What process change would you recommend to help Global Financial Corporation meet its competitive challenge? Please explain in what way it will help Global Financial Corporation meet its competitive challenge. Please also explain one potential disadvantage of the change you are proposing.

GLOBAL FINANCIAL CORPORATION Global Equipment Company (GEC) manufactures and sells heavy equipment to construction companies, highway departments, farmers, and corporations. GEC has a sales force that calls on past customers and potential new ones to sell its equipment. GEC equipment is expensive, and an order may call for several pieces of equipment over a period of time. Much of the equipment purchased from GEC is nanced by thirdpart nancial organizations, sometimes involving lease arrangements. A given purchase can range from $50,000 to several million dollars. Such thirdparty nancing can have certain tax advantages, and is often a necessary condition for the sale. Global Financial Corporation (OF) is a subsidiary of GEC set up to handle the nancing for those customers who wish it. The Bakerseld ofce of Global Financial handles the loan applications for the western United States. The ofce in Bakerseld, California, is relatively small, consisting of about 14 people who process and approve loans for nancing. Nancy Rodriguez is a Vice President of Global Financial and the manager ofthe Bakerseld ofce. She has been in this position about one month, and a major crisis is in the making. Two weeks ago she received a memo from the Director of Marketing at GEC indicating that the Bakerseld ofce was taking much too long to process loan applications. (See Appendix A.) The chief competitor has promised to respond in \"10 business days or less\". She then asked John Rutherford, an analyst on her staff, to check on the actual processing times for loans for the past quarter, and this analysis produced an even gloomier picture (see Appendix B). Her request to corporate headquarters to hire more staff has been turned down, suggesting that she had adequate capacity. {See Appendix C.) She has called for a meeting with the managers on her staff, but is not sure what she or they might suggest. Processing of Loan Applications. When a GEC sales representative makes a sale to a customer who wishes to use nancing, the sales representative works with the customer to ll out the necessary loan application papers. The application is then sent by FAX or overnight mail to the Bakerseld oice. Applications are classied into one of two types, \"Standards" and \"News". A Standard application is from a customer who has purchased equipment and obtained a loan from Global Financial in the recent past. For such customers, the rm has a. le of nancial information and a past record of payments. About 40 percent of the loan applications are Standards. A loan application from a new customer is, of course, a New. 6-3 1996 by the Board of Trustees of the Leland Stanford Junior University. This case was prepared by Professor Charles P. Bonini of the Stanford Graduate School of Business for purposes of class discussion. 143 Downloaded ins-We. 2022 Globai Financia! Cameraman S-UITZD 2 The rm has to obtain more detailed information in such cases. A loan application is also classied as a New if it is substantially different than past loans. For example. it may be for a substantially larger amount, or using a different payment schedule. The steps through which a loan application passes are shown graphically in Figure l on a following page. There are four steps. Evaluation and Analysis The rst step in the loan processing is Evaluation andAnat'ysts. This involves looking at the nancial feasibility of the equipment loan from the buyer's perspective in order to determine the borrower's ability to repay. It also involves a credit analysis of the borrowing rm. The Evaluation and Analysis step is performed at GF by three teams of two persons each. The sales area is broken into three regions, and each team handles the applications from one of the three regions. This was originally organized in this way so that the analysis teams and the sales representatives would get to know each other and work more effectively together. The Evaluation and Analysis step is thorough, and as a consequence lengthy. It can take a team anywhere from 1 or 2 hours to 10 or 12 hours. News tend to take roughly twice as long as Standards, on average. But even within a category there is a great deal of variability because some loans are simple and straightforward, and others quite complicated involving leaseback and other arrangements. Interest Rate Determination. After the Evaluation and Analysis step has been completed a loan application le is passed on to the Interest Rate desk. Here the appropriate interest rate for the loan is determined. This depends upon general economic conditions in addition to specifics of the region and individual customer. This is a short stcp, taking about a halfhour per application. It is performed by one individual, who devotes about half his time to this task. Loan Terms. The next step in the application processing is to determine the exact loan and agreement terms. This often requires some nancial analysis, and can take from three to ten hours. It is performed by three individuals. As the ease with Evaluation and Analysis, applications are sorted by regions, and each individual determines the loan terms for the applications from a particular region. Final Issuing. The nal step in the process is the actual preparation of the paperwork for the loan. This involves taking what had been previously done by the others and, using individual plus \"boiler plate\" text, printing out the nal papers. This takes about three or four hours and is performed by either of two individuals. No regional separation is used at this step. \ff'llJlJCllul.' ['1 Global Equipment Corporation lntorofce Memo To: Nancy Rodriguez Vice President, Global Financial Bakerseld, CA From: Vincent Moscone General Sales Manager Global Equipment Co. Date: June 30, 1996 Last week we had a two day meeting for all the sales representatives for GEC. A concern Was raised on seVeral occasions by sales representatives from the Western region about the delay in getting loan approvals for equipment purchases. One or two reps claimed that it took six or seVen Weeks to get loan approvals through your ofce on a couple of occasions. I have not done a detailed study, and so I don't know if these were isolated incidents, but I do know that the concern about loan approval delay is widespread. This concern is heightened by the fact that our chief competitor has promised a \" l 0 business day or less\" response to potential cUstomers. For some cLIstomers, the loan terms and conditions are an important part ofthe sale agreement, and if We do not get prompt response, We are in danger of losing the sale. I realiZe that some loan applications are quite complicated, involving new customers or large equipment purchases (I believe you refer to these cases as News}. In situations like that, I think the customer would be more tolerant of delays. But for repeat business, it would seem that We should be able to process the applications quickly. As you know We are initiating a Very strong sales effort, with the hope of increasing our sales by 10 percent or more. To achieve this, we need fast turnaround time on loan applications. I would like to meet with you to see ifwe could make the same promise as our corrrpctitor of \"10 business days or less" For approval. Appendix I] lntaroffiea Mama Memo to: Nancy Rodriguez From: John Rutherford Date: July 8, 1996 As you requested, 1 went through the loan applications that were completed in the rst quarter of this year there were 218 ofthem. They are time stamped when received and when sent back to the GEC sales representatives. So 1 was able to get a good measurement of how long it took us to process them. The attached table gives a detailed breakdown of throughput time. A word of explanation is in order. As you know. we use a standard that says a work day is 6.3 hours of processing. Although we are here it hours, there is time spent in meetings, on personnel matters, etc. and the net effect is that 6.3 hours are devoted, on average, to application processing. This gure was estimated by the study that corporate did in October oflast year. 1 used this 6.3 hour gure in calculating the throughput hours shown in the attached exhibit {Exhibit 1). You indicated that we might be expected to meet the \"l 0 business days or less" standard advertised by our competitor. l have converted the last column of my exhibit into "business days" with the following result: First garter [9% Throughput Time Number of Loan Number of Applications Business Dag l to 5 42 E: to ll] 30 ll to [5 3i] [6 to 20 20 21 to 25 l l 26 to 3i] 1'? 31 to 35 7 36 to 4D 'I" 41 and up 4 total 218 As the table shows. only 1 [2 of the 213 applications [51%) were processed within the \"ID business days or less" promise that our competitor is offering. Your second request was to dig up the study done by corporate last October about how long it tool-t to process our applications. The team that they had here took a sample of applications and actually measured the processing time for the various steps. These times are shown in the following table. Estimated Processin Times in hours Evaluation 4%. Analysis 2.8 Interest Rate Determination {1.6 Loan Terms 3.8 Final lssuing 3 .5 Total Sld. Dev. is the Standard Dcvialion ufprort'ssing times. About tn'od'lirds ofllle observed processing times an: between lhl: mean and plus or minus one Std. Dev. Based just on processing time. we ought to be able to turn around a Standard in less dian two business days. and a N ' in less than three days. However, as the previous analysis showed. this just isn't the case. One last point! We organized our Evaluation 8:. Analysis and Loan Terms staffon a regional basis solne two years ago. 1 am not sure we really achieved the benets we hoped for. There has been such a movement of sales representatives around the country. that we have not really been able to establish relationships between the reps and the processing staff. We might want to reconsider that decision. \fAppendix C lnterofflce Memo Memo To: Nancy Rodriguez From: Amanda Williams V. P. Personnel, GF Corporate Date: July 3. 1996 This is in response to your request for additional stafng at the Bakerseld office of GF. [ am sympathetic to le pressures you feel to speed up the processing of loan applications. However. I must deny your request for additional personnel. Let me detail the rationale for this. the table below shows your estimated processing capacity. It is based upon your current stafng level. It is capacity for a quarter, using the standard of 6.3 hours per day of processing time (or 410 for the entire quarter). Processing Step Available staff Capacity {staff}: 410 hours} Evaluation 8:. Analysis 3 teams 1230- Interest Rate Le person 205 Loan Terms 3 persons 1230 Final issuing 2 persons 82D total ca- .ci 1n the first quarter of this year+ our records indicate that you finished the processing for 218 applications, of which 89 were Srana'amlr and 129 News. When the corporate Team visited your office in ctnhen they estimated a total pmcessing time of 10.? hours for Standards, and [5.3 hours for News. This makes a total usage of 25990.5 hours of processing time. In other words, you were operating at about 36% of capacity. Thus the need for more staff is not apparent. In fact, you ought to be able to handle the 11.1% increase in applicatiom you mentioned in your request. This would still leave you well below 100% of capacity. You might also be interested to know dial the Northeast ofce handles about 35% more applications than your ofce does with essentially the same staff. They have organized the work much differently, and you may want to visit that ofce to get some ideas about how you might improve your efciency