Efficiency of bank branches Juha Eskelinen Aalto University School of Economics Supervisor Markku Kallio May 28 2010

An empirical study of branch efficiency Regional retail bank, 24 branches in Helsinki Metropolitan area Why to study? This is what many contemporary service organizations are! Measuring makes reality in the organization – through objectives, incentives, development of operations, investments on people

Findings so far Building a straightforward DEA model focusing on sales activity Data starting from 10/2006, monthly level Turbulent times shaking the branches and the frontier Homogeneous Sales oriented Objective oriented Heterogeneous Attractiveness of locations Socio-demographic environment Competence differences between employees Dominated by extraordinary branches Investments Loans granted

Next: how to help the branches to achieve their potential – approaches to study Estimating the affect of operational conditions and practices Input, output + contextual variables Stochastic non-parametric frontier approach (Johnson - Kuosmanen) Benchmarking with the most preferred branch Similar but excellent branches Most preferred solution for each branch (Value DEA, Halme et al) Predicting future potential (?) Bank branches evaluated based upon their initial conditions and practices + future requirements System Dynamics (Dynamic Productive Efficiency model, Vaneman & Triantis)