10 October 2016
The Wells Fargo debacle has been unfolding in front of us, with US congress grilling their chairman John Stumpf. A scandal was surfaced where 2 million phony products and/or accounts were sold, and subsequently 5300 Wells Fargo employees (though no senior leadership) were fired. Customers were “sold” products without their knowledge or consent, an egregious violation of ethical business practices. It remains to be seen how their CEO will navigate these cliffs, but until now he has been allowed to remain at the helm.
How could this happen?!? The fraudulent or fake sales were engineered by low-level staff, in pursuit of overly ambitious sales targets. Wells Fargo became the “hero” of Wall Street because of their exceptional success at achieving higher cross-sell targets than all of their competitors. As a result, the stock price surged. They now engineered a campaign whereby Cross-sell would go up further from under 6 to a target of 8. Deming told us a long time ago: “Give a manager a numerical target and he will make it even if he has to destroy the company in the process.” Eight rhymes with great, but as we know in hindsight the results were disastrous.
Apparently senior leadership began to realize there was something perverse about these targets, because during a congressional hearing I heard John Stumpf say: “We have now eliminated all sales and product targets.” However, I have also heard him say he is “fully accountable”, yet he resists bearing consequences of this strategy under his reign. I would argue that the only right thing to do would be to step down, and return the hefty bonuses he received while this scheme was going on. That’s what taking responsibility would like to me, at least. Alas, that’s easy to say for me, I have never had to consider returning about $200 million…
Over the years, I have been involved in several efforts to drive up cross-selling. However, the results almost invariably perverted subordinates: they would come up with new, “creative” definitions to make the sales look bigger than they really were. One of the best (or worst, depending on your perspective…) examples, I thought, was a case where the responsible manager suggested a rather creative definition: customers with only one product, that left between t0 and t1 (the measurement period), should be eliminated from the equation used to calculate the cross-sell rations. Think about that, for a second. Since these weren’t “real” customers, it makes sense, doesn’t it? However, if you wouldn’t make a single extra sale, the sheer attrition of these customers would drive up your cross-sell ratio! Hilarious. At least, that’s what I thought…
When I first read about the 6-to-8 target at Wells Fargo, I was wondering: given my fair amount of experience in these cross-sell endeavors, am I really the first to question that outlandish target?!? When it looks too good to be true, it usually is.