Wells Fargo was one of the 11 companies identified by Jim Collins in his book “Good to Great” (2001) that had succeeded in making the leap from being a good company to a great company. Wells Fargo is a very well known financial services company that was launched in 1852 in San Francisco as a small startup company. However, today, it has achieved huge growth and become a very large private company with 8000 employees. The growth of Wells Fargo over the years has definitely been from good to great. Though the business practices and market environment has changed over the centuries, Well Fargo with values from the olden days has successfully managed to adapt to the present and the future.
Wells Fargo was founded by Henry Wells and William George Fargo to cater to express transport in the Pacific Coast region. Earlier they had formed the American Express company by merging three other companies to cater to the New York region. Well Fargo was built on firm values and according to the policy spelt out in 1869, “We are a company that does business on the fair and square…we do not propose to take advantage of anybody; we will make a good bargain whenever we can, and get what we can; abut as to ever intending to take advantage of the government or anybody else, we do not propose to do it” (Chandler, 7). Built on such solid foundation, Wells Fargo in the 1850s and 1860s grew along with the economy that was based on mining and expanded throughout the country. When they undertook delivery of letters, they had to adopt stagecoaches and ponies for delivery purposes. In 1857, Overland Mail that was affiliated to Wells Fargo accepted “government contracts to deliver mail between the Missouri River and California” (Chandler, 7). In 1888, Wels Fargo and Company’s Express established rail transport from coast to coast to the Atlantic and across the oceans to Europe and Asia. Wells Fargo soon offered refrigerated railcars for transport of food products. A major change happened in 1905 when Edward H. Harriman, who was in charge of Wells Fargo decided to split railroad transport and express services and moved the headquarters of Wells Fargo and Company Express to New York. The express path was not successful and very soon it faced strong opposition from the domestic express business that was consolidated by the federal government. The shift to banking business helped Wells Fargo become the powerful institute that it is today. In 1905, under the leadership of Harriman, the company joined the Nevada National Bank and very soon, in 1924, merger took place between the Wells Fargo Bank and Union Trust Company. Later, it decided to expand outwards of San Francisco Bay Area into Southern California. In 1969, the bank turned national and began “a continental advance through nonbanking subsidiaries”. Mergers with the Crocker Bank in 1986, with “First Interstate in 1996 and with Norwest in 1998” helped Wells Fargo to expand across 23 states and it offered financial and mortgage services, both nationally and internationally (Chandler, 8). According to Jim Collins, greatness of an organization cannot take place overnight but only through a series of intelligent measures that can give it a push in the right direction. This is very much evident in the case of Wells Fargo. It started out as an Express Company and expanded throughout the country but at a certain point it made the shift to banking and after that intelligent and consistent measures were taken to keep the banking industry expanding.
According to the researchers of Jim Collins’ book, “Good to Great”, the success of Wells Fargo is mainly due to its leaders who were able to get the right people at the right place at the right time. For example sixteen hundred Crocker Bank managers were dismissed from work because Wells Fargo management felt that the Crocker managers will not be able to fit in the Well Fargo culture. They had more posh offices and greater perks than the Wells Fargo managers and even before the merger happened, it was decided that the Crocker managers would have to be fired (Gillis, 171). In an era of deregulation it was found that Wells Fargo Bank’s leader Dick Cooley focused more on people compared to other institutions. Cooley therefore paid attention to his human resources and trained them to be very adaptable in the industry. According to Cooley, these people will help him see changes that he fails to see coming in the future and can have flexible attitudes to cope with such futuristic changes. “Dick Cooley understood that in a volatile world, the ultimate hedge against uncertainty is to have the right people who can adapt to whatever the world might throw at you” (Araoz, 28)
Moreover, the transition from good to great is found by facing reality as it is, having a simple concept for the business, being very disciplined and using technology to maximum advantage. Wells Fargo was a company that faced reality though reality was full of hard and cruel facts. During World War I, the federal government “consolidated the domestic express business and as a result in 1918, a total of 10000 Well Fargo offices joined American Railway Express” (Chandler, 8). The Wells Fargo name carried only a few Cuban and Mexican express business units. If Wells Fargo had chosen to rest on its laurels and waited for better times to arrive, it would have been totally annihilated. But Wells Fargo faced reality and saw that there was no future in the express business. Hence, at Harriman’s urging, Wells Fargo and Company turned to banking. It was banking that propelled Wells Fargo to huge success and helped its evolution into a financial powerhouse.
Good to great firms are disciplined in their thinking process by the Hedgehog concept that includes three basic rules: doing what one can do best; doing what brings more financial benefits; and doing what one is passionate about. Wells Fargo had a passion for serving people in a manner that had a chance for expansion and growth. The main strength of Wells Fargo was its ability to connect with people and its accountability culture. These fell in place with its shift into the banking industry. With the right people in place, greatness emerged from Wells Fargo at the intersection of their banking services, their passion for serving people and through expansion of their networks. But sticking to the goal of serving people through banking, the company followed the “Hedgehog” path to greatness.
Companies can have two different approaches – the mission driven approach and the profit oriented approach. Wells Fargo became a great company by following the mission driven approach. This can be demonstrated using the recent history of Wells Fargo and U.S. Bancorp, with both these banks having their roots in Minnesota (George, 70). The past decade, Wells Fargo has focused on providing good customer service and expanding its banking services across the Western regions. U.S. Bancorp on the other hand has focused on increasing its profit by cost cutting and centralizing measures. Though U.S. Bancorp seemed to do well in the short run through profit increases, in the long run, it lost its customer base and had problems with its employees making its growth decline. “Its stock lost over 50% of its value and it had to be sold to a smaller Milwaukee banking group” (George, 70). On the other hand, Wells Fargo was able “to maintain a steady growth rate even during the recent recession and increase its shareholder value in a very consistent manner. Its value doubled that of U.S. Bancorp” (George, 70). By pursuing its mission of serving people with passion and commitment, Wells Fargo succeeded in creating sustainable value for its customers, employees and shareholders and became a good to great company.
In the context of technology, Wells Fargo was the first bank to develop an in-house information system in the late 1980s to gain competitive advantage. During this period, the bank was trying to escape an economic crisis caused by too many loans in commercial real estate and leveraged buyouts. It felt that with the right use of information technology, it could increase its national presence in the small business market and hence it started gathering information on its own customers and used it as a guide to evaluate forecasting data in the context of small business loans. Along with this, computers were used for back office work, reducing paper work. As a result of these measures by 1995, Wells Fargo held “more than 16 percent of all small-business loans” (Newman, 186). New computer technology allowed Wells Fargo to have competitive advantage by facilitating low cost, mass market loans. Wells Fargo was also the first bank to use “digital certificates” to authenticate the identity of its customers for internet payments (Newman, 186). Wells Fargo worked in partnership with VeriFone Incorporated for technological advantage. The fact that Wells Fargo company was one that used technology to maximum advantage is well evident in the fact that in July 2005, Global Finance Magazine awarded Wells Fargo six awards: “Best Corporate/Institutional Internet Bank in the U.S., Best Web Site Design (corporate category); Best Web Site Design (Consumer category); Best Integrated Consumer Bank Site; Best Integrated Corporate/Institutional Bank Site and Best Information Security Initiatives” (Loosvelt, 479). In 2005, it was nominated by the IT magazine CIO as a 2005 CIO 100 Bold Winner. The company’s wholesale Internet and treasure solutions that serve middle market and large corporate customers have been widely applauded for its “innovation, leadership and precise execution” (Loosvelt, 479). In December 2004, the company has topped the Q4 Online Banker Scorecard by Watchfire GomezPro (Loosevelt, 479). Thus Wells Fargo is a company that has capitalized on using technology for its banking services and been recognized as the best in the business for online banking and its customer centric focus.
Jim Collins attributed the success of great companies to its leaders – “Level 5 leaders” who were able to work with vision, humility and discipline, having the ability to pick the right people for the right job and the guts to fire the wrong kind of people. Wells Fargo had many great leaders at its helm right from the beginning. Richard Kovacevich steered the company through a series of mergers to make it one of the most powerful banking companies in the United States. As a transformational leader, he led the company with slogans such as “Mind share plus heart share equals market share”. Kovacevich believed that employees must care about what they do and they need to have a passion and commitment for the work. Kovacevich spent a lot of time with his employees, giving them appreciation and motivating them towards better performance (Daft and Macic, 430). He was a “Level 5 leader” as defined by Jim Collins as was Dick Cooley of Wells Fargo.
To conclude, one may say that Wells Fargo was a company that made the leap from being good to being great by having a mission-based approach and great leaders with vision and humility; dealing with the simple business of banking with the aim of serving the people profitably; sticking to the mission and vision with commitment; passion and discipline; always ensuring that the right people were there for the right job and the wrong people were fired and finally, using technology to maximum benefit to ensure competitive advantage.
Works Cited
Collins, Jim. Good to Great: Why some companies make the leap….and others don’t. Harper Collins Publishers, 2001.
Chandler, J. Robert. Wells Fargo Images of America. Arcadia Publishing, 2006.
Gillis, L. Tamara. The IABC handbook of organizational communication: a guide to internal communication, public relations, marketing, and leadership Volume 2 of J-B International Association of Business Communicators. John Wiley and Sons, 2006.
Araoz, Fernandex Claudio 2008. Great People Decisions, Why They Matter So Much, Why They Are So Hard, and How You Can Master Them. Wiley-India Publishers, 2008.
George, W. William. Authentic leadership: rediscovering the secrets to creating lasting value Volume 18 of J-B Warren Bennis Series. John Wiley and Sons, 2003.
Loosvelt, Derek. Vault Guide to the Top Financial Services Employers Vault Guide to the Top Financial Services Employers Series. Vault Inc., 2006.
Newman, Nathan. Net loss: Internet prophets, private profits, and the costs to community. Penn State Press, 2002.
Daft, L. Richard and Marcic, Dorothy. Understanding Management. Cengage Learning Publishers, 2008.