Two out of three banks will initiate reengineering efforts in the next year, seeking better client communications and improved worker productivity, a study has found.

Of those with plans, half cite improving customer service and efficiency as the main goals of reengineering, and fewer than one in four say cutting costs is the primary factor.

Bankers who responded also said that existing information technology is not giving their institutions the competitive edge it should.

Bankwide Projects

The survey, conducted by Towers Perrin, a New-York based management consulting firm, found an overwhelming 87% of banks undertook reengineering projects in the last year, primarily in branch-based banking (59%) and back-office operations (53%). Significant reorganizations were also made in staff functions (41%) and other lines of business (36%).

"We are clearly seeing that reengineering has moved out of the back office and across the bank," said Donald McNees, vice president of financial institutions practices at Towers Perrin. Survey results are based on 256 responses to a questionnaire sent to chief executives and outside directors of all banks and thrifts with assets exceeding $1 billion.

Directors said increasing productivity and reducing costs were the top challenges of the past three years, followed by the regulatory environment and overall risk management.

Curiously, the survey found that while three out of five bankers say overall costs at their institutions remain too high, the most frequently cited goal of reengineering was not cost reduction, but improved efficiency and service.

Mr. McNees noted that bankers expect to reap the benefits of efficiency and service in large part through technology. Yet fewer than 10% identified information technology as "a primary source of competitive advantage" - whereas more than one in four said it should be.

Trends Confirmed

Branch-based banking and cash management were named as the major areas where technology is used to gain competitive advantage. Mortgage and trust businesses were also named by more than a third of the directors.

The survey also confirmed trends that have been noted elsewhere, such as a recent Bank Administration Institute study that predicted the number of bank branches will decline by one-fifth by the end of the decade.

The Towers Perrin report, for example, found that directors also expect large growth in nonbranch services such as supermarket ATMs, home banking, and other electronically delivered services.

Respondents also noted another banking trend: 19% said they expected their bank or thrift to be acquired in the next three years.

The directors also were asked to include their pick for the best-managed bank retailer in the country, and Banc One Corp., based in Columbus, Ohio, was the favorite. Merrill Lynch rated the top nonbank.Channel ShiftPercentage of delivery systemsused for banking services 1993 1996(*)Traditionalbranch 86.7% 70.7%ATM 70.3 58.6Mail 30.1 16.8Telephone 26.6 25.4Minibranch 18.8 19.9Supermarkets,other shared 6.6 14.5facilitiesKiosks 4.7 6.3Bank at work 3.5 6.6PCs, TVs 1.6 14.8 (*) ProjectedSource: Towers Perrin

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