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.

Contents
1. Amana Bank An Introduction ........................................................................................... 1 1.1 1.2 1.3 1.4 1.5 2. The Vision and Mission ............................................................................................... 1 Islamic Banking The Significance ............................................................................ 1 Milestones acheived: .................................................................................................... 1 Amana Bank - The Way Forward ................................................................................ 1 Report coverage ........................................................................................................... 2

Factors for Change ............................................................................................................... 3 2.1 2.2 Macro environmental factors ....................................................................................... 3 Task Environmental Factors ........................................................................................ 3

3.

Amana Bank How the Change was brought about ........................................................... 4 3.1 3.2 3.3 Phase I: Unfreeze ......................................................................................................... 4 Phase II: Change .......................................................................................................... 5 Phase III: Re-Freeze ...................................................................................................... 5

4.

Amana Bank The Cultural Changes.................................................................................. 7 4.1 4.2 4.3 Edgar H. Schein's model of organizational culture ...................................................... 7 Cultural Changes adopted by Amana ........................................................................... 8 Impact on Group and Team behavior .......................................................................... 9

5. 6. 7. 8.

Amana Bank Organizational Design............................................................................... 11 Amana Bank Issues and Recommendations ................................................................... 13 References .......................................................................................................................... 14 Appendices........................................................................................................................... 1

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

ii

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 1.4 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 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

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

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.

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 Lewins Three Stage Model states how they managed to bring about these changes:

Figure 1: Kurt Lewins 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

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 customers 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
5

 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.

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

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 organizations 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

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 wasnt compulsory Remuneration packages werent 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
9

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.

10

5. Amana Bank Organizational Design

Before the Change MD - CEO After the Change MD - CEO

Corporate Management Manager

Corporate Management Manager

Executive Officer

Executive Officer

Executive Assistant

Executive Assistant

Clerk

Junior Executive Assistant Banking Trainee

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 banks 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
11

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)

12

6. Amana Bank Issues and Recommendations

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

13

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-managementconsultant.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-culturesalem/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. Senaweera, L. (2012) Organizational Behaviour. Colombo: ICBT.

14

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].

15

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?

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?