; Manila Savings Bank* E Early in the morning of July 3, 1983, Mr. Jerry Villanueva, _ MSB's vice president for Corporate Planning called in Dave de Leon—one of his staff in charge of generating the monthly Cost of Deposits report. Such a report represented an attempt by the Corplan Department to quantify the cost of funds—in this case the cost of deposits of the bank. When asked if the reports were ready already for the 9:00 a.m, Executive Committee meeting, Dave said that the source document forms from the branches had only come in late yesterday afternoon. As such, the data had not yet been fed into the computer for the Codep report generation. At this instance, Villanueva exclaimed, “those people from the branches don’t seem to realize that these reports are important to us. They seem to take these forms forgranted.” This had been the pattern for all the four months when the Cost of Deposit reports were conceived of by » the Corplan unit as a way of tifying the weighted average interest rate the bank pays out on savings, checking and time de- posits. Mr. Villanue 2 ered why such would happen The data needed were ver uch similar to the other reports they send to the Accounting nd anyway. He also noted that Corplan hac yranches with a manual ‘on how to properly fill ov rms. This manual was usually required by the Systems De some units of the bank re- quired others to come up with Mr. Villanueva pon- dered on this and wondered if th were other problems involved in this case which caused the delay of the source documents from the branches. d the A Company Background on the Manila Savings Bank The Manila Savings Bank (MSB) was the country’s largest sav- bank in 1983. It had total resources of approximately P4.0 on at this time and as such was bigger than all the other sav- ks—combined. It had an extensive branch network within Manila area and within key cities and localities all aroundie 120 HUMAN BEHAVIOR IN ORGANIZATIONS the Philippines. As such, it was even bigger, in terms of resources, ’ than the other commercial banks. MSB was founded in July, 1964 by Don Tomas B. Antonio. The first branch of MSB was located in Plaza Sta. Craz—very near the Sta. Cruz church. The appeal of this bank was that it was con- ceived of with the “common tao” in mind. During the early years, it was noted that the small depositors were apprehensive in going to banks to deposit their savings. This attitude persisted among the small depositors because the other banks then were viewed as be- ing “cold” and that banks were usually for the rich people only. As such, when MSB came into existence—it built up its client base on these small depositors. Owing to this particular strategy, the bank had achieved a sustained high level of growth to what it is at present times—the country’s biggest savings bank. The bank had a total of 81 branches—nationwide. The bank had also concentrated most of its loans in the real estate industry as this provided a safe and secure collateral—Real Estate Mortgages. As Don Tomas had put it. Real estate property is one of the safest investments an indi- vidual can make. You are sure that values will always appreciate through the years and you will also be assured that this investment is “inflation-proof”. Land, being a very scarce commodity, will always have a demand.” In 1983, the competitive environment in the banking industry was very intense. Banks were scrambling to attract depositors to deposit their funds in their banks. Most of the banks in this period had opened their doors to even the small depositors already. Much ‘of this competition came about when the Central Bank of the Phil- ippines had deregulated the interest rates banks could pay out on deposits. Unlike in the past where a “ceiling” was set on the inter- ‘est rates bank could pay out on time, savings, and demand depos- ch was scrapped already. As such if the relative funds level ts were going down, they were usually able to attract de- ring them with very high time deposit rates. The —COMMUNICATION. 121 of the banks (interest paid on deposits and/or Bills & Notes on were going to be high also. As such this meant that the t rates on their lendings would have to increase likewise to maintain that necessary margin to cover overhead costs and main- tain a certain profit margin. The Corplan Unit The Corporate Planning unit of the bank was a relatively new addition to MSB’s organization. It was established in December of 1980. The Corplan unit was conceived of as a staff unit to service top management's planning needs. It is organizationally situated as a staff function under the president. (refer to Exhibit No. 1) Corplan’s head—Mr. Jerry Villanueva had a Master’s degree in Business Adm—with a Banking and Finance major from the Sophia University in Japan. He also had an M.A. Economics from the University of Chicago in the United States. He was noted to be one of the few senior officers in MSB to have graduate degrees— most of the officers had undergraduate degrees only—most of whom were accountants or lawyers by profession. Mr. Villanueva was invited to join the bank by Mr. Alfredo Antonio, Don Tomas’ son, who was the concurrent chairman of the board of MSB. The two were classmates at the University of Chicago The Corplan staff was made up of young and intelligent men and women who were either Finance or Economics graduates from the leading universities in Manila. The work at Corplan usually entailed economic research and analyses of economic trends which was to be used by the bank’s senior officers as input to their plan- ning sessions. The unit also evaluated the performance of the bank Vis-a-vis its competitors and raised the “red flags” when some things were going out of line. orplan unit was usually recognized as the bank’s “think ie to the technical work they do there. The staff of the expected to keep long hours when necessary, ping long hours was a norm in the unit, The a very close-knit one and had on sev- sts122 HUMAN BEHAVIOR IN ORGANIZATIONS . eral occasions gone on group outings or parties. This particular group was also excluded from participating in the bank's labor — union since they were regarded as “confidential staff.” The members of this unit were paid a salary which was one to two pay scales higher than the other employees in the bank of comparable seniority. The Cost of Deposit Report In view of the current competitive situation in the banking in- dustry, it was important that the banks exercised some control over their costs. It was also important that top management have some basis for increasing its loan rates if the need arises. The present information system in the bank was not able to quantify these costs comprehensively. It was because of this situation that the Corplan unit conceived of the Cost of Deposit report. Simply stated, this computer generated report gives the weighted average effective rate the bank pays on the aggregate amount of time, savings, check- ing and total deposits. (A sample printout of this report is shown in Exhibit No. 2) In order to be able to generate this report, Corplan needed the necessary data from the branches. The data required were: 1. The different time deposit packages (TD term & interest rate given) and the outstanding deposit balances on such packages; 2. The outstanding deposit balance for savings accounts with at least P100 and the outstanding deposit balance for savings accounts with less than P100 (the latter were. paid no interest); The outstanding balances on the checking accounts main- tained with the branch, xCOMMUNICATION 123 note however that if a particular branch has a very big volume of business—then the accounts run-up for the different time deposit packages may be a tedious matter. The run-up of the savings de- posit is facilitated with the use of the bank’s on-line computer sys~ tem. (a sample of the Codep source document form is presented in Exhibit No. 3) Once Corplan had all these figures with them, they fed in the data to their computer. Their program automatically calculated the effective interest rates of the different time deposit package—since these were the only ones which were changing in terms of interest tates. The effective rates on the savings deposit were fixed at 9.31% (effective). The weights were derived as a percentage of the par- ticular deposit class to the total deposits. The Introduction of the Cost of Deposit Report The Cost of Deposit report was first introduced in the month of February in the same year, It was met with enthusiasm on the part Of the Corplan staffers since this project was seen as their “brain- child.” Top management of the bank also looked at it as a very important report, this time they would have some objective basis for making decisions which pertain to the interest rates they will offer on time deposits in the future and the interest rates to charge ‘on loans also. When the first report came out, Mr. Villanueva conducted a seminar for the bank’s senior officers, the different branch area heads and the branch managers. The seminar provided a venue for discussion on what this report was all about, how it could help sement in better decision-making, and give the bank and the branches some information on the cost of funds of their jal reactions to the report were very good. In fact, the d if it was possible for Corplan to generateAt this point Mrs. Claire Aldea, the bank’s comptroller made the remark that “I see the merits of your report not only as an ‘ informational tool. I see the Possibility here of using such as a control tool also. This report will provide me with a objective ba- sis for evaluating the branches’ performance in terms of holding down costs. I also see the possibility of using this report as a tool for evaluating the branch managers’ performance. You will remem- ber that some of the time deposit packages are negotiated. If the branch managers can “sell” the lower cost packages—then their cost of deposits will be relatively low.” At this point, Mr. Villanueva noted some of the branch manag- ers whispering things to each other. He then reacted to Mrs. Aldea’s statement by saying that the use of this report as a control tool is possible—and will have to depend on top management. Mrs, Lulu Morales, a branch manager of MSB’s Ermita branch said that using the Cost of Deposit report to control the cost— which in this case is the interest paid out on time deposits might curtail the business development activities of the branches. It was noted that interest rates provide the managers some kind of “bait” to attract customers to deposit in their branches. It was also noted that the branches were under pressure to meet some set deposit growth targets also. The Succeeding Months After the meeting in February, Corplan set out to receive the ‘source documents from the branches. The unit had in fact hired a clerk-secretary who would do the feeding in of the source docu- ments to the computer. ling month. By the end of the first week of April vas noted that less than 50 source document reports 5 had then sent out memos to the differ- minding them of the submission of the second week some 20 . At this instance, Mr. ‘iCOMMUNICATION 125 _ Villanueva directed his staff to telephone the branches concerned to ask these branches to submit the report as soon as possible. As such, the report for March came out in May already. It was noted that this trend of delayed reports continued. Mr. Villanueva coor- dinated with Mr. Mario Reyes, the bank’s vice president in charge of branches, and the different area heads—reminding them to sound off to their managers the need for these reports to come on time. The latter gave Mr. Villanueva their reassurances that they will indeed talk to their people. The July Executive Committee Meeting The July Executive Committee meeting was,one of the “criti- cal” meetings held within the year. In this meeting, the different functional units of the bank—branches, loans, investments, trust services, management services, etc. reported to MSB’s top man- agement on the first semester accomplishm reir units. It provided a yenue for MSB’s m om the line Officers of the problems they ar this meetin; performance of the different ma actual performance of the units they are held accountable and re- sponsible for is compared to som r budgeted performance which was set in the planning sessions of the bank. ers also evaluated—that i When it was the turn of Mr. Villanueva, he set out with his discussion of the external environment. The Corplan unit-—hav- ‘ing its own economic research and forecasting group gave the forecasts on the exchange rate, interest rates, inflation, etc. A criti- cal evaluation of the bank’s operating performance versus the in- dustry performance showed the bank slightly well off than the . After his presentation however, the bank’s chairman was ‘to ask the question; e are the monthly Cost of Deposit reports for this do Antonio asked. delays in generating the computer print- was Villanueva’s answer.‘The chairman stood in disgust and exclaimed, “Those are very important reports we*need to evaluate the interest rates we are currently offering to our depositors—to stay competitive in this business, we need information such as that report to be able to adjust our current strategies!!” “I understand that sir, but you see, my boys are only able to generate the reports as soon as all the source documents come in from the branches. We've been following up the branches on the timely submission of the reports from them. However, there seems to be no change—no matter how much we issue them memoran- dums to submitt it on time” was Villanueva’s quick reply. At this point the chairman turned to Mr. Mario Reyes, the bank’s Vice president for branches, “Mario, can’t your people get those Teports on time to Jerry’s boys, you know we need those reports and we can only use them if they come on time. “Well sir, the problem with this report needed by Corplan is that my people there at the branches don’t really know what it is and how it is to be accomplished. Often times they have to call up the head office to clarify just how the forms are accomplished, my staff does not understand how these forms are to be accomplished also—so how can we be expected to hand in these reports in time?” was Reyes’ reply. “I beg to disagree with that contention, we had provided the _ branches with copies of a manual on how to properly accomplish the source document form. In fact, we even had a seminar on what report was about and how significant it was. How can you say that we just send out those source document forms with- ny instructions? was the hurried response of Villanueva. n,” the chairman addressed both Reyes and will hold both of you accountable for the timely st of Deposit reports. I cannot stress thecome 127 Study Guides What is the main problem of this case? What areas should top management of Manila Savings Bank consider in solving the conflict between the Corplan Divi- sion and the MSB branches? If you were top management, what plan of action would you take to resolve the conflict between Corplan and the branches of the bank?