How the VUCA methodology can be applied to the Wells Fargo scandal

Write a -4-page academic paper in which you describe a business situation, apply a critical thinking framework to the situation, and recommend evidence-based solutions to the situation. Explain how the concepts of VUCA (volatility, uncertainty, complexity, and ambiguity) could affect both the situation and the solution

Introduction

The banking business is currently undergoing fundamental change. Since the financial crisis, a litany of new rules, regulations, and procedures have been imposed on the banking sector. These rules were primarily designed to mitigate risks associated with a financial collapse that could potentially plunge the economy back into another prolonged recession. These rules, ultimately placed heavy restrictions on banks as it relates to assets, loans, deposits, and risk taking. To alleviate these concerns banks looked to focus heavily on cross selling and other forms of additional revenue. The pioneer, as it relates to cross selling was Wells Fargo. During the period immediately after the financial crisis the bank trumpeted its cross-selling statistics to investors. Each quarter the bank improved the number of products each customer had with them. These products included personal lines of credit, savings accounts, loans, credit cards, and other products. The culture of cross selling was heavily engrained with the Wells Fargo ethos ultimately helping to heavily increase profitability after the financial restrictions of Basel III were placed on it. However, investors and society soon found out that the cross-selling culture was much more insidious than originally thought. Here, due primarily to a strong sales focus, unrealistic goals, and large pressures, Wells Fargo associates were opening fraudulent accounts. In addition, many personal bankers were guiding customers to products they did not need nor want in order to make sales goals. Management ignored the issue as they too were compensated based on sales performance and the cross-selling culture. This resulted in large scale fraud the permeated throughout the organization. The scandal quickly became worldwide news as Wells Fargo betrayed the trust of its customers. Not only that, the company profited from this fraud ultimately harming the integrity of the banking system and the capital markets overall. Since this scandal, Wells Fargo continues to faulter as it relates to its customer service scores (Corkery, 2016).

Problem

The primary problem is that many customers have lost trust in the Wells Fargo brand and its ability to be proper stewards of wealth. In addition, due to various fines, penalties, and regulations, the bank continues to rank very low in customer service relative to its peers. From a banking perspective, customer service within the overall branch environment is lacking. Many branches are now heavily understaffed. In addition, customers have experience large delays in being services as there is often only a few personal bankers within a given branch. Customer service over the phone is also inadequate relative to peers in the industry. In particular, staffing again is the cause of very long wait times over the phone for routine tasks. These wait times further alienate customers and their faith within the brand (Premachandra, 2018).

Interesting, the latest investor presentation from Wells Fargo indicates that customers are not leaving the bank. This is due primarily to the hassle of transferring funds, closing bank accounts, removing credit cards, or refinancing loans. Each of the products Wells Fargo provides to customers is very “sticky” in that they tend to last for very long periods of time with little to no turnover. As a result, even frustrated customers simply elect to stay with the bank due to hassle and problems associated with moving to a competitor (Reckard, 2013).

Thinking Critically

To improve company performance, management must focus primarily on customers as oppose to profits. Here, management must be willing to accept a temporary decline in earnings, so that goodwill and higher profits can emerge later. This will include staff increases at high traffic branches within high growth markets. This will also include revamping the incentive structure to promote outcomes as oppose to transactions. Here if the outcome is positive for the client, then bankers and Wells Fargo should be compensated. However, if the outcome is negative such as providing a product the customer doesn’t want or need, then company should not receive any profit. Outcomes can be measured using Net Promoter Score, which is mechanism used to gauge customer satisfaction and how likely they are to recommend the company to a friend. Management should base performance pay partially on this metric of evaluation. Likewise, the emphasis on sales should remain but to a much lesser extent. The incentives should not be so strong as to encourage fraudulent behavior. Here, pay will be geared towards customer satisfaction and determining if their needs are met (Zeidan, 2012).

Next the company should streamline its product offerings to further reduce the need to sell multiple products that customers do not want. Wells Fargo coincidently is already doing this as it has recently announced the closure of all personal lines of credit for Wells Fargo customers. It has also exiting various business lines related to cash management or other banking activities. Streamlining the company makes it much simpler and easier to oversee and operate. In addition, front line employees will not be as pressured to sell products and services that customers don’t need. Instead they can focus on delivering excellent customer service to their respective clients.

Applying VUCA

Thankfully Wells Fargo operates within an industry that will be needed as long as mankind is living on the Earth. Banking and the facilitation of capital from those who don’t need capital to those who do need capital is a critical function for society. It allows companies to leverage the capital to provide goods and services to society. It also allows savings to protect their savings in a safe and secure environment. Banking is needed for society to flourish and as a result, Wells Fargo will have very low uncertainty as it relates to its place in the American economy. Uncertain does exist as it relates to customer behavior and how Wells Fargo can continue to foster trust with its customer base. Another benefit is that banking ebbs and flows with the economy. It is often volatile in the sense that performance deteriorates as the economy deteriorates. As a result, volatility is a critical factor for management to consider. This is particularly true if customers in mass attempt to remove funds from the bank, transfer assets, or take their business elsewhere.

Complexity and Ambiguity are very high as it relates to Wells Fargo. As one of the worlds largest banks, the organization is very complex. Many managers will not be able to understand all of the complexity as many elements are reliant on unknown variable. Will customers pay their credit cards on time? Will there be another recession in the next year? Will our oil and gas loans get repaid in time? All of these questions have inherent risk and complexity within them. In addition, the answers are reliant on variables that are beyond the banks control. This ultimately makes customer service solutions very difficult to implement as heavy investment is required but the resulting profitability growth is very uncertain. Likewise, the information needed to make the decision is open to large amount of interpretation adding further complexity. With economic forecasting, customer data, and customer behaviors, two people with the same facts can arrive at different conclusions. As a result, it is important to have a conservative approach (Tayan, 2018).