LITERATURE REVIEW

Literature Review

Literature Review

Introduction

The banking industry now more than at any other time in its history is confronted with a fundamental business challenge - survival and success in a turbulent environment. As they face further deregulation, increasing competition from other financial institutions and continuously evolving customer demands, for success and survival, banks have to adopt proactive approaches (Avkiran, 1999; Shemwell and Yavas, 1998; Yavas and Shemwell, 1997a). At a time when change is the only constant, this is not only desirable, but also a necessity - even if it means navigating uncharted operational and strategic waters.

The premise of this article is that to enhance their organizational performance, banks can benefit from the experiences of manufacturing firms and gainfully employ such quality and process improvement philosophies and related tools as root cause analysis (RCA), benchmarking (BM), process reengineering (PR) and continuous improvement (CI). With this in mind, in this article we offer a practical framework which is capable of assisting bank executives in addressing today's multifaceted challenges.

In the reminder of the article, following a discussion of the operational environment of a bank and the interrelatedness of the back-stage and front-stage operations for success in banking, we present the framework which integrates RCA with BM, PR and CI and capitalizes on their synergies. We then illustrate the application of the framework by a case study and demonstrate its benefits.

Generic Operational Problems

A bank's operational environment consists of two stages - back-stage and front-stage. Back-stage where the focus is on efficiency entails operations that are not directly observable by customers (e.g. check sorting, programming ATM machines, internal audit/control, statement generation). Front-stage operations on the other hand, with an effectiveness focus, include all those tasks and activities that take place at the “moments of truth” or when customers interact directly with customer-contact personnel. Typically, back-stage operations are technology-oriented and front-stage operations are people-oriented. It should, however, be recognized that the two stages are highly interrelated. For instance, a customer request for a fund transfer is considered a front-stage activity. Yet, the mechanism or “know-how” of a fund transfer is within the domain of the back-stage operations. The key is that banking is a service business delivered partly through technology but ultimately through people (Sheshunoff, 1987). As such, investments in back-stage operations (e.g. buying advanced computer systems) by themselves will not result in satisfied customers unless the staff using the system are thoroughly familiar with the system and/or services are provided in a courteous, friendly and competent manner by front-stage personnel (Combs and Bourne, 1995).

Problems within the banking systems

This interrelatedness and cohesion among the activities at the two stages are critical for success in the banking industry (cf. Chen 1999). In contrast, the gaps between the back and front-stage operations are common sources of complaints and dissatisfaction among bank customers (Coskun and Frohlich, 1992; Shemwell and Yavas, 1999) and can be quite detrimental. How effectively a bank can coordinate the two stages affects both functional quality (i.e. service delivery process - how service is delivered) and technical ...