Analysis of HSBCs Quality of Service Strategy - Essay Example

Analysis of HSBC’s Quality of Service Strategy Introduction This paper analyses the Quality of Service (QoS) strategy of HSBC, a global banking giantheadquartered in London and with 9,800 branches (properties) in 76 countries and territories in Europe, Asia and the Pacific, Africa, and North and South America. Its 284,000 employees serve over 120 million worldwide customers who avail of the bank’s range of financial products and services. By end-2005, HSBC’s turnover of £50.5 billion and £9.1 billion in profits made it the biggest bank in the U.K., the 4th biggest bank in the world, and the 26th largest corporation on earth (Lustgarten, 2006). Like most big banks, HSBC’s customer-focus has pushed it to organise its internal and external operating systems into four customer groups, each with its own specific strategies: Personal Financial Services (PFS) Commercial Banking (CB) Corporate, Investment Banking and Markets (CIBM) Private Banking (PB) The QoS analysis in this paper would be limited to HSBC’s PFS customer group. HSBC’s history, mission and vision, core values and strategies provide a fundamental view of the dimensions of service quality using a variety of sources: official HSBC financial and corporate social responsibility (CSR) reports and publicly available critical articles on the company. Using specific examples, QoS gaps are identified and show how these gaps are addressed and managed. In the process, key service encounters, potential failure points, and the management of service failure and recovery are likewise discussed. HSBC: History and Core Values HSBC’s latest annual report (HSBC, 2006, 7-11) contains substantial information on the company’s history, strategies, and organisation. HSBC was established as the Hongkong and Shanghai Banking Corporation in 1828 in China to service the trading and business interests of the British Empire. Over the years, the bank has grown through acquisitions in Asia, the U.S., Latin America, and the U.K. to emerge as a dominant force in providing financial services in a globalised world. In 1999, the bank decided to use one name (HSBC) with its familiar red and white hexagon corporate symbol to establish a uniform international brand identity that has become an increasingly familiar site the world over, with its motto “The World’s Local Bank” to emphasise global reach whilst maintaining its familiarity with the needs of local customers. At the end of 2003, HSBC launched “Managing for Growth”, a strategic plan that provides a blueprint for growth and development up to the year 2008. Its strategy builds on HSBC’s strengths and addresses the areas where further improvement was considered both desirable and attainable. HSBC’s strategic vision is to be the world’s leading financial services company: preferred and admired by customers, dynamic in its profitability and corporate growth, and recognised for giving each customer a fair deal. The bank will build on its strengths, what it calls its core values, which have been identified as follows: Emphasis on long-term, ethical client relationships; High productivity through teamwork; Confident and ambitious sense of excellence; International outlook and character; Prudence; Creativity; and, Customer-focused marketing. Its strategy and core values are translated into strategic imperatives that cover the four customer groups already mentioned above: Brand: make HSBC and its hexagon symbol one of the world’s leading brands for customer experience and corporate social responsibility. Personal Financial Services: drive growth in key markets through appropriate channels to make HSBC the strongest global player in personal financial services. Consumer Finance: extend the reach of the business to existing customers through a wider product range and penetration of new markets. Commercial Banking: make the most of HSBC’s international customer base through effective relationship management and improved product offerings in all the Group’s markets. Corporate, Investment Banking, and Markets: accelerate growth by enhancing capital markets and advisory capabilities focused on client service in defined sectors where HSBC has critical relevance and strength. Private Banking: serve the bank’s highest value personal clients around the world. People: attract, develop, and motivate HSBC’s people, rewarding success and rejecting mediocrity. Total Shareholder Return (TSR): fulfil HSBC’s TSR target by achieving strong competitive performances in earnings per share growth and efficiency. PFS integrates the bank’s Consumer Finance businesses. This customer group serves some 120 million individual and self-employed customers with a wide range of banking and related financial services. Its products – current and savings accounts, mortgages and personal loans, credit cards, and local and international payment services – differ according to local regulations, market practices, and the market positioning of HSBC’s local businesses. Quality of Service (QoS) Concepts Parasuraman, Zeithaml, and Berry (1985) developed a conceptual model of service quality using a technique they developed into what is now called ServQual to perform a gap analysis of an organisation’s service quality performance against customer service quality needs. Using empirical research involving hundreds of service organisations, their QoS model takes off from an understanding of the perceived service needs of target customers, uses customer service surveys to measure perceptions of service quality for the organisation, and then compares these measurements against a benchmark established by an excellent organisation. The resulting gap analysis is then used as a basis for improving service quality. QoS takes into account how customers perceive the relative importance of five service attributes, later on expanded to ten, as shown in Table 1. Critics like Zemke and Schaaf (1990, 53) found ServQual too universal and generic and falls short of the need for specific information that can be used to correct or confirm employee or unit performance. They argue that the more general the feedback, the less effective it is for QoS purposes, and that the really useful, specific, directly applicable information comes from talking to particular customers, constantly and often at length, to determine what the company is doing that makes them happy or not. White and Nteli (2004) compiled a list of alternative instruments developed to measure QoS. Cronin and Taylor (1994) created ServPerf to focus on performance measures of service quality rather than customer expectations. Hemmasi, Strong, and Taylor (1994) redeveloped the importance-performance technique in banking. Johnston (1997) looked at service quality in banking using the critical incidents technique. For the banking industry, Avkiran (1999) developed BankServ, a single scale measure of service quality designed to allow customers to reflect on their perceptions and expectations in a single statement, whilst Bahia and Nantel (2000) proposed the Banking Service Quality (BSQ) as an alternative measure of perceived service quality. With so much material related to measuring and improving QoS in banking, it is ironic to note that in a recent study (Datamonitor, 2004) of U.K. bank customers, value for money was the most significant factor for loyalty as shown in Figure 1, followed by the quality of service and the availability of distribution channels. The study showed that all other factors such as personal relationships, brand image, and other soft motives are not strong enough to drive customer loyalty. This is perhaps the reason why HSBC included in its strategic vision a focus on making the customer feel that s/he is getting value for money by making the bank preferred and admired by customers and recognised for giving customers a fair deal. By transforming every transaction into a unique banking experience and improving QoS, HSBC hopes to elicit this reaction from each customer. Whether it would be enough to generate the customer’s perception of value for money can be measured by using the ServQual model to analyse HSBC’s service delivery strategy. Analysis of HSBC’s QoS Figure 2 shows a diagrammatic QoS framework that summarises the interactions between HSBC and the customer of its PFS Customer Group based on the QoS attributes of the ServQual model. This framework will be used to analyse HSBC’s Personal Financial Services (PFS) Customer Group QoS strategy. PFS accounts for the largest share (47.2%) of HSBC’s profit before tax (HSBC, 2006, 44). As the deposit taking unit of the bank, PFS generates revenues and profits through an extensive branch network and innovative sales and marketing strategies to reach and retain as many customers. It is to achieve customer retention that banks like HSBC emphasise the importance of customer service quality, because getting new customers may be more expensive than retaining one (Reichert, 1994), although Reinartz and Kumar (2000) disagree, claiming that serving long-term customers may not necessarily be beneficial or profitable. The branch network of HSBC is therefore a key driver of business success depending on how its front line personnel treat customers. What the QoS framework shows is that word of mouth, the needs and past experiences of customers with HSBC or other banks, and the bank’s external communications affect the customer’s service quality expectations. Once the customer is placed in contact with HSBC at the bank or through its call centre, a unique banking experience takes place. It is the quality of that service experience that is perceived by the customer. Should the perceived service quality match what is expected, the customer comes out of the encounter with a positive experience, increasing the chance of generating loyalty and word of mouth benefits for the bank. However, if the opposite happens, and the customer’s perceived level of service is lower than what was expected, a negative experience takes place with negative effects on the bank’s reputation in the market. There are several key customer service encounters that can happen at the bank. The atmosphere at the branch or the way the call centre operator responds, the telephone picked up and answered in three rings or less, provide the first impression. Getting satisfactory answers promptly and professionally, short queues, forms that are few and take only a short time to fill up, how products and services are marketed, the way rejections (e.g., to a loan application) are handled, and even the colour and design of a credit card: all these (and more) have an impact on the customer banking experience. HSBC needs to have QoS strategies and standards covering each potential service encounter. The QoS framework identifies five areas where gaps may exist, each one representing a service encounter with its own potential failure point. Using PFS as the focus of the service encounter, this framework can be applied to identify potential service quality gaps for every customer service encounter at the bank: checking the bank balance, making an inquiry on a product or service, a deposit or withdrawal, or logging on to the bank through the Internet. Gap 1 represents a difference between management’s perceptions of the customer’s service expectations. If the perceptions are not correct, every other measure to improve service would be practically useless. Gap 2 is a system design gap: if customer needs have been understood correctly, was the system designed capable of delivering that quality of service? Gap 3 is an operation and execution gap: is HSBC delivering the service at a quality desired by the customer? Gap 4 is a communications gap: how well does HSBC communicate both inside to its employees and outside to its customers its quality standards to level their varied expectations? Gap 5 is a satisfaction gap: it is the result of the four other gaps and if there are problems on this point, HSBC has to find out which caused it. Five Potential Service Gaps at HSBC Gap 1 can be addressed by designing better market survey instruments and improving their interpretation of the results. HSBC’s claim that it is customer-focused should help it bridge this gap. By encouraging service representatives to interrelate with customers in the branches and making them accountable for this, the bank develops a feel for what customers really want versus what the surveys show. One prominent example is HSBC’s bank branch in Riyadh, Saudi Arabia that caters only to women and where all employees are also women. Gap 2 arises because it is not easy to design a physical organisation or system based on intangible ideas such as QoS, or the design is not flexible enough to keep abreast of the reality. For example, HSBC had to design its information system so that a client that came in the morning to its Canary Wharf branch in London to inquire about a problem with her account and could not wait for an answer should get a sensible answer if she calls the service operator later in the evening to inquire about the same problem. This is still a simple issue that causes poor quality service perceptions. Imagine a globe-trotting customer who wants information about his accounts in other countries. Gap 3 is more complex because it involves people, especially front line workers who face customers. People may be motivated differently, or lack the necessary tools to deliver service at the desired and expected quality. Others do not like change and view it as a burden instead of an opportunity to win a bigger share of the customer’s wallet. HSBC solves this gap by getting good people, training them well in service quality management, and providing them the needed tools to deliver. However, most of the problems from unsatisfied customers as will be seen below have something to do with poor coordination of information and the outsourcing of sales and customer service jobs through offshore call centres in India. Gap 4 usually proceeds from Gap 3 because QoS perceptions have to be communicated to workers and customers. Lack of coordination amongst different organisational functions, e.g., customer service from sales and marketing or information technology may take place, resulting in serious problems for banks like HSBC, which prides itself as a local global bank. An example is a customer who complained that he was turned down when he applied for a credit line for his small business after being pestered for weeks to apply for a loan by HSBC’s sales staff over the phone. This resulted in negative word of mouth for the bank. Gap 5 can arise from any or all of the four previous service quality gaps. This is achieved by extensive training of employees, coordination of communication and work systems, improving customer service surveys and their interpretation, investment in the redesign and refurbishing of branches, and improved information technology work processes. HSBC also claims in several parts of its annual report, its CSR report, and its website for potential employee-applicants that it engages in a continuous process of learning from QoS mistakes, which is part of its culture of being accountable for its past actions. Conclusion: Is HSBC’s PFS Delivering Service Quality? HSBC claims in its latest CSR Report (2006, 28) that it “generally seeks to respond within 48 hours to customer complaints and use them as opportunities to learn and improve.” It also showed results of a regular survey that it conducts to monitor customer satisfaction in most of its areas of operations, using the data to measure staff performance and determine individual rewards for employees. It also conducts research in 16 markets to track customer perceptions of the HSBC brand. Based on the information, HSBC scores close to but in most cases below the average scores of its peer group (other banks) in several areas of customer perception. Its annual report proudly trumpets that customer numbers and retention are up, and so are credit card balances (HSBC, 2006, 59-62). However, it is worth noting that of HSBC’s several awards in the last three years, the only ones that could be attributed to its PFS customer group are the three consecutive awards of its Internet banking subsidiary, first direct, as the best Internet bank, followed by the award for its Islamic personal financial services in 2005 (HSBC, 2007). Is the absence of awards received related to PFS and the decline in customer ratings over the last four years a sign that HSBC is slipping in delivering high QoS standards? In order to get more details, the website of ciao.co.uk1 (Ciao, 2007) was checked for its reviews of HSBC and a similar pattern emerges: most of the 5-star ratings received were for Internet banking, whilst most below average (1- or 2-star) ratings were for credit card fraud, poor branch service, pesky sales calls, poor customer service from call centres, lack of coordination amongst branches (e.g., in the case of recently divorced couples who want to divide their accounts to different branches), and a number of other customer stories. Some customers who experienced service failure claimed that they were moving (or have moved) their accounts to other banks. If this trend continues, then HSBC is in danger. HSBC scored an average of 4-stars from all 269 reviews, but a few seriously glaring observations were made on HSBC’s QoS performance. First, the number of unsatisfied customers has increased from 1 out of 15 (7%) in early 2003 to 5 out of 15 (33%) by early 2007. Most of these customers had bad experiences with their current accounts, credit cards, call centre operators, and branch inquiries. Second, the number of very satisfied customers dropped from 14/15 to 8/15 over the same period. An overwhelming number of those who expressed satisfaction had only Internet accounts with the bank. It is ironic to note that HSBC scores high in transactions that do not include interaction between customers and human employees. Does this mean that HSBC’s computers are doing a better job of banking than its people? Or perhaps, its human customers feel more comfortable dealing with the bank through the Internet? These are possible areas for future studies. Lastly, another recent report (CRA, 2006) showed that HSBC ranks 6th (although “first direct” ranked 2nd) of 16 banks in terms of customer satisfaction levels. 38% of customers surveyed rated it excellent and very good in terms of service, just slightly ahead of its Big Four peers Royal Bank of Scotland (37%), Lloyds TSB (36%), and Barclays (35%). It is possible that the good ratings of its first direct subsidiary and its better ratings compared to its peer competitors are making HSBC complacent. Or perhaps, these findings are a validation that HSBC is aware that as the Datamonitor (2004) report pointed out, customer service quality is second only to the price of products and services, and that HSBC can continue increasing and retaining customers by focusing on price, product, and service innovations alone. Should this be the case, then it could only mean that HSBC may be ruthlessly and subtly moving most of its customers online because Internet banking is more cost effective. However, if its QoS shortcomings were caused by any of the five service gaps identified, then HSBC has to start asking the right questions and begin learning from its mistakes. Otherwise, the bank may be in serious danger in not meeting its Managing for Growth strategy by 2008 as more customers move to other banks. Table 1: QoS Attributes from Parasuraman, Zeithaml, and Berry (1985) 1. Tangibles. Appearance of physical facilities, equipment, personnel, and communication materials. 2. Reliability. Ability to perform the promised service dependably and accurately. 3. Responsiveness. Willingness to help customers and provide prompt service. 4. Assurance. Knowledge and courtesy of employees and their ability to convey trust and confidence, which has been expanded to: 1. Competence. Possession of required skill and knowledge to perform service. 2. Courtesy. Politeness, respect, consideration and friendliness of contact personnel. 3. Credibility. Trustworthiness, believability, honesty of the service provider. 4. Feel secure. Freedom from danger, risk, or doubt. 5. Empathy. The firm provides care and individualized attention to its customers, which has likewise been expanded to: 1. Access. Approachable and easy of contact. 2. Communication. Listens to its customers and acknowledges their comments. Keeps customers informed. In a language which they can understand. 3. Understanding the customer. Making the effort to know customers and their needs. Figure 1: Value for Money is the most important factor for customer retention. [Source: Figure 13, Datamonitor, 2004] Figure 2: Service Gaps Analysis Framework Consumer Word-of-mouth Communications Personal Needs Past Experience Expected Service Gap 5 Perceived Service Gap 1 Gap 4 Service Delivery External Communications to Consumers Gap 3 Translation of Perceptions into QoS Specifications Gap 2 Management Perceptions of Consumer Expectations Service Business [Source: Adapted from Parasuraman, Zeithaml, and Berry, 1985] Bibliography Avkiran, N. K. (1999), “Quality Customer Service Demands Human Contact”, International Journal of Bank Marketing, Vol. 17, No. 2, pp. 61-71. Bahia, K. and Nantel, J. (2000), “A Reliable and Valid Measurement Scale for the Perceived Service Quality of Banks”, International Journal of Bank Marketing, Vol. 18, No. 2, pp. 84-91. Ciao.com (2007), “Reviews of HSBC” from: http://www.ciao.co.uk/Reviews/HSBC__55648/SortOrder/2/Start/15 (accessed February 4, 2007). Cronin, J.J. and Taylor, S.A. 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