OPERATIONS IN FINANCIAL SERVICES (Langone)

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Requirements:

  • "Creating Value in Financial Services'' edited by Melnick, Nayyar, Pinedo, Seshadri.
    (In what follows this text is abbreviated as MNPS).
  • There is a case packet that you can buy at the bookstore.
  • There is a course packet with additional materials that will be handed out in class.

This course consists of 24 sessions which are divided into 9 modules.

MODULE I     Overview of Financial Services and Forces of Change

Session 1a (Feb. 6): Overview of the types of companies:

  • retail banks
  • investment banks
  • brokerage houses
  • insurance companies
  • mutual fund companies

Overview of types of products and services (consumer products, commercial products).Overview of types of processes.

Product-Process Matrix: where do the financial services companies fit in within this matrix.

Discussion on the forces of Change in the financial services industry.

The following transparencies are from a McKinsey presentation:
Operations in Financial Institutions

The following paper comes from IBM Business Consulting Services:
From Banks to Banking II: The Journey Has Begun

Session 1b (Feb. 6): Recent trends in financial services:

Mergers and Acquisitions. Objectives of recent mergers and acquisitions: diversification of product offerings, cross-sales, global reach, operational synergy.
Success of mergers depends often on the succesful integration of operations. Importance of Operational Due Diligence.

Read Chapters 3 and 4 in MNPS (by Ingo Walter and David Rogers).

Read from the Casebook: Economics of Retail Banking Note.

Prepare case for discussion:

  1. Commerce Bank

MODULE II     Strategic Issues

Session 2a (Feb. 13): Service Strategies

  • Selection of products and niches (consumer products, commercial products, scale, scope)
  • Service Strategies
  • Customer Relationship Management (CRM)

Read Chapter 5 in MNPS (Monahan on relationship management)

Read Sections 2, 3, 4 in the Course Packet

Link: Bank Deposits gets Interesting

Session 2b (Feb. 13): Process Designs

  • Process design (selection of distribution channels).
  • Discussion on potential of cross selling.
  • Discussion on separation versus integration (chinese walls).

Read Chapter 23 in MNPS (Wayne Cutler)
Read Chapter 22 in MNPS (Harker Frei)
Prepare case for discussion: FleetBoston Financial - On line banking

Links:

  1. Could Mobile Banking go Global?
  2. Will the Banks Control On-Line Banking?

MODULE III     Distribution Channel Design

Session 3a (Feb. 27): Overview of Distribution Channels

  • Service Process Design matrix (video)
  • channel choice (branches, mini-branch, kiosks, ATMs, call centers, www, sales force)
  • points of access
  • convenience

Read Chapter 14 in MNPS (Karmarkar paper)
Section 6 in Course Packet
Optimizing Distribution Channels (IBM)
Optimizing Distribution Channels II

Free White Paper: Four Strategies for Fixing Distribution

Impact of E-Commerce on Financial Services

  • Electronic commerce and financial services
  • Applications of queueing in financial services

Read Chapter 11 in MNPS

Link: Banking: The IT Paradox

Session 3b (Feb. 27): Channel Capacity and Pricing

  • Setting capacity and prices in various channels

Read Chapter 11 in MNPS (Dewan-Mendelson paper)

Read Section 7 in Course Packet (Pricing Analysis for Merrill Lynch)

Prepare case for discussion: Charles Schwab Inc. (A) (Harvard)

 

MODULE IV    Distribution Channel Operations (Front-Office Operations) (Sessions 5 & 6)

Session 4a (March 6): Applications of Queuing in Financial Services

  • Queueing Theory
  • Networks of queues and call center applications
  • Simulation

Prepare First City National Bank Case

Queueing Analysis of the FCN Bank

Read Sections 8 and 9 in Course Packet by Kolesar (on ATMs) and Larsen (on psychology of queues)

Session 4b (March 6): Queuing in Call Center and Call Center Management

  • Call centers and priority queuing
  • Skills-based routing

Read Chapters 18 and 19 in MNPS (Pinedo, Seshadri and Shanthikumar paper)
Read Sections 10 and 11 in Course Packet (on call center management and skills based routing)

Links:

  1. Bank of Montreal Managing the Bank of Tomorrow
  2. Skills Based Routing: A Challenge for Call Centers Skills Based Routing: A Challenge for Call Centers

Session 5a (March 20): Call Center Case Study

Prepare case for discussion the Nationsbank case (Insead).

  • Categorization of Customers
  • Taking advantage of cross sales opportunities

Session 5b (March 20): Human Resource Issues and Personnel Scheduling

Read Chapter 17 in MNPS (Larsen-Pinker paper)

 

MODULE V       Internal Business Processes

Session 6a (March 27): Processing Securities Transactions;
On-Line Retail Brokers and Internet Banking

  • Types of Securities
  • Operations Procedures
  • Bank Brokerage Firm Relationships

Prepare case for discussion: the Wells Fargo Online Case

Session 6b (March 27): Check-Clearing Operations

Read Sections 12 and 13 in the Course Packet

For an overview of McKinsey's view on internal business processes look at this presentation.

MODULE VI     Productivity Measurements and Performance Measurement (Sessions 7 & 8)

Session 7a (April 3): Data Envelopment Analysis

Read the DEA treatise, Section 14 in the Course Packet
Read the Harker-Zenios paper, Section 15 in the Course Packet

Session 7b (April 3): Productivity of Bank Branches

Read Section 16 in the Course Packet (the Oral Yolalan paper on Bank branches in Turkey)

Links:

1. Cutler Presentation

Session 8a (April 10): Optimization Framework including Quality

Read Section 17 in the Course Packet (the Athanasopoulos paper)
(The Capabilities, Quality, Performance (C-Q-P) Optimization Framework)

Session 8b (April 11): Productivity and Performance Case Study

Prepare case for discussion: London Life Balanced scorecards (Ivey Case)

MODULE VII     Quality Control in Financial Services - Reliability Design and Optimal Redundancy.

Session 9a (April 17): Quality Control in Call Center Management

Read Chapter 20 in MNPS (Patel paper)

Session 9b (April 17): Data bases and credit card operations.

Prepare for discussion the case: AT&T Universal Card Services (Harvard)

Links:

1. Lloyds TSB Transforms its Cards Business and Reaches for Top Slot

2. Operational Loss

 

MODULE VIII     Operational Risk Analysis (Sessions 10 & 11)

Session 10a (April 24): Operational Risk factors

Read Sections 18 and 19 in the Course Packet

Links:

1. Report of the Operational Risk Committee of the International Association of Financial Engineering

2. Goldman Sachs Presentation

 

Session 10b (April 24): Statistical Analysis

Read Sections 20 and 21 in the Course Packet

  • Distributions for frequency of losses (poisson)
  • Distributions for severity of losses (lognormal)

Link: A Case for Quantification

Session 11a (May 1): Characteristics of effective controls

Prepare the Allied Irish Bank (AIB) Case.
Allied Irish Bank Graphs

Transparencies of presentations given at a recent operational risk conference

Session 11b (May 1): Decision support systems for operational risk analysis

Link: Leading Software Contenders

(Speaker from Goldman)

MODULE IX     Conclusions

Session 12a (May 8): Future Developments

Universal Banks; Financial Supermarkets

Read Section 22 in the Course Packet

Links:

  1. Financials Transformations - Delivered Globally
  2. Britannic Money offers customers the ultimate personalized financial one-stop shot

Session 12b (May 8): Course Review