Importance of Operational Efficiency in an Organization

Importance of Operational Efficiency in an Organization 1. Executive summary Operational efficiency and its quality of providing service is most important factor whatever organization either production or service. That is most important part in any company operations whether it is business oriented or nonprofit oriented organizations also are highly concern their organizational growth and local and regional expansion of their operations. Mainly operational efficiency and performance is depending on the external environment drivers. Those external drivers are creating competition and intense of the among the industry player. Therefore future strategic planning, contingency plan, operation strategy is most important and playing vital role to face forthcoming changes. If the organization is not be able to manage those changes that happening in the originations and outside organization directly affect on operational efficiency of the organization. To face those environment changes most prudent strategies make adjustment in organization operating style and strate gies. That does will help to achieve organizations corporate objectives as planned. Mainly manufacturing service organizations are performing functions such as; Sales Marketing Human resource Operation Accounting Finance or treasury IT/Information department Logistic/branch management Channel management Internal auditing Risk management So called functions linking each other and having inter dependencies, no one can override those operational activities. Everybody work in the must focus on very well on operational activities. Because, at the end of year shareholders (investors) are raising questions at AGM, how much of amount of return generate by businesses and whether business operations went smoothly, what will be the future plans to deliver high rate of return for our investment and what type of operational strategy going to carryout to face the completion. So on frequently raise the questions by shareholders. Production and operation management was begun with industrialization. But it play vital role in the service sectors. In the contemporary world named it as Operation Management. Contribution of this subject is making bigger differences for business functions. Multinational local companies have established independent department to manage their operational activities very well. For an instance nowadays eme rging business is banking financial service company name called Nation Trust Bank. That bank routine operations are making huge impact on their business performance. That is because; bank performance is driven by its operational capacity style. Mainly employees and customers satisfaction are most important element to show outstanding performance and to attract the new customers. In this industry is driven by managing effectively whole operations of the business. Lack of operation management delivers poor performance. To provide remarkable service wider range of service related need to have well defined operations strategy to uplift business. This assignment report mainly focused on current practice of operation management banking industry and assignment contain the followings. Define operation management, its characteristic and playing role in banking financial service industry. Evaluate the goals and objectives are achieved in operation management objectives. Define systems in operations in relation to service and routine activities. Major resource, tools and systems that are supporting operations and to support quality of service of the bank. Analyzing importance of quality audit and implementation of quality management system in bank. Major weakness and explore opportunities to improve the bank service to satisfy the stake holders of the business. Making recommendation to capitalize the opportunities and avoid weakness of the bank. Conclusion of assignment 2. Define term of operations management According to literature production operation management are considering as one subject but in the current situation totally expert says about it as Operation management is subject that Design, execution and control firms operations that converts it resources into desired goods and services, and implement its business strategy and its define as another way The maintenance, control and improvement of organizational activities that are required to produce good or service. Operations Management deals with design and management of products, process, services and supply chains. It considers the acquisition, development, and utilization of resources that firms need to deliver the goods and services their client wants. First definition can be related the following diagram is simple operation of any organization. Feed Back Input inputs Service Process servicing process Out put Maximize customer satisfaction Employees Money (local foreign) Savings accounts Information Systems Open up Bank A/C Cashiering Credit card promotion Mortgaging Generate bank statements Buying selling of foreign currencies Happiest or loyal customer The above diagram we can see operations different operations in the input level, process level and output level. Therefore we can conclude that 2.1. Operation management from aspect of Nation Trust Bank To get analyze importance of operations of the bank the vision mission and values is helping out it Vision Making life simple by being the benchmark of convenience Mission Be innovative in continuously developing customer centric solutions. Unleash the talent of our team to be the best in the industry. Consistently grow market share and be the most profitable and respected Sri Lankan bank by 2015. Values Inspirational leadership Integrity in all our dealings Open communication Learning focused Meritocracy Prudent risk management Respect for all Innovation and continuous improvement Nurture relationships Socially and environmentally responsible Vision, mission and value are Nation Trust Bank (NTB) operational objectives in relation to corporate objective. Organization chart shows hierarchy of the departments Chairman Deputy Chairman Board of Directors CEO Corporate management Senior management Branch management Managers Operation management Corporate management overlooking the follwing functions Director/CEO DGM Retail Banking DGM SME Banking DGM Cards, Consumer Assets and Strategic Marketing DGM Corporate and Institutional Banking Chief Operating Officer Head of Legal and Company Secretary Chief Financial Officer Head of Human Resources Head of Credit and Market Risk Management Head of Internal Audit Consultant/Head of Treasury Consultant/Head of Operational Risk and Compliance Senior management overlooking functions are; Trade Services Branches and PBC Alternate Channels SME Banking and Factoring Cards and Consumer Assets Branch Operations and Credit Wholesale Banking Consumer Credit Risk and Collections Consumer Sales Treasury Services Leasing Corporate Banking Leasing Operations Management Information and Planning Cards Marketing Collections Central Operations Fixed Income Securities Leasing Zone 2 Leasing Recoveries Marketing Services Retail Banking Credit Delivery Channels Nations Insurance Brokers Technology Legal Credit Operations Credit Risk Corporate Banking Delivery Channels Leasing Zone 1 Internal Audit Infrastructure and Administration Business Banking Compliance and Financial Reporting Business Solutions Delivery Channels Credit Risk Leasing and Factoring By looking at the above orgnization chart and that functions, can get clear idea about the how its importace of the operaton mangement in the NTB operations. Here in the chief oprating officer and head operational risk is paly vital role of for the baking operations. They are responsible for the bank oprations as whole. Operational scope No of branches 40, No of leasing centers 9, No of ATM 43 , 6 personal banking centers as well as Internet Banking 2.2. SWOT analysis of NTB Strenght It is subsidiary of Jhon Keels group, idirectly they can gained group strenght. Reputed coporate brand name Coporate brand value is very high Has selected well profitable segment to provide the banking service Wider product portfolio Strong IT net work staff in every layer having experice More than 20yers experaince in that perticualr field. Carryingout more promotion Respect corporate governance Good Internal auditing risk management Weakness Faliures in th the IT system define some operations wrong manner Poor promotion Newly introdce gurnateed invetment paln will be fail because of it is irrational plan. More customer complins prices and products quality Few brach and ATM Suboptoimization is happening Employee discrimination Poor advertising in relation to market leader. Employee selections very static do not willing to new comers and do recruitment based on the personal contact. Poor strategic implication. Try to do mass scale promotion, it has failed Always try todepend group strenght Poor opertations of mini brach in the supermrkets Opportunities expansion opportunity in further in sri lanka in norht south ( war affected areas) Can be offered more differntiated Service by giving well traning for the staff. Customer driven promotion. Customer feed back system over the phone or by SMS,by mail. Rewarding system for employees Threat High competition in the banking industry. Overriding tax ruels and regulation by bank.may have legal risk for business. New management is do not more concern on the operations Paying high premius to get new business without cinsidering future feasibility. 2.3. Importance of operations management NTB To satisfy the share holders objectives Investors are expecting return by investing money on the banking business. If the bank is not generated sufficient of amount of return on the shareholders will not invest in the bank. Therefore its corporate objectives must design and link with operations. To defense the market share face the competition Another main importance area of the operation management is developing strategy to face the competition. To managing the risk of the business Mainly banks facing the following risk; Credit risk Market risk Asset Liability management risk. Operational Risk When look at all the risk are related with the operation with banking business, if bank the bank stopped their business operations there is no any risk to manage for them. Therefore, managing risk of the banking business should have smooth plan to manage the operations. To fulfill rules and regulation of governed by Central bank of the country To fulfill rules and regulation of governed company act and banking acts Supporting decision making Operational informations are giving support to make the decision making. As example to advertising effectiveness evaluate branded saving accounts can be used no of accounts opened up by customers on daily. To adapt new changes on technological information Technological environment is rapidly changing to adopt those changes ATM came into apply to increase banking operational efficiencies. 2.4. Performance analysis of the operations in relation to organization goals and objective External process changes (customer satisfaction) Personal banking service providing branches New investment plan offered by bank 24 hours banking facility Open mini branch in supermarket location. Online bank account opening systems SMS banking system Door step banking system Billing payment system via their mobile phone Internal process changes (to happy internal customers) new auditing system to analyze the business risk Make contract with the international HR consultancy firm for training development of staff. Policies have been changes when issuing loans Transferring staff between branches to reduce Giving good training for newly recruited employees regarding bank operations. To reduce bottlenecks IT system training was provided. To prevent hacking introduced new system PIN by IT 3. Routine banking operation and related resources, tool and systems in support to improve operation quality. As banks it having so many business process, that can be divided into two External business process Customer focused process Under this process defined that banking service which they provide to the customers. Those service are divided into 3 categories Corporate banking Personal banking Treasury Issue Letter of credit Current , saving and fixed deposit Foreign exchange dealings Shipping other guarantees Credit card Forward exchange booking Import export finance Debit cards Commercial paper SWIFT facility Branded Savings accounts Foreign currency swaps Syndicate loans Certificate of deposit Interest rate swaps Project financing Advice on foreign current market movement Securitization Salary remittance package Structuring , managing and underwriting of initial public offering and private placement of equity Housing loans Company valuation restructuring E exchange money transfer facility Structuring of Corporate debt instruments Holiday banking systems Working capital financing Red carpet banking system Bullion trading Off shore banking facility Leasing Internal business process Internal operation centric process Where mainly internal functions related process can be analyzed Marketing Management Ex. process of introduce of new product This the huge process from the idea generating and to launch to customers is having certain approval to procedure such as; Idea generating new service based products Evaluating feasibility with the market condition Getting approval from the Head of the marketing Head of the marketing and Director of the Marketing, brand manger discussing pros and cons of the product, brand name selection, effect of existing products and competitor response Finalized the approval brand name Registering to launch the product preparing budget and get approval for that brochures designing and making agreement with the ad agency Printing pass books Communicating to customers regarding the product via ad Get feed back from the customer Compare budgeted deposit or account to measure whether branches have achieved budgeted sales. Human resources management Opening new Branch fill the staff requirement Forecasting staff requirement Advertise regarding the vacancy application sorting and short listed candidates Call for the interview 1st interview for them and short listed for second interview Call for the second interview Select the right candidate for the job Giving the appointment letter Familiarizing for the organization via inductions Training for that candidate Permanent those staff Internal auditing system Here try to ensure that bank staff follow the procedure as planned and prescribed the accounts and finance. Here they evaluate Analyze search Fraud and errors Management auditing System auditing (IT) Accuracy of accounting entries Analyze search Ineffective accounting procedures Assets auditing Deposit management Under this category try to manage the deposit level with liquidity and profit. By balancing rules and regulations which are governed by central bank. Channel Development System This is described regarding new branch operation and development of customer service. Managing Assets Liability This also very important business process and functions in the banking operations managing their assets and liabilities. If these two are not balancing each other, the bank balance sheet will show impact on assets and liabilities. It should be managed by well qualified management account or fiancà © disciplined person. Otherwise bigger impacts made on the corporate image as well as destroy the customers relationship and may have position go out of the business. Ultimately it will makes huge impact banking system in the economy. Risk Management System major different risk component those are making bigger impact on the business continuation. According to bank information major risk rating as follows; Risk Areas Component of the risk Credit risk Default risk Security risk Sectoral exposure risk Legal risk Counterparty risk Cross border risk Sovereign risk Market risk and Asset Liability management risk. Interest rate risk Liquidity risk Exchange rate risk Investment risk Group financial risk Share price decline risk Country risk Operational Risk Employee behavioral risk such as omission, fraud, judgmental errors, negligence, etc. Disaster related risk Trained staff turnover risk Insider dealing risk Sensitive information leakage risk Lack of creativity and innovativeness Risk on MIS and IT related risks Planning Budget related risks Shortcoming in the organizational structure Credit rating falling risk Money laundering Risk of technological obsolesces Risk failing business volume and market share Risk is being overtaken and losing the leadership position Overtrading risk and risk of financial disintermediation When look at overall risk, high risk show by operational risk compare to other risk areas. Therefore, to analyze any type of these risks, need to have solid information to mitigate those risks in business operation. Operation management Operations managements are looking after following areas. Those are; Bank or branch opening procedure This is very important part in opening branches and head office. Opening must be done without authorized people. If not that is considered as misused of operational rule on the other hand it taken as illegal act. Therefore those rules regulation must very well. Cash handling process by cashiers Main cashier hand over cash to the counter cashier Get it signed on the log book Cashier log on the computer Carryout the day today operation (saving, withdrawals) Handover cash to main cashier after counting Fill the cash summary by using slip Main cashier reconcile the cash with slip Cash put into the safe box Managing bank electronic data Data management is major important part of business process. Bank decisions are making process based on this process. If there is an error in the data, outcome (information) is will be inaccurate, ultimately, made decision are delivering risk picture. Following the appropriate tool for quality assurance of the data applied by the banks; Describing data that is in the warehouse Specifying what In and out of data is warehouse business events scheduling extract based Documenting and monitoring data synchronization requirements Measuring validity quality of data Data process management and security management system for data building Capacity of the bank To improve productivity of service that providing process by bank need improve existing capacity in terms of ATMs, Branch and staff. Loan Management system The following process is involved in under the loan management; Analyzing suspension of the loan and advance Then made reservation or taking legal action to receiver those loans Managing the Finance of the bank Financial management process overlooking low cost funding sources and mainly following procedure also looking after by fiancà ©e manager Working capital management Corporate tax planning Analyzing Investments Debentures and Share issue Corporate planning Budgeting Bank corporate planning and budgeting strategies are followed by operations, main step that is following certain steps in the corporate, business and operations levels. Analyze the Vision, Mission, Goals and objectives of the bank Carryout position audit (SWOT) and environment analysis (PESTEEL) Generate strategic options Analyze strategic options are generated And Develop functional strategies such as finance, marketing, HR, operation, and IT to achieve corporate objectives. Such as Profitability (Profit before tax) return on capital employed of the bank Growth and Market share of the bank Customer satisfaction and value addition for service Quality of service 3.1. Analyzing and evaluating resources, tools and system to support in the quality operation Bank or any other business resources, tools and system can be divided into 3 categories based on value platform. Those are; Customer capital Structured (organizational) capital Human capital (Human Resources Customer loyalty Corporate brand name and it reputation Business collaboration Intellectual property Patents copy rights Design right Service mark Trade mark Infrastructure assets Management philosophy ,Corporate culture, Management process ,Information systems, Net working systems ,Financial relationship Know how (serving offering process) Education level of employee, Vocational qualification, Work related knowledge, Proactive and reactive abilities, Changeability, Occupational assessment 3.2 Define and implement quality management for bank Quality management defined by American Society for Quality Quality is the totality of features and characteristic of product or service that bear on its ability satisfy stated or implied needs. Banks can focus on their quality the following way. Quality of services or business can be measure by using the following methods; Six dimensional performance matrix Balance Score card systems Generic measurement 3.2.1. Six aspect or dimensional performance matrix Dimension of the performance Type of measures Competitiveness Relative market share Measure of customer base Deposit growth Financial performance Profitability Liquidity Capital structure Market ratios Quality of service Reliability Responsiveness Aesthetic/appearance Comfort Friendliness Courtesy Flexibility Volume flexibility Delivery speed flexibility Specification flexibility Resource utilization Productivity Efficiency Innovation Performance of the innovation process Performance of the individual performance 3.2.2. Balance scorecard (BSC) system BSC is identifying financial and non financial measures to evaluate quality of service. 4 pillars are representing by BSC. Those are; Customer perspectives Satisfaction of the customers Financial perspectives Satisfaction of Share holders Internal business process To satisfy both party what must be offered Learning and growth Improving, developing, changing process and procedures to satisfy all the parties in the organization to improve efficiency of the organizations continuously. 3.2.3. Generic measures system To evaluate service efficiency the following generic measures can be implement Generic Measures Type of measurement Service of Quality Access Easy to find out supermarket Appearance Staff appearance, well groomed Availability products availability Cleanness Gondolas and shelf must free from dust Competence Speed of cashiering Courtesy CSA must polite and respect to customers Responsiveness Response any queries Security personal security 3.3. Implementing quality management system (six sigma model) Improve any process performance either production process or service providing process. This model can be implemented and it has 5 steps. Step Define measures Step Measure Step Analyze Step Improve Step Control 4. Identifying Weakness and opportunities in the process 4.1.Weakness analysis and strategic implication Wrongly define some operations To collect the deposit banking assistant are sending to the outide banking premises, that is very risky because the rob or theft money. Faliures in th the IT system Banking industry one of the key driver is IT systms in those suystmens failutre affect couters, ATM or brnach operation. Therefore IT deparment need to take relavent action to prevent this kind of situations. Poor promotion Newly introdce gurnateed invetment paln will be fail because of it is irrational plan.We the customers are get calcualte benefit of the invesment plan, relizing bank try to make fool the new customerss. Therefore NTB need to evaluate that promotion of investment plan. Few brach and ATM To satisfy customers need exiating ATMs and branch are not adequate. Therefore top management need to increase number of ATMs and mini brach increse the customer service. Suboptoimization is happening Employee discrimination This always happen in the top management and they dont allow come with new ideas and try discriminte those people as headche for the bank. This is not acceptable level of pracite because of new ideas are helping to develp the bank service. That culture must changed by HR department. Poor advertising in relation to market leader Commercial bank is market leader in the banking industry but problem is that NTB is not spend sufficient amount of cost on advertising and they have selected brand ambassder as sport star that is not reflect imporatnce of the bank service. cost of staff training is very high and cust down other cost NTB has made an agreement with interanationl HRM consultancy firm to get trian the satff. But it is very cost. There are experianced firms are availble in locall to get bank staff training at resonable cost. That must be changed. Employee selections very static do not willing to new comers and do recruitment based on the personal contact. Junior and senior level staff recruitment is made via personal contact, that is not good practice, it will leads poor operational perfornances.That is need to be chaged by HR department. Poor strategic implication Competition of the banking inductry is very high and NTB strategies not capable enough to cope the competition. Try to do mass scale promotion, it has failed Promotion that made by using brand ambassader was not successful. Even the NTB advertising fail to highlight their major benefit of the each of bank accounts. That has already capitalized by other players of the industry. Always try todepend group strenght JKH is large conglomarate bunines group, therfore NTB try use the those group of companies money in their accounts as corporate accounts. But it will not be successful strategy, if any buisness will fail that will directly affect o on the bank operations. Poor opertations of mini brach in the supermrkets In the supermarket bank service expecting customers are very high, but mini branch is included 3 staff members they cant manage rush time banking operations. 4.2. Opportunities analysis and strategic implication Expansion opportunity in further in sri lanka in norht east ( war affected areas) There is an opportunity to open up new brach north east. Because of those areas high ended customer is having desire to get good banking service. Therefor NTB could capitalize that chance. Can be offered more differntiated Service by giving well traning for the staff NTB staff always having an attitude as most prestige bank, but they need change that attitude and need do differentiated bank service for the customers. Customer driven promotion. By analyzing most valuable customer, NTB must offer rewarding system such as; Interest excemeptions Gift vouchers Seasonal promotions on the minor accounts, Customer feed back system over the phone or by SMS,by mail. This will help to increase the customer satisfaction efficicny of the bank by merging with new technological development.That will help to increase the number of customers and reduce operational failures. Rewarding system for employees To motivate the employees need to have proper and stimulus arisen rewardign system to increase the sales and productivity 5. Conclusion According to the report and based on practical application of operation management, can be make the following conclusions Importance of the operations management will be increased in future This subject will be more developed and that knowledge need put into practice. Operation manager role of will highly important. HR department must play as supportive department in managing people to implement operational strategy Marketing department is play a bigger role when comes to the sales management or branch level operation. To improve the business performance and quality benchmarking need be practiced by any company. Most effective bench marking practice is industry based bench marking.