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FINANCE: Improve the Back Office Operations; Improve Productivity
Recent Gauteng Business News
The banking industry as a whole operates in a fairly fixed market, with
banks competing for the same customers with very similar offerings
across different organisations. That much-used saying "a bank is a bank
is a bank" holds true in a lot of cases, as products and services have
become highly commoditised, making that all important competitive edge
hard to come by.
Attracting and retaining customers is the name of the game, but the lack
of product differentiation within banking markets means that the
customers themselves are placing an increasing emphasis on service
quality and price. In order to make headway in these areas, financial
institutions are left with few options other than to improve cost
efficiency and productivity by streamlining processes and automating
where possible.
One aspect that a lot of banks are focusing on is cost reduction, and as
back office operations are a large cost centre for banks, this area is
one of great interest. Consolidating back office functions through a
shared service operation to deliver consistent processes and leverage
economies of scale is one option, and many global banks who have
implemented this type of model successfully have achieved cost savings
ranging from 20 - 40%.
South Africa in particular has a significant opportunity for
re-designing services within its back-offices as local banks still rely
heavily on manual, paper-based processes characterised by high levels of
errors and re-work. However, there is no reason why South African banks
cannot achieve the significant costs savings that top performing global
banks already have, however, they must firstly gain a far better
understanding of efficiency drivers within their operations. The key is,
and has always been, to develop business initiatives that deliver the
best return. This can only be done if you understand where you are
currently and where you want to go.
The foundation for delivering efficiency improvements is a well designed
operational model. Banks who focus on how and where processes/services
can be most effectively delivered, are not only able to leverage the
benefits of economies of scale, but will also find it easier to identify
areas of underperformance in service/efficiency and can develop
compelling business cases for technological investment. An effective
operational model will not only help to improve efficiency and as a
result drive down costs and pricing, it will also help to deliver more
consistent customer service, which will in turn lead to more satisfied
customers who are more likely to remain with their current bank rather
than moving to the competition.
However, because the back office is a very broad area with a multitude
of functions and services, it is vital to examine all 'in-scope'
processes from an end to end perspective prior to re-designing the
operational model. For example, a domestic payment such as a debit order
will typically be handled not only in the back office but also in the
branch. One of the key issues impeding productivity in the back office
is unclean or incomplete work coming in from the branch, so in order to
improve efficiency it is vital to firstly examine the interface between
the front office/branch, and the back office.
Ultimately, although the front office is the client facing side of any
bank, the customer experience will be affected by any glitches in the
back office as well, so if there is a process failure at any point along
the line, the customer is the one who will pay the price. With a large
proportion of any bank's staff working in the back office there are
ample opportunities to reduce costs in this area without negatively
impacting customer service.
On the journey towards improved back office processes and efficiency, a
helpful first step is to always conduct a current state baseline
analysis, to understand what is already in place in both the back office
and the branch. Gaining awareness of what already exists is vital in
recognising what can be improved upon, as you need to understand your
full service delivery costs before you can move forward. A baseline
analysis and a back office review will highlight opportunities for
improvement, whether these are in the areas of organisational design,
automation, process change and so on.
Once a baseline has been conducted as a starting point, some form of
measurement and comparison, both internally and externally, is a
necessary stage to understand and quantify the 'size-of-the-prize'.
Benchmarking is an effective tool for this, as it enables banks to gain
an understanding of how efficient and effective their individual back
office functions are compared to each other, and compared to peer
organisations both locally and internationally.
A benchmark will also enable banks to gain knowledge of leading
practices in other banking institutions across the globe, as well as
what their strategies may be in terms of improving back office
efficiency. Understanding the size of performance gaps, what the root
causes of these may be, and what leading banks around the world are
doing to achieve improvements in terms of process, design, automation
and so on will put banking organisations in a good position to
effectively assess strategic options for investment and improvement.
Back office functionality makes up a large part of banking operations,
one seldom seen by the customer but one which affects their experience
with the bank and ultimately their loyalty and profitability. Improving
back office processes can go a long way towards achieving important cost
reductions and efficiency gains, which will in turn further improve
customer satisfaction, providing a slight but vitally important
competitive edge in a highly commoditised market.
Business News Sector Tags: Finance| Business| Infotech|