RE-ENGINEERING SHARPENS BANK FOCUS

By Mark B. Shaw, First Vice President, COCC

Avon, CT April 8, 2003 - First and foremost, I hope this article inspires your bank to re-examine its processes and procedures with an eye to improving service and maximizing efficiency. While re-engineering is often intended to resolve specific issues, it also improves the overall quality of your franchise in ways you might not expect.

Many banks start with a situation, such as a technology change, new regulatory requirements, or a desire to grow the franchise. Often we find that in the face of a major challenge, the bank will dismiss re-engineering as an unwarranted task in a time of crisis. I would argue that crisis situations offer a built-in reason for change, and the time is right for re-engineering.

The re-engineering process consists of taking an inventory of the major processes affected, developing appropriate strategies, and implementing them. In the process, your bank will undoubtedly find and eliminate bottlenecks that affect other areas.

The following are examples of re-engineering projects that COCC has undertaken for area banks.

Technology Change
Confronted with a core system upgrade, one bank determined at the outset that it didn't want a "lateral" move (i.e. doing the same things on the new system). Rather, the bank challenged its processes and procedures, and worked to build on the efficiencies of the new system. COCC worked with the bank as it studied existing practices and determined the benefits of change.

The teller and customer service areas received the most attention during this re-engineering project. On studying the teller workflow and matching it to system capabilities, it became clear that major savings could be found.

On the old system, tellers verified signatures by turning their backs on the customer while combing through paper files of signature cards. The new system integrated the signature cards into the teller application so the teller could see the signature onscreen when the customer submitted the check. In addition to achieving a 10-12 percent overall efficiency gain, fraud was reduced due to more frequent signature verification.

Electronic forms helped the CSRs in several ways. The bank replaced its paper forms inventories with an electronic forms management system that automatically pre-filled the proper form for each product. This change alone resulted in a 25% gain in productivity at each CSR's desk.

Using imaging technology, the bank printed the check images as part of the customer statements, improving the bank's image while reducing statement rendering and postage costs by 15 percent.

In the back room, the bank examined its check research function and found benefits in the new image research system. Through online search capabilities at bank desktops and high quality image prints, the bank realized significant savings as well as service improvements.

One of the bank's customers had two checking accounts - one with the bank and one with a competitor. One day he asked for a copy of his check, and the bank produced it within a few minutes. He was surprised since the other bank had told him to wait three business days. That experience was one of the reasons this customer brought his other checking account to the bank.

Taking the next step of imaging and electronically archiving documents with long retention periods (loan documents and retirement portfolios), the bank realized a savings of 1.5 FTE in clerical staff.

Finally, COCC worked with this customer to implement a CRM and profitability solution. The change here involved an alteration to the bank's CD renewal procedure as a pretext to improve the overall profitability of its CD portfolio. The bank's CRM system determined the most profitable CD rate and term, then fed that information to the new core system that automatically renewed select CDs into that product. The result was a 12 percent increase in profitability for the overall CD portfolio.

Key Operating Concepts
Now that you've seen a few examples of re-engineering, let's assemble the basic steps. A common thread for all re-engineering projects is research - gaining a thorough knowledge of current practices.

The "quick and easy" approach to finding this information is accepting all your assumptions about how your bank operates. But the more lasting method that begins to build buy-in is surveying the staff. Your staff will often reveal important details that can help uncover new business opportunities.

Work to bring management into the process as "enablers" or change "champions." When staff sees management cooperating, their participation increases and areas of concern are more easily surmounted. Recognize that many employees will fear the re-engineering process because they feel their jobs could be threatened.

This is one "hot spot" of inefficiency. Here is a list of other potential drains on your bank’s performance:

By watching for these hot spots, your bank will be better able to spot impediments to progress and begin to weed them out. With research in hand, don't be afraid to suggest bold initiatives. They may be exactly what your bank needs to meet the situation at hand.

A More Difficult Example
It’s very common for a bank to seek ways to offer more efficient service while reducing staff overhead. Are those two goals even possible? In this example, the bank conducted a far-reaching analysis of its backroom servicing, and found several possibilities:

• Most of the calls were simple and short. Customers required a broad range of product knowledge, but not a great deal of depth;

• Some of the customer calls required research, which could be accomplished by staff with good research skills and general banking knowledge;

• Regulatory questions needed to be answered by specialists in each application;

• Balancing people simply needed a background in bank accounting.

Based on these results, the bank decided to merge its loan and deposit operations areas while setting clear performance goals to determine who would make the transition to the new structure. The new operations area consisted of four groups:

• Front line support for quick questions;

• Research staff to dig deeper into service issues in either the loan or deposit applications;

• Regulatory specialists who serve as the bank’s quality control for regulatory purposes;

• Balancing staff to review figures for either loan or deposit accounts.

Through proper cross training, this approach reduced the duplication of effort resulting from the loan and deposit split. It also eliminated gaps in knowledge between the two applications, thereby improving customer service. The higher performance goals served to weed out weak performers, thereby saving the bank 20-25% in staff expense.

Why Stop?
Too often, banks resolve the issue at hand, then wait till the next issue before starting the re-engineering process again. If that describes your modus operandi, I would ask you to consider the following: Assuming that you made money by re-engineering the first time, would you not find additional dollars by continuing the process in additional areas?

Like a gardener pruning his/her shrubs, there is always a branch to trim or a weed to pull or a plant to replace. By remaining active, your bank will find itself ahead of the issues more often than not. That's the sign of a high performance bank; and that's where you want your bank to be!