The future role of bank branches and their managers: comparing managerial perceptions in Canada and Spain

Luiz Moutinho University of Glasgow Business School, Scotland, UK Fiona Davies Cardiff Business School, University of Wales, UK Shengliang Deng University of Saskatchewan, Canada, Salvador Miguel Peris University of Valencia, Spain and J. Enrique Bign Alcaiz University Juame I, Spain

Although it was predicted that bank branches would quickly become obsolete in a computerized society, the reality is that many full-service branches are not closing but rather evolving to meet changing needs. The role of the branch manager is crucial, and is also changing. In particular, managers are expected to take a lead in marketing activities. A questionnaire study was carried out to examine managers changing roles, using two samples of branch managers, one from Canada and one from Spain. Managers were asked to rate 21 function variables on their importance in bank management and in facing new market trends. Differences were found between the two samples, as were similarities: both identied managerial ability, strategic autonomy of the branch and business development through increased marketing ability, as important building blocks for the future role of branches and their managers.

Introduction
For many years, industry analysts and banking experts have been condently predicting that bank branch offices are doomed. In a world where nancial information can be transferred in micro-seconds and computer terminals can be carried home or to the office in a briefcase, it seemed inevitable that oldfashioned branch offices would soon fall by the wayside. Relics of the past, bricks-and-mortar bank buildings presumably would no longer be needed in a push-button society . To be sure, some of these predictions have come true. Branch office construction has slowed, sensitive not only to changing technology and changing customer needs, but also to a more volatile economy . As a consequence of deregulation and information technology , banks now offer new services and additional ways in which a similar or the same nancial product can be provided. It has been suggested (Burton, 1990) that these features are making the consumption of nancial services increasingly indifferent spatially and are serving to undermine the importance of the physical location of bank branches. Meanwhile, installations of limited-service automated teller machines (ATMs) have soared. Efficiency experts have pointed out that each ATM could carry out the same, essentially routine, transactions as do human tellers in branch offices, but at half the cost and with a four-to-one advantage in productivity . But a large number of consumers seem resistant to those new ways of banking which mean a loss of personal contact. Murdock and Franz (1983) identied a large class of customers who found using ATMs embarrassing and/or degrading, implying that they preferred more personal service. Marr and Prendergast (1990) found a very high percentage of

International Journal of Bank Marketing 15/3 [1997] 99105 MCB University Press [ISSN 0265-2323]

customers using human tellers for transactions that could have been conducted by an ATM. Thus today , to the surprise of those who predicted the downfall of the branch, a new reality is setting in. The old, reliable, fullservice branch office is not dead. Rather, it is evolving its role and image are changing. Despite the unprotability of almost 50 per cent of bank branches and the availability of alternative forms of bank service delivery , banks maintain branches because customers prefer full-service branches for conducting nancial business and buying nancial services. Although operating economics have altered dramatically with deregulation, the branch is still the most tangible and powerful means by which banks can communicate with and sell to their customers (Faust, 1990). Doubtless, the growth rate of full-service branches will be reduced signicantly . Indeed, their growth has slowed substantially in many places due to economic necessity . Some fullservice branches will have to be closed, moved or consolidated simply to meet the publics changing service needs and so that banks remain viable and healthy . To do otherwise would impair a banks long-run ability to provide those services which the public most needs and demands. If banks did not adapt to new service delivery methods, their less-regulated competitors would simply move in and drive them out of one market after another. But many full-service branch offices will remain, and they will become leaner and more efficient in their operations, offering many new services. A sound branch system provides a solid base from which to market new products. This paper looks at the ways in which branches will have to change to meet the needs of a changing banking environment, and considers the role of the bank branch manager in

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implementing such changes. Two studies, one from Canada and one from Spain, are then examined to investigate how bank managers currently see their roles. The ensuing discussion considers whether, on the basis of these studies, branch managers are prepared for the branch of the future.

Bank branches in a changing environment

Most banking experts expect the trend of slow growth in new full-service offices and the consolidation of existing branch offices to continue into the future as new information technologies continue to grow in importance in modern banking and as production costs continue to rise. However, the role of full-service branch offices is changing and will change even more in the future. Information technology can help a branch to offer a wider range of services with fewer staff, and so branch offices and the newest electronic delivery systems must be used as complements to each other rather than as combatants. As Engel (1986) puts it, what is needed is a combination of high-tech and high-touch. And, if that were not enough, the branch of the future must be framed within a exible organization and have adaptable physical structure one that can be changed with minimal human and resource costs in order to keep pace with everchanging customer needs. What will tomorrows bank branch office look like? No one knows for sure, of course, but there are a few clues unfolding of which bankers should be aware. Whatever else it may be or do, the full-service branch office of the future will: provide the customer with access to more services than were available in the past both traditional banking services and new services that reect customer tastes; provide the customer with the speed and convenience of electronic processing and also the opportunity to experience the human touch to interact one-to-one with staff or management in answering questions and in nancial planning; be exible in design to allow changes in layout and function in order to keep pace with rapidly changing customer needs, while keeping remodelling costs low. The particular features of such a branch are: its prominent use of receptionists; the availability of extra space for customer privacy; the presence of a nancial boutique to provide non-routine services; and the use of mobile structures so that the offices oor plan can be changed quickly as customer needs change.

Customer convenience is certainly at the top of the list of factors to be considered (Rose, 1986). Strong branch location policy is the single most important determinant of retail profitability . Despite the fact that retail bankers will normally concede location to be vital, banks place too little emphasis on branch location policy . This can be traced to the belief that the status quo represents a fair approximation to the optimum. An examination of banks branch systems shows clearly the compromises engrained in the structure of their networks. One structural weakness is overrepresentation in inherently weak markets. Another is mediocre location mixes in attractive markets. An adequate policy should embrace ve elements: 1 market selection; 2 location selection; 3 local network design; 4 site selection; and 5 tactical exploitation of the location. Banks need to be more systematic in their approach to many of these policy elements, especially those relating to the determination of the appropriate market and location. More systematic approaches, underpinned by revised measurement methods, can materially improve prots (Carroll, 1992). Traditional branch banks served tightly dened trade areas and typically offered long opening hours, thus making them peopleintensive. Berry (1982) proposed the restructuring of branch delivery by dening expanded trade areas, each served by one core central full-service branch, supplemented by other levels of branch small fullservice branches, offering fewer services than the core branch and drawing on the core branch for assistance where required, minibranches with even fewer services, ATMs and point-of-sale systems. Moves towards this last type of system have been made in recent years by major UK banks. London clearing banks are endeavouring to improve their overall branch delivery system by adopting strategies that promote branches as marketing centres. Branches have been chosen using social and demographic information to justify each cash investment by matching it more accurately with the potential of the branch in question. Basic to this approach is the recognition that the revenuegenerating potential of a branch is a direct function of its location or marketplace. Closer physical contact between customers and staff is facilitated by open planning and by reducing the impact of bandit screens. The spatial or marketing approach to the location, design and structure of branch networks is an example of how the major clearing banks are

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Luiz Moutinho, Fiona Davies, Shengliang Deng, Salvador Miguel Peris and J. Enrique Bign Alcaiz The future role of bank branches and their managers: comparing managerial perceptions in Canada and Spain International Journal of Bank Marketing 15/3 [1997] 99105

beginning to regard their branches as retail outlets. The traditional branch network is not best suited for the distribution of the full range of nancial services, especially the more complicated life products that require a more personalized approach (Howcroft, 1991). In an era when banks face so many pressures from intensied competition and rising costs, each branch both full-service and limited-service must come closer to paying for itself . The model of bank branch protability developed by Thygerson (1991) depends on two critical assumptions: 1 The intermediarys investment decisions are to be evaluated independently of the companys funding alternatives. 2 The retail branch should be looked at as fundamentally a distribution system for nancial products and services. Having delimited its functions, one can specify the prot-and-loss model for the branch. The model for the income statement is total branch prots equals branch servicing income, plus branch origination income, plus branch fee and commission income, minus branch total costs. This branch protability approach has been used in several institutions. Its impact on branch personnel functions is signicant. The model can be used also to develop branch manager incentive programmes based on branch protability . Oral and Yolalam (1990) measured the operating efficiencies of a set of 20 bank branches of a major Turkish commercial bank offering relatively homogeneous products in a multimarket business environment. It was observed that the service-efficient bank branches were the most protable ones, suggesting a relationship between service efficiency and protability . It is a mistake, however, to evaluate a branch along the single performance dimension of protability , for bank performance is a multifaceted item. Each branch must be evaluated relative to its own potential and relative to the goals that management had in mind when the branch was constructed. Moreover, the performance of each branch is shaped at least as much by economic and social conditions within its service area as it is by the competence and quality of its management and staff.

The manager needs also to be a marketing strategist. To realize higher returns, bankers are now borrowing retailers selling techniques. One of the most protable of these techniques is differentiation through market positioning.

branch staff are professional, well-trained and knowledgeable about the range of services provided by the bank. With increased use of electronic delivery systems, the average customers contacts with bank staff will be fewer. It is thus essential that any face-to-face transactions are carried out efficiently and courteously , and that they are productive for the bank possibly in terms of selling the customer another service that they need but, at the very least, promoting a good image and enhancing customer loyalty . With regard to branch lay-out, the manager needs to take account of the points made above the branch design will be exible enough that furniture can be moved and use of space changed to accommodate changing customer needs. The facilities offered, including the type of automated and electronic facilities available, must also be suitable for the customers of that particular branch. It is therefore essential that branch managers have an in-depth knowledge of their customers, their catchment area, and their customers views of the branch. This extends the role of the manager into the eld of market research. The manager needs also to be a marketing strategist. To realize higher returns, bankers are now borrowing retailers selling techniques. One of the most protable of these techniques is differentiation through market positioning. A market positioning strategy involves: the identication of core customer segments, core products and services, core competitors and core appeals; the analysis of distribution channels to determine the optimal channels for the delivery of core products to core customers; and the use of design, space planning and merchandising as physical manifestations of the strategy (Faust, 1990). In the past, merchandising, or the marketing activities undertaken in the branch, has consisted often almost wholly of displaying promotional material. But in the UK three of the clearing banks (Midland, TSB and Barclays) have decided to make their branch managers the salespeople for their nancial products. And in the USA bankers want their branch managers to go even further into marketing management developing marketing strategies and publicity campaigns targeted at their specic customers. Most Canadian banks now require their managers to develop written branch marketing plans (Filiatrault, 1994), and Holliday (1995) describes one US bank which has concentrated on developing a strong sales culture of the type more traditionally found in retail sales. Thus, in some countries at least, the marketing function appears to be evolving

The role of the branch manager

In this changing branch environment, the role of the branch manager is of paramount importance. The manager plays a large part in shaping the factors which contribute to branch efficiency staffing, branch lay-out, branch facilities and style, automation, and merchandising (Gupta and Torkzadeh, 1988). It is the managers responsibility to ensure that

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into a much larger part of a branch managers role than it occupied in the past. Are these changes coming about in all countries? Table I summarizes recent literature cited previously in this paper, and shows in which country the research was carried out. Few comparisons have been made, however, between banks in different countries, due to the difficulty of comparing like with like banks may provide different ranges of services, their mixes of business may be different, and accounting procedures may vary between countries, all making it very difficult to develop absolute standards of bank productivity or efficiency (Bradford, 1983). Comparisons may be easier if we are looking at attitudes rather than nancial data. We go on now to examine the results of two studies looking at the changing roles of bank managers.

Marketing activities would be important functional roles for branch managers in the future. Some underlying theoretical constructs would exist among the functional roles. The demographic features of the bank managers would inuence their perceived roles in the future. Analysis of the data was carried out in two stages: rst, primary statistics such as mean score and median value were analysed; then factor analysis and Pearson correlation analysis were used to identify the underlying functional constructs and the relationship between functional roles and demographic features. The Spanish study aimed to identify the most important factors in bank branch management, and to make comparisons between retail banks and savings banks. Mean scores for each variable were compared to provide a prole of retail banks and savings banks. Principal components analysis was then carried out on the whole sample and on the two subsamples, using the SPSS package.

Table I Recent publications on bank branching and related areas Author(s) Rose Gupta and Torkzadeh Burton Faust Marr and Prendergast Oral and Yolalam Deng, Moutinho and Meidan Howcroft Peris and Alcaiz Thygerson Carroll Filiatrault Holliday Year 1986 1988 1990 1990 1990 1990 1991 1991 1991 1991 1992 1994 1995 Subject Future of branches Adoption of a marketing culture Branch location and function Market positioning ATM use Branch efficiency and protability Role of branch manager Branch networks and marketing Role of branch manager Branch protability Branch location Branch marketing plans Marketing/sales culture Country of research or observation Canada Canada UK USA New Zealand Turkey Canada UK Spain N/A USA Canada USA

Research ndings
The primary statistical analysis on both studies gave mean scores of between 3 and 5 on all variables. Table II gives the mean scores and standard deviations for both Spanish and Canadian banks; and Figure 1 gives a graphic representation of the scores. It can be seen from Table II that no factor achieved a mean score lower than 3, and that the standard deviations for the Canadian sample are much lower than those for the Spanish sample, indicating a greater extent of agreement among the Canadian respondents. For the Canadian sample, standard deviations range from 0.750 to 1.057, while for the Spanish sample they range from 1.031 to 1.815. The fact that the Spanish sample included both retail banks and savings banks may well account for much of the greater dispersion. Three factors improving the quality of customer service (Q); staff motivation (D); and staff training (E) achieved a score of over 4.5 on both studies. On all three factors the standard deviations for the Canadian sample were much lower than those for the Spanish sample. The standard deviations of between 0.75 and 0.8 for the Canadian sample suggest that almost all the Canadian respondents rated these aspects at either 4 or 5, while the greater dispersion of the Spanish sample indicates that, although around two-thirds of the sample gave ratings of 4 or 5, several managers must have given lower ratings. In the Spanish study , management training was rated as highly as was staff training, but in Canada it was rated slightly lower. developing effective relation-

The research studies

One study was conducted in Canada (Deng, Moutinho and Meidan, 1991), and the other in Spain (Peris and Alcaiz, 1991), each aiming to examine the changing roles of bank branch managers. In both studies, data were gathered by the same questionnaire from a sample of branch managers (98 in Canada, 165 in Spain). The questionnaire asked managers to rate, using a Likert scale, 21 function variables on their importance in management of the bank and in facing new market trends. The ndings are obviously applicable only to the two countries studied other countries experience may be different, but this can only be established by empirical research. The Canadian research was intended to test various hypotheses, including:

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Luiz Moutinho, Fiona Davies, Shengliang Deng, Salvador Miguel Peris and J. Enrique Bign Alcaiz The future role of bank branches and their managers: comparing managerial perceptions in Canada and Spain International Journal of Bank Marketing 15/3 [1997] 99105

Table II Mean scores and standard deviations for Canadian and Spanish banks Variable A Branch control B Marketing research C New business D Staff motivation E Staff training F Day-to-day management G Customer relationships H Analysis of competitors I Management training J Automation K Long-term plans for the branch L Involvement in corporate goals and policy M Selling ability N Protability of the branch O Local market share P Decision-making power Q Quality of customer service R Branch layout and atmosphere S Promoting branch in local community T Minimization of nancial risks U Developing new products Canadian banks Mean SD 3.939 3.694 4.367 4.643 4.582 3.939 4.612 3.694 4.367 3.673 3.724 3.469 4.337 4.296 4.327 4.071 4.684 3.847 4.255 3.888 3.439 0.906 1.019 0.888 0.750 0.798 0.906 0.768 0.913 0.866 0.982 0.883 1.057 0.824 0.864 0.847 0.876 0.768 0.978 0.803 0.994 0.909 Spanish banks Mean SD 3.401 3.983 3.678 4.670 4.690 3.524 3.980 3.662 4.751 4.020 3.284 3.859 4.382 4.122 4.383 3.881 4.862 4.060 3.750 3.174 3.982 1.265 1.290 1.156 1.362 1.320 1.063 1.485 1.075 1.815 1.494 1.192 1.031 1.598 1.532 1.549 1.249 1.613 1.391 1.328 1.142 1.263

ships with customers, given the third highest rating of 4.612 in Canada, was rated ninth in Spain, and generation of new business, rated fth in Canada, was rated only 17th in Spain. There was, however, a signicant difference in the rating of this variable between retail and savings banks, with retail banks placing more importance on it. These ndings indicate that bank branch managers in both countries are emphasizing the importance of human resource management and customer service in their response to market development. However, in seeking out new business, managers in Canada appear to take a more

Figure 1 Mean scores: Spanish and Canadian banks

proactive approach than do their counterparts in Spain. This ties in with the previously discussed emergence of a marketing culture in North American banking. The lowest-rated variables (those with a mean score of under 3.5) differed in the two studies. In Canada involving in corporate goals and policy and developing new product scored lowest. The new product development function in nancial services seems to be regarded as a head-office role, and the low scores on these two variables indicate that branches are distanced from head offices, whether by virtue of the corporate structure or by the branch managers choice wishing to have more freedom in controlling the branch. In Spain the factors with lowest scores were those which would be controlled by the branch day-to-day management, long-term plans for the branch, and minimization of nancial risks taken by the branch all of which were perceived as moderately important in Canada. It appears, therefore, that the relationship between branches and head offices is different in the two countries. Bank managers in other countries may well have different perceptions, though of course these could be established only through a similar type of analysis. However, it is likely that the extent to which a marketing culture has permeated a countrys banking industry , and the traditional relationship between head office and branches in that industry , will inuence those perceptions.

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Luiz Moutinho, Fiona Davies, Shengliang Deng, Salvador Miguel Peris and J. Enrique Bign Alcaiz The future role of bank branches and their managers: comparing managerial perceptions in Canada and Spain International Journal of Bank Marketing 15/3 [1997] 99105

Factor analysis of the Canadian sample produced three factors which accounted for over 62 per cent of the variance. These were named as managerial ability (which explained over 49 per cent of the variance), decisionmaking power, and marketing ability . The same analysis of the Spanish sample produced different and additional factors. For the full sample six factors accounted for over 56 per cent of the variance. These were identied as: increase in business (24.7 per cent of variance); personnel training; new product market; managerial ability; strategic autonomy of the branch; and branch (as opposed to head-office) control. Tables III and IV summarize the most important factors for each sample and show the original variables which

made the greatest contributions to these factors. In Spain, in the case of the retail bank sub-sample, seven factors were identied, accounting for over 64 per cent of the variance: personnel training (26.3 per cent of variance), increase in prot and customer service; efficiency in dealing with customers; promotion of branch; new product development; new business; and branch control. For the savings bank sub-sample, there were again seven factors, accounting for over 66 per cent of the variance: managerial ability (23.7 per cent of variance); participation in long-term objectives and branch promotion; personnel training; research and development of new products; branch manager autonomy; competitor analysis; and branch efficiency and control.

Table III Summary of factor analysis: Canadian banks Factor Managerial ability Percentage variance 49.1 Eigenvalue 10.3 Original variables making greatest/contribution New business Staff motivation Quality of customer service Staff training Local market share Protability of the branch Customer relationships Automation Involvement in corporate goals and policy Long-term plans for the branch Branch control

Decision-making power

8.4

1.8

Marketing ability

5.3

1.1

Developing new products Marketing research Analysis of competitors

Table IV Summary of factor analysis: Spanish banks Factor Increase in business Percentage variance 24.7 Eigenvalue 5.2 Original variables making greatest/contribution Quality of customer service Protability of the branch Selling ability Local market share

Training New product market

8.2 7.0

1.7 1.5

Staff training Management training New business Developing new products Analysis of competitors Market research

Management and managerial efficiency Strategic autonomy of branch Branch control [ 104 ]

6.4 5.6 4.8

1.3 1.2 1.0

Day to day management Decision-making power Automation Long-term plans for branch Branch control

Luiz Moutinho, Fiona Davies, Shengliang Deng, Salvador Miguel Peris and J. Enrique Bign Alcaiz The future role of bank branches and their managers: comparing managerial perceptions in Canada and Spain International Journal of Bank Marketing 15/3 [1997] 99105

Conclusions and managerial implications

The most striking conclusions of this research study pertain to the importance given to the issues of quality of customer service and customer care, and human resource management in shaping the future of bank branches. These two critical areas will underline the most important branching strategies to be developed in the longer term on the basis of increased managerial ability , devolvement of some decision-making power to branch managers and increased marketing capabilities. The ndings indicate clearly that bank branch managers in both Spain and Canada are putting emphasis on human resource management and organizational behaviour in terms of the continuous motivation of branch employees, as well as on effective training programmes for staff and management. The branch is a multi-functional facility providing an acceptable working atmosphere for staff and efficient service/product delivery for consumers, as well as an environment for effective communication of the required corporate message/image. Whether a similar emphasis would be found in other countries can be established only by further research of this type. Bank branches that make the marketing orientation an integral part of their culture will nd a sustainable competitive advantage. Quality service helps to build customer loyalty and trust in banking. Implementing the marketing concept internally certainly would challenge many bank branches, since it would require many signicant changes. The key components of establishing a competitive advantage for the bank branch include: understanding the cost structure of the business; linking prot contributions to the resources deployed; identifying customer and prospective customer needs; monitoring market share and segment penetration; and developing branch managers marketing as well as sales skills. Both Canadian and Spanish bank branch managers emphasized managerial ability , strategic autonomy of the branch, and business development through an increased marketing ability as the important building blocks for the future role of bank branches. It would be interesting to carry out similar studies to see if branch managers in other countries agree on the importance of these factors.

References
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