Swedbank developed its Tool of the Future in 1992 when the top management group assembled the bank through mergers and acquisitions amid a downturn in Sweden’s financial industry. As the team plotted strategy, they knew they needed measurements and management tools that would more systematically help manage the competitive scale of the enterprise while fostering the local relationships and practices of a decentralized network of branches. They started with the fundamental belief that the skills, motivation and satisfaction of their employees would be instrumental drivers of value for customers, which would in turn drive overall performance for the bank and especially profitability. First developing measures and then linking those through an economic model—human capital, market capital and profitability—became the Tool of the Future.
The process began with surveys in every branch and among all employees, measuring such things as leadership, “businessmanship,” competence, internal support, etc. In parallel, Swedbank surveyed its customers on various dimensions measuring satisfaction and value. Both sets of measures were then matched with profitability and other financial measures, such as growth, profit per customer, revenue versus cost ratios, etc. The process yielded insight-producing distributions among all branches based on correlations between human capital resources and market capital, shining light on the performance of individual branches as well as on groups of banks that served particular markets.
The analyses highlighted relative performance of different units and areas for possible intervention. The model is applied by a cross-functional team of HR, market analysts and business controllers working as internal consultants to support and coach business leaders about different ways to improve performance. The model is flexible and provides for “interesting discussions,” said Staffan Ivarsson, deputy director of HR and steward of the Tool of the Future database. He explained, “There are different ways to improve profitability and performance, depending on whether a business unit wants to work more on cost-effectiveness or revenue generation. Ideally one makes progress against both. The key is understanding the economics of the human capital and human interactions and how those can be changed for the better.”
Since 1992, local branches have continued to be surveyed and advised of findings annually. The executive leadership was briefed more frequently throughout the year. The power of this approach only improves with time. As Swedbank continues to build its database, its analyses and understanding of the dynamic interplay between human capital, customers and profitability only becomes more sophisticated and useful. Ivarsson said in discussing the bank’s current business, “We know, for example, that in the economic climate of today we need to have different skills and competencies in our branch managers than we did in more prosperous times. Thanks to Tool of the Future, we’re able to monitor needed changes and see the impact of our recruiting and skill-building more quickly. With this kind of model, the imperatives of—and progress against—your business strategy becomes ever more transparent.”
One example of the Tool’s success is its application to the case of a local bank within the Swedbank network. At the time, the bank ranked 117 out of 137 in terms of profitability. It was also ranked at the bottom of the list for customer satisfaction. Faced with this situation, the bank had two options: lower costs to improve profitability, or invest in employee competencies to enable its people to regain customers’ trust and market position. The bank took a long-term perspective and chose to increase employee competencies and to strive to become the most attractive financial workplace in the area. For the past five years, the bank worked hard to upgrade competencies through required training and to increase its involvement in the local community. Today, thanks to its investment in human capital (now No. 8 among all local banks in the network), the bank’s share of its market is 70 percent, and it is ranked number one in customer satisfaction and profitability.
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