INTRODUCTION TO HUMAN RESOURCES:

Human Resource Management is essential in all sectors and this project

deals with human resources in general and in the banking sector. Before
discussing Human Resources in the banking sector it is essential to
understand the basic concept of human resources as well as that of
management.

The term human resources is variously defined in political economy and

economics, where it was traditionally called labor, one of three factors of
production. Its use within corporations continues to define common
conceptions of the term.

Modern analysis emphasizes that human beings are not predictable

commodity "resources" with definitions totally controlled by contract, but
are creative and social beings that make contributions beyond "labor" to a
society and to civilization. The broad term human capital has evolved to
contain the complexity of this term, and in macro-economics the term "firm-
specific human capital" has evolved to represent the original meaning of
term "human resources".

1
What is Management?

Management is concerned with the human beings whose behaviour is highly

unpredictable. Ever since people began forming groups to achieve as
individuals. Managing has been essential to provide the coordination of
individuals efforts.
Management does not perform specific jobs. It motivates other people to
perform specific jobs. It indicates a total process of executive control in
business. It implies undertaking of responsibility for effective planning,
policy making, fixation of targets and operative functions of providing men,
money and materials to run day-to-day administration. Management is
concerned with actually directing and guiding the operations to achieve
business objectives. It uses human efforts to reach the predetermined goals.
Regulation. Control and evaluation of human efforts in the direction of
achieving the given objectives are the primary functions of management.
Also, management refers to bringing together of physical and human
resources to carry on planned activities and control performance in order to
ensure that what is done is what is expected. Management is applicable to
both profit-making and service-rendering organizations.

2
Nature of Management

(1). Management as an economic resource:

Historically, land and capital were treated as sources of production. Now

along with land and capital, labour and management are given the status of
economic resource. Management coordinates as well as controls economic
resources. It facilitates effective use of other resources for achieving specific
objectives.

(2). Management as a system of authority:

A manager is given specific duties and also the authority. He has to achieve
certain results with the participation of others. He has to get the work done
through the others. A manager can achieve results through delegated
authority as per the need of the situation.

(3). Management is a group activity:

Management is not individualistic but a joint activity. Managers have to

guide and motivate their subordinates. Management is an activity of a group.
Results will not be achieved only by the managers but also bt the
cooperation and participation of subordinates.

3
Characteristic features of Management:

A few of the characteristic features of management are:

(1). Management is a process:

Management is a process and not merely a body of individuals. Those who

perform this process are called managers. The managers exercise leadership
by assuming authority and direct others to act within the organization.

(2). Management is a social process:

Management takes place through people. A managers job is to get the things
done with the support and cooperation of subordinates. It is this human
element which gives management its special character.

(3). Management is a group activity:

Management is not an isolated activity but it is an activity of a group. It aims

at using group efforts for achieving objectives.

4
(4). Management is all persuasive:

Management is comprehensive and covers all departments, activities and

employees. Managers are working at different levels but their functions are
identical. This indicates that the management is a universal process.

(5). Management is innovative:

Management techniques are dynamic and innovative. Such techniques are

adjusted as per the requirements of the situations. Another manager need not
repeat the decisions of one manager. Similarly, a manager has to change his
decisions under different situations.

5
Need for Management

(1). Direction and control of group efforts:

In business, many persons work together. They need proper direction,

guidance and even motivation for raising their efficiency. In the absence of
guidance, people will work as per their desire and the orderly working of
enterprise will not be possible. Management is needed for guiding
employees in the right direction and for coordinating their efforts.

(2). Orderly achievement of business objectives:

Efficient management is needed in order to achieve the objectives of

business activity in an orderly and quick manner.

(3). Performance of basic managerial functions:

Planning, organizing, coordinating and controlling are the basic functions of

management. Management is needed as these functions are performed
through the management process.

6
(4). Effective communication at all levels:

Management is needed for effective communication within and outside the

organization.

(5). Motivation of employees:

Management is needed for motivating employees and also for coordinating

their efforts to achieve business objectives quickly.

(6). Success and stability of the business enterprise:

Efficient management is needed for success, progress and smooth

functioning of a business enterprise

7
Importance of Management

The importance of management in business is universally accepted. Modern

business is highly competitive and needs efficient and capable management.
It is through management that business activities are organized and
conducted efficiently. Following are few of the points that suggest the
importance of management:

(1). Optimum use of resources:

Management facilities optimum utilization of human and physical resources,

which leads to progress and prosperity of a business enterprise.

(2). Competitive strength:

Management develops competitive strength in an enterprise. This enables an

enterprise to develop and expand its assets and profits.

(3). Motivates employees:

It motivates employees to take more interest and initiative in the work

assigned and contribute for raising productivity and profitability of the
enterprise.

8
(4). Expansion of business:

Expansion, growth and diversification of a business unit are possible

through efficient management. It creates good corporate image to a business
enterprise.

(5). Reduces turnover and absenteeism:

It reduces labour turnover and absenteeism and ensures continuity in the

business activities and operations.

9
HUMAN RESOURCE MANAGEMENT

Human Resource Management or Personnel management is the activity

of managing personnel, usually employees.

In any organization, managing personnel is the process of making sure the

employees (not the customers) are as productive as they can be. This can
include hiring, firing, or transferring people to/from jobs they can do most
productively.

This subject is a major at many universities, or a minor in the business

school. It is also known as personnel administration, which is functionally
an equivalent term.

10
Meaning of Human Resource Management:

A business unit needs employees to look after different activities. This is

called manpower or human resource. Such human resource needs to be
developed fully so that it will make positive contribution for the progress
and prosperity of a business unit. For this systematic development and
management of human resources is necessary. Human Resource
Management (HRM) deals with:
(a) Training
(b) Self-development
(c) Promotions
(d) Performance appraisal of manpower recruited in an organization.

HRM is an organized learning experience aimed at matching the

organizational need for career growth and development. It is a process
involving series of learning activities designed to acquire desired level of
competence among employees.
HRM is a continuous process and it needs money. Such investment creates a
team of efficient, skilled and trained manpower which brings success and
stability to a business unit. HRM programmes offer long term benefits to an
organization.

11
Characteristics of Human Resource Management:

(1). Upgrading Manpower:

HRM is basically concerned with the upgrading of manpower working

in an organization. This leads to improvement in the individual performance
of an employee and also corresponding improvement in the organizational
performance.

(2). Stress on Training:

HRM includes various schemes arranged for providing education,

guidance, training and opportunities to learn and develop employees of all
categories and working in different departments. There is an integrated use
of sub-systems (training, career developments, organizational development)
in the HRM programme.

(3). Attention to learning and career development:

Learning, self-development, career development and possible through

HRM programmes. These are the core areas of HRM. Career development is
possible through joining training courses, reading books and periodicals.

12
Learning and career development raise the capacity of employees to work at
highest levels. They are given higher positions with monetary benefits.

(4). Organizational Development:

HRM includes organizational development, which includes effective

communication within the organization, coordination of different activities,
elimination of conflicts of different types and creation of orderly atmosphere
in the whole organization.

(5). Team Spirit:

HRM is basically for developing team spirit in the whole organization.

For this, departments and levels of management are properly integrated.
Team spirit facilitates orderly growth of the organization in the right
direction.

(6). Huge spending by Management:

All companies invest huge money on HRM activities but such

expenditure is absolutely essential for survival in the present competitive
business world. HRM programmes create matured, skilled and efficient
manpower, which is a valuable asset of a business unit.

13
(7). Termination of Employment:

Termination is an unpleasant part of any manager’s job. Employees

occasionally must be terminated for breaking rules of failing to perform
adequately.

(8). Continuous Activity:

HRM is rightly treated as a continuous activity due to new

developments taking place regularly in the business world. For this, on the
job and off the job training programmes are introduced from time-to-time.

(9). Wide Scope:

The scope of HRM programmes is very vast. It is multi-disciplinary in

character. Training and guidance are given on different aspects of business
management to enable managers to deal with complex managerial problems
and challenges.

14
NEED AND IMPORTANCE OF HUMAN RESOURCE
MANAGEMENT:

(1). To create stable labour force:

HRM programmes are needed in order to create stable, efficient, skilled

and matured manpower required by an enterprise for the present and future
period.

(2). To update the quality of manpower:

HRM activities are needed for updating the quality of manpower as per
the growing and changing needs of an enterprise. This avoids managerial
obsolescence. Even the vacancies at higher levels can be filled in internally
due to HRM programmes as they provide training and opportunities of self-
development to employees working at lower levels.

(3). To develop strength for survival:

HRM programmes are necessary for survival in the present competitive

marketing environment. An enterprise can face market competition only by

15
improvimg quality, reducing costs and avoiding wastages. All this is
possible through HRM.

(4). To face challenges of technological changes:

Technological changes are taking place rapidly in every area of

business. HRM programmes are needed in order to absorb technological
changes taking place with speed. In fact, introduction of new technology,
computers, automation, etc. will not be possible unless training is provided
to the manpower.

(5). To satisfy the demand of self-development of employees:

HRM is needed to meet the needs of employees in regard to self-

development and career development aspirations. Employees demend,
training facilities, refresher courses, promotions and transfers, career
guidance, etc. for their self-development. HRM programmes are needed to
fulfill self-development and career development of employees.

(6). To meet future manpower needs:

HRM is needed to meet the future manpower needs of the organization.

Executives, managers, supervisors leave the job or retire due to age factor.

16
Competent juniors must take their positions. HRM is needed in order to keep
ready a team of competent managers as a second line of defence.

(7). To facilitate expansion and diversification:

HRM activities are needed to meet the manpower requirements resulting

from expansion and diversification programmes undertaken at the enterprise
level. Attention should be given to HRM much before the introduction of
expansion programme.

(8). To utilize production capacity fully:

HRM is needed in order to use the available production capacity to the

optimum level. It provides skilled manpower for this purpose.

17
SCOPE OF HUMAN RESOURCE MANAGEMENT:

(1) Training:

Training is an essential element of HRM. This develops skills and

capacity to work at higher levels and positions. Training is possible
by different methods. It is useful for self-development and career
development.

(2). Performance Appraisal:

Performance appraisal is an important area of HRM. The purpose of

performance appraisal is to study critically the performance of an
employee and to guide him to improve his performance. An employee is told
about his strengths and weaknesses and assistance is given to remove
weaknesses and make the plus points more strong. This technique is useful
for building a team of capable employees and is also used for their self-
development.

(3). Potential Appraisal:

It relates to the study of capabilities of employees. It is useful for proper

placement and career development of employees. Potential appraisal of

18
employees is useful for developing their special qualities, which can be used
fruitfully along with the expansion and diversification of activities of the
company. Potential appraisal is possible by the superior with the help of
different methods.

(4). Career planning and development:

Under HRM employees should be given guidance for their self-

development and career development. The opportunities likely to develop
in the organization should be brought to their notice. They should be
motivated for self-development, which is useful to the organization in the
long run. Superiors are supposed to provide information and guidance to
their juniors in this regard. Career development is an integral part of
HRM.

(5). Employees welfare:

Employees welfare is within the scope of HRM. Welfare facilities are

useful for creating efficient and satisfied labour force. Such facilities raise
the morale of employees. Employees welfare include the provision of
medical and recreation facilities, subsidized canteen, free transport and
medical insurance. Such facilities support training and other measures
introduced for HRM.

19
(6). Rewards and incentives:

HRM includes provision of rewards and incentives to employees to

encourage them to learn, to grow and to develop new qualities, skills and
experiences which will be useful in the near future. Reward is an
appreciation of good work. It may be in the form of promotion, higher salary
or higher status. Rewards and incentives motivate employees and raise their
morale.

(7). Organizational development:

HRM aims at providing conflict-free operations throughout the

organization. It also keeps plans ready to deal with problems like
absenteeism, turnover, low productivity or industrial disputes.

(8). Quality of work life:

Quality of work life depends on sound relations between employers and

employees. A forward looking policy on employee benefits like job security,
attractive pay, participative management and monetary and non-monetary
rewards will go a long way in improving the quality of work life helps
employees to strike an identity with the organization.

20
(9). Human resource information system:

Such system acts as an information bank and facilities human resource

planning and development in a proper manner. It facilitates quick decision
making in regard to HRM. Every organization has to introduce such system
for ready reference to HRM matters. Updating of such information is also
essential.

21
HUMAN RESOURCE MANAGEMENT SYSTEMS:

Human Resource Management Systems (HRMS, EHRMS), Human

Resource Information Systems (HRIS), HR Technology or also called
HR modules, shape an intersection in between human resource management
and information technology. It merges HRM as a discipline and in particular
its basic HR activities and processes with the information technology field,
whereas the planning and programming of data processing systems evolved
into standardised routines and packages of enterprise resource planning
(ERP) software. On the whole, these ERP systems have their origin on
software that integrates information from different applications into one
universal database. The linkage of its financial and human resource modules
through one database is the most important distinction to the individually
and proprietary developed predecessors, which makes this software
application both rigid and flexible.

The HR function's reality

All in all, the HR function is still to a large degree administrative and

common to all organisations. To varying degrees, most organisations have
formalised selection, evaluation, and payroll processes. Efficient and
effective management of the "Human Capital" Pool (HCP) has become an
increasingly imperative and complex activity to all HR professionals. The
HR function consists of tracking innumerable data points on each employee,
from personal histories, data, skills, capabilities, experiences to payroll
records. To reduce the manual workload of these administrative activities,

22
organisations began to electronically automate many of these processes by
introducing innovative HRMS/HCM technology. Due to complexity in
programming, capabilities and limited technical resources, HR executives
rely on internal or external IT professionals to develop and maintain their
Human Resource Management Systems (HRMS). Before the "client-server"
architecture evolved in the late 1980s, every single HR automation process
came largely in form of mainframe computers that could handle large
amounts of data transactions. In consequence of the high capital investment
necessary to purchase or program proprietary software, these internally
developed HRMS were limited to medium to large organisations being able
to afford internal IT capabilities. The advent of client-server HRMS
authorised HR executives for the first time to take responsibility and
ownership of their systems. These client-server HRMS are characteristically
developed around four principal areas of HR functionalities: 1) "payroll", 2)
time and labour management 3) benefits administration and 4) HR
management.

The payroll model: automates the pay process by gathering data on

employee time and attendance, calculating various deductions and taxes, and
generating periodic paycheques and employee tax reports. Data is generally
fed from the human resources and time keeping modules to calculate
automatic deposit and manual cheque writing capabilities. Sophisticated
HCM systems can set up accounts payable transactions from employee
deduction or produce garnishment cheques. The payroll module sends
accounting information to the general ledger for posting subsequent to a pay
cycle.

23
The time and labour management module: applies new technology and
methods (time collection devices) to cost effectively gather and evaluate
employee time/work information. The most advanced modules provide
broad flexibility in data collection methods, as well as labour distribution
capabilities and data analysis features. This module is a key ingredient to
establish organisational cost accounting capabilities.

The benefit administration model: permits HR professionals to easily

administer and track employee participation in benefits programs ranging
from healthcare provider, insurance policy, and pension plan to profit
sharing or stock option plans.

The HR management module: is a component covering all other HR

aspects from application to retirement. The system records basic
demographic and address data, selection, training and development,
capabilities and skills management, compensation planning records and
other related activities. Leading edge systems provide the ability to "read"
applications and enter relevant data to applicable database fields, notify
employers and provide position management and position control.

Typically, HRMS/HCM technology replaces the four core HR activities by

streamlining them electronically; 1) payroll, 2) time and labour management,
3) benefit administration and 4) HR management. While using the internet

24
or corporate intranet as a communication and workflow vehicle, the
HRMS/HCM technology can convert these into web-based HRMS
components of the ERP system and permit to reduce transaction costs,
leading to greater HR and organisational efficiency. Through employee or
manager self-service (ESS or MSS), HR activities shift away from paper
based processes to using self-service functionalities that benefit employees,
managers and HR professionals alike. Costly and time consuming HR
administrative tasks, such as travel reimbursement, personnel data change,
benefits enrolment, enrolment in training classes (employee side) and to
instruct a personnel action, authorise access to information for employees
(manager's side) are being individually handled and permit to reduce HR
transaction time, leading to HR and organisational effectiveness.
Consequently, HR professionals can spend fewer resources in managing
administrative HR activities and can apply freed time and resources to
concentrate on strategic HR issues, which lead to business innovation.

25
THE TWO THEORIES WHICH SUPPORT HUMAN
RESOURCE MANAGEMENT.

THEORY X AND THEORY Y

Theory X and Theory Y are theories of human motivation developed by

Douglas McGregor at the MIT Sloan School of Management in the 1960s
that have been used in human resource management, organizational
behavior, and organizational development. They describe two very different
attitudes toward workforce motivation. McGregor felt that companies
followed either one or the other approach.

Theory X

In this theory management assumes employees are inherently lazy and will
avoid work if they can. Because of this workers need to be closely
supervised and comprehensive systems of controls developed. An
hierarchical structure is needed with narrow span of control at each level.
According to this theory employees will show little ambition without an
enticing incentive program and will avoid responsibility whenever they can.

According to McGregor, most managers (in the 1960s) tend to subscribe to

Theory X, in that they take a rather pessimistic view of their employees. A
Theory X manager believes that his or her employees do not really want to
work, that they would rather avoid responsibility and that it is the manager's
job to structure the work and energize the employee. The result of this line
of thought is that Theory X managers naturally adopt a more authoritarian
style based on the threat of punishment.

26
Theory Y

In this theory management assumes employees are ambitious, self-

motivated, anxious to accept greater responsibility, and exercise self-control
and self-direction. It is believed that employees enjoy their mental and
physical work activities. It is also believed that employees have the desire to
be imaginative and creative in their jobs if they are given a chance. There is
an opportunity for greater productivity by giving employees the freedom to
be their best.

A Theory Y manager believes that, given the right conditions, most people
will want to do well at work and that there is a pool of unused creativity in
the workforce. They believe that the satisfaction of doing a good job is a
strong motivation in and of itself. A Theory Y manager will try to remove
the barriers that prevent workers from fully actualizing their potential.

McGregor and Maslow's hierarchy

McGregor's work was based on Maslow's_hierarchy_of_needs. He grouped

Maslow's hierarchy into "lower order" (Theory X) needs and "higher order"
(Theory Y) needs. He suggested that management could use either set of
needs to motivate employees but that better results could be obtained by
meeting the Theory Y needs.

27
Characteristics of the X Theory Manager

• Results-driven and deadline-driven, to the exclusion of everything

else
• Intolerant
• Issues deadlines and ultimatums
• Distant and detached
• Aloof and arrogant
• Elitist
• Short temper
• Shouts
• Issues instructions, directions, edicts
• Issues threats to make people follow instructions
• Demands, never asks
• Does not participate
• Does not team-build
• Unconcerned about staff welfare, or morale
• Proud, sometimes to the point of self-destruction
• One-way communicator
• Poor listener
• Fundamentally insecure and possibly neurotic
• Anti-social
• vengeful and recriminatory
• Does not thank or praise
• Withholds rewards, and suppresses pay and remunerations levels
• Scrutinises expenditure to the point of false economy
• Seeks culprits for failures or shortfalls

28
 • Seeks to apportion blame instead of focusing on learning from the
experience and preventing recurrence
• Does not invite or welcome suggestions
• Takes criticism badly and likely to retaliate if from below or peer
group
• Poor at proper delegating - but believes they delegate well
• Thinks giving orders is delegating
• Holds on to responsibility but shifts accountability to subordinates
• Relatively unconcerned with investing in anything to gain future
improvements
• Unhappy

Managing an X Theory boss

Working for an X Theory boss isn't easy - some extreme X theory managers
can be extremely unpleasant - but there are ways of managing these people
upwards. Avoiding confrontation (unless you are genuinely being bullied)
and delivering results are the key tactics.

Theory X managers (or indeed theory Y managers displaying theory X

behaviour) are primarily results oriented - so orientate your own discussions
and dealings with them around results - ie what you can deliver and when.

Theory X managers are facts and figures oriented - so cut out the incidentals,
be able to measure and substantiate anything you say and do for them,
especially reporting on results and activities.

29
Theory X managers generally don't understand or have an interest in the
human issues, so don't try to appeal to their sense of humanity or morality.
Set your own objectives to meet their organisational aims and agree these
with the managers; be seen to be self-starting, self-motivating, self-
disciplined and well-organised - the more the X theory manager sees you are
managing yourself and producing results, the less they'll feel the need to do
it for you.

Always deliver your commitments and promises. If you are given an

unrealistic task and/or deadline, state the reasons why it's not realistic, but be
very sure of your ground, don't be negative; be constructive as to how the
overall aim can be achieved in a way that you know you can deliver. Stand
up for yourself, but constructively - avoid confrontation. Never threaten or
go over their heads if you are dissatisfied or you'll be in big trouble
afterwards and life will be a lot more difficult.

If an X theory boss tells you how to do things in ways that are not
comfortable or right for you, then don't question the process, simply confirm
the end-result that is required, and check that it's okay to 'streamline the
process' or 'get things done more efficiently' if the chance arises - they'll
normally agree to this, which effectively gives you control over the 'how',
provided you deliver the 'what' and 'when'. And this is really the essence of
managing upwards X theory managers - focus and get agreement on the
results and deadlines - if you consistently deliver, you'll increasingly be
given more leeway on how you go about the tasks, which amounts to more
freedom. Be aware also that many X theory managers are forced to be X
theory by the short-term demands of the organisation and their own

30
superiors - an X theory manager is usually someone with their own
problems, so try not to give them any more.

Criticisms

Today the theories are seldom used. They are thought to express extreme
positions that are not realistic. Most employees fall somewhere in between
these extremes and the theories are of little help in everyday human resource
management decisions. However Theory X and Theory Y are still important
terms in the field of management and motivation. Recent studies have
questioned the rigidity of the model, but McGregor's X-Y Theory remains a
guiding principle of positive approaches to management, to organizational
development, and to improving organizational culture.

31
HUMAN RESOURCE MANAGEMENT IN
BANKING:

What is a Bank?

The word bank is derived from the Italian banca, which is derived from
German language and means bench. The terms bankrupt and "broke" are
similarly derived from banca rotta, which refers to an out of business bank,
having its bench physically broken. Money lenders in Northern Italy
originally did business in open areas, or big open rooms, with each lender
working from his own bench or table.

The essential function of a bank is to provide services related to the storing

of deposits and the extending of credit. The evolution of banking dates back
to the earliest writing, and continues in the present where a bank is a
financial institution that provides banking and other financial services.
Currently the term bank is generally understood as an institution that holds a
banking license. Banking licenses are granted by financial supervision
authorities and provide rights to conduct the most fundamental banking
services such as accepting deposits and making loans. There are also
financial institutions that provide certain banking services without meeting
the legal definition of a bank, a so called non-bank. Banks are a subset of the
financial services industry.

Human resource management (HRM) has long been overlooked in the

corporate sector in the country where a small section, comprising mostly the

32
multi-national companies was practising the same.

With the growing realization of proper HRM in the corporate sector, it has
grown into an important activity. Now the head of HRM is an important
member of the senior teams of any thriving business.

Although the idea is new for many local businesses where entrepreneurs are
at the beginning of the learning curve yet in reality the theme is getting
support from the organized entrepreneurs.

The banking sector has grown from a few institutions primarily involved in
deposit acceptance and trade finance into a complex multi player markets
where large number of commercial banks, financial institutions and
specialized banks are operating with various products and activities.

The banking has become a complex activity within the financial market
linked directly and indirectly with an over-all national growth and its impact
as an integral part of regional segment of a global banking environment.

Almost every bank and financial institution is involved in various functions

in a day's job and thus requires a highly effective team and appropriate
manpower to run the show. Corporate goals are translated into viable
realities and profits only with human element who play their due role in
achieving the desired results.

Thus even the high automation would require proper man behind the
machine to make things happen. This idea has been realized by top

33
managements in progressive banks.

Like many other organized sectors, banking requires a multi layer manpower
for its various requirements of professionals and support staff. The range
may require reasonably educated security guards on the one end and a highly
educated and trained professional as head of corporate finance at the other.

With liberalization of activities within the banking sector, for example, more
emphasis on consumer and house finance and personal loans, etc. banking
has turned itself into a more market-based business where banks have
expanded their reach more to customers' door steps in a big way making
banking more practical. This has further highlighted the need for proper
deployment of man-power to run banks efficiently.

For many years, HRM banks like other institutions have been handling this
sensitive activity through respective personnel departments. This means
human resources were managed like other physical assets e.g. pieces of
furniture, calculators, equipment and appliances.

Personnel departments were primarily engaged in approval of leaves,

handling of staff loans, issuance of show cause, conducting disciplinary
enquiries and termination from service.

Recruitment was a routine function and was done in a mechanical way to

hire people with specific educational background irrespective of their real
value to the institution.

34
Success stories of large banking companies have been evident of the fact
that HRM is quite different from management of physical assets. Human
brain has its own peculiar chemistry.

Its strong sensory and decision-making capacity has to be greatly

emphasized by the employers. The work force constituting all levels of
employees are constantly thinking in many dimensions.

On the one hand it is the assigned duty and task they are to perform and for
which they are paid by their employer, on the other they think of their long
run goals and objectives.

By no means, their brains can be controlled to think beyond the current

situation of employment. Managing this educated, skillful and trustworthy
work force is not an easy job. A few of the current challenges faced by the
banking industry in terms of human resource management may be the
following:

35
CHALLENGES FACED BY THE BANKING
INDUSTRY IN TERMS OF HUMAN RESOURCE
MANAGEMENT:

(1). Effective work force:

A time-consuming and hectic job is to hunt the right talent. Its just sitting by
the river and waiting for the right fish to catch. Higher the professional value
of the vacancy, tougher is the search.

Identifying the right stuff followed by negotiation is the element which

makes the job tough for the employer. Banks are keenly interested to fill up
two types of breads of professionals.

Ones who are outstanding professionals with high job hopping attitude -
these are those who come in - work for some time and then leave for better
prospects. Others are those who are keenly picked-up, trained and are some
how retained to be developed as future management within the bank.

Management trainees are a growing popular phenomenon where freshly

qualified business graduates are engaged by banks and a certain percentage
of these well equipped professionals stay back within the organization to
grow into the footsteps of senior managers.

Banking jobs being apparently lucrative for many, attract a large number of
candidates against advertised vacancies in media creating a large data base

36
management problem. This has been facilitated by specialised hiring
agencies who may take up the job of hiring in case of large number of
vacancies.

(2). Right people:

The most difficult agenda of HRM across the banking sector is to retain the
right people. Sudden growth of retail banking and other services has put
pressure on HR mangers in banks to engage more professionals within
shorter span of time thereby attracting manpower in other banks on attractive
packages has made the job market very competing.

A bank in a normal course invests time and money to hire and train the
appropriate work force for its own operations. This ready-made force is
often identified and subsequently picked-up on better terms by others.

(3). Compensation:

How much to pay to the right employee and how much to the outstanding
performer. Banks have traditionally followed pay scales with predetermined
increments, salary slabs, bonuses and time-based fringe benefits like car and
house advance, gratuity, pension, etc.

The situation is not the same anymore. An increment of Rs500-800 per

annum is no more a source of attraction for a professional anymore. A basic
pay with traditional formulas of linkage with medical and other facilities has
no soothing effect today.

37
A promise of future growth, learning culture and corporate loyalty is out of
dictionary and does not mean anything to this energetic and competent
performer today.

A waiting period of 3-4 years in each cadre haunts the incumbents who
strongly believe in immediate compensation. There are examples to this.
Thanks to the car financing modalities car is no more a fantasy item any
more.

A freshly hired professional requires a brand new car or car loan on

resuming office quite contrary to his previous breed of bankers who would
wait for the job seniority to qualify for a car loan.

(4). Job satisfaction:

Everybody in the bank wants to work in the preferential department,

preferential location, city of his own choice and boss of his liking. An
administrative deviation from any of these results in lowered job
satisfaction.

Although hiring is normally based on regional requirement matching the

area of activity with that of employee's nativity yet other elements like
appointment in the department of choice and preference makes the job of
HR manager quite challenging.

What the HR manger cannot afford is the dissatisfied employee who not

38
only disrupts the smooth working himself but also spreads the negativity to
others by his de-motivated attitude.

(5). Morale boosting:

What has long been overlooked is the morale boosting of the employees by
the organizations. Human beings even if satisfied of material well being
need to be appraised and encouraged constantly.

Smart banks have realized this need and have taken steps to keep their work
force motivated through proper encouragement like man of the month
awards, repeat get-togethers, conferences, sports events, dinners, company
sponsored travel, reunions, etc. This is the way employees create a feeling of
belongingness.

39
AN EXTRACT FROM A LECTURE ORGANIZED
BY THE ACADEMY OF BANKING AND FINANCE

Following is an extract from a lecture given by Milos Tucakovic who is

the Head of the Personnel and Training Division at the Hyatt Regency
Hotel in Belgrade. This lecture was held in NBS and it was organized by
the Academy of Banking and Finance.

Milos Tucakovic, the Head of the Personnel and Training Division at the
Hyatt Regency Hotel in Belgrade, was the guest lecturer at the round table of
HR managers in the banking sector, held in NBS and organized by Academy
of Banking and Finance. Mr. Tucakovic presented his experience in
managing human resources in the 5-star hotel, 51 percent owned by the
famous Pritzker family and 49 percent owned by domestic shareholders, to
HR division managers from Serbia’s commercial banks and the central bank.
Adaptation of world standards to domestic conditions and local culture,
main corporate culture values and personnel quality standards required in
this prestigious hotel were only some of the issues addressed by Milos
Tucakovic in his lecture.

Human resources management, presented from the viewpoint of top-level

international hotel industry, raised some new questions for banking sector’s
HR division managers who displayed interest in evaluating other managers’
experiences and possibly applying them in their future work. HR Manager,
Milos Tucakovic, pointed out that the specific advantage of his hotel’s
forming part of a world chain of luxury hotels provides an opportunity for
exchanging first-rate trainers and the simple option of professional training

40
abroad. The management of the Hyatt Regency Belgrade Hotel tends to
recruit its management personnel from the ranks of its own employees
whose characteristics, work, performance and professional training
demonstrate that they are ready to accept new challenges. Aside from
divisional training, intended for facilitating the performance of specific
tasks, all employees attend a compulsory training programme in the course
of which they become acquainted with the company and the hotel, hygiene
and general work safety standards, telephone communication skills,
provision of first-rate services, complaint resolution, selling skills.

Since the Hyatt Regency Belgrade was one of the first companies in this
region to invest in personnel selection and training in the modern sense, it
was interesting to learn about the characteristics required and developed in
its personnel.

“Main characteristics required in all employees are energy, adaptability,

communicativeness, commitment to clients/accuracy in work, honesty, team
spirit, collegiality and punctuality. In addition to the foregoing, managers are
required to have the following skills: ability to implement changes, to make
decisions, to plan and view things in the long-term, to motivate others,
develop their staff, organize work, be acquainted with the market and the
business environment, have the ability to solve problems and be acquainted
with the company procedures,” Milos Tucakovic pointed out.

The management and the owners of the Hyatt Regency Belgrade Hotel
believe that training is a type of employee benefit; hence, in addition to
various forms of training, the hotel also offers “Hyattrack”, the program of

41
independent development of managers requiring the candidate to exercise
self-initiative.

The high level of services and business practice for which the Hyatt chain of
hotels is recognizable worldwide is also maintained by means of the
“Mystery Guest Audit” institution, which practically means the
unannounced visit by a “phantom” guest, as this visitor is called in the
Hyatt. This guest, whose identity and time of coming is not known, is a
person from the company who conducts an unannounced check of
compliance with standards.

It should also be noted that commendations by guests are taken into account
when evaluating employees, but with a view to providing an equal
opportunity for all employees, there are always two employee recognition
lists: one encompassing front-office personnel, who are in direct contact
with guests, and the other one including back-office personnel whose work
is also crucial for the proper functioning of the system.

42
The First Roundtable of Commercial Banks’ HR
Managers

The newly founded “Academy of Banking and Finance” has organized the
first in the series of planned round tables for HR managers working in the
banking industry. The meeting took place in the NBS Villa in Topcider on
16 September with representatives of 28 commercial banks. The HR
Managers were welcomed by Mr. Wolfgang Rautenberg, Senior Adviser in
the NBS, and Aleksandara Lujic and Jasmina Milosevic from the NBS. Mr.
Rautenberg said that the Academy, as a joint venture of the National Bank,
commercial banks and the Association of Serbian Banks, would particularly
assist in creating a joint strategy for the development of human resources in
this field, and would also facilitate daily work for the managers taking care
of the employees in the banking and finance industry.

Mr. Rautenberg explained that the training to be offered to commercial

banks would primarily insist on the English language as the language of
banking, on adequate computer literacy, communication skills and specific
banking knowledge. The topics to be focused on within banking education
would comprise basics of international banking and finance,
interdependencies between the central bank and commercial banks, relations
with international institutions and modern banking systems. In addition,
special attention would be devoted to retail, corporate and investment
banking, as well as mortgages and insurance business.

Besides satisfaction of eventually meeting their colleagues from other banks,

HR managers also expressed interest in exchange of experience, in the

43
manner of organizing human resources and in education of employees in the
banking industry. They also stressed the need to find out more about
evaluating staff performance, efforts and availabilities and about motivation
and stimulation systems in business environment. The other topics of their
concern included the most reliable headhunting criteria, i.e. choice of new
professionals for the bank, but also the most desirable ways of parting with
employees who failed to meet the expectations or had to be made redundant.
The need for general managers to increase their awareness of the
significance of HR operations and investments in human capital was singled
out as a vital aspect of the education.

Mr. Rautenberg also emphasized the importance of training for managers,

especially with respect to managing people and organizations, together with
acquiring international presentation skills. “It is up to you to change the
image of the HR sector into what it really is – and that is much more than
just administration, as it is often mistakenly thought” Mr. Wolfgang
Rautenberg underlined in his address to the commercial banks’ HR
managers.

44
The Second Roundtable of Commercial Banks’ HR
Managers

The second roundtable of banking sector human resources managers,

attended by representatives of commercial banks, was held today by the
Academy of Banking and Finance in the NBS Villa in Topcider. Nebojsa
Janicijevic, Professor at the Faculty of Economics, gave a presentation on
“Contemporary Human Resources Management”, discussing the importance,
organization, place and role of the human resources management function
within banks.

In the course of the discussion, the participants in the roundtable emphasized

that the fundamental problem they face in their organizations on a daily
basis is how to retain young qualified personnel.

In this sense, stressing the importance of training managers in contemporary

management in this field, Professor Janicijevic pointed out that a basic
precondition for an efficient human resources management in banks is to
correct the misconceptions of bank’s management, underestimating the
significance of human resources, as well as to prevent the reduction of work
to a mere administering of working relations and transferring responsibility
to the organizational unit.

“To manage human resources means to systematically attract, use and

develop personnel with a view to realizing the objectives of the
organization,” Professor Janicijevic pointed out in the course of the
roundtable discussion.

45
ARTICLE ON CASE STUDY- WESTPAC BANKING
CORPORATION.
ARTICLE WRITTEN BY SANDRA O’NEILL.

At the July meeting of the Making Mentoring Connections Network, a case

study of the pilot mentoring program in the Westpac Banking Corporation
was presented by Niki Kesoglou, Human Resource Manager of Westpac's
Policy, Projects & Diversity Department.

Westpac's mentoring was born out of a need, expressed at focus groups of

managers and executive managers, to examine career progression and to
retain high potential people resources (particularly for female staff) within
the company.

There was an overwhelming response to circulation of a mentoring booklet

and invitation, both from people wanting to be mentors and also from
hopeful mentorees. The limited, trial nature of the pilot meant that some
people had to be turned away, but they were given assurances they would be
considered for involvement in such a program when it goes company-wide.
The pilot included 18 mentors (12 males, 6 females) and 14 mentorees (6
males, 8 females).

Bio-data sheets were issued and participants took part in mentoring skills
workshops. These workshops were augmented, two weeks later, by a "get
acquainted" breakfast.

Westpac's program was feedback-intensive. The breakfast, and also a mid-

point follow-up workshop with both mentors and mentorees, provided
opportunities for checking reactions and progress.

On-going verbal and written guidance was offered by the project manager
and coordinator. Every effort was made to stay in telephone contact with all
participants, and their comments and input acted upon. Three sets of
evaluation questionnaires (at six weeks, mid-point and project conclusion)
were also used.

46
Westpac encountered some unwillingness on the part of some mentors to
attend training. Their attitude seemed to be, "I already have communication
skills - that's why I'm a mentor."

Many satisfying outcomes of the pilot program have been observed.

Although the Westpac culture generally exhibits little gender bias, it was
agreed that the program helped improve the visibility of women in this
particular workplace.

Initial career progression indications are positive with a rise noted in the
number of internal job applications by participants, and this will need to be
tracked over time.

Mentoring relationships which cross functional areas have assisted in

breaking down barriers.

47
ROLE OF BANKS

The key performance numbers that retail bank management rely on to run
their franchise effectively are shifting along with wholesale changes in
technology, delivery channel choices, sales strategy, segmentation, and
management practices.

Managing branch effectiveness has been an elusive target for many banks
due to changing objectives, shifting resources, and varying tools that
individual bank managers use to react to the marketplace. The traditional
measures of performance that branch management has relied upon in the
past are becoming invalid since they are indicators of an obsolete
environment. In cases where solid management information is not
available, banks manage primarily by experience, based on previous
practices and existing rules.

The important issues taken from this discussion are that retail management
is searching for some solid ground in making management decisions, and
that they do not necessarily trust their own numbers.

In recent years, shifts such as the development of alternative delivery

channels, customer segmentation and the resulting targeted marketing
campaigns, a younger more electronic-minded customer base, and the
adoption of end-to-end processing in new business to simplify sales
transactions have influenced retail management. Projections showed that
these factors would lessen the reliance on the traditional branch system to
support and deliver retail performance. The thought was that by deflecting
high-value customers to private bankers and low-value service customers
to contact centers, banks would gain control of the most profitable
customers. Interestingly enough, a recent Gallup Poll (April 14 to 16,
2003) finds that 83 percent of Americans still visited their branch bank at

48
least once a month on average over the past year. Bank changes to
products, service offerings, and their approach to customer segments in
general, have yet to significantly impact (deflect) customer behaviors. The
primary responsibility of retail bank managers is to meet the service
expectations of customers.

While each bank's key management numbers are unique to its conditions,
an examination of what is changing in the industry to gain competitive
perspective is valuable. The Robert E. Nolan Company conducts an annual
Efficiency Ratio Benchmarking Study. The results provide an excellent
starting point in establishing directional shifts. The study examines
differences between high-performing banks and average banks by each line
of business. The 2003 study includes data from 36 banks, thrifts and credit
unions with assets between $ 1 and $5 billion.

The retail branch Efficiency Ratio is currently 27.1 percent for the top-tier
performers and 47.5 percent for the average of all 36 participants. The
efficiency ratio is a common banking ratio which measures the cost to
generate a dollar of revenue. It is important to understand the essential
factors that make a difference and try to put them into perspective. The
differential is significant between the top performers and the average
banks, but we must comment that a high efficiency ratio by itself for any
given bank should not be viewed as an indictment of the retail management
of that bank. It is often, simply, a function of the work processes, systems,
policies, incentives, and marketing programs that the bank has chosen to
employ. We will examine the drivers beneath the key numbers to shed
some light on what the new numbers mean.

TECHNOLOGY
Banks are taking a variety of approaches in implementing technology to
make improvements in retail delivery. The methods differ, depending on

49
the bank management's mindset toward the purpose of the software and its
valued place in the new business or service delivery processes.

Some banks are convinced that the software developers have had to
consider the effectiveness issues in their design, and see little value in
starting with process redesign. In those cases, the technology decision
starts with a traditional approach to define business requirements leading to
software selection and then implementation. Technology vendors prefer to
install their software in the easiest and most operationally effective way
possible. Vendors have become very effective in making this case. Banks
have opted to design the technology implementation process around
meeting the customers' needs and limiting the work effort required. The
challenge has been to accomplish straight-through processing in order to
eliminate potential errors and work duplication.

Most banks do not have an integrated technology solution. Often in

isolation, the "owners" of an element of the process make the system
choices for the pieces of technology they require. For example, the loan
accounting system is often in the hands of loan operations and the credit
division usually makes the credit system decisions. Branch administration
may decide on the document preparation system. Human Resources will
drive the incentive system, but sales and marketing management develop it.
The contact management system and the CRM are often the purview of
marketing. Individual system owners most often do not want to complicate
the decision to acquire and install "their system" by including total
integration of all data requirements in the process resulting in largely
disconnected technological environments.

Further, technology is not often applied to simple processes that could

reduce errors, cost and time. Retail banks sell 65 to 80 percent of their new
products to existing customers. Keeping this in full view, the new business

50
process should allow the existing core systems to populate the appropriate
customer data whenever a customer opens a new product or service.

The trend in technology is straight-through processing or electronic

integration of all the required data elements and support systems.
Independent surveys conducted by the Robert E. Nolan Company reveal
that many banks have this objective; but, to date, very few have
accomplished the connectivity in an efficient or effective manner. The few
banks that are integrated have lower time to close, lower cost, and better
quality of data elements. This advantage will certainly impact the amount
of work that a CSR (Customer Service Representative) is able to complete
on a comparative basis. An interesting discovery from the most recent
Nolan Efficiency Ratio Benchmarking Study (analysis completed july
2003) reveals that there is no correlation between a particular software
system and higher retail performance. The study examined top-tier
performers by line of business, asset size, and type of organization, without
noting any significance related to performance and system use. The
conclusion is that performance is more highly correlated to the process
design and integration of data systems.

TELLER EFFECTIVENESS
Industry data is best used as directional information, not as a true measure
of what individual banks need to achieve to realize high performance.
Teller effectiveness is an area where banks have gone through cycles over
the past 20 years. In the 1980s, the operational focus was on security
factors, including balancing. Many banks fired tellers for being out of
balance. Those banks designed their transactions to include redundant steps
to help measure and track the balancing process, including triple counting
the cash back to customers, and a practice called "backing" deposit slips
and/or withdrawal slips. Backing referred to writing the exact currencies

51
transferred on the back of the slip to potentially simplify the balancing
process later in the day (for example, ten 20s, five 10s, two 5s and five Is =
$265. 00). In these banks, the importance was on transaction accuracy. The
audit department often imposed security into the processing steps without
regard to timeliness and the service impact on customers.

Top-tier performing banks examined the value of each element of

transaction processing and found that the work expended in triple counting
and backing added 20 percent or more to the transaction time. They
conclude that this work is not cost beneficial. The following statistics from
the 2003 Nolan Efficiency Ratio Benchmarking Study show the range of
teller performance from high-performing banks to average performers.

The data demonstrates that high-performing banks handle 13 percent more

transactions per month than average banks. The relative cost per
transaction is 35 percent higher in the average banks than the high-
performing banks. Although banks need these statistics to look at teller
performance, a directional view is required. Each bank places differing
process and security time burdens on the teller position. Transaction
effectiveness is a significant factor, but other conditions can directly
influence transaction performance.

Teller performance variables can include: the impact on training; the teller
turnover rate; the actual teller performance; the opportunity to perform at a
high rate related to staffing and scheduling; the use of part-time tellers and
teller pools that can support multiple branches due to illnesses and
vacations; the customer base being serviced; communications; and, the
sales referral policies and requirements.

52
Wide variances exist in the time and effort banks put into teller training.
Some banks provide no formal training but have tellers work with a "teller
trainer" in the branch to learn the policies, procedures and systems. In these
cases, the trainer will influence the procedure with their individual biases
and not necessarily the bank's standard practices. Some banks institute a
three-week formal training process where tellers learn about the bank's
commitment to customers and how it supports the bank's strategy. They
train individual transactions in a uniform and controlled way and then, in
week four, assign them a branch teller monitor to assist in getting started.
The cost of effective training appears high on the surface; but, when
management considers that more tellers interact with customers daily than
any other position in the bank, it follows that service and transaction
training is essential to high performance. Effective training can cut errors
and help to ensure that the speed of processing is elevated through a
confident and competent staff.

The annualized teller turnover rate is typically one of the highest areas in a
bank, ranging from the mid teens in some banks to over 100 percent in
others. The national average is 33 to 35 percent. The teller turnover rate is
generally lower in a down economy. Banks that seem to have lower rates
of turnover often have practices in place to reward high performance.
Recruiting appropriate personnel from the branch location often helps in
keeping tellers with the bank longer.

Not many banks are equipped to measure the actual teller performance or
even relative performance within a branch or from branch to branch. One
of the reasons is that teller opportunities to perform are not equal. A drive-
up teller will usually handle more transactions per hour due to handling
two customers at a time and a limit on transaction types. Within the branch,
the teller at the head of the queue will service every customer in slow
periods, where a teller at either end of the teller line will not have as many

53
opportunities. To analyze real teller performance, the bank would need
sophisticated modeling to calculate customer arrivals during the tellers'
working hours along with customers in line to determine teller opportunity.
The teller position is a "customer demand" work environment and while
management sometimes uses fill-in work to help the utilization, it typically
comes down to effective staffing and scheduling.

Hundreds of teller staffing and scheduling models are available in the

marketplace, but currently there are three that have the features necessary
to model both teller and CSR positions effectively. all three have the
modeling capabilities and report generation necessary to be effective with a
diverse set of branch locations. GMT, Demos, and Exometrics all have the
required queuing models and the flexibility to place staffing and scheduling
in the hands of retail management.

Banks must factor in tailored work standards and develop scenarios that
reflect the conditions of each branch location as close as possible to reality.
The flexibility of the model used is only one element in staffing and
scheduling success. The standards and the work measured must accurately
reflect the branch conditions as believed by branch management and then
used to develop schedules. Some banks tailor standards to location-type
such as urban, rural, shopping mall, university, etc. Differences in work are
attributable to a varying mix of transaction types due to customer base,
possibly differing cashing limits for tellers due to experience or branch
characteristics, physical location of bank checks and encoding equipment,
and potential use of cash dispensers in some locations. Banks must account
for all of these differences, as well as differences due to the actual
performance of standard work. High turnover branches will have lower real
performance due to more tellers who are in a learning curve. The learning
curve for tellers is typically three months; and with a bank turnover rate of
35 percent, that can lead to lower performance in selected branches. Banks

54
can adjust the staffing model for effective service in locations with high
turnover until the time that problem is resolved. Staff modeling is a
dynamic process and the tools used should be dynamic as well.

True performance is difficult to measure without a tool to properly balance

the customer demand to the service staff hours. In low-volume locations, it
is very difficult to evaluate the performance of tellers since management
must staff to volume and allow for breaks and coverage. Often a branch
requires the equivalent of between 1.5 and 2.5 tellers per hour in remote
locations. Management may decide to utilize three full-time tellers to allow
for coverage during peaks and deliver service properly. This decision
places the teller in a position where they cannot perform on the same level
as a teller in a branch where customer demand is high and relatively
constant. The incentive system should not penalize them or it will force
even higher turnover.

In the past six years, retail banking has experienced a significant shift to
transform practices to primarily a sales orientation. Teller incentives are
largely weighted on paying for closed referrals over and above any
measure for service and productivity. This shift in many institutions has
contributed to difficulty in making any comparisons. Many banks have
trained their teller staff in how and what to refer with an expected volume
of two closed referrals per day. Incentive systems can direct tellers to
concentrate on referrals, which may also slow down the transaction
processing and resultant service levels.

The reported results from the recent Nolan Efficiency Ratio Benchmarking
Study show that top-performing banks' branch personnel are processing 13
percent more transactions per month than the average banks and are
supporting 39 percent more deposit accounts. The factors that prevent
banks from performing at the higher level relate to process efficiency,

55
policy, deployment of staff through scheduling and staffing, and the
connectivity of software. Line of business performance is determined by
how people, process and technology are deployed, not the software.

CSR EFFECTIVENESS
There are a variety of issues that impact the performance of Customer
Service Representatives (CSRs) in the current environment. Banks have
wide differences in deployment. Some will limit the activities of the
"platform staff" to strictly new business and support service. Other banks
will view the CSRs as part of the retail branch sales and service team, and
will deploy their time to sales and service first with a component of teller
support in their mix of responsibilities. Some banks will establish an
objective for outside sales asking CSRs to have involvement in community
functions in the sales effort, while other banks see marketing as having a
primary role in driving potential customers into the branch. In any event,
the key is to establish the branch objectives in line with the bank's strategic
direction. The primary activities we see CSRs handling are sales/new
business, service, branch support, and administration.

Performance is a function of how banks manage and structure time. This is

where the significance of work process has the greatest impact.
Independent studies conducted by the Robert E. Nolan Company show that
high-performing banks have a work distribution of 55 percent on sales and
account opening, 18 percent on fee and non-fee services, 8 percent on
customer problem resolution, and 19 percent on administration and other.
Average performing banks, on the other hand, see their CSRs spending
more time in problem resolution (25 percent) and less time (30 percent) in
actual sales and account opening. A factor influencing this difference in
performance is that average performing bank CSRs spend more time

56
opening individual accounts and therefore open fewer accounts per month
than the time allows.

COMPARISON BETWEEN HIGH-PERFORMING

BANKS AND AVERAGE PERFORMERS.

When we examine the details of high-performing banks versus average

performers, we discover additional detail on what drives branch
performance. The following is from the 2003 Nolan Efficiency Ratio
Benchmarking Study retail branch data.

High performing banks put on 152 new accounts per employee versus the
average bank's 139 new accounts, an increase of 9.35 percent. Looking
deeper into the data, high-performing banks open only 25 percent of new
deposits to the total deposit account balances with their efforts as opposed
to 32 percent for the average bank. When we further dissect the
information, we see the new non-time deposit account balances as a
percentage of total non-time deposit balances was 14 percent in top-tier
banks versus 20 percent on average. These measures support the
conclusion that the high performing banks do not need to open as much in
new deposit balances since they retain their existing deposits better than the
average banks. What are the underlying factors that might support this
outcome? They are likely the focus on new business in average performing
banks versus the focus on net new business in high-performing banks.

The emphasis on developing a sales culture has made a dramatic impact on

many banks. In some cases, it has literally transformed the retail banks
from "order takers" to "business development" engines. CSRs have had
their offerings expand to include insurance, investment and select deposit
products. It can be difficult to train CSRs in the relative benefits of each

57
vehicle and often the weight of the incentive to the product drives them,
not the need.

Not every bank has experienced the same success in terms of this change
translating directly to the bottom line. When banks examine the incentives
that are paid to CSRs there are a couple of telling characteristics to look
for. Many banks base incentives on the first sale, meaning banks are paying
for every new account regardless of how it was sold. The customer could
have been inclined to set up the account prior to walking into the branch, or
the CSR could have sold the account based on its features. Successful
banks establish both branch and individual sales thresholds before
incentives are earned.

A second element to consider is what the bank is strategically trying to

achieve-net new business. In many of the campaigns and programs, booked
new business is the only criteria, not what it has achieved in terms of net
bottom line. The subliminal message is that servicing existing customers is
not as important to achieving individual or bank goals leading to service
time spent on difficulties booking new business correctly and not primarily
servicing existing customers. Not every bank or branch location has the
same potential for growth in their marketplace, so they should model each
location on its individual characteristics and opportunity for growth. The
development of excellent market data has greatly assisted the banks who
understand where to place their sales and service emphasis.

Segmentation of the market is significant since it is not so much a measure

of the actual effort as where the effort is extended. Today over 400 CRM
models are on the market, and the tools are more affordable with greater
applications. Deployment is as much a part of the success of the tools as it
is with any technology. Often the marketing teams concentrate on a
specific use and not on developing market intelligence. For example, the

58
data may help banks to determine which customers have a product, but
unless they understand why the customer has that product, they may miss a
targeted marketing opportunity. The reason may be due to the specific
product offering which may not convert to an interest in other product
offerings. Applying science and analytics to the data suggests that the most
pertinent information will lead to selling new products to existing
customers.

This analysis also applies to the possible loss of customers. In this way,
banks may prevent the attrition of their customer base. Banks that see a gap
in their product offering often rush to put together a campaign before
understanding the potential customer acceptance and impact on existing
work processes. Often this happens with HELOC campaigns and the CSRs
cannot meet customer service expectations. This is an example of short-
term application with a potentially long-term strategic tool.

The work processes are as significant to the overall time success as any
factor in the performance equation. Many new business processes are
burdened at the point of the CSR, with too many unconnected information
inputs. As mentioned earlier, it is common that 65 percent to 80 percent of
new sales are due to existing customers, but ironically, processes are not
structured to take advantage ofthat information in an automated way. Often
banks profess to have their process integrated, but rather have a series of
largely manual steps.

For instance, they take an application for a retail loan and submit it for
credit approval. It is common to find that the input form or screen for credit
differs from the loan application, thus requiring a separate input. When the
loan is approved, there is a separate input form or screen for document
preparation. In many cases, the CSR needs to prepare a separate document
to show that they have properly completed an assessment of the customer's

59
full investment, loan and deposit account needs with an entirely separate
input form and screen. After the loan is approved, a separate incentive form
or screen may need to be completed. Lastly, separate boarding documents
get the loan booked on the accounting system. Every step in the process
may be thought of as employing technology, but without integration, it
requires multiple inputs of the same information. A significant portion of
CSR effectiveness is in the details of the process.

The staffing and scheduling element has as much to do with success in

CSR effectiveness as with teller effectiveness. Banks should utilize the
proper information to determine how many CSRs are deployed, and see
that they have the right tools and products to be successful. Unfortunately,
very little science has been applied to the CSR position in banks, and this is
where the sales service face is presented to the customer and potential
customer base.

SUMMARY
The findings noted here from the 2003 Nolan Efficiency Ratio
Benchmarking Study should not be surprising to most bankers since the
behavioral basis today is basically the same in the top-performing banks as
it has been for decades. What makes the difference between the top-
performing retail banks and the average performers is the way they design
and deploy their resources to achieve sales and service goals for their
customers. The numbers tell a story over time. The comparative gap in
efficiency ratio between the top performers, 27.1 percent, and the average
bank, 47.5 percent, is significant at 20.4 percent. Interestingly, of the 20.4
percent gap, the personnel cost gap is 10 percent and the other operating
expenses is 10.4 percent.

The ways people, processes and technology are designed, integrated and
deployed make the difference. The analysis conducted in the annual Nolan

60
study of the top-performing banks year after year shows that improvements
are ongoing-thai is what makes a single target elusive. The key to success
is to understand that policy, process, technology and deployment should be
the source of your measures and the basis for your improvement
opportunities.

61
 ACKNOWLEDGEMENTS
I Tulika Alva, the student of Jai Hind College pursuing my third year of
Bachelor of Management Studies (T.Y.B.B.I.), am very grateful to a lot of
people for guiding and helping me in the right direction throughout my
project.
First of all, I would like to sincerely like to thank Ms. Minu Madlani, our
co-ordinator for assisting in the project whenever help was required.

62