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The Change adhered to at Amana Bank with a diferent banking concept

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Page 1: Amana Bank - The Change Process.docx
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Executive Summary

Islamic Banking has not been under formal practice by any commercial bank in Sri Lanka. With

Amana Investments coming forward and taking the initiative to successfully acquire the

commercial banking license from the Central bank (with approval from the Ministry of Finance),

they have proven to be the pioneers in the islamic commercial banking industry.

This report covers areas of how Amana Bank, its management and staff have managed to

overcome the issues and concerns faced whilst they changed from an investment company to a

commercial bank. It outlines what cultural changes, organizational structure changes and group

and individual behavior has changed and how the change was managed in order to minimize the

conflicts that arise when changes take place in a stabilized organization. The report takes into

consideration the theories that can be used to manage change and what aspects the change can be

based on.

The report has been summed up with the issues that Amana has had to face during the change

process and recommendations have been outlined and discussed in order to optimise performance

of Amana Bank thereafter.

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Contents1. Amana Bank – An Introduction..........................................................................................1

1.1 The Vision and Mission..............................................................................................1

1.2 Islamic Banking – The Significance...........................................................................1

1.3 Milestones acheived:...................................................................................................1

1.4 Amana Bank - The Way Forward...............................................................................1

1.5 Report coverage..........................................................................................................2

2. Factors for Change..............................................................................................................3

2.1 Macro environmental factors......................................................................................3

2.2 Task Environmental Factors.......................................................................................3

3. Amana Bank – How the Change was brought about...........................................................4

3.1 Phase I: Unfreeze........................................................................................................4

3.2 Phase II: Change.........................................................................................................5

3.3 Phase III: Re-Freeze.....................................................................................................5

4. Amana Bank – The Cultural Changes.................................................................................7

4.1 Edgar H. Schein's model of organizational culture.....................................................7

4.2 Cultural Changes adopted by Amana..........................................................................8

4.3 Impact on Group and Team behavior..........................................................................9

5. Amana Bank – Organizational Design..............................................................................11

6. Amana Bank – Issues and Recommendations...................................................................13

7. References........................................................................................................................14

8. Appendices.........................................................................................................................1

List of Illustrations

Figure 1: Kurt Lewin’s Three Stage Model of organizational culture..............................................4Figure 2: Edgar H. Schein's model of organizational culture...........................................................7Figure 3: The Organizational Structures - Compared....................................................................11

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1. Amana Bank – An Introduction

The first Sri Lankan bank to practice Islamic banking, and lay the pathway for Islamic

Financial Services. Starting off as a provider of Islamic financial services (and being in

the business for the past 13 years), Amana Takaful was established alongside and stands

to be the first licensed Islamic insurance company, currently operating as a subsidiary.

1.1 The Vision and Mission

Vision - “TO PROVIDE A DIFFERENTIATED BANKING EXPERIENCE IN SRI LANKA,

THROUGH AN EQUITABLE FINANCIAL SYSTEM”

Mission - “TO SHARE RISKS AND REWARDS WITH ALL OUR CUSTOMERS BY DELIVERING

SHARIYA COMPLIANT FINANCIAL SOLUTIONS BASED ON INNOVATION AND

TECHNOLOGY”

Source: Corporate Profile - Amana Bank& Annual Report 2011

1.2 Islamic Banking – The Significance

Muslims apply the ‘Shariya’ Law (a religious code for living for the Muslims) in banking

which entails banking based on trust and free of interest.

1.3 Milestones acheived:

Established an alliance with Bank Islam Malaysia Berhad

Requested for initiation of Islamic Banking by the Central Bank

Raised the required share capital (in the form of a Private placement and share

swap)

Acquired the commercial banking license in order to start practicing

1.4 Amana Bank - The Way Forward

Current Branch count: 14 branches located ‘strategically’ - allows Muslims to do their

banking at convenience.

Goal: to expand of up to 70 branches island-wide in the next five years – convenience

given to their customers to approach a bank which practices Islamic banking, multiplying

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the total asset count to over 65 billion and increasing their employee strength to over

1000 resources helping to achieve a target profit of close to 1 billion Sri Lankan Rupees.

1.5 Report coverage

How Amana changed from an Investments company to a commercial bank

practicing Islamic banking.

Cultural changes, the changes to organization design and also how the team and

group behavior has been affected by the change (outlining the theories)

Lists out issues needing to be ironed out and recommendations

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2. Factors for Change

2.1 Macro environmental factors

Out of political, legal, social, economical and technological drivers, the changes in

Amana were driven by the economic and social factors.

Economic Factors –

80% of un-captured market in the commercial banking vertical worked on to draw

profits. Islamic Banking is a growing market and has operations over 42 countries

worldwide.

Social factors –

Most Muslim people distributed around urban areas engaging in business have religious

rules and rituals; believe in helping their own people. More Muslims will be attracted to a

financial organization designed to carry out business according to their religious

teachings.

2.2 Task Environmental Factors

Stakeholders- initiated the change

Customers- looked forward to this change and supported it, since it allowed the operation of current accounts and allowed payments via cheques and overdrafts.

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3. Amana Bank – How the Change was brought about

Amana had to change the way they carried themselves and also the internal aspects once

they changed their business to a commercially practicing bank.

Kurt Lewin’s Three Stage Model states how they managed to bring about these changes:

Figure 1: Kurt Lewin’s Three Stage Model of organizational culture

3.1 Phase I: Unfreeze

1. Establishing a sense of urgency –

The Management Team- the guiding Collation and driving force: helped create a

sense of urgency, encouraging the Bank staff to work towards achieving the

commercial banking license within a course of 3 years. Motivating the staff to

adapt to the new culture and business, avoid discomfort, welcome the change, and

make it a success, instead of resisting it.

2. Theory E and Theory O –

The Change at Amana was driven by:

Theory E – an extrinsic and incentive lead factor, including salary increments,

extended bonuses, increased number of leaves of absence compared to the salary

scale of the staff.

Theory O –Comparatively, no direct incentives are involved, but creates a

positive emotion in the employees’ mind in terms of the resulting industry

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recognition and reputation, since Amana has changed their business to a Bank, it

offers more to its employees.

3.2 Phase II: Change – Introduction of new products - After the acquisition of the banking license,

Amana Bank extends current account facilities for their customer’s convenience

– Conducting Staff skills development programs - Bank needs skilled resources.

Investments made to empower staff with end-to-end training on all the new

products that they have introduced, especially in the areas of Cheque clearance,

credit analysis training and treasury related activities. Incentive and study leave

schemes introduced for the Staff working towards Shariya and Banking

certifications.

– Improved internal communication methods - intranet system allowing all

employees to reach each other, share documentation and be on an internal

notification loop. Allows easy access of internal publications and

documentation and minimized circulation time.

– Acquisitions of the required expertise - Experts hired from the market for higher

salary scales to handle Credit, Human Resources, and Commercial Banking

Operations etc.

– Getting rid of obstacles –lagging employees had to be removed when they did

not comply to the standards, requiring them to have knowledge on Banking and

Shariya laws

– Standardization of recruitment procedure –standardized where recruitment

criteria was clearly defined and adhered to

3.3 Phase III: Re-Freeze– Promoting people who can exceed expectations - Re-Freezing helps establish

stability to bring the staff to a new level of comfort post to the changes

achieved. An employee rewarding scheme for those exceeding expectations to

encourage them to keep up with the change and to better perform

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– Redefining the job description and establishing a performance driven rewarding

system (motivating factors): a mechanism to define the job description of each

hierarchy level to outline the role of each employee. Employees were rewarded

on a performance driven system.

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4. Amana Bank – The Cultural Changes

Many cultural changes were implemented when compared to their existing environment.

Changes can be expressed with regard to many aspects according to the behavior and

attitude of the people concerned. For instance,

Quoting Stanley M. Davis in “Managing Corporate Culture” (Balligner 1984), “Culture

is the pattern of shared beliefs and values that give members of an institution meaning,

and provide them with the rules for behavior in their organization”

Edgar H. Schein defines culture in Organizational Culture and Leadership" (1992) in the

following manner - "A pattern of shared basic assumptions that the group learned as it

solved its problems of external adaptation and internal integration, that has worked well

enough to be considered valid and, therefore, to be taught to new members as the correct

way to perceive, think, and feel in relation to those problems"

4.1 Edgar H. Schein's model of organizational culture

This model of organizational culture outlines the three levels of culture which can be

used to largely define what organizational culture is and how changes could be adopted

by it; Artifacts, Values and Assumptions.

Figure 2: Edgar H. Schein's model of organizational culture

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Source: People & Organization, handout distributed during MBA Lesson – Organizational Culture

Artifacts - visible aspects in a culture, allowing individuals that are not part of the

culture to recognize it. Adhered dress codes, the interior decorating used, work

ethics, processes and climate andorganizational structures are some. Majority of

the employees at Amana are Muslims, a special dress code applies to the female

employees, the applicable working hours at the Bank (closed for prayers on

Fridays and Muslim holidays), a prayer room for the employees to pray in during

the day, comprise the artifacts.

Values- represented as the strategies, philosophies and goals sought. Values are

supported by general assumptions made with regard to the organization’s culture.

Amana is a bank driven by values and beliefs (quoted in their Company Profile).

Their value system comprises of the following beliefs:

We Believe

We believe that you have a right to be treated fairly We believe that one should not gain at the expense of another We believe that being responsible and ethical is as important as making profits and

gains We believe that entrepreneurship should be encouraged and given a fair opportunity

to succeed We believe that the best of actions are the ones which create true happiness in people We believe that you feel the same way we do

Source: Amana Bank Website| We Believe

Assumptions- the values can be identified within a culture. The same way values

need to be properly defined for them to be visible to the outside, assumptions can

be made when employees are not aware of the exact changes that will be taking

place.

4.2 Cultural Changes adopted by Amana

Amana before:

Only carried out simple banking facilities such as leasing and housing loans

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Staff did not have to strictly adhere to certifications since the business was

different

Recruitment process not very strict since employees did not need to have high

expertise in their jobs where they acquired on the job training and knowledge

Leave process not aligned with the structure of a formal bank; not as much leave and

it wasn’t compulsory

Remuneration packages weren’t as attractive and they did not abide by a performance

driven culture which meant they did not follow an appraisal based incentive scheme

Amana after the enhancement of services:

Extended customer base to cater to the business clients

Underwent a tough cultural change in order to align with the banking business -Many

employees had absorbed and grown into the previous culture. Cultural adoption took

place leading to renewal of common standards, policies, values, and behavior of

people.

Absorbed 20% of non- Muslim staff in order to specifically serve the non- Muslim

customers whilst administering their resources (in terms of increasing staff diversity)

– resulted in increased Muslim and non-Muslim customer base. The motive: to reduce

the cultural gap between their Muslim and non-Muslim staff. Allows all staff to serve

their whole customer base to the same satisfactory levels.

Standardized management of leave of absence in order to be in par with the rest of the

banks. Banking standards could be uplifted adjusting their leave structure. Bankers

had to take their respective annual leave for at least 7 consecutive days. Bank has

implemented procedures to better manage their resources compelling staff to practice

it.

4.3 Impact on Group and Team behavior

- Group and Team behavior: management focusing on recruited and restructured teams

to abide by a performance driven culture, bringing about a competitive remuneration

scheme compared to other banks. Individual incentives governed by how the rest of

their group performs and creating a mindset of working towards a common goal. A

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salary increment scheme was introduced measuring performance of staff members.

Employee appraisal is routine once every six months helping assess the performance

of staff and conclude on salary increase. More skilled banking staff was required to

increase commitment towards the bank. Staff recruitment procedures enhanced by

encouraging staff to sit for the Shariya banking exam (reimbursed by the bank) and

introducing minimum recruitment qualification post to becoming a commercial bank.

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Corporate Management

Manager

Executive Officer

MD - CEO

Executive Assistant

Junior Executive Assistant

Banking Trainee

After the Change

Corporate Management

Manager

Executive Officer

MD - CEO

Executive Assistant

Clerk

Before the Change

5. Amana Bank – Organizational Design

Figure 3: The Organizational Structures - Compared

Earlier a structure suitable was adhered as an investment company. There were no lower

levels of employee levels practicing as Junior Executives Assistants and Banking

Trainees. No strict procedures to follow and the climb up the ladder was slow.

After the structure change, pattern of relationship between the positions of members in

the organization remained to be similar, except the addition of a few lower positions to

reflect a bank’s structure. The top of the structure remained the same. The cost effective

structural change was introduced and included a banking trainee grade as outlined in the

diagram. Further, office help was outsourced.

In terms of departmental change, Amana has taken a step forward to get the following in

place:

• Risk management Department

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o Board Integrated Risk Management Committee

o Executive Risk Management Committee

o Risk Management Department

o Business Unit Levels

• Internal Audit Department

• Clearing Department (Cheque Clearing)

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6. Amana Bank – Issues and Recommendations

Staff conflicts due to non- Muslim diversification and Culture adoption of non-

Muslim staff

A difference in beliefs between Muslim and non-Muslim staff brings about

possible conflicts. Operating as a single body is mandatory in order to complete

the required tasks. Recommendation: conduct knowledge sharing sessions in

order to help non-Muslim staff become enlightened in terms of Muslim beliefs

Operation of the bank during prayer times (Expansion of their services to the non

– Muslim customers)

Keeping the Bank open even during times of Muslim prayer, encourages non-

Muslim customers to approach the bank and its services provided allowing to

equally grow the Muslim and non-Muslim customer base.

New Structure eliminating the unnecessary layers

Each added layer introduces an operational cost. Re-alignment of the structure to

reflect the structure of other banks can help eliminate unwanted layers and reduce

operational costs.

Relief staff pool - Redundant resources required to cover for staff on-leave

Balance score card for staff performance measurement tool - A short term

measurement measuring annual objectives set by the employer, and introduces job

descriptions to each role.

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7. References

Amana Bank (2012) Amana Bank Annual Report 2011. [press release], 24 January 2011.

Amanabank.lk (2012) We believe Amana Bank | Islamic banking in Sri Lanka | we believe.

[online] Available at: http://www.amanabank.lk/index.php/en/amana-bank/our-belief [Accessed:

19 Jul 2012].

Biomedcentral.com (2011) BMC Health Services Research | Full text | Relationship between

Organizational Culture,Leadership Behavior and Job Satisfaction. [online] Available at:

http://www.biomedcentral.com/1472-6963/11/98 [Accessed: 10 Jul 2012].

Businessmate.org (2012) Edgar H. Schein's Model of Organizational Culture. [online] Available

at: http://www.businessmate.org/Article.php?ArtikelId=36 [Accessed: 9 Jul 2012].

Change-management-coach.com (1930) Kurt Lewin Model of Change. [online] Available at:

http://www.change-management-coach.com/kurt_lewin.html [Accessed: 9 Jul 2012].

Change-management-consultant.com (1940) KURT LEWIN 3 PHASES CHANGE THEORY AND

KURT LEWINS CHANGE MODEL. [online] Available at: http://www.change-management-

consultant.com/kurt-lewin.html [Accessed: 12 Jul 2012].

Enotes.com (1984) Managing Corporate Culture Summary - Stanley Davis - Magill Book

Reviews. [online] Available at:

http://www.enotes.com/managing-corporate-culture-salem/managing-corporate-culture

[Accessed: 12 Jul 2012].

Managementstudyguide.com (1928) Edgar Schein Model of Organization Culture. [online]

Available at: http://www.managementstudyguide.com/edgar-schein-model.htm [Accessed: 10 Jul

2012].

Mindtools.com (1940) Lewin's Change Management Model - Change Management Training from

MindTools.com. [online] Available at: http://www.mindtools.com/pages/article/newPPM_94.htm

[Accessed: 14 Jul 2012].

Pattornett, B. (2012) Managing Change. Colombo: ICBT.

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Senaweera, L. (2012) Organizational Behaviour. Colombo: ICBT.

Valuebasedmanagement.net (1992) Three Levels of Culture - Schein, Edgard. [online] Available

at: http://www.valuebasedmanagement.net/methods_schein_three_levels_culture.html [Accessed:

12 Jul 2012].

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8. Appendices

8.1 Questionnaire

1. Why they change?

2. Who proposed the change?

3. New structure and their previous structure?

4. What are the created new departments?

5. Branch network expansion?

6. What are the new products introduced?

7. Any process vice change? New IT system introduced?

8. If so, how they adopt this new system to all branches?

9. Male female customers treated separately in all branches? Or only in Colombo

suburb branches?

10. Hierarchy Level changed? Organizational structure changed?

11. Any new employee grades established?

12. Head office location changed or manages with existing space?

13. Culture

a. Were there any obstacles from employees end? They like to changed

position as a Bank or they refuse?

b. Before started as a bank is you a limited liability entity?

c. Staff mixes? Male female ratio?

d. Most recruited staff is from non Islamic cultures, how you adopt them to

your culture?

e. Leave and attendance?

f. Working hours changed?

g. Transfer policy?

h. Staff salary package changed with the new banking entity?

i. As normal banks, you also have a training period for new comers?

14. Individual and team behavior

a. Job descriptions changed with new banking concept?

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b. How people pick to new departments and branches? What are the criteria?

c. What qualifications required to new entrants?

d. Any encouraging facilities for employees to complete banking related

educations?

e. Procedure for any misconduct employees?

15. As a bank you not only have to deal with Islamic banks, but with other giant

commercial banks also. To fit with the competition, is your staff skill enough?

They have enough capacity of customer serving techniques?

16. What are the popular training topics of yours?