The Macrotheme Reviewmacrotheme.com/yahoo_site_admin/assets/docs/5MR71... · Füsun KUCUKBAY, Enis YAKUT , The Macrotheme Review 7(1), Spring 2018 37 mentioned gap in the literature

Füsun KUCUKBAY, Enis YAKUT , The Macrotheme Review 7(1), Spring 2018

36

The Macrotheme Review A multidisciplinary journal of global macro trends

An Integrated Methodology For The Financial Improvement Of The

Banks With The Help Of Quality Function Deployment

Füsun KUCUKBAYand Enis YAKUT

Manisa Celal Bayar University, Business Administration Faculty,Economy and Finance Department, Manisa , TURKEY

Abstract

The banks have vital and important roles in the economic system. Their financial

improvements are very essential for the sustainability of all economic system. In this

study we have set out this fact and try to find actions that help the banks to improve their

financial performance. The study has two main aims. Firstly, it is aimed to group the

banks in Turkey into less successful, successful and very successful groups with respect to

their financial performance. Secondly it is also aimed to find the best actions that

improve the financial performance of the banks. By that way the banks in the less

successful and successful groups will pass to upper classes. In this paper, the banks are

grouped with the help of Multimoora Sort technique which is an extension of a well-

known multi moora method. The proposed methodology constructs a road for improving

the financial performance of the banks based on Quality Function Deployment. A

numerical example is also presented to show the applicability of the proposed

methodology.

Keywords: Financial ratios, financial performance, quality function deployment, multimoora sort

1. INTRODUCTION

A financial failure of a bank influences the whole ecosystem negatively. This research is based

on the theoretical framework that “a financial failure which occurs as a result of strategic and

operational bank decisions can be predictable and even be preventable by taking the appropriate

actions; unless the failure happened as a result of global crisis and/or unexpected circumstances”.

The preventability of the financial failure has been investigated in finance literature frequently

and numerous corroborative studies have been conducted. The measures that have to be taken to

prevent the financial failure and the order of these measures, have to be specific to the bank and

also have to be determined according to the level of the financial success of the bank.

Financial failure concept focuses on failure prediction models, comparison of these models and

the success rates of the predictions in general. There are also studies where successful and

unsuccessful companies are compared; the reasons of financial failures are investigated; and the

prediction models are examined in terms of sectorial differences and newly established banks.

Nevertheless, the broad national and international impacts of financial success and failure require

a deeper and extensive investigation of the concept. This research topic is selected because of the


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mentioned gap in the literature. This study is different from previous financial failure studies in

terms of identification of the reasons behind the failure and presenting case specific solutions to

the problems which cause failures. Quality Function Deployment method will be used to prepare

a failure prevention map.

When we examine the literature on Quality Function Deployment (QFD), studies are in

marketing field and they mainly focus on product development and customer satisfaction. One of

these studies was conducted by Chan and Wu (2005) and suggests a systematic and functional

approach to QFD process. Components of House of Quality (HOQ) are explained and analyzed in

detail, and a process is presented to establish a house of quality. Also, applicable methods of

gathering and analyzing information from consumers and technical staff are discussed. Karsak, et

al., (2003)’ s product development study, on the other hand, presents an approach which

combines two decision making techniques (Analytic Network Process (ANP) and 0-1 Goal

Programming (ZOGP)) in order to determine the product technical requirements in the product

design process.

There are many product development studies which focus on Fuzzy Logic such as Kwong and

Bai (2002)’s which uses Fuzzy Analytical Hierarchy Process, Khoo and Ho (1996)’ study which

emphasizes that voice of the customer cannot be understood because of its ambiguity and variety;

and another study where researchers developed an integrated fuzzy theoretical approach and

aimed to solve the QFD problems. (Kim, Moskowitz, Dhingra, & Evans, 2000).

Some other studies on quality function deployment concentrated on how to integrate QFD with

some other methods. In their study, Matzler and Hinterhuber (1998) focused on how to integrate

Kano’s customer satisfaction model with QFD; Tan and Shen (2000), combined Kano’s model

with QFD planning matrices, and presented an integrated approach for a deeper and accurate

understanding of “voice of the customer”; Bouchereau ve Rowlands (2000) summarized how to

integrate technics, such as fuzzy logic, artificial neural networks and Taguchi method with QFD,

in order to solve the deficiencies in QFD.

Quality Function Deployment also used in marketing in order to answer the consumer needs. For

example, Trappey, Trappey and Hwang (1996) focused on the retailing sector, and aimed to

develop an appropriate QFD procedure in order to improve the retailing sector in their study; Lu

and Kuei (1995), used QFD in strategic market planning process and aimed to create a system to

ensure customer satisfaction; Morris and Morris (1999) handled the context from marketing

education point of view, and aimed to present an education module which can use QFD process

and House of Quality model, in marketing classes; Griffin and Hauser (1992) examined the

communication differences between two product development groups; Mohr-Jackson (1996)

focused on how to adapt QFD process in marketing field in order to create customer oriented

programs.

Even though there are studies which concentrate on QFD from different perspectives, such as

environmentally friendly designs (Masui, Sakao, Kobayashi, & Inaba, 2003), tourism service

sector (Jeong & Oh, 1998), sports industry (Partovi & Corredoira, 2002); a study with a financial

point of view- especially on financial failure- has not been encountered.

As mentioned above, quality function deployment management has not been explored in the

financial management field. Quality function deployment management establishes a relationship

between the desired outcome and the independent variables which ensure to reach that outcome.


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In this study, since the aim is preventing the financial failure; QFD will be used in to examine the

relationship between several financial actions which affect the financial failure, such as investing

into new projects, increasing or decreasing the receivables, making financial planning.

Recommendations for success will be made to the banks by considering the relationship between

financial actions and financial success.

2. METHOD

The suggested method consists of four main stages:

1. Determining the financial success criteria and actions that influence the financial success.

2. Classification of the banks according to the financial success criteria by using multi

criteria decision analysis technique (Multimoora sorting method)

3. Determining he financial actions for preventing financial failure by employing house of

quality:

The steps of the house of quality is shown belw;

a- Determining relationship between financial success criteria and actions that influence

the financial success

b- Determining the relationship among the actions that influence the financial success

c- Determining the required actions in order to move a specific bank to the upper level

success group; and assessing the order of importance of those actions


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Flowchart of the suggested integrated method is shown on Figure 1:

Figure 1: The Suggested Integrated Method

Application

In the application part the banks operating in Turkey will be sorted due to their performance.

Bank sorting example is taken from Küçükbay (2016) study.

3. Criteria

The banks are classified according to their financial performance. In the classification 9 financial

ratio are used. These abbreviations of the ratios, their formulas and the preferences of the ratios

are given in table 1.


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Table 1: Selected Criteria

Abbreviation Financial Ratio Preference

X1

Net Interest Income After Specific Provisions / Total

Assets Max.

X2 Shareholders' Equity / Total Assets Max.

X3

Shareholders' Equity / (Total Deposits+Non Deposit

Funds) Max.

X4

Loans Under Follow-up (gross) / Total Loans and

Receivable Min.

X5 Liquid Assets / Short-term Liabilities Max.

X6 Permanent Assets / Total Assets Min.

X7 Other Operating Expenses / Total Assets Min.

X8 Total Income/ Total Expenditures Max.

X9 Interest Expenditures / Total Assets Min.

4. Sorting Turkish banks according to their financial performance

The banks are sorted with the help of Mmoora sort method. This method is using the basic steps

of Multimoora. Different from Multimoora the profile limits are used to sort the banks in to most

successful, successful and unsuccessful bank groups. The selected financial ratios for fictive

profile limits can be seen in table 2.


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Table 2. Financial Ratios for Fictive Profile Limits

Financial

Ratios

Profile 1

Alternative

Profile 2

Alternative

X1 2,60 3,10

X2 10,50 11,50

X3 13,00 15,00

X4 4,00 3,00

X5 50,00 60,00

X6 3,00 2,00

X7 3,00 2,00

X8 135,00 150,00

X9 4,00 3,00

The banks are grouped according to their financial performance with the help of MMoora sort. In

the table 3 the success group of the banks can be seen. The banks in C3 group is the most

successful group, the banks in C2 group is in the successful group, the banks in C1 group is in the

unsuccessful group.


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Table 3. Sorting the Banks According to Their Success Groups

MMOORA

MMOORA

SORT

BANK ID Ranking Sorting

Deutsche Bank A.Ş. a20 1 C3

Arap Türk Bankası A.Ş. a15 2 C3

Bank of Tokyo-

Mitsubishi UFJ Turkey

A.Ş. a16 3 C3

Citibank A.Ş. a18 4 C3

Turkish Bank A.Ş. a9 5 C3

Akbank T.A.Ş. a4 6 C3

Profile 2 a27 7

Türkiye Cumhuriyeti

Ziraat Bankası A.Ş. a1 8 C2

Türkiye Garanti Bankası

A.Ş. a11 9 C2

Turkland Bank A.Ş. a25 10 C2

Türkiye İş Bankası A.Ş. a12 11 C2

Fibabanka A.Ş. a6 12 C2

Yapı ve Kredi Bankası

A.Ş. a13 13 C2

ING Bank A.Ş. a23 14 C2

Tekstil Bankası A.Ş. a8 16 C2

Odea Bank A.Ş. a24 15 C2

Türk Ekonomi Bankası a10 16 C2


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A.Ş.

Türkiye Vakıflar

Bankası T.A.O. a3 17 C2

Türkiye Halk Bankası

A.Ş. a2 18 C2

Anadolubank A.Ş. a5 19 C2

Profile 1 a26 20

Burgan Bank A.Ş. a17 21 C1

Denizbank A.Ş. a19 22 C1

Alternatifbank A.Ş. a14 23 C1

Finans Bank A.Ş. a21 24 C1

HSBC Bank A.Ş. a22 26 C1

Şekerbank T.A.Ş. a7 27 C1

In the study we have two aims first aim is to group the banks due to their financial performance

and this aim is realized in table 3 with the help of Multimoora sort. The second aim is

determining the actions to prevent the financial failures. To achieve the second aim the financial

ratios of the banks in group C1 (Şekerbank, HSBC, Finansbank, Alternatifbank, Denizbank and

Burganbank) are evaluated. After the evaluation the most important financial ratios in the failure

of C1 group are determined as Loans Under Follow-up (gross) / Total Loans and Receivable

(X4), Liquid Assets / Short-term Liabilities (X5), Permanent Assets / Total Assets (X6), Other

Operating Expenses / Total Assets (X7) and Net Interest Income After Specific Provisions / Total

Assets (X1).

After determining the financial success criteria and sorting the banks based on their financial

performances, a set of actions that may have possible positive impact on the financial

performance of unsuccessful banks are determined as follows:


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No Actions

A1 Increase the investment in current assets

A2 Selling permanent assets

A3 Decrease short term liability

A4 Finding long term funds with low interest rates

A5 Increase the efficiency of workers

A6 Using scoring system in the credit evaluation system

A7 Increasing the customer visits

A8

Perodically updating the financial data of credit

customers

In order to determine the relationship between financial performances and actions that influence

the financial success, a well known QFD matrix, named as House of Quality, is constructed.

Financial ratios of the banks are stated on the left side of the matrix as shown below. For each

financial ratio, the decision maker priorities, using a 1 to 5 rating, are assigned. The priorities are

determined for each bank individually based on the bank’s strong or weak criteria. Then the

relationships between the financial ratios and the actions by using symbols for strong, medium

and weak relationships. We also determine potential positive and negative interactions between

the actions planned using symbols for positive or negative relationships. Eventually, we

calculated the weighted importance ratings by assigning a weighting factor to relationship

symbols 5-3-1, respectively.

The following example shows the house of quality for Sekerbank which is already classified into

the unsuccessful banks category. It should be noted that the QFD matrix suggests actions “Selling

permanent assets”, “Using scoring system in the credit evaluation system”, “Increasing the

customer visits” and “Periodically updating the financial data of credit customers” are selected as

the highest priority. In figure 2 the house of quality for the banks in the unsuccessful can be seen.


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Figur 2: House of Quality for the Banks in the Unsuccessful Bank Group

5. Conclusion

The study has two phases according to its aim. In the first phase, the banks is classified according

to the determined measures with the help of multi criteria decision making method called as

Multimoora sort. Each bank determines its relative position in the group.

In the second part of the study, a prevention map is tried to be prepared which helps to prevent

the failures of unsuccessful banks. In the preparation phase of the prevention map, quality

function deployment method is used. The relationship between the financial ratios and the

financial action that affect the financial ratios are analyzed with the help of quality function

deployment. With the consideration of this relation, the prevention map helps to decide which

financial action will be taken for making the banks to pass the upper class.

Relations

● Weak Relation

○ Medium Relation

▲ Strong Relation

Interactions

8 Positive

Negative

Relative Importance (%)

Direction of Improvement

Financial Ratios

Importance

13 139 13

55 55

10 21 10 11

44 87 43 45 39 55

○ ● ●

○ ○

X9:Interest Expenditures / Total Assets 4 ●

● ○

● ●

X6:Permanent Assets / Total Assets 5 ○ ▲

▲ ▲ ● ●

▲ ▲

X5:Liquid Assets / Short-term Liabilities 5 ▲ ▲

● ● ▲

● ●

X4:Loans Under Follow-up (gross) / Total Loans and Receivable 4 ●

● ●

● ●

X3:Shareholders' Equity / (Total Deposits+Non Deposit Funds) 2 ○

● ●

Pero

dic

ally

updatin

g the fin

ancia

l data

of cre

dit

custo

mers

X2:Shareholders' Equity / Total Assets 2 ○

○ ▲ ●

Incre

asin

g the c

usto

mer

vis

its

X1:Net Interest Income After Specific Provisions / Total Assets 2

Rela

tive I

mp

ort

an

ce o

r W

eig

ht

Incre

ase the in

vestm

ent in

curr

ent assets

Selli

ng p

erm

anent assets

Decre

ase s

hort

term

liabili

ty

Fin

din

g lo

ng term

funds w

ith lo

w in

tere

st ra

tes

Incre

ase the e

ffic

iency o

f w

ork

ers

Usin

g s

coring s

yste

m in

the c

redit

evalu

atio

n s

yste

m

8 8

8 8

8

A

cti

on

s

8 8 8

X8:Total Income/ Total Expenditures 2 ○ ●

▲ ○ ○ ○

● ● ●

X7:Other Operating Expenses / Total Assets 3 ▲


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This study makes contribution to the field of the prevention of financial failures and helps the

banks to pass to upper success class. As a failure of a bank affects whole economic system

negatively, it is thought that this study will have positive effects on the whole economy. Beside

of this benefit the study will contribute to literature by examining the prevention of financial

failure which is not studied before. Research institutions, universities and banks will be able to

use of the study’s findings.

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Documents

The Macrotheme Reviewmacrotheme.com/yahoo_site_admin/assets/docs/5MR71... · Füsun KUCUKBAY, Enis YAKUT , The Macrotheme Review 7(1), Spring 2018 37 mentioned gap in the literature