New rivalry has US financial firms driving to prod productivity
Zip. Nothing. Nada. No matter how it's worded, zero improvement never sounds very good. This has been the case for the financial services industry, which unlike every other business sector in the economy, has shown no general improvement in productivty since 1979. Even before this time, the industry's performance was only fair, says Carl Thor, a vice-president of the American Productivity Center in Houston.
Until now, there has been little motivation to look at such cost-improvement measures. Banking, for instance, ''was a regulated industry, and profit margins were protected by law. It was a fairly profitable industry,'' says Daniel Wichlan, director of management services at Bank of America in San Francisco.
''Now that deregulation has occurred, and a lot more competition with it, productivity has become a hotter issue. We need to offset shrinking margins. This is one way,'' Mr. Wichlan says.
According to the American Productivity Center, average annual productivity growth for the business economy as a whole was 1.1 percent from the end of 1979 through 1983. For the manufacturing sector, that growth was 2.4 percent, and for the service sector as a whole, improvement measured 0.7 percent.
Only the finance-oriented companies, which include banks, insurance companies , real estate and securities brokerages, showed no improvement. Yes, revenues have grown, says Mr. Thor, ''but labor and other inputs have grown too, so no net progress shows.''
Thor's data are general. They do not single out any line of business in this sector as the source of the problem. They also cannot point to any particular function (claims processing or check clearing or some other area) as a trouble spot.
The securities industry, according to Perrin Long, an analyst with Lipper Analytical Services, is one business in this sector that can't really help itself. A rash of layoffs this year and some corporate reorganization in the brokerage houses have been ''reactions'' to bear-market conditions and are probably not going to yield real productivity improvements, says Mr. Long. He believes it's next to impossible to make real changes, because much of the automation has already been done and the rest of the business is subject to the whim of financial markets.
Thor's data have another drawback. White-collar productivity is no easy thing to measure, and because of this, a few managers who helped with this story weren't sure the data held significance.
Mr. Thor, however, says his research has led him to believe that the problem is indeed real and that while deregulation is an incentive to improve productivity, it has also become a reason for the stall. Brokers, bankers, and insurers have hired consultants, beefed up marketing, and added departments or merged with other companies to deal with the new environment. ''When a (business) is thrown off its normal course by something special happening, it diverts attention from the mainstream business,'' Thor says.
He also points out that the industry had problems long before this. In general, he attributes this to ''management inattention.'' For too long, he says , the focus has been on the revenue-earning side of business and not on internal operations. Agreed, says Robert Worden. That's why Sentry Insurance, in Stevens Point, Wis., turned to managers to break up its productivity stalemate, the corporate productivity director explains. The core of Sentry's program, which began in January 1981, is to have managers ''make the day happen rather than let it happen,'' Worden says.
Sentry started by measuring how much work comes in to a claims processing office and how much goes out. It then asked its managers to plan for this work and make assignments. ''By the fourth day after we started the program, we had virtually run out of work in the office,'' says Worden. Now Sentry gets six hours of concentrated work for every eight hours on the job, compared with four hours in 1980. It has also been able to eliminate 300 to 400 jobs through attrition.
Bank of America relies heavily on managers to improve productivity. For instance, its managers attend the bank's in-house university to learn about timely issues - productivity just recently. They also attend seminars devoted to being more productive. The managers have to take one idea from there and try to make it work in their departments. Last year 400 managers went through the program, which has had a 90 percent success rate with ideas that save Bank of America $6 million a year, Mr. Wichlan says.
In banking, the big push in productivity has come through automation, especially with automatic teller machines (ATMs). Banks have yet to realize a return on this investment, says Thor. According to the Bank Administration Institute, most banks can't get more than 33 percent of their customers to use ATMs. Mr. Wichlan believes banks will have to provide incentives for customers to use ATMs.
Ultimately, managers in financial services expect gains in productivity to give them a competitive edge. ''We would much rather take a marketing approach and cut prices'' than apply cost savings straight to the bottom line, says Timothy Scanlan, vice-president of Security Pacific Bank. When banks have finished shelling out capital for automation, consumers will see productivity improvements reflected in lower fees for those services, Mr. Wichlan agrees.