Fraud charges and $185 million fine “ this was the price of one wrong KPI for Wells Fargo. This notorious case probably induced many companies to double-check their motivation schemes and reach out to BI consulting practitioners. And it’s easy to understand these precautions. For many years, Wells Fargo was a role model for many banks that dreamed of repeating their success in cross-selling. Likewise, Wells Fargo’s failure motivated their followers to double-check their own strategies.
Wells Fargo defined a brilliant strategy. With a limited number of customers in the market, the best scenario was to sell more products to the existing customers. The company followed the principles of smart strategic management that instructed to translate a corporate strategy into KPIs, and defined a KPI on cross-selling with a target of 8 products sold per customer. Besides, Wells Fargo invented a catchy motto Eight is great. Only many years later, the company found out that they had chosen a wrong incentive that led to creating 2 million fake accounts.
While this article cites Wells Fargo’s example, the problem of poorly defined KPIs that are not connected with ultimate business goals can appear in any industry.
BI solution can help in defining right KPIs
Any BI solution is just a tool designed to monitor, analyze and show results. It functions according to the rules and algorithms that people create. BI solution brings transparency and ease of control, but it cannot influence ethical choices people make. Let’s explore how business intelligence can help with KPI-related issues and fraud prevention.
Dealing with big data easily and quickly
In their fact sheet Q1 2017, Wells Fargo stated that they did business with over 70 million customers globally. Before the scandal erupted, the company reported that they were selling 6.1 products per customer. Imagine an impressive data volume to manage and analyze. In fact, this is a challenge that not only large companies such as Wells Fargo, but also mid-sized companies face.
Without a BI solution, users need to browse manually through this heap of data in search of threats or opportunities, which is inconvenient and time-consuming. Besides, there is a high chance of overlooking a problem. At the same time, a BI solution allows filtering, sorting and grouping data in a few clicks.
Measuring success
Any KPI should belong to a certain level: company-wide, departmental or individual. Low-level KPIs should support high-level ones. Wells Fargo’s individual KPI on cross-selling was weekly defined, as it included low-revenue services among others. The company forgot that the number of services per customer was just a way to increase revenue, not a goal by itself. The same mistake can happen in other industries: for example, a company may track the number of new visitors to their website, but again this KPI does not reflect a business goal. However, taking visitor engagement into account will help to link the KPI with the company’s objectives. A small adjustment, which causes a big change.
Identifying threats and opportunities
KPIs also may help identify threats and opportunities. To make it possible, a company should know what to look at while analyzing data. In fact, any industry has specific risk-oriented KPIs to look at. For a retailer, it makes sense to produce zero-sales reports and check out-of-stocks, for a manufacturer “ to measure a throughput. Wells Fargo could have chosen a threshold value for account activity. A quick filtering of the accounts and identifying those below the threshold would allow the company to check customers’ engagement and to prevent fraud.
Defining realistic targets
Wells Fargo also defined a wrong target for their KPI on cross-selling. The company’s employees stated that they had wildly unrealistic sales targets. Assuming that the bank should have a robust business intelligence system, the company could have analyzed historical cross-selling figures and applied predictive analytics to set an attainable KPI, as well as long-term and short-term targets.
To sum it up
Wrong KPIs can be costly for a business: Wells Fargo’s unfortunate mistake proves this. Adopting a BI solution, a company significantly reduces their chances to repeat these errors. Naturally, technology cannot solve ethical problems: it is still people, who make choices. However, technology brings transparency and ease of control, which reduces the temptation to behave unethically.
Another important thing to remember: a BI solution is just a tool. Without doubt, it is helpful in dealing with data easily and quickly, in measuring success, in identifying threats and opportunities, and in defining attainable targets. However, to get valuable insights and reliable information, a company should address it with right questions, which is the scope of business intelligence consulting and data analysis services.
