Speed improves and costs drop. Just as manufacturers that work on a lean, zero-inventory basis must have assurances from suppliers that their parts will have zero defects, banks with lean operations must put in place strict quality controls, Clemons says. This article examines how this method has been implemented at one of Israel’s leading banks. Courage is required to break away from traditional paradigms, conceptions and clearly defined responsibilities are essential to ensure that the new “products” are developed correctly. We call it Non … Parallel to defining work packages for removal of processes from the branches, a deployment plan needs to be developed to ensure that these processes are delegated to the correct centers. Get Knowledge@Wharton delivered to your inbox every week. A lean audit of one North American asset manager uncovered ways to make product pricing 12%-20% more efficient by carefully identifying and eliminating non-value added activities. Cloud platforms enable companies to offer enhanced digital experiences to users without needing to invest in on-premises technology, according to experts from Wharton and SAP. Lean Six Sigma is a process improvement programme that combines two ideas: Lean – a collection of techniques for reducing the time needed to provide products or services, and Six Sigma – a collection of techniques for improving the quality of products and services… This involves: We then need to define an operating model. In a system with no slack, a single defect in one item can easily snowball into a much larger problem. Mainly used in the automotive industry, … “Finance is just a different kind of factory. Integrating Lean Six Sigma in Financial Services. A cross-organizational analysis of this scale and significance requires a powerful method of application. Although implementing lean begins as an operations issue, it quickly becomes a change management exercise that requires companies to deal with workers in new, unfamiliar ways. For process-oriented industries such as financial services, lean holds enormous potential. It’s a marathon.”, But analysis and implementation are extremely different. Now, four years later, those same organizations realize that they need a more comprehensive and strategic plan to cope with the business reality which has developed since that crisis. Far more common is an attempt to cut costs without undertaking an actual lean program. “Imagine you’re running a travel office,” says Terwiesch. Some executives may equate lean to dumbing down a job. For example, when paperwork moves online, the steps of a financial process are often still performed in a sequential order, even when they could be done in parallel, BCG experts say. I am special. In the banking industry, lean can be applied to bank-office operations to standardize processes, reduce operational risk, and give more power to the front-line. This reality check has left companies facing harsh challenges, such as reduced profit margins, accelerated competition and greater consumer awareness. It takes time to build all the infrastructure required. Lean middle-market banks … Still, many executives in those areas continue to deny that lean can improve their productivity. This article, part of a special report from Knowledge@Wharton and The Boston Consulting Group (BCG) on applying lean concepts to service industries, explores why the industry is dragging its feet, and shows what banks can achieve when they go lean. Most major banks around the world have already begun to implement lean principles as follows: The implementation of this approach in banks is also expressed by performing customer segmentation and mapping the value offered in each segment. While the basic idea of lean is familiar to many financial executives, getting them to follow through is another matter. Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress. All materials copyright of the Wharton School of the University of Pennsylvania. This maintains the basic implementation principle – “implementation while in motion”. This includes interfaces to the branches, data system requirements, process controls, indicators etc. In this Blog… we look at the impact that Lean Six Sigma can have across the financial services industry. Analysis of the bank’s customer population according to the defined segments and analysis of the “typical” customer in each segment. Sun Life Financial Application of Lean Six Sigma Methodology in Financial Services . Lean thinking can even help management understand which customer groups are most profitable and where service can be enhanced most cost-effectively, says Amyn Merchant, a senior partner in BCG’s New York office. The correct combination of these components, with the assistance of external support to help discard old paradigms and breaking through new paths, will help your organization build the infrastructure for constant improvement and for attaining the required efficiency objectives. It is a processing factory, and there’s a lot of waste. As superfluous steps are managed away, the process becomes more efficient. The business component includes logical formation of the approach and the operating model. With a clear focus on process standardization, quality improvement, cost cuts and efficiency enhancement, the lean method has recently been gaining momentum and crossing over from its traditional base in industry to various branches of service organizations. Lean Technique #4 KANBAN. Becoming lean involves eliminating the “seven deadly sins” of waste in a process — overproduction, waiting, poor transportation/logistics, over-processing, sub-optimal inventory control, rework, and unneeded movement. One of the leading approaches employed by Tefen is based on “lean“ principles. The following diagram summarizes the benefits which an organization can expect to reap after implementing the lean approach: The decision to implement the lean approach at your bank is a significant strategic step. The basic philosophy doesn’t really change.”. We recommend using the following organizational infrastructures to: Implementation of the lean approach and the operating model covers a wide variety of operations and areas across units and branches. You know what to eat, I know what to eat, it’s not that hard to know,” Terwiesch says. “People are revisiting those partially integrated units, looking for next-generation synergies in operating models and work processes,” says Bartletta. Often, lean thinking helps give executives a broader perspective on a process, making it easier to see possibilities for improvements than a more silo-bound view traditionally did. Analysts using a lean approach in one investment bank reportedly gained 20%-30% in analyst productivity – and a 60% reduction in cycle time — by redefining credit processes. This process of transferring operations is not only technical. Financial services businesses can improve by elevating their quality of service, reducing cycle times, improving productivity, reducing waste and eliminating rework. Decidedly out of their comfort zones, these companies are under pressure to develop and maintain comprehensive organizational processes, involving substantial changes to the way in which services are provided, a deeper understanding of how service value is perceived by customers and a closer focus on exactly how these services can be maximized to increase this value for both the customer and the company. “Managing change and people’s behaviors is a continuous process that must be addressed from day one,” he adds. Vastly improve service through lean business process improvement of customer-facing business units. Below are Lean Six Sigma success stories in the Financial Services industry organized alphabetically. We will also teach you the art of process … AXA A Process … “You’re much more likely to be successful carving up and defining specific processes with a beginning point and an endpoint,” says Simon Bartletta, a partner in BCG’s Boston office. In some cases, process inspection can lead to the entire process being removed. It’s just the $50,000 a year underwriter, the simple banker in the branch office who should do lean. “You can’t just say, ‘Let’s run this exercise and we’ll worry about the people dimension later,'” notes Duthoit. As shown in the next diagram, the optimum model for implementation of lean principles is composed of the following elements: The primary significance of this model is to remove certain operations from the branches to one of the supporting channels, so that branch employees have more time for focusing on value added activities. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. I think the same is true for lean.” Old habits are hard to break. “Very often, employees get ideas about what’s important to the customer based on limited knowledge or an incomplete understanding of customer needs,” says Duthoit. Wouldn’t it be better to make sure that they’re always busy and that the fire truck is fully utilized? Banks that take on successful lean programs … Starting on … Formulate means of instruction and training for all branches and centers: concentrated training for employees / implementation teams in branches and centers, etc. But understanding what customers value isn’t always easy, he notes, especially when functional silos isolate employees from the front line or the marketplace. Using lean in wholesale financial services Lean management boosts productivity by allowing formerly intractable bank processes to be transformed. We will walk you through the science, step by step, in a highly interactive, learning-by-doing workshop. The results of lean initiatives can be dramatic: Given this potential, why hasn’t lean made more inroads in the financial services industry? Lean Six Sigma can also bring about significant results and breakthrough improvements in financial services, as demonstrated with four case studies from Dutch multinational insurance … But going lean would not be a good way to run a fire department, Terwiesch says. The success of such a wide-ranging process will be measured by means of two main indicators – customer satisfaction and the quantity of resources saved. The operations to be removed from the branches must be clearly defined and their value in the eyes of the customers understood. But it doesn’t, Duthoit says. Not only can they profit from lower costs and error rates, successful implementation of the lean approach can bring a 15%-25% improvement in efficiency and a 30%-60% increase in Cycle time. John W. Rogers Jr., founder of Ariel Investments, talks with Wharton’s Stephanie Creary about his lifelong effort to get more people of color into boardrooms and key leadership roles. By standardizing processes and empowering front-line people, managers can cut out a lot of that risk. '”, Part of the reluctance may have to do with lean’s shop-floor origins. All large transformations start with small success stories. Many banks that have applied lean to back-office processing have reached a steady state followed by diminishing returns. Tefen has led and managed many similar projects and has the experience and ability to implement large-scale projects in any organization which embraces the necessity of carrying out such a move. Lower costs and fewer errors are just the beginning. As an example, lean thinking could be applied to investment operations to streamline processes and speed up decision-making, notes Terwiesch. Competitive Advantage Through Business Process Transformation. Reduce project (product) size. You want to let them know that it’s okay for them to speak up, and that they should drive the definition, testing and validation of the new process.”, Done right, lean isn’t a one-off project but instead a pervasive approach to operations that brings lasting cultural change. The challenge of using lean in a service business is that the customer is much more closely connected to what’s being produced. Lean tools and techniques can improve the customer experience by reducing unnecessary activities such as the number of call transfers and unnecessary IT processes, whilst also providing solutions to cut … Another key principle of lean is to focus on what’s important, what matters to the customer, what delivers value, says Christophe Duthoit, a BCG senior partner who manages lean programs for financial services. The benefits of applying lean methodology to … Like any major improvement effort, lean is not risk-free. The financial services sector has been a laggard in adopting lean tools and practices, perhaps because of their manufacturing origins. Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. “We focused on demonstrating the value of Lean Six Sigma techniques – showcasing how it could deliver process efficiency and an improved customer experience. Any work-in-process that is in excess of what is required to produce for the customer – … Correct formulation of these messages, both internally and externally, contributes significantly to the success of the process. Profits are maximized by concentrating on products and services which are valuable to the customer and costs are minimized by eliminating “waste” in the process and reducing operations which do not add value. It includes an opportunity to thoroughly inspect processes, make processes leaner and more efficient, cancelling and reducing steps that do not add value for the customer, standardizing the performance of the process and preventing repeat actions, reducing/cancelling controls, etc. “You need to focus first on some pragmatic, easily implemented and meaningful applications of change,” Duthoit adds. Think more like a race-car pit crew, and process speed can improve dramatically. A commercial bank receives many loan applications, and these application forms are submitted to the consumer loans department. According to Johan Reunis, Competence Center Manager Controlling & Reporting at TriFinance, the lean methodology is perfectly applicable in finance, and it should be much broader implemented. In fact, lean for manufacturing and lean for finance are not all that different, says Deepak Goyal, a partner in BCG’s New York office. Lean and Agile ways of working, including Lean Portfolio Management for financial services, empower teams to deliver value quickly and efficiently by: Decentralizing decision making so that those closest … U.S. President-elect Joe Biden’s promise to forgive student debt might have the unintended consequence of worsening economic inequality, according to new research co-authored by Wharton’s Sylvain Catherine. Standardization can also reduce errors. The operating component involves establishing the management team, implementing management routines, formulating a deployment plan, work plans, tracking and control.The human component focuses on transparency, routine communication of successes, matching human resources to operations, establishing centers with quality spearheading forces and including employees in the process right from the early stages. Lean thinking may also be moving up the value chain in finance, as it has in other service industries. Lean is a customer-centric methodology used to continuously improve any process through the elimination of waste in everything you do; it is based on the ideas of “Continuous Incremental Improvement” and “Respect for People.” Waste begins to disappear. Typically, everyone agrees it’s great for manufacturing, and then denies it could work in their business. Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. Lean is founded on two pillars: respect for people and continuous … For the process to succeed, the business, operating and human elements involved must work together perfectly. You should also be aware that it will take courage to make what may be substantial changes for your organization, particularly in relation to its core sectors. Update work plans and direct resources to where they are needed (recruiting more if necessary), Detailed characterization of work processes –, Inspect and analyze processes and topics transferred to centers and define optimal work process. This means that the team need to work in parallel, continuing to implement long term work packages while characterizing and developing future work packages. Otherwise, lean just becomes a project and a one-time event, and the costs and the risks will creep back in a few years.”, Lean does have its limits. “Lean works best as a balanced top-down and bottom-up effort,” he explains. At Acclino we understand that Six Sigma and Lean Six Sigma (LSS) have a long history dating back to the 1990’s in the financial services … In fact, getting lean often requires creative thinking. “The organization needs to share a common goal and set of expectations of value that the lean program will deliver, and have the executive commitment and appropriate governance to enable its success. Because there were so many … This kind of creative thinking often exposes a great deal of waste. “It’s incredibly important to do. But those attitudes are slowly changing. However, you also want to heavily involve front-line workers and encourage them to share their ideas. Building the infrastructure to support the process is complex and involves many channels: The organizational effort required to build an infrastructure in line with the work plan, as well as allocating resources and synchronizing individual elements demands good overall management of the process. Finally, years later, the whole workforce will reorganize. So How Will Acclino’s Lean Training Model Work for the Financial Services Sector? The objective of a lean banking approach is to identify areas of waste and inefficiency within your organization and then apply proven methodologies to generate solutions. “A change … While it might be tempting to simply issue an edict and try to order a lean program, Bartletta says that what works best is to engage workers early on. In detail, this schedule defines the pace of terminating branch processes and moving employees to the centers. Defining segment groups according to behavioral characteristics in the world of services. Lean thinking is nothing new, of course, but BCG consultants say more banks have talked about it than tried it. “Once these are shown to be a success, you can build momentum. Improve earnings by transforming the entire financial services operation. Nevertheless, to reap rewards from the process, even at the early stages, specific work packages for short term realization should be defined. This has had an impact on branch formats, with opening hours being adjusted to customer needs and operating centers being established, to reduce the workforce in branches and focus on core operations. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. In reality, customer satisfaction is measured in those “moments of truth” when the customer needs bank services. The implementation of such a wide-scale process undoubtedly constitutes an enormous challenge. Proper implementation of the methodology enables the organization to achieve constant longterm improvement. This should support the bank’s core operations, namely sales and customer service, with a view to maintain the bank’s profit goals and reaching a state of constant streamlining. “You might say it’s totally inefficient that these guys are getting paid to sit in the station 80% of the time. Process improvement … Tefen > Insights > Industries > Financial Services > Implementing the Lean Approach in a Financial Organization. In today’s competitive world, banks and financial institutions must now follow the same rule as industrial corporations: produce services … This will need to be backed up with all the required resources and support to ensure its successful completion. Sign up for the weekly Knowledge@Wharton e-mail newsletter, offering business leaders cutting-edge research and ideas from Wharton faculty and other experts. For many banks, the first item on the lean agenda may be to increase the value and productivity of a merger or an acquisition. The first indicator is subjective. 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