re-engineering project at Loyds Bank
What are the goals of the re-engineering project at Loyds Bank?If successful, how will this project affect the efficiency ,quality and customer responsiveness of Loyds Bank?
The benchmarking movement to search out, study, implement and improve on best practices has stimulated greater management awareness of the importance of business process reengineering ( reorganize companies around their core processes as oposed to their traditional functions, such as the production department, marketing department or human resources department. The processes often include activities like customer service, order fulfillment and product development ) ,total quality management (TQM) and other continuous improvements techniques (SQIP : service quality improvement programm) . TQM is a philosophy of managing business practices that emphasizes on continuous improvement in phases of operations, involvement and empowerment of employees at all levels, team-based work design, benchmarking and fully satisfy customers expectations. Management interest in quality improvement programms has historically originated in such activities such as fabrication and assembly in manufacturing enterprises, teller transactions in banks, order picking and shipping in catalog firms and customer-contact interfaces in at websites and in service organizations.
More specifically, Loyds’ Bank turned into process reengineering in 1992 in order to increase the quality of their service and drive down the cost structure of its retail branch banking network. The two major catalysts were : Firstly, the growing competition from Britain’s bulding societies ( which are similar to the U.S. savings and loans) and secondly the impact of service expansion on Loyds’ cost strucure. As far as the second variable, each time the bank entered a new service market (e.g. home mortage financing, small business financing), it simply added more staff to a retail branch. As a result, by early 1990s branch costs were beggining to spiral out of control. In 2000 Loyds’ Bank had under its supervision more than 29,000 employees and 1,800 branches nationwide so we can realize how difficult it was not only to monitor the operating costs of each branch separetely but also to attempt to drive them down.
Under the traditional system at Loyds’ Bank, staff were given narrowly defined functional responsibilities in a rigid hierarchical structure. One set of people was responsible for managing checking accounts , another for reviewing the customers credit, another for issuing cards e.t.c. As a result countless people and tons of paper were involved in what , from the customers’point of view was a single process. More specifically, under the old system an application form could spend even a month wandering from desk to desk as different staff ordered bank cards, checkbooks, opened savings accounts and so on. Implementing the new system, a single person was actually responsible for a large “quality welcome” process which entails setting up an account,issuing credit cards and ATM cards etc so it takes only a week for a new account to become fully functional. Between 1993-1995 Loyds’ measure of customer satisfaction increased from 73% to more than 80%, putting the bank ahead of its two larger rivals. More customers were attracted after the implementaton of the improvement process since the waiting time was dramatically decreased ( 1 month to 1 week). Also the number of faulty checkbook orders fell by 30% just in the first two months of the programm not only producing enough savings to pay for the computers that monitor this activity but also it would make Loyds’ existing customers more loyal and reliable to them.
2) Is this kind of process reengineering desrcibed here consistent with Demning’s approach to total quality management, as described in this chapter?
Surveys nowadays indicate that over 95% of manufacturing companies and 70% of service companies have used some form of quality improvement programm ( Juran Trilogy, Demning’s 14 points, Crosby’s quality steps.). If we take into account Demning’s approach to total quality management we can see that this kind of process reengineering follows most of the 14 points of Demning but not all. More specifically, there is constancy of purpose, they don’t rely on mass inspection since each employee is responsible for one or more clients ( but the whole range of services as it was previously stated.) Furthermore,they focus on leadership as Demning states since each process is assigned to a process owner, whose job is to make sure that the process reengineered to achieve Loyds goals of driving costs and increasing the quality of customer service. Also they focus on constant improvement and enhanced service quality. On the other hand they seem rather to avoid concentrating in driving out the fear of the employees since as we saw Loyds Bank closed 300 branches between 1990 and 1995 having as a result the feeling of uncertainty and the unknown future of their carreers. Employees are very much afraid of this business reengineering since they believe that it is a major threat for their existence in the company. However the bank tries to implement most of the steps of Demning’s approach and this is why they accomplished to gain much more customer satisfaction and advanced service quality.
3) Can you see a down side to Loyds’ reengineering effort?What is it?How might the impact of this downside be limited?
Onthe down side Loyds had to deal with morale problems in many of its branches, where the reengineering process was often perceived as a subtle way of cutting jobs and in some cases even closing branches worldwide. Loyds closed more than 300 branches between 1990-1995 and although management claimed that this effort was independent of the reengineering process, which focused on what was happening within branches. ( e.g. some branches might closed due to economical or political factors and issues that characterised the market of a foreign country.) More specifically those who were more “hurt” form the specific process were middle-level mangers , as opposed to branch employees. In addition between 1990 and 1995 Loyds reduced the number of area directors form 80 to 41, a double decline due to the fact that the reengineering effort enabled the bank to perform several tasks with less staff. As a result middle-level employees lost their trust and reliability towards the banks management and therefore might achieved poorer performance during their working schedule. This impact might be limited if management really tries to make their personnel understand that the reengineering process is for the good of the company and not to consider it as a threat for their jobs. Also management may try to establish some bonuses for exceptional performance of their personnel in order to make them feel safer and more comfortable with their future.
In conclusion I would like to mention that effective use of TQM or other continuous improvement techniques is a valuable asset in the company’s portofolio, one that can produce important competitive capabilities ( in production time, design, service, product quality and reliability) and be a source of competitive advantage. Not only do ongoing improvements add up over time and strenghten organizational capabilities but TQM have hard to imitate aspects. Finally successful implementation of continuous improvement techniques requires a sustantial mangement time and effort and some managers or employees may see it as immoral or faddish.