"Application of TQM To Financial Services": Ali H. Al Mansour ID# 230315
"Application of TQM To Financial Services": Ali H. Al Mansour ID# 230315
"Application of TQM To Financial Services": Ali H. Al Mansour ID# 230315
By
Ali H. Al Mansour
ID# 230315
For
January 7, 2007
TABLE OF CONTENT
Introduction............................................................................................................. 3
Difference between Service and Manufacturing Systems ................................... 4
Service Quality Systems ......................................................................................... 6
HR Management and Service Quality .................................................................. 7
Application of TQM in Financial Services Systems............................................. 7
Barriers to Implementing TQM in Service Industry......................................... 10
How to Overcome Barriers to TQM Implementation ....................................... 11
Conclusion ............................................................................................................. 12
References.............................................................................................................. 13
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Introduction
Providing a higher quality service has become a strategic imperative for senior
managements around the world. Several quality tools and techniques have been used
to achieve this management objective and Total Quality Management (TQM) proved
to be among the most effective quality techniques that have been applied. TQM has
added a significant dimension to management practice around the world since its
introduction in early 1980’s. It became a source of competitive advantage and very
few companies can afford to ignore it. Empirical studies have shown that the way
organizations implement TQM can significantly affect the results and business
impact, hence organizations need to take proper measure in implementing TQM into
their organizations. TQM has been defined in a variety of ways. It generally means a
quest for excellence, creating the right attitudes and controls to make prevention of
defects/errors possible and optimize customer satisfaction by increased efficiency and
effectiveness.
The literature has suggested that TQM has advanced beyond capturing tools and
systems, and its focus has shifted to conceptual rather than practical aspects.
Therefore, TQM is now accepted and adopted by many firms around the world as a
management philosophy that embodies a set of generic core principles which are
unconstrained by industry unique considerations (Dean and Brown, 1994; Grant et al.,
1994). The recent arguments concerning TQM have supported the contingency model
of the application of TQM core principles into different environments (Sitkin et al.
1994). These arguments suggest that TQM is applicable to service firms but should
not applied in its entirety and only compatible tools and techniques are applied to reap
the utmost benefit of its use. Additionally, “soft” aspects of TQM that emphasize
behaviors and attitudes, such as leadership, customer focus, empowerment,
involvement and cultural elements of TQM has facilitated a more successful and
beneficial implementation of TQM in the service industry.
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Due to emerging need of quality management implementation in financial service
industry now is the time for us to move about “paradigm shift.” Banks and financial
service firms must pay attention to this shift and start developing strategies for
providing high quality products and services to customers. Banks need to determine
where improvement is needed, how services can be improved and where business
process interruptions occur, why they occur and how they can be avoided. This paper
will explore how TQM tools and techniques have evolved in the service industry with
primary focus on its implementation in the financial service industry.
There are several key characteristics that differentiate service firms from
manufacturing firms and these would affect TQM principles, tools and techniques
transfer to service environments. The most significant and notable characteristic is the
intangibility of a service as compared to a tangible or sensible product in
manufacturing environments. Tangible products are more measurable and
standardized in their specifications. In contrast, intangible products are less
homogenous and difficult to measure. For example the concept of SERVQUAL,
developed by Zeithaml et al. (1990) to measure quality of services, was dominated by
non-physical elements such as responsiveness, courtesy and accessibility. Another
significant difference is that the operation systems in service firms are different
whereby the consumption and delivery of a product takes place simultaneously. As
such, it is difficult to control the quality of the product before delivery to a customer.
On the other hand, the quality of manufactured products can be tested and controlled
before delivery. This is also supported by the fact that a defective product can be
replaced but a defective service may create a permanent damage.
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Singaporean companies. The study found that the service organizations generally
showed a lower level of TQM implementation than the manufacturing organizations,
particularly in terms of the elements of information and analysis, process
management, and quality performance. On the other hand, there was no significant
different with respect to the elements of leadership, human resources, and customer
focus. These two studies support the argument that the “soft” elements of TQM are
more applicable in service firms than are the other statistical and process control
techniques. Another interesting study was carried out by Huq and Stolen (1998).
They examined the difference of TQM implementation between 18 manufacturing
and 18 service companies based on 19 TQM dimensions. They found that the service
companies apply TQM practices selectively as opposed to the manufacturing firms,
which apply the full range of TQM practices.
Manufacturing Service
(n = 102) (n = 92)
The finding of this study indicates that the level of TQM practices and quality
performance are not significantly different between these two sectors except for
people management in which service firms show a significantly higher score. The
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finding of this study, again, supports the positive argument concerning the
applicability of TQM principles and practices in the service firms.
Following the success of TQM in manufacturing, academics have begun to study the
potential to transfer and apply TQM principles to service organizations. Taking such
a wind can be challenging since TQM was born and developed in the manufacturing
areas. TQM proponents or gurus developed TQM based on their experiences with
manufacturing firms. Albeit the fact that those individuals have suggested that TQM
can be applicable in services industries, obstacles can rise if the TQM philosophy is
not adjusted enough to suit the nature of service industries.
Service systems have many characteristics that distinguish them. First, service
systems normally produce services which maybe tangible or intangible and sells
directly to users. Service systems establish multiple contacts with its users who
provide an opportunity for either good or bad quality of service. Service systems need
to be available to provide its service when the customer needs it. Customers consider
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that timely availability of service and responsiveness in providing service are the
basic purposes of the system although with an optimum price. The service system has
also to meet the customer expectations in regard to time of completion.
Application of TQM in the service industry has emphasized the human factor which
is regarded to be the major determinant of the implementation success in a service
organization. Human factors such as teamwork, cooperation and motivation have
been accorded greater attention and can not be taken for granted for a successful
TQM implementation. A growing body of evidence from the U.S. indicates that there
is a strong positive relationship between the favorability with which employees
describe key aspects of their working environment and customer satisfaction. There is
then a strong case for service organizations taking a keen interest in the attitudes of
their employees and promoting employment that lead to satisfied and well-motivated
staff. Ulrich et al., for example recommended that HR professionals need to become
more involved in customer service, embrace measures of their own work and they
relate customers and business performance and spend time with customers.
Banks benefit tremendously from TQM implementation for the mere fact that their
success and thrive depends on customer satisfaction and loyalty. High quality service
in banks starts with understanding customers’ needs and using these needs to drive
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the good service or new product development process. Instead of solely depending on
marketing research organizations to define these needs, members of the bank
including management and personnel need to meet customers and gain a first-hand
understanding of their needs.
Banks should look upon their customers as their best salespeople because they are
users of the products and their desire to recommend them to their friends and family
comes from the sincere delight and surprise. Customers play a major role in the
marking of services and products of a given organization whereby they have more
creditability to attract new customers than salesmen. Salesmen are usually perceived
with less creditability by customers because they want to meet certain quotas and earn
commissions. To create such a customer appeal and endorsement of product and
services, banks ought to create a life-long strategy to continuously delight and
surprise their customers ahead of competitors. Banks need to ensure that their
customers not only buy their products but also recommend it to others because if they
are only buying it they could shift at any moment to try competitors’ products and
services.
Generally, the key banking services that need to be regularly evaluated for quality
improvement are:
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1. Processing time of key products and services e.g. loans, new accounts, ATM
cards, credit cards, cheque encashment.
2. Waiting times like down time and queuing time
3. Customer complaints, written or verbal
4. Friendliness and efficiency
5. Accuracy and timeliness of statements of accounts and records
6. Effective interest rates, inclusive of all service and hidden charges
7. Promptness in responding to customer inquires such as in answering the
phone, the number of rings before phone is picked up, the number of transfers
before the caller talks to the right person
8. Lost customers and accounts.
There are several techniques that need to be implemented to ensure that TQM
implementation is being effective. One of which is expanding the role of bank
internal auditors to evaluate performance in term of quality, service, cleanliness and
value rather than limiting their function to only checking cash flows, transactions and
balances. Second, quality models could be employed such as “value analysis” which
evaluates processes based on value addition to the bank through method studies, work
measurement, and job evaluation. Third, banks can ensure proper quality system
implementation by using the well-known manufacturing methodology Cycle Time
Reduction (CTR) coupled with identifying defects using ISO guidelines.
In order to implement TQM in an environment, new changes have to take place and
people of the organization have to commit to those changes. In a survey of 160
branch managers of banks in England, interviewed managers regarded
communication and management style to be the two most significant issues to be
changed to enable an effective TQM implementation. In words, managers ought to be
able to communicate their message throughout the organization effectively. The
survey was on a scale from 1 to 5 where 5 was of major importance and 1 of minor
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importance. The table below shows the changes needed and how the managers rated
each based on their priority:
Change µ σ
Communication 3.837 1.812
Management Style 3.558 1.919
Educational program 3.182 1.821
Leadership 2.909 1.927
Design of product/service 2.907 1.950
Measurement procedures 2.524 1.916
Branch design 2.273 1.619
Customer’s segmentation 2.024 1.351
The question is often asked, what effect could TQM implementation have on the
performance of financial institutions? Many studies answered this question with
consensus that TQM raises quality awareness among organizations members
including management and staff. In turn this awareness reflects positively on
customer satisfaction with the quality of financial product introduced and the way it’s
delivered by the individual employees. Findings of several studies on TQM
implementation within the financial service organizations indicated a positive link
between quality, profitability, cost-effectiveness and teamwork.
Implementation of TQM in the service industry can be difficult due to the fact that
quality of services cannot be defined objectively. Additionally, service industry by
nature has less control over factors which affect quality. In service settings, there is
much higher level of external uncertainty compared to manufacturing settings
because services cannot be stored for later use and because of the participation by the
customer in the process. Another difficulty is the fact that services are intangible
which makes it difficult to set standards to conform to them and to measure them.
High quality services are subject to the individual customer expectations which may
be unknown or unstated, and may vary from customer to customer and also from time
to time.
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On the same survey of the branch managers in the UK banks mentioned above,
managers considered lack of resources, short-term goals, internal environment and
communication as the major barriers to TQM implementation. Results were as
follows:
Barriers µ σ
Lack of resources 3.458 1.611
Short-term goals 3.255 1.700
Internal environment 3.043 1.712
Communication 3.000 1.865
Lack of training 2.958 1.774
Skill of employees 2.830 1.810
Cost constraints 2.792 1.713
Measuring quality 2.702 1.718
External environment 2.348 1.402
It can be evident from these findings that organizations implement TQM to raise
customers’ emergent needs, cutting costs and achieving short term results, rather than
as a program embedded in the companies’ business strategy.
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needs and expectations rather than wait for top management to make decisions which
can create delay and dissatisfactions of customers.
Conclusion
TQM have been based on the quest for progress and continual improvement in the
areas of cost, reliability, quality, innovation, efficiency and business effectiveness.
TQM has been an approach for continuously improving the quality of goods and
services delivered through the participation at all levels and functions of the
organization. Organizations have viewed TQM as the totally integrated efforts or
organizational members for gaining competitive advantage by continuously
improving every facet of organizational culture.
There could be several reasons to apply TQM, in financial services the major drivers
for financial institutions to apply TQM are competitive pressures, customer demand
for quality and desire to reduce cost. Financial service organizations are very labor
intensive, and their staff come into frequent contact with the public. Teamwork, co-
operation and motivation are critical to delivering a quality service. Customer
satisfaction can only be a result of a range of factors which in financial services
would include friendly and courteous personnel, the quality of financial products,
credit facilities, bank charges and user friendly online systems.
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