BPR in context to strategic cost management

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    BPR & in context toBPR & in context to

    Strategic Cost ManagementStrategic Cost Management

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    Crow storyCrow story Crow story:Crow story: Once there was aOnce there was a KoelKoel sitting on asitting on abranch.branch. She saw a crow running away.She saw a crow running away. She asked him,She asked him,

    why are you running?why are you running? Crow said, I am fed up withCrow said, I am fed up withpeople around here, I am going to a new place.people around here, I am going to a new place. SheSheasked Why?asked Why? Crow said, they areCrow said, they are not good, they donot good, they donot allow me to seat at one place, they always shoo menot allow me to seat at one place, they always shoo meaway by throwing stone and all that, and so I am going toaway by throwing stone and all that, and so I am going toa new place.a new place. She asked him, Oh, OK, but did youShe asked him, Oh, OK, but did youchange the old habit of screaming Kachange the old habit of screaming Ka KaKa KaKa andanddisturbing people.disturbing people. He said No.He said No. Then she said. in newThen she said. in newplace also perhaps people will drive you away and youplace also perhaps people will drive you away and you

    will not benefit by running away from this place.will not benefit by running away from this place.

    Moral of the story:Moral of the story: Change before you automate.Change before you automate. NoNopoint in just changing ERP, try to change users.point in just changing ERP, try to change users.

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    What is a Business Process?What is a Business Process?

    A business process is a collection ofA business process is a collection of

    activities which together produceactivities which together produce

    something of value to a customersomething of value to a customer e.g. Customer Order Entrye.g. Customer Order Entry

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    What is BPRWhat is BPR

    Reengineering involves the fundamentalReengineering involves the fundamental

    rethinking and redesign of businessrethinking and redesign of business

    processes to achieve dramaticprocesses to achieve dramaticimprovements in critical, contemporaryimprovements in critical, contemporary

    measures of performance, such as cost,measures of performance, such as cost,

    quality, service and speedquality, service and speed

    Also called as Business Process RedesignAlso called as Business Process Redesign

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    Key CharacteristicsKey Characteristics

    ProcessProcess--BasedBased

    Radical ImprovementRadical Improvement

    Integrated ChangeIntegrated Change People CentredPeople Centred

    Focus on EndFocus on End--CustomersCustomers

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    BPR is Not?BPR is Not?

    AutomationAutomation

    DownsizingDownsizing

    OutsourcingOutsourcing

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    What it is not?What it is not?

    Reengineering is notReengineering is not reorganizing.reorganizing. Modifying how an organization is structured andModifying how an organization is structured and

    redesigning an organizations business processes areredesigning an organizations business processes aretwo different things.two different things.

    An organizational structure should be designed soAn organizational structure should be designed sothat it best supports redesigned business processes.that it best supports redesigned business processes.

    Reengineering is notReengineering is not downsizing either.downsizing either. Downsizing focuses on the reduction of workforce toDownsizing focuses on the reduction of workforce to

    achieve shortachieve short--term cost savings.term cost savings.

    Reengineering, on the other hand, focuses onReengineering, on the other hand, focuses onrethinking from the ground up, finding more efficientrethinking from the ground up, finding more efficientways of working including eliminating work that isways of working including eliminating work that isunnecessary.unnecessary.

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    What prompts BPR?What prompts BPR?

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    What prompts BPR?What prompts BPR?

    Realization that competitors will haveRealization that competitors will haveadvantage in cost, speed, flexibility, qualityadvantage in cost, speed, flexibility, quality

    or service.or service.

    New vision or strategy: a need to buildNew vision or strategy: a need to buildoperational capabilities.operational capabilities.

    Need to reNeed to re--evaluate strategic options, enterevaluate strategic options, enter

    new market or redefine new products ornew market or redefine new products or

    service.service.

    Core operating processes are bases onCore operating processes are bases on

    outdated assumptions/technology.outdated assumptions/technology.

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    What prompts BPR?What prompts BPR?

    Change in market place in the form ofChange in market place in the form of

    1.1. Loss of market shareLoss of market share

    2.2. New basis of competition/ newNew basis of competition/ new

    competitors.competitors.

    3.3. New regulations.New regulations.

    4.4. Shorter product life cyclesShorter product life cycles

    5.5. New technologies in playNew technologies in play

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    Why Reengineer?Why Reengineer?

    CustomersCustomers

    DemandingDemanding

    SophisticationSophistication

    Changing NeedsChanging Needs

    CompetitionCompetition

    LocalLocal

    GlobalGlobal

    ChangeChangeTechnologyTechnology

    CustomerCustomer

    PreferencesPreferences

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    What to reWhat to re--engineer?engineer?

    BPRBPRchanges processeschanges processes, and, andnotnot

    functions, departments,functions, departments,

    geographies or tasksgeographies or tasks

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    Why Organizations Dont Reengineer?Why Organizations Dont Reengineer?

    ComplacencyComplacency

    Political ResistancePolitical Resistance

    New DevelopmentsNew Developments

    Fear of Unknown and FailureFear of Unknown and Failure

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    BPR Versus Process SimplificationBPR Versus Process Simplification

    Process Reengineering

    Radical Transformation

    Vision-Led

    Change Attitudes & Behaviours

    Director-LedLimited Number of Initiatives

    Process Simplification

    Incremental Change

    Process-Led

    Assume Attitudes & Behaviours

    Management-LedVarious Simultaneous Projects

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    BPR Versus Continuous

    Improvement

    Process Reengineering

    Radical Transformation

    People & Technology Focus

    High Investment

    RebuildChampion Driven

    Continuous Improvement

    Incremental Change

    People Focus

    Low Investment

    Improve ExistingWork Unit Driven

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    FORD MOTOR COMPANY WAS WONDERINGFORD MOTOR COMPANY WAS WONDERING

    WHY THEY NEED 400 CLERKS TO HANDLEWHY THEY NEED 400 CLERKS TO HANDLE

    ACCOUNTS PAYABLE, WHEN COMPETITORACCOUNTS PAYABLE, WHEN COMPETITOR

    (MAZDA) JUST HAD FIVE.(MAZDA) JUST HAD FIVE.

    THAT IS WHEN FORD DID SOME BPR. THETHAT IS WHEN FORD DID SOME BPR. THE

    BPR WORK NEEDS TO BE PROPERLYBPR WORK NEEDS TO BE PROPERLY

    DOCUMENTED IN THE FORM OF AN S.O.PDOCUMENTED IN THE FORM OF AN S.O.P(STANDARD OPERATING PROCEDURES)(STANDARD OPERATING PROCEDURES)

    MANUAL, WHICH WOULD FORM THEMANUAL, WHICH WOULD FORM THE

    FOUNDATION OF THE ~NEW BUSINESS.FOUNDATION OF THE ~NEW BUSINESS.

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    ExamplesExamples

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    AFTER THE BPR DONE AT FORD, THEAFTER THE BPR DONE AT FORD, THE

    PROCESS ELIMINATED INVOICES ANDPROCESS ELIMINATED INVOICES AND

    MISMATCHED DOCUMENTATION.MISMATCHED DOCUMENTATION.

    THE ACCOUNTS PAYABLE DEPARTMENTTHE ACCOUNTS PAYABLE DEPARTMENT

    NOW HAS 125 PEOPLE ONE FOURTH OF THENOW HAS 125 PEOPLE ONE FOURTH OF THE

    EARLIER 500 PEOPLE.EARLIER 500 PEOPLE.

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    Benefits of ReengineeringBenefits of Reengineering

    BPR helps inBPR helps in--

    Eliminating redundant/outdated processesEliminating redundant/outdated processes

    Process improvementProcess improvement

    Cost reductionCost reduction

    Productivity improvementProductivity improvement

    Profit improvementProfit improvement

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    Benefits of ReengineeringBenefits of Reengineering

    The rewards of reengineering are manyThe rewards of reengineering are many

    including:including:

    empowering employees;empowering employees;

    eliminating waste, unnecessary managementeliminating waste, unnecessary managementoverhead, and obsolete or inefficient processes;overhead, and obsolete or inefficient processes;

    producing often significant reductions in cost andproducing often significant reductions in cost and

    cycle times;cycle times;

    enabling revolutionary improvements in manyenabling revolutionary improvements in manybusiness processes as measured by quality andbusiness processes as measured by quality and

    customer servicecustomer service

    helping top organizations stay on top and lowhelping top organizations stay on top and low--

    achievers to become effective competitors.achievers to become effective competitors.

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    BPR in context to Strategic CostBPR in context to Strategic Cost

    ManagementManagement-- SummarySummary

    Low cost airline Ryan air revealed in March that it wasLow cost airline Ryan air revealed in March that it wastoto freeze the pay of its senior managementfreeze the pay of its senior management duringduring

    2008 as part of a number of cost cutting initiatives to2008 as part of a number of cost cutting initiatives tocombat rising fuel prices.combat rising fuel prices.

    Hibernian announced in June that it was moving 580Hibernian announced in June that it was moving 580back office and support positions from Dublin toback office and support positions from Dublin to

    Bangalore in India in order to drive sustainableBangalore in India in order to drive sustainableefficiencies within theefficiencies within the organisationorganisation

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    There are 6 key areas thatThere are 6 key areas that

    should be considered whenshould be considered when

    implementing BPRimplementing BPR -- inincontext to Strategic Costcontext to Strategic Cost

    ManagementManagement

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    1) Customer value proposition1) Customer value proposition

    When assessing cost reductionWhen assessing cost reduction

    opportunities an organization must beopportunities an organization must be

    mindful not to forget the most importantmindful not to forget the most important

    element of the equationelement of the equation the customerthe customer It is essential that an organizationIt is essential that an organization

    understands its existing client base as wellunderstands its existing client base as well

    as other market opportunities and that itas other market opportunities and that it

    aligns itself carefully to be able to meetaligns itself carefully to be able to meetcurrent and future demandscurrent and future demands

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    2) Business process re2) Business process re--

    engineeringengineering

    BPR is the key to transforming the wayBPR is the key to transforming the waypeople work and is the main way in whichpeople work and is the main way in whichorganizations become more efficient andorganizations become more efficient and

    effective.effective. Successful BPR depends on a number ofSuccessful BPR depends on a number of

    factorsfactors--

    senior management buysenior management buy--inin

    strategic alignmentstrategic alignment supporting business case for change;supporting business case for change;

    clear change management planclear change management plan

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    3) Simplify the business operating3) Simplify the business operating

    modelmodel

    ReRe--define its people, processes, organizationaldefine its people, processes, organizational

    structure, technology and sales channels.structure, technology and sales channels.

    Simplifying the operating model looks toSimplifying the operating model looks to

    eliminate unnecessary costs related toeliminate unnecessary costs related tomaintaining valuemaintaining value

    TheThe low cost airlineslow cost airlines are an excellent example.are an excellent example.

    They have sought to eliminate unnecessaryThey have sought to eliminate unnecessarycosts by streamlining business processes andcosts by streamlining business processes and

    pass these efficiencies on to customers in thepass these efficiencies on to customers in the

    form of low prices.form of low prices.

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    4) Shift fixed to variable costs4) Shift fixed to variable costs

    Fixed costs include anything that is a constantFixed costs include anything that is a constantirrespective of sales volumes.irrespective of sales volumes.

    The greater the proportion of variable costs toThe greater the proportion of variable costs tofixed costs incurred by an organisation the easierfixed costs incurred by an organisation the easierit is to upscale and downscale costs in responseit is to upscale and downscale costs in responseto economic booms and busts.to economic booms and busts.

    A popular initiative for organisations is toA popular initiative for organisations is tooutsource various functions or businessoutsource various functions or businessprocessesprocesses

    Eg:Symantec, which provides security, storageEg:Symantec, which provides security, storageand systems management solutions, announcedand systems management solutions, announcedits plan in May to transfer manufacturing andits plan in May to transfer manufacturing anddistribution operations from Dublin to the Czechdistribution operations from Dublin to the CzechRepublic in November.Republic in November.

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    5) Focus on the best people in a5) Focus on the best people in a

    slower job marketslower job market

    In an economic downturn, the firstIn an economic downturn, the first

    thing organisations usually look tothing organisations usually look to

    remove is headcount.remove is headcount.

    Unfortunately this is not always theUnfortunately this is not always the

    best decision in the long term as keybest decision in the long term as key

    people and experience can be lost andpeople and experience can be lost and

    it is extremely costly to replace laterit is extremely costly to replace laterdown the line.down the line.

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    6) Planning disciplines6) Planning disciplines

    Planning will ensure that the organisation isPlanning will ensure that the organisation isin a good position to meet strategic objectives,in a good position to meet strategic objectives,despite recessionary pressures.despite recessionary pressures.

    highlighting the areas of the business that canhighlighting the areas of the business that canbe rationalised and those that are strategicallybe rationalised and those that are strategicallyimportant to retain.important to retain.

    Organisations should then measure theirOrganisations should then measure their

    performance against this plan and take anyperformance against this plan and take anynecessary action if they begin to deviate fromnecessary action if they begin to deviate fromit.it.

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    BPR CONCLUSION

    Proper understanding of BPR is needed before

    taken on a project.

    BPR is used for radical redesign and improved workprocesses

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    CASE STUDYCASE STUDY-- SYNDICATE BANKSYNDICATE BANK

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    IntroductionIntroduction

    Syndicate Bank was established in 1925 inSyndicate Bank was established in 1925 inUdupiUdupi, the abode of Lord Krishna in coastal, the abode of Lord Krishna in coastal

    Karnataka with a capital of just Rs.8000/Karnataka with a capital of just Rs.8000/--..

    The bank collected as low as 2The bank collected as low as 2 annasannas daily atdaily at

    the doorsteps of the depositors through itsthe doorsteps of the depositors through its

    Agents under its Pigmy Deposit Scheme startedAgents under its Pigmy Deposit Scheme started

    in 1928. This scheme is the Banks brand equityin 1928. This scheme is the Banks brand equity

    today and the Bank collects around Rs. 2today and the Bank collects around Rs. 2 crorecrore

    per day under the scheme.per day under the scheme.

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    IntroductionIntroduction

    ObjectiveObjective -- To extend financial assistance to theTo extend financial assistance to the

    local weavers who were crippled by a crisis in thelocal weavers who were crippled by a crisis in the

    handloom industry through mobilising smallhandloom industry through mobilising small

    savings from the communitysavings from the community

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    Impact before the BPRImpact before the BPR

    implementationimplementation Before the implementation of BPR banks workedBefore the implementation of BPR banks worked

    using computer oriented techniques yet nousing computer oriented techniques yet no

    centralized functioning was there. Only Partialcentralized functioning was there. Only Partial

    Branch Automation or Total Branch automationBranch Automation or Total Branch automationwas there i.e. one branch cannot be linked towas there i.e. one branch cannot be linked to

    other branches or other banks.other branches or other banks.

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    BPRBPR--InitiativeInitiative

    TheThe BankBank hadhad launchedlaunched anan ambitiousambitioustechnologytechnology planplan calledcalled CentralizedCentralized BankingBanking

    SolutionSolution (CBS)(CBS) wherebywhereby 500500 ofof ourour strategicstrategic

    branchesbranches withwith their theirA

    TMsA

    TMs werewere beingbeingnetworkednetworked nationwidenationwide overover aa 44 yearyear periodperiod..

    TheThe BankBank waswas wellwell equippedequipped toto meetmeet thethe

    challengeschallenges ofof thethe 2121stst centurycentury inin thethe areasareas

    ofof informationinformation technology,technology, knowledgeknowledge andand

    competitioncompetition..

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    Reason for BPR Initiative:Reason for BPR Initiative:

    1.1. To adopt centralized banking systemTo adopt centralized banking system

    (CBS)(CBS)

    2. To improve the productivity of the bank2. To improve the productivity of the bank

    and its customers.and its customers.

    3. Save money and increase speed of the3. Save money and increase speed of the

    work done at brancheswork done at branches

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    Scope and Time FrameScope and Time Frame

    The bank formed a business council with fiveThe bank formed a business council with fivenonnon--IT members and one IT member.IT members and one IT member.

    Three were general managers and two wereThree were general managers and two were

    from functional departments.from functional departments. The bank came up with a business modelThe bank came up with a business model

    and processesand processes to deliver anywhere, anytimeto deliver anywhere, anytime

    banking and an MIS that would provide bothbanking and an MIS that would provide bothtactical and strategic information.tactical and strategic information.

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    The bank had two alternatives:The bank had two alternatives:

    1. Implementing core banking by carving out1. Implementing core banking by carving out

    a small area in existing branches, whilea small area in existing branches, while

    keeping the existing branch automationkeeping the existing branch automation

    system intact so that only new customerssystem intact so that only new customers

    would get into the core banking setwould get into the core banking set--up.up.

    2. To go in for a wholly2. To go in for a wholly--centralized system.centralized system.

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    Decision MakingDecision Making

    The decision was taken to go in for aThe decision was taken to go in for a corecore

    banking systembanking system where the bank would totallywhere the bank would totally

    migrate to the new system as it was felt thatmigrate to the new system as it was felt that

    splitting into two systems would pose too manysplitting into two systems would pose too manyaccounting issues.accounting issues.

    The bank viewed it as an opportunity to reinventThe bank viewed it as an opportunity to reinvent

    itself.itself.

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    Initial StageInitial Stage

    The project began in August 2001.The project began in August 2001.

    The first branch went live on December 15,The first branch went live on December 15,

    2001.2001.

    The first was in Mumbai, Delhi accounted forThe first was in Mumbai, Delhi accounted for

    another two, whileanother two, while

    Bangalore andBangalore and ManipalManipal had one each.had one each.

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    Initial StageInitial Stage

    After this came the launches of new deliveryAfter this came the launches of new delivery

    channels. ATMs were launched in Februarychannels. ATMs were launched in February

    2002 and today Syndicate Bank has 1119 ATMs2002 and today Syndicate Bank has 1119 ATMs

    (as on 25.06.2009). For customers, the big boost(as on 25.06.2009). For customers, the big boosthas been the introduction ofATMshas been the introduction ofATMs

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    TeamTeam Involved in reengineeringInvolved in reengineering

    Syndicate Bank has joined Bank of India, UnionSyndicate Bank has joined Bank of India, Union

    Bank of India, Indian Bank and United Bank ofBank of India, Indian Bank and United Bank of

    India in creating a branded ATM network calledIndia in creating a branded ATM network called

    CashTreeCashTree..

    TheThe telebankingtelebanking launch (IVR) went live in Julylaunch (IVR) went live in July

    2002, followed by Internet banking in2002, followed by Internet banking in

    January/February 2003.January/February 2003.

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    TeamTeam Involved in reengineeringInvolved in reengineering

    The data centre is based at RelianceThe data centre is based at Reliance lnfocommlnfocommin Mumbai.in Mumbai.

    Disaster recovery is being set up in Bangalore.Disaster recovery is being set up in Bangalore.

    WiproWipro InfotechInfotech is doing the network managementis doing the network management

    part. Bandwidth has been purchased from BSNLpart. Bandwidth has been purchased from BSNL

    and MTNL.and MTNL.

    Infosys later introducedInfosys later introduced FinacleFinacle as the coreas the core

    banking solution for all public sector banks.banking solution for all public sector banks.

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    ProjectProject DesignDesign

    The bank had multiple systems. The data fromThe bank had multiple systems. The data from

    these had to be moved into the centralizedthese had to be moved into the centralized

    system being deployedsystem being deployed..

    There was a project director from the banks side.There was a project director from the banks side.

    The steering committee included seniorThe steering committee included senior

    executives from IBM andexecutives from IBM and ii--flex.flex.

    The bank has spent Rs 35 to Rs 40The bank has spent Rs 35 to Rs 40 crorescrores onon

    deploying its CBS.deploying its CBS.

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    ProjectProject DesignDesign

    Beyond the IT component, Syndicate BankBeyond the IT component, Syndicate Bank

    brought much more to the table in terms of:brought much more to the table in terms of:

    BrandingBranding

    Real singleReal single--windowwindow

    UniformsUniforms

    Data enrichmentData enrichment

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    Project Design (Rural)Project Design (Rural)

    Bank had 645 rural branches where thereBank had 645 rural branches where there

    was no regular supply of power.was no regular supply of power.

    The plan was to continue manual systemThe plan was to continue manual system

    from 10 am to 2 pm.from 10 am to 2 pm.

    Employees will key in transactions inEmployees will key in transactions in

    afternoon and will send to the regionalafternoon and will send to the regional

    office.office.

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    ProjectProject DesignDesign

    The bank has signed up withThe bank has signed up with BillpayBillpay..

    It has also tied up with Bajaj Alliance forIt has also tied up with Bajaj Alliance forcollecting insurance premiums. The CBScollecting insurance premiums. The CBS

    lets the bank pass on the premium on thelets the bank pass on the premium on the

    same day. Similarly, it can transfer taxsame day. Similarly, it can transfer tax

    collections on the same day.collections on the same day.

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    Benefits from the BPRBenefits from the BPR

    ImplementationImplementation The benefits accruing from this step were:The benefits accruing from this step were:

    1) The bank was in a position to offer a single1) The bank was in a position to offer a single--

    window facility to its customers.window facility to its customers.

    2) In Mumbai, where real estate is at a premium,2) In Mumbai, where real estate is at a premium,

    the bank has savedthe bank has saved crorescrores of rupees as a directof rupees as a direct

    result of the greater efficiencyresult of the greater efficiency..3)3)GandhinagarGandhinagar and Bangalore branch thatand Bangalore branch that

    used to occupy 13000 square feet nowused to occupy 13000 square feet now

    takes up 4000 square feet of space.takes up 4000 square feet of space.

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    Benefits from the BPRBenefits from the BPR

    ImplementationImplementation4) The staffing requirement went down by as much4) The staffing requirement went down by as much

    as 40 percent, driving down space requirements.as 40 percent, driving down space requirements.

    5) By undertaking BPR and deploying the CBS5) By undertaking BPR and deploying the CBS(Centralized Banking System), three branches of(Centralized Banking System), three branches of

    Syndicate BankSyndicate Bank nownow fit into the three floors thatfit into the three floors that

    were earlier occupied by a single one.were earlier occupied by a single one.

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    Impact after the BPRImpact after the BPR

    implementationimplementation After the implementation of CBS now SyndicateAfter the implementation of CBS now Syndicate

    Bank can manage different branches fromBank can manage different branches from

    headquarters using theheadquarters using the FinacleFinacle softwaresoftware

    provided by Infosys. Now, syndicate bank isprovided by Infosys. Now, syndicate bank israising huge turnovers and savings huge costs.raising huge turnovers and savings huge costs.

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    SUMMARYSUMMARY

    The success of Syndicate BanksThe success of Syndicate Banks

    deployment of IT can be linked to itsdeployment of IT can be linked to its

    commitment to reengineering its businesscommitment to reengineering its business

    processes sideprocesses side--byby--side with its IT initiatives.side with its IT initiatives.It has also proved that public sectorbanksIt has also proved that public sectorbanks

    can match, if not outdo private players whilecan match, if not outdo private players while

    deploying IT.deploying IT.

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    Conclusions:Conclusions:

    Syndicate Bank being a public sector facedSyndicate Bank being a public sector faced

    tough competition from private banks thustough competition from private banks thus

    implemented BPR to come at par with privateimplemented BPR to come at par with private

    sector banks. Certain changes in bankingsector banks. Certain changes in bankingsystem and due to regulations of RBI also it wassystem and due to regulations of RBI also it was

    very necessary to implement BPR. Being avery necessary to implement BPR. Being a

    commercial bank good profits of the bank arecommercial bank good profits of the bank are

    necessary.necessary.

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    Recommendations:Recommendations:

    Bank is still suffering competition from otherBank is still suffering competition from other

    banks not only private but public sector banks.banks not only private but public sector banks.

    Therefore, it should try to improve its services.Therefore, it should try to improve its services.

    Bank needs to more visible in market by properBank needs to more visible in market by proper

    marketing and advertising.marketing and advertising.

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