A Providian Case Study

Did I Lose You?

A Providian Case Study

BUSI 192: Williams

March 2003

Matthew “Manage This” Carroll

Shane “The Culture” Chang

Carlos “Fundamental” Choren

Christi “ROI is AOK” Ginger

Providian

Since its beginnings, Providian Trust always established itself as a customer-oriented company. Based on values of trust, integrity and honesty, Providian historically maintained a heavy focus on its customers and believed that to be successful, it was imperative that Providian deliver high customer satisfaction consistently and continuously.

Culture

There were two main cultures operating within the Trust division at Providian. One was the front office, which contained the Trust officers – generally considered the most change-resistant people in the entire company. Providian Trust officers worked to develop intimate relationships with their clients and had very little technical knowledge. They were entrusted to manage all areas of their clients’ affairs, from handling statements to maintaining close working relationships, without the aid of technology pieces such as personal computers, email, or the Internet.

The second main culture or the Trust division, the back-office, mainly dealt with support for the front-office. Yet the front-office replicated many clerical tasks of the back-office, creating redundant tasks and inefficiency. The back-office felt that the Trust officers were overstepping their bounds and doing their jobs less efficiently since they replicated back-office work. When things went awry, the Trust officers compensated for late or inaccurate statements by discounting or waiving fees. This cost the company an estimated 2 to 5 million dollars annually.

Management

When Stephen Walsh stepped into the position of CEO of Providian, he assumed a number of logistical and political problems formerly handled by his predecessor, including the ongoing project to reorganize the Providian Trust offices. It is apparent that Walsh is possibly not very confident in his abilities in his new position as he has yet to settle into his new roles. Still, his unwillingness to become too involved with the project is indicative of a fundamental problem at Providian, being that no single person who had influence within the project had a real idea of the true risks and problems with the system conversion. Besides, Walsh, individuals with power, like Michael LeBlanc, lacked ability regarding project management. Those with foresight, like Peter Storey, lacked political clout or personal ability to affect change at Providian regarding the project.

Walsh seems to have been content to let LeBlanc control the project and to retain the status quo that existed before he stepped in as CEO. Since LeBlanc was the appointed project manager and had been with Providian longer, such a decision was not uncalled for. Walsh’s decision to dismiss Peter Storey can be viewed as out of hand, as Storey had also been with the company longer than Walsh and it is not clear that Walsh ever corresponded with Storey as directly as he dealt with LeBlanc.

Because Walsh wanted to focus on his five-year plan with Providian, he may simply have wanted to get the project handled as quickly and painlessly as possible, since it was a legacy project and not of great interest to him. As well, he may have been thinking to build up preliminary support with individuals he saw as effective change agents for his own future projects. Such perspectives may support why Walsh dismissed Storey in favor for LeBlanc, as LeBlanc seemed to be the “go ahead” type and Storey the more “stop” type of individual, both for the Trust project and possibly for Walsh’s five-year plan.

Michael LeBlanc originally argued for the project in 1994, primarily because he wanted to drive down costs and because he wanted more control over and accountability from the front office, which he saw as inefficient and uncompetitive regarding the industry. He considers himself the “bull-headed” type who will “run as hard as he can” to force issues through, despite conflicts that may arise. Needless to say his handling of the Trust project lacked finesse, as is evidenced by social problems in committees and among employee morale, and even in his basic decisions regarding project implementation. One committee LeBlanc led, the steering committee, eventually sank into a morass and its duties became assumed by the implementation committee, which was also led by LeBlanc but which did not contain as many critical individuals as did the steering committee.

LeBlanc had no previous project management experience. While he may have traditionally been a strong operations manager, he probably lacked the fundamental skills that ensured success regarding a large-scale, unprecedented project in the Trust division. As the project manager, LeBlanc made a critical mistakes early that ensured problems down the road.

In his decision to select the back-office to drive a project that would use an off-the-shelf package already in use by a majority of the Trust market, LeBlanc failed to offer to the front-office viable tools that would help to grow the business (say, through cross selling, upselling, or improved customer relations) and to cull Providian’s competitive advantage from Providian’s unnecessary processes. As well, his decision to have the back-office simply take over because he sensed antagonism between the back and front-offices did nothing to foster teamwork within the Trust division at Providian.

Even worse, as the project progressed and problems presented themselves, LeBlanc chose to ignore or steamroll over them rather than adapt to incorporate them. The fact that LeBlanc further divorced himself from direct involvement in the project by assigning Benari – who hired his own project managers – to head the Access Plus system did nothing to improve the situation and LeBlanc’s responsiveness to issues as they arose. Because of this, the project grew more out of touch with Providian’s core business practices as time progressed.

Overall, LeBlanc seemed to develop a pattern of ignoring criticism and consolidating power in order to get his project developed and implemented. Evidence that supports this abounds, as LeBlanc initially decided to have the Trust division’s own IT department, which he managed, handle the project instead of Providian’s main IT department. The team he is relying on for support, the Trust Operation’s 30 IT workers, have gone from working projects of less than half a million dollars to an $18 million dollar implementation. In using these IT workers, LeBlanc is spurning possible help of the 240 IT workers in the retail banking part of the company. Not only does this risk alienating that part of the company, it denies him the use of their skills and resources as well. Moreover, LeBlanc did not include the senior vice-president of corporate services on the steering committee at all. He argued against Providian’s internal auditor, Peter Storey. LeBlanc chaired two of the three committees involved in the system’s development.

Other vice-presidents who worked for LeBlanc – like David Brown, Robert Case, and David English – and who voiced concerns about the system ultimately signed off on the project, despite earlier serious objections. It is unclear whether these VP’s were finally convinced that the system would work or if they were otherwise compelled to sign off in favor of the project by LeBlanc.

Because LeBlanc had no strong technological skills, he assigned the Trust Operations Vice President, Todd Benari, to manage the Access Plus project for himself. Although Benari saw more clearly the problems other people presented about the system, he never argued as vehemenently against it as did Storey.

LeBlanc’s main opposition regarding the project, Peter Storey, seems to be one of the few individuals who had both the foresight to grasp the high level of risk the project represented, where its weaknesses were and that could convey warnings to individuals who might affect change. Peter had the greatest fundamental understanding of exactly how the Access Plus system would interact with the current work environment. He based his analysis on the project on factors such as the project’s scope and overall cultural impact, and numbers grounded in reality. For some reason, he had a reputation for “crying wolf” and even the project’s Audit Committee expressed doubts about Storey. It is unclear whether Storey may have been incompetent or whether he simply went against the political grain at Providian, but he was the only truly vocal person to speak out against the project and he was the only individual fired from Providian during the project development.

The Plan

To keep up with intense client demand, senior vice president Michael LeBlanc believed that it was imperative that Providian quickly upgrade the company’s old legacy mainframe systems. The upgraded system would give the operations department sole administrative duties, including the generation of client statements. Trust officers would be forced to adapt to the new system in order to continue to perform at Providian.

Trust officers would also lose control of all of their client’s financial information. Providian had trust officers with “thirty years of experience who had never looked at anything more automated than an adding machine”, yet they were now being asked to master computer skills and the Access Plus system in a matter of months.

The average Trust officer could be described as being “completely averse to technology and uncooperative.” They viewed the new system as a threat to their responsibility. With the new system, their job functions were changing and their responsibilities were increasing, yet they were receiving no additional sales training, only clerical training to use Access Plus and a computer. Also, the back office resented the Access Plus system because the scheduled implementation called for the elimination of a substantial number of office administration jobs. Both the front and back offices were resistant to the implementation of this system.

ROI

The new system is supposed to dramatically improve service and cut costs. However, Providian failed to realize that this system fixes “back office” operations and does not change the way customers are served. It will improve operating efficiency but will not necessarily affect customer service.

The estimated implementation cost was 18 million dollars with an expected savings of $9.2 million per year. The savings were intended to come from reducing staff, reengineering back-end business processes, and using the improved functionality of the new system to speed customer statement delivery. One hundred and eighty full-time employees would be eliminated, leading to annual savings of $7.2 million. In addition, it would generate earnings by freeing the front-office to concentrate on developing customer accounts.

Providian’s cost analysis has some serious shortfalls, however. Because the new system is not designed to improve customer service, its annual return should be calculated entirely from operational impact. However, the investment summary assumes the new system will be responsible for $1,200,000 in new business. This increased revenue is intended to come from improved selling skills of the front-office. However, the system itself offers no new tools or skills to support the trust officers.

In computing the initial $18 million price, Providian underestimated the true costs of installing Access Plus. Severance pay for the downsized staff, for example, is not explicitly included in the summary. In addition, training is estimated at $600,000, a comparatively small figure considering the scope of the training. In ABCs of ERP Christopher Koch states that training is likely the most underestimated factor of ERP installations. In addition, Mr. Simmons noted that software costs are typically a small portion of the overall implementation costs. Providian also does not analyze intangibles such as decreased employee morale. Providian should evaluate the system on the basis of its total impact on the Business Score Card, including effects on customers and business processes and not just costs. It focused exclusively on hard numbers, forgetting about the effects on soft value.

Risk assessment was another area that Providian failed to adequately account for. Storey and his auditing staff repeatedly stated that Access Plus should be considered a high-risk project because it affected a significant amount of assets. Access Plus is a mid-value project because Providian is changing operational costs and not affecting quality, cycle time, or customer service. Because it is not a strategic project, but one meant to improve operating efficiency, the ROI is the main determinant of whether to implement the project. The implementation must be cost efficient and risk has to be included in calculations.

Although LeBlanc treated the Access Plus implementation as a low-risk project, Storey and the Audit committee repeatedly voiced concerns over the hidden risks should the project effect core aspects of the company adversely. Although it planned for it, Providian should have actually mitigated the risk by implementing a roll-out plan that would have unveiled the system in segments to anticipate loss. In addition, scenario planning would have identified the worst-case scenarios and should have influenced the implementation plans. In evaluating the risk, Providian also should look at the risk of not doing the project. In this case, it is losing money due to poor customer service and erred and late record, which led to higher expenses and lower revenues, and something needs to be done. In Providian’s case, it is more a question of what should have been done to rectify this issue instead of whether or not to take action at all.

Providian should have considered outsourcing the project. LeBlanc was partially correct in his thinking that customizing an off-the-shelf system was the only viable option. The project isn’t strategic and it wouldn’t be cost efficient to write a unique system. Because this is a high-risk, mid-value project, d-value, high-risk project, Providian should have considered outsourcing. This allows it to focus the valuable time and resources that could otherwise be invested in improving the strategic processes and systems.

Concluding Remarks

Providian’s approach to its IT project showed a fundamental lack of understanding in the area of project management. At the very root of project management, there must be a project manager with the right amount of experience and skills to see the project through. This manager must be able to identify and address technological and personnel issues, but political ones as well. LeBlanc should not have been in control of this project because he did not have a fundamental understanding of the project or management. He was created an insular project team and actively ignored concerns or difficulties. Because of the nature of the project, Providian should have hired someone who had the skills to properly implement the Access Plus system. A quality outside manager would be sensitive to the political situation without being swayed by it.

Providian had the right idea to use a piecemeal implementation plan; however, they did not carry it out correctly due to their insensitivity to the human factor involved. LeBlanc did not truly understand how IT and business fit together. In addition, effort must be made to draw input from all facets of the business in the project planning. When the initial rollout showed fundamental problems, the project should have been reviewed with rigor.

Providian should have included the entire Balanced Score Card, scenario planning, and risk in evaluating this system. Because there was a misunderstanding of how the project was to impact the business, the ROI figures did not accurately reflect the project. Providian likely would have seen outsourcing as a viable option had it taken everything into consideration.