Case Study
10
Hartford Building Society: To
measure, or not to measure?1
Jane’s dilemma
It was 6 p.m. and Jane Gardner, Director of Strategy at Hartford Building Society, was
ready to leave the office. She had spent the afternoon preparing for the quarterly performance meeting with all the Society’s directors tomorrow. These meetings, which
should be central to guiding the Society’s strategic direction, to Jane, often felt like
a formulaic rehearsal of what everybody already knew. Yet, in the last two to three
years, there had been a serious attempt to match the organisation’s performance
management system (PMS) with its strategic ambitions. Over several months, the
Society had progressively removed all performance league tables, personal incentives
and numerical targets from their branches. The Society’s performance mantra had
become ‘sales through service’ and rather than basing ‘performance’ on the achievement of quantitative figures, the ‘success’ of all parts of the organisation, all teams,
and all individuals was now judged on the basis of how decisions and behaviours
were aligned with Hartford’s core values. In fact, most traditional data (e.g. number of mortgages sold, number of new savings accounts opened, footfall traffic in
branches, etc.) were still collected, but they were not made visible to employees, in
order to avoid potential distortions in their performance. As a method of managing
performance, it had been a radical change and a rare move for a relatively conservative financial services business.
As Jane was leaving, Adam Davies, a branch manager, put his head round her door,
obviously eager to speak. ‘Jane, I know you have the performance meeting with the senior
team tomorrow. I’m not sure whether this will come up, but for us working in the branches
– and I heard in the call centre it’s the same – there’s a feeling that we’re losing focus on the
company objectives. We say we are a “members come first” organisation that needs to make
decisions and promote behaviours that are “in accordance with our values”, yet, when my
people question me on how to do their job better, or how well the Hartford is performing I
struggle to know what to tell them. We give the employees plenty of time by being on the
floor with them and hosting monthly group discussions. But, to be honest, without visibility
of any performance information I myself don’t know what I’m meant to be changing on a
day-to-day basis.’
Jane was taken aback by what seemed to be this strategic confusion from an experienced branch manager. Would it be worthwhile to address this point tomorrow?
Or would the CEO reply with his usual statement: ‘other businesses may have numbers; we have things to do first’? Yet Adam’s confusion had raised some important
points. Is the ‘soft-touch’ PMS approach being used at Hartford really working?
Also, are all employee voices captured? And is this lack of formal systems a really
good thing?
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Financial services industry
The financial services industry was heavily regulated and bound by many risk and compliance standards due to the sensitive nature of guarding people’s money. However,
the recent media coverage over such things as the mis-selling of Payment Protection
Insurance (PPI), the extravagance of large corporate bonuses for bank executives, and
the global financial recession, has led to increased public distrust for players in the
field. Financial institutions had to put considerable effort into meeting government
regulatory standards and maintaining a favourable image with the public. However,
the landscape of service delivery within the industry was changing, alongside technological advancements and capabilities such as internet and mobile banking. People
increasingly did not want to handle cash and visit a bank branch to the same extent;
instead, they would prefer banking processes to occur quickly, efficiently, and securely
from behind an online device of choice. In the UK, approximately 36 million people
were using the internet daily, up to 50 per cent of those individuals for the purpose
of online banking.ii Furthermore, entirely new markets such as social enterprise and
social impact investing were emerging that required tailored financial services.iii Such
impending changes meant that most financial services firms, including the Hartford,
were considering how its services would fit in the potentially new market, and how best
to capitalise on the evolving technological interfaces for service delivery. In addition,
how should they attract new and younger customers and employees?
Hartford Building Society – where ‘members come first’
Hartford Building Society had been a ‘mutual’, or member-owned financial institution specialising in mortgages and savings accounts since it was founded 80 years ago.
With more than 2.2 million members, 2,300 employees and 120 branches across the
country, the Hartford has a significant presence in the UK financial services industry
and had worked hard to gain the respect and trust of its client base. Members’ preferences and interests drove strategy, decisions and actions within the organisation. The
Hartford culture had been built on five core values: care, kindness, integrity, fairness
and transparency. Its aim was to provide all members with a great experience and continuously refine its internal processes so it could offer competitive mortgage rates and
higher savings account interest rates. In the words of one senior manager, ‘we stick to the
things we know how to do’, and ‘we feel right not doing anything too exciting’. This strategy
had proved successful for the Society during the 2007–2010 financial recession when,
by focusing its energies on improving service delivery, it had managed to sustain steady
levels of business. During that period numerous building societies that ‘demutualised’
(converted their status to that of a regular joint stock company) for the sake of a cash
infusion failed operationally in their transition to a regular bank.iv
After the financial turbulence of 2007–2010 Hartford had retained its simple strategy
based on straightforward mortgage and savings products, and a good physical ‘high
street’ presence thanks to its vast network of branches. However, the Society was also
aware that the landscape of the financial industry was shifting. Footfall traffic to the
branches was decreasing rapidly, and the Society’s customer service–based strategy had
done little to prevent further decline. Its image of a solid and reliable organisation
also risked turning into a ‘stale’ and ‘boring’ one (as recent customer feedback demonstrated). Also, internally, growth in the number of employees had made it increasingly
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difficult to embed, communicate and deliver its mission of ‘members come first’. Besides
this change to the PMS, the Society’s strategy had changed little, but the top management team was conscious that major decisions over strategic direction and innovation
could not be delayed for long.
Better with or without the ‘Golden Thread’?
Up until the changes to the PMS the Hartford had worked with what they called the
‘Golden Thread’. This was a process by which objectives, targets and measures were consistently cascaded to the different organisational levels. The ‘Golden Thread’ procedure
had started as a mainly top-down process where directors would articulate a strategy
and then implement it throughout the organisation. However, once the system was
up and running, a more bottom-up approach was promoted: employees could give
feedback, make suggestions and even change aspects of the system. On the whole, the
‘Golden Thread’ seemed to function fairly well. It was clear and it worked on a day-today level because there was a clear line from directors to frontline staff, and employees
could link their performance to the organisation’s results. But it did have problems. It
could be overly formal and detailed. More seriously, it could promote dysfunctional
behaviours such as ‘gaming’ the system and ‘managing the system not the business’. In
branches people were getting obsessed with personal targets to the detriment of both
customer satisfaction and collaboration between employees.
So, it was decided to change the PMS, scrapping the formal elements of the ‘Golden
Thread’ system, at least at lower levels of the organisation. As the Director of Product
and Proposition told Jane ‘weak managers use numbers, because they’re not prepared to have
conversations’. Overall strategic achievement and direction at the Hartford was monitored, evaluated and reported at the quarterly performance meetings, as well as through
team discussion meetings, employee observations, individual performance appraisals, and regular one-to-one discussions. Formal measures were still being used to some
extent, but as one manager put it, ‘who has got the time to go through 100-page reports?’ At
these performance meetings, directors discussed the performance of their departments
to check that all departments were contributing to the organisation’s performance
objectives (see the Appendix). However, there was a feeling that performance meetings
were mostly a routine check, and beyond the quarterly meetings, it did not seem that
the document and key high-level figures are ever shared with lower-level employees.
There was also some evidence that employees had stopped wanting to approach managers with ideas. It was claimed that most were turned down on the spot due to their
‘lack of fit’ with the simple business model. Samantha, a junior branch colleague told
Jane ‘I approached my branch manager about an idea I had for mobile product development
but all he said was “that is not something the organisation does”. I had only brought it up as a
suggestion as some friends of mine and I were discussing how we would like to see the banking
industry evolve to better meet our needs. If the Hartford is truly all about its members, should
it not be considering the up-and-coming generation of customers?’
Jane wondered whether the executive team was receiving enough bottom-up feedback. Maybe they were making decisions too heavily based on their top-down perspective. Somehow, paradoxically, although a lighter formal system seems to have reduced
certain negative behaviours, it had also reduced employees’ capacity to provide feedback and suggestions. This was crucial. How could the Hartford retain its ‘members
come first’ ethos if the members began to have different needs that the company was
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unaware of? Furthermore, is the company alienating the younger generation of workers with their ‘slow and steady’ culture? Speaking to several colleagues in the organisation, Jane found that directors and senior managers seemed to have clarity around the
corporate strategy and objectives, and were proud of the behaviours in their respective
departments. However, lower-level employees were complaining that irregular feedback
sessions and lack of more structured targets and information hinder them seeing how
to advance within the organisation. As one junior colleague from the call centre said
to Jane, ‘I think the management should make more time for us, because they can’t expect us
to consistently achieve these goals unless we’re being encouraged and they’re being monitored.
Otherwise, you don’t know where you’ve fallen behind, do you?’
‘Sales through service’?
Through her investigations Jane uncovered several odd patterns, which further highlighted that the Hartford may need to reconsider its performance management system.
In the call centre, for example, profitability and employee satisfaction were seemingly
negatively correlated. When call volume was high and savings account openings, and
mortgage sales therefore were high, motivation and morale within the centre actually
decreased, attendance rates dropped, and higher amounts of attrition occurred. The
Head of the Call Centre explained to Jane. ‘The issue stems from the intangible nature of
the performance management system. During periods of escalated workloads managers have
less time to hold one-on-one meetings with staff. And although we attempt to allocate four
hours of training development to each member of staff each month, throughout busy periods
this time is also often reduced. At these points where there is not as much time for passing
encouragement or informal discussion about progress and areas of weakness, employees start
to feel lost as to what to aim for next.’
Within the branches, this year only 3 per cent of new mortgage sales occurred instore, with the remainder coming in through intermediaries and telephone or online
sales. In the previous year here had been 350,000 new member-contacts, but 170,000 of
those occurred via the telephone and another 150,000 were online contacts. Given this,
the extent of the branch operation was considered to be in jeopardy by some managers. Other banks such as IG direct were increasingly managing to deliver service with
less person-to-person contact, yet within the Hartford there was not much energy being
focused on exploring alternatives to traditional branch services. Instead, the focus was on
improving branch service. From the point the customer walked through the door until
they left, there were specific procedures in place to ensure they received the best possible
service and the most robust information with which to make decisions. When Jane asked
the Director of Branch Network what he intended to do about the diminishing foot traffic numbers he was pessimistic about change. ‘People know what they need to do and will
just keep on ploughing on. Trying to introduce innovations here is like pushing porridge uphill.’
Back to Jane’s dilemma
Jane’s role was to monitor how well the PMS was helping Hartford communicate and
achieve company objectives and goals, and whether the system could support future
changes in strategy. The Society’s conservative, yet safe, business model that had been
in place for years at the Hartford was appropriate during a time of market instability,
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but now the financial industry was changing and Jane was concerned that the Hartford would not be in a position to adapt with it. Overall, letting go of targets, personal
rewards and league tables in branches had led to a decrease of dysfunctional behaviours
and an increase in teamwork. However, it had also left the executive team in a position
where ‘routine processes are in the dark’. In other words, the informal nature of monitoring and reporting performance based on ‘values’ had left the ‘business’ side of banking
overlooked at the lower levels. Whilst the top management teams collected data and sat
comfortably in their position of strategic ‘knowing’, lower-level employees struggled to
see where they fitted in the corporate strategy and had little opportunity to contribute
to strategic developments. Jane increasingly believed that this was a major weakness that
would need to be addressed. If top management was not aware what is happening on the
frontline they would not be able to respond adequately to the changing demands of a
younger workforce and of new target markets. How could they both retain current customers and attract new ones? As the Head of Product and Propositions had said to Jane,
they did not want to be ‘selling typewriters when everyone else is selling laptops and tablets’.
Jane looked again at the bulky performance report that all directors received two days
before the quarterly meetings. Was it really useful? And, what could the organisation do
to its performance management system that would balance the need to drive its ‘members come first’ culture, with the need to provide strategic direction and understand
the health of the business?
Appendix
Hartford’s Performance Review Document
Hartford has identified the following five strategic goals (on the left). Each department
underpins these strategic goals with key performance objectives.
Strategic goals
Functional performance objectives
1. Members come first
–Listen to the members
–Focus on each customer’s particular situation
–Collect customer feedback
2. Sales through service
–Focus on service delivery (instead of product delivery)
–Influence behaviours aligned with core values
–Employee engagement
3. Do what we do best
–Improve current process efficiencies
–Offer competitive mortgage rates and high savings accounts
rates
4. Fairness
–No personal incentives
–Standard procedures in place for product delivery
–Standard performance appraisals
5. Transparency
–Adhere to risk and regulatory standards
–Advise clients appropriately on risks associated to products
Managers should insert business, unit or functional objectives prior to cascading to employees.
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Questions
1 Do you agree with the executive team’s decision to scrap league tables, personal targets and incentives in branches?
2 How can the Hartford keep an informal approach to performance management
whilst providing greater clarity to employees?
3 Could the Hartford benefit from introducing a strategy map? What would it look
like?
4 Which performance measures should the Hartford focus on?
5 Provide feedback and recommendations on how the Hartford can strengthen its Performance Review (Appendix) (e.g. clarity of strategic goals and validity of objectives).
6 What can the Hartford do from a performance management point of view to keep
being true to its values while becoming more explicitly business focused?
Notes on the chapter
i
Pietro Micheli and Haley Beer of Warwick Business School prepared this case. It is based on
a real enterprise and is intended for the purposes of class discussion, but is not necessarily
intended to illustrate either good or bad management practice.
ii ‘Internet Access Households and Individuals 2013 - Internet activities by year 2007–2013’,
Office for National Statistics https://docs.google.com/a/mail.wbs.ac.uk/spreadsheet/
ccc?key=0At6CC4x_yBnMdHdsRWhkQld3dms5U1pHMzlWUW03a1E\#gid=1 Retrieved 10
August, 2013.
iii ‘Banks and Social Enterprise’ http://www.theguardian.com/social-enterprise-network/2013/
jul/22/banks-and-social-enterprise Retrieved 8 August, 2013.
iv ‘The History of Building Societies’ http://www.bsa.org.uk/consumer/factsheets/100009.htm
Retrieved 9 August, 2013.
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