Operations Management Report -- Community Bank of Perth
The Community Bank of Perth has experienced tremendous growth in home loan refinancing in the past two years. This is due in part to continued growth of the Western Australian mining sector, as well as increased consumer interest in more innovative and economical loan terms. With rising competition in the market, more lenders are now aggressively working to boost their market share through a renewed focus on customer service and simple and speedy loan processing (Fluss 2009, p. 12). Faced with an ever-increasing numbers of home loans, Community Bank of Perth has developed new refinancing processes aimed at improving the quality of service to customers. This process was implemented last year and divided loan approvals into five distinct stages with new departments created for each stage.
However, recent customer feedback has indicated that loan approval processing still has room for improvement. Many customers have complained of lengthy processing times, multiple points of contact, complex forms, red tape, and uncoordinated closing processes that present inconveniences and frustrations. It is clear that Community Bank can enhance its overall customer relations by concentrating more closely on workforce optimization in the back-office. Community Bank can adopt a more systematic, data-driven processes to improve communication and collaboration, identify service gaps and trim loan approval timelines.
Operations management involves analyzing work functions to increase organizational output (Menconi & Desmond 2000, p. 50). The design and improvement of operational processes and systems can be structured so that the resources required for delivering services are optimized to their full potential. Managers typically assume the challenge of improving productivity to grow and enhance the business -- an effort that spans all business units and departments including purchasing, manufacturing, shipping, packaging, supply chain, human resources, marketing, finance, and information technology (Bilich 2000, p. 15).
This also includes managing communication and dispersed knowledge within the organization. When information can get from one department to another quickly and accurately, it hastens the pace at which the company can operate and insures that all necessary parties -- including customers -- get the information and answers they need at critical junctures in the process. Such knowledge can improve efficiency, ensure responsiveness, impact customer service, and ultimately improve a company's competitive advantage (Ferreira & Andrade 2011, p. 649). Organizations that invest in this area and manage processes well survive; those that do not decline. All areas of Community Bank are interdependent (output from one area or business unit often directly impacts the capabilities and viability of another). Effective leadership begins with sound operations management to simplify processes and leverage the work being carried out across the organization (Fluss 2009, p. 48).
In April 2012, a group called Gatepoint Research invited select banking executives to participate in a survey themed Trends in Optimizing Retail Bank Loan Processing (Garratt & Keister 2009, p. 303). Over 100 executives were invited to participate. 87% of responders held positions at the VP level or above in global, regional, and community banks and credit unions. Results were very telling:
More than 50% of responders rated their loan-processing environment as either lagging the competition or merely adequate;
The chief priorities identified were continuous process improvement and reducing loan processing cycle times;
More than 25% of responders indicated that their loan processing personnel is increasing; and 28% of responders were evaluating or planning an upgrade or improvement to their loan processing workflow.
As the survey results suggest, the retail banking industry is undergoing major change. Customers are more savvy, demanding and active than they have ever been. Loan processing and operational workflows are a major concern to all lending institutions -- Community Bank is in good company. In the following pages, we will take a closer look at ways to improve, specifically standardizing and automating business processes.
In complex business situations, planning helps organizations meet challenges, while at the same time minimize risk (Brandt 2012, p. 66). Planning is a prerequisite not only for achieving success, but also for surviving in a complex and competitive world. It forces organizations to look ahead and decide their future course of action so as to improve profitability. It also ensures that employees carry out their work in a systematic and methodical manner. Proper planning coordinates and controls various tasks making sure that resources are used optimally (Reinertsen 1999, p. 64). The benefits of planning appropriately includes business processes that are aligned with corporate objectives, decreased business risk and uncertainty, a sense of direction, guidelines for decision-making, and increased organizational effectiveness (Ferreira & Andrade 2011, p. 649).
Loan processing is primarily a back-office operations function. At a fundamental level, back offices repetitively process large volumes of transactions. These processes can be simple, steps such as posting payments, or complex, multi-step, multi-touch processes that span lengthy timeframes such as complex mortgages (Fan et al. 2010, p. 179). The individuals involved in our loan processing work are many -- data entry clerks, loan agents, loan processors, accounts payable processors, closing agents, and loan officers. But regardless their function, their end goals are essentially the same -- to process work as quickly and accurately as possible and at the lowest cost, meet service delivery deadlines, and help ensure customer satisfaction. Based on recent customer feedback, it is clear that Community Bank can streamline its varied layers and touch points in order to improve service quality and safeguard the business' bottom line.
Organizing and Optimizing Operations
According to Bilich, 'organizing' is "determining what tasks are to be done, who is to do them, how the tasks are to be grouped, who reports to whom, and where decisions are to be made (2000, p. 15). Thus, organizing refers to important dynamic aspects what basis the tasks require attention and who should have the authority to make decisions. Reinertsen defines organizing as "the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, and establishing relationships for the purpose of enabling people to work most effectively together in accomplishing objectives" (1999, p. 64). According to these definitions, organizing is a management function involving assigning duties, grouping tasks, holding the right parties accountable and allocating resources to carry out a specific plan in an efficient manner. Community Bank could benefit tremendously by organizing loan activities and resources in a more systematic way which would provide numerous organizational benefits, including:
Helping employees develop a clear picture of the tasks he or she is expected to accomplish;
Supporting business plans and establishing accountability and an appropriate line of authority;
Creating clear channels of communication and transparency;
Maintaining a logical flow of day-to-day activities to support workers in easily accomplishing their tasks;
Making efficient use of resources and avoiding conflict and duplication of effort; and Coordinating activities that are diverse in nature and building harmonious relationships among members involved in those activities.
The improved planning and organizing of Community Bank's loan operations and other back-office functions will enable the company to process more customer transactions with fewer resources. This can drive down costs, enabling more competitive pricing and improving bottom-line profitability (Homann et al., 2004, p. 34). It will improve customer satisfaction through higher levels of service and more accurate loan approvals with faster turnaround and closings. By employing workforce optimization (WFO) solutions specifically designed for back-office operational areas such as loan origination, servicing and collection, Community Bank can also improve the effectiveness of employees.
Improving Responsiveness to Customers
Because customers are vital to Community Bank's survival, it is important for senior management to promote operational strategies to respond to their needs. Regardless of industry, universal traits that customers prefer include low prices, high quality offerings with creative and customizable features, quick service, and customizable products (Menconi & Desmond 2000, p. 50). Community Bank of Perth has tried to design operational systems that possess these attributes. It is important to evaluate the success or failure of the revamped process since the volume of refinancing requests is so much greater than it has ever been before. Managers have embraced new operations management techniques in an effort to attract new customers and provide better service to all customers. Enhancements have included the addition of better loan product options, new application procedures, and the addition of new departments -- all while keeping service fees at a minimum. Several homegrown tools were developed to try to align employees, processes, and systems. However, this has created certain silos that hinder enterprise-wide productivity (Garratt & Keister 2009, p. 311). Thus, there is room for enhancement within the operational approaches of Community Bank of Perth.
We can look at this in more detail by examining actual customer feedback. This representative (not exhaustive) sampling of customer commentary collected by loan servicing specialists highlights key areas of our operational flow that are presenting challenges and exposes area for improvement. The comments that follow are presented for consideration, along with recommended improvements that will help address customer concerns and improve processes.