Citibank Case Write Up

Citibank Case Study

1. Please see Figure 1 for McGaran’s year‐end performance evaluation.

1. Below please find support for each of my individual ratings in McGaran’s year-end performance evaluation:

• Financial: I gave McGaran “above par” for revenue, expense, and margin as well as overall financial performance.  McGaran beat the 1996 goals for revenue expense and margin by $604,933, $88,460, and $693,393, respectively.  He had an exceptional year from a financial perspective.
• Strategy Implementation: I gave McGaran “above par” for overall strategy implementation.  While the 1996 goals for strategy implementation are not listed for comparison, according to Lisa, the branch enjoyed strong growth in business, professional, and retail and McGaran grew balances in all segments.  As such, given these facts as well as the fact that McGaran received “above par” for strategy implementation in 3 out of 4 quarters, I decided to give him an “above par”.
• Customer Satisfaction: I gave McGaran a “below par” for customer satisfaction.   According to policies for performance evaluation, a branch obtained a “par” rating if it scored 74 to 79.  In none of the four quarters did McGaran score 74 therefore according to these rules he deserves below par.  After reading the case, I am not sure that customer satisfaction, how it is measured and rated now, is a valid indicator of financial success and I believe that the company should reevaluate this measure.  I also realize that this rating may potentially have a negative impact on McGaran’s motivation and performance, as well as the motivation and performance of other managers for whom he serves as a reference point.  However, the measure may truly be important to financial success, ultimately and out of fairness to other managers as well as consistency from upper management, he deserves a “below par”.  
• Control: I gave McGaran an “above par” for both operating losses and fraud losses, as well as control overall.  McGaran received “above par” ratings every quarter for his 2 “5” audit ratings (exceptional scores given the size and complexity of the branch) and strong operational control.  While Lisa noted that the branch sustained substantial operating and fraud losses and that there is room for improvement in this area, I believe that because of his consistently strong operational control performance throughout the year in conjunction with the sheer volume of transactions resulting in inevitably large operating and fraud losses, he is deserving of an “above par”.
• People: I gave McGaran an “above par” in all areas.  He has received only “above par” ratings in this category over the past four quarters and his excellent management, team building skills, employee satisfaction, and devotion to continued development warrant an “above par” rating.
• Standards: I gave McGaran an “above par” in all areas.  He has received only “above par” ratings in this category over the past four quarters except for customer focus/interaction in quarter 3 and his excellent leadership, ethics, integrity, community involvement and contribution to the overall business justify this “above par” rating.
• Overall Evaluation: I gave McGaran a “par” for overall evaluation.  Per policies for performance evaluation, without “par” ratings in all components of the Scorecard, a manager cannot get an “above par” rating.  Therefore, out of fairness to other managers as well as consistency from upper management, he can only receive a “par”.  

1. Upon evaluation of this performance measurement system, there are a few strengths I would like to note.  I believe it is extremely valuable that upper management understands that that the goal of a performance measurement system goal of a performance measurement system is to assess and communicate progress and managerial performance towards strategic goals, and that it is important to reflect non-financial measures which are indicators of strategy implementation in performance evaluation.  Management believed customer satisfaction as critical to long term success and therefore created a system to assess and communicate progress towards this customer centric strategic goal.  Assuming customer service is critical to long term success, this measurement system help to motivate employees like James to improve this measure at all costs.  Given these strengths, however, there are commensurately more weaknesses and questions with this system that need to be addressed:

• Not Linking Measures to Strategy: Did management truly identify which performance areas – and which drivers – make the greatest contribution to the company’s financial outcomes through causal models?  Fits considered customer satisfaction a leading indicator of future financial performance and that if customer satisfaction deteriorated, it was only a matter of time before it showed in the financials.  But was customer service actually critical to the long term success of the franchise? Was this tested?  For example, James’s branch had generated the highest revenue and made the greatest margin contribution to the business of any branch in the system, and yet he had “below par” customer service.  How do you reconcile this customer satisfaction measure with demonstrated financial performance?  These measures, if invalid, could result in significant retention issues for the company.  As noted, James gave a lot of importance to his ratings and he felt very disappointed when, in two quarters of the year, his ratings had been only par when he thought that his efforts deserved an above par rating.  Additionally, standards included an assessment of a manager’s involvement in community groups, trade associations, and business ethics. Again, are these relevant to the financial success of the company?
• Not Validating the Links: Given the six areas identified as important to the financial success of the company, did the company go on to prove that actual improvements in nonfinancial performance measures affect future financial results? Or have they relied on preconceptions about what was important to customers, employees, suppliers, investors, or other stakeholders rather than verifying whether those assumptions had any basis in fact? Additionally, is the company measuring too many things, trying to fill every perceived gap in the measurement system?  As James said, it was difficult to manage such a diverse set of indictors.  Finally, what is the relative importance of the measures selected? Not being able to weigh these measures makes it hard to allocate resources according to their most beneficial uses or to create meaningful incentive plans.  For example, how should these qualities weigh into global rating for each of six components and overall rating for the branch manager? For example, should financial performance and ethics weigh the same?
• Not Setting the Right Performance Targets: Outstanding nonfinancial performance is not always beneficial and can often produce diminishing or even negative economic returns.  Therefore, Is 80% satisfaction too much?  Do customers who were 70% satisfied spend no more money than those who are 80% satisfied?  Getting to 80% might require considerable investment and incentivize bad behavior, with little or no payback.  As noted in the case, James made changes to his staff to improve his customer satisfaction score.  One person in the branch was now dedicated to greeting the customer when arriving at the office and helping with any problems that may arise.  Is this a cost effective decision?  It might not make sense to have customer satisfaction goals the same for all branches but instead vary them by customer base or some other measure.
• Measuring Incorrectly: Finally, even if the company as development a valid causal model and is tracking the right elements, are they measuring them correctly?  For example, as noted in the case, customer satisfaction scores were derived from questions that focused not just on branch service but also other Citibank services like 24 hours phone banking and ATM services.  Thus, it was possible that these centralized services were not providing adequate support to the sophisticated customers of James’s branch.  Thus, although this survey might have been inexpensive or easier to understand, such surveys lack validity and reliability and impair companies’ ability to discern superior performance or predict financial results.  Also, measures can lose validity and reliability when the methods for evaluating nonfinancial attributes are inconsistent across the company.  Ratings related to people and standards lacked an appropriate objective indicator and were determined subjectively by the branch manager’s boss, resulting in inconsistency and therefore potential fairness issues.

Figure 1: James McGaran’s Year-End Performance for 1996

[pic 1]