Answering Article Questions

When First Union Corp. of Charlotte, North Carolina, and Wachovia Corp. of Winston-Salem, North Carolina, merged in 2001, they brought together two divergent approaches to banking. Wachovia had a first-rate reputation in customer service. At Wachovia branches, customers interacted with bank staff for most transactions. Wachovia monitored the quality of its customer service by sending “mystery shoppers” to evaluate the service skills of its employees. The bank rewarded employees that rated well and their branch managers. In a 1999 survey of the 20 largest banks in the United States by Consumer Reports, Wachovia finished fourth in customer service. In the same survey, First Union ranked last in customer service. First Union branches were lean selling machines. Employees encouraged customers to conduct their business at ATMs or telephone kiosks rather than visiting tellers. First Union rewarded its employees with commissions and incentives for bringing in new business, such as credit card accounts or loans. This approach brought each of First Union’s 2,200 branches an average of $2 million in loans per quarter. Each of Wachovia’s 700 branches produced average loan sales of less than half a million dollars per quarter. For all of its selling success, First Union was struggling. Customer satisfaction was so low that the bank experienced a customer attrition rate of 20 percent in the first quarter of 1999. At the same time, employees were dissatisfied, with bank tellers turning over at a rate of 49 percent. The merger presented the new company with the opportunity to combine the winning sales tactics of First Union with the superior customer service of Wachovia. The merged bank shrewdly opted to use the Wachovia name and started restructuring its employee rewards and incentives programs to optimize both product sales and customer service. Prior to the merger, First Union ran its very successful incentive and compensation programs on a two-decade-old financial spreadsheet application named Nomad. The program could log transactions and calculate commissions and bonuses, but the staff could not reprogram the software to create new incentive programs or model alternative scenarios. Furthermore, the system required manual reporting and was, therefore, vulnerable to frequent data entry errors, usually overpayments of rewards, which cost the bank about $7.5 million a year. In 2003, Wachovia selected Callidus Software’s TrueComp system as the bank’s new enterprise incentive management (EIM) solution and went live with the new system in June 2004. With TrueComp, Wachovia was able to automate its compensation programs. The software keeps track of 31 different incentive plans for more than 25,000 employees, considering factors such as customer satisfaction, investment referrals, loan referrals, and credit card sign-ups. TrueComp integrates directly with the bank’s sales application, known as SOLD. As soon as an employee enters a new sale (new account, loan, mortgage, etc.) into the system, SOLD sends the relevant employee reward information directly to TrueComp. The investment in TrueComp will pay for itself in only one year if the system reduces the number of reward overpayments by 5 percent. Even more valuable to Wachovia are TrueComp’s modeling capabilities. By modeling different compensation scenarios before enacting them, Wachovia can see how certain incentive programs will affect the bottom line and whether new strategies will fulfill corporate goals. Suppose, for example, that senior management wants the bank to sign up one million new checking and savings accounts in 2006. The system will let management see if increasing teller incentives from, say, $25 per new account signing to $35 per new account is the best strategy for reaching that goal or whether increasing incentives for customer satisfaction ratings will have a bigger impact. The system shows the bank whether it is more profitable to award bonuses for referrals, opening
new accounts, or customer service ratings. If the bank wants to take away incentives for referrals to investment advisers but raise incentive amounts based on customer service ratings for bank branches or individual employees, the software simulates whether the likely increase in new customers and a lower customer turnover rate will produce more revenue than if those incentives were directed toward investments. Average per-branch quarterly loan sales at Wachovia now stand at $2.3 million, which is more than First Union was doing on its own before the merger and 450 percent more than Wachovia premerger branches produced. Wachovia has enjoyed a simultaneous increase in customer satisfaction, according to a 2004 Gallup survey. On a scale of 1 to 7, Wachovia rated 6.57, up from 5.59 in 1999.
Sources: Mel Duval, “Wachovia: Best Incentives,” Baseline Magazine, January 13, 2005; Christopher Caggiano, “Front-end Alignment,” Computerworld, April 8, 2005; Press release, “Callidus Software Helps Wachovia to Optimize Its Incentive Compensation,” www., November 16, 2004, accessed August 16, 2005; and Glen Fest, “Incentive Pay: Compensating for Good Relationships,” Bank Technology News,, accessed June 2005.
Answer the followings:
1. What problems did First Union and Wachovia face when they merged?
2. What solutions were available to Wachovia to solve its problems and meet its goals?
3. What did the TrueComp EIM system do for Wachovia?
4. How did the system benefit the business?
5. Do a research on the Information Systems/technology used by Wachovia? What is your assessment of your findings?
6. Argue for or against the idea that social networks are in reality business networks or at least they have turned into ones. Substantiate your argument with sufficient examples.