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Process Variation as a Determinant of Bank Performance: Evidence from the Retail Banking Study

Author

Listed:
  • Frances X. Frei

    (Harvard University, Cambridge, Massachusetts 02163)

  • Ravi Kalakota

    (Georgia State University, Atlanta, Georgia 30303)

  • Andrew J. Leone

    (University of Rochester, Rochester, New York 14627)

  • Leslie M. Marx

    (University of Rochester, Rochester, New York 14627)

Abstract

This paper explores the relation between retail banks' branch-based processes and financial performance. There are 11 processes included in this study, which represent the bulk of the activities performed in a typical retail branch (e.g., opening checking accounts). The first finding of this study is that the financial performance of banks that perform better across these processes tend to be better than that of other banks. In addition to the variation in process performance across banks, there is also substantial variation across processes within banks. That is, banks that performed well in one process often performed quite badly in another. We present an analytical model that shows that improvement in process variation can be more important than improvement in aggregate process performance when dealing with certain customer segments. Empirical evidence from the Wharton Financial Institution Center Retail Banking Study of bank holding companies in the United States provides support.

Suggested Citation

  • Frances X. Frei & Ravi Kalakota & Andrew J. Leone & Leslie M. Marx, 1999. "Process Variation as a Determinant of Bank Performance: Evidence from the Retail Banking Study," Management Science, INFORMS, vol. 45(9), pages 1210-1220, September.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:9:p:1210-1220
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    File URL: http://dx.doi.org/10.1287/mnsc.45.9.1210
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:eee:ijoais:v:19:y:2015:i:c:p:1-16 is not listed on IDEAS
    2. Yee, Rachel W.Y. & Yeung, Andy C.L. & Edwin Cheng, T.C., 2010. "An empirical study of employee loyalty, service quality and firm performance in the service industry," International Journal of Production Economics, Elsevier, vol. 124(1), pages 109-120, March.
    3. Amit Das, 2003. "Knowledge and Productivity in Technical Support Work," Management Science, INFORMS, vol. 49(4), pages 416-431, April.
    4. Ioannou, George & Mavri, Maria, 2007. "Performance-Net: A Decision Support System for Reconfiguring a Bank's Branch Network," Omega, Elsevier, vol. 35(2), pages 190-201, April.
    5. Zeynep Ton, 2008. "The Effect of Labor on Profitability: The Role of Quality," Harvard Business School Working Papers 09-040, Harvard Business School, revised Jul 2009.
    6. Daniel Beverungen, 2014. "Exploring the Interplay of the Design and Emergence of Business Processes as Organizational Routines," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 6(4), pages 191-202, August.
    7. Venky Nagar & Madhav V. Rajan, 2005. "Measuring Customer Relationships: The Case of the Retail Banking Industry," Management Science, INFORMS, vol. 51(6), pages 904-919, June.
    8. Heidi Romero & Remco Dijkman & Paul Grefen & Arjan Weele, 2015. "Factors that Determine the Extent of Business Process Standardization and the Subsequent Effect on Business Performance," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 57(4), pages 261-270, August.
    9. Ilya Okhmatovskiy, 2010. "Performance Implications of Ties to the Government and SOEs: A Political Embeddedness Perspective," Journal of Management Studies, Wiley Blackwell, vol. 47(6), pages 1020-1047, September.
    10. Mair, Johanna & Rata, Cristina, 2004. "Corporate entrepreneurship: Linking strategic roles to multiple dimensions of performance," IESE Research Papers D/551, IESE Business School.

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