Business organisations worldwide are constantly evolving in their strategies to retain top performance while at the same time cutting costs to maintain a healthy balance sheet. This increased drive to improve operational efficiency has become necessary as part of the recovery drive following the disruptions of the global pandemic. Therefore, this begs the question, what can be done to improve operational efficiency in Banks?
Banks and other financial institutions are not left out in this quest for lean management. In fact, many banking industry leaders feel that they are in a form of an operational dilemma. A dilemma in which they are expected to deliver significant cost savings amid raising customer demands. And in the face of aggressive competition especially with the entrance of Fintech companies (digital disrupters), banks now are in a precarious situation that demands urgent operational strategy review or even a complete change.
Operational efficiency can be seen as the skillset or strategy for utilising the most out of the limited available resources. It involves the combination of men, material, machine, and capital and their mutual interaction in yielding the highest output level possible.
Improving operational efficiency in the banking industry also plays a role in the overall productivity of the economy. This is so because of the strategic position of banks as key economic drivers in a country. Below are some of the key strategies banks can use to improve their operational efficiency
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Key Takeaways:
- Strategic Business Restructuring: Focus on high-ROI services, streamline operations, and explore new revenue streams like gig-economy payments.
- Optimised Channel Management: Enhance customer interaction across all channels (branches, online, mobile) for improved service and cost-effectiveness.
- Rigorous Process Cost Reduction: Identify and eliminate unnecessary expenses, ensuring all costs deliver tangible value.
- Enhanced Workforce Productivity: Invest in training, implement effective performance management, and strategically outsource non-core tasks.
- Leveraging Technology and Automation: Implement self-service platforms, optimise information availability, and automate business rules for greater efficiency.
- Strengthening Stakeholder Relationships: Build strong vendor partnerships through aligned objectives and clear service-level agreements.
- Importance of Corporate Governance: Strong governance is essential for successfully implementing operational efficiency strategies.
Key Strategies on how to Improve Operational Efficiency in Banks
As already pointed out earlier, banks are facing a combination of new realities with attendant consequences for their survival. These new realities range from changing customer preferences and expectations to stiff competitions. There is also the case of new technologies that are transforming the nature and business of banking.
To overcome these challenges, banking institutions need to review and retool for the purpose of improving their operational efficiency. And this is especially imperative in light of the fact that traditional banking as we know it is now transitioning toward a digital- and technology-based model.
How Banks Can Boost Their Operational Efficiency
Business Restructuring
Improving operational efficiency in banks begins with having a comprehensive view of your bank’s service offerings. And as well as the profits margin that comes in per product or service segment. The result of this comprehensive audit will show which of your service offerings is bringing in most return on investment (ROI) and which ones are draining your resources.
Business restructuring basically means among other things, moving away from business interests and projects with low margins while focusing instead on cost-effective profitable projects. A bank for instance can decide to take a robust strategic operations audit by critically assessing the basic minimum resource investment needed to run a project competitively in a particular line of business. And this is to make sure that only viable projects are invested in.
Under this type of arrangement, a regular legacy financial institution can decide to make in-roads into non-traditional banking businesses by investing in gig-economy payment processing services and specialty financing for instance.
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Channel Optimisation
How does your customers interact with your bank? And how efficient are those channels of communication? The end goal of channel optimisation is to take an inventory of the ways customers interact with your bank and make them more productive and cost-efficient.
For example, you might have a sudden surge or demand for customer chat support as more customers tend to prefer exclusive online banking. And also, retail customers with personal accounts will likely different support needs compared to customers with large commercial accounts.
The extensive nature of your bank’s channel optimisation process will depend on the scope of your business operations. It cuts across your physical branches, online contact centers, online and mobile banking apps, ATMs as well as relationship managers. It is important to make sure that your customer relationship channels are optimised in ways that makes them more efficient in service delivery and at the same time cost-effective.
Process Cost Reduction
This involves the identification and removal of item expenditures that do not provide commensurate value to customers and the system at large. Process cost reduction should not be seen as only providing short-term savings alone. But rather as a holistic undertaking geared towards making efficient all the processes that runs an organisation. This approach to process cost reduction makes it possible to be sustained for a long term.
For banks, process cost reduction means that every cost must be “held accountable”. The cost of opening an account, creating a loan package document, handling a specific type of transaction, etc. must be optimised to reflect prudence and efficient service delivery.
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Workforce Productivity
Workforce efficiency and productivity are the key drivers of operational efficiency in the banking industry. It is true that skillset capacity training and expansion, especially in regard to technology tools integration can help to improve staff productivity. But operational efficiency is not only reliant on that alone. A lot can also be achieved by implementing established performance management techniques such as:
- Setting clearly defined expectations or scorecards
- Improved workforce motivation system
- Establishing a robust talent training and management system
Another way to improve workforce productivity is to outsource tasks that you may not be able to automate. Tasks that are not cost-efficient when handled in-house, and possess no risk when handled outside. For instance, certain tasks like a logo or brand design may be best outsourced to a competent third party than kept in-house.
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Technology and Automation
Technology occupies a prime place in banking as it has an enterprise-wide impact on the industry. Improving operational efficiency via the technology and automation route can involve any of the following paths:
- Self-service Platforms
Development of self-service applications and platforms that allow customers to carry out certain levels of transactions. These can also include information procurement on a self-service basis without requiring employee efforts.
- Real-time, On-time Information Availability to Employees
This involves using technology to run an optimised in-house information management system. A system that places operational information at the disposal of employees whenever they need it.
- Automated Business Rules and Decision Models
Automating your business rules and decision models helps to move work in your organisation more quickly and efficiently too. When implemented, automated workflow processing gives managers greater insights into the activities of staff members. As they can monitor work queues, identify bottlenecks or problems, and reallocate work when necessary due to changing conditions.
Improving External Stakeholders Relationships
Business organisations do not exist and operate in a vacuum, and banking institutions are certainly not left out. To improve operational efficiency in banks, the processes that governs interaction with all stakeholders must be optimised for improved performance across board.
One of such critical stakeholders are you vendors and suppliers. Vendor management does not necessarily call for your vendors to slash their prices. On the contrary, it is an articulated effort designed to generate the most possible value from a vendor relationship that is beneficial to all parties involved.
To this end, it involves among other things, the selection of vendors that closely align with your bank’s business objectives. You also need to agree together with your vendors, a set of performance benchmarks that is supported by service-level agreements. These relationship guidelines will help you monitor vendors’ performance. And this will in turn help to improve operational efficiency in your organisation.
FAQs on How to Improve Operational Efficiency in Banks
1. What are the primary challenges banks face when trying to improve operational efficiency?
Banks encounter challenges such as legacy systems, resistance to change, evolving customer expectations, and the need to balance cost reduction with service quality. Understanding these challenges is crucial when considering how to improve operational efficiency in banks.
2. How can banks effectively reduce operational costs without compromising customer service?
Banks can reduce costs by streamlining processes, automating repetitive tasks, optimising channel management, and strategically outsourcing non-core functions. This approach ensures that cost reductions do not negatively impact customer experience, a vital aspect of how to improve operational efficiency in banks.
3. What role does technology play in improving operational efficiency in the banking sector?
Technology is a key enabler. Self-service platforms, real-time data analytics, and automated decision-making can significantly enhance efficiency. Banks must invest in robust and scalable technology solutions as part of their strategy for how to improve operational efficiency in banks.
4. How can banks optimise their workforce to enhance operational efficiency?
Banks can enhance workforce efficiency through targeted training, performance management, and strategic outsourcing. Investing in employee skills and motivation is essential for sustained improvements in operational performance, directly relating to how to improve operational efficiency in banks.
5. How important is stakeholder relationship management in operational efficiency?
Strong relationships with vendors and suppliers are crucial. Effective vendor management can lead to cost savings and improved service delivery, contributing to overall operational efficiency.
6. What is business restructuring and how does it contribute to operational efficiency in banks?
Business restructuring involves re-evaluating service offerings, focusing on high-ROI activities, and streamlining operations. It helps banks eliminate inefficiencies and allocate resources more effectively.
7. How can banks measure the success of their operational efficiency initiatives?
Banks can measure success by tracking key performance indicators (KPIs) such as cost-to-income ratio, customer satisfaction, process cycle time, and employee productivity. Regular monitoring and analysis of these metrics are essential.
8. What are the benefits of automation in banking operations?
Automation reduces manual errors, speeds up processes, and frees up employees to focus on higher-value tasks. It also provides valuable data insights for decision-making.
9. How can banks improve their channel optimisation for better operational efficiency?
Banks can improve channel optimisation by analysing customer interaction patterns, streamlining online and mobile banking experiences, and ensuring consistent service quality across all channels.
10. What is the importance of process cost reduction in banking operations?
Process cost reduction involves identifying and eliminating unnecessary expenses, ensuring that all costs deliver value. It is a critical component of improving overall operational efficiency.
Conclusion
Banks are critical stakeholders in national economic development. As a result, the efficiency level of their operations remains a major concern to both regulators and customers alike. Beyond the strategies for improving the operational efficiency of banks already enumerated above, a strong corporate governance structure is also key to delivering these strategies.
It is as a result of some of the knowledge gap in organisations especially banks in identifying and implementing these operational efficiency strategies that we at entrepreneurs.ng went the extra mile to articulate and package this body of knowledge for you and members of your workforce. We are your dependable partner when it comes to your workforce training and development activities. And we have made available, tailored to fit, and need-based courses aimed at helping your organisation run more productively. Yes, you can talk to us today about your corporate training needs.
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