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INTRODUCTION……………………………………………………………………………02 SELECTION OF ORGANIZATION……………………………………………………….03 MICHAEL PORTERS 5 FORCES MODEL………………………………………………04 VALUE CHAIN FRAME WORK OF MICHAEL PORTER…………………………….10 CONCLUSION………………………………………………………………………………12 REFERENCES………………………………………………………………………………13
According to Davenport (1993). disruption to the organizational function during reengineering process and efforts to achieve improved performances within the firm (Belmonte & Murray.1993). Business Process Reengineering (BPR) is the analysis and design of workflows and processes within an organization. acknowledged everywhere are radical redesigning of business functions. But again despite of being attempted by numerous organisations. extensive use of IT for enabling. time draining activity with no guaranteed success. Why we reengineer the existing processes is to become more efficient and modern and to make the organization in sync with the external environment. Business Process Reengineering (BPR) is implemented by many organisations to achieve radical advantages of their processes. BPR is a huge risky. Figure: Cycle of BPR 2 . In actual no universally accepted definition of BPR exists but common characteristics of BPR.INTRODUCTION In the words of Hammer and Champy (1993).
The regulator RBI relaxed the norms for banking sector and allowed the private banks to raise capital from abroad and allowed them to be listed on the stock exchanges. 3 . The bank has started Business Process Reengineering in the mid-nineties and almost took nearly more than 5 years to implement the reengineered processes across its 9600 branches in India and abroad. With the government of India. the banking sector regulator in India to identify the possibility of reforms in banking sector.SELECTION OF ORGANISATION In this assignment we will discuss the BPR initiatives in one of the largest banks in India. The bank was established in by an act of 1955 and is the first nationalized bank in India. State Bank of India is the biggest bank in India with assets ranging from 10000 Billion Rupees in assets as of 2010 and having employee strength of around 200. In this assignment we will see what challenges State Bank of India faced. Mostly the business process reengineering is driven by technology. the need for a Business Process Reengineering and how the Michael Porters models can explain the Business Process Reengineering in State Bank of India. deciding to bring in reforms in the banking sector authorized the Reserve Bank of India (RBI). At that time State Bank of India had around 8000 Branches and none of the branches are computerized. and inter connectivity between branches was This change has brought in a remarkable change in the banking sector.000. State Bank of India. THE BACKGROUND:Till the early nineties (till 1992) the Indian banking sector was dominated by the nationalized banks. Private Banks (non-nationalized banks) were not allowed to raise capital and there was a cap on number of braches they can open. Private Banks were few and are operated in a very small scale.
Figure: Porters’ five forces We will discuss one by one the forces that Porter describes and see how they have influenced the State Bank of India. 4 . some are leading housing fiancé corporations like HDFC ( Housing finance and Development Corporation) and some are institutional financing companies like ICICI (Industrial Credit and Investment Corporation of India). Threat of New Entrants:Till the early nineties State Bank of India enjoyed near monopoly being BIG daddy of banking industry and virtually no one to challenge. The institutes that obtained the licenses were already operating in the finance industry.MICHAEL PORTERS 5 FORCES MODEL There is no better model than Michael porters model to explain the predicament and the need for Business Process Reengineering for State Bank of India in the early nineties. From the start of reforms a slew of new banks obtained licenses and started operating.
The new entrants brought a change the strategy of State Bank and to adopt different strategies for different markets. We all know that Term Deposits carry better interest rates than other accounts. so they first targeted the metro customers. Take the example of term deposits. The new branches automatically attracted the new generation customers and made them to complain about the old and dilapidated branches of State Bank of India. Bank has to revamp its existing process of creating and closure of fixed deposits.e. Unsurprisingly the new banks wanted to create the differentiation based on how the service is offered. 5 . where personalized care is provided to the customers. Threat of Substitute Products Banking is predominantly a service industry and there can be hardly any difference in the products since the products need to comply with the regulations in the banking sector. This was possible because of the technology they brought in with operating branches and they had no legacy systems like State Bank of India.000) the amount above the threshold is converted to a term deposit. What the private banks started offering is something called Auto Sweeping. In response to the new entrants State Bank of India opened new branches called “Personalized Banking Branches”. State Bank of India had to respond and match the competition. What Auto Sweeping does. These new banks were crafty. The new entrants opened posh looking branches in the metros with excellent interiors and layouts. they knew that about 20% – 30 % of the population contributes to more than 80% of the assets of the bank. of course the branches catered to only the High Net worth Individuals (HNI). They also knew that most of the banking happens in Metros and other cities them small towns and Villages. when the balance in an account (say current account) crosses a threshold (say 10. i.These institutions have already has a huge customer base and their opening their branches.
Since State bank of India is a nationalized bank. however State Bank of India need to revisit their processes of creation of term deposits and training of staff on the new product. Bargaining power of Suppliers Though the bargaining power of suppliers is applicable only for manufacturing industry. in finance industry the suppliers can be equated with suppliers of capital. Bank also needed to spent considerable amount on advertising the new product to the public. The MOD product not only allowed for creation of deposits but also allowed for partial withdrawal of the term deposit in multiples of hundreds. The product was a huge success. In the nineties with more than 50% of the population under below poverty line government of India was more concerned about State Bank serving the poor than serving the burgeoning middle class and the rich. The possibility of adopting different strategies to cater to different needs was not taken up on priority. Example:. The process change also demanded investments in creating infrastructure for the new product like enhancing their existing IT systems etc.000 then user can withdraw Rs 400 and the rest of the amount Rs 9. In the mid-nineties government of wanted to dilute its stake (Still a major shareholder with nearly 60% share) and wanted the people of India become shareholders. most of the capital for the bank was contributed by the government of India by having the president of India as the biggest shareholder.State Bank introduced a new product called Multi Option Deposit (MOD). It was almost first time in many years that State Bank visited their term deposit process. and training staff. 6 . The bank was listed in the Bombay Stock Exchange (BSE). The product has certain advantages over the Auto Sweep products offered by private banks. State Bank has identified the branches which are facing tough competition from the private banks and introduced the product selectively in those branches.600 will be treated as a term deposit and will remain attracting higher interest rate.If the Term Deposit was for Rs 10. The initial public offering by the bank was a huge success.
Unlike before. the bank started to feel the pressure from Share Holders who expected a better return for their investment. The banking operations were conducted in specialized counters. There were cash counters with tellers who perform only cash related transactions. Bargaining power of Customers The advent of new private banks in the early nineties the banking customers were facing a situation like oligopoly. This led to the inefficient use of human resources.After becoming a public listed company. There were ledger operators who post the transactions in the ledgers (No computers). Initially bank was reporting its performance once a year. there were clearing counters who just perform activities related to local clearing transactions. Because of this the entire process of collecting information from about 8000 branches across India had to undergo change. There are counters in each branch for every specific banking activity. where the Banking Industry is dominated by few nationalized banks and lack of innovation and shabby services. where one resource was idle while other resource was over the over working. after listing it has to report its performance every quarter. there is no way the person clearing could attend the queue at the teller counter. and none at the clearing counter. This is how the suppliers and regulators have successfully changed the business processes of State Bank of India. This involved in change of processes related to reporting. State Bank of India has become answerable to the public in the Annual General Meetings and to show the performance based results. 7 . If there were 10 people standing in the queue at the teller counter. State Bank of India also needed to comply with the regulations of Securities Exchange Board of India (SEBI) as it is a listed company.
The customers were happy and stopped moving to private banks 2. Hit by the private banks State Bank of India started looking into its operations and process and introduced a concept called Single Window. The demographic profile of the customer in the nineties was very much different from earlier generations. Another most common complaint was availability of cash transactions (India was predominantly cash carrying nation. 8 .Here it is also important to highlight the changing profile of the customer. Employees changed their attitude towards changing technology and embraced the change. They also introduced ATMs at every branch. The new age customers were young and were willing to adopt change fast. Many customers moved to the new banks to get the services offered. Bank had to entirely redesign its office layouts to accommodate Single Window. That is one of the Major initiatives in the area of BPR taken up by State Bank of India. where any banking related transactions could happen at a single window. there were two strategic advantages gained by the bank 1. Expectedly the move to introduce Single Window was protested by the labor unions. Any operation was possible at any counter. The new age banks wanted to prove the difference. The customers were surprised by the swift service rendered by the private banks. State Bank also tied up with NCR and Diebold the two major ATM machine manufactures and started rolling out ATMs at all branches. After much negotiation with union bodies the Single window was finally introduced in 1998. Backed by the latest technology they have done away with the specialized counters. Even though this moved cost a lot for the bank. which is just 4 banking hours in a day. The existing infrastructure technological as well as physical was not ready for the change. checks and plastic cards were not introduced at that time) after the office hours. which feared job losses. Customers started complaining about the services offered by State Bank of India. Now State bank of India owns the maximum number of ATMs in India.
Harpreet Kaur shows that the CR in the banking Industry has come down from 44.This is how the bargaining power of customers has forced a change in State Bank of India business processes. The Industry concentration is measured by Concentration Ratio(CR).92 in 1998-1999 to 39.38 in 2008-2009. Measures of Concentration: An Empirical Analysis of the Banking Sector in India a study in summer 2010 by Summer 2010 by Sharma. companies try to gain competitive advantage over other companies. Bal. 9 . Manoj Kumar. State Bank of India is ready for the new challenges by reengineering its business processes and ready for the competition. As we can see that the ratio has come down which means there is more competition in the Banking Industry than ever before. Competitive Rivalry within an Industry The competitive rivalry means. The common indicator of competitive rivalry is measured by Industry Concentration. The more the ratio the less is the competition.
than the other primary activities mentioned in the Porter’s model. Technology. Operations and Marketing and sales play a major role. 10 . In the banking Industry the activities Service. Striving to increase the customer service quality will provide a sustained competitive advantage. Service: .Banking being predominantly a service industry. the services offered can bring huge competitive advantage to the company that excels in customer service. The relevant activities are discussed below. Human Resource Management.VALUE CHAIN FRAME WORK OF MICHAEL PORTER Figure: Value Chain frame work The Michael Porters value chain may not be a suitable model to discuss service related industry where the support activities take the position of Primary activities. However we can use the model to analyze specific activities through which firms can create value and competitive advantage. Banks needs to look for the possibility of improving the existing processes for better customer service.
with Mumbai being the hub. and all the banking operations were centralized. Every 11 . For state bank of India. During this wave all the 9000 branches are inter connected and brought under one huge network which paved the way for anywhere banking in India.The people who deliver the service are more critical for the success of the service. It is essential that people who are delivering the service are customer centric. and have sufficient knowledge about the services they are offering. the success of business process engineering can be attributed to the quick adaptation of technology. Operations:Banking operations help in delivering quick and timely service to the customer. Technology:Technology plays a crucial role in offering banking services. the bank has shifted from menu based Bank Master to GUI based State Bank Core Banking System (SBCS). This time the adaptation was very quick. Second Wave was introducing core banking solutions. First wave was computerizing of branches. this was done using “Bank Master” Software.Human Resource management: . The banks that adopt the technology will have a unfair advantage over their competitors. Phone Banking and Mobile Banking all are possible because of fast adaptation of technology by banks to reduce their operational costs. Training need to be included as one the major process that can impact the business. All this was possible due to technology. This basic computerization had the following benefits 1) The employees became familiarized to a computer environment 2) The critical banking operations were computerized and this laid the foundation for future process reengineering. Technology helps banks to reduce costs and become more efficient. Internet Banking. with this. rather a menu driven system. Training of human resources makes a lot of difference to the delivery of the service. which was not a graphical User interface.
most of the efficiencies were achieved due to the reduced time taken for each transaction. CONCLUSION It can be observed that State Bank of India process changes has been mostly reactive then proactive. Not surprisingly most of the IT investment by banks goes into automating or optimizing the processes. which increased the profitability of the bank.000. Mobile and Social Media. This activity is done by the marketing and sales teams. During first wave. During the second wave the effectiveness has taken precedence. however each branch worked as standalone branch and everyday each branch had to perform end of day operations and take backups of their transactions. It is in the operations where maximum efficiency is possible. Marketing and Sales: It is not enough if a bank offers excellent customer service and has efficient processes. Bank needs to make the customers aware of its products and services to grow and also new customers and businesses. Like any strategic initiate Business Process Reengineering is a costly. This is expected given the unique characters of the bank like government holding. rural focus. A sales force equipped with excellent product and supported by technology is a real competitive advantage that banks vie for. The operations of the bank have also undergone dramatic change along with the changes in technology. time consuming and change management related 12 . most of the operations were centralized especially the ATM and Clearing operations and which reduced the burden of the staff so that staff can focus on cross selling to the customers.now and then banks need to visit their process in operations to look for increasing efficiency. and numerous branches and staff strength of around 200. The marketing and sales teams need to be backed by technology by providing them new channels for marketing like Internet. It is not easy to make elephants dance.
1) People a. Introduced anywhere banking across India. We can conclude that though the Business Process Reengineering was reactive and took a lot of time to implement. REFERENCES 13 . c. b.affair. b. First bank in India to have more than 1000 ATMs d. the initiative was very successful and the bank became stronger than ever before. The success of the Business Process Reengineering in State Bank of India can be attributed to managing the other two pillars of a business apart from Business Process alone. Integrated all of its more than 9000 branches through CORE banking solutions. State bank had to literally train the entire staff of 200000 on more than one of the business processes. In the early phases State Bank of India hired the famed McKinsey consulting for its Business Process Reengineering initiatives. 2) Technology a. Investment in technology in Banking in India is topped by State Bank of India. Successfully handled the pressures from the labor unions.
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