Performance evaluation of retail banking services: Is there a trade-off between production and quality?

We propose a two-stage data envelopment analysis model to give an insight on the internal structure of the banking sector and study the important role of service quality in the production process. The first stage deals with the production performance and is related with the optimal use of resources to produce banking services, whereas the second stage deals with the service quality performance using customer-reported satisfaction and loyalty measures. This paper analyzes the efficiency and productivity of 36 branches of a single bank of Greece over the period 2016-2018. The results indicate the existence of a strong trade-off between production and service quality. Further insights of the study indicate that the branch size significantly affects the service quality and overall efficiency. Moreover, the employee assessments by the performance appraisal system of the bank are mainly associated with the service production and not with service quality. Finally, this study presents a managerial decision-making matrix and makes recommendations to help bank managers to improve the retail network performance.