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Back-Office Design. Chapter 7. Front-Office/Back-Office Interface. Main concern: aligning functional and corporate service strategies Organization: Introduction to misaligned strategies Academics Practitioners/Consultants

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Front office back office interface l.jpg
Front-Office/Back-Office Interface

  • Main concern: aligning functional and corporate service strategies

    • Organization:

      • Introduction to misaligned strategies

      • Academics

      • Practitioners/Consultants

      • Prescriptive model- Aligning de-coupling and strategy- Includes marketing, HR, operations

      • Analysis of the retail bank lending market

Chapter 7 – Back-Office Design

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Strategic Service Vision

  • Service Concept definition: results provided for customers

    • General service concepts

    • Cost

    • Speed

    • Flexibility

    • Quality

  • Service Delivery System

Chapter 7 – Back-Office Design

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Strategic Service Vision

  • Does a Service Delivery System support the intended Service Concept?

    • Equipment, training, policies, procedures…

High Service

Low Costs

Flexibility

Fee Reversal Policy

Staffing Levels

Systems Technology

Chapter 7 – Back-Office Design

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Academic Literature

  • Productivity

    • Levitt (1972) “Production-line Approach to Service,” HBR

    • Levitt (1976) “The Industrialization of Service,” HBR

  • De-coupling of Front- and Back-office

    • Chase (1978, 1981) Customer Contact Model, HBR, Ops. Research

Chapter 7 – Back-Office Design

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Basic Principles of De-coupling

  • Customer contact model – Richard Chase, USC

  • Services categorized by level of customer contact

    High ContactLow Contact

    Pure Services Mixed Services Quasi-Manufacturing (medical) (branch banks) (distribution centers)

    Efficiency: f(1 – contact time/service creation time)

    Potential for efficiency increases as customer contact time/service creation time decreases

Chapter 7 – Back-Office Design

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Decoupling

  • Method

    • Decouple high contact and low contact “service factory” operations

    • Buffer low contact operations from customers

  • Employ contact reduction strategies in the low-contact areas

    • customer contact for exceptions only

    • reservations/appointment systems

    • drop-off points (ATMs)

    • task standardization

Chapter 7 – Back-Office Design

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Decoupling

  • Employ contact enhancement strategies in the high-contact areas

    • customer-oriented layout

    • people-oriented contact workers

    • partition back office from public view

Chapter 7 – Back-Office Design

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Managerial Differences

High Contact: Low Contact: BranchSupport Center

Facility Location near the customer near supply, transportation, labor

Facility Layout customer-oriented production efficiency

Production orders cannot be smooth production planning stored with backorders

Worker Skills public interaction technical

Quality Control variable standards numerical measurement

Capacity set to peak set to average work load work load

Chapter 7 – Back-Office Design

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Two Models of Human Resource Practice

CoupledDe-coupled

Selection criteria Trainability College for platform

H.S. for tellers, back-office

Training emphasis Broad Immediate task customer focus focus

Compensation At or above market Above market for some, below for others

Group incentives Individual incentivesReturns for longevity

Job Design Cross-training Narrow, specialized

Enhanced discretion High control for most

Part-timers For retention For cost-control

Chapter 7 – Back-Office Design

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Practitioner Literature - “De-coupling is good.”

  • Banking

    • Burger (1988) Bank Systems and Equipment

    • Cronander (1990) Texas Banking

    • Gilmore (1997) Real Estate Finance Journal

    • Pirrie, et al. (1990) Banking World

    • Reed (1971) “Sure It’s a Bank but I think of it as a Factory,” Innovation

Chapter 7 – Back-Office Design

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Practitioner Literature

  • Other Services

  • Government:

    • Connors (1986) Office

  • Hospitals:

    • Greene (1990) Modern Healthcare

  • Newspapers:

    • Sharp (1996) Editor & Publisher, 129(29)

Chapter 7 – Back-Office Design

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Service Blueprint for

Fast Food Operations

Counter

Line of Visibility

Make Patties

Grill

Assemble

Chapter 7 – Back-Office Design

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De-coupling and cost

  • Does de-coupling always lower costs?

  • Why does de-coupling often lead to lower costs?

    • De-coupling and task focus

      • Frederick Taylor and Henry Ford

Chapter 7 – Back-Office Design

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1

1

1

1

15

De-coupling and Rounding of Small Numbers

  • 20 individual units – Each needs 0.75 of a person

  • Staffing level: 1 person each, 20 total

1 central unit:

Chapter 7 – Back-Office Design

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2

2

2

2

25

De-coupling and Variance Reduction

  • 20 individual units: average day -1 person, good day -2 people

  • Staffing level: 2 people each, 40 total

1 central unit

Chapter 7 – Back-Office Design

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Cost Problems

  • Cost Problem

    • Back office:

      • (Queuing math) centralization is good.

      • Bigger means less idle time, higher employee utilization

    • Front office staffing:

      • Bigger is also better

      • Convenience strategy

  • Cost Problem

    • Large minimum break-even points

    • Break-even based on labor reduction

Chapter 7 – Back-Office Design

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De-coupling and Flexibility

  • Bank employee moved from coupled to de-coupled job:

    • “The computer system is suppose to know all the limitations, which is great because I no longer know them.”

  • Bank manager

    • “As we have more and more processing in the black box, few people know what a bank is really like. Some guys are walking encyclopedias of banking information, but they are a dying breed. Do we need people who really know all the processes? Is there a risk?”

Chapter 7 – Back-Office Design

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Customer

ServiceProvider

De-coupling and Service Quality

  • Service Gaps – de-centralized service

ManagementPolicy

  • Service Gaps – centralized service

ManagementPolicy

ManagementPolicy

Low contact worker

High contact worker

Customer

Chapter 7 – Back-Office Design

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De-coupling and…

  • Service Quality

    • Quality of conformance – decision consistency improved

    • Task quality and the “Renaissance man”

  • Speed

    • Speed of Task versus speed of Process

    • Task speed improved due to focus

    • Process speed can be worse due to hand-offs

Chapter 7 – Back-Office Design

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De-coupling

  • Benefits

    • Cost (task focus, variance reduction, technology)

    • Service quality – conformance quality

    • Speed of Delivery – task speed

  • Disadvantages

    • Cost (increased idle time in front-office, duty overlap)

    • Service quality – personal service, empathy

    • Speed of delivery – process speed

    • Flexibility

Chapter 7 – Back-Office Design

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Modeling Services De-coupling

Service

High Service

Focused Professionals

Strategic Operational Focus

Cheap Convenience

Cost Leader

Cost

Low

High

Level of De-coupling

Chapter 7 – Back-Office Design

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Activities in Processing a Retail Loan

Solicit Application

Document Signing

Line of Customer Visibility

Application Processing Credit Decision

Payment Processing Bad Debt Collection

Chapter 7 – Back-Office Design

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Modeling Services De-coupling

Service

High Service

Focused Professionals

Strategic Operational Focus

Bank of Green Hills

Union Planters

Cheap Convenience

Cost Leader

Cost

Nashville Bank of Comm.

First Union

Low

High

Level of De-coupling

Chapter 7 – Back-Office Design

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Industry Analysis

Retail Lending – Nashville, TN

Cost Cheap High FocusedLeader Convenience Service Professional

AmSouth Nash. Bk of Comm SunTrust Union Planters First American SouthTrust Bk. of Green Hills

First Union (changing to focused professional)

NationsBank

Chapter 7 – Back-Office Design

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Summary

  • Practitioner/Academic view of De-coupling

  • De-coupling as part of a coherent strategy

    De-coupling Strategic Focus Classification

    High de-coupling Service Focused Professional

    Cost Cost Leader

    Low de-coupling Service High Service

    Cost Cheap Convenience

Chapter 7 – Back-Office Design

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