Tuesday, June 7, 2011

System tools applied to enterprise transformation at Bank of America - SDM Pulse Summer 2011

By Daniel Wallance, SDM ’10

Systems tools and methods developed at MIT helped Bank of America Corporation (BAC) evaluate and successfully enhance its approach for a multi-hundred-million-dollar integration impacting 12 million customers—as well as future large-scale initiatives. The integration initiative, which was driven by senior management’s desire to reduce operational risk and to “deliver the full value of the organization to all customers,” formed the basis of both a six-month consulting engagement and my master’s thesis.

With a historic collapse of world financial markets—which MIT Senior Lecturer Ralph Katz would refer to as a “marshaling event”—and the nearly finished integration of the Merrill Lynch and Countrywide acquisitions, Bank of America found itself looking inward. It found a remainder from the 1998 merger between NationsBank and BankAmerica Corp.: the states of California, Idaho, and Washington, internally referred to as California Northwest (CANW), exist as separate banking platforms from the rest of Bank of America’s retail banking platform.

As part of the Bank of America’s internal evaluation, senior executives identified this region as the one with the greatest potential to both decrease the operational risk presented by multiple banking platforms and to simultaneously offer additional value and services to customers. Thus began a multi-year and multi-hundred-million-dollar integration initiative to “provide nationwide consistency and efficiencies in processing and servicing customers and clients” and to “migrate to standard processes and technology across the enterprise.”
Figure 1. The first quadrant of the X matrix compares
strategic objectives vs. stakeholder values.
I was brought in as a consultant and asked to provide an outside enterprise systems perspective on both the California Northwest transformation initiative and on the overall large-scale change management practices at Bank of America. Using the CANW transformation as a case study, this six-month consulting engagement formed the basis for my MIT master’s thesis. I applied key systems thinking principles, tools, and methods to ascertain whether the CANW initiative and BAC’s transformation processes and procedures are “complete and effective” and to identify additional factors that should be considered. While I had unprecedented access to a substantial number of senior executives and internal documents, a major limitation of my work was that the CANW initiative was ongoing, which meant that not all material existed at the time of this project. My conclusions and recommendations are therefore based on the material I was able to review.

Research methodology


Figure 2. The second quadrant of the X matrix compares
stakeholder values vs. key processes.
I based my approach on the Enterprise Strategic Analysis and Transformation (ESAT) methodology, which was developed by the MIT Lean Advancement Initiative (LAI), whose codirector, Deborah Nightingale, was my thesis advisor. ESAT is a holistic framework for enterprise transformation that focuses on enterprise-wide processes and end-to-end value streams, considering all stakeholders and their needs. The output deliverable of the ESAT methodology, which reveals areas for improvement and waste elimination, is an actionable enterprise transformation plan.

For my research, I sought to identify all the stakeholders affected by the CANW transformation and their needs. While the CANW material revealed that Bank of America had identified the usual stakeholders (including customers, associates, and stockholders) and considered their needs, applying the ESAT methodology and the systems principle taught in SDM uncovered other groups worthy of consideration. These stakeholders included rating agencies, the public, the change execution team, and regulatory bodies, all of which are affected by the CANW transformation.

My findings revealed a disconnect between the importance of the stockholder to the enterprise vs. the value delivered to that stakeholder group. This indicates that Bank of America should focus on transformation initiatives that benefit BAC stockholders—a focus that is in line with Bank of America’s stated CANW transformation goal to decrease operational risk for the benefit of its stockholders. However, when looking at the customer/client stakeholder group, the difference between the value delivered to the stakeholder and the value received by the enterprise is less than that for the stockholder. While room for improvement exists, my analysis indicates that perhaps there should be less of an emphasis placed on the customer/client stakeholder group for the CANW transformation.

Progressing through the ESAT steps, the X matrix is an enterprise system analysis tool developed by LAI that analyzes internal enterprise alignment to answer the question “do an enterprise’s metrics, processes, strategic objectives, and stakeholder values align?” Once completed, the X matrix reveals areas of misalignment where elements need to be recognized or developed.
Figure 3. The third quadrant of the X matrix
compares key processes vs. metrics.

After extracting California Northwest strategic objectives, stakeholder values, key processes, and metrics from internal BAC documents, I populated an initial X matrix. I then used this X matrix to recommend the identification or creation of new CANW strategic objectives, stakeholder values, key processes, and metrics (Figures 1-4).

A key strategic objective is to ensure that any adverse customer and/or employee issues resulting from the transformation are kept to a minimum during and after the CANW transformation. However, I was unable to locate any corresponding stakeholder values. Due to the criticality of stakeholder values, my research suggests that Bank of America develop deeper measures that focus on customer service and uninterrupted consumer retail deposit access during the transformation.

Comparing stakeholder values with CANW processes, three areas stand out as worthy of consideration for the identification, addition, or removal of enterprise attributes. While numerous communication and training processes exist, I was not able to identify any suitable corresponding stakeholder values. To close this apparent gap, stakeholder values should be identified or developed that focus on execution of communication responsibilities and awareness of product and service offerings and changes. Further, in reviewing the X matrix and the stakeholder values, I found that return on investment and long-term, consistent returns are not critical for the CANW transformation;  I therefore argue these should be removed. Finally, to complete one last gap, additional processes to monitor and mitigate the risk that the transformation poses to the bank should be identified or added.
Figure 4. The final quadrant of the X matrix
examines metrics vs. strategic objectives.

Evaluating the key processes vs. metrics quadrant of the X matrix reveals significant deficiencies in the metrics used to track the key processes. This is partly due to the fact that at the time of my analysis the transformation was ongoing, therefore not all metrics had been developed by the California Northwest team. Two groups of metrics to add or identify are noteworthy. Possible communication and training metrics might include associates trained, customers notified, and customer satisfaction level. Metrics that track risk monitoring and mitigation processes worth considering include incident resolution time, transformation operational risk incident and severity, and system uptime for customer access.

The final quadrant of the X matrix examines the alignment between metrics and the CANW transformation strategic objectives. Again, while Bank of America admits that the CANW metrics have not yet been fully developed, two deficient metric groups—risk and technology—are worth noting. Possible risk-based metrics include compliance faults and severity and a measure of operational risk. Technology metrics worth considering include number of systems monitored, technology system deployment time and cost, and a measure of technology risk.

Recommendations

The ESAT analysis, X matrix examination, and overall systems thinking scrutiny allowed me to provide BAC with a number of insights and recommendations on its core transformation process. These include:

•    Look beyond the usual suspects to identify and understand the needs of all stakeholders.

•    Adopt a stakeholder-centric view to ensure that all stakeholders receive value, ensuring an “all hands on deck” mentality for transformation initiatives.

•    Announce transformation initiatives publicly to create external accountability and an internal mandate.

•    Back-check and ensure that all decisions made trace to specific stakeholder values and original research or analysis.

•    Ensure that all strategic objectives are clear and concise and meet an industry standard framework such as that from the International Council on Systems Engineering.

Overall, while Bank of America’s transformation process is effective, a systems-focused approach is needed to gain buy-in from all stakeholders and to ensure that no value is left on the table. System methods such as stakeholder analysis can ensure that Bank of America’s transformation process is indeed “complete and effective.”

No comments:

Post a Comment