The German retail banking sector faces severe challenges. Global competitors are invading the market with new business models trying to win existing customers. At the very same time, customers become evermore demanding by means of price and quality and are willing to switch banks if it deems advantageous. If failing to act on these problems, the future of many German retail banks seems jeopardized.
Other industries, in particular the manufacturing sector, have faced similar problems. In the 1980’s German manufacturing companies had to cope with similar challenges and managed to successfully overcome their crisis by developing and applying new concepts such as process management, focussing on core competencies and involving external providers into their operations. In the light of this success story, industrialization appears to be a very promising mean to respond to the current situation the German retail banks are facing. While foreign institutes have already initiated successful industrialization activities it has only recently come to the attention of German retail banks.
This paper will therefore examine whether and how industrialization concepts can be successfully transferred and applied to German retail banks.
Table of Contents
1 Introduction
1.1 Problem and objective of the paper
1.2 Methodology and structure
2 Underlying concepts and current situation
2.1 Status quo of the German banking sector
2.2 Successful approaches of the manufacturing industry
2.2.1 The history of industrialization
2.2.2 The era of mass production and scientific management
2.2.3 The era of lean production and value chain deconstruction
2.3 Transfer of industry concepts to the banking sector
3 Application of industrialization concepts to retail banks
3.1 Key areas of industrialization
3.2 Process Management
3.3 Outsourcing in the value chain of retail banks
3.3.1 Procurement and logistics
3.3.2 Operations
4 Implications for the retail bank of tomorrow
4.1 Implications for retail bank customers and products
4.2 Implication for retail banks
5 Critical assessment
6 Conclusion
Research Goal and Thematic Focus
The primary goal of this paper is to examine whether industrialization concepts, which successfully mitigated crises in the manufacturing industry, can be effectively transferred and applied to the German retail banking sector to address current market challenges and declining profit margins.
- The status quo and competitive challenges of German retail banks.
- Historical evolution of industrialization concepts (mass production, lean production).
- The application of professional process management and core competency identification.
- Outsourcing strategies for non-core value chain activities.
- Structural and operational implications for the future retail bank.
Excerpt from the Book
3.2 Process Management
Creating value for customers is the primary goal of every enterprise and constitutes its right to exist. Processes as “a group of related tasks that together create value for a customer” play a critical role in achieving this goal and thus provide vast potentials for improving corporate performance. The general occurrence of processes in retail banks can be roughly grouped into the areas of front- and back-office. The front-office provides the interface to the customer through customer consulting and sales, whereas the back-office is developing, creating and supplying the necessary services and products. This task is performed either by in-house production or by sourcing from external suppliers. As outlined in chapter two, production and consumption of products take place at the very same time in retail banking. Thus, customer value is ultimately created in a collective effort involving the front-office and the customer by tailoring and combining services as provided by the back-office.
According to a study by Droege & Company, 60% of added productivity that was realized in banks in the past stems from process reengineering or optimization efforts, demonstrating the immense potential inherent in lean processes and optimized structures. In general, one can distinguish between two approaches to process reengineering. The first approach relies on revolutionary processes, a radical change that can be summarized as the “big bang”-approach. The other approach suggests an evolutionary process built on successive and continuous change over time. While both approaches can lead to dramatic changes and improvements, the underdeveloped processes structure of German retail banks calls for a well coordinated “big bang”-approach. Only after a fundamental paradigm change will small incremental changes on an operative level as part of a continuous improvement initiative such as kaizen lead to further improvements.
Summary of Chapters
1 Introduction: This chapter introduces the challenges faced by the German retail banking sector, such as increased competition and changing customer demands, and outlines the research objective regarding the applicability of industrialization.
2 Underlying concepts and current situation: This chapter analyzes the current status of the German banking sector and examines historical industrialization phases in the manufacturing industry, specifically mass and lean production.
3 Application of industrialization concepts to retail banks: This chapter discusses how process management and outsourcing strategies can be implemented to optimize the value chain and focus on core competencies.
4 Implications for the retail bank of tomorrow: This chapter explores the effects of industrialization on customer relationships, product development, and the future structural landscape of banking.
5 Critical assessment: This chapter evaluates the risks and threats associated with industrialization, such as reputation risks from outsourcing and the necessity of managing complex supplier relationships.
6 Conclusion: This chapter summarizes that industrialization, when adapted to banking-specific requirements, is a promising strategy for long-term growth and competitiveness.
Keywords
Industrialization, Retail Banking, Process Management, Outsourcing, Value Chain, Lean Banking, Mass Customization, Core Competencies, Cost Efficiency, Banking Crisis, Germany, Back-office, Customer Value, Strategy, Innovation.
Frequently Asked Questions
What is the core subject of this paper?
The paper explores the application of industrialization concepts, derived from the manufacturing sector, to the German retail banking industry to improve efficiency and competitiveness.
What are the central themes of the document?
The document covers process management, outsourcing, the reengineering of the value chain, and the adaptation of mass and lean production techniques to financial services.
What is the primary research goal?
The goal is to determine if and how banks can transfer industrial management logic to overcome their current inefficient structures and withstand global competition.
What methodology does the author use?
The study uses an analytical approach, comparing the structural and operational challenges of the German retail banking sector with the historical success stories of the automotive and manufacturing industries.
What is addressed in the main part of the paper?
The main part details the key areas of industrialization, including the mapping and optimization of internal processes, as well as the strategic outsourcing of non-core back-office functions.
Which keywords define this work?
Key terms include Industrialization, Retail Banking, Process Management, Outsourcing, Value Chain, and Lean Banking.
Why is IT so critical for the industrialization of banks?
Information technology is identified as a major cost factor (approx. 34% of expenditure) and a critical capability, necessitating streamline-first approaches to automation to justify high technology investments.
What are the primary risks of outsourcing mentioned?
The author highlights reputation risks, potential service quality degradation, loss of internal control, and high dependency on third-party providers as major risks that must be managed.
- Quote paper
- Heiner Offenbächer (Author), Alexander Lorch (Author), 2006, Industrialization in retail banking, Munich, GRIN Verlag, https://www.grin.com/document/64174
