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Adding Value in Banking: Human Resource Innovations for Service Firms

In a new competitive environment, services must now compete not only on price but also on quality. While some service firms have quickly responded to this challenge, many continue to use an "industrial" model for service delivery. They invest minimally in their employees, while tolerating low skill levels and high turnover. In a detailed study of the banking industry and the market changes that have led to increased competition in financial services, the authors examine how some banks have responded to current trends.

A number of banks have created new human resource policies that are designed to motivate, develop, and keep employees. They have developed competence-based career ladders for entry-level employees to lower staff turnover, training programs for high-skill positions that alternate work experience with training courses, and internal promotion to increase employees' knowledge about their bank and its products.

The authors also advocate a bank-education partnership, something that some banks in San Francisco, Los Angeles, Chicago, and New York have tried, to encourage colleges and other educators to develop courses aimed at the financial service industry. As the authors see it, the only expense the bank incurs is the time its HR personnel spend working with schools to set up the program. By establishing both programs - a newemployee contract and education cooperatives - banks and other service firms can meet customer demands for quality service.

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