Championing change - Discover Financial Services Case Study

Discover Financial Services has a clear goal: It wants to be the leading consumer digital bank and payment services company. A relatively young and new player in the market, it launched its first product nationally across North America in 1986 with a TV commercial that ran during Super Bowl XX. Since then, Discover has grown into a $25 billion-plus business with two main arms: a payment network; and a bank that offers loans, credit cards, and savings and deposit accounts. It does all this without any real physical footprint, prides itself on its 100% US-based customer service, and is consistently rated at or among the top for customer service among banks and credit card companies. “Customer service is our bread and butter and our crown jewel,” says Michael Thomas, Head of Supplier Management and Business Diversity. Operating globally but with its largest footprint in North America, the brand is an industry leader at customer satisfaction.

This year, Discover’s Online Savings Account ranked #1 in customer satisfaction in the J.D. Power 2023 US Direct Banking Satisfaction Study, and it has clinched various customer satisfaction titles over the past few years. The business was already set on the right trajectory to achieve its strategic aim when four years ago, its leadership team realised they could go further, faster. The bank’s executives, led by a sponsor at the top table, recognised that the procurement and sourcing function was “a strategic lever that it had not yet pulled”. “As companies grow, their supplier networks increase and become more complicated, so our leaders decided to build-out the function in a more robust manner,” says Thomas.As a financial services company, third-party risk management processes were already strong, what it hoped to do was put a bigger focus on spend and relationship management. The target is to enhance how it works with its 2,000 or so suppliers, especially its highest risk and highest spend partners. Procurement at Discover is now deep into a transformation designed to optimise its interactions with third-parties - to take them from transactional relationships to strategic partnership.

Procurement advancements

Shortly after the decision to effect change, new Chief Procurement and Corporate Services Officer Todd Podell joined Discover and began driving

momentum for the improvements. Steps began with training for the procurement and sourcing department, which translated into myriad changes for them and their stakeholders around resourcing, tools and systems. “People, processes and technology have been completely overhauled over the past few years to make things easier for our internal business partners,” says Thomas. “We want to enable them and their functions to better serve our customers and make it simpler for third parties to work with us too. We want to be a customer of choice for our third-party partners, so we knew we needed to set clear expectations and establish easier processes.”

The function is now near quadruple its original size, comprising sourcing, contracting, onboarding, technology, analytics, and relationship-management professionals who add strength and depth to the team. The department has since developed its processes and structures, including the full source-to-pay process, examined onboarding, invoicing, contracting, how to manage supplier relationships, as well as how to go about terminating supplier arrangements, if needed.

Stakeholder training and tools

Discover runs a decentralised supplier management model, with key stakeholders overseeing many significant supplier relationships. As such, procurement wanted to

further support internal colleagues to perform that part of their role. “My team did State of Flux training in 2020 - following that we realised we had the opportunity to bring the entire enterprise on this journey with us - everyone who is managing relationships. We built out a Centre of Excellence function and rolled out ‘The basics of supplier management’, a six-part training series with the goal of strengthening supplier performance and relationships management acumen for our stakeholders in the business who had responsibility for managing the relationships.”

“Our suppliers are part of our extended enterprise and play a huge role in our ability to deliver the products and services that our customers want in a compliant manner - and that makes it so important to place the right level of attention on how they are managed.”

Michael Thomas, Head of Supplier Management and Business Diversity, Discover Financial Services.

Internal surveys and other research uncovered a stakeholder appetite for more information and resources to aid them in managing supplier relationships on a dayto-day basis. To meet this need, the supplier management team created a library of resources, including tools and templates covering quarterly business review templates, stakeholder mapping, action plan development and tracking, meeting agendas and minutes, and SLA tracking. “We have more than 2,000 third-party relationships, and our supplier management team is not staffed to manage them all. Where we cannot do the work, we have made our resources and expertise available to help others, and to create a multiplier effect,” says Thomas. “So many of the people who are tasked with managing these external relationships are data scientists, marketers, and engineers - supplier relationship management is not their day-to-day job. We want it to be as simple as possible for them to manage the service they are buying,” says Thomas. “It’s easy to assume people know what we’re doing and why; sometimes it’s helpful to reset on the ‘what’ and ‘why’, and how it all fits together. ”Thomas’ team set up a programme of training divided into five areas. Each voluntary session has been attended by around 200 people - a demonstration of serious interest in developing supplier performance and relationship management acumen. The six sessions covered: Knowing the supplier: Understanding the key stakeholders at the third party and the requirements of contract. Managing supplier performance: Monitoring SLAs; creating action plans; driving accountability; and proper escalation, such that it is constructive for both sides.

Managing the supplier relationship: The importance of alignment between organisations and structured engagement at different management levels.Managing risk and ensuring compliance: Poor performance is a leading indicator of potential issues at the third party. Highlighting the risk associated with failing to properly manage third parties; and increased focus on contract requirements; properly monitoring spend; the opportunity to reduce the likelihood of risk exposure (of any kind) through proper management. Managing contractors: Focusing on the personnel resources third parties provide to Discover. The training helps ensure Discover is requesting the right individuals in terms of seniority and expertise; properly onboarding and integrating them, as well as correctly off-boarding them. The sessions also covered ensuring contractors understand the goals of the team and wider business and how the projects or initiatives they work on support those goals.

“It’s easy to assume people know what we’re doing and why; sometimes it’s helpful to reset on the ‘what’ and ‘why’, and how it all fits together.”

We’ve been good at positioning procurement as a strategic partner to the business and bringing them along on the journey,” says Thomas. “We work hand-in-hand with them so suppliers can’t tell them one thing and us another. We sit with our stakeholders at QBRs [quarterly business reviews] to maximise the value of those relationships.”

Supplier Segmentation

Procurement was also keen to have better oversight of all its most significant supplier relationships, so this year set about segmenting its supply base. It was aware that some of its biggest categories (tech and data providers, cloud services, and marketing agencies) are managed by a number of contacts across the business and it wanted a holistic view.

“We needed a way to identify our most important relationships, so we implemented a segmentation methodology that evaluates spend, risk, relationship complexity, and our reliance on that third party,” says Thomas.

The procurement technology team built a tool to pull data from multiple sources and reveal its 100 most strategic suppliers. The plan is to put more intentional structure and rigour around how those key relationships are managed and identify which could provide the most value - and then pursue improvements and innovation together through joint account planning. “The next step is to uncover our true partnership potential. We will be open to sharing more information to help them better support us in our goal to become the best consumer digital bank and payments provider, and to feel incentivised to do so. We want to maximise what we’re getting and figure out how to build mutually beneficial relationships.” Thomas’s team is also undergoing some benchmarking with other companies in the financial services sector and beyond to share with them the work it has done with suppliers and learn from others.“We’re using our professional networks to share our journey with other companies who are perhaps slightly less advanced, as well as absorb best practices from those who are more experienced.”

Reaction and response

An internal survey of stakeholders, as well as State of Flux’s Voice of the Supplier research, helped the supplier management team to understand what change was required. It created the impetus for establishing the resource library and training for colleagues, as well as the focus on how to boost supplier relationships. Thomas says third-party providers have responded positively to the structure and governance it has put in place because it enables them to perform better. “We are managing performance more closely, as well as working with suppliers to create action plans and provide information to help improve performance where it is needed. ”Discover has been busy laying the foundations required for its supplier management to go from strength to strength.

“It’s easy to overlook, but a lot of value can be achieved in how suppliers are governed and managed,” says Thomas. “We’re only three years into our supplier management journey and we’ve made a ton of progress and quickly implemented a lot of best practice. “Our suppliers are part of our extended enterprise: Our third party relationships play a huge role in our ability to deliver the products and services that our customers want in a compliant manner - and that makes it so important to place the right level of attention on how they are managed.”

Sustainable steps

Over the past 18 months, Discover has put a significant focus on its own ESG - environmental, social, and governance - journey.

In addition to being Head of Supplier Management, Michael Thomas also leads the company on Business Diversity, which is a core component of its ESG strategy.

He is helping the company to use its platform of products, jobs, and supplier spending to advance equity. Discover operates 100% US-based customer services teams. “One of my favourite quotes is that ‘talent is distributed equally but opportunity is not’,” says Thomas.

One change after Covid was to consider some of its physical footprint with a focus on equity. This led it to open centres in two historically disinvested areas that could house world-class customer service teams in half of the building, and a community centre in the other. This has had the dual effect of providing jobs as well as a facility that could be used by community based groups.

“The team has taken a hyperlocal focus to identify small and diverse-owned businesses in the area to support both the initial buildout and ongoing operations of these facilities,” says Thomas. Almost three quarters (73%) of the money spent on building the first community centre was with local minority and women-owned businesses.“As we go on this journey of community-based work, we want to inspire and motivate other companies to drive lasting change by making the same investments that Discover has made in diverse communities and businesses.”