1.31 A KPI Disaster Story: Wells Fargo
The Wells Fargo unauthorized account scandal provides an important lesson about the way that KPIs can go terribly wrong. At its origin is the concept of “cross-selling” in banking, through which banks attempt to entice existing customers to sign up for additional banking products.
Obsessed with cross-selling, Wells Fargo’s corporate leaders began to closely monitor the number of new accounts created at each branch, starting in the early 2000s. They assessed managers based on this metric, often tying new account creation statistics to things like promotions, bonuses, and retention.
Faced with relentless pressure to maintain steady new account growth, branch managers soon began to break the rules. To boost their statistics, they would often duplicate accounts on customers’ behalf. For instance, they took the names and details of customers who had knowingly signed up for a single credit card, and added a second or third credit card account without informing the customer.
If customers noticed, and complained? Wells Fargo could plausibly blame the duplication on a computer error. If the customers never noticed? Then the local branch managers could be one step closer to their next bonus or promotion. Eventually, the combination of consumer complaints and whistleblowers’ reporting of the activity brought the company’s practice to light.
In 2017, Wells Fargo admitted to opening up as many as 3.5 million fake accounts. The scandal garnered many front-page headlines for the next couple of years, badly damaging the company’s brand. In February 2020, Wells Fargo reached a USD $3 billion settlement with the U.S. Department of Justice and the Securities and Exchange Commission.
Looking back at the account scandal now, it seems ridiculous – what benefit could all those fake accounts have possibly brought for anyone, including Wells Fargo? Additional checking, savings, or credit card accounts that simply went idle could not have been a source of profit for the bank; in fact, any associated maintenance costs would make them a net negative for the bank.
The company’s behavior during this time period seems hard to fathom, but it mainly comes down to an unchecked, unquestioned obsession with a KPI.
In their 2019 Harvard Business Review article “Don’t Let Metrics Undermine Your Business,” Michael Harris and Bill Tayler discuss surrogation, the tendency within some organizations to focus so narrowly on a metric that they lose sight of the bigger-picture strategy. 13 The authors discuss three strategies for mitigating the risk of surrogation:
- Involving the people who will implement a strategy in the design of the strategy;
- Loosening the link between metrics and incentives; and
- Using multiple metrics
13 Harris, Michael and Bill Tayler. “Don’t Let Metrics Undermine Your Business,” Harvard Business Review, Sep/Oct2019, Vol. 97 Issue 5, p62-69.