Hidden Costs

“You only get out of something what you put into it!”

I’ve always believed in that adage. You need to have the horses as well as the right jockey, trainer & strategy if you want to have any chance of “winning”.

Gotta be a complete team that plays the game & competes for victory.

It won’t guarantee a victory…nothing will…but it will certainly enhance your chances of doing so.

When I first relocated from NY to San Antonio, it was pretty evident to me why Citi had chosen this particular site.

$ $ $ $ $ $ $ $ $

San Antonio, according to the Runzheimer Analysis, was one of the most affordable areas in the country (housing, taxes, utilities, food, etc.).

Its cost of living index was way below the national average, yet it was a large enough geographical region to support a big company. (It’s no big surprise that USAA is not only home to USAA’s HQ & Citi’s USCC, but that dozens of other companies placed big operations shops here as well: MCI/Worldcom, Chase’s Card Services, American Funds/Capital, Wells Fargo, Bank of America, Hulu, Toyota, Rackspace, etc..)

And since the land was already donated to us (40 acres carved out of Briggs Ranch while Citi paid for all public services: power, electricity, water, road improvements, etc. to be brought in), San Antonio was the logical location for us to centralize our U.S. Retail Bank Operations.

National Operations had already centralized many areas from our national franchises…Florida, Illinois, California, Mid-Atlantic, etc…into NY (except for Customer Service, Check Processing & Statement Rendition) and was already evaluating possible sites in & around NY (“Court Square II”, right next to the existing 50-story tower in Long Island City where we already owned sufficient “air rights” to erect a sister building…a site in Cumberland County, NJ, not too far from Atlantic City) for a national site.

Due to logistics & the need to get checks processed in a timely fashion, it was decided that the individual Check Processing sites would remain in their respective marketplaces while Statement Rendition was eventually consolidated into Weehawken, NJ, home of the U.S. Consumer Bank data center.

And when you looked at the expenses for maintaining operations sites in such high-rent districts like NY, Chicago, Miami, San Francisco, Washington DC, Los Angeles, etc., the choice to consolidate in San Antonio became that much clearer.

But there was one thing that Citi did “wrong” (actually, their 2nd major error as their first one was to rely waaaaay too heavily on Bankcards & local talent to fill its most important positions in Training & line management, especially CitiPhone) and that was its conscious effort to NOT pay “top of market” salaries for its people.

(When we migrated Retirement Plan Services from NY to SA in late ’93, after 2 days, I strictly forbade the USCC trainer from continuing to train my new hire class. I had Vereta Shaw, one of my managers, teach the actual class going forward, using the training curriculum already developed, while Tracy Fields, the USCC-assigned trainer, sat there & monitored the class. There was way too much of “the blind leading the blind” & I couldn’t & wouldn’t tolerate it! Unless you specifically know how to drive yourself, you should NOT be teaching others how to.

Thats how you wind up driving into trees!

And you won’t believe some of the arguments I got into with a few of the very early CitiPhone trainers!

“Pls listen, I run the checkbook business for the bank & I know EXACTLY about the MICR/Magnetic Ink Character Recognition lines on the checks. You hafta trust me when I tell you that the business-check MICR line differs from the consumer-check’s version in the order in which info is displayed!

Yeah, really! I wouldn’t lead you wrong!”

Anyway…

I know for sure that NY paid top salaries…even for NY! People very rarely left the NY business for a lateral position move to another company! They would rarely receive  “more pay” elsewhere.

That policy allowed us to attract & retain some of the very best people in the industry. For years & years, Citi was highly regarded & so well respected for its incredible wealth of bright, creative & up-and-coming senior executives.

But after attending an all-managers meeting with Tom Short, head of USCC Human Resources, down in San Antonio, I was really disturbed by Citi’s new philosophy regarding salaries.

And somewhat surprised, too.

“For all you managers who came to the USCC from other marketplaces across the country”, Tom said, “you’ll note that our salary philosophy will be a lot different from what you may have been accustomed to.

“No more offering top pay. We’re now going to be offering middle-of-the-road salaries.”

My hand shot up immediately.

I already knew Tom from when he was National Ops HR Director for a short while in NY.

“Yes, Mike.”

“Tom, you guys do realize that middle-of-the-road salaries are gonna bring us back middle-of-the-road talent, right?

“I used to pay clerks more in NY than what supervisors are being paid today at the USCC.

“We’re already saving so much money with this whole USCC move! We can certainly pay much higher down here than we are & still enjoy incredible savings vs. the marketplaces!”

“But that’s the decision we made, Mike.”

“I think we’re gonna regret it eventually, Tom, but whatever.”

Hate to say it, but I was right!

Now, that is NOT to besmirch any of the excellent & outstanding managers & employees that we hired & developed locally here in San Antonio. Not at all!

But, initially, we were already behind the proverbial 8 ball in existing expertise from the Marketplaces and as time went on, USAA just stole & ate our lunch as over the years, we have lost hundreds & hundreds of excellent employees to USAA.

They pay much higher salaries for basically the same position.

Yes, they had many 4×10 shifts (4 days @ 10 hrs per), a beautiful campus & a much more prestigious reputation, but when you’re paying reps & clerks what we did, a $2000, $3000 difference is huge!

And we’re not taking into account the cost of employee turnover!

We constantly were pumping out new reps from Training like a damned puppy mill! All these training expenses, plus the “hidden cost” of less-experienced workers (less productive, more errors, more 2nd requests, lower customer satisfaction, too much of a load on managers, etc.), was not being taken into consideration.

As time went on, the USCC’s annua turnover rate kept increasing!

The “ceiling” was originally set at 15%. When we got to 14%, we increased it to 20%.

When it approached 19.5%, they increased the upper limit to 25%!

When it got to 24.5%, it was upped to 30%.

You can easily guess what happened when it reached 29.5%!

Yep!

Instead of retrenching & trying to figure out WHY we were losing so many people, we just kept fooling ourselves by changing the standards. (I so despised our “look good, instead of being good” philosophy. It’s hollow & it’ll always burn you in the end! It took the USCC several years…several…before it even began to approach the level of service previously provided by the individual Marketplaces themselves.)

BTW, during this period, USAA’s turnover was less than 5% annually!

I’m sure it’s risen since they “found efficiency religion” (fewer 4 x 10s, more of a production mentality as they brought in several senior executives from traditionally-manufacturing companies, like 3M, & actually began some outsourcing, rapid expansion into banking & other financial services, etc.), but it’s still significantly better than the USCC’s.

I remember when I had the opportunity to visit the USAA campus as part of a short-lived “management philosophy exchange” program between us.

I was pretty impressed!

During one of the meeting breaks at their site, I was strolling up & down some hallways, you know, performing industrial espionage exercises.

As I stepped into an empty conference room to make a phone call, I came across a white board with a comprehensive list of project & program initiatives…my eyes grew very wide! (Yes, I copied down as much of it as I could! I don’t believe that my “tomato-cans-and-string” cell phone even had a camera back then!)

But as I later continued down the hall & passed a training room where the door was open, I just quickly peeked in as I continued walking.

“Mike! Mike!”

I headed back to the room…filled to capacity with ex-Citibankers!

“Did you join us???”

“No, I just had a meeting with some of your people here.

“Good luck, everyone. Study hard & do well!”

There are times when people can’t see the forest for the trees. The USCC would wait until our reps had a year with us…then steal ’em!

When I left RPS/Retirement Plans Services in ’95 to run the Control Desk, then Micrographics, USAA was starting up their own bank & created this own Retirement Plans business.

Citi lost at least 1/2 its RPS staff to them!

I used to have an employee in RPS who came to me from Citi-California. Her salary was significantly “over the max” for her position, but I allowed her to keep it (instead of lowering it as was the normal practice).

She was a single Mom with 3 year young sons.

After I left RPS, she was offered a similar position at USAA…at a salary rate about $3500 higher!

She came to me for advice & said that she would feel so bad for “being disloyal” if she accepted their offer!

“You did a huge favor for me by accepting me into your organization & not lowering my salary! I’m so grateful to you & don’t wanna do anything that makes me see disloyal!”

“Lisa, pls listen to me!

“Your #1 priorities in life are those 3 boys at home…not work, not me, not anything else! You go accept that offer RIGHT NOW as that’s the best move for your family, understand?”

We had a nice cry.

You need to look beyond the obvious (Salary A vs. Salary B) & really analyze the total picture (“Salary A + new hire training + productivity decrease + error/rework increase + lower satisfaction” vs. Salary B).

Longer-range planning, while always keep a close eye on the here & now.

It’s not magic.

 

As always, thank you so much for listening!