MGT 3131 Tri-Cities Community Bank Case

Group Members:Elena Huai, Alicia Kennedy, Megan Melvin, Xiaoyuan Zhang

Case A: BSC Development

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 Prepare a report to the Board of Directors that explains how the BSC may be used to help

TCCB achieve its strategies goals. Include the following in your report:

1. A table that categorizes each of the measures in Exhibit A2 into one of the four BSC

perspectives. State why you placed a measure in a particular perspective.

Learning and Growth Internal-Business Customer Financial

Perspective Perspective Perspective Perspective

- Employee Training - New Products - Customer - Outstanding Loan

Hours Introduced Satisfaction Balances
- Employee Satisfaction - Sales Calls to - Customer - Deposit Balances
- Employee Turnover Potential Customers Retention - Non-Interest
- Thank-you calls/cards - New Loans Income
- Referrals Created
- Cross-Sells - New Accounts
- No. Products per - No. of New
Customer Customers

Learning and Growth Perspective

The Learning and Growth Perspective provides Tri-Cities Community Banks with indicators on

how well the current organization and training of employees is working in sustaining long term

growth.

Employee Training Hours: by providing employees with training in sales techniques, customer

service skills, and product knowledge and their effects on profitability, TCCB is giving their

employees the skills they need in order to achieve TCCB’s objectives.

Employee Satisfaction: it is important to make sure that employees are satisfied as this will

affect their ability to provide the quality customer service TCCB needs to provide the

“hometown” atmosphere desired.

Employee Turnover: having a high employee turnover rate is costly because of the time and

money spent hiring and training employees. TCCB adds value to their company by retaining

experienced, long-term employees.

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 Internal-Business Perspective

The main focus of the Internal Business Process Perspective is for a company to analyze the

inner workings of the business and how well they are enhancing their customers and

shareholders.

New Products Introduced: by introducing new products, TCCB is expanding what they have to

offer their customers and adding value to their company.

Sales Calls to Potential Customers: this process is necessary for employees to get new

customers. TCCB must excel at this measure if they hope to increase their business.

Thank-you Calls/Cards: this is a process that employees can use to follow-up with customers

and show TCCB’s appreciation for their business at the same time.

Referrals: by completing referrals, employees can identify the needs of the customers in order

to sell products to them. Referrals also transfer employee sales to other branch employees,

increasing productivity in all departments of the bank.

Cross-Sells: selling multiple products to a customer allows TCCB to boost customer relations

and effectively market their services.

Customer Perspective

Tri-Cities Community Banks can use Customer Perspective measures to indicate to the

branches how much customers value their services. This is an important lead indicator to track

how successful their implementation has been in order to achieve their strategy.

Customer Satisfaction: if customers are satisfied they will continue to use the services of TCCB

and are more likely to increase the number of products that they have by depositing more

money and taking out new loans. Satisfied customers will also tell their friends and families that

they should go to TCCB, which will bring in new business.

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 Customer Retention: if customers leave TCCB, they will be decreasing the deposits, loans, and

non-interest income. It is easier to keep existing customers than to get new customers, so

TCCB will want to ensure that they are retaining as many customers as possible.

New Accounts: new accounts directly impacts the deposits and non-interest income as there will

be service fees associated with these accounts.

No. of New Customers: as the number of new customers increases, so does the amount of

deposits, loans, and non-interest income. The more new customers that TCCB can get the

better.

No. Products per Customer: the more products a customer has, then the more deposits, loans,

and non-interest income TCCB earns per customer. This measure will indicate how effective the

employees are being at referrals and cross-sells.

New Loans Created: new loans will affect the amount of interest income that TCCB earns.

Financial Perspective

As all measures in a Balanced Scorecard must have an underlying relationship with the financial

measures, Tri-Cities Community Banks can view just how well their master strategy of balancing

profits with growth to ensure the bank remains an independent entity existing to provide quality

service and products to an increasingly diverse customer base is working. By examining these

measures, the branches can ensure value is being added to their shareholders. They clearly

show the company’s financial situation to the stakeholders and can also help provide them with

a future forecast of the company.

Outstanding Loan Balances: the greater this amount is, the more interest income TCCB is able

to earn.

Deposit Balances: banks are only able to lend money if they have a certain amount of money on

deposit. It is very important that they have a large balance in deposits in order to continue

growing.

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 Non-Interest Income: although not as large as interest income, non-interest income is still a big

necessity in operating a bank. This is a more guaranteed form of income as loan balances and

interest rates can fluctuate significantly.

2. Two cause-and-effect chains similar to the one shown in Exhibit A3. Use the measures

listed in Exhibit A2 or suggest other measures you feel are appropriate. Be sure to include a

causal chain explanation with your answer.

Learning and Internal Customer Financial

Growth Business Perspective Perspective
Perspective Perspective

Employee Number of New → Improved Loan,

Satisfaction Customers, Deposits, and
Loans, and Non-Interest
Accounts Income

↓ ↑

Employee → Number of Sales → Customer

Satisfaction Calls and Satisfaction
Survey Thank-you Surveys
calls/cards
Causal Chain Explanation:

It is important to make sure that employees are satisfied as this will affect their performance and

ability to provide good customer service. If employees have high satisfaction in their jobs, they

should be able to make quality connections with potential and new customers. The number of

sales calls and thank-you calls/cards will be higher quality which will make potential and new

customers more interested in giving their business to TCCB. Customer satisfaction surveys,

specifically from new customers, will indicate how successful the sales calls and thank-you

calls/cards were in obtaining new business as well as the actual numbers of new customers,

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 new loans, and new accounts. This increased new business is critical in improving the growth of

loans, deposits, and non-interest income for TCCB.

Learning and Internal Customer Financial

Growth Business Perspective Perspective
Perspective Perspective

Employee Compare No. → Improved Loan,

Satisfaction products/cust to Deposits, and
Survey previous Non-Interest
quarters Income

↓ ↑

Reduced → New Products → No. Products per

Employee Introduced Customer
Turnover

Causal Chain explanations:

Reduced employee turnover rate will result in more knowledge and experience remaining in the

company. This knowledge and experience is one of the main source for developing new

products. Increasing the number of new products will give customers more options to choose

from. This will result an increased number of products per customer. Increasing the number of

products per customer will result in increasing the loan balance, deposit balance and non-

interest income.

Case B: Assessing Financial Improvement

1. Prepare an analysis to determine whether the BSC appears to have had an effect.

Branch Total Total Performance Difference in % Growth from

Performance 2007 (Million $) Total 2007 to 2008
2008 (Million $) Performance

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 A 124.876 113.311 11.565 10.2%

B 163.028 151.499 11.529 7.6%

C 200.529 180.574 19.955 11.1%

D 140.091 132.076 8.015 6.1%

E 164.043 162.444 1.599 1.0%

Sum A-E 792.567 739.904 52.663 7.1%

Avg A-E 158.5134 147.9808 10.5326 7.2%

F 130.745 130.735 0.01 0.0%

G 180.198 179.777 0.421 0.2%

H 111.63 110.733 0.897 0.8%

I 145.093 142.68 2.413 1.7%

J 222.589 213.571 9.018 4.2%

Sum F-J 790.255 777.496 12.759 1.6%

Avg F-J 158.051 155.4992 2.5518 1.4%

2. Summarize your results in a report appropriate for the Board of Directors.

In order to determine the effectiveness of the balanced scorecard in the South Division (SD), we

calculated the percent growth for all ten branches from the key financial indicators of loan

balance, deposit balance, and non-interest income from 2007 and 2008. Percent growth was

calculated by dividing the difference in total performance by the total performance in 2007. By

using a percentage we are able to eliminate any differences due to size or location of branch so

that we strictly compare growth between branches.

We then calculated the sum of the percent growth for both regions as well as the average for

those regions. The sum for the South Division (branches A-E) were 7.1% compared to 1.6% for

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 the North Division (Branches F-J), this is a full 5.5% greater percent growth. Also, when looking

at the average percent growth, SD had a 5.8% higher growth on average compared to ND.

These values suggest that the balanced scorecard had a significantly positive effect on the

growth in our key financial indicators in the SD. I would strongly advise that you considering

introducing the balanced scorecard to TCCB’s remaining branches in the ND.

3. Identify differences in implementation quality that may explain variation in performance

among branches A-E. What implementation recommendations would you make to ND

managers who are considering adopting the balanced scorecard?

It appears as though Branch E was not very successful in their implementation of the balanced

scorecard. They failed to properly communicate what it was or why they were using it, and did

not involve the employees in developing the branch goals or individual performance measures.

As a result, from our analysis above, we can see that the total performance and percent growth

of Branch E was more comparable to that of the ND branches.

Most of the other branches all seem to have similar results in implementation and performance.

The employees understand the purpose of the BSC and its measures, and feel as though the

measures are fair. Each branch seems to have set up different incentives for reaching BSC

targets, which is important as this provides employees with more motivation to improve their

performance.

From the interviews, it is clear that communication about the purpose of the balanced scorecard

is key. In order for a BSC to be effective employees must know why it is being implemented.

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 This way they understand the role that they play in reaching branch goals and achieving the

company’s overall strategy. The BSC also provides each employee with individual measures so

that they know what is expected of them.

Involving the employees in the BSC goals is also very important, both in setting the goals, and

in offering incentives for reaching the goals. If the employees do not feel that the scorecard

measures are reasonable, then it will not be effective. The employees need to believe that the

measures are realistic and fair otherwise they may become dissatisfied and their performance

will suffer instead of improve. The incentives encourage more participation and reward

employees so that will want to continue to obtain their performance measures.

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