Waste at Wells Fargo

Waste at Wells Fargo
Introduction:
Headquartered in San Francisco, Wells Fargo, a diversified financial services company, is one of the few American companies that are still operating under its founding name as well as in its original business for longer than 150 years. It has always strived to help its customer achieve financial success by provides banking, insurance, and mortgage finance, just to name a few. In addition, it has always contributed to communities across the North America and internationally.
We intend to demonstrate how Wells Fargo is promoting waste with its current policies and have mapped out a plan to get them back on track and more profitable.
History:
The company's history goes back to 1852, when Henry Wells and William Fargo created Wells, Fargo & Company in New York City during the West’s gold rush. They provided banking and express services to Golf Rush pioneers. Banking services included buying gold, and selling paper bank drafts. Express services, on the other hand, consisted of the rapid delivery of gold, mail and valuables from1852 to 1918. Wells Fargo used back then stagecoaches, steamships, the Pony Express, and railroads to deliver customers’ business. In 1860s, the firm earned a reputation for trustworthiness by dealing rapidly and responsibly with customers’ money. It earned everlasting fame with the overland stagecoach line by meeting the demand for rapid delivery, from the coast to the mountains; Stagecoaches rolled over 3,000 miles of territory night and day at a pace from 5 to 12 miles an hour. Since then, Wells Fargo has been linked with the six-horse Concord Coach rolling across the vast plains, high mountains, and scorching deserts of the West. In fact, a stagecoach with “Wells Fargo” name of it is the company’s corporate symbol. In 1905, Wells Fargo provided horses and wagons to evacuate residents and deliver supplies in San Francisco after the 1906 Earthquake and Fire. In1918, the federal government took over the nation’s express business in the First World War, and Wells Fargo was left with one bank in San Francisco. Wells Fargo became in 1995 the first major U.S. Bank to offer secure payments on the Internet. In the 21st Century, Wells Fargo extends worldwide with diversified financial services. In 2009, Wells Fargo merged with Wachovia, a commercial banking giant, making the firm the fourth largest U.S. bank, in terms of assets, with exciting growth opportunities ("Wells Fargo & Company").
Overview:
Once associated with cash-transporting stage coaches, Wells Fargo today offers free mobile banking, which allows customers to use their mobile phone or device access their accounts whenever and wherever they want by web browser, text, or smart phone applications. It is one of the nation's largest banks, the top small-business lender, the largest bank-owned broker, the top retail mortgage lender, and an industry leader in supporting homeowners and consumers. As of Dec. 31, 2011, it ranked fourth in assets ($1.3 trillion) and first in market value among its U.S. competitors. Moreover, it was ranked No. 23 on Fortune’s 2011 rankings of America’s largest corporations. Led by CEO John Stumpf, the firm has more than 270,000 team members, over 9,000 branches, and more than 12,211 ATMs worldwide. It also has the Internet (wellsfargo.com), and other distribution channels around the world. ("Wells Fargo Today"). The main business lines of Wells Fargo are retail, commercial, and corporate banking services. However, it has over 80 lines of business including wholesale banking, securities brokerage and investment banking, home and consumer finance, mortgage banking, leasing, and agricultural finance ("Wells Fargo & Company"). Furthermore, Wells Fargo prides itself on diversity, exceptional customer service, and community service. Wells Fargo has always been recognized for its efforts to be a diversity leader. In fact, Wells Fargo was the first U.S. financial institution to accept the Matricula card, an identification form for Mexican nationals to open bank accounts in order to shrink risks associated with a cash economy. Regardless of how large the company gets and how much territory it covers, people at Wells Fargo are always motivated to be passionate about their values and to share them with others. Therefore, the company’s believes everyone works for it is significant and deserves respect because they contribute to the success of Wells Fargo. Also, the firm considers its team members a vital part of what makes it one of America’s great firms. At Wells Fargo, the Enterprise Diversity Council, a cross-section of team members, make suggestions to the executive management team to ensure that the company is making measurable progress in: * Diversity education. * Hiring diverse team members. * Building a senior management team from people of all diverse groups.
The company achieves competitive advantage through diversity in order to be a better workplace, meet its diverse customers’ needs, provide an outstanding customer service, and increase its intrinsic value (Stumpf). Wells Fargo has been a pioneer in delivering banking convenience to its customers, as in the stagecoach days. According to a Wells Fargo news release, it serves one in three households in the United States, nearly 50 million households throughout the nation. In addition, it has 24/7 customer services (Hirsi). The vision of Wells Fargo is about satisfying the financial needs of its customers and moves them toward financial success. One strategy to achieve its vision is decentralizing its daily business operations. The company’s mangers attempt to solve every problem, seize every opportunity, and make every decision consistent with the company’s vision. They totally believe the vision of the company will guide them toward more sustainable revenue growth not just in this year but in future. To meet customers’ needs, the firm also implemented some innovative solutions including drive-up tellers, ATMs, online banking, telephone banking, express lines, and credit cards. Today, the company's website allows customers to sign in and view their accounts. It also urges customers to open new accounts. To apply for a new account, customers need to specify their state because account details differ sometimes across the nation. Checking and savings accounts are explicitly designed to appeal to a broader range of the customers and different sets of financial needs. For example, a basic checking account can be opened with a $100 deposit, but customers have to pay a $5 monthly service charge on balances less than $1,500 if they do not use direct deposit. A college checking account waives a $3 monthly fee if any other conditions are met: * The account is linked to a campus ATM or debit card. * A customer maintains a $500 balance. * A customer uses direct deposit.
Wells Fargo's savings account options also require a certain balance to avoid a monthly service fee. High Yield Savings, for example, pays a higher interest rate than other saving accounts, but it requires a $25,000 balance to avoid the $25 service fee. In 1989, the bank was one of the first to offer its customers Internet banking. The bank has today more than 17 million online customers. Online services include, but are not limited to, the following: * A free money management tool, which help customers track their spending expenses. * A free tool that helps customers to meet savings goals. * A credit resource, which helps customers manage credit and reduce debt. * A bill-paying service, which allow customers to pay their bills online in minutes. This service is much easier and quicker than using paper checks for this purpose (ONeil). Wells Fargo serves not only its customers, but also its community to better meet customers' financial needs and expectations, and be one of the best U.S. companies. Community reinvestment is actually an essential aspect of its culture. It has long believed that it can be no more successful and strong than the communities where it operates its business. It provides lending, investments, and services to create long-term economic growth through community development, financial education, cash donations, affordable housing, home repairs, environmental investments, and team member volunteer hours. In addition, it provides educational resources and tools to assist people in achieving their financial goals. In year 2010, the company invested $219 million in 19,000 nonprofits around the world. With this gigantic donation, Wells Fargo had surpassed $200 million in its contributions for the third consecutive year. Its success comes from the logic that local people make the best local decisions because they know the needs of their communities ("Where We Give").
Wells Fargo has focused extensive efforts on increasing the number of products it sells per customer. Cross-selling products have been at the forefront of Wells Fargo’s success because the more products customers have with the bank, the less likely they will transfer their businesses to a competitor. As a result, it offers a variety of products including checking and savings products, credit options, Credit/Debit/ATM cards, mortgage, insurance, renters insurance, retirement accounts, teen accounts, child/baby savings, ID theft, and much more. With implementing this business model, Wells Fargo has increased over the past 10 years the average number of products for retail customers to almost 6 per customer, and for business customers to approximately 8 products per customer (Murray).
Wells Fargo Update:
Recent news on Wells Fargo has not been all positive. In July 2010, Wells Fargo announced its decision to close 638 financial stores worldwide after adding 6,600 new locations in its 2008 merger with Wachovia. California federal judge ordered the bank to pay $203 million in overdraft fees back to customers because the company calculated the fees to achieve the highest dollar amount rather than in the order of the transactions. After Wells Fargo announced their fees in September 2011, some of Wells Fargo clients closed their accounts (ONeil). Wells Fargo announced another charge of $7 a month for checking accounts in six more states, which include Connecticut, Georgia, New Jersey, Delaware, New York and Pennsylvania. It seems that banking giant wants to stop offering free checking accounts to new customers as well as to exciting customers. Customers can waive the fee, however, if they maintain a minimum daily balance of $1,500 or if they make direct deposits of $500 or more monthly. A choice to receive online statements will help customers receive a $2 discount on the fee (Ellis).
The Problem:
In order to determine exactly where Wells Fargo is going wrong we had to sit down and determine the value stream that was providing leverage to Wells Fargo in order to gain market share and new customers. We already had a pretty good idea that the culprit was the Solution Quota Reward System. Therefore we sat down as a group and tried to map all of the various aspects of the system and how it worked well and its drawbacks. With this information we developed the following system operation flowchart.
After we concluded its aspect of the value mapping we wanted to determine the scope of the effect that the Solution Quota Reward Program is having. This topic is a sensitive subject within this organization so it was not an easy task to complete this primitive first hand research. Utilizing the personal relationships which Brandon has made within the organization we were able to administer a simple yet effective survey/questionnaire to present Wells Fargo tellers which are working at three separate locations. We agreed not to disclose any names or Branch locations in our findings due to the fact that the participants felt that if their participation in this questionnaire was reported to their supervisors that they would face reprisals and possible termination. The surveys consisted of a small piece of paper with two questions: 1. Using your best estimate, of the required 280 solutions your processed last month, how many were completed using questionable ethical practices and will likely close or default? 2. Using your best estimate how many dissatisfied customers have you dealt with in the past month who closed their accounts due to issues resulting from a poor customer service experience? Questionnaire Results | Branch | Q1 | Q2 | B1 | 30 | 15 | B1 | 42 | 12 | B1 | 27 | 10 | B1 | 31 | 17 | B1 | 37 | 12 | B1 | 24 | 10 | B1 | 16 | 10 | B1 | 22 | 12 | B1 | 38 | 12 | B2 | 44 | 11 | B2 | 31 | 18 | B2 | 35 | 6 | B2 | 22 | 15 | B2 | 40 | 11 | B2 | 38 | 11 | B3 | 26 | 12 | B3 | 17 | 14 | B3 | 6 | 8 | B3 | 58 | 12 | B3 | 12 | 14 | B3 | 31 | 12 | B3 | 31 | 9 |
The responses which we received, as well as those we did not receive, told a story that we were expecting. The majority of the sample did in fact us unethical tactics, which were supported by their superiors; also each who responded did encounter individuals who left Wells Fargo solely due to a lack of customer service received. We only received 22 responses to the 30 questionnaires issued, however we feel that this small sample is representative of what is on a much larger scale.
Ex. 1 One example of this fact is the Federal lawsuit which is addressed in the update section of the presentation. In August of 2011 a suit was filed in the United States District Court in San Francisco. The suit alleges: Wells Fargo aggressive and ambitious marketing goals encourages employees to open fraudulent accounts, falsify bank records, and dupe elderly customers into buying financial products they don’t need "Daily Solution reward system," which sets quotas for how much "bank activity" each banker must generate each day, created an ethically challenged atmosphere at the bank's St. Helena branch, allowing the manager to harass and discriminate against those who complained. Activities encouraged included: opening checking, savings, money market, or credit card accounts for customers without their knowledge or consent; providing false information on applications for banking products; unlawfully opening accounts over the phone; soliciting elderly or otherwise vulnerable customers to open accounts or take out additional equity lines of credit despite the customers' lack of understanding; opening accounts for customers who lacked the language or cognitive capacity to understand the effects; falsifying bank records in order to open bank accounts and generate bones-driven bank activity; making false promises to customers, such as that accounts are 'free' to entice them to buy and obtain more financial and banking products. Consequently, the Daily Solution reward system fosters employees and managers at Wells Fargo to artificially increase bank activity and sell financial products to customers regardless of the need of those and products and in breach of ethical and statutory duties owed by Wells Fargo to its customers (hull).
Going Lean: After establishing that our customers derive the value of their relationship with Wells Fargo from the level of customer service they receive we can now work through the tenents of lean process improvement. The first step is to identify value. In this case we have already determined that the value stream to our customer the level of customer service that is provided by Wells Fargo. We feel that if Wells Fargo would concentrate more on what creates value to their customer, than how they can take more money from them they would be much better off. We will address this situation later in relation to the push/pull focus. The second aspect of lean production deals with taking an overview of our value mapping and finding the Gemba. This refers to the opportunity for improvement within the value stream. The determination we have made is that Wells Fargo has a great opportunity for improvement in the area of the Solution Quota Reward System. We feel that this system promotes waste and questionable ethical tactics. We would propose that the system must be either entirely removed or at least reduced in relation to foot traffic estimates for each branch. It is unrealistic to assume that the Wells Fargo Branch in Arvin, which has significantly lower foot traffic than downtown LA, is able to sustain the same level of business and therefore should be held to produce on the same quota system. The third tenet of lean production which we addressed is the level of waste in this system. When looking at the requirement for the quota system, as addressed before the pressure involved meeting the quota system creates the opportunity for fraudulent and risky accounts to be created. Some examples will be presented where elderly, mentally ill, homeless, and disabled are utilized to boost sales and meet the established quota. If we look at our value stream we see that the most of the poor quality solutions sold in the quota system will result in defaults and ultimately be taken as a cost as a charge-off. We propose that this ultimate charge-off is the Muda or waste. In order to alleviate the cost of this waste Wells Fargo should focus on achieving a lower number of higher quality solutions. We feel that a lower number of higher generating accounts would result in a higher revenue stream as well as a lower charge off number. The fourth aspect of lean production is to move from the push system to a pull system. It is an easy assumption that the quota system is a push system. It is a very aggressive strategy which attempts to get as many accounts as possible. It pushes the employees by providing a monetary reward if you meet or are above quota, and are subject to discipline if you do not meet quota. In order to move towards a pull system Wells Fargo needs to focus on streamlining its marketing practices as well as improve the service it is providing. There is currently a sentiment that Wells Fargo is a horrible bank to do business with and this is partly due to the loss of customer service which results from the quota system. The tellers are more interested in sales than service, so current customers get fed up with the service they receive and leave. Marketing needs to rebrand and retool in order to generate interest in Wells Fargo. The last tenent to be addressed is achieving perfection. We accomplish this by working through the 5 S’s of lean it is important to realize that this is a service and not a manufacturing production system therefore some aspects need to be retooled a little bit they still are applicable. * Seiri—sort: determine the correct level of quota to be met for each location. This determination can be accomplished by looking at transaction and foot traffic data. Determine the level of business and set quota from there. Also this may mean completely doing away with the system all together. * Seiton—straighten: ensure employees are not unduly pressured therefore they can focus on the customer service and providing value to their customer. * Seiso—shine: ensure that all the tellers are well trained, experienced and prepared to quickly handle any situation smoothly. * Seiketsu—standardize: standard operating procedures should be established so that variability in service to customers does not exist * Shitsuke—sustain: happy employees = high level of service!!
When beginning the analysis to determine where the waste at Wells Fargo was, we decided to investigate what occurs at the retail branch level, and how the waste is created. This was simple, because since one of us has worked there, we were able to compile inside information on what really occurs in the organization. After analyzing daily activities of ethics breaches, and other areas of waste, we determined the biggest cause of waste was unreasonable sales quotas, or sales “goals”, as Wells Fargo calls them.
The sales quotas set are as follows: * Tellers are expected to meet the goal of 280 solutions per quarter to avoid being counseled or scolded. * If a teller does not at least meet 150 solutions, they can be fired. * If there is a consistent “bare minimum” of 150 solutions met, the team member will be counseled, and possible termination of employment may result. * Bankers are expected to obtain two DDA’s (or accounts that include a: checking and savings account, a debit or ATM card, online banking, paperless statements, and other various products), and 15 solutions (that can include a credit card (which counts as one), a checking account (which also counts as one), etc. per day. * If a banker fails to meet these daily goals consistently, they will be held in after hours to cold call prospective customers, or ask friends and family to agree to open accounts. * If the after-hours calling does not improve sales, the team member may face termination.
The sales quotas set are exceedingly difficult to meet for various reasons. These reasons can include: * Some retail branches being in a slow traffic area, making sales extremely difficult. * Areas that are more impoverished may result in a possible customer being declined for bank products. * When the same customers visit the branch, sales become more and more difficult, as they may have all the products they want. * These customers also tend to feel harassed by constantly being offered the same products every time they visit the branch.
We decided to make various suggestions to improve numerous aspects of the bank, such as: increasing morale, reducing waste, reducing employee turnover, and cutting costs by reducing training of new employees and the reduced productivity a new employee performs at for the first few months of his or her employment, and finally the reduced chance the new employee makes a costly mistake, such as giving a customer too much cash or angering a high-value customer into closing their accounts due to the slowness a new employee typically exhibits.
Such suggestions include: * Setting more realistic sales goals * This will reduce employee stress, and allow them to devote more time into setting customers up with banking products who actually want them, and who will financially benefit the bank. * Adjusting the sale quotas based on foot traffic * If a branch has a substantially lower traffic base, the sales quotas should be reduced further to make up for the lack of potential clients. * This can even go both ways, increasing quotas for branches that have high traffic, and are in affluent areas. * Investigate how unprofitable the accounts that team members force on customers (including friends and family) are. * When an employee is forced to open more accounts, they will try to talk anyone into opening one. * This will lead to closures of accounts because the customer did not want the account or bank service to begin with. * Many of these types of accounts become over drafted and delinquent.
These suggestions are a part of lean thinking, and allow the company to spend more time and energy on opening bank products for customers who want, will use, and will not abuse. The reduced sales pressure will allow employees to support this goal. If these suggestions are not taken into consideration, the same types of waste will never end and the unethical behavior (which will be discussed below), will continue to plague the bank.
When an employee becomes desperate, they will resort to various forms of unethical activity to reach the sales goals for the branch, so they avoid harassment and punishment from upper management. Such forms of unethical activity include the following: * Lying to customers * This can involve a teller lying to a non-customer various ways to sign up for an account. This can include: * Saying the secondary form of ID to cash a check is invalid, even though it is acceptable, to get them to open an account so we cash their check. * Telling the non-customer we cannot cash the specific type of check without them having an account, even though we can without a problem. * Telling the customer there will be a fee to cash the check, even though it is free of charge. * Manipulating current and non-customers to sign up for bank products and services. * This can include flirting with the customer * Asking customer on a date * Telling customer they are foolish, and need the bank product to protect themselves, etc. * Taking advantage of the elderly and mentally ill through coercion and manipulation * This can include telling an elderly person they have to open an account before they leave the bank. * Demanding that an elderly person or mentally ill individual sign an application for an account, even though they may not know what is really happening. * Telling a mentally ill person they must have this account to cash a check, and refuse to give the check pack until they open an account. * Abusing language barriers * If a banker or teller encounters an individual who does not speak English well, he or she may: * Point to the application signature line and say, “sign here” while nodding their head. * Verbally say, “Okay, I’ll open the credit card for you” while nodding and smiling. * Closing and re-opening accounts for customers * If a customer has an overdrawn account, a banker or teller may suggest opening a new account, even though this hurts their credit score. * A customer who lost their debit card may be manipulated into opening a new account so they “protect themselves”, even though the debit card number does not compromise the account security after it is reported lost.
Conclusion:
When taking the cause and effect system into consideration, all the mess that is caused by the sales quotas results in: unethical behavior, crippled employee morale, high turnover, waste of resources. The accounts that are forced on others can become overdrawn or become delinquent. This is a direct cause of the unreasonable sale quota system. By taking the suggestions above into consideration, a new, lean, and more effective system can take place and end up saving Wells Fargo millions or even possibly billions per quarter. The Solution Quota Reward System is hindering the profitability of Wells Fargo; the sooner they open their eyes, the better.

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