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Banking Business Processes PDF
Banking Business Processes PDF
How to design
customer-centric
business processes in
the banking industry
Diana Heckl
Project Manager at ProcessLab1, Frankfurt School
of Finance & Management
Jürgen Moormann
Professor of Banking and Head of ProcessLab,
Frankfurt School of Finance & Management
Abstract
Banks and other financial services providers continuously
claim to offer customer-oriented services, yet they still focus
on delivering products instead of providing solutions to their
customers’ needs. For instance, banks offer business custom-
ers only products and services that solve isolated problems,
such as liquidity, financing, and investment services, and
fail to reflect the intrinsic requirements of business clients,
such as procurement, order fulfillment, and sales. Hence,
customers are rarely fully satisfied with banking services.
Consequently, the consistent alignment of financial services
to customer processes becomes increasingly important for
enhancing the competitiveness of banks. This paper will pres-
ent the design of a customer-centric business process model,
which allows banks to closely align their business processes
with those of their customers and as a result achieve a high
level of customization and to provide a new spectrum of
services that add value to the clients. The sample that will
be analyzed in this paper will comprise of small and medium-
sized enterprises.
The need for customer-centricity in banks approach has been provided by Heinrich (2002) for retail
In most economies, small and medium-sized enterprises banking. He argues that the processes and the resulting
(SMEs) play a vital role in contributing to the national GDP. requirements and expectations of customers should be the
To accomplish their business goals SMEs have an enormous starting point of the conceptual design of a process model.
need for financial products. This is what makes this customer Heinrich proposes that all basic requirements of the cus-
segment most attractive to banks. To be successful in the tomer should be specified. With the customer processes in
SME segment banks have to offer a high level of customiza- mind, the bank should determine which parts of a process
tion. Such customization requires the consistent alignment of should be handled by the bank to fulfill the real needs of the
all banking activities towards the customer’s requirements, customer. Then the decision has to be made about which
expectations, and wishes [Tseng and Piller (2003), Hammer activities should be carried out in-house or externally and
(2002)]. In most banks today, this alignment only includes which role cooperating partners should play.
serving the customer fast and courteously, as well as being
at the customer’s disposal in case of questions and problems In this paper, the design of a customer-centric business
with certain products and services [Caselli (2005)]. But cus- process model will be presented. The model allows banks
tomization should not be limited to supporting the customer to closely align their business processes with the processes
in arranging the financial products which are demanded. In of their customers (SMEs). The result will be a high level of
order to achieve true customization a clear focus on the cus- customization and a new spectrum of services which provide
tomer’s preferences and expectations is absolutely essential added value to customers. In the following section, the basic
[Vandermerwe (2000), Edvardsson (1997)]. The processes of requirements of SME clients will be specified and structured.
the clients have to be understood thoroughly. Product-orient- It might be difficult for business clients to exactly formulate
ed thinking has to be transformed into customer-centric and their basic requirements; hence they have to be derived from
process-driven thinking, turning the processes of a client into the structure of the client’s business, which is reflected in
the starting point of all business activities of the bank. its processes. For this purpose, the SMEs core, support, and
management processes have to be identified. Additionally,
An appropriate instrument for a holistic identification of the all customer processes that can be reasonably supported by
customer’s requirements can be seen in the concept of cus- banks have to be selected. Subsequently, the current cus-
tomer processes. A customer process can be characterized tomer process orientation of banks within the SME segment
as the entire value chain that a customer passes through will be analyzed. On this basis, a specific customer process
to meet a desired outcome or to solve a problem. Such a will be described and analyzed in terms of the support it is
process comprises every single step until a specific wish has receiving from the bank. Finally the authors will establish a
been fulfilled or the solution for a problem has been found process vision, as well as the design of a process model, to
[Behara et al. (2002)]. Business processes which are strictly support the SMEs’ business.
focused on identifying and meeting the needs of custom-
ers are called customer-centric business processes [Bolton Identification of customer processes
(2004), Chen and Popvich (2003)]. Piller and Möslein (2002) In the case of the SME segment, customer processes are
describe the approach as “integrating the customer into those that an enterprise passes through in order to satisfy
value creation.” its needs. Within its diverse processes, an SME client needs a
multitude of information, services, and products. These can
Literature on the design of bank-related business pro- be obtained from various suppliers, including banks, advo-
cesses based on customer processes is still scarce. A helpful cates, delivery services, and others. Since literature does
not provide a process model for SME clients a survey was planning (39.7%), distribution management and controlling
conducted. The companies surveyed represented a number (38.1%), and acquisitions and sales (30.2%), were regarded
of different industries (excluding service companies) and by the respondents as those that receive inadequate atten-
had revenues ranging from €2.5 million to €200 million. tion from the banks and are not typically included within the
Four-hundred-and-fifty companies were randomly selected current list of products and services that are supplied. The
from the database of a large German bank (DZ Bank AG). results of the survey also show that the respondents desire
The questionnaires were mailed to the companies with the explicit support from banks for the core process acquisition
request to reply within a period of four weeks. Ninety-one and sales (23.5%). Moreover, they regard the banks’ support
questionnaires were sent back, which equates to a response in a number of sub-processes as very important. Finally, the
rate of 20.2 percent and corresponds with previous studies results clearly highlight that SMEs would like process support
[Appiah-Adu and Singh (1998)]. from their bank — but only for processes that they expect the
banks to possess adequate competence.
Figure 1 provides the responses to the questions concerning
which processes should be considered as established busi- Assessment of the current customer process
ness processes of SMEs. The figure shows all the processes orientation in banks
that at least two-thirds of SMEs characterize as established Business processes consist of a comprehensive chain of
processes in their organization. value-creating activities that generate specific outputs
required by customers and whose results have strategic
These established processes are very different from those importance for the enterprise [Davenport (1993), Hammer
currently supported by banks. Core processes, such as and Champy (1993)]. The combination of all business pro-
Business processes
Acquisition Production Order Assure quality Human Money and credit Resourcing Planning Distribution Others
and sales fulfillment resources provision management and
controlling
Acquire Plan asset Accept order Employ staff Analyze liquidity Analyze supply Distribution Production Wage
customers requirements market planning controlling compensation
Provide offer Plan financial Plan order Train junior staff Plan liquidity Analyze resource Production Procurement
requirements requirement planning controlling
Negotiate Plan schedule Implement Personnel Determine capital Procurement Procurement Staff
contract order administration requirements planning controlling
Order Plan Delivering Pay employees Raise capital Resource Personnel Financial
processing capacities storage planning controlling
Warehousing Controlling
69
How to design customer-centric business processes
in the banking industry
cesses culminates in the fulfillment of a superior company not evident. Given the large number of SME clients and the
mission, namely the achievement of superior profits. But to significant potential of this market segment, banks should
what extent have banks implemented a customer-centric change their perspectives. Instead of following the inside-
process structure? And to what extent are the processes of out-approach they should identify new business opportuni-
SME clients used as the starting point for the process design ties along the value chain of their customers [Binder and
in banks? To gain some insight into these questions we Behnstedt (2005)]. In the following section, the authors
polled a number of experts, using a semi-structural interview present a model which aims to directly match SME processes
format. The interviewees were chosen from the five largest with the business processes of banks.
banks in Germany (Deutsche Bank AG, Dresdner Bank AG,
Commerzbank AG, DZ Bank AG, and LBBW). Five in-depth Design of a customer-centric business process
interviews were conducted with managers who were respon- model
sible for the SME business process design at their bank. The basis for the development of a customer-centric busi-
ness process model is the identification of sub-processes
All interviewees described SME clients as a ‘strategic business for a specific customer process. Then each sub-process has
segment’ within their bank due to their profit potential. All to be analyzed to determine whether products and services
five banks regarded the importance of business with SMEs as could be conceivably provided in order to support them. In
very high and said that customers’ needs and expectations the next step, the bank has to analyze whether the specific
represented the focus of their customer service. An ambitious customer sub-process could be supported by the bank itself or
objective of their customer counseling is to provide compre- by a cooperation partner. Finally, detailed product and service
hensive advice based on the requirements of the customer. packages, as well as sales and communication channels, have
However, the support of certain critical customer processes to be defined. This definition has to refer to both the in-house
is rarely taken into account. The interviews showed that very products and services and those of the cooperating partners.
often SME clients are merely being offered rather general Thus, the bank’s business process will be fully based on the
support. To be precise, the current support is limited to the business needs of its SME clients.
process of money and credit provision and a few sub-pro-
cesses related to providing information. Processes such as Acquisition and sales is probably the most important process
the acquisition and sales are not explicitly considered within for SME clients. Therefore, the bank has to understand every
the banks’ customer service. Therefore, it is not apparent to step of the acquisition and sales process in order to identify
the authors that banks engage in a comprehensive analysis of opportunities for support. In the following section, the design
the customer needs and problems and use such information to of a customer-centric business process model for the acqui-
develop adequate and innovative products and services. sition and sales process is described. In doing so, it is neces-
sary to note that the acquisition and sales process of the sell-
Summarizing the interviews, it can be concluded that banks ing enterprise corresponds to the resourcing process, which
are still working in a very product-oriented manner and includes procurement, of the buying enterprise. In order to
continue to follow an inside-out-perspective. Customer ori- use synergies during the process modeling procedure, both
entation is only understood to represent satisfaction and processes will be included in our model.
fulfillment of customer requirements that can be directly
observed. A more comprehensive and advanced consider- Steps of the acquisition and sales process
ation of the underlying customer processes and the resulting As a starting point within this process, an SME uses market
customer needs (i.e., an outside-in-perspective) is currently analyses to examine the current and future market situation
and the surrounding environment in which the enterprise is assurance. For transportation of goods, logistic companies
acting (sub-process — analyze target market). On the basis like shipping contractors or specialized mail-order firms have
of the attained information potential customers are identi- to be involved, making transport insurance desirable. Finally,
fied and acquired (acquire customers). Then, strategies, such support during the suspension of payments or insolvency of
as product strategy and product line policy, are formulated. the SMEs’ clients might be necessary as well.
In the next sub-process (analyze customer requirements),
individual products have to be developed according to the Analogous to the acquisition and sales process of the selling
customer’s specifications. In addition, the production costs company, the diverse sub-processes could also be identified
have to be calculated. The SME also has to provide advice for the resourcing process of the buying company. The iden-
(give product advice) and make an offer to the customer tified sub-processes have to be checked for suitable products
(provide offer). In a next process step, the contract has to and services in the same way as shown above.
be negotiated. At the order’s due date, the products for the
customer have to be prepared for shipment and dispatched Structure of the business process model
(order processing). Simultaneously, an invoice is issued and As demonstrated above, the acquisition and sales process, as
the invoice amount posted to the accounts receivable ledger. well as the resourcing process, can be substantially supported
If the customer does not pay on time, the commercial and, if by value-added products and services offered by banks. Yet, a
necessary, legal dunning proceeding starts. bank should not necessarily produce and deliver all aforemen-
tioned ancillary services on its own. In fact, such a product
After having identified the sub-processes of the SMEs’ acqui- or service extension might result in the dilution of the core
sition and sales process, each has to be matched against competencies of a bank, such as provision of financing, and
possible products and services that the bank might be able to additional products and services could probably not be offered
offer. Within the target market analysis comprehensive mar- at competitive prices. However, products and services which
ket data could be offered to the enterprise, such as detailed support the customer processes can be offered by coopera-
information on potential customers and the targeted mar- tion partners, such as insurance companies, leasing partners,
ket, as well as market prospects and competition analyses. mortgage banks, market research companies, consultancies,
Generally, publications, road shows, advertisements, and agencies for business news, patent offices, etc. Cooperations
sales promotions (i.e., calculation of discounts, design of between a bank as a service integrator and partners as ser-
payment options, provision of turnover credits, and other vices providers appear to be a favorable approach.
additional services) could be helpful in acquiring custom-
ers. Information about competitors, such as prices, delivery The vision of the customer-centric process model depicted in
time, and quality measures, can help the SME to prepare Figure 2 is based on the generic business architecture model of
a competitive offer. Additionally, the SME could develop Winter (2003). Winter describes how companies, respectively
financing packages or terms, such as loans and subsidies, business units, can cooperate in a value creation network as
for winning the business. The buyer’s credit rating could be service integrators, shared services providers, exclusive ser-
used to evaluate the solvency of the contract partner. If the vices providers, and public services providers using a business
sales negotiations result in a complex contract (i.e., in the collaboration infrastructure. The customer processes provide
case of selling a plant and/or delivering to certain countries) the conceptual basis of this model. The bank as a service
legal consultancy will be necessary. Furthermore, fulfilling integrator holistically supports certain customer processes
guarantees or document transactions in the export business, and integrates the service components of shared services
such as letters of credit, can be covenanted as contract providers (i.e., banks specialized in back-office transactions),
71
How to design customer-centric business processes
in the banking industry
selling companies (acquisition and sales process) buying companies (resourcing process)
sub-process “procurement”
buyer 4
advice
accounts
receivable resource protection
legal/tax advisors
• insurances companies firm infrastructure • market reports
ma
personnel management
in
technology management
universities
rg
• etc.
in
exclusive services providers (i.e., affiliates of a bank or an while the selling company passes through the acquisition and
association), as well as public services providers (i.e., Web sales process, the buying company passes at the same time
services providers). The integration of these partners can be through the resourcing process. In order to support both
realized via a shared, open collaboration infrastructure (i.e., a processes the bank, as a service integrator, has to provide a
customer portal). collaboration platform, such as a business customer portal.
This platform should not only include information, but also
The starting point of the proposed process model is the SME provide interaction and transaction functions. The involved
client’s acquisition and sales process and the resourcing enterprises must have the opportunity to collect information
process. Both processes are closely aligned with each other: about potential buying and selling companies, to communi-
sales contracts. There are three basic systems that have to e-shop
price definition provider
be distinguished: e-shops (1 seller to n buyers; 1:n relation), reference
prices
desktop purchasing systems (m sellers to 1 buyer; m:1 rela- virtual market
places
tion), and virtual marketplaces (m sellers to n buyers; m:n
“quality”
relation) [Archer and Gebauer (2000)].
possible quality arguments
quality surveys
for the customer
The bank, in its role as a service integrator, provides access
to the e-procurement systems through the business custom- customer external quality payment
bank guarantee
ratings inspector system
er portal. The Web services providers support the sub-pro-
cesses ‘provide offer’ and ‘negotiate contract’ of the selling
access to other links to other, information information
audited, local
companies as well as the sub-processes ‘ordering’ and ‘clos- portal users ’ quality on bank on letter
evaluation inspector guarantees of credits
ing of contract’ of the buying companies. Further support is
provided by the bank’s own services, services of affiliates, or links to
chambers request of
of commerce, personal
other cooperating partners. The integration of all partners is etc. advice
of products. At the same time, the seller has to specify con- fixing payment
conditions
ditions such as price, quality, payment, and delivery terms.
During these steps the enterprise will be supported by the
services of the business customer portal. Figure 3 – Activities of the sub-process ‘provide offer’ (partial view)
73
How to design customer-centric business processes
in the banking industry
Concerning pricing, the selling SME can receive support in That is why fleet and transport insurances are provided (shared
the form of market surveys, industry reports, and reference services providers or exclusive services providers). If the com-
prices of other selling enterprises (public services providers). pany does not run an in-house fleet, the search for an appro-
Information about the variety of different offers in virtual mar- priate carrier has to be supported (public service). If the offer
ket places can be helpful for defining competitive prices. When involves exporting activities, the company can find informa-
selecting an appropriate vendor the most important factor in tion on documents concerning acceptance/payment options.
addition to the price is often product quality. In this context, Furthermore, the selling company is able to propose financing
promotional activities aimed at communicating positive cus- alternatives to the buying company in order to facilitate the
tomer ratings and quality studies, or the use of external qual- transaction (service integrator or exclusive services provider).
ity inspectors (public service), can be helpful. Moreover, bank
guarantees or specific payment conditions can be arranged to Regarding financial services, the portal supports the entire
support a compelling offer (bank as a service integrator). customer buying cycle (CBC). The CBC is comprised of the
following phases: animation (problem and demand analysis),
In most cases the delivery conditions are determined by in- evaluation (personal advice, transparent offer), acquisition
house information about the fleet and the packaging costs. (easy and fast closing), and after sales (problem solution).
analyze target
market
Citibank Bank of America Wachovia
acquire
customers
• Account management • Overview • Online services
• Information reporting • Online business suite • Online banking
analyze clients’
• Receivables • Account viewing • Online brokerage requirement
• Payables • Transaction reporting • Foreign exchange
• Funds management • Online payments • Demos give product
advice
• Security and accountability • Transfers • Evergreen connect k
• Quicken/Quick books • MerchantConnect.com
provide
• Invoicing • Lending offer
• Self-service • Retirement
• Easy online payroll • HR solutions negotiate
contract
• Tax services • Banking
sub-process ‘order processing’
accounts
receivable
www.citibank.com/us/citibusinessonline/
www.bankofamerica.com/small_business/online_banking_and_services/
www.wachovia.com/small_biz/
After putting all parts of the offer together, it is posted as a the bank identifies all possible needs of the customer, antici-
proposal in the e-procurement system and sent to the inquir- pates all sub-processes and single activities, and integrates
ing customer. If both sides are interested, the partners will them all into the portal. Unless such a complete integration
proceed to the sub-process ‘negotiate contract.’ occurs, the SME clients will not have the ability to follow their
individual procedures within their own process structures.
Conclusion and a word of caution
In recent years, massive cost reduction programs have been On the other hand, a customer-centric business process
conducted by the banking industry. But long-term success model provides a high level of convenience to SMEs through
cannot be achieved without the development of new busi- unlimited access to information, direct access to markets,
ness ideas, innovative products and services, and intensive and the provision of individualized, custom-made services.
focus on customer retention. To be successful in the seg- The main advantage of the model lies in the close link
ment of small and medium-sized enterprises banks have to between the customer processes and the organizational
provide products and services which effectively satisfy the units of the bank through the business customer portal. In
needs of their SME clients. Problem solving, however, can this case the bank’s processes are truly aligned with those of
only be successful if the critical customer processes have the SME clients. In addition, the high transparency, reduced
been identified. transaction costs, and direct access to needed products and
services contribute to increased customer satisfaction and
The model described above aims to design a customer-cen- customer loyalty. The implications for the bank and the coop-
tric business process model. The model allows a bank to align erating partners are increased revenues and profits (through
its business processes closely with those of its customers cross selling, commission fees, etc.). Certainly, the choice of
(SMEs). Starting with the SME customers’ processes, the acting as a service integrator depends on the strategic posi-
banks’ own processes can be developed. In collaboration with tioning of the respective bank.
cooperating partners, the bank is able to cover and support
the entire customer process and to develop a new spectrum Yet, a number of large banks have built corporate client
of services which provide added value to its customers. The portals offering financial products and services as well as
matching of customer and business processes leads to a new financial market information for their clients. When looking
level of cooperation between SME clients and their banks. at these banks, we have to state that while these types of
Furthermore, this approach helps banks to transition from portals already reflect parts of the customer process they
product-oriented institutions to process-driven and cus- are still strictly product driven. As the examples of large
tomer-centric organizations. U.S. banks show (Figure 4), the clients have to know exactly
which product and services they require. The structure of
Nevertheless, the concept bears the risk that clients ques- the portal should be changed from being product-oriented to
tion the bank’s competence in producing and delivering the becoming customer process-oriented.
offered value-added services. Moreover, insufficient service
quality of cooperating partners may have a negative influ- There has been ongoing criticism that banks should focus
ence on the bank’s image. Another critical aspect to be much more on customer needs and produce more innova-
considered is that a customer only receives information tive services that create added value for their clients. The
which is delivered for a particular process step. Therefore, presented process model for banks and their SME clients
the customer is very dependent on the information obtained offers the methodological basis for developing efficient
from the bank. The client’s requirements can only be met if support of customer processes and for improving customer
75
How to design customer-centric business processes
in the banking industry