Theory of constraints in banking sector

1. Application of TOC (Theory of constraint) in Banking industry
Presented By : Shasanka Sekhar Sahu

2. STEP 3
Application of TOC
Example
03
STEP 2
Performance Metrics,
Areas of constraints
02
STEP 1
Challenges faced by
Banking Industry,
strategies adopted01
Agenda

3. Key Challenges Faced by Banking Industry
Operational
Efficiency
and
Profitability
High Economic
growth
Intensified
Competition
Customer
Sophistication

4. Strategies adopted by Banking Industry
Multi Site Multi Service
Strategies
 Costly to setup and operate
 Use of technology made it
convenient
 No more competitive advantage
 Offerings- Securities, Insurance, Financial
planning
 Technology – scale , replicate

5. Performance Metrics
• Low price on transaction
• High returns on DepositsCost
• New products in cost effective
mannerFlexibility
• Time to new product introduction
• Time to deliveryTime
• Product design
• Customer relationshipQuality

6. Application of TOC
 TOC can help to identify process for incremental and radical transformation.
Market
Material
Capacity
Logistical
Managerial
Behavioral
Areas of Constraints

7. Application of TOC
Throughput:
By Lending to customers,
investing in real estate,
investment firms
Throughput can be enhance by
increasing number of
borrowers, more investment,
more number of transactions
Inventory:
Amount spent to raise capital
e.g deposits
Inventory can be reduced by
reducing the cost of borrowing.
Attract large number of short
term and small deposits. Small
deposit – low interest.
e.g SBI
Operational Expense:
All direct and indirect expenses
OE can be reduced by
operational efficiency, use of
technology

8. Example: Mortgage processing in Bank
1. Identifying the constraint:
Employment verification , survey
2. Exploit the constraint:
Submit Alternative documents – 2 yrs
Form 16, Tax return, pay slip
3. Subordinate the decision:
Everyone supporting the decision
4. Elevate the constraints:
Additional verification can be “Just-
titled”
5. If any step violated , go to step 1

9. THANK YOU
Reference: “Application of theory of constraints in Bank” Bramorski, T., Madan, M.S., and Motwani, J.
The Bankers Magazine, Jan-Feb 1997 pp 53-59.