Leveraging The Work Force using Information Technology A Financial Service Case Study

This paper focuses on IT and models and examines how they can be used toleverage the work force within Northwest Farm Credit Services, a company that providesquality financial service, t

Tyler FergusonNorthwest Farm Credit Services

HeadquartersSpokane, WA 99258509-340-5574Tyler.Ferguson@Farm-Credit.Com

Binshan Lin *College of Business AdministrationLouisiana State University in Shreveport

Shreveport, LA 71115318-797-5025BLIN@PILOT.LSUS.EDUJason C.H ChenSchool of Business Administration

Gonzaga University Spokane, WA 99258509-323-3421chen@jepson.gonzaga.edu

*corresponding author

AbstractHow can a company maximize its employees’ workload, become more efficient, andmaximize profits without having to drastically increase the number of employees? This is aproblem that many companies face everyday Companies trying to compete in markets withintense rivalry and small profit margins must fully utilize every employee by maximizingefficiency, effectiveness, and work output.

Information Technology (IT) is not only changing the way companies operate internally,but also altering the relationships between companies and their suppliers, customers, and otherbusiness partners Thanks to various advances in IT the problem of leveraging the work forcehas been mitigated Implementing a successful solution requires more than simply purchasingnew computers or software To effectively use an IT strategy a company must undergo aBusiness Process Reengineering (BPR) that requires vision and dedication

Using the right IT and Information Systems strategies will help a company leverage itsworkforce Fewer employees will be able to manage a greater workload while increasingcompany profits This paper focuses on IT and models and examines how they can be used toleverage the work force within Northwest Farm Credit Services, a company that providesquality financial service, thereby enhancing its competitive strategic advantage within themarketplace

Keywords: Information Technology, Information Systems Strategy, Business Process

Reengineering (BPR), Customer Service Center (CSC), Customer Relationship Management (CRM/e-CRM)

Information Technology (IT) is not only changing the way companies operate internallybut also altering the relationships between companies and their suppliers, customers, and otherbusiness partners (Porter and Millar, 1985) Employing today’s modern IT and appropriateInformation Systems (IS) strategies (e.g., management, technology, and organizationalstrategies) can help companies accomplish many goals including the leveraging current workforce to become more productive Utilizing current assets in an effective or innovative manner

is a core component of how today’s technology can help businesses gain a strategic advantage

“In today’s competitive world, leaders are faced with a very difficult challenge: How to domore with less in an environment where the velocity of change is increasing” (Daley et al.,2002)

The problem of how to leverage employees to receive a strategic advantage is whatNorthwest Farm Credit Services (NWFCS) faced in the early 1980’s On the brink ofbankruptcy, NWFCS realized that it must turn to innovative technology and procedures in order

to compete in this agricultural lending industry Implementing a new IT and IS strategiesrequires total commitment to see the whole process through NWFCS went through the process

of reengineering This reengineering process dramatically changes a company that requiresvision and dedication “Job designs, organizational structures, management systems - anythingassociated with the process - must be refashioned in an integrated way” (Hammer, 1990)

In this article, both Porter’s model and Framework for Assessing OrganizationEffectiveness were employed for analyzing the business situations It then focuses on IT andother strategies identified by the models and examines how they can be used to leverage the

work force within Northwest Farm Credit Services, a company provides quality financialservice through the Business Process Reengineering (BPR), thereby enhancing its competitiveadvantage within the marketplace The article concludes with a discussion of its solutions forimproving or creating sustainable advantages.

LITERATURE REVIEW

Ever since computers were invented technology has been viewed as a source of businessefficiency Companies envisioned that information technology would allow it to conductbusiness better If a company provided a product or service IT would allow it to deliver thatproduct or service more effectively, quicker and cheaper This notion has sent many companies

on the quest of using IT to do more with less or leveraging its current workforce to gainefficiencies There have been many case studies, research, articles, management theories andnew business fads that have evolved from this notion of using IT to leverage the workforce

This notion that IT has challenged companies/management to do more with less in anever-changing environment is a central theme through the IT strategies (Daley et al., 2002).Companies must learn to harness the IT power through creating an environment thatencourages continuous improvement Andriole (2002) has stated an effective IT watchcontinues forever with continuous revisions

A key idea that surfaces frequently with the utilization of IT is the need for aligning ISstrategy with corporate strategy, which results in better efficiency and a higher quality ofinformation (Suwardy et al., 2003) Companies should align IT and IS strategies with businessstrategy by putting its best resources towards supporting the newly identified strategy One ofthe best resources for aligning IT strategy is to find and retain IT professionals who love whatthey are doing Many successful companies has found and retained these IT professionals(Brockway and Hurley, 1998)

For many companies, aligning IT strategy with corporate strategy is not as easy assimply adjusting the company motto Rather, it is a complete company overhaul, or a totalBusiness Reengineering Process The definition of BPR ranges from a broad rethink to totalcompany/structure redesign with the focus on business processes (Nwabueze, 2000) The key

to being successful is aligning products and services to meet the customers needs (Tanner et al.,1998) The reengineering process includes everything from jobs to processes which arerefashioned in BPR (Hammer, 1990) Nwabueze (2000) explained the BPR to include upperlevel management’s challenge of how to run the company if it was their decision Hammer(1990) identified the key to successful BPR as executive leadership with real vision

Both BPR and IT focus on improving and changing all aspects of business to gaingreater efficiencies Several components and systems are identified as being an integral part ofany company These components include Database Managements Systems (DBMS), CustomerRelationship Management (CRM/e-CRM) and Call Centers

DBMS identifies the strategies of managing a central location for a company’s datastorage Anjard (1994) identified in his article that economies of scale can be achieved througheffective use of DBMS A large part of achieving greater workforce leverage is achieving theseeconomies of scale through shared information and knowledge CRM/e-CRM is acomprehensive business and marketing strategy that focuses all activities and resources aroundthe customer (Anton and Hoeck, 2002) Companies use CRM/e-CRM to greater enhance theirvalue to the customer by utilizing information which better serves and identifies the needs ofthe customer Providing continued customer service excellence is a central goal of CRM/e-CRM This idea of providing continued customer service is discussed by Amuso when hestates that the bar for customer service is constantly being raised (Amuso et al., 1998).Companies must continue to strive for ways to better provide service

Call centers have emerged as a leading strategic weapon on the customer servicebattlefront in the banking/finance industry (Anton, 1997, 2000; Feinberg, 2000) If leveragedcorrectly, companies can monopolize call centers to become leaders in customer service Formost financial companies the call center is the primary source of contact for its customers(Miciak and Desmarais, 2001) Feinberg (2002) identified that for most banks, customerservice/contact need not end at the bank doors Rather follow-up customer access/contact afterthe transaction adds value to the service and company In order to compete in the highlycompetitive banking industry companies must provide customers with high quality services(Mefford, 1993) This competitive environment is exactly where Northwest Farm CreditService has been from the 1980’s to the present.

THE COMPANY’S HISTORY

Northwest Farm Credit Services is an agricultural cooperative that provides financingand related services to agricultural producers, farm-related businesses, fishermen, part-timefarmers and country homeowners It is part of the 80-year-old Farm Credit Systems (FCS), a

$60 billion nationwide network of lending institutions that are a specialized serviceorganizations owned by their customers - the largest single provider of credit to Americanagriculture “Initially created by an Executive order of the President in 1933, the agency nowderives its powers and authorities from the Farm Credit Act of 1971” (FCA, 2003) Congresscreated the System to provide American agriculture with a dependable source of credit andclosely related services “The fundamental purpose of this network of sponsored enterprisescreated by Congress to provide American Agriculture with a source of sound, dependable,competitive rates of interest” (Farm Credit Services, 2003)

Today, through its banks and associations, the FCS provides about one-third of the totalcredit used by America's farmers, ranchers and cooperatives “Farm Credit provides credit andrelated services to farmers, ranchers, producers and harvested products, rural homeowners,certain farm-related businesses, agricultural and aquatic cooperatives, rural utilities, and tocertain domestic entities in connection with international agricultural credit transactions”(Farm Credit Services, 2003).

Providing excellent customer service is the driving force of all NWFCS activities.Identifying customers' needs and then meeting or exceeding their expectations in serving thoseneeds is NWFCS’s primary responsibility Cooperative principles of customer ownership andinvolvement are strategic advantages and NWFCS will look to leverage these for the benefit ofits customers In order for NWFCS to be considered a Cooperative, all customers who extendcredit must purchase stock in the company Stock is usually $1,000 per loan and comes withvarying voting rights depending on whether the customer is a full or part-time farmer

NWFCS territories encompass the states of Alaska, Hawaii, Idaho, Montana, Oregonand Washington Direct customer lending is limited to only these states Farm Credit may lend

to customers who live outside of its boundaries by using agricultural suppliers or the Internet.Examples of agricultural suppliers would be equipment or chemical dealerships that sellproducts to the customer The dealership would sell that credit to NWFCS who would thenpurchase the loans or may participate in some of the loans that already exist The cooperativehas 42 branches located in mostly rural areas to better service its customers NWFCSheadquarters is located in Spokane, Washington

Farm Credit is managed by a 12 member elected board All board members are or werefarmers voted in by the members of the Cooperative Management consists of a CEO and eightvice presidents over specific areas (Figure 1)

Insert Figure 1 Here -

-THE PROBLEM

In the early 1980’s NWFCS was faced with the worst financial performance in itshistory nearing the brink of bankruptcy Interest rates had sky rocketed and the market was in asharp down turn Many lending institutions had over extended themselves by selling morecredit, mainly mortgages, then what was available in reserve accounts “This is the situationwhich arose in the 1980’s when the ‘boom’ in the economy turned into ‘bust’: house prices felldramatically, interest rates rose and many mortgagors found themselves in the position ofhaving ‘negative equity’ in their homes, whilst at the same time large numbers of borrowerswere unable to keep up the payments on their mortgages As a result, the number of mortgagerepossessions increased For the first time this century, home-owners in huge numbers felt theravages of adverse economic circumstances for which they could not be held responsible”(Clements, 1999)

NWFCS was no exception to this With interest rates high and poor market conditionsmany consumers where filing bankruptcy and lending institutions were foreclosing onproperties Within NWFCS territory many local banks who serviced the farmers and theAgricultural supported communities had extended credit The banks where unfamiliar withfarming accounting practices and had lent money on higher Loan to Value (LTV) of anappraised property than they should have lent The banks had assumed that because the landwas worth so much at the time of the loan, property could always be sold to recover its losses.The problem was the real-estate market had plummeted due to the higher interest rates and poormarket conditions Many small and local banks were faced with disaster because of the volume

of bad loans NWFCS was asked to absorb and buy a large amount of the mortgage loans that

the local banks had made to the farmers, which it did This decision almost caused NWFCS to

go out of business

The company survived this ordeal by right sizing its staff almost in half and bringing innew management The new CEO was brought over from another Farm Credit located inLouisville, Kentucky Along with the new CEO came new management and a new lendingattitude thus creating a new company culture The CEO was no longer willing to lend to allfarmers within NWFCS territory but only the top 40 percent producers who were perceived asmoving up on the scale This new way of lending brought with it many challenges which thispaper will focus on

One major challenge Farm Credit faced was how to offer excellent customer service andproducts without increasing the number of employees Another challenge was how to leveragethe employees without deteriorating customer service NWFCS needed to find a way toaccomplish this through the use of Information Systems while aligning the new structure to theneeds of its customers as described in the following “On its way to this position, a company(Farm Credit Services) needs to align the products and services package to fulfill customerrequirements, since customers honor only products and service characteristics which arealigned to their current needs” (Tanner et al., 1998)

INDUSTRY ANALYSIS

Northwest Farm Credit Services needed to rethink its current use of technology.Applying different models will help identify appropriate strategies and where to improve orcreate strategic advantages Porter’s model was employed for NWFCS situation and it wasused as basis for analyzing strategy decisions because it “provides coherence within thestrategy field by critically importing economics, thereby providing a point of reference amongstrategy scholars” (Foss, 1996)

Porter’s Five Forces Model

According to Porter, there are five competitive forces in any industry, and theattractiveness of the industry depends on the strength of each force (Porter, 1985) Under the

perspective of market structure, Porter’s competitive forces model (Porter, 1985; Applegate et al., 1999) has been broadly adopted as the underpinning for investigating the effect of

information technology on the relationships between suppliers, customers, and other potentialthreats Five forces are: the rivalry among existing competitors, the threat of new entrants, thethreat of substitute products, the bargaining power of buyers, and the bargaining power ofsuppliers They are illustrated next (Figure 2)

Insert Figure 2 Here -

-Industry competitors and Potential entrants

As discussed already, Farm Credit System (FCS) was established by the FederalGovernment, therefore, its industry competitors were minimal The threat of new entrants fromanother FCS was low due to high entry barriers Government policy was the major barrier toentry along with access to capital and funds However, intense rivalry existed between thelocal lending institutions and NWFCS

Supplier’s bargaining power

The bargaining power of the supplier of funds was relatively low Since Farm Creditwas established by the Federal Government all funds came from the Federal Reserve NWFCScreated its own bank, called Ag America, to transfer funds from the Federal reserve to NWFCS.The bank manages the amount of reserves that are needed for funding There are only twoother banks used to service the various Farm Credit Associations that NWFCS could receive itsfunds from This limited the amount of power that the supplier had due to high switching costs

and government regulation.

Buyer’s bargaining power

Customer bargaining power was also limited due to market rates and their own financialsituation Lending rates are set by the Federal Reserve NWFCS looks at the risk associatedwith each customer to determine the rate to charge A customer’s financial position plays a keyrole in the rate that is charged – customers in stronger financial positions naturally receivedbetter rates

Threat of substitute

Lending to farmers and other Agricultural related services was another way in whichcompetitors could diversify their portfolio The threat of substitution was the strongest andmost competitive force for Farm Credit Residential real-estate lending companies,commercial banks, investment companies and insurance companies had all been attracted to theAgricultural Industry because of the large dollar value that large Agricultural corporationsborrow An example is Wilcox Dairy, a dominant dairy player in the Northwest that suppliesdairy products to grocery stores and shopping centers Wilcox Dairy has a large contract withCostco and needs to borrow a significant amount of operating funds All lending institutionstry to diversify its risk by loaning to new and different markets This lending strategy spreadsrisk across many markets and industries

SOLUTIONS

Effective use of IT can help mitigate the potential threat of substitution and

inter-industry competition that faces NWFCS “Porter describes three generic strategies for

achieving proprietary advantage with an industry: cost leadership, differentiation, and focus.Focus - has two variants: costs and differentiation” (Applegate et al., 1999) NWFCS realizedthat the livelihood of business depended on becoming the market leader by applying the

strategies identified by the Porter’s model, and refocusing on core values Farm Credit needed

to create a competitive advantage over its competitors This competitive advantage wasaccomplished through leveraging its current workforce by aligning IT strategy with corporatestrategy “An important point in obtaining competitive advantage in the market place was toalign IT strategy and investments with corporate strategy.” This resulted in an “increase inefficiency, responsiveness, flexibility and quality of information” (Suwardy et al., 2003).Aligning NWFCS corporate strategy with these IT strategies would help to create greatereconomies of scale, different market access and differentiation of products and services whilefocusing on its core business

Steps to success

Framework for Assessing Organization Effectiveness (Applegate et al., 1999) wasapplied to the NWFCS situation for deriving its solution (Figure 3) The first step was todefine direction and building infrastructure Farm Credit did this by concentrating on its core:providing excellent customer service Farm Credit realized “like other industries, banking andfinancial services companies have reached the conclusion that the relationship with thecustomers should not (metaphorically and literally) end at the bank door Customer access afterthe transaction adds value to the transaction” (Feinberg et al., 2002)

NWFCS now had defined the direction of it core competencies The next step was todevelop a strategy to implement this defined direction “The key to IT success is to alignsystems with business strategy This means having the best systems be those that support themost strategically important business process and functions” (Brockway and Hurley, 1998) TheCEO and board elected to apply this strategy by creating a Customer Service Center/call center(CSC) and investing heavily in IT In June of 1985 Farm Credit created the Customer ServiceCenter/call center

Insert Figure 3 Here -The CSC/call center was created to serve the needs of the branches and its customers.Within the infrastructure of the CSC/call center was the Customer Contact Center TheCustomer Contact Center played a critical role in implementing the various informationsystems to better serve its customers Various IT solutions were created to provide thecustomer service needs Now all external and internal questions, problems and requests would

-be funneled through the CSC NWFCS purchased software and hardware that allowed it tocontrol the internal network, Internet, and phones

Farm Credit decided to create its own internal network so that loans could be approved

at the headquarters instead of branch offices In order to accomplish this many pieces ofhardware were purchased such as large mainframes, desktop and laptop computers and a phonesystem that could be tracked by the network NWFCS developed its own internal financialsystem used for tracking customers’ financial statements and loans This system was linkeddirectly to the headquarters’ network Now the branches would send the majority of its loans tothe CSC at headquarters in order to focus on better customer service

The board of directors and top management realized that in order to achieve the results previously identified corporate structure had to be adjusted to match the newly defined corporate strategy scope “The scope for process redesign can range from restructuring the entire organization, to the most local rethink of how you do your work” (Nwabueze, 2000) With this in mind Farm Credit decided to go through a total Business Process Reengineering Process (BPR) “BPR is the redesign and improvement of business processes both in depth (roles and responsibilities, measurements and incentives, organizational structure, information technology, shared values and skills as shown in Figure 3) and breadth activities to be included which can lead to long-term profits Yet again, the focus

of the definition is on renewal of business processes” (Nwabueze, 2000).

“BPR starts by looking to the future and working backwards ignoring the constraints ofexisting methods; in effect upper level managers are challenged to question at everyopportunity ‘if we were a new company, how would we run this place?” (Nwabueze, 2000).The proper management of knowledge and experience can create a company-wide learningenvironment that creates a strategic advantage for a business organization as it responds totoday’s business demands in a much more dynamic setting (chen et al., 2004) Farm Creditused its past experiences and practices as a learning tool to modify its corporate structure inorder to improve or create its value.

This new change went from management down to the employees and was spearheaded

by the CEO and the board of directors NWFCS under went a total BPR that changed internalstructure, job descriptions and management systems The reengineering process was successfuldue to “executive leadership with real vision” (Hammer, 1990) NWFCS changed its motto toalign itself with the new outlook that the BPR process provided The motto was changed to

“We understand Agricultural like no other lender in the business” (NWFCS, FLCA, 2000)

After creating the Customer Service Center/call center all service and loans calls werenow channeled through the CSC Farm Credit realized that “call centers play a critical role intoday’s business world, and for may organizations they are the primary source of contact forthe customers” (Miciak and Desmarais, 2001) “Moreover, in the banking and financial servicesarea access over the phone and the internet is emerging as the access of choice for bothcustomers and institutions In this way banking/financial service companies are very similar toother industries in that customer call centers (1-800 number centers for customer contact) haveemerged as a leading weapon on this customer satisfaction battlefront” (Anton et al., 1997,2000; Feinberg et al., 2000) Branch employees were very skeptical of the new process becausethey did not feel that employees at headquarters would give their customers enough attention