Swedbank: Banking on Human Capital Economics

Swedbank developed its Tool of the Future in 1992 when the top management group assembled the bank through mergers and acquisitions amid a downturn in Sweden’s financial industry. As the team plotted strategy, they knew they needed measurements and management tools that would more systematically help manage the competitive scale of the enterprise while fostering the local relationships and practices of a decentralized network of branches. They started with the fundamental belief that the skills, motivation and satisfaction of their employees would be instrumental drivers of value for customers, which would in turn drive overall performance for the bank and especially profitability. First developing measures and then linking those through an economic model—human capital, market capital and profitability—became the Tool of the Future.

The process began with surveys in every branch and among all employees, measuring such things as leadership, “businessmanship,” competence, internal support, etc. In parallel, Swedbank surveyed its customers on various dimensions measuring satisfaction and value. Both sets of measures were then matched with profitability and other financial measures, such as growth, profit per customer, revenue versus cost ratios, etc. The process yielded insight-producing distributions among all branches based on correlations between human capital resources and market capital, shining light on the performance of individual branches as well as on groups of banks that served particular markets.

The analyses highlighted relative performance of different units and areas for possible intervention. The model is applied by a cross-functional team of HR, market analysts and business controllers working as internal consultants to support and coach business leaders about different ways to improve performance. The model is flexible and provides for “interesting discussions,” said Staffan Ivarsson, deputy director of HR and steward of the Tool of the Future database. He explained, “There are different ways to improve profitability and performance, depending on whether a business unit wants to work more on cost-effectiveness or revenue generation. Ideally one makes progress against both. The key is understanding the economics of the human capital and human interactions and how those can be changed for the better.”