Current practices of Hatton National Bank in achieving transformational change through business process re-engineering initiatives
- Hatton National Bank (HNB) has a rich history of 130 years with modest beginnings and is today actively involved in Retail, Corporate Banking, Treasury, SME, Project Financing and Microfinance, as a Premier Commercial Bank operating in Sri Lanka with 250 branches and 460 ATMs spread across the island. It is the only private commercial bank rated on par with sovereign in Moody’s International Ratings. HNB has subsidiaries engaged in Insurance, Stock Brokering, Investment Banking, Property Development and Microfinance. Our vision is to be the acknowledged leader and chosen partner in providing financial solutions through inspired people.
- Following the global financial crisis in 2007-2009, the regulatory environment became more rigorous and complex. 2011 was a watershed year for Sri Lanka, signaling the end of a 3 decade old ethnic conflict which not only brought brighter prospects for the country but also signaled a new era of low interest rates and shrinking margins for banks. Competition has heightened more significantly from non-banks particularly in the Payments and Remittances businesses. This has led to rethinking the business model hitherto largely reliant on traditional brick and mortar distribution channels, given pressures on Cost Income Ratios and ultimately the Bottomline.
- It was recognized in the 2012 Strategic Planning Sessions that real efficiencies are hidden within our traditional banking channels, systems and processes. Consequently it was decided to challenge the business model and processes to realize quantum improvements in productivity and efficiency. The initiative commenced by establishing an Operational Excellence committee in 2012, followed by forming a Process Improvement and Change Management (PICM) unit in 2013. A decision was made to approach this transformation with internal resourcing without the services of external consultants initially.
- Strategy formulation – We realized the importance of developing a unique strategy in line with our reading of the future. The need to be ahead of the competition instead of following competition was to be the key imperative for building competitive advantage. We identified 3 strategy pillars as the cornerstones – developing a Sales Culture, driving Operational Excellence and aggressively deploying Digital Banking The strategy was backed by freezing entry level recruitments in the last 3 years, curtailing branch expansions whilst doubling our investments in Technology.
The essence of the strategy was to reorient branches as customer sales and service centres whilst creating centres of excellence for Credit and General Operations, to significantly improve the Direct to Indirect Staff ratio with quantum improvements in productivity. The Centres of Excellence to benefit from standardization, specialization and faster turnaround times. The introduction of relevant technology across all areas was considered a key priority.
Developing a Sales Culture – Key initiatives include:
- Moving staff from fixed to variable pay – Creating outsourced sales teams, developing dedicated sales staff with target driven incentives, refocusing from mass market advertising to branch activations, strengthening branch incentives and reward culture for exceptional effort.
- Developing a matrix structure – relieving the branch manager and regional head from operational duties with a view to refocusing their efforts exclusively on sales, whilst the assistant manager and third officer focused on operations.
- Driving Quality vs. Quantity in Sales Efforts – incentives realigned to focus on high networth and salaried segments.
Driving Operational Excellence – Key initiatives include:
- Credit Centralisation : Forming a Centralised Credit Processing Centre for underwriting and loan creations for personal financial services (Mortgage loans, Credit Cards, Personal Loans etc.) and Regional cells for processing SME facilities. Further efforts being made to Centralise Collections and Security Document retrieval.
- General Operations Centralisation : Account Opening, Inward Clearing, Credit Card Operations, Standing Orders etc.. with a view to developing a shared services model in the medium term.
- Automation : Paperless office, automation of registers, key handling, preferential rate approvals, driving e-statements, improving filing etc.. Further improvements include introduction of a document management system with a view to digitizing
- Outsourcing : Bulk letter printing, statement printing / delivery, ATM cash replenishment and optimal cash management for branches and customers.
- Driving Digital Banking – Initiatives include :
- Overhauling our existing Mobile and Internet Banking infrastructure with new functionalities including online registration, omni-channel experience, personal financial planning and social media integration for Retail and cash management, online trade and dealer financing for corporates.
- Customer e-Alerts management
- Staff incentives to drive bill payments, e-saver, e-deposits creation and move customers from tellers to digital channels
- Progress achieved thus far
Whilst we have been able to keep pace with industry on topline, we have significantly outperformed industry on cost optimization efforts, which has contributed to commendable (albeit not exceptional) bottomline results over the last 3 years. Many investors, particularly foreign, have recognized the progressive steps being taken.
Challenges in driving change
Staff adoption to change is a key challenge. There is resistance among branch staff to move out of comfort zones to proactive selling. Some of the key issues include:
- The large branch network used to function on its own as mini banks. Moving operations out of branches due to centralization creates negativity, due to loss of control and power.
- Most often centralization continues without the bank fully optimizing process efficiencies due to different viewpoints of stakeholders. The traditions, history and age old practices prevent full scale implementations in one go resulting in some compromises being and implementations being carried out in stages.
- Automations and outsourcing do not realize full potential as risks are not understood for mitigation, instead risk avoidance is practiced. The business users are more inclined to automate the manual process instead of re-engineering the process.
- Driving digital banking services in the Sri Lankan market (despite customer convenience) does not bring significant results. Effort is required to convince customers to adopt new technology; the results are barely double digit in adoption, with even less active customers.
- The financial industry is regulated. In Sri Lanka the legacy legal systems, developing compliance requirements and tendency to avoid risk constantly challenges the bank in adopting tech savvy solutions and processes. While we are ready to move on the environment is not ready.
- Business process re-engineering efforts challenging staff efficiency is mostly viewed as a threat due to unionized labour. Due to centralization, outsourcing of non-core functions and adopting low cost resource options, demand for generic banking skills is changing.
- The right tested technology comes at a price. Low cost options are generic and usually come as an immature product. Investment on a high cost sophisticated solution may not be supported due to cost, which curtails the ability to stay ahead of the competition, resulting in ongoing costs (internal and external) being incurred for piecemeal customizations. Also unanticipated operational issues prevent full potential of technology deployments being achieved. (e.g. Frequent ATM breakdowns on deposit acceptance machines due to poor currency notes quality)
The efforts to achieve transformational change become limited and slow in implementation due to above challenges. Many initiatives end without full potential realized due to resistance to change, resulting in PICM team and the top management team having to allocate more time to drive the required change on an incremental basis.
Clarifications and Collaborative measures to overcome challenges based on learnings of ABA Community.
- To encourage sharing of insights / experiences on your own journey given the unique market pressures experienced in your country/region
- To provide suggestions to fast track implementation of change initiatives to achieve faster results
- To share views on continuing internal team efforts vs. hiring consultants / resultants to support transformational change – when, whom to select, experiences, learnings and expected cost benefits
- To form an “ABA Discussion Group” for an ongoing structured dialogue for sharing of Best practices and developing specific learning forums on transformational change through Business Process Re-engineering efforts.
13 November 2015, Taipei