Empirically assessing the impact of BPR on banking firms

Journal of Bank Cost & Management Accounting, The, 1999 by Brandon, Bransford, Guimaraes, Tor

INTRODUCTION

Some say that banking services are critical to the survival of the human race while banks themselves are not necessary for survival (Holliday, 1995). Since the early 1960's many changes have taken place in the environment in which US banks conduct their business. Some of these changes in the banking environment are due to macroeconomic trends, globalization, deregulation, advances in technology, escalating competition, and disintermediation (Rogers, 1994). To say that the banking industry is undergoing a period of change is a gross underestimation of the situation. In an industry where loans and deposits have been the core of business for centuries and the same way of conducting the "banking business" has been used for decades (Blocklyn, 1994), many people believe this industry may decline quickly in a very short time if it does not implement far-reaching drastic changes to stay afloat in the midst of the dynamic environment in which it exists (Holliday, 1995).

Banks are under heavy regulation from many areas including the federal government, state regulators, and industry regulators (Frieder & Hedges, 1994). Nonbank firms that offer many of the same services as banks and compete heavily in some of the same market areas are not nearly as heavily regulated as the banking industry (Holliday, 1995). In recent years banks have been losing market share to these and other financial services providers (Randle, 1995). The response of the banking industry to these and other related problems has been consolidation (McDermott & Berry, 1995). The emphasis on mergers and acquisitions that have taken place in banking over the last several years have prompted banking corporations to hire CEOs with a flair for deal making (Milligan, 1995). Some of the ways these and other bank CEO's have helped facilitate the changes brought about by many of the drastic changes in the banking industry have been by changing the way banking business is conducted. For example, in an effort to more closely serve customer requirements, banks may start to specialize in certain segments of the value chain such as product manufacturing, marketing and packaging, distribution, sales and relationship management, or account servicing (Frieder & Gregor,1996).

The main emphasis for business worldwide over the past decade has been on improving quality. Many companies have adopted some form of the new management and operations philosophy known as Total Quality Management (TQM). The major underpinnings of TQM are a continuous effort to improve products, processes, and operations to better satisfy customer needs: employee empowerment in decision making and a team approach to identify, prioritize, and change targets for improvement; and a company-wide commitment to TQM strong enough to change what is necessary, including organization values and culture. The modern view of quality holds that it is not sufficient for product attributes to meet customer requirements; they must exceed them (Ramberg, 1994). Those American Corporations who have embraced the principles of Total Quality are saying that everybody inside the company should be focused on the customer-not just the marketing department and the sales force; not just those on the production line who now need to understand customer specifications; not just the CEO as he visits and spends time with customers. Today everyone, including even staff functions like public relations, should be keenly focused on the company's customers (Oliver,1990).

Although there has been a significant amount of success with TQM, companies are now realizing that in many cases there is need for more dramatic improvements in productivity, competitiveness and profitability. This can be accomplished by major paradigm shifts which focus on value-added activities as well as other underpinnings for successfully implementing the concept of Business Process Reengineering (BPR) (Goll & Cordovano, 1993; Teng et al., 1994). A survey of over 500 ClOs given by Deloitte and Touche revealed that the average CIO is involved in 4.4 reengineering projects up from an average of 1.6 in 1992 (Moad,1993).

Reengineering as it relates to the banking industry is the "systematic, comprehensive reconception of what goes on in the consolidated bank." "Reengineering focuses on redesigning processes because it is about doing better things, not about doing the same things in a better way or at a lower cost" (Allen, 1994). Essentially, BPR amounts to making radical changes to one or more business processes affecting the whole organization. It also requires a cross-functional effort usually involving innovative applications of technology. Reengineering is a pioneering attempt to change the way work is performed by simultaneously addressing all the aspects of work that impact performance, including the process activities, the people's jobs and their reward system, the organization structure and the roles of process performers and managers, the management system and the underlying corporate culture which holds the beliefs and values that influence everyone's behavior and expectations (Cypress, 1994). With BPR, rather than simply eliminating steps or tasks in a process, the value of the whole process itself is questioned (Gotlieb,1993).