Training and Development in the Banking and Finance Industry - Term Paper Example

Introduction Human capital is the key to gaining competitive advantage in the ever-changing international environment that the banking and financialsector is going through. The war for talent in this sector has grown resulting in organizations to develop strategies like training and development and succession planning to cope with the pressures. Das (2001) concedes that there has been a shift in the management styles and administrative practices to survive and prosper against competition. A cohesive framework is essential to maximize organizational effectiveness. Vermeulen and Crous (2000) believe that the best way to institute quality into an organization, and particularly a bank, is to train the people to do their jobs better. As a result, the bank too benefits. Training and development includes skills which are job-related and also that are not related. This helps in motivating and enhancing self-esteem as the employees feel the organization cares for them. Motivation is essential for retention and succession planning in today’s scenario. The objective of this paper is to examine how the banking and finance industry has been able to meet the challenge through innovative organizational training and development programs. Background During the past two decades or so, regulatory, structural and technological factors have significantly changed the banking environment throughout the world (Angur et al., 1999, cited by Yavas et al., 2003). In the financial services industry products and services are created through a complex range of activities involving a large number of staff members within the organization (Mistry, 2006). The financial services industry is one of the fastest expanding segments in terms of growth in employment and GDP. The financial sector includes the insurance companies and the brokers but the banking industry is a major component in the financial industry. In the United States, it has generated $209 billion in 1990 and is ever expanding. In addition, deregulation has led to various mergers and acquisitions, increased competition and diversification in to new lines of business. This has been necessary to improve profitability. To gain competitive advantage, banks across nations have concentrated on human capital as one of the greatest assets. Yavas et al., assert that service quality is a critical measure of organizational performance. High service quality leads to customer satisfaction, loyalty, recommendation to others, reduction in complaints and retention of customers. This has increased the importance of training and development in the banking and financial sector. The German banking system comprises of a wide range of services ranging from retail banking to corporate banking to asset management (Olsson, 1996, cited by Yavas et al.,). Apart from the private banks (owned by private investors), savings banks (owned by communities and districts of federal states) and cooperative banks (owned by members), foreign banks are allowed to enter the German market and compete with domestic banks. Non-banking institutions like insurance and car companies also provide retail bank services. This has increased overall competition in the field, stressing on higher levels of service, increasing the importance of training and development. Importance of Training and development Training is one of the most important strategies for organizations to help employees gain proper knowledge and skills needed to meet the environmental challenges (Goldstein and Gilliam, 1990; Rosow and Zager, 1988, cited by Tsai & Tai, 2002). It is widely recognized that learning and development play a role in the success of a financial institution, and there is a definite link between business results like revenue growth and the commitment to learning and development (BAI, 2003). Training in any organization has to be an ongoing process and not restricted to managers or to the junior level trainees. It is no more a luxury but a necessity. Training has to be well structured and systematic to meet the continuous changes in technology. Training has to involve the environment, the people and the structure of the organization. The most effective method is when managers train their own people, which also reinforces that they understand the principles of TQM (Spenley, 1992, cited by Vermeulen & Crous). Training is regarded as fundamental in transforming the workforce and brings about quality improvement across organizations. According to Porter and Parker (1993) four essential features have to be kept in mind while designing the training programs – training should necessarily be an ongoing process and people should receive appropriate training at the appropriate level. Training should take into account the future needs of the organization and has to be organization specific (cited by Vermeulen & Crous). Apart from training, review of the effectiveness of the training process should also be a continuous process. The benefits of training should be compared to the objectives of training regularly. Today relationship banking is the key word in the banking sector. Relationship banking is a lending decision-making technology widely used for making financing decisions for small, young and high risk firms (Boot, 2000; Binks and Ennew, 1997 cited by Ashton and Pressey, 2004). A ‘relationship manager’ is designated the responsibility to keep constant and close association with the customers and apprise them of the financial products, facilities that the bank grants. This benefits the bank in decision-making, in profitability and in assessing the requirements of the customers. A study of the German banking industry revealed a close relation between the service quality of the employees and the satisfaction and behavioral outcomes of the customers (Yavas et al.,). The older employees carry on with the habits that they have been following for years. Because it was a sellers’ market then, employees tend to be bureaucratic and arrogant with the customers in the dealings. This necessitates training in interpersonal skills. Training given to employees should focus on “learning how to learn” in a new banking environment where customer is the “king.” Training should be designed to bring about total change in the system, which includes unfreezing (motivation), changing (new attitudes and behaviors), and re-freezing (stabilizing the changes). A study of 210 trainees, who were employees from 18 banks in Northern Taiwan, revealed that there is a relationship between training assignment and training motivation (Tsai & Tai). An individual’s training motivation is higher if training is mandatory rather than voluntary. The outcome of this study implies that managers should emphasize the importance and necessity of the organization’s training programs to ensure that trainees have sufficient motivation. Before the training starts the employees should be informed of the contents of the training and the expected outcome. This adds to the efficacy of the program as well as the motivation level of the employee. Another study that included interviews of more than 100 senior executives shows that retail banking executives credit employee training and development for increased revenue, better customer service and other key benefits (BAI, 2003). About 82 percent of executives felt training positively influenced customer satisfaction, 75 percent agreed that it affected overall quality and 63 percent said it spurred revenue growth. Past trends in developing countries State Bank of India is India’s largest full-service bank (Das). Its ambitious expansion to keep up with the globalization and developing economy, prompted transformation. This required developing an effective managerial style keeping in mind the bank’s corporate objectives and structural characteristics. New positions were found necessary with job content and expertise radically different from what the bank had been practicing. At the time the transformation took place, the bank had around 2000 offices and about 80,000 employees against 13000 offices and 300,000 employees in 2001. The bank managers had to be trained to take up the newly designed roles as part of the organizational transformation. The managers were educated through written material and seminar discussions about the nature of role behavior. In any banking environment, various roles are necessary to perform various tasks; each role describes the specific behaviour associated with given positions. Roles are standardized patterns of behaviour required of all persons playing a part in a given functional relationship, regardless of personal wishes, or interpersonal obligations irrelevant to the functional relationship (Katz & Kahn, 1978, cited by Das). A branch manager is merely meeting his role requirements when he process a loan application according to his ability and experience, and sends it with recommendations to his superiors for approval. The bank manager, apart from this has to carry out a large number of tasks and responsibilities. With the changing banking environment, the role concept underwent a change. The managers had difficulty in accepting or adjusting to their new roles. So far, they did not appreciate critical evaluation by their subordinates; they preferred to communicate with their subordinates through small slips. The purpose of the developmental program was to gradually modify the hierarchical system. Several training programs and seminars were held and they were so designed to attend to the issues and the problems that emerged from the semi-structured interviews of the general managers, development managers, regional managers, and other role occupants. The problems identified for the regional manager included overwork, lack of role clarity, relationship with other officials, coping with role pressures, overlapping work areas, and ineffective coping of branches. Accordingly, the training program emphasized on role clarity in relation to authority, responsibility and boundary control, how to identify and cope with role pressures, understanding relationships with customers and other officials, and work-flow planning. Roles have to be shaped to maximize administrative efficiency. To understand interpersonal dynamics they were encouraged to have a look at their own personality. They were asked to assess their own strengths and weaknesses. Team building exercises with superiors and subordinates were organized. Transactional analysis was included in the program, which is based on the fact that childhood experiences remain suppressed in the sub-conscious mind and these affect the personality of a person. Through role-playing and team-building, they were helped to acquire insights into their own personality. These development and training programs made it possible for them to adjust to the new role behavior for achieving effective performance. To improve upon public confidence and to mobilize loans and deposits, a comprehensive program to reform the financial system under a US$1 million technical assistance grant financed by the Government of France and administered by the Asian Development Bank (ADB) was undertaken in Cambodia (ADB, 2001). Most commercial bank staff lack in credit analysis, loan monitoring and problem loan management. The grant and training program would also induct code of ethics for interbank market brokers and dealers. Current Trends and situation According to Clinton et al., (1994), employees in the commercial banking industry require three basic areas of training and development in the TQM process – instruction in the philosophy and principles of TQM, specific skills training to learn the use of TQM tools, and interpersonal skills training to improve team and problem-solving abilities (cited by Vermeulen & Crous). There has to be an integrated approach to the instruction process. With reference to the training and education for TQM in the commercial banking industry of South Africa, Vermeulen and Crous state that educated and trained managers and employees will be more positive and committed as they know what to expect from them. TQM training enables people to do things differently and this leads to different results, which begin to change attitudes. Training level and content will differ between people but the training should make a vast contribution to the improvement of total quality in an organization. Research indicates that the responsibility for training should lie with one specific manager. It is also essential that training for managers should take place first because it sends clear signals of commitment to the quality process to the whole company. National Westminister Bank confirms that one reason for their success was the dedication of their committed and educated managers. Research also suggests that outside people do not experience the culture of the organization and are not involved in the day to day activities. As such, they should be engaged in training only a few people, who in turn should be responsible for the overall training of the people within the organization. Deutsche bank sees its employees as its greatest asset (Careers, 2005). Even the HR department in a bank has to be well equipped. They do not believe in providing just the initial training but a continuous approach that spans their career enabling them to make the most of their career and talents. They have designed a three weeks graduate training programs where people from all over the world meet. This itself is a great learning and motivational opportunity. Training helps them to develop focus on developing a global perspective of the financial markets and products. They also have a mentoring program, which is designed to give exposure to the senior management and the opportunity to a confidential sounding board. They provide an excellent platform, to better understand the different businesses. Many lessons were learnt after the Asian financial crisis in 1997. South Korea’s banking system too was hit hard but one of the bankers today is responsible for a turn around. He is of the firm opinion that developing and retaining people is the key to success. To match the ever-developing field of information technology, quality people are required. After working in the bank for four years, they sponsor an employee who wants to go in for MBA. The most interesting part is that they have introduced a sabbatical system in which people can take a year off after ten years’ of service. They can utilize this time to get some experience in the securities market, enjoy some relaxation time, get some investment experience, or go back to school and study something (Barton and Park, 2003). For this period, they are paid their full annual compensation and bonus. They feel this gives an opportunity to the employee to asses his satisfaction level and he has the freedom to choose the job which he feels is inspiring for him. This focuses on development of individual talent. Chow (2002) agrees that with the economy expected to rebound, the art of retaining employees through education has become a top priority. They realize it is crucial to hold on to the best employees to help secure market share, deliver profits, and stay competitive. Sending them back to school helps them to cope with the fast-changing markets, technological innovation and shifting business practices. Mid-career training is also important. HSBC’s talent recruitment and development is one of the most comprehensive in the industry. They prefer to fill the vacancy from within because they have developed and nurtured the employee. Long-serving employees are essential because clients value long-term relationship with their bankers. Insurance is another major sector in the financial industry. The insurance sector in the recent years has become a source of financial vulnerability (IAIS, 2006). Insurance firms have been engaging in banking like activities. They issue securities backed by fees generated by their insurance policies and by loans to policyholders (Nicos, Schellhorn & Barrese 2002). Such firms face the challenge of fusing the best practices of banking and insurance management. To offer such services and products, the insurance sector has to first train and develop its people. Insurance supervisory agencies expressed the need to develop and build the supervisory capacity. It asked for the support of the World Bank in training the middle-management staff and the frontline supervision staff (IAIS). As such, The International Association of Insurance Supervisors and the Financial Sector Vice-Presidency of the World Bank, together with the World Bank Institute, established a joint project to develop a Core Curriculum for Insurance Supervisors. This itself shows the importance of the insurance sector in the financial industry. The project aims to develop a comprehensive learning curriculum for insurance supervisors, particularly in developing countries. Training is essential to produce skilled supervisors, who can not just understand the risks in financial activities, but also identify the best ways to anticipate, manage, and control these risks. Training in the banking and financial sector does not merely involve talent and skills enhancement. Societe Generale, the French corporate and investment bank, have invested time and in training their people in crisis management skills and readiness (Rhema, 2005). They have achieved this through a range of internal training workshops and exercises. They have participated in City-wide tests of the financial markets reaction to a Major Operational Disruption (MOD). Training and development goes beyond business continuity. They have Operational Human Resources advisers (OHRs) who are placed at the frontline handling calls from staff and families. Through workshops, they are trained to deal with anticipating the challenges of the call, handling the caller, and diffusing the situation, developing communication and building rapport, listening, questioning, and summarizing skills. The financial services institution can now offer wider range of services due to deregulation. The Royal Bank of Scotland (RBS) now offers insurance, corporate banking, loans, mortgages and many other services, apart from the usual current and savings accounts (GPL, 2006). Competition between and among banks is increasingly becoming fierce as they offer products and services with similar features. This requires highly qualified personnel selling sophisticated financial services and products. The retail banks and financial institutions train graduates in marketing, human resources, and accounting. These are generalist positions and do not require specialist degree but professional qualifications are necessary in the financial services sector as they have to persuade people to entrust their money in to their care. Bank of England runs an analyst careers training program and an IT training program. Future trends and characteristics of the talent required in banking and financial sector Training and development in banking is taking new dimensions as emerging economies like China and UAE are opening up the financial sector to foreign investments. Kwan (2006) of Deloitte Touche Tohmatsu emphasizes that building a modern financial system is an exceedingly complex exercise, requiring professionals at every level with advanced technical expertise, knowledge of the wider economy and awareness of their role as part of a truly global system. When McKinsey coined the expression, “War of Talent” in 1990, they were focusing on attracting and retaining the best talent. The scenario is much different today and includes developing talent. This does not mean traditional training but now on-the-job training, and allowing employees to ‘learn to learn’ is important. Fresh or ‘stretch’ assignments help deploy talent in new and exciting ways. Encouraging employees to learn from their peers is also a unique system, which enhances the learning process. China has been overhauling its entire financial system. More than 60 banks are competing for talent in China. China lags behind in talent and the corporate governance is not strong. The supply of financial sector professionals is not very promising. The quality of instructions at the university-level business programs does not meet expectations. Foreign financial institutions will compete on salary basis and use their status to attract the best talent but problem would arise in retention. To combat or overcome the situation, Kwan feels that employees should be encouraged to enroll in executive development programs. On site training programs by foreign institutes would help. China already has four main state-owned commercial banks, 11 nationwide joint-stock banks, 112 municipal commercial banks. These domestic banks would have to focus on risk management training and bring in outside to train the people. This would help broaden the perspective of the employees. Creating mentoring programs, succession planning and overseas deployment and promotion are some of the other ways that the nation can use to face the challenge that would arise in early 2007. Kwan emphasizes that development includes building diverse teams in both skills and backgrounds. Objectives and standards should be clearly laid out. People have to be empowered through different means. E-learning infrastructure should be provided. A culture of client servicing has to be fostered. Commitment to brand would help retain talent when mobility and oppurtunities within the organization are encouraged. As in China, the banking sector in the UAE is also undergoing changes (Salian, 2006). Banking is very appealing to the national graduates and the banks have to give preference in absorbing local people. HSBC Bank, with a 40 per cent Emiratisation level, is committed not only to recruit the best nationals but also to train, develop, and provide them with a challenging career plan. Their national staff-training program, conducted through HSBC’s Regional Training Centre, consists of on-the-job training, e learning and classroom training. The potential national executives, who excel, are then given an opportunity to attend the Graduate Development Program at the Groups learning centre in the UK. Each employee is assigned a mentor for the first three years of service, who provide them coaching and counseling. Training is a very important factor, which is driving Lloyds TSB to offer the nationals enormous professional development opportunities through its training programs (Salian). They do not concentrate on targets but on relevant training and appropriate grounding in global banking practices. They have developed training programs in conjunction with educational institutions in Dubai. Lloyds conducts a professional training program called the Management Development Program (MDP). This aims to provide valuable work experience to talented young nationals. They are given thorough exposure in various departments of the bank. The CEO, Standard Chartered Bank, UAE are developing comprehensive training schemes and stressing importance on professional training for new recruits and existing staff. The voluntary retirement schemes floated by banks have led to a greater need for richer human capital (Gulati & Sivakumaran, n.d.). ‘Knowledge transfer’ is the new mantra, which is gaining acceptance over the traditional education and training. In the banking industry, timely adoption of technology plays a vital role in determining the leader. Banks today have to ensure a cost effective, highly accessible, and efficient means of knowledge transfer. Training needs have to be personalized and the training has to be in tandem with the daily operations without compromising on the quality aspect. Internet today harnesses the power of multimedia to simulate classroom scenarios. Web based training is the emerging technology which while offering a classroom environment, offers flexibility in time and location. A successful e learning strategy for banks should provide for professional development to take place in a phased and meaningful manner. It should also encourage leadership development of the participants. A constructivist approach is necessary which would make it more learner-focused than teacher-focused. Goldman Sachs, the world leaders in financial services, believe that the quality of people sets them apart in the highly competitive market. They start with an intensive 8-week training program in New York, consisting of an introduction to Goldman Sachs, as well as technical and business training (Goldman Sachs, 2006). The application development role or the systems professional role tests are designed to test the intellectual capabilities and stamina. The social element to the program helps to establish a valuable network of contacts throughout the division. Training is ongoing based on the specific skill needs and interests. They believe that professional development should take place through learning at the workplace. People are offered the flexibility to align their own career goals and development with those of the firm. The mode of training ranges from classroom training to journals, from computer based training to offsite courses. Each module helps them to stay ahead of technological advances. ICICI Lombard are India’s leaders in private insurance. They believe in staying ahead. They have a progressive and dynamic human resource philosophy (ICICI, n.d.). Through their induction program, product training and other functional training programs they aim to hone the skills, encourage them to take initiatives, and adopt a pro-active approach. They become productive very fast and develop a career path in line with the company’s objectives. Characteristics of the profession To qualify and work in the banking and financial sector, a bachelor’s degree in finance, accounting, economics, or business administration is the minimum academic preparation. To keep pace with the ever-changing requirements, employers prefer graduates with a master’s degree, preferably in business administration, economics, finance, or risk management. Academic programs help develop analytical skills and keep them abreast of the latest financial analysis methods and technology (BLS, 2006). Banks and financial institutions often promote managers internally. People are attracted to this profession as they like this line of business and they enjoy logical and practical work. It is understood that they have the numerate skills. To cope with the growing complexity of global trade and the introduction of new financial instruments, continuing education is vital in this sector. A broad range of skills are essential for a career in the banking and financial sector. Interpersonal skills are required as it involves dealing with clients and working in a team. Excellent communication skills enable them to communicate and explain the different financial products and services to the customers. They need to be creative thinkers and problem solvers and apply analytical skills. Knowledge of international finance is essential to cope with competition. With the Indian insurance market transforming the landscape, human resources requirement remains vital. While they are looking for people with exposure to the insurance market, managers with a background in fast-moving consumer goods (FMCGs) are in great demand (Jayaram & Dhawan, 2000). Max New York Life representatives say that they are developing a standard for the development of the sales force. They intend creating a team to train agents on the field along with classroom training. From India, they would send the senior managers for overseas training to learn how insurance is handled there. Discussion and conclusion The banking and financial services industry has evolved with time. Deregulation, internationalization and globalization have increased competition and awareness. The developing countries benefit tremendously and are deriving the maximum benefit of the situation. Human resources in the banking and financial industry is the most valuable asset of the company. They need to be developed and continuous training plays a vital role in this regard. Training is no more restricted to managers or to the lower level of staff. Training has to be at all levels. In fact, the older staff need refresher courses to cope with the changed environment as in the case of State Bank of India. They need to be brought out of their shell of the traditional role model and made to accept the changed role of a manager. At the same time, it has been observed that if the senior executives are trained first, it acts as a motivator for the subordinates. The importance of training by managers has also been seen. Outsourcing training would leave a gap as they do not interact with culture of the organization. Any training has to be in tandem with the culture of the organization. It is no more sufficient to have a basic degree; it requires the skills to be honed. The skills required for a profession in the banking and financial services include analytical skills, alertness, and swiftness. While most organizations believe in in-house training, the basic talent has to be prevalent in the candidate. Interpersonal skills and communication abilities have great significance today. The role of the manager has changed from an authoritarian to a friendly, all-encompassing role. He has to be more of a mentor to the subordinates and extract work from them rather than have a bureaucratic attitude. Banks across the world realize the importance of making the individual feel important and a part of the organization. They employ several motivational techniques as retention is important with the rise in attrition in this industry. Even to encourage and derive the maximum benefit from training, motivation is essential. They need to know the purpose of the training, the course content, what is expected of them after the course and the outcome. Training is nor more restricted to developing skills in marketing. Crisis and risk management is a vital part of the sector. People have to be sufficiently trained to handle emergencies and crisis. Besides, overall personality development increases efficiency and productivity. To help each individual to align his inspirations with that objectives of the organization, to help the individual to assess his own strengths and weaknesses, State Bank of India, conducted the transactional analysis. This is connected with memories stored from the past. This means the banks do not impose training on an ad hoc basis but it is tailored to suit individual requirements. The industry also accepts that an individual has to be mentally at peace to be able to cope with the stress and challenges that the changed environment poses. In short, today, the training and development in the banking and financial sector is a holistic development. Training is no more restricted to classroom coaching. Different organizations employ varying techniques like appointing a mentor. A mentor immediately makes a person feel important and cared for. The relationship between the individual and the mentor is very close. The training programs allow the people to align their own career goals and development in line with the objectives and goals of the organization. People are given the flexibility to choose the desired career path within the organization. E learning and computer based training is fast catching up in the modern world. This gives the environment of the class while allowing flexibility of time and location. This is supported by a guide or a counselor apart from other forms of training. E learning enables an organization to gain competitive edge at a reduced time. The insurance sector is equally challenging and they provide online training initially to all their marketing team. Banks are also allowing sabbatical for a year which is necessary to keep the person fresh an motivated. With the stress in the competitive market, this scheme is unique and is expected to bring unique returns. This is a unique sustainable strategy in the changing environment. Organizations like Lloyds do not believe in targets while HSBC fosters mentoring. Intellectual capabilities and stamina is vital in this industry and most organization would test an individual for these before employment. The banking and finance industry is the fastest growing segment and very vital for the growth of any nation. As such, organizations have to keep pace with the momentum and continually invest in the training and development of professionals. Through innovative training and development programs, the organizations have been able to meet the challenge in the competitive market. 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