Shakeup of a sleepy bank.

First National Bank and Trust, Rockford, Ill., was not in trouble when Rick Bastian arrived as its new CEO in 1982. But it was infested with an insidious element we call destructive satisfaction,' in other words, acceptance of the status quo.

The $635 million-asset, 150-year-old bank

An outdated computer system verging on obsolescence had slowed customer service and product development to a snail's pace. The facilities were drab, dark, and poorly laid out. Customers with combined checking, savings, and loan needs had to visit four different departments in two different buildings.

Facelift. Bastian's first priority on arriving at First National was to bring the bank into the 20th century.

Modern computer systems were installed to streamline customer service and internal operations. Facilities were completely redesigned with customers' and employees' comfort in mind. Services were organized to serve customers' needs.

Management changes. As the mechanics of updating systems took place, Bastian tried to revise the bank's management and employee programs. First, employee and customer surveys were conducted.

Employee surveys revealed low morale and a sense of embarrassment at working for an institution that in its look, feel, and operations was completely overshadowed by the competition down the street.

Employees were in the dark as to their performance and potential growth within the bank. Decision-making was completely centralized - the previous CEO even determined what the employee Christmas gift would be.

Passion phase. Then, during a train ride from Chicago to Charlotte, Bastian read the book A Passion for Excellence (by Thomas J. Peters and Nancy K. Austin; Random House, New York) and decided to make further changes.

A Passion for Excellence group was initiated. "Passion" activities included signing an oath to read the book, putting up a letters-from-the-customers wall, and identifying pink as a color for program materials.

Bastian also wrote a "Vision and Values" statement - a mission statement on why the bank is in business, what it stands for, what its strategy is, and what it's going to took like down the road.

Bastian gave the document to the Passion group to review and edit. They came up with three priorities of their own: earnings, customer satisfaction, and consistency in management.

Negative reactions. The most valuable insight was the groups' reference to consistency in management. Middle managers had nicknamed Bastian's enthusiasm for trying new management practices the "flavor of the month."

Senior management believed he was painting pictures that no one else could see. They were used to dealing with tangibles, such as new computer systems, decor, evaluation procedures. Now, however, Bastian was introducing "organic" changes that required insights, expanded roles, and additional responsibility of management.

The rest of the organization was oblivious to the course the bank was taking. They were clinging to an "if it ain't broke, don't fix it" attitude. They felt threatened by the changes that came filtering down from management.

Further changes seemed impossible because of this collective resistance. The only alternative Bastian could see, short of eliminating himself or the entire senior management team, was to bring in someone from outside the organization who could provide feedback. First National hired management consultant Bill Adams of Maxcomm Associates, Salt Lake City.

Everyone represented. Adams helped the bank set up a new program through which all employees could suggest and carry out reforms.

The program was given a name "Spirit of Quality" Giving it an identity allowed the bank to put everything under one umbrella and create a sense of continuity for employees.

A Spirit of Quality team was selected. This is a group of 12-15 employees - from front line to middle management - who are trained to solve problems. Employees submit suggestions to this group on customer service and the quality of work life. The suggestions are recognized and given a timeline within which a solution will be found.

So far, the Spirit of Quality team has dealt with about 120 suggestions, such as one requesting a clearer smoking policy and another for a more realistic transactions cutoff time at a particular branch. The group meets twice a month for three hours. When people rotate out, after about 18 months, they pick a successor. It is considered an honor to be chosen.

Lasting improvements. These are three examples of real improvements that have taken place through the Spirit of Quality program:

* Better communication - The head of corporate communications was made a non-voting member of the senior management team. At these meetings, he can pick up on issues that require internal communications, and write memos and letters that strengthen employee commitment and understanding.

At the conclusion of each meeting, key points are reviewed so that everyone leaves with the same story. Decisions and actions are no longer subject to misinterpretation.

Every employee receives timetables, memos, and verbal presentations on good and bad information about the bank - before reading it in the newspapers.

* Confronting inconsistency - The sales training company the bank was using was fired because the firm's Marine Corps style of training intimidated employees, while the bank's new culture called for two-way communications. The bank hired a new training company that, in addition to developing selling skills, looks at such obstacles to selling as too much paperwork and too little privacy in the work areas.

In one department, employees decided that their manager was operating in a manner contrary to the bank's new direction. This person did not treat employees with dignity and respect, and made decisions affecting their jobs without their input.

The employees brought their concerns to the human resources department and upper levels of management. They wanted to approach the manager themselves, with the bank's support. Getting a nod of approval, the employees confronted the manager and pointed out the negative impact this person's actions had on the department.

To the manager's credit, the style of management was changed, though with great effort.

* Consolidation - First National is one of several banks owned by First Community Bancorp., Rockford. A few years ago, it was a downtown, $500 million commercial bank with three locations. One of its sister banks, First Community National Bank, Rockford, was a small, entrepreneufial, $100 million community bank with two locations. Customers, employees, and shareholders would benefit from a five-location bank with combined services.

First National's Spirit of Quality group recommended that the two banks consolidate. It also helped design the process through which the two institutions merged.

Conventional wisdom is to consolidate as quickly as possible, no matter how excruciating it is for customers and employees, who usually get hurt in the process. First National, however, put the consolidation in the hands of employees and gave them 18 months to make it happen.

Seven work groups comprised of front-line employees and middle management, and one senior manager, were in charge of carrying out the merger. More than 100 employees were involved.

The 18-month plan proved, indeed, to be excruciating for employees who had to carry on their day-to-day responsibilities while also dealing with the process of the consolidation. Yet, the teams performed magnificently and not one employee lost a job.

Experts predicted a 5%-10% loss of accounts because it was an in-market merger and likely to encounter customer disruptions.

The banks lost only four accounts.