Managing Competition in Banks

                                IBA Bulletin,Volume 25(5),2003

Background:

Gone are the days when Banking Industry used to operate in a protected environment. Libralisation, Privatisation and Globalisation have opened floodgates of competition. Opening of private banks has also given banking industry new taste in competition. Bankers can no more bank on walk-in-business and relax in cozy offices. Information technology has not only enhanced customer’s awareness level but has made them demanding. Their expectation level is galloping. Demands and priorities are changing every day. The influence of the Internet upon the choice and delivery of products and services has made the situation acerbic. Customers no more want age-old banking products they cannot be fooled and taken for a ride by changing the wrapper of the product. Never in the history of banking the power has so firmly been in the hands of customers as it is today. The customer will continue to dictate and this situation is not going to change. The struggle for survival in the cutthroat competitive market is the biggest challenge of the time. For facing competition there has to be determination and skill of innovation.

In the changing environment many established organisations with Un-parallel track records are facing problems as these organisations continue to remain in hypnotized state of their past achievements. This has made them incapable of inventing new vision and planned direction for progression. It has to be understood that change is a continuous process and natural phenomenon. Change in the environment produces constantly changing landscape. It is nature’s law, the way of life and cannot be avoided. However, under the transforming scenario the speed of change has fastened. Bankers have therefore to perceive customer’s requirement well in advance and design and market products to suit their needs. Banks have therefore to adopt a systematic approach for marketing their services to withstand competition.


The New Mantra:

For facing and managing competition, the main mantra is “Marketing” and improvement in “Customer Service’. Both are complementary and supplementary to each other. The Competition is no longer on price alone but also on quality and delivery. Banks have to adopt innovative measures to remain in business and this has to take place before need is felt.

Those banks which foresighted the changed situation modified their operations well in advance, reengineered their existing products by adding flavor, reassessed their products from acceptability and profit angle. Those products, which were parasite on profits and outdated, were shredded and new products and activities cloned and launched to match the increasing demand of customers.

As bankers operate in a dynamic environment, understanding customer is necessary for getting larger share in the market. They need to adjust their output to meet the changing needs. The competitive environment is forcing banks not only to continuously keep on improving services but also innovating and designing new services. They have to identify different types of customers, make in-depth study of their needs and then draw up suitable schemes to satisfy those needs keeping in mind that their awareness is high.

Customers' Psychology:

We should understand that positive relationship with customer has lasting impact on their attitudes. Customers’ loyalty is influenced by their attitudes and changing needs. If we want our customers to be loyal, we have to be loyal to them first. Loyalty is nothing but creating a strong bondage of relationship. It is developing trust and understanding. For proper understanding banker has to know wants and needs of customers and make them feel that they are needed, are valuable, special to bank and much more. This creates value.

Customers are not interested in the range of services offered by bank. Their interest stem from what the service is likely to do to them. Hence bankers have to know the factors which motivate customer to buy the product. The human psychology is that people pay attention to what interests them. Interest once aroused does not sustain long unless there is some immediate reference to the benefit. Therefore, the customer is to be given the correct facts he needs .He has also to be given supportive and convincing reasons for going for a service product. He has also to be told how the services being offered differs from that of the competitors and what makes it special or different compared to them.

Customers are attracted towards the bank on the belief that the bank to which they are going has a “cutting edge”. Since today’s customer is demanding there has to be cutting edge in all the spheres. This aspect needs to be focused and exploited. Customers are sensitive and respond emotionally to the passion and commitment of employee’s .The emotionally driven reaction builds a bridge between customers and employees and act as a magnetic field, which helps in developing long lasting relationship resulting into sustainable growth of bank’s business a route to reputation and profit. The communication with the customer has to be simple and not technical. Once the customer is satisfied and convinced he plays the role of opinion leader in the market landscape.

Marketing and selling:

Like any other business, marketing is an essential ingredient for bank’s progression. For facing challenges in the market arena bank has to penetrate the market, explore new markets and launch new products. It has to create ever-increasing demand for its products, and has to do aggressive marketing. According to Peter Drucker “The business enterprise has two, and two, basic functions; marketing and innovation. It is not necessary for a business to grow bigger; but is necessary that it constantly grow better.”

Marketing and Selling are two different things. They are not synonyms. Under selling, goods are first produced and thereafter customers are approached with different techniques and persuaded to buy the product. The seller influences customers need to match with his product convince and motivate him to purchase.

Marketing is bundle of complicated activities in which a desire for requirement of the product is created .In marketing the product is tailored to meet individual’s demand. It is not like selling where product is produced first and marketed later. Marketing is about people .It is about satisfying existing and prospective customer’s real needs and expectations .It is optimising outcomes measured in terms of growth in the market share. The success depends on letting people know what bank can do for them and its sensitivity to their concerns and demands. The more people trust you, the more they bank on you. Therefore the best way is to create a bond of trust through efficient service and product delivery.

Product designing and Marketing:

Marketing is a systematic, organized approach to the selling and constant monitoring. It involves directing and auditing of efforts .It demands commitment and turning new ideas into practicality. For marketing product / services banks have to visualise the needs / requirements of customers and trends in market. They have scientifically to do need identification, maintain customers’ profile, their social / family details, consumption and income pattern. On the basis of above mentioned details product has to be conceived and innovated which should be hassle free and blatantly apparent to the customer. Before launching a product following steps are must.

· Market research: It is must for identification of current and potential needs of the customers. It helps in planning and designing the architecture of the product.
· Product Development: Once identification of need has been done, market trends studied and analysed, competitors product studied and dissected from marketing angles the product is to be developed with self attracting unique features.
· Pricing: Deciding a realistic competitive price tag acceptable to the customer and profitable to the bank.

· Branding the product: The product is to be christened and given a unique attractive generic name.
· Channels of distribution: Identification of branches catering to the product.
· Advertising: The product to be advertised through print and electronic media for generating public interest.
· Contacting existing customers: All the existing customers are to be advised about the new product.
· E-mail marketing: All the customers of the bank to be advised about the new products through e-mail. All the amendments in the existing products need to be communicated over e-mail, which is cheap and fast interactive communication mechanism. Banks should also send their product updates to their all constituents through e-mail and keep in regular touch with them .Of course bank has to have proper record of e-mail addresses in addition to the office / residential addresses.
· Product roll out: After all the above preparations are done the product is to be launched.

Selling New Products:

Selling of new product is different than selling a known existing product .It is not simple to market a new product. Before crafting effective marketing plan bank has to know potential markets. We have to stay in touch with our clients and keep on telling them about new products or modifications in the product. We have to be true and accurate to them. Knowledge of customer’s behaviour is necessary for getting larger share in the market. Before launching a new product following has to be kept in mind:

Who will be the target group?
Needs and preferences of potential customers
Financial service products currently used or not used
Who are the competitors and what are their strengths and weakness
Product differentiation with other market players.
Proper training has been imparted to the staff and the staff at the branch is well versed

with the new product/services being offered / launched.
Necessary steps have been taken at the branches to facilitate the actual sale
Proper systems and procedures have been laid down and pilot testing done to

understand operational glitches.
Proper system for receiving, analaysing and monitoring the feedback has been

devised and introduced.

People involved in selling financial products /services need larger element of empathy and a smaller element of ego drive in their make up than the salesman of consumer or industrial products. For banking products a surrogate relationship needs to be built between the customer and bank .It is also to be ensured that every single employee is germinated for efficiency

Role of Customer Service In competition:

The competitive environment always forces continuous improvement in services .For facing challenges, quality service has to be made part and parcel of the entire business organization. Consumers are looking more for quality services and real differentiation in what they are buying. For every organization customer is important. Service is not like other products, which are tangible, services are intangible. They can be felt and experienced. Feeling and sensitivity parameters differ from individual to individual. Hence the chemistry of satisfaction cannot be standardized, but a standard protocol for services and customer satisfaction has to be maintained. As the customers are looking more and more for quality services and real differentiation in what they are buying constant inter-action with them is required to understand their reaction / response to product and service.

Efficient customer service is the key to face competition. As a satisfied customer is publicity in himself true customer service goes beyond polite, personal and friendly ads and reward programmes. Customer can be acquired from the word of mouth from satisfied customer. It should not be presumed that once a customer is acquired he would be retained due to intrinsic quality of the product and that services will take care of satisfaction. The quote of an unknown author amply explains this

“Providing excellent service is lot like dieting. It is not complex. It is just hard to do consistently”.

The rules of the game have changed. It can not be assumed that customers will deal solely because the services provided by their existing financial service providers are not up to mark. It should not be forgotten that between obligation and commitment other factors also play. It is not the customer acquisition, which is important, but retention of customer is important. In the technological age customer wants a reinforcement of personal and not commercial values .He does not want to be reduced to be a PIN (Personal Identification Number). Thus for maintaing customers loyalty and profits positive relationship is necessary.

Earlier the measuring rod for organisational prosperity and efficiency was customer satisfaction but now to know the reputation and quality of service the criteria is to measure customer’s rate of defection. For taking corrective measures banks have to investigate the root causes. Banks have to focus on customers and prevent them from defecting, migrating. Banks must realise that migration is worst than defection. In migration a person severs connection permanently and in defection the person sits on fence and moves from one position to other which ever suits him. Defection is bad and migration worst. Banks have to improve management of customer migration by introspection. It should not be forgotten that

Quote

"Excellence is more than a wish: it is a pursuit that never stops "

Unquote

Knowledge Management in Banks

     Papers from Delegates,Bank Economist's Conference 2003
Economic Scenario: -

The whole economy is today undergoing through the process of transformation. This phenomenon is visible not only in India but across the world. Living with change, and to adopt and adjust to change, without loss of time, is the demand of the day. Globalisation has opened the floodgates of competition, which is no longer restricted to a particular geographical boundaries, this too has become global.

In the era of intensified global competition and deregulation, when technological advances have triggered an avalanche of change, the future belongs to intelligent organizations who can best manage competition by blending it with information technology and turning the table in their favour with the help of knowledgeable work force.

For facing competition banking industry has not only to come out of the shell of its old lethargic image, but has also to become efficient, sensitive to the environment, capable of learning and developing work force for efficiency in action. Today knowledge has become an important competitive advantage. Lacking competence and knowledge are the most critical factors restricting the development.

For becoming a knowledgeable organization, banks will have to align experience and knowledge for productivity. They have to manifest perfection within the workforce and have to encourage creative thinking, an inherent characteristics that remain dormant for want of encouragement.

Banks will have to realize that diversification has become hard necessity.Information technology has revolutionized the awareness level of customers; they now have wide range of choice and options.

Work force: -

Business institutions, including banks, are not the configuration of premises and equipment, but of work force and leadership. It is the quality of workforce, their abilities, capabilities, zeal, commitment, knowledge and intelligence that plays crucial role in the development of organization and bringing it on the global horizon. It is the knowledge management that plays important role.

Knowledge is the core of an intelligent business organization as all activities are intelligent vibrations. Employees are the heart of intelligent organizations; an implicit knowledge resides in their heads. It is the knowledge of the work force that makes it distinctive from others and gives competitive edge and advantage to the institution. Thus, knowledge management is all about the work force.

By using technology, more efficient processes can be utilized for capturing, storing, retrieving, using, reusing and sharing the knowledge for benefit of the institution.

If banks want to develop their institution into a powerful one, then they need to change the mindset of staff and make it a trained mind and not a stuffed brain so that they develop precision in thinking, speaking and action. It is a fact that human being is teachable and the intellect can be cultured by education.

It is not work that is great. It is the knowledge behind the work that makes the difference. The work becomes small when done with lack of knowledge. There is direct relationship between the knowledge and attitude of work force. If the attitude of the work force is good, work is good and if the attitude is wrong, the work is wrong. Wrong attitude reflects drought of knowledge in the work force and improper knowledge management in the institution.
Banks will have to raise the knowledge seeking level of the work force; ignorance has to be burnt in the fire of knowledge. It has to be ensured that what must be learnt, must be digested and assimilated.

Every individual in any organization is a knowledge worker and every one has intrinsic knowledge capital value to the organization. However, very often this asset is hidden by ignorance and delusion. Unearthing this treasure for the benefit of organization is knowledge channelization.

Importance of Knowledge: -

Knowledge has become an important competitive advantage for organizations. It is the most important strategic resource. Lack of knowledge and competence restricts development. Capital, which was hitherto treated as main important factor has been replaced by knowledge. It is the knowledge, which generates capital and other resources. Pumping of any amount of capital does not flourish business and make it profitable. It is the knowledge, backed with imagination and innovation that makes the business vibrant and profitable. It is not the physical asset, but the intellectual asset, which is the driving force for an organization.

Knowledge is the supreme wealth and strength as the whole economic activities move and evolves on the axel of knowledge. It is the software of organizational hard ware. Lack of knowledge throttles organization’s growth and progress.

Knowledge management helps in transforming the knowledge into fruit by way of economic and environmental development. Efficient work is inspired by knowledge and productivity accelerates. It is excellent in action.

What is knowledge?

When we talk about management of knowledge, the basic question that arises is “what is the knowledge”?
According to “Devenport and Prusak” knowledge is the mixture of organized experiences, values, information and insights, which offer a framework to evaluate new experiences and information.

Knowledge is the discriminative intelligence. It is the intellectual power. It is the power to think creatively. Knowledge is generated by thoughts and through experience. Values and beliefs are part of knowledge.

Knowledge can broadly be classified into tacit and explicit. Whereas tacit knowledge is undocumented, explicit knowledge is objective and formal by nature and can be transferred to others.

Knowledge and data information:

Knowledge and data information are two different things. Data is the raw material for management information system. It is statistical information and a diagnostic tool for judging the performance as per plan. It helps in taking decisions, corrective measures in deciding strategies, designing future architectural plan.

Knowledge is more extensive, more complex, and more profound than data and information. It is the mixture of talent, experience, values, thoughts and information. Essentially, knowledge management embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies and the creative and innovative capacity of human being.

Knowledge and intelligence:

Generally in public sector banks, it is believed that knowing the process of operations and working in a routine manner as per laid down procedures and guidelines, is knowledge and the staff who is well acquainted with rules, regulations, and procedures is the knowledgeable worker.
However, this notion and myth has undergone a change. Doing a routine job in a routine manner does not require any intelligence and skill. It is part of the habit and does not require knowledge as the mind has been trained to follow the routine path. However, doing a routine job in an innovative manner, in a non-routine and non-traditional manner, with excellence is intelligence.

Knowledge has to be viewed in broader perspective. Intelligence is inherent and superior to knowledge. This is an inborn ability and has genetic path and imprint. An individual may be knowledgeable, but not necessarily intelligent. Intelligence is using the right knowledge at the right time for making the right decisions.

Knowledge Management:

Place of work is the center of learning. Knowledge comes from work, provided one knows how to manipulate it. Knowledge management is competence management. It is the transformation process, a process of creating, capturing, storing, sharing and applying knowledge. It is building up of efficiency as a character and devotion to performance. It is directing intelligence and removing the mental inertia by creating an inner urge for excellence. It is inculcation of the desire amongst staff for knowledge, efficiency and productivity by creating an environment in the institution where every one wants to excel. It is stimulation of the impulse and rejuvenation of the work culture for bringing productive efficiency in action by mental modification, handling of energies and manifestation of perfection by bringing up new energies from within by evoking the best in the work force. Once an efficient worker is inspired by knowledge, his productivity shoots up.

Knowledge, Talent and Learning:

Our knowledge is not steady and is ever changing. It becomes obsolete and blunt unless brushed up and sharpened on continuous basis. One can not get knowledge without a good deal of serious effort. There has to be an attitude, inclination, and inner desire for learning and seeking knowledge. Learning is the continuous process in which individual gathers new knowledge, skills, attitudes, experiences, feelings, values that produce change in approach and leads to growth and maturation.
Talent and knowledge are different. Whereas, knowledge is human faculty, talent is a recurring pattern of thought, feeling or behaviour that can be productively applied.
Over the years one develops “circuits” and “channels’ of thought in brain. These physical pathways control the way we think, the way we act and often the way we feel. Many a times, these pathways or habits become so fixed and deeply ingrained that it seems almost impossible to transform them.
Using talent is as natural as breathing. Talent is the unknown quality of personality born with the person.
Man can learn more and more because there remains at every step of knowledge something unknown. Training facilitates in bringing out latent talent. It incites the inner as well as outer behaviour of a man. However, it can not bring forth sprouts, if seed of talent are missing. Training of innate talents of tendencies enlarges its influence and helps in further accomplishment.

Knowledge Management in Banks:

Banking industry, particularly Public Sector Banks, in India are saddled with majority of the work force that joined the industry at least around two decades ago. It comprises of wide variety of people with diverse economic, social, educational, background. There has practically been no recruitment during the last two decades.

Most of the supervisory staff has been promoted from ranks. A large chunk of staff has been exposed to routine work. There talent has not changed much after they were hired. In fact the level of knowledge has shrunk with the passage of time. Some of the staff members have added to their educational qualifications by joining part time or distance learning programmes, which in most of the cases, gave them monetary advantage and helped in career progression. Other than this, there has been no knowledge up gradation. Those who were recruited with special qualification to handle specialized jobs were absorbed in routine mundane assignments and the institution was deprived of their expertise. VRS also created knowledge imbalance.

Absence of career planning, career budgeting, grooming the staff for shouldering higher functional and supervisory responsibilities, non - recognition of talent, ignoring talent in elevation exercise has drained out the zeal and enthusiasm of work force. This has affected employees’ morale values, ethos, organizational culture, and has become a human behavioral issue.

Not only this, people do not want to readily share knowledge and competence with peers and subordinates as they do not want to enhance the number of competitors in their career progression. Most of the superiors do not encourage intelligent, knowledgeable, well educated and more qualified work force under them due to psychological reasons. They try to find demerits even in merits, which lead to frustration, a disease that spreads merely by seeing. Therefore, people perform and show their ability to the extent it is necessary for their existence and survival in the institution.

Under such a scenario, knowledge management in banks is restricted to imparting of training and not identification of latent abilities, talents and channelizing them for productive purposes. Even there is no codification of knowledge. The worst situation is that by and large people occupying decision-taking positions avoid taking decisions. They are shy as they were not exposed to this situation in the past or could somehow or other managed without taking decisions.

With the passage of time and continuous exposure to routine assignments attitude and thinking process of work force has been conditioned and freezed and there is no desire or inclination to change on their own.
Under such a situation, knowledge management in public sector banks is a big question mark. Unless the organizational culture undergoes a drastic change, proper plans are crafted for human resource development, due recognition is given to talent and ability rather than to whom one knows and not what one knows. If proper performance appraisal is not done, desire to excel in excellent manner will continue to be buried in the fathom of sea and knowledge can not be utilized for the benefit of institution. For building confidence of the work force in management policies, proper open communication system, human relation management and interactive skills are must.

Human relation policies are to be redesigned for ensuring systematic development of competence and knowledge to every one in the institution. Banks will have to develop the work force and make best use of them by identifying their talents and exposing them to skills, knowledge and experience built on those talents. This will result into consistent excellent performance, as a person will always improve in his area of talent, as he has unique configuration of talent. Banks will have to distinguish between talent, skills and knowledge. It has to be borne in mind that talent cannot be transformed from one person to another, whereas, skills and knowledge can. Banks will have to develop talent of employees, as this will encourage them to sharpen their talent within the relevant skills and knowledge. Banks will have to redesign their human development policies so that competence is systematically developed and knowledge is available to everyone in the organization.

Implementation of Knowledge Management in Banks:

Total knowledge management is not as easy task in public sector banks as banks’ branches are spread over vast geographical area having diverse business activities, which is mostly routine in nature. Hence there are hardly any new learning opportunities in day-to-day operations. This results in to “Knowledge black out”.

Learning, for majority of the staff is restricted to going through internal guidelines issued from time to time. This enhances only working skill and does not enhance knowledge, intellect and creativity.

Presently function of Human Resource Management is restricted to imparting training, transfer, promotions, sanctioning of leave, increments, etc.

Training sharpens technical skills more than conceptual skills, which is the foundation of knowledge. Unless people are exposed to variety of new responsibilities on a regular basis, their ability to think, visualize future challenges for facing them will not develop. Unless there is a system of sharing information, skills, techniques, knowledge management in banks will remain only on paper. Documentation of knowledge and proper guidance by the superiors will go a long way to bring about the culture of knowledge management in banks.

Values of the work force are changing. People respect and obey commands of those superiors who have knowledge, broad vision, good educational background and conceptual skill and clarity. They look upon them for help and guidance. Instructions from such superiors are carried out because of their ability and traits. These superiors act as catalyst.

Conclusion: -

Knowledge management focuses on ‘doing the right thing’ instead of ‘doing things right’. It is a frame work within which the organization views all its processes as knowledge processes. It facilitates continuous and ongoing processes of learning and unlearning that need for imposing top-down ‘radical change’ may be minimized.

'The question is “can we really manage knowledge”? The fact is that in organizations where people come from different walks of life with different social and educational background, different attitude, perception, talent and if we want to make the organization successful, then we have to channelise the knowledge experience of the work force in productive manner and harness their latent abilities for benefit of the organization and make the organization a knowledgeable one. The knowledge of the workforce is to be given right direction and the talent has to be utilized effectively and properly. Knowledge management will give professional pride, which interacts with professional standards of workmanship. If one is proud to be able to do an outstanding job he will not do less than an outstanding job but he will do his best to excel

Knowledge management is excellence in action.