Buckeye National Bank
Buckeye National Bank
The Buckeye National Bank began operations in the mid-1980s.
The bank quickly grew
by providing checking account services to many small businesses that preferred to do business
with a “local” bank.
Although Buckeye initially offered checking account services for individual
accounts (retail customers), the bank primarily focused on serving its business customers.
During the economic slowdown of the early 1990s the weakened local economy, growth in
business customer accounts began to decline.
In response, Buckeye’s senior management
adopted a new strategy, focusing on increasing the number of retail customer accounts.
aggressively marketing to individual retail accounts, Buckeye continued to grow.
Buckeye National Bank strives to maintain a stable base of business customers, while actively
competing for an increased market share of retail customers.
Recent income statements (Exhibit A) reveal a decline in the bank’s profits.
primary (noninterest) expense consists of salaries and employee benefits.
employees’ first priority is providing services to customers; these employees conduct their
administrative responsibilities during slack times.
The Bank schedules additional part-time
employees to work during peak demand times, from 11 a.m.-2 p.m. and Friday afternoons.
Flexibility in scheduling part-time employees means that the bank’s staff is lean and fully
Buckeye’s CEO, Rob Garrison, believes that this staffing arrangement allows the bank
to provide speedy customer service, while operating at practical capacity. (That is, the bank’s
staff is fully utilized in efficient operations, after allowing for bank holidays and other scheduled
staff activities such as training.)
To counter falling profits, Buckeye’s directors took two actions last year, both aimed at
increasing the bank’s retail customer base.
First, Buckeye established a service call center to
respond to customer inquiries about account balances, checks cleared, fees charged, and other
Second, Buckeye’s directors authorized year-end bonuses to branch managers
who met their branch’s target increase in the number of customers.
However, even though 80
percent of the branch managers met the targeted increase in customer accounts, the Bank’s
profits continued to decline.
CEO Rob Garrison does not understand why profits are declining,
given that the Bank is serving more customers.
Buckeye’s southeast regional manager, Erik
Larsen, has also noticed that while small retail customers flock to the bank, the number of
business customers is barely stable.
Erik Larsen suspects that Buckeye’s costing system may be part of the problem.