Back-Office DesignChapter 7
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 Design1
Strategic Service Vision
• Service Concept definition: results provided for customers
– General service concepts
– Cost
– Speed
– Flexibility
– Quality
• Service Delivery System
Chapter 7 – Back-Office Design2
Strategic Service Vision
• Does a Service Delivery System support the intended Service Concept?– Equipment, training, policies, procedures…
Low Costs
Fee Reversal Policy
High Service
Staffing Levels
Flexibility
Systems Technology
Chapter 7 – Back-Office Design3
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 Design4
Basic Principles of De-coupling
• Customer contact model – Richard Chase, USC• Services categorized by level of customer
contactHigh Contact Low 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 Design5
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 Design6
Decoupling– Employ contact enhancement strategies in
the high-contact areas • customer-oriented layout• people-oriented contact workers• partition back office from public view
7Chapter 7 – Back-Office Design
Managerial DifferencesHigh Contact: Low Contact:
Branch Support CenterFacility Location near the customer near supply,
transportation, labor
Facility Layout customer-oriented production efficiency
Production orders cannot be smooth production planningstored with backorders
Worker Skills public interaction technical
Quality Control variable standards numerical measurement
Capacity set to peak set to averagework loadwork load
Chapter 7 – Back-Office Design8
Two Models of Human Resource Practice
Coupled De-coupledSelection 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 incentives Returns 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 Design9
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 Design10
Practitioner Literature
• Other Services
• Government:
– Connors (1986) Office
• Hospitals:
– Greene (1990) Modern Healthcare
• Newspapers:
– Sharp (1996) Editor & Publisher, 129(29)
11Chapter 7 – Back-Office Design
Service Blueprint forFast Food Operations
Make Patties
Grill Assemble
Counter
Line of Visibility
Chapter 7 – Back-Office Design12
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 Design13
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
1
11
…
1 central unit:
15
14Chapter 7 – Back-Office Design
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
252
2
2
2
…
Chapter 7 – Back-Office Design15
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 Design16
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 Design17
De-coupling and Service Quality
• Service Gaps – de-centralized service
ManagementPolicy
Customer ServiceProvider
ManagementPolicy
Customer
• Service Gaps – centralized service
ManagementPolicy
High contact worker
Low contact worker
18Chapter 7 – Back-Office Design
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 Design19
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 Design20
Modeling Services De-coupling
High Service
Focused Professiona
ls
Cheap Convenien
ce
Cost Leader
Low High
Level of De-coupling
Service
Cost
Strategic Operational
Focus
21Chapter 7 – Back-Office Design
Management Practice
Cost Leader Cheap Convenience Focused Professionals
High Service
Level of De-coupling
High Low High Low
Competitive Advantage
Low costs Locational convenience/low cost
Personalized service at moderate cost
Premium level of personalized service
Reason to De-couple
Scale economies Maintain cost competitiveness
Quality control; disaggregation of high-and low-contact
Centralize only when it is cost prohibitive not to
Activities to De-couple
All back-office work Centralize back-office work in excess of front-office idle time
Back-office activities “regionalized,” not centralized
Activities requiring expensive capital goods
Operational Strategic Focus
Cost minimization; Conformance quality
Cost minimization; conformance quality
Maintain sufficient flexibility, response time, or service quality at lower cost than High Service
Maximize flexibility, response time, or service quality
Chapter 7 – Back-Office Design22
Management Practice
Cost Leader Cheap Convenience Focused Professionals
High Service
High-Contact Product Line
Narrow Very narrow Broad Very broad
Training Narrow, focused on task within process, low cross-training
Broad. All employees should be able to perform each function.
Narrow, but focused on an entire process
Broad, but with specialization across functions
High-contact Worker Responsibility
Service customer requests; Low off-site responsibilities
Service customer requests; Low off-site responsibilities
Increasing number of customers largely through off-site activity
Increasing customer relationship depth; High off-site responsibilities
High-contact Worker Compensation
Salary/hourly Salary/hourly Commission on sales
Salary with commission on unit performance
Purpose of Automation
Standardize activity; Labor replacement
Reduce job complexity Enhance marketing Enhance service
Chapter 7 – Back-Office Design23
Activities in Processing a Retail Loan
Line of Customer Visibility
Solicit Application
Application Processing Credit
Decision
Payment Processing Bad Debt Collection
Document Signing
Chapter 7 – Back-Office Design24
Modeling Services De-coupling
High Service
Focused Professiona
ls
Cheap Convenien
ce
Cost Leader
Low High
Level of De-coupling
Service
Cost
Strategic Operational
Focus
Bank of Green Hills Union Planters
Nashville Bank of Comm.
First Union
25Chapter 7 – Back-Office Design
Industry Analysis
Retail Lending – Nashville, TNCost Cheap High FocusedLeader Convenience ServiceProfessionalAmSouth Nash. Bk of Comm SunTrustUnion Planters First American SouthTrust Bk. of Green Hills
First Union (changing to focused professional)
NationsBank
Chapter 7 – Back-Office Design26
Summary
• Practitioner/Academic view of De-coupling
• De-coupling as part of a coherent strategyDe-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 Design27
Top Related