Wells Fargo - Guiding THE TRAIL
A Critical Case Analysis
By Rachel Cox
MBA 617
Wells Fargo
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Wells Fargo – Guiding the Trail
I. Overview
Wells Fargo was founded in Sacramento, California in 1852 by Henry Wells and William
G. Fargo. They offered both banking and express delivery of valuable goods. For deliveries, they
used the fastest means available including stage coaches, trains and steamships. In 1918, Wells
Fargo had been serving over 10,000 communities and the federal government took over the
express network. Wells Fargo was left with a single bank in Sacramento.
During the 20th century they experienced “prosperity, depression and war, even greater
post-war prosperity, social changes and ever faster communications technologies”
(Wellfargo.com). Through it all “Wells Fargo has been a pioneer in bringing banking
convenience to its customers” (Wellsfargo.com).
According to their 2013, 4th quarter fact sheet, now Wells Fargo is the world’s largest
bank per market capitalization. They have over 9,000 locations, and serve over 70 million
customers online and worldwide (WellFargo.com). They are an all-inclusive financial institution.
They provide services to individuals, commercial interests and wholesale institutions. Their
products range from savings accounts to investment accounts to insurance, all types of lending
and payment processing and wealth management services. Appendix A shows a detailed pie
chart of their sources of income.
The banking industry has relatively low barriers to entry and therefore the competition is
fierce. Its major competitors nationally are JP Morgan, Bank of America and Citigroup.
Internationally some competitors are Lloyds, HSBC and ICBC. In addition, they are also in
competition with insurance, investment and other wealth management institutions.
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II. Organization Structure
As a whole, Wells Fargo has a matrix-type structure. The practices of the lower level
employees are a result of decisions made by many different departments. For example, a
mortgage officer will have to answer to their branch manager and to the mortgage division
manager.
At the corporate level, the structure is hierarchal. The board consists of multiple directors,
and a CEO. The CEO controls the second level of the organization including, the CFO, CIO, and
consumer lending. The head of consumer lending controls: consumer lending, collections and
home mortgages. An organizational chart showing the flow of the organization is in Appendix B.
III. Culture
Wells Fargo has a 160 year history. They pride themselves on being knowledgeable of
their products and their ability to provide customers with products that will enhance their life.
Wells Fargo urges each employee to cross sell products in order to deepen the financial
relationship with each of their customers. In this high-pressure sales environment, having the
right culture is critical to the company’s success.
Wells Fargo has a “customer-focused work culture at [that] encourages innovation and
rewards performance” (Wellsfargo.com). This is a typical mission oriented culture statement.
Organizations with mission cultures are characterized by a clear vision and purpose and focus on
goals. The employees are rewarded for achieving performance targets (Daft, p.383).
Mission cultures operate best when an environment is stable. The financial industry has a
turbulent environment. Reading the company reviews at glassdoor.com, some store managers
have adapted Clan-type subculture by incorporating casual dress days and potluck days. Clan
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cultures can adapt to changes in the external environment and are employee focused and try to
ensure the employees are “satisfied as well as productive” (Daft p.384).
IV. Challenges
Wells Fargo is faced with many challenges because of the turbulence in the financial
industry, the nature of their organization and the cultural inconsistency. As a publicly traded
company, they are under pressure to constantly increase their bottom line. This can lead to
myopic or short-tem thinking where managers make decisions with little regard for the long-run.
Currently, all of the goals except one are results driven, so they are more oriented for
effectiveness than for efficiency.
A second challenge is that the number of new mortgages has been in decline since the
housing market crashed. 52% of Wells Fargo’s income is from interest on loans; mortgages
make up a substantial portion of that. Wells Fargo is now faced with the challenge of how to reap
more profits from fewer loans. In the fall of 2013, they announced they would lay off about 5100
mortgage employees (AP Company). On February 26, 2014, they announced they would be
laying-off an additional 700 mortgage officers (NBCnews.com). Only time will tell whether or
not this downsize will have a positive impact on the company. By making these announcements
it shows that Wells Fargo is starting to think about efficiency as well as effectiveness.
Another challenge is that their persona is changing from a trusted financial institution to
one with ethical misgivings. Many of the reviews on glassdoor.com mentioned employees are
under intense sales pressure. A personal interview with a former employee affirmed the sales
pressure. This intense pressure to perform can lead to employees making ethically poor
decisions. A Los Angeles Times investigation found that employees are often faced with the
decision to cheat the system or be fired. The investigation found that employees opened
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unnecessary accounts, ordered credit cards without customer permission and had relatives open
ghost accounts.
V. Critical Evaluation
The one thing all three of these challenges have in common is profits. Because of
increased competition and unfavorable market conditions, Wells Fargo’s actions make it look
like it is struggling to maintain their profitability and market share. Compared to their major
competitors Wells Fargo is not pulling in the most revenue and is trailing JP Morgan by about
$15 Billion (as shown in figure 1 below). However, Wells Fargo is more effective at turning their
revenue into profits and created about $4 Billion in net profits more than JP Morgan. Therefore,
Wells Fargo is doing some things right in this turbulent environment.
Figure 1: Competitor Comparison
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VI. Recommendations
Wells Fargo can increase their profits and solve some of their challenges at the same
time. The following are recommended changes Wells Fargo should implement in order to raise
their performance to the optimal level.
First, before another round of layoffs, Wells Fargo needs to do some analysis on how
many employees they really need. This can be done by using quantitative analysis’s Waiting
Line and Queuing Theory modeling tools. To do this, they will need to collect data on the
average number of customers served throughout the day, week, or month. With these tools Wells
Fargo can assess how many of each type of service provider they need on hand. This will give
them a good idea of what their human resource need is. If they find they have too many
employees in some departments – such as mortgage officers, then they should try to cross train
those employees into other positions before laying them off.
Having the right number of employees is essential. First, the customer experience will
improve by having the right number of employees to serve the customer demand. Happy
customers will be returning customers and they will bring their friends. Second, having the right
number of employees will increase the chances of meeting sales targets. Employees are going to
be more apt to take their time with a customer and ensure the customer has all the products that
are best for them if the employee does not feel rushed. Also, a customer is more willing to take
the time to listen to a sales pitch if they have received quick service rather than waiting in a long
line. In addition, having the right number of employees will boost efficiency – because they are
not paying unnecessary employees and it also boost effectiveness, because employees’ time will
be better utilized.
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A second recommendation is for Wells Fargo’s management team to set more realistic
sales goals. A former employee on glass door reported, “Ridiculous employee turnover,
unrealistic pressure and goals. When reporting unethical activities, management turns their eye
away as LONG AS the branch meets its goal.” It does not help the company for employees to
push services customers will not use. Maintaining unused accounts and services is expensive for
banks.
Wells Fargo is using the sales goals to assess daily progress and for performance
evaluations. Employees are not eligible for raises or promotion unless they consistently meet the
sales goals. Wells Fargo should consider using a balanced score card approach instead to
measure employees performance. A balanced scorecard would give a more complete picture of
how the employee is performing on multiple levels.
The intense sales pressure of unrealistic goals does lead to high turnover like the
employee suggested. Studies of turnover have proven that it is more efficient to keep employees
satisfied than it is to be replacing dissatisfied ones. This is because “it costs upwards of twice an
employee’s salary to find and train a replacement” (WSJ). That is a lot of profit being thrown out
the door. By lowering the sales pressure, they will come out ahead by reducing turnover.
A third recommendation is for Wells Fargo to develop a better ethics program. Wells
Fargo has a good training program. They already teach their employees how they want them to
interact with the customers and how to perform their duties. By having an enhanced ethics
program Wells Fargo will be able to protect the image they have spent the last 160 years
creating. The new ethics program should include a whistle blower policy so that an employee can
notify regional management if they notice a colleague or manager not abiding to policies. A new
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ethics policy will help Wells Fargo increase profits because there will be less negative press
associated with the company and happier stockholders.
VII. Change Acceptance
Change is never easy. Even the best ideas will not be implemented without some
struggle. All of these recommendations fall into two categories of changes. They are either
strategy and structural changes or culture changes. Both categories involve changing employee
mindsets and changing the way they think about processes.
These changes should all be started at the top. By using transformational leadership styles
and allowing enough time to implement the changes, the changes can be successful. The first
step would be preparation… letting everyone know this is what is going to happen. The second
step would be acceptance… leaders help employees understand the changes. The third step
would be commitment which involves both installation and institutionalization.
At Wells Fargo, if they adapt these changes, they will find most of the barriers to change
happen during the implementation phase. This is because this is when the changes become
reality for employees and they know that corporate is serious about them and it is not just talk.
Also, employees that are working well within the current system are going to have a hard time
changing. Wells Fargo’s management is likely to see the following barriers: failure to perceive
benefits, lack of coordination and cooperation and fear of loss. The can mitigate these barriers by
keeping lines of communication open and by listening and responding to employee concerns.
To help the transition through the changes smoothly, there are many techniques Wells
Fargo can employ. First, they should select a coalition of leaders to guide the company through
the changes. Second, they need to adapt their vision to match the changes they are implementing.
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Third, the leaders need to plan ahead and develop plans to overcome the resistance. Finally, they
will need to communicate and train employees on all of the suggested changes.
VIII. Conclusions
Even though Wells Fargo has some challenges, they will work through them and they
will become a better company because of it. Wells Fargo has a good level of net profits now but
by following these recommendations, an optimal level of performance can be reached. As a
reminder, the recommendations were as follows. First, use quantitative analysis to meet their
efficiency goals and it can boost their effectiveness. Second, relax the sales pressure and evaluate
employees with another measure such as a balanced scorecard. Third, update the ethics program
to include a whistle blower clause. The future looks bright for Wells Fargo. They will continue to
guide the path for the other financial institutions around the world.
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References
2013 Q4 Review. Wells Fargo. Retrieved from
https://www08.wellsfargomedia.com/downloads/pdf/press/4q13pr.pdf
About Us. Wells Fargo. Retrieved from https://www.wellsfargo.com/about/
AP. (2013, 19 September). Wells Fargo to lay off 1,800 mortgage employees. Retrieved from
http://bigstory.ap.org/article/wells-fargo-lay-1800-mortgage-employees
Author Unknown. (February, 26 2014). Wells Fargo lays off 700, including 203 in MN.
KARE11.com. retrieved from http://www.nbcnews.com/id/54521277/ns/local_newsminneapolis_st_paul_mn/t/wells-fargo-lays-including-mn/
Daft, Richard L. (2010). Organization Theory and Design. 10th Edition. South-Western Cengage
Learning. Print.
Glassdoor.com. (2014, 2 March). Retrieved from http://www.glassdoor.com/Reviews/WellsFargo-Company-Reviews-E8876_P13.htm
Reckard, E. Scott. (2013, 21 December). Wells Fargo's pressure-cooker sales culture comes at a
cost. Los Angeles Times. Retrieved from http://www.latimes.com/business/la-fi-wellsfargo-sale-pressure-20131222,0,5474088.story#ixzz2vABhUaVh
Reuters. (2014, 14 February). Wells Fargo edges back into subprime as U.S. mortgage market
thaws. Retrieved from http://finance.yahoo.com/news/insight-wells-fargo-edges-back060759994.html;_ylt=AwrSyCS7HxVTzQQArLOTmYlQ
Unnamed Source. (2014, 28 February). Interview.
WFC Competitors (2014, 6 March). Yahoo Finance. retrieved from
http://finance.yahoo.com/q/co?s=WFC+Competitors
WSJ. (2014) How to Reduce Employee Turnover. The Wall Street Journal. Retrieved from
http://guides.wsj.com/management/recruiting-hiring-and-firing/how-to-reduce-employeeturnover/
Wells Fargo
Appendix A - Types of Income
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Wells Fargo
Appendix B – Organizational Chart of Wells Fargo
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