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A Work force in Transition
BY DARRYL DEMOS
Transitioning workers from paper-based to electronic payments processing doesn?t necessarily mean handing out pink slips.
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SYNOPSIS | Contributing author Darryl Demos of Demos Solutions estimates that the transition from paper-based to electronic payments processing will result in as much as a 30% decline in labor requirements from 2006 to 2008. Capacity management is one approach to effectively and efficiently managing the transition. Included in a transition plan are consolidation analysis, staffing and scheduling models, skill profiling and talent recruitment/retention planning.
As the payments industry transitions from paper-based to electronic processing, bankers tend to be preoccupied with the strategic issues, such as: How fast should we adopt imaging? How can we optimize image and ACH? What investments are required? How can we deliver a respectable return on investment?
While those are indeed issues that need addressing, there?s another issue below the surface that requires con-sideration: How do we transition employees to the new environment?
By and large, most processing employees at the typical bank today have spent the majority of their careers working with paper checks. While some have recently received training in imaging technology, much of this work force faces the prospect of being left behind in a fast shrinking market. The 2004 Federal Reserve Payments study shows that check volume is falling by more than 4% a year and is already outpaced by electronic payments. Based on inter-views with industry executives, we estimate that most bank processing environments will experience between a 20% and 30% decline in labor requirements from 2006 to 2008 as electronic processing gains speed.
How should financial institutions manage the implied workforce transition to maintain operational efficiency? The temptation will be strong to cut processing staff across the board in the name of expense control.
We believe there is a better way: maximizing resource utilization with planning, analysis and new business practices for managing resources. To survive and thrive in an electronic payment processing environment, financial institutions need a transition plan that masters the art and science of capacity management, including consolidation analysis, staffing and scheduling models, skill profiling, and talent recruitment/retention planning.
Using more science in the process will help financial institutions balance several factors, including the decline in check volumes (market factors), potential growth (acquisition), turn-over (business as usual) and employee availability (staffing and scheduling).
An effective transition plan should include the following elements:
Zero-based capacity model
While internal and/or external benchmarks used to measure employee performance such as checks processed per individual per day are valid, they typically represent only a portion of the operating unit and not all the work that takes place or the amount of work that could take place. This limited scope benchmarking is comprised of (a) external benchmarking exercises that need to keep measurements narrow so they can compare apples to apples and (b) internal exercises where an organization lacks the ability to capture and measure work not easily obtainable from a single major processing system, such as reader/sorters, etc.
There is also the typical limitation of benchmarking, which is the risk of comparing oneself to others who are operating at suboptimal levels. The problem is, all benchmarks do a fine job of telling an organization how well they are doing vis-à-vis others. But they cannot say how well the institution could be doing overall, i.e., what is the optimal level of results that could be obtained under certain conditions?
A zero-based capacity model does just that. It aggregates all of the work requirements for a division or department based on volumes, time standards and allocations and forecasts how much needs to get done independent of the people available to do the work. The plan then involves comparing this result to the actual available time/work schedules and skills of the work force to assess overall capacity mismatches.
The concept of a “zero-based” plan is borrowed from the budgeting world, where finance people have advocated building each year’s budget based on needs (starting at $0). This is opposed to the traditional budget approach, which looks at last year’s budget and simply asks for more or less.
Developing zero-based capacity plans requires capturing all volumes or being able to derive volumes based on what can be captured electronically from existing systems. In this way, a zero-based capacity plan can be complete for all the work of a particular unit.
Forecasting and scheduling by day and intra-day
Dell became famous in the PC industry for its just-in-time systems that enabled it to eliminate waste and manage costs all the way down the value chain by building a PC only after an order was taken.
It is possible to also apply just-in-time concepts to people management. In our experience, a payment operation misses out on a 10% to 15% resource productivity improvement due to a lack of forecasting all departmental work (as suggested in the zero-based capacity planning discussion) and scheduling of people to match the work. But, financial institutions that invest in capacity management and scheduling systems can achieve tremendous benefits.
A recent study by Treasury Strategies, Inc., a Chicago and New York City-based consulting firm, compared the productivity of departments — in this case, wholesale lockbox — that manage capacity on an intraday basis vs. those that do not. They found that one-third of the surveyed organizations that manage on an intraday basis report 58% higher throughput than those that do not.
In client-specific work for Netherlands-based ABN AMRO, capacity management disciplines enabled reducing the work force by 6% while increasing operating margins by 38%. At Birmingham, Ala.-based Regions Financial Corp., reductions in excess capacity of 15% to 20% were achieved by implementing the disciplines of capacity management, scheduling and forecasting.
Still, the capacity management systems will fail to make an impact unless the financial institution commits to making forward-looking plans to capture the benefits. Often managing attrition and turnover wisely can help an organization achieve significant changes in productivity over a three-year period, enabling a smooth transition to a lower volume/higher productivity state.
Master the art of skill profiling
Turnover and attrition can be an institution’s greatest ally by lessening staffing costs as transaction volumes decrease. Unfortunately, turnover usually doesn’t happen when or to whom the employer wants it to.
Financial institutions manage activities on a daily basis to become as efficient as possible. But they also need to plan for the longer term. Managing to a 20% to 30% transformation over a three-year period requires working in distinct quarterly phases. Hiring replacements for individuals can take six to 12 weeks. So the quarterly planning period, over multiple quarters, works well for ensuring that the firm’s “pipeline” of people and skills is properly, but not overly, funded. The hiring plan should model major volume fluctuations—both increases and decreases—over time, by work type and by individual skill type.
The result is a volume/skill fluctuation matrix that serves as a business model to predict future bottlenecks and crisis points (see chart below). Too often, hires for positions simply roll forward based on historical “as is” patterns and ignore the power of cross skill planning based on forecasted volumes. Using such a matrix, an organization can factor in dramatic changes in forecasted volumes and how integrating the over/under position, skills, attrition and promotions can increase the chances for a “smooth landing” in a declining or rising business environment.
The combination of sound capacity planning across all activities in a department and a clear measurement and tracking of attrition, as well as promotions by skill set, can help an organization transition to a leaner, refocused environment in a logical and productive fashion. Many other organizations in manufacturing and retailing have learned to manage such details as a core competency. The transition in the nature of payments processing poses an opportune time for banking to do the same.
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