Case 1 People, Service, and Profit at Jyske Bank Employees \ Shareholders ‘The Jyske Bank Group is managed and operated as a business. At the same time, we attach great importance to treating our three groups of stakeholders—shareholders, customers and employees—with equal respect. This is illustrated by three equally big overlapping circles which must remain in perfect balance. If the balance shifts in favor of one or two of the groups, this will be to the long-term detriment of all the groups. —Jyske Bank Management Philosophy In 2003, Jyske Bank Group's primary operations consisted of Jyske Bank, which was the third largest bank in Denmark after Den Danske Bank and Nordea's Danish opera- tions (see Exhibit 1). Jyske Bank was created in 1967 through the merger of four Danish banks having their operations in Jutland, Jyske being Danish for “Jutland- ish.” Jutland was the large portion of Denmark attached to the European mainland to the north of Germany. Until the late 1990s, Jyske Bank was characterized as a typi- cal Danish bank: prudent, conservative, well-managed, generally unremarkable, and largely undifferentiated. Beginning in the mid-1990s, Jyske Bank embarked on a change process that led to its no longer being characterized as either unremarkable or undifferentiated. By 2003 its unique “flavor” of service made it a leader in customer satisfaction among Danish banks (see Exhibit 2), At the heart of these changes was the bank’s determination to be, in the words of one executive, “the most customer-oriented bank in Denmark, ‘The bank achieved its goal by focusing on what it called Jyske Forskelle, or Jyske Differences. “This case was prepared under the auspices ofthe Scandinavian international Management Isttute, Iwas written by Roger Hallowell tis intended to be used as a basis for class discussion rather than toillustrate either eectve or ineffective handing of an administrative situation. © 2003 SIM, Scandinavian international Management stitute,570 Case 1 People, Service, and Profit at Jyske Bank EXHIBIT 1 Danish Banks Shareholders’ Equity at January 1, 2002 Src: ke Bak Bank Shareholders’ Equity “Tt Dba 57.09 2." Jyske Bank 6.174 3. Sydbank 3.435 4. Nykredit Bank 2.708 5. Spar Nord 1.692 6. Arbejdernes Landsbank 1518 7. Amtssparekassen Fyn 994 8. Amargerbanken 956 9. Sparbank Vest 841 10. Sparekassen, Komnijlland 816 11. Ringkabing Landbobank 794 12, Alm. Brand Bank 749 13. Forstzedernes Bank 706 14. Loskllde Bank 698, 15. (dn Lang Spar Bank 589 16. Narresundby Bank 583 17. Sparekassen Sjeelland 582 18, Sparekassen Lolland 559 19. Nordvestbank 545 ‘Not: Nore is ot shown sit wa Swe Bank with opens in Denk, having aed Union, DENMARK At the onset of the twenty-first century Denmark had a population of approximately five million. A member of the European Union retaining its own curreney (the Dan- ish Kronor, DKK"), Denmark was the southernmost of the Scandinavian countries, Denmark had been a wealthy country for hundreds of years. This was originally due to its strategic location in the Baltic Sea (see Exhibit 3) enabling it to extract tolls from merchants who were forced to sail within cannon range of its shores. More recently, much of Denmark's wealth came from high-value-added goods such as agricultural products, pharmaceuticals, machinery, instruments, and medical equipment, in addi- tion to a highly-developed service sector including shipping. Following the Second World War, Denmark adopted a social welfare sy government described as follows: The basic principle of the Danish welfare system, often referred to as the Scandinavian ‘welfare model, is that all citizens have equal rights to social security. Within the Danish welfare system, a number of serv available to citizens, fee of charge. .. . The Danish welfare model is subsidized by the state, and as a result Denmark has one of the highest taxation levels in the world ? JUTLAND Jutland was physically separated from Denmark's capital, Copenhagen (see Exhibit 3 for a map). Copenhagen, with a population comprising almost one-quarter of all Danes, was located on the island of Zealand (Sjaelland). Jutland’s isolation from the capital prior to modern transportation led to its people being characterized differently 'Euro bought approximately OKK 7.4 and U.S, $1 bought approximately OKK 6.3 as of une 10, 2003, See wn denmark dkCase 1 People, Service, and Profit at Jyske Bank $74 B EXHIBIT 2 Danish Banks’ Quality of Service Metries E Part: Analysis of Bank image Chose This Bank They Are a Service we 1 Wilingness Strategie and —_Expertin Want to Total to Take Coachfor Customer Advice and Change Image Risk Management __Me__Treatment_ Competence Banks | tyke Bank 1 1 1 1 1 1 1 Syabank 2 2 3 2 2 2 2 i SparNord Bank 3 4 4 3 3 5 5 Miatbanly Handesbank 4 6 7 4 6 4 7 Amagerbanken 5 3 5 6 4 8 6 | Amsspatekasen i Fyn. 6 5 6 S 5 7 8 Nordes ? 7 8 8 ? 6 3 ’ Danske Bark 8 8 2 7 8 3 4 gq 8G Bank 9 9 9 9 9 5 9 Part (A) Consumer Satisfaction Survey: Very Satis i | a 60 : 2 ss o no e % 4s. al a i- 40 | z ts fs * 30 28 20 Danske : mB 2000 C2001 3 3 continued572 Case EXHIBIT 2 Percent of Customers People, Service, and Profit at yske Bank Danish Banks? Quality of Service Metries—continued a %0 8 80 75 65. 60. 55, 50} Far Commer STS Sry Sc na WaT] STO yske Nordea Danske 8G [1999 © 2000 © 1.201 Percent of Customers syske Nordea Danske 8G [1999 © mm 2000© 12001EXHIBIT 3 Denmark Sous CIA Wel etook case 1 People, Service, and Profit at yske Bank 373, from their Zealander neighbors: Jutlanders were supposed to be honest, unpretentious, cgalitarian, open and direct in their communication style (candid), commonsensical, frugal, sober-mindod, and relatively unsophisticated, at least in contrast to those, as cone Jutlander put it, “slippery people from Copenhagen.” JYSKE DIFFERENCES Jyske Differences stemmed from Jyske Bank's core values. These stood as central ‘tenets, guiding virtually all aspects of the organization's life. As one manager pointed put, the values were consistent with the bank's Jyske heritage: “Realy, when we started talking about our core values, and their Jyskeness, wo just became overt about values wwe had long held.” Jyske Bank's core values, published for employees, customers, dnd shareholders, were that the bank should (1) have common sense; (2) be open and honest (3) be different and unpretentious; (4) have genuine interest and equal respect for people; and (5) be efficient and persevering. See Exhibit 4 for a more detailed description. “The core values led management to reevaluate how the bank did business with its ‘customers, Managers determined that ifthe bank were to be true to its values, it would have to deliver service differently from both how it had in the past, and how other banks delivered service. Jyske Differences were thus operationalized as specific prac tices that distinguished Jyske Bank. Competitive Positioning Managers looked to Jyske values and differences for the bank's competitive posi- tioning, This process was aided by a Dutch consultant, whose market research indi- tated that Byske bank's core target market of Danish families and small-to-medium Sized Danish companies (earnings were 40% commercial, 60% retail) generally liked the idea of a bank that was Jyske. Additional research suggested that what manag- ts described as the “hard factors” of price, product, and location had become sine qjua non in the eyes of customers. In contrast, “sof factors” relating fo an individual aisromer’s relationship with her service providers served as the basis for differentia- tion, specifically, “being nice," “making time forthe customer,” and “caring about the customer and his family.”574 Case 1 People, Service, and Profit at Jyske Bank EXHIBIT 4 _Jyske Bank’s Core Values ‘Common Sense >>With both feet placed firmly on the ground, we think before we acte< ‘That means that we: + consider common sense our best guide apoly common sense when solving problems and meeting daly challenges allow common sense to overide awkward customs and routines take action whenever we encounter examples of bureaucratic procedures ‘observe existing rules and regulations accept that control measures ae necessary toa certain degree {generate Satisfactory shor and long-term financial results by pursuing sound business practices apply common sense whenever we incur roup expenses Open and Honest >>We are open and honest in both word and action<< ‘That means that we: keep each other up-to-date on relevant matters, and do not misuse information obtained inthe course of ur work restrict the degree of openness only by business considerations or by consideration for other stakeholders respect agreements entered into and do not betray the Bank's confidence strive towards making important decsions concerning individual employees onthe basis ofa constructive dialogue communicate openly about the mistakes we make and the problems we encounter ‘accept that mistakes are made, that they are corected, and that focus is then on learning from the process listen openly to new ideas and constructive criticism Different and Unpretentious >>We think and act differently and are generally unpretentious<< That means that we: * encourage creativity and initiative by being untraditional * ate full of initiative, and are committed and proactive * encourage relaxed and straightforward communication —bath internally and externally Managers felt that the “genuine interest” component of the bank's values dictated a shift from traditional product focused selling to a customer-solution approach. They characterized the new approach by contrasting the statement, “Let me tell you about our demand-deposit account,” with the question, “What do you need?” Although the bank's core financial products remained essentially similar to those of other Danish banks,? the way they were delivered changed. This required significant changes in the branches, both tangible and intangible, and how they were supported Tools were developed to support solution-based service delivery. For example, new IT systems helped employees take customers through processes to determine theit needs and find appropriate solutions. In one, the customer and her banker filled out an on-line investor profile to determine what style of investment products were most lypical core financial products included house, ca, and personal loans as well as cash management 2nd investment services for individuals, as well as loans, cash management, and investment services fr sma to-medium sized compan, Jyske Bank didnot offer credit cardscase 1 People, Service, and Profit a Genuine interest and Equal Respect, >>We demonstrate insight and respect for other peoplec< That means that we: * recognize that no two people are alike + seek lasting relations with shareholders, customers, and employees * offer qualified advice matching the financial needs and requirements of each customer, +» have job security based on mutual obligations and that we pay attention to individual and personal needs + allow the highest possible degree of personal influence on assignments, working hours, and place of work Efficient and Persevering >>We work consistently and with determination to reach our goals<< That means that wer ‘* use JB 2005 (the bank's core values) as @ quide in our daily work ‘= are not blown off course because of external crcumstances—but take a bearing and plot a new course when this is deemed appropriate ‘+ adopt an organization which promotes efficiency * consider security important to efficiency ‘= are convinced that efficiency increases with the level of personal responsibility ‘= allow employees to assume personal responsiblity for day-to-day decisions—even when the basis for decision ‘making may not be 100% perfect + acquite the level of skis required through personal and professional development + acton the basis of competence rather than organizational charge ‘> support our decisions by well-founded arguments Jyske Bank S75 appropriate for her based on risk aversion, time frame, and return goals, among other factors, A manager commented that, “The tools themselves aren’t proprietary. We've seen other financial services with similar programs—it' makes the difference.” Another stated, ability to deliver solutions, or to reduce administrative tasks of time our people can spend with customers—delivering solutions. how our people use them that ‘Our tools are designed either to enhance our nd increase the amount Finally, being overtly Jyske meant that the bank would no longer be a good place for any customer meeting its demographic criteria for two reasons. First, delivering this type of service was expensive. As a result, the bank charged a slight premium, and targeted only those customers who were less likely to represent a credit risk. Second, the bank would have a personality. According to one manager, “The danger in having 4 personality is, someone, inevitably, won't like you.” Senior management considered this the price of being candid, and welcomed the effect it had on some customers. For example, Jyske Bank's cash/debit card had a picture of a black grouse on it, black grouses being found in Jutland’s rural countryside, When a few customers complained576 Case 1 People, Service, and Profit at Jyske Bank that the bird didn’t seem very business-like, or wasn’t hip (one was “embarrassed to pull it out at the disco”) managers were happy to invite them to open accounts at com- petitor institutions. A manager noted: Actually, if no one reacts to our materials, they're not strong enough. Some people should dislike us. Afterall, we're only about 6% ofthe market, I don’t want everyone to Tike us—we're not for everyone and don’t want to be. Tangible Differences Account Teams Delivering on the bank's competitive positioning required a number of tangible changes in its service delivery system. These began with assigning each customer a branch employee to serve as primary point of contact. Over time, managers discov- cred that this created problems, because customers often arrived at a branch when their service provider was busy with other customers or otherwise unavailable. Nev- ertheless, managers were committed to providing individualized service. According to one, “How can we be honest in saying we care about customers as individuals if we don’t get to know them as individuals? And without knowing them, we can't identify and solve their problems.” The solution was found in account teams: each customer was assigned to a small team of branch bankers. These employees worked together to know and serve their customers, sitting in close physical proximity within the branch, Branch Design Jyske Bank planned to spend approximately DKK. 750 million to physically redesign its branches (most ofthis had been spent by 2003). Danish observers described the new branches as looking “like an advertising agency” or ‘a smart hotel.” These effects were accomplished through the use of modern, up-scale materials such as light wood, warm colors, and original art. Branch redesign also included changes in the way customers interacted with their bankers, made possible by architectural and design changes. For example, customers waiting for their banker could help themselves to fresh coffee in a small part of the branch resembling a café, A customer commented on the café, “It means more than you initially think—it makes you feel welcome, it says they're really interested in me.” Fruit juice was available for children, who could amuse themselves ‘with toys in the play center. Bankers’ desks were now round tables, signifying equal- ity. A team of three or four bankers sat at a single large round table, with custom ers making themselves comfortable between the bankers’ work stations, Customers could see bankers’ computer screens, reinforcing openness. Customers’ ability to view the screens also facilitated the use of IT programs designed to structure interactions between account team members and customers. As equals, bankers and customers sit in the same type of chairs, and bankers no longer sat on a raised dais, the origins of which went back to feudal times when the heads of certain people were supposed f0 be higher than those of others. If a conversation required more discretion, specially designed meeting rooms giving the feeling of “home” were available, Exhibit 5 con- tains pictures of a remodeled branch. Details Jyskeness was infused into the bank wherever possible, a formal policy requiring ‘yske differences to be considered in all product and IT development. No detail was too small: for example, although employees” business cards had their pictures on thtscase 1 People, Service, and Profit at Jyske Bank 577 EXHIBIT 5 Pictures of a Remodeled Branch Source: yt Bak578 Case 1 People, Service, and Profit at yske Bank as one manager put it, “They were bad pictures, really gray. They weren't warm—the people in them looked stiff and uncaring” To make them more Jyske, the bank hired a professional photographer who worked with each employee to “get the genuine inter- est in that employee's eye to come to life.” Each picture was then tinted slightly yellow to make it resemble “an old family photo.” Intangible Differences Delivering the bank's new competitive positioning also required numerous intangible changes and other changes not immediately visible to the customer. Managers stated that the most important of these involved training and empowering those employees closest to the customer to serve the customer. Training Before a branch was remodeled, all staff took part in special training sessions. These included teambuilding and customer service, drawing on best practices from the “traditional” retail sector. Empowering the Branches Jyske Bank leadership examined its organizational structure, asking, “Where is value created?” and “Where should decisions be made in order to create the most value?” ‘The answer to both questions was “in the branches.” Previously, almost all lending decisions of any consequence required approval at the branch, regional, and headquarters levels. Specifically, a customer would approach an employee for a loan, The request would be communicated to the branch manager ‘The branch manager would then make out the formal application, which if the loan was for more than DKK 3 million, was sent to a regional office with the branch mat: ager’s comments. The regional office would then comment on the application, andif the loan were for more than DKK 15 million, send it to headquarters for approval where additional comments were added to the application. Loans of more than DKK 30 million also required approval from the head of credit forthe bank as a whole. In examining this process, managers discovered that most of the debate and communica tion were among individuals in the middle, rather than between the employee closest to the customer (who presumably had the most information about the customer) aid the ultimate decision maker. ‘After reviewing the situation, the bank's leadership stated, “If we are to be true to out value of using common sense, we shouldn't need so many people, and so many layers, reviewing loans.” First, the process was changed so that the employee receiving the request for the loan completed the formal application. This empowered that employee by giving him ownership of the loan, which he was trained in how to handle. He was also put in charge of pricing the loan, as long as his suggested pricing was within @ set range of where the final approval authority felt it should be. Most loans receives! final approval from the branch manager, who was either selected in part based on het credit skills or given additional training in credit. A few loans required approval atthe regional level because of their size, In these instances, the employee completing the application sent it directly to the regional head of credit. 98% of loans were handled at the branch or regional levels, where loans of up to DKK. 90 million were approved The credit department at headquarters was disbanded, leaving only the bank’s head of credit who reviewed loans of more than DKK 90 million. This additional review was retained for loans of this size because exposure to the customer would be so great that default could significantly affect the bank’s capital.case 1 People, Service, and Profit at Jyske Bank 579 ‘The changes implemented were originally designed to affect internal processes. However, they also improved customers’ experiences. For example, managers believed that because the employee in direct contact with the customer made the application, the quality of information in applications increased; as a result, more borrowers Wor- thy of credit received it, and the quality of loans in the bank's portfolio improved. In addition, the time to reach a decision for the largest loans declined from a maximum of three weeks to ten days, Smaller loans able to be approved within the branch could be made almost instantly. Finally, customers? expectations regarding price and terms ‘were more often included in the application. This helped the approving authority to see whether the loan, in a form acceptable to the bank, was likely to be accepted by the customer, saving time and effort when customers’ expectations were inconsistent with the bank’s requirements. ‘The streamlined approval process did not pose a credit risk, according to managers, because of the combination of: (1) improved branch credit skills, (2) lack of incentive to make poor loans (branch managers had no incentives immediately related to loan volume or quality), and (3) a robust internal auditing function that monitored credit quality At the same time that the credit process was redesigned, the bank consolidated from five regions to three, and increased spans of control so that between 35 and 45 branches reported to each business unit director, who had a staff of marketing, credit, ‘human resources, and control professionals at the regional level (many of whom had previously been at headquarters). A senior manager commented on the roles of headquarters, the regions, and the branches; Headquarters is where we transform our values and strategy into products, processes, and information technology. The three regions are where we make sure that what comes from headquarters is translated forthe local marketplace, and where we ensure that Jyske Differences are being acted upon—that customers experience them. The 119 branches are where we serve customers and thus where value is really created. 20% of what we do is development at headquarters, and 80% is implementation in the field, supported by the regions, Given the small size of our branches we need the regional level to ensure that implementation is done right, Empowerment throughout the Bank Empowerment was not limited to the branches. Throughout the bank, employees were encouraged to make decisions ofall sorts if they felt comfortable doing so. In general, employees were encouraged to ask themselves, “Does it make sense to ask for help or permission? Is there a business reason for asking? Is this something you've never done before? Is this a ‘big’ decision (big being relative)? Is it debatable, or is it a new principle?” In general, employees were told, “When in doubt, ask. However, if there is no doubt, go ahead.” Managers were expected to set an example. Examples of this policy in action included working hours and vacation time. One employee noted, “If your job makes it possible, you set your hours, you just have to agree with your colleagues, you don't need approval from your boss. You do the same with holidays.” A manager noted, “The union’ at headquarters didn’t have a problem with this, but the union in Copenhagen worried that employees might misuse the flexibility.” “As was typical in Scandinavia, most employees and managers were members of anion.580 Case 1 People, Service, and Profit at Jyske Bank Another example involved the amount employees were able to spend on meals and entertainment while traveling or entertaining customers. Previously, there had been fa set amount, DKK 125, and bills consistently came to DKK 125. Consistent with its value of common sense, the bank changed the policy to be (paraphrased) “Spend ‘what you need to spend.” This resulted in what an executive stated was a “substantial decline in travel and entertainment expenses.” When asked, “How do you get a system like this to work?” he replied: First, you tll people what's expected. Second, you check on their behavior, I'they are buying expensive wine, you ask, Thy?” You explain what makes sense, and why. You do it in a way that tells them you honestly want to help them improve. ‘Third, if there are continued problems, this person may not be right for the bank. ‘The real challenge is when we hire someone from another bank. We expect them tobe up to speed quickly because of their background, but they aren’t used to making these kinds of decisions—they have to be taught how. Management Style A senior manager commented: You can train and educate all day long, but unless your managers and employees are committed to Iyske Differences, they just won't happen. Getting them committed required a great deal of my effort. ‘When we started this process there were times when it was hard—really hard. The branch managers didn't think strategically—they sat in their offices and focused on their day-to- day work. I wanted the branch manager to get up on @ hill and look around, to get a bigger picture. To get them to change I asked them questions: What's the ‘market? Where—and who—are your competitors? What are your strengths and weal nesses, how do they tie to Jyske Differences? Now, contrast what you need with what ‘you have. Are the feams in your branch living up to the demands? What do you need to ‘do to ensure that that they will? There will be resistance; understand where it is coming from. One way to deal with it is to make agreements with individuals on how they will develop new skills. If there is a complete mismatch you may need new team members, ‘but for the most part, you can coach your people through this kind of change—you can lead them. According to another executive: The branch managers have to beable o motivate employees to work a litle harder, and different. The most successful give their employees alot of Iatitude for decision raking, They do a lot of training, 80% of which is onthe job. When it sn, it' mostly role playing. There stent any high-powered incentives to offer, but there are really good tools coming out of TT. t's more how the branch managers do it tan what they do. They constantly link the tols, raining, and behaviors to our isk values. They get their ‘employees to share the values and act on them. A third noted: When Ihave a difficult situation I look for what I calla “culture caries.” I try to put that person into the middle of it, because they live our values. What I usually see is that the ‘other employees who are on the fence about the values stat to come over—they see the ‘example and they like what they see, This leaves the few people who really don’t want to be Jyske on the outside, and they tend not to las long. Most people are willing to change, but they've got to be supported in the process,ase 1 People, Service, and Profit at Jyske Bank 581 Human Resources Legal aspects of human resources, record keeping, and training were centralized at headquarters. In contrast, advice on how to deal with human issues was provided by ‘human resource professionals located in the field (at the regional level). They delivered this advice to general managers in the field such as branch managers. The branches had to pay for this service, and they could choose to either buy the service or do with- out if they preferred. Selection An executive discussed employee selection at the bank: 15 very important. For most ofthe jobs, we're not ony looking for banking skills, ‘we're looking for socal abilties—service mindedness and compatibility with our Jyske ‘values: openness, gertune intrest n other people. You can smell it witen you speak ‘with someone. We don't have a systematic approach to this, although when we're hiring someone from another bank we ask why they want to work for us and listen for answers consistent with Jyske values. We ean train most banking skills, but we can't train these attitudes. Maybe our biggest challenge is hiring people with them, and getting a few of cur established employees to adopt them. Some departments of the bank asked potential hires to write about themselves, A manager noted, “We're looking to see whether they're engaged in what they do, or if they're promoting themselves.” Training A manager in human resources commented: ‘We have told every employee that his or her development is his ot her responsibility. We believe development is incredibly important. While my peers at other Danish banks are cutting staff and saving every way possible, our goal is to get employees and managers to invest in more development. But i's up to the individual to decide what to invest in. We're outsourcing a lot of development activities, but we keep anything related to Jyske values in house. Incentives Managers pointed out that the bank had few monetary incentives. The few in place consisted of three types, stock, one-time payments, and annual raises. ‘Stock incentives: if the bank's annual performance was above the average of the top ten Danish banks’, a stock option grant valued at DKK 8,000 was made available to all ‘employees and managers. In addition, any employee could use up to DKK 13.200 to buy company stock annually at a 20% discount. Ifthe bank’s annual performance was ‘among the top three Danish banks’, the discount rose to 40%, One-time payments: for truly exceptional work, employees could be awarded one- time payments. Fewer than 1% of individuals atthe bank received this type of payment. Raise incentives: employees and managers received annual salary increases based on their manager's evaluation oftheir work. The highest raise practicably possible was 10%, although an employee or manager in the top 15% of performers (the highest level) typically received a raise of approximately 7%. Salary raises were eventually limited as total salary had to remain within the bands established for a particular position. Once an ‘nerease was granted it became a permanent part of the employee's salary. Commitment An employee commented on what it was like to work for Jyske Bank: “I'm not restricted. I don't have to leave my head at home-—I can take it with me to work and I’m supposed to.” Another commented ‘You're treated as « human being here, At other banks you have to be really careful what ‘you say. Here, you can be open and honest—I can approach anyone—even the CEO.582 Case 1 People, Service, and Profit at Jyske Bank Jyske Bank is a way of life. You come in at 8:00 and you leave when you collect your pension, I pay a premium for this, I could earn more at another bank, but it's worth it for ‘me, At some banks, bankers have prostituted themselves for higher pay, stuffing prod- ucts down the throats of customers those customers may not need. We don’t ‘Anders Dam, Jyske Bank's CEO, stated: Ifyou can creste an environment in which people aren’ talking about money, but where they gain value in their relationships with their colleagues and their customers, where the bank will take care of those who work hard even if they get sick, then people will be ‘committed tothe bank. Metrics and Financial Results Bank managers frequently referred to the importance of measuring performance, in both quantitative and qualitative ways, and at a variety of locations in the bank, Tradi- tional financial measures were considered important, but not all-important In addition to traditional measures, Jyske Bank implemented an information technology system to measure account profitability on a risk-adjusted basis (risk adjusted return on capital, or RAROC), This had been a considerable effort and was just coming on-line in 2003. Customer and employee measures were also considered important. Managers reported that employee satisfaction was higher at Jyske Bank than at any of its major competitors based on data collected by independent third parties. Several sources of data indicated that Jyske Bank customer satisfaction was also the highest among the bank's major competitors (see Exhibit 2). Customer satisfaction could be tracked to the regional level. Plans were in place to be able to measure and report it atthe branch, and eventually the individual customer, levels. Financial and selected operating results are presented in Exhibit 6, Jyske Bank took a conservative approach to earnings, writing off its entire investment in remodel- ing branches, building a new headquarters, and new information technology systems in the years in which spending occurred. This amounted to DKK 302 million in 2002, DKK 253 million in 2001, DKK 194 million in 2000, and DKK 212 million in 1999, Results for 2002 also reflected an extraordinary tax payment of DKK 222 million, which was described as “a potential liability in light of discussions with the Danish tax authorities.” Jyske Banks statement of core values and principles included the following «the im is for Jyske Bank every year to be one ofthe top performing Danish banks 1 Jyske Bank is thus an excellent choice for shereholders who want to make a long- term investment and who do not attach great importance to decisions which generate only short-term price increases. Communication ‘Management believed that most employees liked working forthe bank and appreciated Jyske Differences as they affected their jobs. Sustaining Jyske Differences required the bank to remain independent, not an easy task in the Scandinavian banking mar- et, which had consolidated considerably during the 1990s and early twenty-first cen~ tury. Executives believed that they had taken the right steps to remain independent by investing in employees, systems, and infrastructure that would enable the bank to deliver superior value to its targeted customers, and thus achieve superior financial returns. This economic model was built on the bank’s value chain (see Exhibit 7). according to an execute, “if we ae right land we eventual reverse the charge] we have an ups, we are wrong it won't impact ture rests. Aln all the tx ise notated to the 2002 esuit ard ‘would be more correct to judge the resut before tax.”case 1 People, Service, and Profit at ske Bank S83 | EXHIBIT 6 Jyske Bank Group Financial and Selected Operating Results Five-Year Summary of Financial Results ‘Summary of Profit and Loss Account (OKKm) __2002 2001 200019991998 Net interest income 2,826 2,623 2,350 2,078 2,133 Dividend on capital holdings 64 98 68 52 34 Net fee and commission income 758 668, 759 46. 594 Net interest and fee income 3,648 3,389 317855 2776 2,761 evaluations 386 129 379 631 361 Other ordinary income 203 213 162 7529 Operating expenses and depreciation 2,598 2,403 2142 2.014 1,764 Losses and provisions for bad debts 408 286 318 248, 197 Revaluation of capital 148 412 52 Profivioss on ordinary activities before tax 1,083, 890 1255 1,276 710 Tax 572 267 172 379 199 Profit/loss for the year su 623 1,083 897, 511 ‘Summary of Balance Sheet (KK) 2002 2001 2000 19991998 i Advances 95302 82,537 75,362 49,790 39,762 Deposits 58963 594,303 52,267 49,813 43,816 | Issued bonds 43,362 36,964 26,902 192623 Total assets: 153,169 © 133,156 127,359 (92,557 76,938 Shareholders’ funds 6,658 6.174 5887 5391 5,108 Supplementary capital 2,000 2,663 2110 1,395 434 } Key Figures 2002 2001 2000 19991998 k Per Jyske Bank share Core earnings 23.17 25.39 22071468 19.89 j Profivioss on ordinary activities before tax 2932 24.1 31862958 15.77 | Net profivioss for the year 13.84 16.7 2751-2083 11.22 Dividend 0.00. 0.00 0.00 320 2.80 Price at yearend 192 7 161 149 123 Book value 178. 170 157 131 114 Pricesbook value 1.08 1.04 1.03 1141.08 Pricefearnings 138 105 53 72 109 The Jyske Bank Group Solvency ratio. 13 4 11.0 105 | 104 Core capital ratio 82 79 80 82 95 Income on every krone of expenditure 136 1.33 151 156 136 { Total provisions as % of total loans 18 19 20 27 30 | ’ Losses and provisions for the year as 9% 3 of total loans 04 03 04 04 o4 continued584 Case! People, Service, and Profit at Jyske Bank EXHIBIT 6 _Jyske Bank Group Financial and Sclected Operating Results—continued Deposits and Advances DKK tillone 100 80 6 40 ao} ° I 1908 1999) 2000 2001 2002 | MH Deposits Ml Advancos Customers 480,000 460,000 440,000 420,000 400,000 : 4 1 1 | °° 1998 1999) 2000 2001 2002 Numer of Full-Time Stat 3,500 3,250 3,000 2,750 > 1908 1999) 2000 2001 002Case 1 People, Service, and Profit at iyske Bank $85 EXHIBIT 7 Internal Service Quality ‘The Jyske Bank Value Chain Staff Retention See: ye Beaks ‘sdaption of Hela, Say, Stat Satstaction fa Setsiagers Senice ‘Prt Chain sees eal 99, Stat Etcleney Exiemal Quality Client Satisfaction Fising Businoss (CliantLoyatty Volume ana Proftabilty Delivering that value required considerable change. One manager stated a point that several alluded to: Ifyou want employees to behave differenti, you have to be sure they know what that rmearss—how they should behave going forward, and why they should change. We can't ake ‘people to change without commonicating this kind of information to them—itS not fir. Bank leadership believed that communication should be, in the words of an execu- tive, “a car wash, not a waterfall—communication must come from all directions at conce, not just cascade down from above.” In that spirit, in 1997 communication re forced Jyske values and differences when the bank produced a video tape on Jyske Differences made available to all employees. This was designed to look like a televi- sion talk show. The host was a prominent Danish television personality and the guests were Anders Dam and Danish experts on business. Each was interviewed and they discussed what Jyske Differences were, how they were being implemented, and what ‘they meant to employees and customers, supported by video clips of employees and ‘customers in the branches. ‘Communication efforts continued in 1999, executives planning a surprise for the bank's strategic meeting, to which all employees were invited every third year. The Battle at Vejle The 1999 strategic meeting took place in Vejle, the closest city to the bank's headquarters with an auditorium large enough for the 82% of the bank's 107 employees who chose to attend. The meeting opened with a panel of senior ex | ccutives, some of whom were from Jyske Bank, and others who were strangers. A grim-faced Anders Dam got up, and introduced one of the strangers as “the CEO of | a large, very large, Swedish bank.” Dam then continued, explaining that the Swedish bank had offered to buy Jyske Bank for almost twice its current stock market valua- tion, a premium of 2.3 times what other Danish banks had recently been acquired for. A fax was to be sent to the Copenhagen stock exchange, suspending trading in Jyske Bank shares immediately after the meeting. As he spoke, a sense of foreboding rose in the audience.586 Case 1 People, Service, and Profit at Jyske Bank Non-Scandinavians should note that despite the currently cozy relationship between, Swedes and Danes, they fought against one another for many centuries, Southern ‘Sweden once having been a Danish possession, The CEO of the Swedish bank took the podium and announced (in Swedish, which is very difficult for most Danes to understand) that his Danish was very poor, so that he would “speak Scandinavian, very slowly,” after which he continued to deliver his address in Swedish, He stated, among other things, that “You—Iyske Bank, you are good, very good But are you good enough? For tomorrow? For the future? For a world without borders across the continent?” After his speech Anders Dam took the podium again and asked for an “immediate and honest response” from the emplayees. Over the course of sev- eral questions and responses it became clear that although the takeover was friendly, the integration would be anything but. In the words of the Swedish CEO, “A merger hhas certain administrative advantages, which will require an adjustment in staffing.” Eventually, a manager got up and said, “Do something for the environment. Put the ‘Swedes on the ferry and send them back!” His suggestion received wild applause. After a pause, Anders Dam returned to the podium and, now smiling, explained that it had all been a joke, which he called “Jyske Fun.” He added that he was “proud, proud as a peacock of your reaction to the joke,” being delighted that the vast majority of the audience flatly rejected the idea of being acquired. One questioner put it bluntly, stating that (paraphrased) “Jyske Bank couldn't live Jyske Differences, couldn't do the things for employees and customers they had been working so hard on, if it were to be acquired.” Dam finished his speech by pointing out that if Jyske Bank were to remain independent in the increasingly-competitive environment Danish banks now faced, everyone would have to contribute. Part of that contribution was an effort to diversify the bank's type of shareholders and increase their number in order to ensure that they shared its long-term perspective on financial performance. Employees encouraged customers to consider purchasing Jyske Bank Group shares. Between the “Battle at Vejle” and 2003, the number of shareholders increased from 150,000 to more than 210,000. Managers and employees agreed that the message of the “Battle at Vejle” was heard throughout the organization and that Jyske Fun was a good idea. Subsequent examples of it included the only national advertising campaign the bank had engaged in during the past decade, which was effectively a dog beauty contest with entry requiring a visit to local branch. When asked why advertising was so limited, an executive replied: ‘Two reasons. First, we rely on word of mouth, so we don't nced to advertise that much— our advertising cost as a percentage of revenue is half what banks of similar size spend, Second, we have to be absolutely sure we can consistently deliver Jyske Differences before we advertise them, Later in 1999, communication efforts continued when managers created a video tape illustrating Jyske Differences in an unusual way. The tape introduces Max Per- forma, an ex-KGB agent hired by a mysterious and beautiful senior manager of @ competitor bank, Performa is assigned to find out if Jyske Differences. are actually being delivered at Jyske Bank's branches. He checks off each Jyske Difference as he experiences it, pretending to be a Jutlandish farmer wanting a loan (speaking Dan- ish with a thick Russian accent). In the course of applying for the loan he discovers that Jyske Differences are being delivered, among ther that the employee opening his account has the authority necessary to meet his needs (common sense), that the bank: will go to great Iengths to show genuine interest in him (he and the branch manager2 ve ng of B sit a y ‘ ‘ case 1 People, Service, and Profit at Jyske Bank 587 drink an entire bottle of vodka one afternoon), and that Jyske Bank is different and isn't for everyone: when he complains about the black grouse on his debit card he is politely told he might be happier banking with a competitor. At the end of the tape the viewer learns that the mysterious senior manager who hired Performa actually works for Jyske Bank. Executives believed that they needed to constantly reinforce the message that remaining independent required every employee to work a little harder, and to behave in a manner consistent with Jyske Differences. To deliver that constant reinforcement, they printed the bank’s values and Jyske Differences in materials that managers were asked to discuss with their employees. On one occasion, branch employees were asked to come in on a Saturday, without pay, to discuss the values and differences and their implications for day to-day behavior. 80% chose to come in. Tn 2002, communication efforts included the banks strategic employee meet- ing, called “Return to Vejle.” The meeting, complete with live, high-energy music (a locally popular drum duo) and entertainment, celebrated the bank's accomplishments and served as a reminder of what still needed to be done. Finally, in 2002 the bank introduced what it called a “tool box” for communicating value chain information to and from the branches. The tool box enabled each branch to select elements on the bank’s value chain (see Exhibit 7) and measure the branch’s performance against goals related to that element. The tool box delivered regularly “updated information including guides such as green or red lights describing the branch's performance on the selected value chain elements. An executive described the tool box as “a way to operationalize the value chain so that everyone in the organization under- stands how they need to behave on a day-to-day basis in order to optimize it.” CONCLUSION ‘The bank's leadership believed that Jyske values and differences, and the bank’s value chain, provided ways to achieve the balance they wanted among their three stakehold- cers: employees, customers, and shareholders. Several leaders commented that with the large capital investments behind them as of 2003, net income would inorease consider- ably in the coming years, assuming the recession of 2001 and 2002 was over. Shar holders had received a 17.8% annual return on their investment for the ten years prior to year-end 2002. Anders Dam’s 2002-2003 goal for shareholders was to increase the bank's stock multiple approximately 40% to the level of Danske Bank's, the largest and most richly-priced bank in Denmark. This was achieved in July 2003. While the ‘bank's leadership was pleased with the bank's success, they were more interested in determining how the bank would remain in a position of leadership while still keeping the interests of its key stakeholders in balance. QUESTIONS TO THE JYSKE BANK CASE 1. As of the mid-1990s, what was Jyske Bank's competitive positioning, that is, what id it do for customers relative to its competitors? 2, As of 2003, what was Jyske Bank's competitive positioning? 3, What did Jyske Bank change to enable it to deliver its new competitive positioning? 4, How did Jyske Bank implement those changes? sManagers attributed the increase in the bank’ stock price multiple to recognition among stock analysts that investments in yske Differences made in the previous five years and expensed immediately were beating fruit,