The contribution potential of the TOC in the banking sector 63

In the banking sector, the foremost constraint proposed is the dissatisfaction level of customers (Castaño et al. 2013), the group that mainly drives the banking sector towards prosperity. If people

are not content with the services of the bank, losses may result (Chigamba 2011). This occurs

mainly because customers choose alternatives for the provision of financial services. With globalisation, there has been an increase in the profitability of the banking sector. Chigamba (2011) noted that banks are constrained by competitive pressures and a rapidly changing environment and need to attract and retain customers if they want to survive and prosper. The

literature indicates that the TOC approach and TP methods show promise for application to

banking service provision in Australia. 

Many constraints are caused by customer dissatisfaction and linked to risk in banking service provision (Castaño et al. 2013; Moreira et al. 2014). Moreover, bank lending is often constrained by the availability of insured deposits (Jayaratne & Morgan 1997), which can lead to reduced ability to meet customer demand for finance. Such customer dissatisfaction problems have been analysed within non-financial sectors, but still require investigation in the case of banks.

Negative publicity about banks (e.g., Commonwealth of Australia 2018; Withers 2018) may influence customer dissatisfaction, which in turn, may contribute to losses for the sector if people begin to look for alternative financial services that they consider more trustworthy and efficient (Mateso 2014). Further, it has been shown (Valverde, Fernández & Udell 2008) that banking constraints are increased if transactions are carried out by firms that are unconstrained and that have not been fully checked by the banking sector or verified as appropriate before they are accepted by the bank as clients. Moreover, research has shown that investment is sensitive to bank loans for unconstrained firms but not for constrained firms, while trade credit predicts investment, but only for constrained firms (Valverde, Fernández & Udell 2008). According to Valverde, Fernández and Udell (2008), monetary shocks, such as the 2007 global financial crisis, show that there is a need for the banking sector to manage the problems that might be contributing to negative influences and losses.

Banking efficiency is significant not only in the banking sector, but also for the development of the country, as the economic conditions of any nation depend largely on how appropriately banks are functioning (Matthews 2010). In that sense, risk reduction in the banking sector is important

to the extent that it can help prevent the occurrence of economic risks for the bank (Matthews 2010, p. 2):

The efficiency of banks, relates to the efficiency of the banking market, which in turn relates to the efficiency of the intermediation process and the efficiency by which monetary policy passes through to bank lending.

However, despite the importance of knowledge of risk and risk reduction in the banking sector, there is limited application of TOC-guided risk reduction research and the application of TP methods in the banking sector. Despite searching for studies that might demonstrate application of TOC or TP methods in the banking sector, only a limited number of studies (Bramorski, Madan & Motwani 1997; Castaño et al. 2013; Moreira et al. 2014) were found, and these did not apply methods, but rather conceptually examined the hypothetical application potential of TOC to banking.

Castaño et al. (2013) and Moreira et al. (2014) analysed which elements of the TOC to best apply to the banking sector. The preliminary research revealed that there were four elements that could be used within the banking sector: throughput, inventory, operating expenses and constraints. These elements strongly correspond to the capital gained from services provided to consumers, the capital needed to create profit and the money used to fund investment, as well as the constraints that occur within all activities of the banking sector (Castaño et al. 2013; Moreira et al. 2014). Moreover, Castaño et al. (2013) and Moreira et al. (2014) considered the following factors in the banking sector:

 Attributes of the banking sector that differ from those of other business systems, such as the changing attitudes and choices for consumers;

 The rapid changes in the banking industry;

 The leadership required for the various changes; and,

 The commitment of those who work within the entire organisation.

Modern technologies, including smart phones, tablets and computers, have radically changed the management systems in various fields worldwide; while they bring benefits, they also bring risks to banking (Jalil, Talukder & Rahman 2014; Talukdar, Quazi & Sathye 2014). The banking system now employs these once-emerging technologies extensively, and most portable devices have banking-related ‘apps’ (software applications) available for consumer use.

As shown in the literature (e.g., Ikeziri et al. 2018), manufacturing companies have successfully made use of TOC-related methods to assist in risk reduction and performance improvement, but the banking services system still needs to interpret and adapt this research for application to practice for it to benefit. According to Bramorski, Madan and Motwani (1997), customers who provide the bank with deposits that contribute to inputs often use the same bank to meet their needs for loans, which directly contributes to the bank’s output. Customers of a bank tend to use that bank for multiple financial services. For example, Bramorski, Madan and Motwani (1997) described a bank in the midwestern region of the US which realised that the mortgage system often took a long time. Hence, the bank decided to implement the TOC to identify and resolve the problem. It was discovered that there were two kinds of customers: one that paid 20% or more for their home mortgage insurance and another that paid less than 20%. Analysis of the latter group revealed that the bank took too long to carry out the whole process of employment, research and feedback survey (Bramorski, Madan & Motwani 1997). The bank then decided to follow the other

steps of the TOC. New techniques were developed for obtaining and verifying information, and applicants were asked to bring alternative documents for the validation process. This development was very important for the bank because it began to apply this framework to other issues as well. This case illustrates the potential for the application of TOC-related methods in banking to improve performance and reduce risks in the supply chain (Bramorski, Madan & Motwani 1997). While many authors have investigated the application of TOC-related methods in various service sectors (e.g., consultancy, education and health) (Ikeziri et al. 2018), only three investigations were found that considered TOC in relation to banking services. Mabin, Forgeson and Green (2001) illustrated the use of TOC methods in a single NZ banking case study but the focus of the examination was on change management rather than risk management or the supply chain. Castaño et al. (2013) and Moreira et al. (2014) conceptually examined factors explaining why banks might adopt the TOC framework in the Portuguese banking sector, and Bramorski, Madan and Motwani (1997) described the use of the TOC to identify a banking organisation’s goal and detect the constraints to achieving enhanced performance. The constraints in these banks examined only selected attributes such as policies and procedures, which might typically be found in a TOC approach to an organisation’s operation as a whole. In both instances, only selected attributes were examined and neither undertook a comprehensive or systems view of banking operations where TP methods were applied. Reid (2007) provided a fictitious conceptual example of a bank to illustrate the potential application of the TOC to the banking service sector. With only preliminary conceptual approaches tested, none of previous publications on banking used the TP methods to assess, analyse and create solutions in case-based applied research.

In summary, despite widespread research in a variety of industries, research on the application of TOC has been comparatively limited in the financial services sector, and is non-existent in

Australian financial institutions. The application of TOC is demonstrated by the literature (Ikezeri et al. 2018) to have the potential for risk identification and reduction and to have application potential to identify, analyse and reduce risk in Australian financial institutions.