MBA 670 EXAM – Spring, 2011
South West Cross Bank
Towards the end of the 1990s, much of the European retail banking industry was facing unprecedented levels of competition. This was partly the result of excess capacity (many towns had four or more bank branches within 100 metres of each other) and partly triggered by the presence of aggressive new entrants, including insurance companies and other retailers, such as supermarkets. Many of the new retail banks concentrated on a few simple financial products such as current accounts, deposit accounts and mortgages, in contrast with most conventional banks (like South West Cross Bank) that offered hundreds or even thousands of different products. At the same time, new delivery systems such as telephone and Internet banking were being introduced.
South West Cross Bank (SWX) had not performed well and was in the lower quartile of the big banks in Europe. However, it did have a strong retail brand image, high market shares in some sectors (such as small business loans) and a reliable but unspectacular profit record. But it was perceived to be late in recognizing the importance of developing its operations. Many large banks had been much quicker to install the latest information systems, allowing automation of many routine activities. Several competitors had experimented with centralization and/or regionalization of routine operations, such as telephony and correspondence that had previously been carried out in the branches. This had freed up staff time for selling financial products and at the same time had introduced efficiencies that could never have been achieved at branch level. Some banks, however, had paid a price. Not all customers were satisfied by the changes and some banks had received bad publicity. This letter to a national newspaper was typical:
‘My bank recently introduced, without warning, a bizarre system whereby a customer cannot telephone his branch manager, or write to him and expect him to receive the letter and reply to it. A London customer now has to ring a number in Wales, where a call will be diverted to some central point which deals with general inquiries, balances, standing orders, statements and so on. If the customer writes to his branch manager, he does not see the letter and it frequently seems to disappear. When the customer does not receive a reply, he has no idea whom to ring to check up. In other words, there is no one point of contact within the bank. This appalling treatment is being meted out to all customers of, however long standing. Everyone I know is complaining bitterly about it.’
The appended editor’s comment was:
‘Everyone I know is complaining too! I sympathize wholeheartedly and have commented about it before in this paper. In an attempt to cut costs, all the big banks have introduced customer service call centres to deal with routine enquiries, frequently with automated recorded messages that require you to punch in numbers to access information on your account. These are known in the industry as “factories”.’
As a late implementer of operational change, SWX had the advantage of being able to learn from competitors’ mistakes. It decided that radical change was required to make the retail operation more efficient in driving down costs and more effective in improving customer service quality. These were to be achieved simultaneously, using the latest ‘state-of-the-art’ equipment.
SWX embarked on one of the most extensive operational change programmes ever conducted in the European banking industry. The project, budgeted at around three billion euros, was planned to roll out over two years and would redesign almost every process in the retail bank division. Most processes that had previously been carried out at branches were to be transferred to large, specialized processing centres, allowing head-count reductions and space saving at every branch. Valuable back-office space could then be sold or rented to other...
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