That’s Amore’

Washington Mutual is the only financial services company in the U.S. to receive a patent for its branch designu00e2u20ac”something that would not occur to most banks, which still see bricks and mortar as an evil necessity. The design emphasizes a circular layout with a concierge desk and “teller towers” where customer service representatives wearing khakis and comfortable shirts can sit next to their customers. There’s even a play area for kids. In an industry known for cold and impersonal service, Seattle-based Washington Mutual, which is widely considered to have excellent retail banking skills, is trying to be different.

“The whole message is to say, ‘We’re not like those other guys,’” says Michael Amato, executive vice president of Washington Mutual’s consumer bank branch network.

Indeed, not. Visit a Washington Mutual branch for the first time and you might think you’d wandered into a trendy boutique by mistake. Most of its branches have the comfortable feel of an upscale retail store rather than the cold sterility of the post office. Of course, anyone can build a bunch of fancy branches. It’s what goes on inside that counts. Washington Mutual’s secret weapon in the retail banking war is something that can’t be patented: service quality. Its brand identity is “great value and friendly service,” and Amato says branch employees are expected to “live the brand.”

While community banks are generally considered to provide better service, a growing number of large institutions have adopted the strategy of making money by making nice. In a mature industry where the products are all alike, and where the marketplace is clogged with banks, thrifts, credit unions, brokers, and mutual fund companies of every size, service quality can be an important competitive advantage. Indeed, it may be the only meaningful way to set yourself apart from your competitors.

“Most of our industry’s products are commodities,” says William Goetz, executive vice president of corporate development at San Francisco-based Wells Fargo & Co. “Sales and service is what differentiates us. Our product is service.”

Although some banking companies believe this fervently, Goetz’s point of view is not widely held throughout the industry. James McCormick, president at New York-based First Manhattan Consulting Group, has found considerable skepticism among retail bankers at larger companies as to whether the benefits of improved customer service justify the added costs. And many of these same bankers believe that their company’s service is more than adequate based on the results of their mystery shopping programs. “A lot of large banks have been complacent about the [service] issue because they seem to rate well on customer service scores they get from [third-party] vendors,” he says.

But McCormick has a low opinion of most of these mystery shopping programs because large banks generally only compare themselves to other large institutions, when actually, their toughest competition comes from community banks. He also believes that scores tend to be misleading because most of the surveys don’t probe deeply enough into the customer’s true feelings. “Everybody gets higher scores than they deserve because there’s a natural proclivity [by respondents] to be nice to the bank,” McCormick says.

McCormick believes that service can be an important differentiator in retail banking, and to test this hypothesis, First Manhattan conducted its own mystery shopping survey this year at both large and small banks around the country. The firm opened more than 125 checking accounts and also looked closely at post-sale servicing issues. Overall it had some 700 person-to-person interactions. It divided service into two dimensions: “operational,” which was an assessment of how well the account-opening process went, and “relational,” which had to do with the manner in which customers were treated.

The findings were disturbing. According to an unpublished white paper on the experiment, the firm concluded that small banks provided “palpably better service”u00e2u20ac”no surprise there. But the First Manhattan shoppers were stunned at how poor the service actually was at some of the big banks. The firm estimates that the typical branch opens just one new customer relationship per day.

“Accordingly, one might think that branch personnel would treat opportunities to open an account as special events where a consumer or small business person is essentially offering an annuity with a very material net present value,” the paper states. “In fact, such treatment was the exception.” About 50% of the time, First Manhattan shoppers were not acknowledged when they walked into a branch and often had to wait three to four minutes to be helped. “By analogy, think about how you feel in a restaurant where no server wants to make eye contact,” the reports states.

Other cardinal sins included tellers who were poorly trained to sell even basic products like checking accounts, and an average waiting time of 20 minutes to see a customer service representative (CSR). In one instance, a woman who was waiting to see a CSR fell asleep in her chair. “You can’t make this stuff up,” says McCormick. The firm also made over 200 calls to open new accounts at call centers, with similar results. Approximately half the calls to open a small business relationship were placed on hold for more than 15 minutes. One mystery shopper was even transferred to a fax machine.

Interestingly, McCormick argues that operational efficiency is less important than how people are treated when they visit a branch. Are staff members friendly? Are they warm and responsive? “If the relationship is lousy, it doesn’t matter whether operational is excellentu00e2u20ac”it still will be a poor [customer] experience,” he says.

McCormick also believes that an important metric in the retail world, same-store-sales growth or SSSG, can help bankers understand how well their branch networks are performing. In conjunction with First Manhattan’s mystery shopping experiment, he put together an SSSG index for the banks tested by the firm’s shoppers by comparing the year-over-year sales figures for mature branches at least six years old. McCormick found tremendous variation in the SSSG scores of many of the banks, with the leaders growing up to 18% a year, while those at the bottom of the scale were actually shrinking by as much as 9% annually. Not surprisingly, he also found a high correlation between mystery shopping scores and same-store-sales growth. In other words, banks with high growth rates “do that by being materially better at service,” McCormick concludes.

Unfortunately, a service strategy can’t be adopted as a quick fix to a bank’s lackluster performance. How any company treats its customers is a direct reflection of its internal value system, and that can’t be changed overnight. Some of the country’s best retail banks have been emphasizing service quality for so long that it has become deeply ingrained in their cultures.

“You can’t not have a culture,” says Amato at Washington Mutual. “The question is, is it the one you want?” Amato believes that any company’s culture is reflected in its employees, and, inevitably, this drives how they treat customers. A strong service culture is not dependent on marketing strategies, product offerings, or distribution models, all of which may change as circumstances dictate. “Culture is not what you do, it’s how you do it,” says Amato.

A company’s culture also might be described as a belief system that its employees have internalized and act upon. “Belief yields behavior which yields results,” says Steven Whitley, senior vice president for sales support management at BB&T Corp., a Winston-Salem, North Carolina-based banking company that operates a 1,400 branch network in 11 southeastern states and the District of Columbia. “If we truly believe in what we’re doing, then the client will buy into our values.”

Of course, the what and the how can’t be completely separated, either. A strong service culture may be a vital corporate asset, but it still needs to be used effectively. “We think that culture is very important, but used by itself, it has limited meaning,” says Vernon Hill, chairman and chief executive officer at Cherry Hill, New Jersey-based Commerce Bancorp. “We think the differentiating factor in banking is how you deliver service.”

With $25 billion in assets, Commerce runs a network of nearly 300 branches in New Jersey, Pennsylvania, Delaware, and New York. Hill believes banks need to have a different model from their competitors, and the customer needs to see it that way. For Commerce, that basic model is convenience. Hill has branded it “America’s Most Convenient Bank” and backs that statement up with seven-day branch banking. “Giving the customer a great retail experience at the point of contact is what our model is all about,” he says. Hill wants friendliness to be part of the company’s culture. “Do they smile at you when they walk through the door?” he says. “And then you build your [business] model around that culture.”

Customer service can be looked at on two separate planes. One is how the CSR or teller interacts with you during the transaction, and then there’s the atmosphere of the branch itself. “Is this a place that you want to go?” asks Hill. “Is it fun? Are they happy?” Whitley tries to put himself in the customer’s position and think about the branch experience from that perspective. “If [tellers] aren’t friendly, if they’re not smiling, I wouldn’t want to do business with them,” he says. And it’s more than likely that banks with low employee morale will have a difficult time excelling at customer service because their employees’ hearts simply won’t be in it.

But good service also means giving customers what they need, and that process is undermined when a bank aggressively tries to sell them products that aren’t appropriate. “Oftentimes, a strong sales culture gets in the way of a strong service culture,” says McCormick. “If your service culture is primary, [the] sales [effort] has a chance to do well,” says Raymond P. Davis, chairman and CEO of $3.1 billion Umpqua Holdings Corp. in Portland, Oregon, parent company of Umpqua Bank, which operates 91 branches in Washington, Oregon, and Northern California. “If your sales culture is primary, you’re service culture is in trouble.”

It’s not necessary to choose between sales and service, but a bank’s overall sales effort must fit comfortably within a culture that emphasizes doing what’s right for the customer. And this has led some banks to embrace a needs-based marketing approach where they attempt to sell only those products that actually fit the customer’s needs. Amato says the objective at Washington Mutual is to help its customers “save or make money” by becoming their “advocate” or “champion” on banking-related matters. “I think we have the best sales culture of any retail bank in the country,” he says. “But we have to earn the right to make that [additional] sale. Does cross sell come from loyalty, or does loyalty come from cross sell?”

For the most part, banks that have designed their retail strategies around customer service would say the former. “We work really hard on knowing that we give the customer good advice and offer products that fit their needs,” says Goetz at Wells Fargo. “When you don’t sell the right product to the customer, your retention rate goes down. But when you do sell the right products, your retention rate goes up. And they talk about you to their friends, which is the best form of advertising that you can have.”

At BB&T, the emphasis is on creating value for the retail customer. “If we do that, the customer owes us something, and they’ll pay for that,” says Whitley. The bank tries to create “consultative value” by providing the customer with a specific product or service that other banks don’t have, and also “transactional value” by handling every customer interaction in the most efficient way possible. “Service has to come [before sales],” says Whitley. “Even on the commercial side, it’s the same way.”

Some bankers argue that it’s wrong to view sales and service as separate processes. “I don’t think you can distinguish between them,” says John Elmore, executive vice president of community banking at $189 billion U.S. Bancorp in Minneapolis, which has 2,243 branches in 24 states throughout the Midwest and western regions of the country. Like Wells and BB&T, U.S. Bancorp tries to understand the customer’s needs and only pitch those products that make sense for that individual. “I would argue that we’re in the service business,” says Elmore. “When we sell something, we’re selling into a relationship that we want to have for a long time.”

Strong service cultures are not a naturally occurring phenomenon but result from astute hiring practices that target people who will be comfortable and effective working in a service environment. These employees are trained in the specific requirements of their jobsu00e2u20ac”which every bank doesu00e2u20ac”but also indoctrinated in the cultural expectations of the organization. And these expectations are continually reinforced throughout the organization, long after the employee has been hired.

Umpqua is a good example of how a company can remake its culture to emphasize service and make that part of its core strategy. The bank was founded in 1953 when it opened a single branch in Canyonville, Oregon, and it continued to expand through the 1990s while maintaining the personality of a thoroughly conventional bank, which is to say one that wasn’t particularly focused on service quality. But in 1996, Davis, who joined the company in 1994, switched to a completely different strategy. He changed the design of Umpqua’s branches, which are called stores and exceed even Washington Mutual’s in their informality. He also set out to improve the bank’s service quality, and began to emphasize this in its employee training programs.

Davis has continued to refine Umpqua’s retail strategy since then by introducing a new generation of Umpqua stores. Each branch brews the bank’s own brand of gourmet coffee and provides Internet access so that anyone can stroll in and check their email. If most of Washington Mutual’s branches feel like a high-end clothing store, Umpqua’s creates the environment of a coffee shop. And in 2003 Davis began to contract with the Ritz-Carlton Hotel Co. to train all the bank’s employees through its Leadership Center. Ritz-Carlton is a two-time winner of the Malcolm Baldrige National Quality Award, and the Leadership Center has been teaching other companies’ executives, as well as its own, about service quality since 1999.

“It is an incredible experience,” says Davis. “It sets us apart from everyone else. Banks can learn more from other industries than they can from each other.”

Umpqua also has created a training center called the “World’s Greatest Bank University” run by Sandy Hunt, whose title is vice president for culture. Hunt, who has been with the company for 17 years and has a background in human resources, is responsible for training new employees while keeping experienced employees focused on the importance of service quality. “[The university] really is the hub or center of our culture,” she says. New Umpqua employees who will work in the branches are taught to make customers’ interaction with Umpqua “a memorable and unique experience,” she says. Branch personnel are taughtu00e2u20ac”or “empowered,” to use Hunt’s wordu00e2u20ac”to make decisions in the best interest of the customer. “It’s just good customer service, but we try to take it to another level,” she says. “Our expectations are high and if you want to work for us, you have to be good. Because that’s what we tell our customersu00e2u20ac”that we’re the best.”

All banks with a strong service track record devote considerable resources to training their employees, and this training always includes a component that is in some way devoted to cultural expectations. Commerce created its own training center, called Commerce University, several years ago because Hill knew he was creating a unique banking culture. “We wouldn’t be successful without it,” he says. “You can’t win with a service mentality unless you train and overtrain your people.”

Banks that are good at service also make sure they hire people who are willing to practice what’s been preached to them. For example, Wells Fargo gives all teller applicants a basic aptitude test, followed by a group interview with people working in the bank’s branches. The purpose is to get to know them as a person and determine whether they can embrace the company’s service culture. “In hiring, we don’t care how much a person knows until we find out how much they care,” says Goetz.

Service cultures also need to be sustained through consistent reinforcement or, as BB&T’s Whitley says, “people will retreat to their comfort zone the moment the pressure is off.” Banks use a variety of techniques to keep the importance of delivering excellent customer service squarely in front of employees, and these things serve to sustain the culture as well. For several years, U.S. Bancorp has promoted its Five Star Service Guarantee, which promises, among other things, that a personal banker will be available 24 hours a day, seven days a week, and that customers will not wait more than five minutes in any teller line. If it breaks any of these promises, the bank will credit $5 to the customer’s account. “This is a way of empowering our employees to make sure that we’re delivering service to the customer,” says Elmore.

Wells Fargo maintains an employee recognition program called “Caught in the Act” that highlights instances where employees are observed providing a level of customer service that goes well beyond what’s expected. Employees are nominated for the award by their colleagues. Umpqua has a similar recognition program, handing out a “Rising Star” award monthly to an employee who has distinguished themselves by providing superior service. The bank also holds “culture coffees,” where members of Hunt’s team meet informally with branch personnel to answer questions about service quality problems. And Hunt sets three focus group meetings a month, where eight to 10 randomly selected employees come together to talk about service issues.

But when it comes to employee recognition, Commerce is probably in a class by itself. The bank sustains its culture in part through its “WOW! The Customer” program, where it recognizes and rewards superior customer service on an ongoing basis. The bank holds an annual WOW! Awards ceremony, which it describes as a combination of the Academy Awards and a political convention, to celebrate the customer service accomplishments of some of its employees. It also publishes an expensive threefold pamphlet every quarter, called “WOW! Super Stars,” that gives recognition to employees throughout the company.

Commerce’s March 2004 issue told the story of Wayne McMullen, a customer service representative at a Commerce branch at 14th Street and 5th Avenue in Manhattan. Each Commerce branch has a coin counting machine in its lobby, which is available for anyone to use. One day a customer of another bank came in to use the machine, only to find that it was out of service. McMullen helped the man carry his heavy coin bags outside, hailed him a cab, and gave him directions to the nearest Commerce branch. McCullen even gave the man $5 for cab fare. The man was so impressed with this service that he opened several new accounts at the branch.

Wow! Who wouldn’t be inspired by that?