Strategic Operations Issues

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1 Strategic Operations Issues Australian Institute of Business Michael C Yule - A nd April 2014 Word Count 2640 Not Including Executive Summary and Conclusion 1

2 Executive Summary Westpac Private Bank aims to provide exceptional banking services to a select group of High Net Worth clients. Within Westpac Private Bank s supply chain, a continual balance has to be maintained between easy and quick transactions, while security for both the client and the bank are expected to be maintained at the highest possible level. This report will look at the supply chain and operations management of completing service requests for clients, and make several recommendations in which to improve the processes for client services within Westpac Private Bank. From the discussions this report brings forward it is seen that Westpac Private Bank requires a sustainable evolutionary improvement system such as the Six Sigma approach, to remain competitive in the Private Bank space. Table of Contents 1.1 Overview of Westpac Private Bank Account Service Process within Private Bank Analysis of the Process Recommendation of Key Improvements Implementation of Recommended Improvements Conclusion References Appendix 17 2

3 1.1 Overview of Westpac Private Bank Westpac Private Bank caters to the ultra High Net Worth clients of Westpac, and prides itself on providing exceptional and customised quality customer service, supported by a comprehensive offering of financial products. For clients to be managed by Westpac Private Bank, they require personal earnings before tax of $450,000 AUD pa or net assets of 2.5 million AUD or greater. (WBC Private Bank 2014) Westpac Private Bank acts as a virtual branch, able to conduct all requests by clients either in person, over the phone or via . A Westpac Private Banker generally manages around 80 to 100 HNW individuals and their families, assisting them with lending, investment and all other day to day general banking requirements. An Associate Private Banker is assigned to each Private Banker to support the Banker with general administration and management tasks. The Private Banker is expected to be out of the office for a majority of their day, meeting with clients and selling products offered by Westpac and BT Financial Group, which is the Private Wealth arm of Westpac. The services offered from Westpac Private Bank vary immensely, and can involve setting up complex family trust structures for overseas investments, to basic account servicing such as providing tax statements or conducting account transfers on behalf of the clients. Westpac Private Bank, while offering a vast array of financial products and services to its various clients, has a complex and convoluted supply chain in which service requests are delivered to the end user, the clients themselves. This report will look into a specific process conducted by the Associate Private Bankers on a daily basis, which is not an important area for creating revenue for Private Bank; however is an important strategic business unit. 3

4 The Associate Private Bankers within Westpac Private Bank deal with most of the day to day servicing and administration tasks requested by Private Bank clients. While the Associate s spend most of their time in the office completing such tasks, the Private Bankers have an expectation that they will be proactively meeting with clients within their portfolio, as well as meeting with prospective clients. A central team within Private Bank called Private Office Services, process the required tasks requested by the Associate Private Bankers, which is part of the supply chain developed to meet the clients end requirements in a timely and cost effective manner. A basic flow chart of this process can be seen in Appendix 6.1, showing the steps in which most tasks are completed within Westpac Private Bank. Using a central program called Relationship Builder, the Associate Private Banker receives the request either from the client themselves or the Banker who has confirmed the transaction or request with the client. The Associate Private Banker then uses the central program to type in a Diary Note, which is a permanent record of the request that is saved for Westpac s records for compliance reasons. Once the diary note is complete the service request is typed into the system, the Private Office Service team receive the request, including specific details as well as the expected time frame in which the request is expected to be completed. Account openings such as transaction and savings accounts are an important process in migrating new customers into the bank, and the process itself is usually one of the first processes that the client s experience, therefore it is crucial for the account opening procedure to be stress free and a pleasant experience for the client. The flow chart for the account opening process within Westpac Private Bank can be seen in Appendix 6.2. This report will look at the specific process of opening accounts and service requests as an attempt to identify the areas in which Westpac Private Bank can improve the supply chain, in regards to servicing its High Net Worth Clients. 4

5 1.2 Service Process within Westpac Private Bank The process of loading service requests and opening bank accounts will now be examined via the five key strategic performance goals that are common among all supply chain management operations in organisations. Risk within the supply chain will also be discussed as this is considered extremely important in the banking industry, and this specific supply chain. Quality Quality is a highly contentious topic throughout academic literature. Firms compete on quality, customers search for quality, and markets are transformed by quality. (Golder et al. 2012) The supply chain process, from request to completion of a customer requirement is absolutely critical, as well as ensuring quality is maintained and errors are reduced to an absolute minimum. Marketers and organisations try to define service quality in advance while customers make during and after use evaluations. (Sunayna 2013) Unlike other industries Private Bank s quality is easily quantifiable, as most requests have a definite end goal. The Associate Private Bankers speak directly with the client either in person, over the phone or via . The Associate Private Bankers have a thorough understanding of Westpac s banking products and procedures and can set the steps, including the expected time to completion to the client in the first instance. The Associate Private Banker also ensures that the completed task, from a simple request such as changing a postal address through to opening a Self Managed Super Fund is completed correctly and to the client s expectations, before the confirmation is communicated to the client. In regards to the service requests that are carried out by the Private Office Services team to assist the Associate Private Bankers, quality is managed by the percentage of rework. Rework is measured by the percentage of requests that have to be confirmed, or clarified with the Associate Private Banker that loaded the request. 5

6 Speed The speed that this report will be concerned with is the timing of the process from customer request, through to confirmation that the process has been completed. Westpac Private Bank prides itself on quick deliver, as the Associate Private Bankers and the Bankers have authority to act upon the customer s request in most cases without paperwork required to be signed. A simple phone call from a client requesting to transfer 500,000 AUD for example, to an overseas bank account can be completed without any signatures or paperwork. If a retail bank wanted to complete this process they would either have to spend a lengthy time processing this themselves online via Internet Banking, or they would have to go into a branch in person, sign the required forms and have the teller process this to the Foreign Exchange department, which in turn pay the funds to the receiving bank account. Dependability Dependability refers to the level of guarantee that can be implied for on time delivery, by reducing uncertainty and achieving a consistent delivery time. ( Slack et al. 2012) To create consistency and dependability within the Private Service Office team, there are approximately 3 staff members for each state that all work out of the main office in Sydney. As there are approximately 15 Associate Private Bankers in each state within the country, the Private Office Service team have assigned specific employees that work with a specific state. This allows common and recurring tasks for specific clients to be known to the Private Office Service team, resulting in less rework and confusion by information being passed down the supply chain. 6

7 Flexibility There is a continual balance between organisations deciding to create a lean supply chain, or an agile supply chain that can quickly adapt to large process variables. Appendix 6.3 illustrates the decisions that are made when considering the flexibility of the supply chain management system. The majority of tasks that are completed by the staff at Private Office Services are predictable with few changes between the processes; however the variety itself of the processes is wide which can involve quite complex tasks to complete the client s request. Appendix 6.4 illustrates a brief break down of the variety of tasks that are conducted by Westpac Private Bank Private Office Services. Referring to the diagram in Appendix 6.3, most tasks are relatively predictable with few structural changes. This report will suggest a possible mismatch between the requirements and the structure of the supply chain. Cost The cost that is associated with completing requests not only are derived from the cost of transforming clients inputs to the desired outputs, though also are incurred from Private Bank s service supply chain operations. A large cost associated with the current Private Bank service supply chain is the supply performance and conformance monitoring. The Private Service Office team not only has to maintain a high standard of speed and dependability, though also have to ensure all requests are recorded and meets strict compliance regulations under the AML (Anti Money Laundering) guidelines. Risk 7

8 Risk is an important factor in the supply chain management structure and development in the banking industry. This report will only briefly discuss risk; however this does not diminish its importance. With Westpac Private Bank, the risks taken to service clients are larger than normal retail banking. The key risk that applies to Westpac Private Bank is through client transfers, increasing risk that fraud will be carried out by transacting on a clients account where the requestor did not have authority. To mitigate this risk Associate Private Bankers have to call clients and speak with them verbally before any transfers for over $10,000 AUD are requested. If the Associate Private Banker does not confirm that this has been done in the service request, the Private Service Office team will need to confirm with the Associate before the transaction is completed, creating unnecessary rework. This is an attempt by Westpac Private Bank to minimise the impact of failure, specifically named fail-safeing - by limiting the monetary amount that could be potentially transferred due to fraud from a clients account. (Slack et al. 2012) This method aims to reduce preventative costs, as most transactions are below the amount of $10,000 AUD. A graph representation the fail-safeng method by Westpac Private Bank is shown in Figure 1.0. Slack et al. (2012) aims to identify the different categories of failure, however this report suggests that there is another specific key risk, Governance Risk. Governance risk is the failure from a lack of control and analysis, resulting in financial loss. Figure Transaction Threshold Prevention 8

9 2.0 Analysis of Process As discussed in the previous section, Westpac Private Bank uses a fixed position layout with all staff centralized around the main system used to input and process the requests by clients. Queues are formed when there are multiple requests in the system awaiting completion; however this causes the Private Service Office team to prioritise the requests. Overseas transfers are labeled Telegraphic Transfer, which enable Private Service Offices to quickly identify urgent requests and process these accordingly. Depending on the cycle of demand such as before public holidays, there can be relatively simple requests that are still time critical, which do not meet service levels, as other tasks have taken priority in the queue. A specific process that requires further analysis within this report is the account opening process within Westpac Private Bank. Account openings are an extremely common process and are critical to customer satisfaction. Customer accounts are extremely important as they provide transaction solutions for customers in which they access their funds for everyday purchasing. Banking accounts are a product which is rarely thought of, however are one of the most critical products offered by all banks. Once again referring to Appendix 6.2, the account opening process for Westpac Private Bank can take weeks to complete, as the original forms are required for new or company accounts. 9

10 3.0 Recommendation of Key Improvements From the discussion above there are two obvious improvements that can be made to the operations process, especially in regards to supply chain management. While this report is to brief too conduct a comprehensive Six Sigma analyses, it suggests an incremental evolution - as opposed to a forced revolution to implement some key improvements that will be discussed below. Six Sigma is an organized, parallel-meso structure to reduce variation in organisational processes by using improvement specialists, a structured method, and performance metrics with the aim of achieving strategic objectives (Schroeder et al. 2008, p. 540). The key to the Six Sigma approach is that it is a continuous cycle of improvement. An illustration of the thought process used for this report is illustrated in Appendix Account Opening Process The first key recommendation that will be discussed is the account opening process. As shown in Appendix 6.2, there is a lengthy process that sacrifices speed of the request for dependability and quality of the account openings. Most banking accounts are opened when new clients are migrated into Westpac, and therefore the account opening process is an important first impression that is passed onto the clients when they first join the bank. As clients usually meet in person during the initial meeting to establish the needs for bank accounts, signatures from the clients should be collected at that initial stage, which provides Westpac Private Bank the authority to open banking and business accounts from an or verbal confirmation, without having to have the specific account form signed. 10

11 3.0.2 Breakdown of Supply Chain Management Process into Separate Queues As seen in the discussion above, most transactions carried out by the Private Service Office team are simple value transactions that require very little strategic thinking or problem solving. The Associate Private Bankers already type and instruct the Private Service Office team the exact instructions, with a separate diary note needing to be typed for record keeping. For the simple transactions this report suggests that the Associate Private Bankers actually type in the transaction directly into the system, where there is a check carried out by the POS team before the payment being sent. For time critical transactions and other requests that are absolutely urgent, a separate process unit should be created simply to handle urgent requests. This would streamline the process by not having to have the Private Service Office team to manually scan the queue to pick out urgent tasks. By separating the urgent and time critical tasks, the quality of the service is expected to increase. An important aspect of quality is the extent to which transactions are carried out under the appropriate risk (Davamanirajan et al. 2006), as urgent tasks usually involve high value overseas money transfers, the risk could then be appropriately mitigated by a select number of Private Bank staff that can ensure risk management is appropriate.. 11

12 3.1 Implementation of Key Improvements There are some key constraints and implications that need to be considered for the above recommendations to be implemented within Westpac Private Bank. - With regards to the account opening process, policy would have to be adjusted to allow the bank to open accounts without signatures for that specific account, and the costs of implementing this would have to be thoroughly researched before the recommendation is implemented. - In regards to the formation of a separate queue for urgent requests, strict and easy to understand guidelines for what consists of an urgent request would have to be formed. - The queue separation would have to be carefully monitored continuously, as there is a risk of tasks falling back into an unorganised queue As Trkman, P. (2010) states in an influential paper regarding BPM (Business Process Management), in order to reach long-term success and improved performance, BPM must be linked to the organisational strategy. The strategy of Westpac Private Bank s Private Office Service team is to excel in customer service in both quality and speed, while managing risk appropriately. Conducting account servicing for the clients of Westpac Private Bank will seemingly always be necessary, serious consideration should be given if the costs and benefits of developing this supply chain are superior to outsourcing some or all processes entirely. 12

13 4.0 Conclusion In the dynamic and ever changing environment of the banking industry, it is important to remember that banks deal in relationships that facilitate effective and efficient payments. (O'Shea, TJ 2011) The processes that have been discussed in this report are all designed with this core idea as the end goal, which allows relationships to flourish, by allowing the servicing of clients transactional needs to become seamless. The recommendations that have been discussed above, attempt to streamline and create a more reliable and consistent method for servicing clients within Westpac Private Bank. 13

14 5.0 References Davamanirajan, P, Kauffman, R, Kriebel, C, & Mukhopadhyay, T 2006, 'Systems Design, Process Performance, and Economic Outcomes in International Banking', Journal Of Management Information Systems, 23, 2, pp , Business Source Complete, EBSCOhost, viewed 17 April 2014 Golder, P, Mitra, D, & Moorman, C 2012, 'What Is Quality? An Integrative Framework of Processes and States', Journal Of Marketing, 76, 4, pp. 1-23, Business Source Complete, EBSCOhost, viewed 17 April 2014 O'Shea, TJ 2011, 'Branches Are Now as Useful as a Dead Parrot', Credit Union Times, 22, 19, p. 10, Business Source Complete, EBSCOhost, viewed 16 April 2014 Schroeder, R.G., et al., Six sigma: definition and underlying theory. Journal of Operations Management, 26 (4), Slack, N, Brandon-Jones, A, Johnston, R and Betts, A 2012, Operations and Process Management, 3rd edn, Prentice Hall (ISBN: ) Sunayna 2013, 'Service Quality Versus Customer Satisfaction in Banking Sector: A Literature Review', IUP Journal Of Marketing Management, 12, 4, pp , Business Source Complete, EBSCOhost, viewed 17 April 2014 Trkman, P. (2010). The critical success factors of business process management. International Journal of Information Management, 30(2), WBC Private Bank, 2014, accessed April

15 6.0 Appendix Standard Service Process within Westpac Private Bank - Once the request is confirmed by the Associate, a permanent note is recorded into the system, called a Dairy Note - Private Service Office team then confirm back to the Associate once the task is complete - This supply chain handles all requests at the current time for Westpac Private Bank 15

16 6.2 Account Opening Process within Westpac Private Bank 16

17 6.3 Supply Chain Management Slack, N, Brandon-Jones, A, Johnston, R and Betts, A 2012 page

18 6.4 Breakdown of Tasks for Private Office Services Request sent to POS 0 Value Transfers Statement Requests Update Contact Details Cheque Collection Account Openings Complex Issues 18

19 6.5 An Illustration of the Six Sigma Improvement Cycle Slack, N, Brandon-Jones, A, Johnston, R and Betts, A 2012 page

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