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Back-Office Design

Back-Office Design

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Back-Office Design

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  1. Back-Office Design Chapter 7

  2. 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 1

  3. 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 2

  4. 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 3

  5. 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 4

  6. 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 5

  7. 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 6

  8. 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 7

  9. 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 8

  10. 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 9

  11. 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 10

  12. 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 11

  13. Service Blueprint for Fast Food Operations Counter Line of Visibility Make Patties Grill Assemble Chapter 7 – Back-Office Design 12

  14. 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 13

  15. 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 14

  16. 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 15

  17. 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 16

  18. 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 17

  19. 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 18

  20. 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 19

  21. 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 20

  22. 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 21

  23. Chapter 7 – Back-Office Design 22

  24. Chapter 7 – Back-Office Design 23

  25. 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 24

  26. 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 25

  27. 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 26

  28. 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 27