeting and execution. To chose and execute ideas better a formal evaluation for products and service innovations was put in place. The test centers were located in richer localities were customers were comfortable with the new dash of technology. Concepts like categorizing branches into three types Ð'- Ð''Express Centers', where transactions could be carried out quickly; Ð''Financial Centers', with a wide range of services and access to sophisticated technology and Ð''Traditional Centers', with conventional banking functions enhanced with test processes and technology. Concepts like hosts at the door, investment bar, investment centers with complimentary coffee and couches and others like Transaction Zone Media were being tested. There were also special programs like the Ð''Bank of America Spirit', run with the help of Walt Disney that were aimed at helping employees attach themselves better to the effort. The tellers and associates initially spent 30%-50% (later 25%) of their time training themselves for the experiments.

Performance

Overall deposit growth in the first year of operations, 2002, was 0.5% compared to 3.7 % growth in other Atlanta branches. In revenue terms the I&D branches did 10% better than traditional branches. There was a large spike in customer satisfaction and annual teller turnover fell from 50% over the past three years to 28%. The team received an additional 5 branches to manage taking the total number of branches under it to 25.

Issues/Problems faced

- Should the group function as a stand alone R&D center?

- Should the group be provided with a special budget or should its funding be linked with