PROVIDIAN TRUST: TRADITION AND TECHNOLOGY By Melissa Dailey and F.

Warren McFarlan

DPDN Paul Davidson, Brian Dyrud, Lindsay Neal, and Jennifer Paterson

October 8, 2003

INTRODUCTION In 1994 Providian Trust was a company rich in tradition, experience, and a high level of personalized customer service. However, due to the lack of efficient business processes and information technology, Providian Trust was slowly slipping away from profitability and was allowing competitors to become more attractive to new and existing clients. The problems that Providian was facing were not going to be resolved by only implementing new technology, but rather a new environment and culture needed to be born. company needed to be reengineered. The

Reengineering as defined by Hammer & Champy (H&C) in their book Reengineering the Corporation is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed. The four key words in this definition , fundamental, radical, dramatic, and process can each be used to describe Providians existing environment and why it needs to be changed.

In using the key word fundamental, H&C prompts companies to ask the following basic questions about themselves. Why do we do what we do? And why do we do it the way we do? Providians answer to the first question should have been to provide the highest quality in trust services by meeting client demands. However, Providian had not been meeting this objective due to increasing market competition and outdated reporting systems. The answer to the second question could be easily summed up in one word tradition. Most of Providians trust officers had 20 to 30 years experience of completing

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individualized tasks and keeping the relationships with their clients very personal. This type of environment promoted an extremely change-resistant culture based on set traditions.

The key word radical refers to radical redesign. This means getting to the root of things: not making superficial changes or fiddling with what is already in place, but throwing away the old. Providian needed exactly that, to throw away the old and put new business processes in place. Simply adding new technology on top of the existing culture would do no more than help them perform inefficient and outdated processes faster. Senior vice president of Trust, Investment & Treasure, Michael LeBlanc said We knew that there was not point buying a new trust system or improving the technology unless we concurrently also completely rebuilt the culture and provided the training incentives to customer relationship people to completely revisit how they approach their clients.

The key word dramatic refers to the quantifiable improvements in performance, cost savings, work force reduction, etc. H&C said, Reengineering isnt about making

marginal or incremental improvements but about achieving quantum leaps in performance. Providian aimed to do just that. In the business impact report, Providian estimated an annual savings of $9.2 million once the reengineered business processes and the new information system was fully implemented. The report also estimated a workforce reduction (FTE) from 840 to 660.

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The fourth key word process is defined as as a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. H&C also states, Most businesspeople are not process-oriented; they are focused on tasks, on jobs, on people, on structures, but not on processes. Providian was very task oriented. One such task that was very inefficient and inaccurate was the generation of clients financial statements. Trust officers actually had to oversee and have their hand in each and every statement that was sent to a client. LeBlanc stated, Every statement that was prepared for our 10,000 Personal Trust clients had to be reviewed by a trust officer, corrected by the trust officer, and then mailed out to the client. This caused consistently late and inaccurate statements, which the officers would have to compensate for by discounting or waiving fees. This cost Providian an estimated $2 to $5 million per year.

Providian was in desperate need of reengineered business processes. Providians business impact report stated, business processes would be revised based on effectively using technology as an enabling mechanism. The technology to be used was an asset

management system by Select One called Access Plus. The software was expected to reduce information processing time by streamlining 17 business processes thereby improving customer service. With the help of the Access Plus system, administrative tasks would be taken away from the trust officers and redirected to a consolidated and centralized administration area. The traditional role of trust officer would then be

transformed into client relationship manager which would allow them to focus on revenue earning activities.

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BACKGROUND Providian Trust is a financial institution that provides financial and fiduciary services with their primary products being residential and commercial mortgages and consumer and corporate loans. Providian is headquartered in New York and consists of a network of 216 branches. The trust division of Providian has 3 functional areas: Pension and Institutional Trust Services (PITS), Personal Trust Services, and Trust Operations. In total, Providian Trust managed $49.4 billion in assets with 840 full-time employees. Of that $42.7 billion was managed by the Pension and Institutional Trust Services with 300 full-time employees and $6.7 billion was managed by Personal Trust Services with 240 full-time employees. The Trust Operations department had 300 full-time employees and was considered administrative which was responsible for handling, settlement, and record keeping for securities. Some of the weaknesses that the firm was facing include: relying on outdated information systems, lack of control in the PITS division, inaccurate and late statements being delivered to clients, and resistance to change in the trust division. Industry competition and pressure only worsened the internal weaknesses. Other firms in the industry had either already implemented current information systems or were in the process of doing so. Providian was hopelessly behind the competition in terms of number crunching so there was a great need for them to upgrade their information systems if they were to stay in line with the competition. All of these weaknesses were causing Providian to lose money. Michael LeBlanc was quoted as saying, We were the tenth-largest provider and we were losing money. We had outdated reporting systems as far as our clients were concerned. Although the company did have many weaknesses, it also had some very dependable strengths. Primarily, these strengths were in the experience of the trust officers. Most of them had been with the firm between 20 and 30 and had excellent relationships with their clients. Even though experience of this length of time is usually attached to an employee who is resistant to change and learn new technology, the experience factor outweighs the learning curve required to effectively use the new technology. Providian Trust initiated a project in 1993 that would take two years to begin conversion to the new system. This new system not only involved the implementation of the Access Plus software but also involved transforming tradition and cultivating a new operating environment.

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INTEGRATION Dell By any definition of business reengineering, Dell did just that with the formation and implementation of the Dell Direct Model. Dell made major improvements and redesigned many of their existing business processes as well as added new business processes. The effects of reengineering at Dell were dramatic as seen in the statistics to follow.

During the first few years of operations, Dell began to realize the cons associated with selling its products through retail chains such as Best Buy, Circuit City and CompUSA. This became even more apparent in 1993 when Dell realized its first operating loss was due in part to selling its products through these channels. This prompted Dell to make a change in, or reengineer, the way it was doing business and this reengineering took place with the implementation of the Dell Direct model. The Dell Direct Model took an entirely new approach to selling PCs. Instead of having the consumer come to a retail store and pick out an already configured system, the consumer could contact Dell directly, at first by phone and then later through the Internet, and place an order for a customized PC.

In order for the Dell Direct model to work efficiently and effectively, Dell implemented many new processes in their new plant, which manufactured Dells OptiPlex systems, and redesigned the old plant with many of the same processes. These processes included justin-time materials, a continuous manufacturing flow, and direct shipment capability that increased productivity and ensured consistent, timely order delivery and high product reliability. The results of the new processes were dramatic with the time from receipt of

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order to product shipping being cut to a mere 36 hours. With Dells ability to process an order so quickly and with the fact they deal directly with the customer allows Dell to turn the average sale into cash in less than 24 hours. This in compared with Compaqs 35 days and Gateways 16.5 days, was a direct result of Dells reengineering.

Another result of reengineering was the improvement in Dells supply chain management. By utilizing suppliers that were located close to the Dell plant, Dell was able to take advantage of a Just-In-Time inventory. These suppliers also agreed to carry a 45 to 60 day buffer stock because Dell reduced the number of suppliers from 204 to 47 making them Dells primary suppliers. Instead of carrying 75 to 100 days of inventory as was typical under the indirect model, Dell was able to operate on just 13 days of inventory. This in turn enabled Dell to convert a large space for parts storage into another production area since the inventory was being primarily stored at the suppliers warehouses.

Kodak Reengineering took place at both Kodak and Providian with the revamping of their information systems. Providian Trust established a new software program to redesign business processes. Consolidation was a component Providian desired in their

Administration processes. With the implementation of Access Plus, a new trust and custody management software, Providians outdated information system could be improved. Existing Trust information would be switched over to the Access system and their Operations Group would oversee that information. An Implementation Committee

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who provided guidance to the projects team activities brought the Access Plus system into effect. Vice presidents from various departments made up the Implementation Committee.

Kodak launched Corporate Information Systems (CIS) to reengineer their Information System program. In January of 1988 Colby Chandler, CEO, created Corporate Information Systems (CIS) and appointed Katherine Hudson as vice president and head of CIS. Hudson went through the IT services with a portfolio analysis and examined the strengths and weaknesses of the IT function. If value was found in the function it was kept in place; however, if value was not found, the function was removed or outsourced. Outsourcing is defined as the act of purchasing goods and services from an outside supplier (Russell and Taylor 279). Outsourcing IT services is more intricate than outsourcing in the traditional sense. Kodak set up alliances with partners that were constantly changing. As the needs and wants changed for Kodaks partners, Kodak would mirror their partners and implement changes in their own IT strategies.

CIS was set forth with Partnership in Innovation Process (PIP) which guided their potential outsourcing clients. Kodak and their IT team came up with the slogan Partnership in the Innovation Process (PIP). This enabled Kodak to effectively communicate with their outsourcing partners. Each PIP team adopted a code name for their data center. For example, BlueStar represented their telecommunications sector. Teams contained 8 to10 Kodak employees from all areas of Kodaks business sectors. The PIP teams reported to a steering committee that contained executives from Kodak, and the steering committee offered advice to the PIP teams. PIP teams used a five-step process on how they would

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identify, select, negotiate, and implement outsourcing alliances (Applegate, Montealegre 5). PIP allows Eastman Kodak to effectively choose the best outsourcing alliance and adapt to the constant changes partners undergo. Both Kodak and Providian Trust

implemented reengineering programs to upgrade their existing Information Technology programs with CIS and Access Plus.

Springs Springs Industries, Inc. is a $2.2 billion textile company that produces home furnishings. Unlike Providian Trust, Springs Industries has always used some sort of information technology. In the mid 1990s as Springs Industries was beginning to install their ecommerce system, Providian Trust was evaluating their proposed reengineering software system (Access Plus), and it did not include an e-commerce solution such as B2B or B2C. Springs hired an information systems specialist, Jim Wood, to implement information technology (IT). According to Jim Wood, The organization (Springs Industries) has not evolved over time. Soon, a completely new information systems program was

implemented into Springs Industries. Technicians were re-skilled, buildings and factories were rewired, and new software was installed. As Springs computer capabilities grew tremendously, so did the services they could offer to their clients.

Vandelay Vandelay Industries, Inc. is an $8 billion corporation that manufactures and distributes industrial process equipment that is used in the production of rubber and latex. Like the Providian Trust company, Vandelay Industries is an older company that was very set in the

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traditional methods of doing business. Each branch of Vandelay independently ran itself causing many repeats, wasted time, and inefficiency. When Vandelay hired a team to install a better IT system, all affected employees had to be completely retrained. Vandelay moved to a much more centralized operating system, and similar to Providian Trust, this move caused many hard feelings and rough edges. Many people lost control and access to information they once had. For example, the individual plant managers could no longer manage their plant just any old way that worked best for them. All the plants now had to be run in the exact same manner. When Providian Trust began rearranging tasks to avoid cross-overs, this caused problems with employees too. The front office employees lost access to accounts they had previously had because of this. They had to learn the new boundaries of their job and how best to perform. In the long run, installing, centralizing, and successfully managing the new IT systems will help both companies work more efficiently, save money, and stay competitive in the market.

Lands End The Lands End case study describes a company in direct contrast to Providian Trust, which was completely void of an IT competitive advantage. Lands End embraced internet technology and made it work for them. When Bill Bass joined Lands End in 1999 as the Senior Vice President of e-commerce, he was attracted to the position for three reasons: proprietary products, a strong distribution infrastructure, and an established brand. He believed that Lands Ends success on the internet was attributed to the firm not setting up its internet division as a separate business unit because of the exclusivity of the merchandise. In so doing, they avoided internal competition and reduced competitive

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threats from other vendors.

His intention was to enhance their internet success by

developing a customized tailoring program never before available to internet shoppers. The goal was to allow individuals to sit in front of their computer, answer questions about their body type, size, and shape, and with in a few minutes have a tailored article of clothing on order. For the first time, you did not have to go to a tailor or take off your clothing to get tailored clothing. Three years later, Lands End has the most successful customized tailoring program available. In addition to its customized tailoring program, Lands End has utilized the internet competitive advantage by initiating other innovations including ImageTwin, My Virtual Model, My Personal Shopper, Shop with a Friend, and instant messaging.

iPremier IPremier, a Seattle based company, was founded in 1994 by two students from Swathmore College. It has become one of the top two retail businesses selling vintage luxury goods online. iPremiers competitive advantage is their flexible return policies which allows the

customer to thoroughly check out the product and make a decision to keep the product or return it. Reengineering and Change Management are not relevant to the iPremier case. However, reengineering should take place within iPremier and they should upgrade their outsourcing client Qdata. For iPremier, reengineering would make them a more secure company and would decrease the possibility of a service attack.

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British Columbias Pharmanet Project The case study on British Columbias Pharmanet Project examined the issues that the British Columbia government faced when creating a Pharmanet network. The purpose of Pharmanet was to create an electronic network connecting all of the pharmacies in the province. The network would allow pharmacists access to all of a patients prescription records regardless of where the patient had the prescriptions filled. The idea was to prevent improper drug interactions, prevent fraud, and reduce paper work. However many issues regarding patient confidentiality and IT security evolved. Therefore, this case study does not integrate with the theme of the Providian Trust case study.

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SUMMARY AND CONCLUSIONS The Providian Trust case study describes a company which was rich in tradition, experience, and a high level of customer service, but was void of technology, information management, and therefore also void of an IT competitive advantage. In 1995 Providian Trust was in major need of reengineering and simply implementing a new software system (Access Plus) was not going to give the company a competitive advantage. The company was going to need a dramatic redesign of business processes and intense reprogramming of most of the employees as well as the implementation of leading edge software and information technology solutions if it was to again be profitable and become a competitive player. With the implementation of the Access Plus system came the reduction of 180 jobs within the company. This put a tremendous strain on the Human Resources Department, causing the department to resist the implementation of the project. Finally, after numerous studies and simulations, Walsh decided to go ahead with the conversion. The Personal Trust conversion for all of New York took place on November 1, 1995.

RECOMMENDATIONS Providian Trust could definitely benefit in some areas from a B2B and B2C system. B2B stands for business to business and applies to any company that sells its products or services to other businesses. B2C stands for business to consumer and applies to any business that sells its products or services directly to consumers. Being a provider of financial and fiduciary services with their primary products being residential and commercial mortgages and consumer and corporate loans, it would probably not be possible for Providian to utilize B2B or B2C when issuing new mortgages or loans.

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However, some companies offer clients web access to check the status of their loan or mortgage and have a system for customers to pay their monthly notes online. Providian Trust could also integrate this feature into their banking sector offering free online and over the telephone bill paying. In both the mortgage and the banking sectors, many of Providians competitors are already offering this feature. As of today, Providian does currently offer telephone bill paying, but charges the customer about $14 per use of this feature. They also offer online bill paying, but charge the customer a monthly fee of about $9. They are definitely behind many of their competitors concerning customer service and e-commerce.

TAKE AWAYS Reengineering - the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service, and speed. Key word Fundamental Why do we do what we do? And why do we do it the way we do? Key word Radical - radical redesign. This means getting to the root of things: not making superficial changes or fiddling with what is already in place, but throwing away the old. Key word Dramatic Reengineering isnt about making marginal or incremental improvements but about achieving quantum leaps in performance. Key word Process A collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. Most businesspeople

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are not process-oriented; they are focused on tasks, on jobs, on people, on structures, but not on processes. Breaking Tradition Breaking traditions is critical to the success of a reengineering project. In the case of Providian this would be more difficult than one might find in other companies because of the high number of years the trust officers have spent doing the same tasks the same way.

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REFERENCES Applegate, Lynda and Ramiro Montealegre. Eastman Kodak Co.: Managing Information Systems Through Strategic Alliances. Harvard Business School: Boston, 1995. Austin, Robert D. The iPremeir Company (A): Denial of Service Attack , Boston Business School, June 13, 2002. Chee, Emily, and Schneberger, Scott. British Columbias Pharmanet Project, Ivey Management Services, 1998. Dailey, Melissa and McFalrlan, Warren F. Providian Trust: Tradition and Technology (A), Harvard Business School, June 7, 1997. Hammer, Michael and Champy, James. Reengineering the Corporation, Harper Collins Publishers 2001. Ives, Blake and Pccoli, Gabriele. Custom Made Apparel and Individualized Service at Lands End, Communications of the Association for Information Systems, Volume 11, Article 3, January 2003. McAfee, Andrew. Vandelay Industries, Inc. Harvard Business School: Boston, 1998. McFarlan, Warren, and Melissa Dailey. www.springs.com. Harvard Business School: Boston, 1998. Patton, Susannah. The ABCs of B2C http://www.cio.com/ec/edit/b2cabc.html accessed on 09/20/2003. Rangan, Kasturi and Marie Bell. Dell Online. Harvard Business School: Boston, 1998. Varon, Elana. The ABCs of B2B http://www.cio.com/ec/edit/b2babc.html accessed on 09/20/2003. www.providianonline.com. Accessed on 10/06/03. www.billpay.getsmart.com. Accessed on 10/06/03.

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