A Bigger Bank of America Learns to Be Lighter on Its Feet
West Coast bank's merger with Security Pacific brings lessons in managing change
MERGING two major banking companies always brings both expected and unexpected results.
When BankAmerica Corporation, the nation's third-largest bank, acquired its southern California sister, Security Pacific Corporation, the goal was to quickly gain financial economies of scale.
Many analysts credit the Bank of America with accomplishing that goal. The bank reported last month that it is achieving annual merger-related cost savings of $880 million, and that ultimately the efficiency gain will amount to $1.2 billion a year. On the negative side, the bank paid almost $6 billion above book value for certain assets - a sum it will amortize over 20 years.
An unexpected benefit of the merger was that it forced the Bank of America to make changes in a corporate culture infamous for its bureaucracy.
In order to smoothly switch commercial customers of Security Pacific into the Bank of America system in just six months, executives had to dump the regular memo-laden procedures for a whole new set of rules.
Richard Griffith, who was Bank of America's head of wholesale operations at the time of the merger, decided that he would have to "suspend normal operating procedures." This involved several innovations for the company, including:
Convening a daily morning meeting. These were attended by top executives and people several layers down in every bank department that needed to be involved on merger-related decisions. Not only does that eliminate "dead time," Mr. Griffith says; it also "gives a project a much clearer, crisper set of objectives."
Committing up front to a delivery date. "We found the necessary staff and funding, and put the right people in place to hit that date," Griffith says. This is used for both product and service changes.
Dispensing with memos. "We realized that if you had all the people in the room, there should be no need for paper," Griffith says. The whole pace of decisionmaking picked up.
With top executives there, "these meetings become sacrosanct - people show up," says Bill Selmi, a senior vice president. "There is a closeness. People work together rather than reading memos."
Meeting with bank customers regularly. This made sure the decisions being made in rapid-fire fashion actually fit the customers' needs. Top executives had to get out of the office to resolve customer concerns and problems. Another benefit, says Colin Klipin, a Bank of America executive vice president, is that when the delivery time for new products shrinks, the products fit the market much more closely.
Thus, rather than forcing old project- management procedures onto Security Pacific, the Bank of America is developing a fresh operating style of its own as a result of the merger. "We're going to use the same processes to accelerate our product development, accelerate our project management, and accelerate our decisionmaking," Griffith says.
Unlike manufacturing companies, where executives look to faster machines for productivity gains, a service business like banking improves efficiency by changing the decisionmaking process to encourage better and faster decisions.
Once the merger was completed, executives began to ask themselves: Can a multinational bank learn to be as nimble and responsive as a tiny hometown bank around the corner?
"We have basically changed the way we do business," Mr. Klipin says. In the merger process, "senior management involvement enabled decisions to be made on the spot and then enabled us to turn them around."
Although analysts say the jury is still out on the overall financial benefits of the merger, most are willing to give the Bank of America a chance to prove itself.
"I'm dubious about all the implied cost savings in these mergers," says Paul Bauer, publisher of Bauer Financial Reports in Coral Gables, Fla. "But the way they [the Bank of America] have been operating recently, I assume they knew what they were doing."
Banking employment shrank by 56,595 in '92, according to Bauer Financial Reports. Of 840 institutions that were shuttered, 492 closed because of mergers.
Now the Bank of America's biggest concern is the miserable California economy. Southern California particularly is stuck in a recession.
"If there is a major problem ... it's more the economic environment in the state of California," says Donald Crowley of Financial Institutions Analysts & Consultants, a San Francisco bank consulting firm. "The headwinds they are running into in southern California represent the shortfall in earnings expectations."
Yet whether the economy improves or not, bank officials say they are continuing to streamline day-to-day operations. They say the bank will be very competitive when the economy does come back.
Griffith estimates that management decisions are coming three to five times faster under the new procedures, at least doubling employee productivity.
Formerly, a new project would be pursued by a small group of people that would start down the road trying to gather all the people and resources needed. "Each one would start to [play] phone tag and time would go by," Griffith says.
"Employees absolutely love the new approach," Mr. Selmi says. "It's more rewarding because they get recognition and get to interact with the boss."
Griffith, meanwhile, is not waiting for bad economic conditions to improve. "I see no impediment except for ourselves," he says. "I'm going to become a crusader on this. Management processes need to change. That's just the nature of the world today. Those who can't get faster and better will not be here."
That's just the kind of thing the bank's top managers - and stockholders - like to hear. Griffith's operations responsibilities recently expanded to include the trust side of the business.