The latest discussion paper from the UK's Financial Conduct Authority is intended to stimulate further debate about culture in financial services. Firms that measure results for customers and fix the causes of poor results will lead the way.

It is generally agreed that if a factory’s revenues were based solely on the number of cars they assembled in a week, there would be plenty of throughput, but little regard for quality. Or, to put it another way, “you are what you measure.” Much has been said about culture in financial services since the financial crisis, but it appears that this line of thought is catching on with regulators and organisations alike. More and more firms are waking up to 'outcome testing' as a way of moving beyond talk and into meaningful action. The simple premise is that the more firms measure things in the search for good results for customers, the more likely they are to achieve them. These good results are, in turn, integral to the task of creating a good company culture.

Cultural transformation

In May the FCA published DP18/2 (entitled 'Transforming Culture'), a paper that contained 28 perspectives from academics and captains of industry, exploring the concepts and theories that underpin organisational culture. Over recent years, more progressive firms have been setting a clear ‘tone-from-the-top,’ endorsing a customer-centric agenda at the highest level. However, judging by DP18/2, more is needed than just senior sponsorship. Real change must happen at the grass-roots level and the lessons of 'outcome testing' must be absorbed everywhere in a company.

The importance of 'outcome testing' was reinforced again by the FCA in its recent supervisory work on the subject of 'product governance' (an attempt to ensure that firms which manufacture and distribute financial instruments act in the clients’ best interests during all the stages of the life-cycle of products or services) at small- and medium-sized banks. The example of good practice was: “The most effective product governance frameworks focused on delivering good customer outcomes during all stages of the product lifecycle, from design to review. In these cases, firms set the measures of customer outcomes at the design stage and used them to assess continuing performance.”

Complaints management is crucial for 'product governance' as this is the moment when firms can spot potential failings and begin to do something about them. The process can also be applied to measure a firm’s approach to vulnerable customers, an obsession of the FCA's. The benefit of 'outcome testing' lies in its shear agility. Instead of being trapped up in reams of red tape, even the smallest teams can make rapid improvements.

The 'outcome testing' office

So what does a good 'outcome testing' function look like? This is an important question because many firms believe that they are 'testing outcomes' in some way or other, but they are often not doing it correctly. At a granular level it involves skilful and knowledgeable case handlers reviewing 'customer interactions' (i.e. interactions between the firm in question and its customers) and making judgements about whether customers have been treated fairly or not. They should then aggregate all the information they uncover, the better to identify the sources of failings. Ideally, 'outcome testing' should be a reactive process, dealing with issues as they arise, but a proactive one that anticipates new problems.

In order to be truly powerful, an outcome-testing function must be allowed to have an independent outlook. It ought to speak to other areas of the business - operations, risk, compliance and product - constructively. Co-operation between these functions must be implicit and the outcome-testing function must share outputs with people everywhere in the business in an open and constructive manner. Outcome testing is, at its heart, a matter of testing things and learning from them. It relies on using outputs to identify and fix failings, and then re-testing to ensure the desired improvement has been achieved. Commercially, this offsets the risk of amassing a costly pile of problems to 'remediate' (fix on the orders of regulators) in future.

Stop talking about culture!

What better way to judge culture than on the results that your firm produces for customers? Outcome testing gives organisations the chance to stop talking about culture and start taking concrete, measurable action. It does not merely involve “doing the right thing”. A consumer-focused culture makes firms more attractive to prospective customers, with all the good implications that that has for profit. With so much at stake, companies ought to take note of their 'customer outcomes' and put these at the heart of their culture.