CASE “Citibank: Performance Evaluation” Harvard Business School 9-198-048 rev: October 14, 1999 The Performance Scorecard: a strategic management tool Frits Seegers, President of Citibank California, is convinced that “in a competitive marketplace where businesses compete for customers, customer satisfaction is seen as a key differentiator and increasingly has become a key element of business strategy”1. Fulfilling customers’ expectations is a critical issue for the long term business sustainability and profitability.
This realization is what underlies the decision of the top management to develop and complete the former Citibank’s performance evaluation system mainly based on financial measures. In 1996, a new Performance Scorecard integrating non-financial measures, including a customer satisfaction indicator, was introduced in order to be used as “a central management tool to implement [high service] strategy and evaluate performance. ”2 This is a sign of great willingness from the California Division to broaden its business vision and control.
This effort to improve the effectiveness of the organization as a whole is aligned and can be bring closer to the McKinsey 7Ss model. Indeed, “the model clearly emphasizes to managers that the soft side of managing is just as important as the hard side. Peters and Waterman suggested that the 7-S model, which included both soft as well as hard issues, was a more suitable framework than the rational model”3. Frits Seegers has obviously understood that managing people with financial measures only (rational side) would not be enough to guarantee “the long term success of his division”4.
All seven of S’s -strategy, structure, systems, skills, staff (people), style, and shared values (culture) – are interconnected variables accounting for effectiveness5 as are the six performance measures integrated in the Performance Scorecard – strategy implementation, financial, control, people, standards and customer satisfaction6. Unifying these factors in a unique form and analyzing where Citibank California is right now in terms of these elements helps to drive the company in a consistent and sustainable way.
It could dramatically improve the management decision making quality. Evaluating James’ Performance If I am Lisa, I would give “above par” global rating to James. I am aware that my intercession could be interpreted as a temptation to bend the rules to protect an “exceptional performance manager”7. Let me explain the reasoning for my recommendation that in fact would protect Citibank California interests. As we have seen before, it is critical to effectively manage customer satisfaction.
But we are not alone to be strongly convinced by that, James also is aware of the vital necessity to meet customers’ expectations, right now, to maintain high “future financial performance”8 and he has already understood why customer satisfaction is “his own concern as a whole”9. He doesn’t need to be sensitized to this crucial issue by giving him a punishment consisting in a substantial decrease of his year-end bonus for “below par” measures10. I firmly believe that “the central dilemma in the appraisal process is […] preventing damage to the individual’s self-esteem and to his or her confidence about organizational rewards”11.
Five of the six performance measures in James’s year-end are “above par”, and for one point where he is seen as struggling we will blame him! This would be unfair and non-productive for our company. He needs feedback not penalty. I suggest giving him a substantial bonus this year for his great achievements and his effort and “improvement in service results” and his “exceptional job”12 in the “largest and toughest branch in the division”13. James is consciously making efforts to improve service results14. I left a blank for customer satisfaction in James’ performance scorecard (cf. ttachment 1) since I think the score scale does not reflect James involvement and implication and as James’ supervisor I am partly responsible for that since it is my job to provide him some support. And I need to keep him fully dedicated to his job; he is my, our, best branch manager. I know that all the six targeted measures are interrelated and the global rating have to be consistent. But if we cannot introduce some flexibility in the bonus rules I am afraid that we can lose James and that will be a significant loss for our company and for its future.
Customer satisfaction is a corporate teamwork responsibility not an individual matter. Be careful to not create a misunderstanding “on the folly of blaming A, while hoping for B”15. The Performance Scorecard shall remain a tool not a blind judge. Why to build a more flexible and more effective Balanced Scorecard I think the balanced scorecard should be implemented to all of Citibank since it establishes a “sense of urgency”16 about competitive realities to all employees. But I would like to suggest some changes in it for 1997.
Indeed, since everyone in the top management agree that James is an “outstanding manager”17 we should conclude that there is something wrong with the scorecard since if we strictly follow the process we will not give a full bonus to “one of California’s finest manager”18! To understand where the confounding factor is we should have a look at the definition of “customer satisfaction”. Customer satisfaction is defined as “the number of customers whose reported experience with a firm, its products, or its services (ratings) exceeds specified satisfaction goals. 19 As it is very hard to exceed customer’s expectations, most of them can often feel unsatisfied, especially “sophisticated”20 business customers for example, as in James’ branch. “Many managers seek to establish simple, quantifiable standards against which to measure and reward performance. Such efforts may be successful in highly predictable areas within an organization, but are likely to cause goal displacement when applied anywhere else”21. Customer satisfaction is not “predictable”, in contrary to financials.
I think Citibank should continue to survey customer satisfaction but only to help the company improving its high level of service and not trying to use it as an individual grade. Only with that in mind we would be able to fairly judge James who is, in fact, responsible only for doing his best to meet customers’ expectations by his full dedication to the business, but not for the survey “intrinsically uncontrollable”22 scores. End Notes 1Gitman, Lawrence J. ; Carl D. McDaniel (2005). The Future of Business: The Essentials. Mason, Ohio: South-Western. “Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, p. 2 3Johnson, Leonard. “A note on the 7-S model”. Boston University School of Management, 1997:68. p. 2 4“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, p. 2 5Johnson, Leonard. “A note on the 7-S model”. Boston University School of Management, 1997:68. p. 2 6“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, Exhibits 1-5 7“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila.
HBS, 1997, Exhibits 5 (PEOPLE) 8“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, p. 2 9“On the folly of rewarding A, while hoping for B” by Steven Kerr, Academy of Management Executive, 1995 vol. 9 No. 1 p. 4 10“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, Exhibits 3&4 11Beer, 1997: 7 12“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, Exhibit 5, CUSTOMER SATISFACTION & OVERALL EVALUATION 13“Citibank: Performance Evaluation” by Robert L.
Simons, Antonio Davila. HBS, 1997, p. 4 14“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, Exhibit 5, CUSTOMER SATISFACTION 15 miror of “On the folly of rewarding A, while hoping for B” by Steven Kerr, Academy of Management Executive, 1995 vol. 9 No. 1 Pp. 4 16Kotter, J. “Leading change: why transformation efforts fails”, HBR, q995, pages 59-67 17“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, Exhibit 1 OVERALL EVALUATION 18“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila.
HBS, 1997, Exhibit 3 STANDARDS, p. 7 19Farris, Paul W. ; Neil T. Bendle; Phillip E. Pfeiffer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. 20“Citibank: Performance Evaluation” by Robert L. Simons, Antonio Davila. HBS, 1997, p. 1 21“On the folly of rewarding A, while hoping for B” by Steven Kerr, Academy of Management Executive, 1995 vol. 9 No. 22“On the folly of rewarding A, while hoping for B” by Steven Kerr, Academy of Management Executive, 1995 vol. 9 No. 1