Problem
"IF WE GROW too fast, we'll break from the strain."
"If we stop growing, we'll be eaten for lunch by our competitors."
Beth Daniels, the CEO of Michigan's Vanir Bancorp, sat silent as her chief human resources officer and chief financial officer traded jabs. The trio had founded their community bank three years earlier with the mission of serving small-business owners, particularly those on the lower end of the credit spectrum. After getting a start-up off the ground in a mature, heavily regulated industry, they were a tight-knit, battle-tested team. But the current meeting was turning into a civil war.
James Donnold, the CFO, had just presented an update on Vanir's aggressive goals: expanding to 15 branches, with loans and deposits increasing threefold in five years. Having already grown to five branches and $180 million in assets, the bank was right on track. But, James warned, competitors were circling, and Vanir needed to stay on the offensive. It couldn't let bigger banks lure away the previously underserved customers that it had brought into the financial system or let new "fintech" start-ups with digital-only banking services disintermediate its business. Luckily, James noted, the company's long-awaited new enterprise IT was nearly ready to go live, and it promised to greatly reduce the staff's workload -- by, for example, using AI to automate tasks like calculating pricing and credit lines for customers.
That prediction prompted Mariko Wang, the CHRO, to let out an audible scoff. She felt that aggressive growth had already stretched Vanir too thin and that believing IT would lighten the burden on employees was optimistic. "When was the last time a new technology created less work for anyone?" she asked sarcastically.i
But then her tone turned serious, and she delivered her familiar -- compelling -- spiel: Working with new or underserved banking customers was extremely arduous. Vanir's branches were open early and late to accommodate customers' schedules. To make banking less intimidating, tellers and relationship managers were told to take as long as needed to answer people's questions. They were trained to be unbiased, whereas some AI tools in the industry had come under criticism for discriminating against minority applicants. And that human touch was what drove growth; loan applicants often had such a great experience at Vanir that they transferred their other accounts to the bank, opened new ones, or recommended it to other small-business owners.
Vanir's associates enjoyed above-market salaries but also worked harder than their peers at other banks. Considered "essential workers," they'd even come in to the office during the worst months of the pandemic, managing all the loans that customers had applied for through the U.S. government's economic relief package. But now employee engagement was down, absenteeism was up, and customers were starting to notice.2 Net Promoter Scores had fallen, and comments in customer surveys included complaints like "hassled-looking teller" and "unhelpful manager."
"Our people are our strategy," Mariko said, locking eyes with Beth. "Without them happily serving customers, we're just another bank."
OFF TO SEE THE WIZARD
Leaving the meeting, Beth felt torn. She'd started Vanir to help hardworking customers who'd been neglected by large banks and poorly served by mismanaged community-development institutions. Her father had been a general contractor, and it infuriated her that the developers he worked for seemed to have unlimited access to debt while he struggled to secure a new loan to upgrade his tools and equipment. She suspected that most of the bigger players were interested in her customers only because they needed a certain number of small-business accounts to meet regulatory mandates and keep their banking charters; after luring small clients away with introductory promotions, the large banks would give them the same shoddy service that had held her father back. Meanwhile, the fintech start-ups were low touch and untested; they could leave their clients high and dry.3
It hurt Beth's soul to imagine that possibility, so she shared James's fervor for quickly expanding to serve as many people as possible with the help of technology. The goal was to build a loan underwriting system that would apply proprietary algorithms to create a single score that signaled whether a loan should be approved and what the credit line and the interest rate should be. That promised to free up staff to focus on the face-to-face service that Vanir had become known for.
But building the enterprise IT had taken longer and cost more than anticipated.4 Meanwhile, associates had become accustomed to doing the calculations and decision-making themselves, and an inefficient process had become routine. The staff also enjoyed the autonomy the process provided: Lending officers were encouraged to get to know their applicants and to combine objective criteria, such as credit scores, with subjective ones, such as personal character. Still, the strain on the employees was starting to show, and Beth took Mariko's warnings about burnout seriously.
Would a shift to the new system help or hurt Vanir's staff? Certain elements of the transition would require lots of busywork. For instance, along with the lending algorithms, the IT team had built a customer relationship management system that would allow a review of customer profitability across multiple products. Information on that now was stored in loan officers' heads and hard drives, and getting it into the system would be laborious. As Vanir opened more branches, it would need to hire more associates, who would have to be trained (on, among other things, the new technology) by its existing staffers, further burdening them. Beth hoped that the new system's birth pains would be short-lived and quickly lead to greater efficiency and lighter workloads. But she also worried that in the long term, Vanir's earliest employees would miss the algorithm-free autonomy they'd become accustomed to.
Beth knew she needed to talk to "the wizard," her white-haired, tie-dyed-T-shirt-wearing chief technology officer, Bruce Richards. "What's the update?" she asked as she entered his office.
"Do you want the good news or the bad news?" he replied, chuckling. Beth frowned and crossed her arms.
"OK," Bruce continued. "The good news is that the entire stack is ready to go. We can roll out tomorrow."
"And the bad news?" Beth asked.
"The bad news is that the pilot we ran in the Lansing branch uncovered some, well, resistance."
"Go on."
"The staff hated it," Bruce said. "The feedback was that no one had time to learn a complicated new system. Some people refused to attend the training. Others brought their laptops to class and worked the entire time."
"Oh," Beth said.
"This isn't unexpected!" Bruce interjected. "Learning a new system takes time and can be frustrating. You can expect a period of negative labor productivity before we see any gains, but that doesn't mean the gains won't come.5 What matters is that we're finally ready to launch. We can pull the trigger next week if you give us the go-ahead."
"No," Beth replied. "Hold off for now. We might have to delay. I need to think this through."
SOME FRANK FEEDBACK
Beth checked her watch as she collected her coat from her office -- 8:30 PM. So much for bankers' hours. As she headed out of the branch where the executive team worked, she saw relationship manager Chantelle Williams, one of her first hires, at her desk, turning over pages in a file. Beth knew that Chantelle had two sons who'd been homeschooling through most of the pandemic.
On Chantelle's desk was one photo of her kids and another of her first Vanir client -- a bakery owner who'd had trouble obtaining a loan at other banks because of his prior issues with credit card debt. Following company protocol, Chantelle had looked more closely at his situation and realized that the debt had coincided with his wife's illness four years earlier. Since that time his credit history had been spotless. Vanir had given him a loan, and in return he not only made his monthly payments on time but accompanied them with deliveries of his delicious cannoli. "I don't stay late for you," Chantelle had once told Beth after she'd thanked the manager for her long hours. "I stay late to earn school tuition for them" -- she nodded to the picture of her sons -- "and," she added, shifting her gaze to the photo of the baker, "to make sure people like him can stay in business."6
"How are you holding up, Chantelle?" Beth asked.
"I'm living the dream, boss!" Chantelle joked, gesturing to the open file on her desk.
"No, really. How's morale?"
"Well," Chantelle said, "a lot of people are struggling. You combine the long hours with challenges on the home front, and it's tough."
"I know," Beth said. "But I just spoke to Bruce Richards, and he said the tech solution is almost ready. Help is on the way."
Chantelle sighed.
"What is it?" Beth asked. "Are you worried about the transition? There will be some work up front, but I assure you that -- "
"That's not what I'm worried about," Chantelle interrupted.
"Well, then, what?"
"Look, what makes this bank special is that we are run by people, not by formulas. We can make a human connection with our customers. I just don't think an algorithm can replace that. Truthfully, I'm worried that we're going to end up double-checking the algorithm all the time or, worse, that it will end up hurting our customers."
"Absolutely not," Beth said. "I wouldn't let that happen."
"You know how you call Bruce 'the wizard'?" Chantelle continued. "Well, have you actually looked behind the curtain? Are you sure this technology won't just end up discriminating against the very customers we strive to serve?" 7
After thanking Chantelle for her candor, Beth wished her a good night and headed for the exit. She knew she faced the biggest decision of her tenure as CEO. Should she rethink the implementation of Vanir's new IT system, knowing full well that her employees were stretched thin but that a delay might allow competitors to pounce on Vanir's current and future customer base? Or should she risk her employees' trust and dedication by pushing past their concerns, sticking to her tech-enabled strategy, and forging ahead? She opened the door and stepped out into the cold Detroit night.
i. According to the Case Study: Will a Bank's New Technology Help or Hurt Morale?,
ii. What are the major lessons learned from this case?