MSME Assess – Complete diagnosis before treatment


There are five key blocks which are critical in delivering value in the consumer and MSME banking space.Image I have placed these blocks purposely in a pyramid to signify the order of intervention, i.e. interventions along Structure and People take precedence over those along Technology.  This pyramid is the pictorial depiction of the proprietary diagnostic tool ‘MSME Assess’, but can be used with minor tweaks for consumer banking too.

Diagnostic tool – Any bank embarking on a major project in the MSME space would do well to employ a diagnostic tool at the outset. The diagnostic tool will analyze and help lay out the strengths and weaknesses in the current system across all these blocks. A good diagnostic tool will go further and do some sort of a benchmark of the bank’s capabilities against hypothetical or existing leading practices. A great diagnostic tool though would be interactive and provide a list of possible interventions for each level of capability across these banking blocks. The bank can then decide the order of implementation and be in a position to appreciate that getting desired outcomes within one block will more often than not demand interventions across other blocks too. According to me this is the biggest benefit of an advanced diagnostic tool. It can help in laying out starkly the linkages between the various components of the banking blocks. MSME Assess maps out the maturity level of each of the criteria measured within the blocks. These maturity levels are denoted as – emerging, developing, developed and advanced. Trained practitioners can use the tool to map each of the 32 criteria of the banking blocks to their maturity levels. Banks then take a call on the implementation priority based on the maturity levels and resource commitment based on the possible required interventions as shown by the tool.   

MSME Assess – A brief elaboration of these blocks and the components they measure is in order here to give you a flavor of what is on offer:

Structure and People– A bank can have the best technology, best products and infrastructure but without the appropriate organization structure and the right quality of people, the bank will always struggle. This is the reason that this block sits on top of our SME Assess pyramid. Leading banks in the MSME space all have the ability to measure the profitability of the MSME business. The majority of these banks have MSME as a separate division within the bank, thus providing the necessary resources and appreciating that the MSME culture is distinct from their retail and large corporate counterparts. This block describes the required core competencies as:

  • Organization and reporting structure,
  • HR practices including performance management and people development practices.
  • These core competencies are further decomposed to the next measureable level of criteria, for eg-

HR Practices:

  • Hiring
  • Training
  • Performance measurement
  • Incentives
  • Career path development

The tool further describes for each of these criteria their state when found across the four maturity levels as mentioned earlier.  

 Credit and Risk – This block describes the capabilities of the bank in across its risk measurement and monitoring systems and its ability to provide credit underwriting capabilities in line with the requirements for the MSME segment. The aim of the MSME credit function is to provide consistent cost effective credit underwriting without over reliance on collateral. Banks which are able to employ lending technologies which can thrive without full coverage of collateral are poised to do well in a scenario where the MSME market is still largely untapped. The ability of banks to identify risks and monitor and resolve them well in advance is of paramount importance in this portfolio, where the slide into NPAs can be fast and the furious.

The core competencies benchmarked in this block are:

  • Credit Structure
  • Credit Underwriting
  • Risk Monitoring
  • Delinquency Management

 For example within Risk Monitoring the criteria are:

  • Risk modeling
  • Early warning systems
  • Risk segmentation
  • Risk processes

 Market Segments and Products – Identifying and defining the market segments that a bank wishes to compete in is very critical. Building expertise and knowledge of particular segments and sectors has been proven time and again to be a successful way of building a profitable MSME book. Over time, the superior knowledge leads to the raising of welcome entry barriers for others wishing for a share of that market. Shriram Transport, is one name that easily comes to mind in the pre-owned commercial vehicle Indian market, which has followed a similar strategy to build a profitable business. This block measures how well the bank is able to segment the market and deliver products as per the needs of the identified segments. The core competencies benchmarked in this block are:

  • Product Development
  • Market Segmentation

 For example within Product Development the criteria are:

  • Development process
  • Pricing
  • Competitive relevance

 Product Distribution Channels – Branch based distribution systems are the traditional distribution channels, but have now outlived their relevance by over a decade. In this age a multi channel approach leveraging on the existing branch is more prevalent amongst leading banks. The ability of a bank to build a mass market relationship based selling model drawing on leading practices from both retail and corporate banking is critical here. The core competencies benchmarked in this block are:

  • Sales structure and strategy
  • Sales process and systems
  • Use of Business intelligence
  • Channel network usage

 For example within Sales structure and strategy the criteria are:

  • Sales organization
  • Sales culture
  • Role of relationship managers
  • Skill training

 Technology – With the dual aim of providing efficient cost effective acquisition and service, and maintain a profitable portfolio, the use of technology plays a crucial part in the quest to build a successful MSME portfolio. Technology is used to automate to cut costs and reduce response times, and to capture and churn data to build a data centric organization. The core competencies benchmarked in this block are:

  • Analytical capabilities
  • MIS capabilities

 For example with Analytical capabilities the criteria are:

  • Data capture
  • Data storage

 Using diagnostic tools like MSME Assess increase the chances that banks do not work on only the easiest and the most visible criterion, but get a bang for their buck when spent after a holistic analysis of the tool’s output.

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Idea Markets – The Power in numbers


Dattaram had just taken over as the branch manager of the SME branch of this large PSU bank since the last six months but had spent over 20 years at the bank. One of his biggest challenges was in providing as fast a turnaround on credit proposals as the new age private sector bank next door. He discussed with another SME branch BM in Delhi and designed a new process for credit appraisals which would improve the TAT by 25% for all SME branches across the bank. With a lot of excitement he presented this proposal to his Regional Head, Mr. Prabhu. Mr. Prabhu though had his hands full with the launch of ten new branches in the next quarter and did not wish to be bothered with Dattaram’s new project at that time. He told Datta that they would discuss the project after the branch openings and pushed the project onto the pending list. The branch inauguration next quarter was a grand success. Another ten branches were to be commissioned within the next two quarters, and thus Dattaram’s TAT improvement project went onto the perpetual pending list which most Regional head’s like Prabhu have. Dattaram too got used to operating with the sub-optimal process and life continued at the bank. Dattaram never again bothered to think of a better way to perform his job as getting Prabhu’s mindshare was too daunting. We will never know if Dattaram’s TAT idea was worth pursuing by the bank. We will never know if that change could have increased PAT by those millions by which the bank missed its year-end PAT estimate!

Every organization has its fair share of Dattaram’s and Prabhu’s.  Idea markets is about giving a voice to all the Dattaram’s and making redundant all the Prabhu’s in our system.

The banking industry has one of the most educated and largest employee bases. But the majority of this base is conditioned to think as workers rather than as intrapreneurs (entrepreneurial thinking employees). While comparing banks most ranking methodologies give weightage to the financial parameters but none take into account the size and quality of the workforce. In my mind, quality of workforce being equal, a bank with a hundred thousand strong employee force should have five times the intellectual capital as one with twenty thousand employees and this should give the larger bank intrinsic strength. But this arithmetic does not hold true as organizations have by and large not built systems to harness the true intellectual capabilities of their entire worksforce. I see Idea markets as an interesting concept to right this wrong.

Idea Markets

Idea markets use ‘crowdsourcing’ as its primary building block. Crowdsourcing, at its most basic level, is about collaborative thinking towards a common goal. It is when a business or organization takes a task usually performed by a designated internal team or individual and outsources it to an undefined group of people in the form of an open call. The concept has been present and has been used knowingly or unknowingly since ages. It is based on the belief that a diverse collection of independently-deciding individuals is likely to make decisions and predictions better than experts. Spurred by the benefits offered by web 2.0 technologies and the increasing acceptance of technology as a platform, all industries, including BFSI, are trying to use it to the fullest. Stock markets its functioning is the most common example of crowdsourcing. The premise which forms the basis of Idea markets as an application of crowdsourcing is the fact that stock markets essentially evaluate the stocks of companies based on the “crowd’s” perception on how good a stock is. Applying the same idea within an organization, we have a collaborative innovation platform.

There are many instances of crowdsourcing, which have been deployed:

  • The first prediction markets namely Iowa Electronic Markets (IEM) predictions for presidential elections have been continuously more accurate than exit polls
  • HP’s internal prediction market outperformed HP’s official printer sales forecasts 75% of the time over 3 years. Intel established a prediction market to allocate manufacturing capacity, which yielded a 100% efficiency improvement
  • Walmart, Southwest Airlines, Google and Microsoft have all deployed different forms of Idea markets
  • Closer home Infosys has implemented its own Idea market within the company

How it works?

A perfect crowdsourcing application should have four characteristics that ensure a success story – diversity of opinion about the said idea, independence in formation of thoughts & opinion, decentralization of sources of information, and a platform to quantitatively aggregate the information held by the crowd.

The objective of idea markets is to create a virtual market where all participants can suggest new product ideas and collectively evaluate those ideas through a market mechanism. Idea markets use idea stocks to represent new product ideas, let participants trade the stocks on a virtual market place, and use the resulting stock prices as indicators for the possible success of the different new product ideas.

The Idea markets implementation is a six-step process starting from generation of ideas based on an open-ended or closed ended question by the management team. The questions can be as specific as improvements on a feature of a service, or as open as invitation on ideas on a new product, or product category. Dattaram’s TAT improvement project would have been an idea which he could have listed (without requiring Prabhu’s approval) on the idea market at his bank.

All collected ideas are evaluated by the employees. Employees in the SME department would have been interested to evaluate Dattaram’s idea. The basic principle behind using the market mechanism for idea generation is to exploit the power of markets to efficiently evaluate a large number of stocks, as the market mechanism stands out for its ability to aggregate dispersed opinions. There would be other ideas too which would be traded. At the end of the period the aggregating mechanism of the platform would highlight the idea stocks with the highest market capitalization. Dattaram’s idea would now float up to be noticed by the SME Head who can then start a pilot implementation of the idea. There could be other ideas which may not be as easy to implement and may require further resources in terms of time and money which can be sanctioned by the senior management who play the role of venture capitalists within the bank.

In conjunction to Idea markets, banks would also want to look at Idea management systems which allows them to collect, track, and manage ideas. Selected ideas are taken in for further analysis, implementation and more. It also allows those participating in the project to volunteer to work on particular projects and vote on which ideas should be considered for investment and developed to the proof-of-concept phase. An idea markets implementation along with an idea management system forms the ideal combination for the innovation program in a bank to analyze the potential benefits of all incoming ideas and insights, product management, strategic planning, sales, and processes improvements, and others.

Why Bother?

Enough said, but why should any organization, be it in BFSI or any other industry, bother to setup a collaborative interaction platform within its intranet. Truth being told, there are benefits for both the company and the employees from such a platform

For the organization, constructive employee engagement through a game-like environment for fostering participation, strengthened intrapreneurial culture, a feedback and employee pulse detection channel and identification of opinion makers are some key benefits. However, the key benefit is to be able to ask its employees key questions and solicit ideas and answers from them.

Employees too reap benefits by getting reward and recognition opportunities, and greater job satisfaction through a say in the decision making process of the company. More Dattaram’s will be unearthed and Prabhu’s made redundant.

If Idea markets are deployed well large banks could start enjoying the fruits of owning a large employee base and increase the performance gap with the smaller banks.