Business is extremely competitive in the modern world and most companies and organizations think about the methods and techniques for improving their work performance. Dealing with banking system in Australia, it should be mentioned that it is a highly competitive sector in the country’s economy. Clients are searching for the best services and banks try to invent something new to satisfy their needs. Although, banks try to implement best strategies for increasing a number of their clients and train the staff in the necessary direction. The problems appeared usually relate to misunderstanding among staff and head managers. Relating the research to Best Big Bank located in Australia, the difficulties in the innovative methods implementation to the sphere are going to be discussed related to the misunderstanding within the principal-agent communication and asymmetric information received.
The first point that should be considered is the principal-agent problem in general and the role of asymmetric information in running business. The main idea of the principal-agent problem is that the principal (a person who gives a task) instructs an agent (a person who is asked to perform an absolutely new task) in a wrong or insufficient way. One of the main reasons for such problem appearance is the asymmetrical information occurrence. The cases of principal-agent problem and asymmetrical information possession will be considered on the example of Best Big Bank located in Australia. The reasons for this situation are numerous.
The sources of the problem appearance
First, it should be noted that there are three different departments in the bank that deal with different tasks. When the Bank’s CEO announced about the “Nucleus” referral system, the functions of different departments were not specified. The departments began to invite referrals that belonged to their type of clients creating competitive environment. Retail Bank services continued working only with individuals, while Corporate Bank services coped with business organizations. The final purposes of the staff in different departments did not coincide with each other and with the head’s one.
The second problem that could become a barrier to the proper system development was the motivational factor. The Bank’s CEO said that all the staff of the Best Big Bank is a family that should work together and help each other. The CEO did not announce either the financial or moral reward. People became mercenary, they got used to pursue their own ends and the announcement of the company as one big family is not a stimulus for employees. Hoping for employees’ responsible attitude to what the staff does, the Bank’s CEO did not think about the fact that employees would perceive those words as recommendation. Thus, employees could have thought about CEO’s words as if not about the obligatory functions but as about something that could be done. The difference is obvious. Stronger and more persuasive motivation should have been conducted.
Thus, asymmetric information and misunderstanding of the performed roles became the main reasons for bad results achievement. The natural question appears in mind, why did not the Bank’s CEO control the process? The results of the experiment are as follow, the sales for referral clients were $10 million instead of $180 million. There was possible to change the problem development almost at the very beginning if the proper actions were made. The controlling function was absolutely absent, there was no a person who would have been taking the results of each month and compared them with the previous ones. If the deep evaluation of each month was done, it would have been understood that there was something wrong with the experiment. The CEO had to review the instructions and the work every employee performed. When the mistake had been noticed, the instructions should have been revised.
A set of recommendations to help the Bank
It is possible to solve the problem via a number of different ways. First of all, the information should be properly delivered to all departments with explanation of their responsibilities. It is a good idea to offer a contract that includes the main options and responsibilities for each side. The head and the employees of the Bank should sign a contract that includes additional services the employees are going to provide. The additional payment is an obligatory part that should be discussed in the contract. Thereby, employees will not be able to refuse from the work as it is their responsibility; at the same time, the financial support will be one of the motivators for employees to complete their task in time and with higher results. The strength is that the staff will be properly informed. Though, some employees may refuse to perform additional functions.
The other variant is the motivational one. To complete the work with the highest effort, the employees should be extremely motivated, either morally or financially. The financial motivation is obvious, the employee who invited the highest number of referrals that either bought some products or used some Bank’s services should be rewarded according to percentage system, the more clients were invited, the highest percentage should be received. The moral reward can be related to such privileges at work as promotion, commendation, or additional leave of absence. The head of the Bank should properly consider the employees’ needs and motivate different employees according to their desires.
After all, the very idea of the “Nucleus” referral system looks wrong. The employee finds a client, the system analyses the information and sends it to one of the workers in the Bank depending on clients’ desires and worker’s possibilities. The whole idea is wrong. If the employee finds a client, he/she should work with him/her. The referral system should be built on the percentage system, the more clients an employee invites, the more percentages he/she should have from the dealership. The idea of computer selection is also unfinished. To be able to model all the client’s preferences and desires, much time should be spent and the computer, even with the highest innovative opportunities, will never be able to evaluate people’s desires in a proper way. This could be the third option why the Bank did not receive desired income. Wrong identification of the specialist could lead to wrong working process.
Alternative staff incentive scheme
The other alternative staff incentive scheme can be recommended. Each department, Retail Bank services and Corporate Bank services, should deal only with types of clients they used to. The main motivation here is that the department will get additional clients and this, in its turn, will lead to the increase of the services they usually use, and the financial reward increase.
The very idea of the referral system should be closely considered. Being involved into the referral system, a worker should possess special qualities. It is impossible to demand of the whole personnel be able to act as a perfect worker in the referral system. With this in mind, the following actions can be recommended. The Bank’s CEO should create a group of specialists who will be responsible for attracting clients to the Bank. This will allow avoiding principal-agent problem and asymmetrical information possession. When the client will come, the Support service should guarantee the correct satisfactions of all clients needs via sending the client either to Retail Bank services or to Corporate Bank services depending on the client’s characteristics. All specialists will perform the job they can do perfectly and no any misunderstanding will occur. The allocation of responsibilities is very important if the company wants to achieve good results in the work that is done and receive the highly possible profit. The negative side of this technique is that there is no any collaboration among the departments. Thus, tension and competition among the departments may lead to controversial effect, unhealthy environment and stressing situation at the workplace.
In conclusion, the current paper reviewed the following points, the possible problems that occurred while “Nucleus” referral system implementation in the Best Big Bank located in Australia and the possible solutions to the problems were offered. One of the main problems in the Bank was principal-agent one that was either the result or the consequence of the asymmetrical information receiving. The creation of the additional department that will be responsible for the referrals’ attraction is obligatory as allocation of responsibilities is one of the main ways for success achievement.
Bibliography
Unit 6: Asymmetric information and principal agent problems, Economics in Management Practice, Course materials.