A Framework for BPR process identification in Banks - Infosys Finacle

1. A Framework for Business Process Reengineering (BPR) process identification in Banks

2. Background processes for various reasons. These reasons could be, but not limited to competitive pressure, Time to Market concerns, obsolescence of operational systems including IT, increasing revenues and improving margins. Processes constitute a sequence of activities or tasks with defined input and output. Any system which takes input and generates output after processing the input is obviously a candidate for a process-based workflow. By leveraging technology in implementing processes, it not only helps with streamlining of processes, but also helps with continuous improvements in quality of output, reductions in cost of operations and time spent to get the output. In effect, these improvements directly impact the bottom line and topline of an enterprise. Michael Hammer, who put forth the concept of BPR, coined the term “Don’t Automate, Obliterate”, stressing on the fact that BPR is not about automation or introducing tools into the process chain to gain an order of benefits on efficiencies, or saving on cycle time, but complete destruction of existing processes. Studies reveal that, at times, introducing automation in existing manual processes alone don’t produce benefits which otherwise accrue from replacing old processes with new processes and technologies. Since BPR by its very nature is wholly disruptive, it essentially follows a top down approach starting with a crucial management mandate. The idea still needs to be percolated down to every employee for an effective and successful BPR implementation. The benefits of a process-based approach in an enterprise is not difficult to comprehend. It ensures scalability, predictability of result, reduction of errors and increased speed of operations, through continuous measurement and elimination of root causes in a sequence of activities, and confers business benefits to the organization. Business Process Reengineering deals with complete overhaul of processes wherein existing processes are jettisoned in favor of altogether new processes. BPR differs from Business Process Management (BPM) or Business Process Improvements (BPI) in that the way of doing operations after implementing BPR can be radically different, as against incremental changes or improvements that characterize BPM and BPI. The fact that BPR is “reengineering” means there are pre-existing processes that the organization has tried and tested over time and is now compelled to have a complete relook at existing Objective The world of banking has traditionally been bereft of well- defined processes as banking has been predominantly a human centric activity. More so, as it involves exchange of money, discretion was advised and often “adhoc methods” that suited the particular bank, its managers and its customers’ needs were used to “get things done”. 2 | External Document © 2020 EdgeVerve Systems Limited

3. Prerequisites for BPR in a Bank As such banking falls in the realm of services where transactions are conducted around money exchange. Banks existed as islands until the arrival of IT whose widespread adoption compelled many a bank to standardize their operations and service offerings, that brought uniformity, improved customer experience, and also helped further banks’ business prospects. Existence of processes: In a Banking scenario, the case for BPR is more compelling in banks which have already implemented structured processes in their operations with or without IT tools. A bank which has not implemented any ‘documented processes’ worth its name may not be able to harness the full power of a BPR since it is likely that many of its operational activities may overlap as a process and it will not be possible to undertake large scale changes to an already unstructured way of working. Once banks have implemented process-based operations, it becomes easier to identify, analyze, measure the processes, and then come to decisions like BPM, BPI or BPR. Besides, IT systems lend themselves to structured ways of operation and it is difficult to think of any bank in modern times that has not infused IT into its operations, and hence processes into their transactions. A process-based delivery of services in banks only meant maximizing the benefits to both the bank and its customers. With the recent technology trends of Automation and AI, a stronger case is made to drastically alter the ways of working in banks, including removing old processes and introducing new processes, and that essentially falls in the ambit of BPR. Decision for BPR As per the initiative of Central Bank of Sri Lanka for adoption of newer technologies, Sri Lanka’s Banking sector has been embarking upon the path for transformation with the core objectives of economic stability and financial system stability. Business process reengineering plays critical role in helping banks to create innovative banking models to cater to the demands of new generation customers and provide seamless experience. Business process reengineering (BPR) will be a key component for achieving this transformation and realizing the end objectives. 04 Align with Business goals 03 Measure 02 Analyse 01 The objective of this paper is to present a framework for identification of banking processes for BPR. At the level of banking operations, it involves defining key performance indicators that will characterize various banking processes, measuring and benchmarking the processes and sub processes for quantitative and qualitative parameters, pictorial modelling of banking processes, mapping the banks’ business goals to the process benchmarks, finding root causes of business underperformance that actually relate to processes, arriving at potential BPR solutions, and making prescriptions to the bank’s upper management. Identify Choice of BPR versus BPM and BPI: BPR is a large-scale, out of the box change, so the decision to go for BPR often involves investments of money and efforts that may far outstrip that of BPM and BPI. There is also the likelihood of BPR not meeting with the desired success due to changed circumstances during implementation, lack of buy-in from all levels of employees, or the inherent lacunae in the newly engineered business process itself. That said, BPR presents an alluring possibility to the executive management grappling with failed process improvements or retrospectively fitting tools and systems to old processes, since it is a complete and refreshing breakaway from the past. BPR needs to be boldly attempted when many attempts at BPM and BPI yields negative or poor results. As always, the effectiveness of any organizational exercise of large magnitude like BPR is determined by the quality and commitment of people involved, the clarity in BPR identification exercise, and the various measures taken post BPR implementation to measure the effectiveness of the BPR induced changes. It is expected that since BPR involves sustained investment of money as well as efforts from the lowest executive to the top management, monitoring of post BPR implementation scenarios are equally important. As such post BPR measurements are kept out of scope for this paper. 3 | External Document © 2020 EdgeVerve Systems Limited

4. Executive Mandate: The top management of the bank by virtue of having the birds’ eye view of the bank’s processes, its efficacies and redundancies, are in the best position to assess the need for BPR. To this end the executive management must also see to it that the vision and mission of the bank are fully aligned with the BPR imperative. For example, a BPR exercise may call for complete centralization of data along with elimination of many of the people manning it. The trigger for this centralization can be related to the ambitious new vision of becoming an international bank serving diverse customers across geographies. But the mission which leads to this vision could be to take all operations to Cloud. Management may need to redefine the vision and mission which can then be sold to both customers and employees to ring in the BPR changes. While doing so, the Management must become fully gripped of the requirements by way of technology, effort, time, money and above all, risks that may arise from the failure of BPR initiatives. goals and how it benefits the employee at every level is the most important step in a BPR effort. Methods for identifying processes for BPR: Forming Team for BPR Once the executive mandate is obtained and the decision for BPR disseminated across the bank, the focus shifts to forming the team that will undertake the BPR efforts. The caveat here is that the team has to have an eclectic mix of people, so that the identification of processes to be removed or to be added, infusion of new tools etc. are never influenced by one stream of thought. It is likely that the existing team member have the best knowledge of the processes and this can equally prove to be a bane due to familiarity bias. The existing team members may albeit subconsciously prefer much of the status quo to prevail, and hence executive management must ensure adequate oversight as well as participation from outside of the team in the BPR deliberations. Getting the Buy-in Quantifying Process Performance or Key Performance Indicators (KPI) It is important that the employees of the bank at all levels are educated, sensitized and informed of the coming big change with BPR, since no one likes disruptive changes especially if it threatens ones’ employment prospects. However, if the threat to job or the emotional discomfiture that the BPR induced change brings can be overcome by the promise of reskilling with latest technology or greater responsibilities as entailed by BPR, it is likely that employees will feel doubly motivated to commit for BPR. On the contrary insufficient buy-in or lack of information and communication can completely derail the prospects of a BPR initiative. In essence, communication on the strategic benefits to the bank as aligned with its long-term Unlike manufacturing or IT which have time tested ways to analyze processes or proven metrics to measure the processes, banking processes, being service and transaction oriented, may need to be quantified for various parameters in custom ways. BPR goals broadly can be defined in terms of costs, time and quality which needs to be mapped to the banks’ new aspirations, as enunciated by vison and mission statements. Since banks operate on the paradigm of services, it makes sense to normalize all the parameters to a “cost value” to arrive at BPR process candidates. 4 | External Document © 2020 EdgeVerve Systems Limited

5. A bank may fall into 2 categories- it has already attempted BPM and BPI and has reached a point where the upper management is convinced that no further incremental changes will yield any progress. The other category of bank is where BPM and BPI were never attempted for various reasons including lack of executive mandate, but the processes are so dated and obviously riddled with various inefficiencies, that, only a BPR exercise can salvage the situation. All the processes that go into a banking operation can be benchmarked by either using a 3rd party tool or manual techniques. What is important is that the BPR team has to consciously differentiate BPR with BPM and BPI. completing the process, and later averaging for the number of people involved, we can arrive at the count for the number of people involved in a process. c) Effort involved in the process: The effort can be calculated by modelling the process flow and then finding the critical path for the processes. This will help identify the redundancies and optimize on the critical path by removing unwanted processes. d) Quality of service: Quality of service is an overarching parameter in that it is the sum total of many processes. For example, a customer initiating a transaction with a bank starts a process with a mobile app or by interacting with the bank executive in person. After many a step involving the bank’s systems and processes including the backend, the customer ends the process by closing the app or leaving the bank premises. The quality of each service transaction from the beginning till end can be measured qualitatively or quantitatively by putting appropriate systems and measures for each of the sub process that make up the transaction. The customer can also be asked to rate the transaction but this will be a subjective measure. The quality of service measure can be defined in terms of a blended figure of merit involving time, cost and customer feedback. Over a period of time, a statistical average will reveal the overall quality of service that the bank provides to a customer. Using data analytics, the trends on how this figure changes either monthly or quarterly or yearly can be calculated and can form the basis for identifying BPR process candidate. Some of the KPI parameters for BPR could relate to a) Time consumed by a process: Once a process is defined and implemented, it should be possible to measure the time consumed at various bank branches and arrive at time averaged value of each process as a reference point for BPR purposes. Time study of processes involves the time required for each process to execute and then statistically averaging it over a period for different scenarios- weekdays, holidays, weekends, access the banking services from different geographies remotely and in person and finally arriving at cost value for all the processes. b) Number of people involved: One of the critical parameters that inform banking efficiencies is the number of people who are involved directly or indirectly in executing a process. By counting the number of people involved and measuring the time contributed by each for Figure: Pictorial representation of a process broken down into multiple steps Customer visiting branch 1. Interaction with front end staf 1 Step Documentation 1. Customer flling up application 2. Submitting relevant documents 2 Step Validation of documents 1. Physical verifcation of documents 2. Other valdiation options 3 Step Customer Data capture 1. Customer Data capture by Bank front end staf 2. Data enrichment by Bank back end staf 3. Documents scan and upload of documents 4 Step Approval 1. Multi level approval 2. Data update based on any missing information 3. Additional documents from customer in case of any pending documents 5 Step 5 | External Document © 2020 EdgeVerve Systems Limited

6. Each of the above KPI’s can be further broken down to arrive at a tailor-made metric that suits a particular banking service or process, so that the process can be accurately benchmarked. To convert a benchmark into cost value, we can use the remuneration of people working on the process as well as the CAPEX and other investments made for the process execution. discussion on root causes and cost value for the unwanted processes and hence candidates for BPRs. From the above diagram, time taken for each step can be calculated and sum it up to get the overall turnaround time. Similarly, the total number of people involved for the overall process can be found. This helps to measure the time and effort involved in the execution of a process and drilling down further will identify the step or steps within a process which consumes maximum time and effort and hence the costs involved. Once the processes are measured and benchmarked, we have to relate them to the business goals and see which processes are out of tune with the business goals, and hence form candidates for BPR. Modelling the process flow Identification of BPR candidates The findings from the modelling of process flow and critical path can throw up interesting insights. It may turn out that the process with the highest cost is also the least on quality of service or takes the highest time to complete. A sub process may take the highest time on week days due to high degree of customers initiating the transactions and hence leading to low quality of service on weekdays. Due to distributed nature of data that the bank has currently implemented, cost of operations can be high especially with the present infrastructure involving overheads for reliable and high-speed wireless connectivity to remote servers. Modelling the process flow is an important part of BPR. This can be done using commercially available 3rd party tools or by making process flow charts. The process flowchart will pictorially reveal many aspects of existing business processes. Further to that, each process can be broken down into sub processes, each of which can be again drawn separately to investigate on their candidature for BPR. A simple representation of a process flow for a first level analysis is shown below. Here the ‘Customer onboarding’ process is broken down into multiple steps for analysis. Each step can have sub processes/steps. In case of elaborate sub steps, each sub step can be analyzed separately as well. Prescriptions can range from purely technology based as in completely replacing the existing processes with new and powerful software tools that radically replace the sextant processes. Prescriptions can also involve reduction in manpower by way of concentration of jobs with a smaller number of persons who can now shoulder multiple tasks, thanks to technology. This also reduces bottlenecks involving data travelling back and forth between multiple teams, leading to delays and hence increased costs of operation. BPR prescriptions may also call for technology replacement with altogether new ways involving AI or chatbots or better profiling of customers with data analytics. Results/Findings Critical Path for process The process flowchart can throw light on the process elements that lie on the critical path and those process elements that are not on the critical path. The time required to complete the critical path activities, cost of the critical path activities and quality of service all along the critical path can be computed to identify redundant processes. This can lead to further Upload details to system Updates for pending info Verifcation checks Enrich data by back end staf Approval & customer creation Updates for pending info Customer Visit to branch Multi level checks Filling application Data capture Verifcation by front end staf Document submission Document checks 6 | External Document © 2020 EdgeVerve Systems Limited

7. Conclusion References 1. http://www.theasianbanker.com/updates-and-articles/new- trends-reshaping-sri-lanka-financial-service-industry-today 2. https://hbr.org/1990/07/reengineering-work-dont- automate-obliterate The above framework can help normalize all processes into the most significant parameter which is cost. Even though redundant processes are indicative of slack it still means wasteful expenditure. Similarly lack of quality in service leads to losing customers and this aspect can also be quantified in terms of costs. In general, this framework aims at identification of BPR candidates by focusing on translating all aspects of operations into cost and hence easing the decision to implement the same. Authors Santhy Sreedhar Principal Consultant Reghunathan Sukumara Pillai Senior Industry Principal We live in exciting times as technology is altering the banking landscape in ways previously unimagined, and transforming the banking operations from top to bottom. This is a sure recipe for BPR becoming more common place and at not too infrequent intervals in banks. Due to the pace at which changes are happening, it needs no stressing that BPR is here to stay and a well-crafted BPR will become an essential tool for all banks in times to come. Aarthi Krishnamurthy Lead Consultant Srividya P N Lead Consultant 7 | External Document © 2020 EdgeVerve Systems Limited

8. About Infosys Finacle Finacle is the industry-leading digital banking solution suite from EdgeVerve Systems, a wholly owned product subsid- iary of Infosys. Finacle helps traditional and emerging financial institutions drive truly digital transformation to achieve frictionless customer experiences, larger ecosystem play, insights–driven interactions and ubiquitous automation. To- day, banks in over 100 countries rely on Finacle to service more than a billion consumers and 1.3 billion accounts. Finacle solutions address the core banking, omnichannel banking, payments, treasury, origination, liquidity manage- ment, Islamic banking, wealth management, analytics, artificial intelligence, and blockchain requirements of financial institutions to drive business excellence. An assessment of the top 1250 banks in the world reveals that institutions powered by the Finacle Core Banking solution, on average, enjoy 7.2% points lower costs-to-income ratio than others. For more information, contact finacle@edgeverve.com www.finacle.com ©2020 EdgeVerve Systems Limited, a wholly owned subsidiary of Infosys, Bangalore, India. All Rights Reserved. This documentation is the sole property of EdgeVerve Systems Limited (“EdgeVerve”). EdgeVerve believes the information in this document or page is accurate as of its publication date; such information is subject to change without notice. EdgeVerve acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. This document is not for general distribution and is meant for use solely by the person or entity that it has been specifically issued to and can be used for the sole purpose it is intended to be used for as communicated by EdgeVerve in writing. Except as expressly permitted by EdgeVerve in writing, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior written permission of EdgeVerve and/ or any named intellectual property rights holders under this document.