Background and Challenge

One of Europe’s largest retail banks was planning to introduce a new incentive scheme for the branch and customer service managers of their network from Q1 2009. This scheme was to be based on the drivers of Net Promoter Scores (NPS). The client asked L.E.K. Consulting to assist in developing the new incentive scheme to motivate value maximizing behavior, and increase NPS.

Approach and Recommendations

During the course of several weeks, the L.E.K. Consulting team conducted a number of work steps:

  • Analyzed internal branch-level information (including qualitative customer survey results) to highlight the drivers of changes in the components of NPS, and hence identify the metrics and KPIs required to improve performance
  • Determined, through detailed regression analysis, the true relationship between NPS and a branch’s annual economic value creation
  • Developed a series of alternative proposals for the new incentive scheme and analyzed the effect of each on both financial and non-financial metrics
  • Developed a recommended solution and built strong support throughout the business

L.E.K.’s analysis of the historical performance of the branch network identified three key findings: First, NPS is significantly affected by factors outside of local management’s control, such as location, customer demographic profile and branch size/number of teller points. Any fair incentive scheme should adjust for these factors. Secondly, focusing on the metrics that result in the biggest change in the components of NPS, rather than just the observed NPS itself, will result in significantly higher overall performance. Lastly, NPS and value creation are not perfectly correlated and care should be taken to avoid seeking to maximize NPS without regard to the economic consequences of the actions involved.

Consequently, L.E.K. proposed a three-step incentive scheme process:

  • All branches were allocated into “pools” based on their location and size. There were six different location types (e.g. urban, rural, etc.) and three store sizes (small, medium and large)
  • Each driver of performance was weighted based on its impact on overall NPS, with different weightings used for the different branch sizes and locations
  • Branches were then ranked within their pool based on weighted performance to establish an overall position, against which the incentive structure was applied

Results

L.E.K.’s work produced a new incentive scheme which received strong support from within the business and contributed to a significant overall improvement in NPS during 2009. Key to the project’s success was motivating branch managers to compete within their pools of similar branches, and then focusing only on the few metrics that really make a difference to both NPS performance and branch value creation.