ICICI Bank Limited Operations Management
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Published: Tue, 05 Dec 2017
ICICI bank Ltd is largest private sector bank in India. ICICI bank offers large range of financial product and services. Retail banking section of ICICI bank is departmentalised into three units namely branch banking, sales and operations. Regional processing centre (RPC) under operations unit is responsible for processing and implementation of products and services offered by bank for allocated geographical region.
With huge customer base and large number of services offered, operations unit has to frequently face fluctuation in processing volume. As banks are dealing with huge amount of transactions under regulated environment the capacity management need to be implemented carefully while maintaining required quality standards. The essay is focused on retail liability operations unit of ICICI bank. The purpose of this essay is to critically analyse the ICICI bank’s approach for managing its capacity and coping with fluctuating volume or rather fluctuating demand with same quality.
ICICI Bank has been introduced and the sphere of analysis has been confined to retail liability section of operations unit. Overview of process at operations unit is defined by using Slack’s (2009) model of “Input-Transformation-Output”. Capacity and demand for Regional processing centre is explained. Method use by ICICI bank to calculate the capacity of operations unit and individual resource at operation unit is explained and also shown in mathematical form. Idea of effective and potential capacity is briefly introduced.
Demand -capacity mismatch is explained. Forecasting of demand is explained by divided it into long term and short term demand forecast, the demand can either be predictable as well as unpredictable. Few illustrative examples are given to show how forecast about surge in volume can be given from events that can be predicted.
Capacity management methods suggested by scholars are explained and the existing situation at bank is analysed in light of literature. It is deduced that chase demand plan is used by bank to manage capacity in short term. Use of manage demand plan by bank at certain departments under RPC is suggested.
Quality issues related to fluctuation in demand and capacity has been raised and implementation of coping strategies at bank has been explained. Finally recommendations are given to manage capacity of RPC for high demand and suggestions are given to maintain quality under fluctuating demand and capacity.
It is concluded that capacity management can affect the quality of service provided to customer under high demand and how capacity planning supported by demand forecast can help to address the issue of demand capacity match while maintaining quality of service provided
As per (Slack et al, 2009), under “Input-Transformation-Output” model branches and sales unit provide input to regional processing centre(operations unit) in the form of customer service request and processing request of financial product sold to customer. Now these inputs are processed at RPC and output is in the form of service provided to customers. For example account opening forms, term deposit request and negotiable instruments etc. processed at RPC provides the services and facility provided by bank to customer.
Though operations unit at ICICI bank is not generating business directly but efficient working of this unit ensures customer satisfaction, compliance with central bank regulations and prevention of frauds
CAPACITY AND DEMAND: Facet of Operations at ICICI Bank
According to Hill (2005) capacity of operations unit at ICICI bank can be explained as resources to process customer request in limited time frame and desired quality. The resources at RPC are combination of staff, systems and facility required to produce desired output. For example number of negotiable instruments processed per day with given resources is the capacity of payment and settlement department of RPC. Demand is the requirements of the customers to avail the service and products offered by bank.
Now, when it is clear that capacity has time dimension the variation in output is affected by all input elements to the RPC. So the variety of products and service packages offered by bank give rise to variations in the input and demand placed on the operations unit. Another aspect of the equation is to know about demand and its duration. This in turn is enclosed in a knowledge of the volume, variety, and variation in demand and in the nature of that demand (Armistead et al, 1991).
As per Slack et. al (2009) ICICI bank need to know its capacity to meet demand. If capacity is low bank will not be able to meet the demand resulting into customer dissatisfaction and if capacity is more that demand bank is paying for extra capacity. ICICI bank has a well defined method to calculate the capacity of RPC (operations unit) as well as individual staff at RPC. Bank use the method of productivity calculation to identify the capacity to meet demand generated. Processing of services at RPC is further divided into department and formed the teams to perform specific task such as payments and settlement departments, account opening team, risk containment unit, transaction team. Overall task of the team is further divided into series of small tasks, which is formalised and same for all RPC’s. After collating the inputs taken from line staff and team leads from all RPC’s bank has prepared extensive list of all the task performed at RPC and the average time required to complete particular task. Time requires to complete a particular task is termed as “Hot time”. Productivity of the individual staff is calculated as per formula:
Productivity = Hot time – Volume handled
Summation of productivity of each employee in RPC is the productivity of RPC. It is used as means to calculate capacity of RPC to handle demand generated.
Capacity of RPC will never be constant even if demand is constant. The fluctuation of demand on hourly to daily basis may be such that it can be difficult to meet demand. At ICICI bank clearing of high level negotiable instrument has to be done in small time window of four hours from opening hours of bank. For such small time frame, with fluctuation of volume it can be difficult to handle demand with existing capacity. The ability to change capacity to cope with changes in demand raises questions of the flexibility of the capacity (Slack et al, 2009). The interesting part is to find out that how an individual can increase its capacity. It can be by working hard, putting extra hours. But, as RPC is dealing with financial transaction worth Rs 150 million on daily basis standard of quality is necessary to be maintained to avoid wrong credits and compliance with regulation guideline.
To cope with the fluctuation of capacity, the idea of effective and potential capacity is useful (Lockyer et al.,1988). Effective capacity is the capacity which is available to the manager, whereas potential capacity is the capacities which can be used if manage can provide additional arrangements to increase capacity. Both are short term decisions and pertain to the team and individual level rather than to the organisation as a whole. Long term increases or decreases in capacity such as opening of new RPC and it will have impact on whole branch network under that RPC.
According to Slack et al (2010) understanding of demand and capacity fluctuation is necessary to plan for future events, else it is only to react. For capacity planning forecast is a valuable input. Demand forecasting can be long term and short term. Demand can either be predictable or unpredictable. At ICICI bank short term forecasting for operations activity is done by respective team at RPC. Unpredictable variation in demand at RPC needs to be address with well planed capacity management scheme to fulfil the gap between demand and capacity. Short term forecast is used to plan the allocation of resources to meet the expected surge in demand. Short term variation in demand at banks is mostly predictable though not with exact figures but a fair assumption of demand can be made by evaluating historical data and trends as well as prevailing market situation. Example of negotiable instrument processing team is taken to illustrate the probable factors influencing fluctuation in demand, factors can be
Holiday for few days in row-It will increase demand
Natural calamity- It will decrease demand
Financial year opening-closing- It will increase demand
Launch of popular IPO- It will increase demand
Monthly payment cycle for payment of advances- It will increase demand
Though this is not extensive list but it provides the rough idea of factors influencing fluctuation in demand. Similarly, at the time of campus recruitments bank can expect surge in salary account opening activity, increase in rate of interest on deposits will increase demand for term deposit requests and increase in workload at transaction department at last week of the month for salary credit process.
Volume can be used as statement of the trend in demand over a period of time. Long term forecast of demand is based on different standard forecast models. These forecast models are based on different set of assumption (Hill, 2005). Apart from these assumptions there are few more factors such as macroeconomic factors, planning to use new technology etc. Forecast can never be accurate all the times .Over estimation of demand in forecast can lead to unnecessary expenditure on increasing capacity (Slack et al, 2009)). At ICICI bank long term estimation of demand is done at centralised unit keeping in mind the implementation of new technology, expected market share, change in regulation by central bank (Reserve bank of India) and quality of service offered by competitors etc.
“Capacity management is concerned with the matching of the capacity of the operating system and the demand placed on that system.” (Wild, pg304, 2002). Capacity management is the way to balance demand from customers and the capacity of the RPC to meet the demand. Capacity management gives high emphasis on understanding the nature of demand by forecasting and on managing capacity to meet demand (Lovelock, 1984). Demand capacity mismatch is the issue which operations unit at bank has to handle frequently. According to Slack et al (2009) there are three plans available to tackle the issue of demand capacity mismatch, most of the organisations will use mixture of all the plans according to requirement of business. The plans are:
Level capacity plan
Chase demand plan
Manage demand plan
Level capacity plan:
In the level capacity plan capacity remains same throughout the planning period even if demand forecast is fluctuating (Slack et al, 2009). In case of ICICI bank if capacity level is maintained uniform and if demand is high quite high from base level capacity. Bank will not be able to fulfil the service level promised to customer. In case of low demand bank will end up paying extra for underutilised resources. ICICI bank cannot afford level capacity plan, as opportunity cost for bank for not fulfilling demand may lead to breach of central bank regulations.
Chase demand plan:
Chase demand plans try to match the capacity with change in demand. This plan can be reactive as well as proactive. If fluctuation in demand is unpredictable then change in capacity will be the reactive measure to match the demand. Chase will be proactive or well planned if fluctuation in demand can be predicted. Level of capacity can be controlled by changing the extent of resources by:
Sharing of capacity between different departments at RPC.
At ICICI bank, increase in volume at one department is handled by sharing the responsibility with members of other department handling comparatively low volume. This arrangement is suggested to be most efficient by Slack et al (2010).
Using vendor support for less critical service: complying with banking regulation.
At times of high volume at payments and settlement department activity like data entry of negotiable instrument and image capturing and encoding can be given to existing vendors in market. As banking is highly regulated sector, critical activities like credit and debit verification cannot be outsourced and it has to be done by bank official above certain specified grade.
Shifts planned to cater peak volume of the day
Working hours at ICICI bank is 12 hours, whereas working hour for each employee are nine hours. Each department at RPC has different peak time. For example payments and settlement department has peak volume at two different time first at around 10A.M. when high value cheques are verified and sent for clearing at around 11 A.M and another at around 3 P.M when all negotiable instrument collected during the day are verified. Two shifts are so arranged that each member of team is present at office to handle both peak hour volumes.
Changing output rate.
To increase output by expecting each staff at RPC to be more productive by working fast than his normal speed. This approach can be used as temporary measure. Prolong use of this method will deteriorate the quality of work and create dissatisfaction among staff (Slack et al, 2009)
The solution suggested above for managing demand- capacity gap is used at ICICI bank, but sharing of work with resources in other department can be possible if resources in other team are well trained to work in any department. Guideline given by central bank need to be updated to all employees in all departments at RPC to make sure about that employee comply with regulation and adhere to quality standard.
The purpose of chase demand plan is to maintain capacity closely in line with effective capacity thereby trying to attain maximum efficiency and service quality.
Manage demand Plan
According to Slack et al,(2009)demand management plan is used to change the pattern of demand to match it with available effective capacity. This method is used at ICICI bank for activity in which time frame is not a limiting factor for example request for term deposit can be processed on later date by providing value dated credit.
According to Slack et al,(2009), quality needs to be understood from customer’s perspective because it is defined by customer’s expectations. At bank quality of processing is understood from customer’s point of view as well as from regulatory authority’s point of view. Managers use capacity management as a tool to minimise the trade-off between capacity to meet demand and quality of service offered.
Quality of service, quality of processing and resource capacity are important in the tactic perspective as they interrupt the ability of the bank to attain its competitive tactic described by a combination of added value and price (Bowman 1990).The importance of either quality or efficiency will to a large extent is driven by the competitive position of the Bank. If competitive advantage is gained by providing quality of service provided at comparatively high price then there will be more propensities to indulge in redundancy of capacity at times. If the bank is competing more on price then to increase capacity then is more likely that quality will take backseat. However with increasing expectations of customer for quality services ICICI bank is forced to maintain quality of service at lower prices in times of economic slowdown where bank need to maintain reputation.
The crucial dimensions are those which win customers or those which if deteriorate may cause into loss of customers (Armistead 1991). ICICI bank was not able to take care of this factor at the time to highest growth at that point bank was handling very high volume hence with mentality to manage higher demand with existing capacity back actually neglected the quality aspect of services offered. Bank soon realised that it is losing customers more than creating new customers. In 2009 ICICI bank followed the policy to reconciliation by not going for aggressively to increase market share but rather focused on increase operations excellence and cost cutting, Bank actually used capacity management techniques for cost cutting. To increase the quality standards at bank RPC’s has introduced memo system in which each error will be recorded in detail with proper root cause analysis and particular number of memo will lead to termination of employee.
IMPLEMENTATION OF COPING STRATERGY:
As the understanding of capacity management increased among service operations managers they started to balance capacity with demand. At ICICI bank operations manager started to work on capacity near breakeven point and this is the capacity where things start to go wrong. Drop in quality is observed when operating near breakeven point. We need a coping strategy which can be applicable on the short term inability to match effective with capacity and demand. As a sign to develop a coping strategy it is necessary that RPC should find its own combination of the chase and level plan by:
Improving its capability to forecast
Quality target should be well described and monitored
Setting clear capacity target for team and fluctuating productivity target for individual employee
To understand critical and hygiene dimensions of its quality (Armistead and Clark, 1991)
To understand the possible failure points in operations unit (Armistead and Clark, 1991)
To cope with demand capacity mismatch there are number of actions possible in the few coping cases:
Chasing demand plan with High Demand
In this scenario capacity is chasing demand and demand is high. With frequent extended working hours for staff at bank to meet demand it is highly probable that staff will commit error. Risk here is that quality of the service provided to customer will go down. Whereas staff frequently working under such condition will fell stressed and may quit job which is not good for employer as money and time has been invested to train the employee. To improve situation we can make extensive plan to tackle situation of fluctuating high demand by identifying particular dates on which high demand is certain and allocating resources to concerned team accordingly.
Chasing demand plan with Low Demand
It is scenario when demand is low and as capacity is chasing demand capacity will also be reduced. Since banking regulation in India does not allow part time workers in bank hence each resource is full time staff. As capacity for particular task has been reduced with decrease in demand targets are at risk. The possible actions are:
Accept it as time to rest and recover, this will help staff to be stress free.
Complete other tasks like cleaning and arrange maintenance of computer or cheque encoding machine.
Finish the tasks which do not have time limit but necessary to be completed.
Arrange interdepartmental training so that resources can be developed to support other department.
Level demand plan with High Demand
In this scenario it is not been possible to limit demand to match effective capacity. As capacity is fixed high demand will not be fully satisfied. In this case customer should be notified at time of receiving customer request that bank will not be able to process this request on time
Level demand plan with Low Demand
It is the scenario when it has not been possible to stimulate sufficient demand to match effective capacity. In this case bank should utilize the spare resources.
Transfer of resources to other maintenance tasks.
Complete the backlog generated from period when demand Is high.
For Short term fluctuation in demand resources cannot be increased at RPC. As per Indian banking regulation banks are not permitted to recruit part time staff though they can outsource the activity of data entry and image capturing and encoding of negotiable instruments. The theoretical solution given for the situation of high demand under chasing capacity plan is to transferring resources typically between back office and front office. This solution is yet not applied by ICICI bank. Sales and branch banking unit are also part of bank, using these resources in times of high demand will be the optimum use of resources available within the bank. At time of low demand interdepartmental training can be organised within the RPC, one member of each team can be nurtured to be buffer resource that can fill the place in any team in times of high demand. The recommendations given will be helpful to fully utilise the resource capacity available within the bank.
For quality maintenance issue it is suggested to conduct an audit on daily basis by taking few samples from all processed lots. As bank has started to issue memos to recorded errors, employees will try to avoid any negligence from their part as certain number of memo’s can result into termination of employee from job.
ICICI bank has separate operations unit. So the volume handled by RPC (operations unit ) is quite high and the fluctuation in demand is also very high. The positive part is that RPC has many departments. The capacity of these departments can be utilized in case of surge in demand. Proper forecast for fluctuation in demand can be addressed by planning the capacity the pitching up the resources trained to tackle the volume surge of any department. Quality of the service will not be affected as bank is keeping an extra check by mean of concurrent audit and issuance of memo on error committed by employee will keep him vigilant while performing the task. Hence demand supply match can be obtained with maintained service quality is possible with proper capacity management.
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