PROVIDIAN TRUST: TRADITION AND TECHNOLOGY

Group No. 1

(SECTION D)

INTRODUCTION

• Stephen Walsh, CEO of Providian Trust Company, faced an unusual corporate conflict within 2 weeks of accepting the post

• There is an extraordinary difference of opinion between Providian Trust’s internal auditor, Peter Storey, and the leaders of a major IT project in the trust division

• Peter told that the documents are incomplete and should be brought up to speed

• Board of Directors lost confidence in internal audit and recommended external auditor, Steinman & Smith, do an analysis of the project documentation prior to implementation

• Purpose of the project was to convert the trust division’s outdated IS into more efficient system using Access Plus, new trust and custody management s/w made by Select One

About the Firm

• Headquarter in New York• Delivered financial and fiduciary services• Had 216 branches• In 1994 managed $49.4bn in trust assets with 840 FTE’s• Operated 3 divisions

• Pension and Insti. Trust-PITS ($42.7bn)• Personal Trust ($6.7bn)• Trust Operation

• PITS was losing money while Personal Trust was marginally profitable• Trust Operations was involved in looking after managing client affairs and

generating and correcting statements• Some clients were not happy with having to wait 2-3 months for statements• PITS & Personal Trust officers were considered front office and while Operations

Dept. was the back office• Environment was filled with finger pointing• Need was felt to upgrade to Trust divisions old legacy mainframe systems to meet

rising demands of clients

Changes Planned

• Remove control of clients accounts from the hands of trust officers

• A computerized system to centrally control activities and enforce discipline

• Operations people to assume new duties due to experience with computers

• Trust officers to loose control of their clients financial info but would also need to learn how to use new computer software and data

Business Impact

• Capabilities & Custody Management provided technological precondition for the redesign of business process.

• Expected Phased Implementation by Dec 2005• Conversion of all the trust’s financial data• Transformation of operating environment

• Estimated Project Costs :$18 million• Annual Savings post implementation: $9.2 million• Unanimous Providian Trust Board Approval• Select One’s Access Asset Management System was

acquired.

Reengineering a New Operating Environment

• Major Issue in Implementation • Culture Shift • Training – Relationship Management

• Project Team sought input from: 30 key employees.• Access Plus Software Functions :17• Expectations• Minimization of Process Cycle time• Consolidation of Administration• Centralization of the proposed operating environment , • Primary caretakers of the data• Trust account Account Administration• New Role Client Relationship Managers

Concerns

• Problem between back room and front room communication

• Front line complaint of back room not listening to their requirements

• Benari’s original project manager left Providian Trust in February 1995

• Vice President of Client and Product Management for PITS also responded negatively

The Decision

• Board of directors approved the plan to reduce full time employees by 180.• Most staff felt their 20 years career was decided in 20 minutes interview.• On September 5,1995, reviewed ‘Access Plus Project HR timeline’• Showed how many staff would be dismissed as the schedule proceeded.

• President of Select One was invited by CEO, Mr. Walsh• Informed him to maintain an open door policy• Access CEO and COO directly in case of any glitches in implementing Access.

• CEO was interested in report from Steinman and Smith’s, outside auditor.• SWE was designed to test capabilities of Access and remove any doubts

from minds of people.• Stephen Walsh decided to approve the first scheduled Access Plus

Conversion.• Personal Trust conversion of all NY accounts took place on November 1,

1995.

Personal Trust Conversion Fails

• One-on-one interviews with managers showed stress levels to be very

high

• Key clients were angry

• ‘SWAT team’ organised of senior executives

• Meeting of Jan 1st deadline was impossible

• Major reasons for PITS postponement discussed

• Lack of skills in project management

• CEO not being involved in such a huge magnitude project

Sale of Pension & Institutional Trust

• In 1994 Pros and cons of selling PIT business discussed

• Walsh studied possibility of larger economies of scale

• He forged a new strategic positioning which was as sound as

a bank and as personal as a financial planner

• In 1996 Providian Trust sold its institutional custody business

• Inability to provide for the increasing economies of scale

being the main reason.

Sale of PIT (Contd.)

• Company’s assets dropped from $50 bn to $ 8.4 bn

• Unforeseen problems emerged when separating personal trust and PITS

businesses

• The staff in conjunction with the new technology could not function

• Company hired 40 Steinman & Smith people to reconcile the accounts

• Budget for the project was $ 22.2 m and fixing of the problems associated to

the conversion costs were $ 36 m

• Numerous customers had been inconvenienced, few actually left the

company.

Future

• Won credibility post announcement of 1996 results• More than doubled earnings to $86.6million and ROE rose to 8.9%• But Walsh was careful in advising his exec. that 1997 results might not be

as promising• This was because a significant expense would be there in funding • Funding of front end and enhancing product lines• Enhancing skills of employees• Successfully implementing major technology initiatives

• This was necessary for Providian to compete with other firms who were quickly moving ahead

• Also a massive cultural change would be required in a short time• Also a strategic change was required where senior managers were made to

comply • Also a recovery and learning from the failure of the Access Plus project

needs to be made

SOLUTIONS/RECOMMENDATIONS

• CEO needs to have a higher degree of involvement since the stakes are high.

• Initiatives should be taken by the HR department to motivate the discouraged employees

• Trainings and Orientation programs should be organized to increase the level of comfort of employees with the application

• Open door policy should be practiced so that, the issues can be resolved immediately

• Special tasks teams should be created to take care of impact analysis, co-ordination and implementation of changes in the system

• Special sessions should be conducted for the employees to help them understand the system and technology better

• The system should be well tested in a simulated environment before it goes live

• Backup plan should be ready in case of application failure

ACTION PLAN

• As the process of automation was done too hastily and in an improper manner, the clients as well as the employees were angered

• The company should own up to the responsibility of the project and clean up the mess they have created

• New projects should be put on a hold until they have the project up and running to prevent more clients being inconvenienced