Customer Satisfaction—Touchstone of Reform Success

Tracking CCB’s “Customer Focussed” Strategic Transformation

So far this year, as businesses in securities, funds and other investment products grow in multiples, even for 10 times or more, bottlenecks in financial services become evident.  For a time, the queuing problem in banks has become a hot topic for every citizen.

As it was, as early as two years back, one of the banks had started transforming its branches to the standards of leading international banks.  After the transformation, the speed of transaction in the pilot branches had been raised by 33% while customer waiting time had been reduced by 68%, resulting in a significant relief of the customer queuing problem.  To date, this bank has completed transforming more than 1,300 of its branches.  By the end of this year, 4,000 branches will have undergone transformation and, by 2008 year end, it will complete transforming all 14,000 of its branches.

This particular bank is CCB—a major “customer focussed” state-held commercial bank which is fulfilling its commitment to “provide customers with better services” through foresight and quick market responses.

Customer service level and risk management capability are two simple yet discerning criteria for evaluating the success of reforming state-owned commercial banks.  In these two aspects, CCB have undergone drastic changes.  Recently, CCB had won the “Best Emerging Market Bank Award – Best Bank in China 2007” from the internationally renowned Global Finance magazine.  So far this year, the ratings of CCB shares have been invariably raised by several of the world’s largest investment banks.  Their reason: CCB’s strategic transformation has achieved initial success.

1.    Differentiated services: meeting the different needs of corporate and personal customers

It was 2:25pm on April 15th 2005 when the then newly appointed CCB chairman Guo Shuqing took his first inspection tour of a grass-roots unit.  When he set foot into the sales lobby of Dongsi Sub-branch in Beijing, what met his eyes were 16 corporate banking counters with not even one customer in sight.  The personal banking section, however, was relegated to an obscure corner of the lobby, and there were only four counters, of which one was clearly reserved for receiving VIP customers.  It was easy to imagine that this section must be crowded to the hilt at peak hours…

But such a layout was no accident.  Historically, CCB was established to provide services to the State’s infrastructure projects.  For a long time, the amount of deposits and loans of corporate clients were huge and so the Bank thought it right to allocate corporate customers more counter resources.  But in fact, for corporate clients, particularly the big ones, cash transactions are extremely rare these days and there is very little need for their businesses to be handled across the counter.  What they need are online transactions and integrated financial services.

Should CCB operate and manage its business through subjective and intuitive thinking or should it seriously analyse market needs and fully understand the concerns of its customers?  A fortnight or so afterwards, in a companywide working forum, for the first time, the concept of “focussing on customers” was unequivocally proffered as CCB's operating concept by its leaders.  Further, it had been pointed out that “an important measure of the success of CCB’s reforms is to see whether or not it can provide the best banking services to its customers.”

The key to put the operating concept of “focussing on customers” into practice is the segmentation of the market and the customers and to provide customers with differentiated services.

CCB’s business has since then been diverted from straight-forward deposit taking and loan extending.  Corporate groups and large corporate clients require comprehensive financial services such as cash management, structured financing, investment banking, financial consultancy, asset custody, etc.  To cater to their needs, CCB has formed 10 designated business teams to make in-depth studies of their business operations, financial status and market situation and offer them integrated professional financial service solutions.  This has also moved CCB’s business gradually away from solely relying on interest rate differentials to giving equal emphasis on rate differential business and intermediary business.

Last June, approval was obtained for the issuance of China’s first enterprise bond using pledged assets as security—the Hunan Tiger Forest & Paper Group Company enterprise bond.  The overseeing of the pledged assets and the debt servicing account was undertaken by CCB, which becomes the first Chinese commercial bank offering such a service.  Meanwhile, CCB's international arm exercised its capability in successfully helping the listing of a non-Chinese enterprise—a major Malaysian property investment and development company—on the main board of London Stock Exchange and raised the equivalence of about HK$1.28 billion.

As large companies are weaning themselves off the reliance on banks for their loans, small enterprises are in dire needs for bank loans.  In view of this, CCB has developed a series of financial products for newly established, growing and mature small enterprises according to their varying sensitivity to prices, frequency of loan requirements, size of loan required and the risks they entail.  Subsequently, products such as “Quick Finance” and “Road of Growth” have now become well known financial service brand names among small Chinese enterprises.  Now the balance of loans to small and medium-sized enterprises represents more than 40% of all corporate loans at CCB.  For such outstanding performances, CCB has won the “Advanced Entity for Small Enterprise Loans from Chinese Banks and Financial Institutions 2006” award from the China Banking Regulatory Commission.

On the other hand, growth in personal financial service needs has been explosive.  The needs for services involving personal investment, business start-up, financial management, housing, car, education, medical care, cultural and consumption activities, overseas travelling, etc. have multiplied like a blow-out of an oil well…

Quality banking customer service is not limited to warm receptions and smiley faces; it also involves studying customer concerns and customer perceptions.

In response to new market situations and new customer needs, CCB has made rapid strategic adjustments by giving as much emphasis to retail banking as wholesale banking and also by identifying consumption finance services and investment services as the areas for developing its retail business.

CCB has determined its criteria on customer segmentation, and has also finalised its three-tier financial management structure comprising of financial management offices, financial management centres and wealth management centres.  While the average customers are being served in ordinary branches and medium to high-end customers in financial management centres, high-end customers are attended to at the wealth management centres.  Meanwhile, the differentiating capabilities of the products have been greatly raised so that customers in the financial management centres will be offered higher grade product packages and those in the wealth management centres will be offered stable but high quality value-adding services.

At the “Hongmei Financial Management Centre” in CCB Linfen Branch, Shanxi Province, the account managers will not only help customers make investment decisions by preparing graphs on earnings analysis of products.  For VIP customers, they will also customerise financial management suggestions and proposals, recommend financial management product packages and compile personalised financial management reports.

At present, CCB has 21 wealth management centres, 702 financial management centres and 3,177 financial management offices.  This year, it will complete building about 60 more wealth management centres and 300 more financial management centres.  Moreover, investment sales areas will be designated in renovated personal financial centres and other type of branches, while branches of more than 300 sq. m will have at least 30% of the area built into separate financial management corners.

The sales department in Dongsi Sub-branch in Beijing, meanwhile, has undergone a total face lift.  The original 16 counters meant for corporate clients are now assigned to cater for personal banking and integrated businesses.  The original area for personal banking is now rebuilt into a financial management centre with three meeting rooms.  The lobby is now staffed with three lobby managers who are responsible for guiding customers and answering their questions.  The corporate banking section has now moved to the second floor.  It has formed a new corporate banking service team and, instead of waiting for customers, the team members are now making marketing calls at customers' offices.  Last year, for this sub-branch, growth was registered both in corporate banking and personal banking and personal deposits were increased by 92.8% over the previous year.

This is but an epitome.  A string of numbers can be used to outline the steps of CCB’s strategic transformation.  As on December 31st last year, there were 150 m active personal deposit accounts companywide.  The total amount of personal loans was 585 billion yuan and CCB has become China’s leading bank in personal loans and housing mortgage loans.  The number of Dragon credit cards and quasi debit cards issued by CCB had exceeded 10 m and was the highest among the top four state-owned commercial banks.  In the bond market, the volume of short-term financing bills underwritten and issued by CCB on behalf of enterprises was the highest in the market.  In the funds market, the number of new custody funds issued by CCB was first in the industry, and the volume of consignment sales of these funds in the first quarter of 2007 had increased by almost four times over the same period last year…

2.    Humanised services: taking note of customer experience & feelings

A small incidence two years ago had set off CCB decision makers to think.  At that time, one customer fed back that he was taken aback by an SMS message and his account statement that the first transaction of his newly acquired CCB credit card was an annual fee of 200 yuan.  Even though the fee was reasonable, but the “pay first, consume later” arrangement did give customers a very bad feeling.

Customer experience and feelings have gradually become important determinants in evaluating the quality of CCB services.  In developing products or launching services, CCB veterans have gradually gotten used to employing “transposition thinking”—evaluating from a customer’s standpoint.  At present, the stage of collecting annual fees for CCB credit cards has already been pushed back.  Moreover, concessional terms such as zero annual fees for the first year and zero annual fees for the second year after making three transactions are now in place.

The decision to stop charging all credit-card holders for inter-bank transaction enquiries made through ATMs has raised considerable doubts and incurred much censures.  CCB management agree that charging fees for bank services by itself is unassailable because a commercial institution should not engage in money-losing businesses.  But for the business of inter-bank transaction enquiries, it would be better if the banks were to settle for a solution among themselves.  Here we can apply the principle of whoever makes an investment should be entitled to reap the resulting benefits: those who have invested more should ask for compensation from those who have made no or little investments instead of asking consumers to pay fees.  A person-in-charge at CCB points out that, in general, banks should offer paid services.  But they should consider when, how and how much customers should be charged.  There should be a holistic consideration of operating costs, customer convenience and consumer experience, and it is not necessary to charge fees at every juncture of a service process.  He asked jokingly, “Do we expect shopping malls to charge admission fees and lighting fees, or restaurants to charge for cutlery fees and air-conditioning fees?”  On April 6th, the relevant committee in the China Banking Association had passed a resolution to ask member banks to stop charging for inter-bank transaction enquiries made through ATMs after a deadline, to which CCB supported responded enthusiastically.

The buzz phrase “For your own housing, go CCB hunting” is a vivid description of CCB's status in the personal housing loan market.  Who can imagine that, as recent as five years ago, there was an incident of a one-year application for a 200,000 yuan loan?  At that time, a senior official from the People’s Bank of China (PBOC) applied for a commercial mortgage and housing provident fund combination loan.  In a prolonged period of time, he was asked to fill out a lot of complicated tables and forms.  But just when he thought he had been through with the process, there was an adjustment in interest rates and all borrowers were asked to refill all forms in view of the new rates.  Then there was again a long period of waiting…and, by the time his loan was approved, it was a year afterwards.  If this was the treatment for a senior PBOC official, one can easily imagine the type of service an ordinary customer would get.

But such a practice of totally ignoring customer feelings is now history in CCB.  Now that CCB has established personal loan centres in many cities and staff from CCB branches are taking the initiative to visit provident fund management centres to jointly improve their business processes, efficiency has been significantly raised.  Customers can now enjoy efficient one-stop services in place of the bullying style in yesteryears, and there is more fairness and human touches in the contracts.  In a pilot project for new personal loan processes in Guangdong, the time to process a loan application has been reduced from a previous 19.6 days to the present 8.746 days.

When one walks into the personal loan centre in CCB Shenzhen Branch, what meet one’s eyes are the assembly-line style layout and the loan application process.  Previously scattered operations have now been changed into intensive and centralised operations here.  Whereas CCB Shenzhen Sub-branch is responsible only for business development and pre-lending investigation, the personal loan centre of Shenzhen Branch is responsible for subsequent centralised procedures such as loan approval, pledge registration, loan advance, case management, calling in of loans and post-lending management.  For a normal loan application, the processing time here is no more than one day.  In Shenzhen, where competition in the personal loan market is extremely keen, CCB’s market share has expanded from 10% to 55% in a short time.

A casual remark from a customer has triggered a “night market” for personal financial services at the Chengdong sub-branch in Fuzhou.  One day, when a customer was applying for a personal loan in the sub-branch, he said, “How nice it would be if I don’t have to come here to sign contract during business hours.”  This casual remark had stricken a cord with an attentive listener.  After conducting a survey to feel out its customers, Chengdong Sub-branch has decided to start up a “financial service night market” from 6 pm to 8 pm on Tuesdays and Thursdays.  In this night market, designated account managers will answer queries on loan applications and will process applications for housing mortgage loans, personal provident fund loans, personal auto loans, etc.  For the one year or so since its opening for business, the "night market” has been very popular with customers and particularly with salaried workers, and the volume of loans amounts to 123 million yuan.  Chengdong Sub-branch has decided to strike the iron while it is hot and launch a 24 hour “Personal Finance Hot-line” to provide house call services for the handicapped and for those with special needs.

The “Voice of Customer” is one of CCB’s most useful management tools.  It is one of the first cooperative projects undertaken by CCB and Bank of America.  The objective of this project is to obtain and analyse the key factors which, from the customers’ perspective, affect the quality and the level of service, thereby providing CCB with accurate customer information and data for reengineering its processes.  The “95533 Hotline” is a "window” for listening to customers’ concerns and recently, a new version of the voice menu is in use.  What is different from the previous version is that, when a customer dials 95533, the first option of the new voice menu is personal service.  This may be a minor detail, but to customers in urgent needs it is a godsend.

Disputes are inevitable in banking services.  In handling disputes, CCB's stance used to be quite inflexible and almost always resorted to resolving through lawsuits.  But now it is taking a different approach.  Once, a customer went to CCB’s Nanping Branch to make a deposit.  The teller detected a counterfeit 100-yaun note among her cash and, in accordance with regulations, the counterfeit note was confiscated.  “Why on earth did you claim it a counterfeit?” asked the customer, agitatedly.  The lobby manager then patiently led her to the lounge and, with a smile, told her, “If you have any doubts, I would be happy to accompany you to the People’s Bank for an appraisal.”  After listening to some fair and reasonable explanation, the customer was convinced and left.

Competition is fierce in the financial management market and, now and then, earnings are exaggerated and risks slighted.  But CCB requires that its staff put themselves in the position of their customers and give clear-cut risk warnings to customers.  One day, a high-end customer phoned the wealth management centre of CCB Guangdong Branch for help to buy some equity funds.  After listening to his situation, the financial manager told him, “Everyone is buying funds now, but only a minority makes money.  This is the time to keep a cool head and disperse risks in different baskets.  One should not invest all the cash into funds…”  His words are revealing the duty of CCB staff to their customers.

Bit by bit, CCB is garnering the trust of its customers.  Top management at CCB are still receiving customer complaint letters.  But there are more and more commendation letters and they are coming from retired cadres, old factory workers and also from Russian reporters, overseas Chinese from Japan, American friends, Taiwan compatriots, etc.

3.    Professional operation: coming out of the perplexity of organisation restructuring

Whereas the business unit system is the organisation model generally adopted by leading international banks, what would be the future organisation model for state-owned commercial banks in China?  How should we establish an organisation structure which is more convenient and efficient and which facilitates business development?  How should one optimise the deployment of human resources to enhance customer service capabilities?  These are the questions CCB top management has been pondering all the time.

Although it has undergone a number of reforms, CCB is still facing series structural problems in human resources.  But CCB management is willing to take up the challenge and deal with the inconsistency that there is a huge gap between the talents it needs and its existing talents.  It is in dire shortage of almost all categories of highly professional talents, including account managers, product managers, risk managers, financial investors, accountants, lawyers, IT engineers, etc.  On the other hand, there is a surplus of people responsible for general administrative management, to the extent that, in all tiers of branches, more than half of the staff are administrative management personnel.

In organisation reforms, one cannot simply deal with the organisation itself, but should also give all-round considerations to business development, customer needs and staff development.

Stepping aside from the controversy around the unit system and the tier system, CCB regards that the most urgent task in its reform is to establish well-developed professional service teams and organisations for the front office while implementing centralised management in the middle and back office.

Within a short time, a large number of marketing teams, small enterprise credit centres, personal loan centres, financial management centres, wealth management centres, credit card teams and electronic banking teams are formed.  While guaranteeing the normal efficient operation of the ordinary branches, more and more talents are diverted towards specialised organisations or teams.  As a result, CCB’s capability to provide professional and differentiated services has increased substantially.

In marketing to major customers, CCB has broken up the barriers separating the headquarters, the branches and the sub-branches and built up teams capable of providing humanised and integrated services to this type of customers, completely changing the previous situation where one or two account managers were responsible for maintaining s large corporate account.

To carry out marketing activities in a famous university in Beijing, CCB had formed a team comprising staff from 16 departments to exploit their coordinated leverage in custom designing a comprehensive financial service package for this century-old institution of higher learning.  Last April, a strategic cooperation agreement was signed with this university.

The professional teams have also demonstrated their potent vigour in retail business.  Since credit card direct sales teams were formed by CCB Guangdong Branch in March 2006, there has been much development in their operating systems, management and marketing capabilities and there membership have expanded from 20 to 80 by May 2007.  As at the end of December 2006, the team was responsible for the issuing of 43,819 credit cards or 45% of all cards issued in the Guangzhou district.  The number of credit cards per team member was 173, which was the top for all direct sales teams companywide.

Along the line of stressing on professionalism and focussing, CCB has implemented the separation of front and back office operations in its retail branches.  A large amount of work including account accounting, customer information maintenance, etc. has been detached from the front office and, together with such internal control affairs as auditing and balancing, etc. transferred up to the back offices of different branches for centralised handling.  Back office businesses are sorted and those having the same nature or under the same category are assigned to the same function module.  As a result, an assembly-line style back office operation mode has taken shape.

At the Chuangzhou branch in Hebei, after such work as the tidying, counting, sorting and damage picking of banknotes have been transferred to the back office and 64 report forms which do not have to be printed before work have been eliminated, benefits are soon evident.  In the first four months of this year, as compared to the same period last year, this branch has seen multiple growths in incomes from personal intermediary business, debit card sales and the number of high-end customers.  Customer satisfaction score has increased from 60.8 before transformation to 86.96 now.

The reform of accounting operating system is one of the bright spots of CCB’s back office business centralisation.  CCB has implemented a companywide "five centralisation” reform involving accounts, settlement, accounting, treasury and supervision.  Just by centralising auditing, the number of full-time auditing personnel throughout CCB has been reduced from 5,054 to 4,200, and the number of part-time auditing staff has been reduced by more than half, and yet, all the while, job quality has not been compromised.  After undergoing reform, Beijing Branch has completed the elimination and merging of 12 treasuries, saving a lot of manpower and material resources in the process.

At the same time, CCB is considerably compressing its management tiers throughout its system.  In some cities, three/four tiers have been streamlined to two or two and a half tiers.  For example, CCB Sichuan Branch is now directly managing all the sub-branches in the Chengdu area and are substantially streamlining many of the internal organisations in the sub-branches, thereby facilitating a flow of staff towards the frontline and helping the sub-branches to become marketing service orientated.  Likewise, Hubei Branch has integrated 12 management orientated sub-branches in the Wuhan area into five, cutting 322 management personnel from the sub-branches and transferring them to marketing departments or to the marketing frontlines.  So CCB is beginning to solve the problems caused by having too many tiers: slow communication of decisions, high coordination costs and low work efficiency.

As a result of structure flattening and labour specialisation, CCB’s market response capability has been enhanced, allowing it to take advantage of early opportunities.

One day at almost closing time in the Huixin sub-branch in Changchun, Jilin Province, the phone rang urgently.  It turned out that a large state-owned enterprise has an impromptu request to take a structured long-term foreign exchange option of six billion yen.  Taking structured long-term foreign exchange options is complicated.  In terms of timing, it is impossible to tell at what time a transaction can be closed at the customer's psychological price level.  In terms of space, such a deal would need the coordinated operations of the sub-branch, the provincial branch and the relevant departments at CCB headquarters.  But a request from a customer is an order to take action.  So a joint operation carried out by a derivative instrument team formed by CCB headquarters, Jilin Branch and Huixin Sub-branch was in action.  In Changchun, staff from Jilin Branch responsible for financial transactions and from Huixin Sub-branch began to carry out thorough and meticulous technical analysis and judgment and drew up a detailed operation plan.  While far away in Beijing headquarters, relevant departments began to make quotation requests in the international market in an attempt to get hold of the best transaction timing.  Just before midnight, after working non-stop for almost seven hours, the team was able at last to seize on a fleeting moment to lock the six billion yen deal at an optimal price…Later, in a commendation letter, this major state-owned enterprise mentioned that “CCB is a partner most worthy of our trust.”

4.    Process approach to management: constructing a portal for scientific development

Internationally, banks providing the best services are also banks with the best risk control.  CCB’s concept on risk culture is: “Good risk management in banking is only possible when there is a complete understanding of the customers and the market.  Thus, providing good customer service and providing good risk management are consistent with each other.

In the past, risk management at CCB mainly concerns with internal management and its risk management system was much more complicated than American and European ones.  It will take several books to print all the regulations, which are issued for the convenience of the writers themselves.  To avoid problems, each tier of the organisation and each function would add additional rules.  Such strict formulation of rules and establishment of system appeared to be “safe”, but operatability was very low and implementation was difficult.  Consequently, it was difficult to raise service efficiency and professional quality, while risks were also not effectively controlled.

In the final analysis, process reengineering is meant for better adapting to the needs of customers and the market, for raising operation efficiency and enhancing the safety of the risk control system.

CCB has adopted the above as a guiding principle in the reform of its risk management system and has established a mechanism in which account managers and risk managers are operating in concert.

In April 2006, CCB’s Board of Directors appointed the first ever Chief Risk Officer in CCB.  In the following half year or so, CCB had sent 38 risk controllers to its tier-one branches, 538 risk officers to it tier-two branches and 1,883 full-time or part-time risk managers to its county level sub-branches.  This way, it had established a relatively independent, centralised and vertical risk management organisation structure and reporting route.  Meanwhile, the risk managers and account managers are working in concert to understand their customers and in managing risk points.  This way, they are able to raise work efficiency while effectively preventing and controlling risks.  Since April 1st this year, for all medium to large corporate clients or major projects, CCB has essentially adopted this parallel operation model.  Thus, for credit line applications, if there is no risk assessment comment countersigned by a risk manager, it will not be considered by the credit approval department.

Adopting this as a guiding principle, CCB and Bank of America cooperate on a branch transformation project.

At present, the average duration a customer spends waiting in the sales lobby of CCB No. 6 Sub-branch in Chengdu is 6 minutes 49 seconds.  Just about six months ago, he would have to wait approximately 20 minutes.  The shortening of waiting time by two-third is the result of re-organising and optimising business processes in this sub-branch.

In fact, as early as 2005, even before CCB was listed, optimisation and reengineering of business processes was already on CCB’s top agenda list.  Before its listing, one main reason why CCB had chosen Bank of America as its strategic investor was because the latter owns the largest retail banking network in America and possesses advanced retail management technologies.  And this was exactly CCB’s weak spot.  In that July, soon after signing a strategic cooperation agreement with Bank of America, CCB’s chairman and president led a group of executives to the US to learn about the Bank of America.  Nominally the purpose of the tour was to carry out due diligence investigation on the bank.  By the main contents of the study was to gain an understanding of their operating concept, service culture, business processes and management technologies.  The study group did not go to Wall Street or to New York Stock Exchange.  Instead, in the course of one week, they visited more than 20 Bank of America branches, one credit card centre and several financial management centres in four cities in the Mid-West.  When the study group returned to China and began to draft a report to sum up their experience, the first item was “to re-organise, integrate and optimise business processes according to the customer focussed concept".  It was still more than three months away from CCB’s listing.

In September that year, the cooperation projects of the two parties were started up.  On CCB’s request, Bank of America provided free strategic assistance in core business areas such as retail banking.  Last year, the two parties had implemented more than 20 assistant projects in retail banking, risk management, IT, etc.  For the six projects which have been completed, the benefits are significant.

Other than customer satisfaction, staff satisfaction is also always in the minds of CCB management.  CCB not only employs people, it also gives high priority to the development of its people.  Since last year, it has run numerous cycles of a Shenzhen-Hong Kong interactive training course for its front-line sales staff.  In the training, in additional to classroom learning, employees have the chance to go the CCB (Asia) in Hong Kong to take up shadow learning.  One advantage of process reengineering is the lessening of staff labour, resulting in significant increase in staff satisfaction.  After designated counters in No.  Six Sub-branch in Chengdu started practising “flexible shifts”, employees not only see their average working hours per day reduced by two, but also have their normal holidays ensured.  An enterprise culture which motivates competence and encourages innovation is now taking form throughout CCB.  CCB employees are generally enthusiastic and have created such service brands as “He Xiao Methodology” and “Xiangdang Work Station”, casting beneficial influence on society.

Not long ago, CCB president Zhang Jianguo received a letter from an American businesswoman.  In the letter, she commended a staff in one CCB branch in providing her services using “lucid and fluent standard American English”, allowing her to appreciate “the grace and the hope" with which CCB employees walk onto the world stage.

Step by step, “focussing on customers” and building a world-class bank are becoming reality for CCB.

CCB's strategic transformation has won high approval from its investors.  At present, the price to book ratio of CCB shares is topping all major banks in the world.  Many international first-class intermediary institutions are continuously revising up their forecasts on CCB's stock price.  And CCB is taking concrete actions to fulfil its own promise to “create the greatest value for its shareholders.”