How can we apply BSC to the Sri Lankan Banking Industry?

Background:

The above “Balance Score Card” has been captured from a research paper which has been applied for Bank of America. According to the above, main four objectives that had been focused are Customers, Employees, Business Ethics/Natural Environment and Financials.  In this scenario they try to measure the quantitative and qualitative performances during a certain time frame as per the delegated authority levels.

How can we apply above to the Sri Lankan Banking Industry?

1. Customers  - Satisfaction and Brand identity

Challenges	A Customer survey can be done via internet without spending a huge cost for personal interviews/mail questionnaire or telephone survey. But the most challengeable task is the knowledge on IT literacy of our customers. Therefore, it is difficult to select the sample with the existing methods to obtain the accurate data. Accuracy of the data is based on customers’ understanding of the questions. Therefore, cannot rely 100% on the data collected. Selection of sample is also a challenging task.
Opportunities	Since the availability of customer database, a direct mail/questionnaire can be sent or interview the customer when they visit the bank. By understanding the customers’ needs and wants properly, we can identify the existing gaps and bridge them with innovative novel products to satisfy/delight the existing customer. By offering a user friendly IT process we can retain the existing customers and attract more potential customers.
Disadvantages	If the bank’s product mix is too complex and higher numbers, difficult to get a clear idea about all products brand identity from a single sampling method.  Therefore, accuracy of product identity and customer satisfaction cannot be measured from the data collected.
Advantages	We can collect first hand data from the customers who visit the banks. In Srilankan context most customers love to visit the banks since they are satisfied with human touch instead digital touch and the requirement of fulfilling their social needs. Therefore, banks can take the advantage of people’s behavioural pattern to conduct this survey.
Barriers	It incurs a huge cost for conducting a customer survey. Management’s involvement and fullest cooperation is highly needed to conduct the research. Customer awareness about the products is a must. Selection of research method, sampling mechanism is also much complicated.

 

2. Employees – Quality and Service Training / Employee Satisfaction

Challenges	Difficult to measure the qualitative data since it depends on the attitude of people. Service quality is purely based on the moods, perceptions and other personal characteristics of each individual. Service training can be done on the job or specific training programmes conduct through professionals but it will be high costly. Employee satisfaction is based on the people’s expectations. It cannot be measured by a straight forward mechanism, it can be done by observations of their behavioural pattern.
Opportunities	Service quality can be improved by fulfilling the basic requirements of the employees. Service training can be arranged with the experienced senior officers at a lower cost. A motivational programmes can be arranged to satisfy the employees by giving performance based incentives.
Disadvantages	Since we could not arrange appropriate quality and service training, the employees can be demotivated. It will cause to the dissatisfaction of employees.
Advantages	By introducing motivational programmes like incentives on performance base, we can satisfy the employees
Barriers	Cost of conducting training programmes is a barrier. Selection of training needs and the feedback after training is also matters. The employees’ reaction, attitude towards training is also an important factor.

3. Business Ethics / Natural Environment

Challenges	Due to the existing cut throat competition in Sri Lankan financial industry, it is difficult to comply with business ethics and work in a peaceful manner. There is no ethical behavior of people, processes, and pricing mechanism, as well as ethical communication pattern. The government impose rules and regulations, but people insist to comply with. Protection of natural environment is the biggest task of today’s industrial development. Air pollution, water pollution and destroying natural environment are the major challenges today.
Opportunities	Still the Srilankan people have faith on their religions. By getting involvement of each and every religion advices, we can implement higher standards on business ethics and inspire people to comply with the higher business standards with fair and peaceful work environment. Utilization of IT reduce the paper usage. Paperless work environment protect the trees. Developed sophisticated systems and processes will reduce the discharge emission to the environment by reducing visits the bank by vehicles instead using internet banking, mobile banking etc.,
Disadvantages	Having a favourable competition improves the quality of production and convenient processes with easy access. If the business ethics are too much rigid, difficult to perform well in the industry and no development can be expected.
Advantages	By comply with ethical business standards, people can improve the quality of business environment. It will lead to increase the volume of transactions and attract more customers. It will build the confidence in stakeholders mind that the market is safe. More investors will attract the market.
Barriers	Generally Srilankans reluctant to comply with rules and regulations. They always search for the short cuts, not in the systematic way of doing things. Therefore it is very difficult to get the involvement of people to comply with existing rules and regulation and protect the natural environment

4. Financials – Revenue increase & Ratio analysis

Challenges	Due to the heavy competition and high cost, it is difficult to increase the revenue by 50% very easily. It can be done by motivating staff and improve the service and thereby increase the revenue. Ratio analysis also the same. To improve the ratios proper strategies to be adopted.
Opportunities	Introducing innovative products and services with superior quality, can increase the revenue and strengthen the ratios. By reducing price with the expectation of economies of scale, can increase the revenue.
Disadvantages	When increase in revenue, the cost of sales may increase. It will damage to the profit margin and consequently we will run at loss. To overcome that situation, we have to increase the price. But it will lead to decrease our market share,
Advantages	Despite the fact that of cost of sales, price can be reduced and increase the revenue by economies of scale. Organize special promotional campaign and increase the volume of sales. It will increase the profit margin and lead to increase market price per share.
Barriers	All parties concern the target should agree for the strategy to be implemented to increase the revenue. If any conflicts arise within the organization, such as Marketing Dept. pricing mechanism is not compatible with Finance Dept. pricing mechanism. Therefore, internal conflicts may erode the performance of the bank.

Implication of Non-financial performances (NFP) to local banks context.

Implication of Non-financial performances (NFP) to local banks context. 

Financial performances

In our local context all most all of the banks are used to measure its performances based on financial data.  They are publishing & evaluating their performances & market share by figures published in the annual report. Financial performances are measured by Return of equity / return on assets / profitability / return of employee / none performing loans & advances etc.

Financial performances are very important & regulated by the banks & the relevant authorities according to the given guidelines but in most banks NFP is less important & not practiced on regular basis.

Non-financial performances

But in this research they focused to measure the non-financial performances to gain long term competitive advantage among the competitors. In many cases NFP are considered as short term but that should be taken as long term financials as those are play quite a big role to an organization.

Employee moral increases customer satisfaction, Improve service quality, customer retention & its leads to higher return on capital & finally that will maximize owner’s wealth in the end.

The most important factor is the customer satisfaction & there is a direct impact on improving financial performances. To improve customer satisfaction the most second important factor is the quality service. This will lead to retain more & more clients to the organization & they will buy more products & services from the organization. Not only that they will give free advertising via good word of mouth to the community where finally you reduce the advertising cost. Retaining an existing customer is more cost effective to the bank rather than canvassing a new customer.

Therefore nowadays banks are concerning to improve service quality & improve customer satisfactions. As the banks are engaged in service providing sector the service delivered is depending on the person to person which couldn’t be measured properly. There are arguments for accurate measurements of different performances & techniques. However each bank uses their own strategies to measure profit driven non-financial performances.

Methods of applying to local context

CEO’s of the banks should be taken this seriously & have to implement systems   by improving future cash flows of the company. This could be done through random interviews, Questioners, online surveys, placing self-rating devices at the counters, Telephone calls, creating job profiles for customer relationship managers to give extra attention to the clients, Private banking facility for prime clients, offer service to the clients door step, etc. However bank should retain/increase loyal clients with relationship @ a minimum cost to get the maximum benefit.

In addition according to the research if the bank can improve moral level of the staff that will lead to increase customer satisfaction & finally increase the return on capital. Employee morale is most essential element for achieving superior profits. Because such employees produces satisfied & loyal customers who creates long term positive financial performances.

In simple way CEO of a bank should think satisfied customer is the most important to the organization & to achieve this, quality service must establish & that service is delivered by employees of the company. (Also new technology & devices should introduced)

Opportunities to the bank

This will be very important to bank as discussed earlier coz with the improving service quality & customer satisfaction leads to retain customers, cross selling & up selling, reduces advertising cost, long term client knows the banks methods & how to work with bank staff (filling forms, what documents to submit, avoid busy times, who is the exact person to contact service vice etc) & it save the time. This will reduces customer waiting time & bank staff can give additional service by using this time. When you have enough time to serve existing clients as well as new clients they will compare the time saving & the speedy service of our bank, they will compare with other banks & recommend to others too. When the client is recommending our service to someone else that is the most power tool that we can use to grab new businesses & maximize the wealth & the market share.

Challenges / barriers of to improve Non-financial performances in a bank to improve profitability

Main challenge is the way how to measure employee morale, service quality, customer satisfaction level etc.. Financial data are quantitative & in a society figures are being monitored & those are mandatory requirements by the authorities. As the governing bodies are very keen on financial status of a bank & annual reports published. Banks are also stick to financial reporting but slightly neglecting non-financial benefits in a bank.

Also to measure this NFP ‘s current economic condition also should be considered, If the economy shows a downward trend automatically we are focusing only on financial performances rather than thinking of quality service, employee morale & customer satisfaction.

Also service is delivered by individual staff & that will depend on the situation, education & confidence level, mood & the schedule of the day of employee & the customer. That will vary day to day & unable to measure accurately.

Therefore bank needed to do surveys via calls, emails, online, establish self-rating devices where additional cost incurred to the organization. Banks CEO’s are very reluctant to spend additional money because that directly impact to financial performances immediately, Also improve employee morale some instant needed to give salary increments, allowances where hit P & L.

Above facts are the challenges to implication of NFP’s in local context.

Advantage or disadvantage to a bank by improving Non-financial performances

As we discussed above if we have strong morale staff in our organization they work hard & loyal to the bank. They will give the maximum output to retain clients as well as grab new clients. Maintain good relationships with clients & provide long standing loyal customer base to the organization. These clients are stick to the organization & buy products regularly, you can cross sell & up sell. Loyal clients are not running behind prices of the products as they love to have better quality service. They recommend your bank to others. When you have more loyal satisfied clients automatically your marker share will increase due to cross/up selling & most of them are not price sensate so in the long run this will directly impact to your financial performances positively. Also loyal staff never left the organization & your staff turnover ratio will reduced & bank doesn’t need to recruit new staff regularly & that recruitment & training cost also reduced.

Disadvantage observed is the immediate cost incurred to establish new devices, carry surveys, staff trainings to improve morale etc. To mitigate same bank could distribute the cost among 2 -3 years proportionately with lesser impact to the P & L.