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DR Bank: Driving Growth through Digital Transformation

CASE STUDY, STRATEGY
ET Cases, 14 Pages
AUTHOR(S) : Deepankar Roy - Assistant Professor, National Institute of Bank Management (NIBM) Pune and Anil Vaidya - Professor and Area Head, Information Management, S.P Jain Institute of Management & Research (SPJIMR) Mumbai

Case Preview

DR Bank: Driving Growth through Digital Transformation

DR Bank like any other Public Sector Banks (PSBs) in India had initiated technology adoption from 1991. It faced increasing resistance from its employees in the initial years. But due to its able leadership, it was able to cope up with the initial hurdles and continued a multi-faceted tech-based expansion. Competitive landscape of Indian banking had gone through drastic changes in the last few years predominantly due to the challenges from new disruptive technologies and evolving market practices. DR Bank has set a target of becoming the ‘Best Retail Bank in Customers’ Perception by 2021’. The strategists at DR bank are pondering on the future course of action. It cannot ignore the competition from private banks and the new entrants but still has to step ahead of them if it has to realize its 2021 vision.

Background: First Phase (1991-2004)

Initiating Technology Adoption

DR Bank was constrained to undertake in-house computerization owing to employee resistance. However, in keeping with business requirements, it entered into credit card business through a tie-up with AV bank, another PSB, to introduce AVCARD which became popular in those times. In 1994-95, Indian Bankers’ Body, IBA (Indian Banks Association) concluded an industry-level agreement with major bank employee unions removing major hurdle in bank computerization. Government followed it up with soft loan offers to banks for computerization. By March 1994, it deployed 900 PCs at 200 branches. DR Bank had also approached the Government for two soft loans amounting to INR170 million for computerization and INR60 million for training infrastructure, respectively. The ATM vendor, India Switch Company (ISC), in 1996-97 under the initiative of IBA established an ATM network called SWADHAN in Mumbai. DR Bank joined this network in the same year by connecting 5 of its ATMs, each to a single branch of the bank. Its own ATM card under the SWADHAN scheme was issued in 1998. In the same year, it launched another credit card by name BharatCard, now in tie-up with Bharat Bank, which was a franchisee of MasterCard. In 1998-99 Telebanking was introduced in DR Bank in17 branches. TBA (Total Branch Automation) solution was spreading in branches by that time. A bigger view and plan was still emerging..................

Laying the Ground

Ms. B Leelavati, soon after taking over as the Chairman & Managing Director (CMD) of the DR Bank, in July 2001, spelt out the Business Objectives of the Bank highlighting that technology would be the driving force, at front office and also at the back office. In 2001, DR Bank implemented Finacle as its Core Banking Solution (CBS). New data centre was set up in bank’s head office at Andheri Mumbai, more ATMs were installed to improve customer service and Telebanking was launched on CBS platform; in 2002-03 it soft launched Internet Banking...........

Second Phase (2005 onwards): The Transformation

Mr. Mavila Mathews assumed charge as CMD of the Bank on March 1st 2005. He set the goal of DR Bank attaining the leadership position in every sphere through customer focus. In a meeting with his top management team, the priority areas were graded in the order of importance, and consequently, the gaps to be covered were also identified.

The total transformation plan and a project was launched which was subsequently named as ‘Project X Phase I’. The aim of the project was to re-write the primary architecture of the Bank so as to bring the customer to the centre stage. To achieve this goal, following initiatives were taken: .................

Third Phase (2009 Onwards)

Mr. S.Mohanty took over as CMD of DR Bank on April 1st 2009. In his initial message to the DR Bank family, he outlined the challenges viz; to retain and enhance the Bank’s premier position in the fast-paced and competitive environment; to hone skills; to gather market intelligence; to be the first to adopt technological developments; to improve asset quality and to upgrade physical and human resources.

He held a ‘Thought and Solution’ Summit in Mumbai during January 2009 that led to ‘Project X Phase II’. The Summit assessed the gains of the transformation  process and facilitated introspection to take the journey to the next level.............

The Banking Industry in India and Disruptive Fintech

The nature and players of competition for banks had gone through drastic changes in the last few years, mostly due to the challenges from new disruptive technologies and evolving market practices. The competition among banks have expanded from the traditional measures of strengths of financials and branch network spread to newer measures such as availability and efficacy of technology based e-payment or self-service products. The product lines included Net Banking, Mobile Banking, IMPS, Credit Cards, Debit Cards, Prepaid Cards, etc...............

The Journey Ahead

With technology-based growth, translating capabilities into preferred business offerings is a challenge. Technological changes, organizational expansion and consequent realignments take place constantly during this long, competitive and uncertain journey. Early recognition of the need to put in place appropriate delivery mechanisms for infrastructure requirements, suitable organizational restructuring and psychological and skills reorientation of personnel for IT adoption in a service industry like banking for effective and ultimate customer satisfaction is extremely important for ensuring success............

DR Bank’s Future – Strategists’ Dilemma

DR Bank wants to be the “Best Retail Bank in Customers’ Perception” and they want to achieve it by 2021. Goal was to be reached with constant innovation and technology adoption and also through regular benchmarking against the Best Bank in the industry.

Towards this goal, many aspects need to be taken into account such as strengthen technology base, differentiated and original customer-centered services; improving uptime (intensive monitoring at regional levels) and sensitizing employees. Competition and environment always remain dynamic, therefore “Be Prepared” should be the motto. For Indian PSU banks, the push for adoption of IT had been mostly from the regulator. However, inter-bank differences in goals, in efforts and in achievements remain varied..............

Assignment Questions

I Considering objectives of DR bank set earlier and given the current Fintech scenario, how should be the new objective setting?

II Considering the information given in exhibits and case, what are the strategies to be adopted by DR Bank to achieve its goal of becoming ‘Best Retail Bank in Customers’ Perception by 2021’?

III ..................

Exhibits

Exhibit I: Customers are Embracing Non-Bank Offerings and Micro Transactions Getting Digitized

Exhibit II: Many Startups in Indian FinTech Space

Exhibit III: Customers are Embracing Services from Non-Bank Attackers

Exhibit IV: 50% of Digital Bank Customers with Internet Access are at Risk of Moving to New Players

Exhibit V: Transactions per ATM to Gradually Slow Down – Is It Time to Shift Infrastructure Towards Cashless Online Transactions?

Exhibit VI: BC Economics Set to Improve – Does BC has Potential to Emerge as a Powerful Delivery Channel?

Exhibit VII: Digital Banking Users Set to Grow at 20-25% in Next 5 Years – Penetration Could be Fastened by 2 Years by Taking Clues from Online Shopping

Exhibit VIII: Branch, ATM & POS Profile of Peer Public & Pvt Banks (March’15)

Exhibit IX: Mobile Bkg Txns of Peer Public & Pvt Banks (December’15)

Exhibit X: Number of Debit and Credit Card Txns of Peer Public and Private Banks (December 2015)

Exhibit XI: Value of Debit & Credit Card Txns of Peer Public & Private Banks (December 2015) (Rs million)

Exhibit XII: Comparison of Performance Parameters of Nationalized Banks in India (2014-15)

Teaching Note Preview

DR Bank: Driving Growth through Digital Transformation

Synopsis

DR Bank like other PSBs in India initiated technology adoption from 1991. It faced increasing resistance from its employees in the initial years. But due to the able  leadership, it was able to cope up with the initial hurdles and continued with a multi-faceted tech-based expansion during its first phase of IT deployment. The real IT based transformation (2nd stage) was initiated from 2005 onwards when the bank launched ‘Project X Phase I’. The objective of the project was to bring the customer to the centre stage. Numerous alternate channel initiatives like SMS banking, Mobile payments, RTGS, NEFT, cards were launched during this project. The third phase of transformation started from 2009 onwards when the then CMD outlined the challenges to retain and enhance the bank’s premier position in the fast paced and competitive environment. To take the IT journey to the next level ‘Project X Phase II’ was introduced wherein primarily a separate vertical called ‘Digital Banking 1.0’ was created to drive growth in alternate channels in terms of percentage of electronic transactions and also income from channel operations.

The nature and players of competition for banks had gone through drastic changes in the last few years, mostly due to the challenges from new disruptive technologies and evolving market practices.

Telecom companies with their huge franchisee outlets and the post office far exceeded the physical banking channel footprint. Banks are in need of positioning themselves aptly to better face the disruptive financial technologies. As a result of its digital positioning and business strategy, DR Bank has concentrated its efforts in three different areas: (i) adding and enriching technical delivery channels; (ii) adding and enriching products; and (iii) based on these products it is continuously approaching customers for relationship building and marketing. By leveraging on these, bank has remained in the forefront and maintained their position compared to other nationalized banks. It has set a target of becoming the ‘Best Retail Bank in Customers’ Perception by 2021’. The strategists at DR Bank are pondering on the future course of action. It cannot ignore private banks and the new entrants and still it has to step ahead of them if it has to realize the 2021 vision.

Prerequisite Conceptual Understandings/Readings/Before the Classroom Exercise

Navigate through the annual reports of Indian private banks such as Axis bank, HDFC Bank and ICICI Bank along with Indian PSBs such as SBI, PNB, Union Bank of India, Bank of Baroda, Bank of India and Canara Bank, which are some of the major players in the industry, and evaluate the banks’ various IT-based products and services and their IT and Digital Strategy. Try to understand the possibilities and limitations in their offerings and strategies. Study the processes that are standardized in the industry over a period of time. Also refer to the Annual report of Reserve Bank of India. In particular, go through the section on Payment and Settlement Systems and Information Technology. This section gives the status and vision of Payment Systems in India. Also refer to Report on Trend and Progress of Banking in India published by RBI (available on its website). In particular, go through two sections, one on Perspectives on Indian Banking sector and the other on Operations and Performance of Commercial Banks.

Case Positioning and Setting

This case is suitable for the second year management graduate students of Strategic Management, IT Management and Innovation Management courses. It will also be useful for students specializing in banking in their post graduate degree.

Assignment Questions

I Considering objectives of DR Bank set earlier and given the current Fintech scenario, how should be the new objective setting?
II Considering the information given in exhibits and case, what are the strategies to be adopted by DR Bank to achieve its goal of becoming ‘Best Retail Bank in Customers’ Perception by 2021’?
III ...........


Exhibits

Exhibit (TN)-I: Classroom Discussion Dashboard

Exhibit (TN)-II: Determinants of Technology Strategy


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Abstract

DR Bank, one of the 26 PSBs of India, transformed itself into a process driven, IT-enabled bank, post-nationalization. Over the past decade, DR Bank had embraced new technologies by offering its services not only through internet but also through alternate channels including mobile banking at an early stage. Strategically, DR Bank has positioned itself well at a time when rapid disruptive changes are taking place in the financial sector. It had faced the challenges in a much better way than many other peers through institutional leadership and digital drive. The history of DR Bank’s strategic digital positioning through its forward looking leadership is an example which is unique. DR Bank has set a target of becoming the ‘Best Retail Bank in Customers’ Perception by 2021’. The strategists at DR Bank are pondering on the future course of action. It cannot ignore the competition from private banks and the new entrants but still has to step ahead of them if it has to realize its 2021 vision.



Pedagogical Objectives

  • To understand the evolutionary forces shaping technology strategy and determinants of technology strategy
  • To learn strategies to drive growth in alternate channels in terms of percentage of electronic transactions and also income from channel operations
  • To appreciate the need of positioning a bank aptly to better face the disruptive financial technologies
  • To learn the importance of vision and planning, the process of guiding changes at various stages by the management and to assess the impact of planned changes on work process and organizational culture

Case Positioning and Setting

This case is suitable for the second year management graduate students in Strategic Management, IT Management and Innovation Management courses. It will also be useful for students specializing in Banking in their Postgraduate degree.



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