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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. You come home, you’re tired from work, and you have a beer. While the basic idea of lean is familiar to many financial executives, getting them to follow through is another matter. “With lean, you can standardize, you can homogenize, you can roll up uniform processes and significantly cut exposure,” says Goyal. This includes interfaces to the branches, data system requirements, process controls, indicators etc. Lean thinking is nothing new, of course, but BCG consultants say more banks have talked about it than tried it. 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 … Core process Lean Manufacturing Six Sigma Increasing process efficiency 50% 90% 95% In our experience this is the role of Lean Manufacturing. In particular, automatic systems must be watched closely to ensure that they don’t exacerbate a difficult market by, say, withdrawing credit at the wrong time. Like any major improvement effort, lean is not risk-free. Proper implementation of the methodology enables the organization to achieve constant longterm improvement. The operations to be removed from the branches must be clearly defined and their value in the eyes of the customers understood. It’s just the $50,000 a year underwriter, the simple banker in the branch office who should do lean. Sign up for the weekly Knowledge@Wharton e-mail newsletter, offering business leaders cutting-edge research and ideas from Wharton faculty and other experts. “A change … 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. It is a methodology that focuses on lean management. A commercial bank receives many loan applications, and these application forms are submitted to the consumer loans department. But it doesn’t, Duthoit says. If one were to track the trail the forms go through, it would probably start from a bank officer’s desk, then go up or down the elevator to every floor level until it reached the department for processing and approval, finally returning to the front office where a loan … “I can’t help but see a pattern here,” he says. 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. Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress. 2 AGENDA •Lean Six Sigma Introduction •ASQ definition •DMAIC Methodology •Pre-requisites for DMAIC projects •Tools … In effect, the customer is often the object moving through a service process, and that complicates matters immensely. It’s a marathon.”, But analysis and implementation are extremely different. It takes time to build all the infrastructure required. “They’re not just there to punch the clock and do what they’re told.” He warns not to overlook this need for change management. Improve earnings by transforming the entire financial services operation. 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. 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. Nevertheless, to reap rewards from the process, even at the early stages, specific work packages for short term realization should be defined. “That’s why, intrinsically, the application of lean is harder in services.”. The implementation of such a wide-scale process undoubtedly constitutes an enormous challenge. “It’s like your diet. In the average big bank, many small groups perform separate reconciliations, “using different technologies, processes and standards.” That can lead to mistakes. A cross-organizational analysis of this scale and significance requires a powerful method of application. 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. So How Will Acclino’s Lean Training Model Work for the Financial Services Sector? “But you don’t eat it. 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. Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. 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 … “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. Lean management was created by Toyota in Japan and introduced into its factories in the 1970s. “Employees are more likely to resist new approaches if they don’t understand how they can help improve the process overall or how their effort adds value,” he explains. Analysis of the bank’s customer population according to the defined segments and analysis of the “typical” customer in each segment. “Once these are shown to be a success, you can build momentum. A few years later — perhaps after a competitor has shown some success with a lean approach — some managers concede that lean could work, but only in the back office and other lower-value parts of the operation. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. All large transformations start with small success stories. Lean is founded on two pillars: respect for people and continuous … Competitive Advantage Through Business Process Transformation. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. The best way to begin a lean program is to map an entire end-to-end process, then look for ways to streamline it. 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. In fact, getting lean often requires creative thinking. Others mistakenly think lean requires standardizing every part of a process. I think the same is true for lean.” Old habits are hard to break. “It’s incredibly important to do. 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. As superfluous steps are managed away, the process becomes more efficient. For example, in cash reconciliations: “You’re basically taking two entries, trying to compare them, and lowering the bank’s exposure if there’s a mismatch,” Goyal says. But those attitudes are slowly changing. Value to the customer 2. 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 isn’t simply about cost cutting, but about changing the way you work,” says Duthoit. The methodology is based on five basic principles. Think more like a race-car pit crew, and process speed can improve dramatically. But going lean would not be a good way to run a fire department, Terwiesch says. In reality, customer satisfaction is measured in those “moments of truth” when the customer needs bank services. In today’s competitive world, banks and financial institutions must now follow the same rule as industrial corporations: produce services … Terwiesch, in his recent operations textbook (Matching Supply with Demand, Gerard Cachon, Christian Terwiesch, McGraw-Hill 2008), notes that at one major consumer bank only 40% of the labor that went into loan underwriting added any value. “Managing change and people’s behaviors is a continuous process that must be addressed from day one,” he adds. Mainly used in the automotive industry, … Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or … It transforms the way employees view their work by encouraging them to continually think about ways to improve it, notes Bartletta. Integrating Lean Six Sigma in Financial Services. 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. It is a processing factory, and there’s a lot of waste. Process … • Implemented LEAN methodology, resulting in reduction of 30 FTEs • Member of Retirement Plan Services Operating Committee • Led implementation of new IVR system, resulting in $1.1M savings '”, Part of the reluctance may have to do with lean’s shop-floor origins. In some cases, process inspection can lead to the entire process being removed. But old habits often die hard, and slowly. The Lab has incorporated all of the leading process-analysis and lean-implementation methods into a single and cohesive finance transformation project methodology. 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. 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 … The benefits of applying lean methodology to … This article examines how this method has been implemented at one of Israel’s leading banks. Tefen > Insights > Industries > Financial Services > Implementing the Lean Approach in a Financial Organization. Below are Lean Six Sigma success stories in the Financial Services industry organized alphabetically. Lean Technique #4 KANBAN. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. Vastly improve service through lean business process improvement of customer-facing business units. The Wharton School is committed to sharing its intellectual capital through the school’s online business journal, Knowledge@Wharton. Process improvement … 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. Managers may see this as slowing down the lean effort, but ultimately it can simplify their task and improve the eventual outcome. For success stories in other industries, please visit our Lean Six Sigma Success Stories page. For instance, the lean principle of engaging employees in problem-solving means that workers involved in a process must be asked how it might be simplified or improved. 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. Reduce … According to a recent survey, 17% of the organizations which have implemented this methodology over the past few years are service organizations.The potential of this method for process-oriented organizations, such as financial institutes, is enormous. Standardization can also reduce errors. Wouldn’t it be better to make sure that they’re always busy and that the fire truck is fully utilized? Some executives may equate lean to dumbing down a job. 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. Get Knowledge@Wharton delivered to your inbox every week. 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. In a Lean service enterprise, processes are customer-centric, services flow smoothly, and employees work together toward operational excellence. “It’s more about getting smarter about what you do.”. In addition to operating importance, this plan clarifies and presents the bank management’s commitment to the wider process. So forget the assembly line approach. The challenge of using lean in a service business is that the customer is much more closely connected to what’s being produced. 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. “You need to focus first on some pragmatic, easily implemented and meaningful applications of change,” Duthoit adds. For example: technologically oriented as too personal relations / VIP etc. 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. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. Starting on … Using lean in wholesale financial services Lean management boosts productivity by allowing formerly intractable bank processes to be transformed. 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. 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… “But the execution — getting to success — is complex.” One reason: “It’s a people process, and it requires a big change in the culture and in the way you manage activities.”. But it just doesn’t work that way, because unless you’re the one causing the fires, a fire department needs to hold excess capacity.”, What’s more, he adds, “an extremely lean system is very vulnerable to external shocks to the system — strikes or traffic jams, bad weather, earthquakes, whatever messes up the system.”. 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. To deliver its value, the application of Lean Manufacturing to Financial Services focuses on: 1. But understanding what customers value isn’t always easy, he notes, especially when functional silos isolate employees from the front line or the marketplace. Financial services businesses can improve by elevating their quality of service, reducing cycle times, improving productivity, reducing waste and eliminating rework. 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. We cannot stress enough the importance of the communication channels and the management of change which accompanies this step, both in presenting the change and twice in giving the correct messages which reflect the lean approach to customers and bank employees alike. Banks that take on successful lean programs … In this Blog… we look at the impact that Lean Six Sigma can have across the financial services industry. Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome. 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. In a system with no slack, a single defect in one item can easily snowball into a much larger problem. 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. Far more common is an attempt to cut costs without undertaking an actual lean program. 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. In detail, this schedule defines the pace of terminating branch processes and moving employees to the centers. Add to this the banker’s satisfaction and the message the customer receives from that banker. “You might say it’s totally inefficient that these guys are getting paid to sit in the station 80% of the time. Defining segment groups according to behavioral characteristics in the world of services. “Finance is just a different kind of factory. This version of the Lean Six Sigma Black Belt course is a financial services version, focusing on process improvement on service-oriented processes found in financial industries, including facility insurance, … Still, many executives in those areas continue to deny that lean can improve their productivity. Any work-in-process that is in excess of what is required to produce for the customer – … 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. For the process to succeed, the business, operating and human elements involved must work together perfectly. Sun Life Financial Application of Lean Six Sigma Methodology in Financial Services . 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. The results of lean initiatives can be dramatic: Given this potential, why hasn’t lean made more inroads in the financial services industry? By standardizing processes and empowering front-line people, managers can cut out a lot of that risk. 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. For process-oriented industries such as financial services, lean holds enormous potential. AXA A Process … “We focused on demonstrating the value of Lean Six Sigma techniques – showcasing how it could deliver process efficiency and an improved customer experience. The business component includes logical formation of the approach and the operating model. Waste begins to disappear. 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. This lack of coordination can be costly, particularly when allowed to continue long-term. Typically, everyone agrees it’s great for manufacturing, and then denies it could work in their business. 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. 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. The financial services sector has been a laggard in adopting lean tools and practices, perhaps because of their manufacturing origins. Because there were so many … 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. All materials copyright of the Wharton School of the University of Pennsylvania. As systems grow more efficient, warns Eric Clemons, a Wharton professor of operations and information management, quality control and risk management must improve along with them. As more banks discover the benefits of lean operations — such as lower costs, fewer errors, faster cycle times and far greater efficiency — wide-scale adoption by the industry is just a matter of time. Lean thinking may also be moving up the value chain in finance, as it has in other service industries. 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. 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. Analysis of customer needs for each segment, including product, means of approach, manner of providing service etc. Many banks that have applied lean to back-office processing have reached a steady state followed by diminishing returns. Our most recent activity has been to help … The methodology is based on five basic principles Proper implementation of the methodology enables the organization to achieve constant longterm improvement. Finally, years later, the whole workforce will reorganize. Inventory. 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 first indicator is subjective. Formulate means of instruction and training for all branches and centers: concentrated training for employees / implementation teams in branches and centers, etc. However, you also want to heavily involve front-line workers and encourage them to share their ideas. This process of transferring operations is not only technical. But there’s a second stage of opportunity in higher-level processes, such as those that touch the customer in branches or the front-office. Notes Terwiesch: “They’ll say, `Well, lean doesn’t apply to me. This reality check has left companies facing harsh challenges, such as reduced profit margins, accelerated competition and greater consumer awareness. 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. “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. This maintains the basic implementation principle – “implementation while in motion”. 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. “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. You know what to eat, I know what to eat, it’s not that hard to know,” Terwiesch says. One of its core principles and a key part of process optimization is to minimize variability, which reduces errors and improves quality. Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. Lower costs and fewer errors are just the beginning. Speed improves and costs drop. Lean middle-market banks … By Dikla Goldenbaum-Gaber, Director, Tefen IsraelRoy Rizenbach, Project Manager, Tefen Israel, The Lean Evolution: From Factory Floor to Service Centers - and Beyond/ WhartonBringing ‘Lean’ Principles to Service Industries | Published: October 22, 2007 | Author: Julia HannaLean Financial Services - Cutting Costs While Reducing Risks | Published : November 11, 2009 in Knowledge@Wharton Adopting Lean and Six Sigma for operational excellence in Services | Published: March, 2010 | Author: Coxswain AllianceExtending the Lean Enterprise | Published: February, 2008 | Author: Aberdeen Group, Tefen USA, 401 Park Avenue South, 10th Floor, Suite 912, New York, NY 10016, An AI Robot in the Service of the Stock Market, The Secret That Reduces Business Complexity, Capacity and Resource Management for a Financial Institution, I agree to receive marketing materials and newsletters from Tefen, Implementing the Lean Approach in a Financial Organization, Improving customer experience by strengthening the interface for the customer in all channels, Improving services and products and adapting them to customer needs. “Lean is one of the very effective ways to actually mitigate operational risk, much of which arises from errors at the front line,” he notes. It is therefore important to clarify the factors influencing these channels and to review the situation with every central operation performed. “In theory, lean tools and techniques are pretty simple,” says Bartletta. This will need to be backed up with all the required resources and support to ensure its successful completion. We will walk you through the science, step by step, in a highly interactive, learning-by-doing workshop. Maintain lean principles to create efficient and streamlined processes in branches and centers. 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 val… “I see absolutely no reason why lean tools shouldn’t be applied to more knowledge-intensive processes.”. According to an updated survey conducted among managers of U.S. banks and financial organizations, 43% of the respondents thought that bank managers should devote the next two years to initiatives for improving operational efficiency, reducing costs and inspecting their operative and organizational model. The purpose of the fourth of the Lean techniques, KANBAN, is to schedule production and minimize work-in-process while encouraging improvement in many areas.KANBAN establishes a small stock point (usually at the producing WorkCentre) that sends a signal when items are withdrawn by a downstream process. The basic philosophy doesn’t really change.”. 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.” At Acclino we know that transforming a process is both a science and an art. How Student Loan Forgiveness Could Increase Inequality, Why Diverse Boards Can Help Close the Wealth Gap, How Cloud Platforms Can Enhance Digital Experiences. 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 … Define training content for branches and centers, Reduce the physical size of branches and locate areas for new joint centers, Establish a body responsible for management, lead and control of progress, Establish a steering committee for key decisions, to include senior managers from all bodies, businesses and operating areas involved, Define a detailed work plan for implementation, management routines, control and escalation of progress, Allocate a body responsible for each mixed unit, Define areas of responsibility, functions and level of contribution required of each party involved. The diagram below shows the various stages of the lean approach: We begin this stage with customer segmentation. Correct formulation of these messages, both internally and externally, contributes significantly to the success of the process. An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions – while improving customer satisfaction through more differentiated service. It ’ s perspective the operating model this will need to define an operating model good. In other industries, please visit our lean Six Sigma success stories in other service industries an. Of creative thinking often exposes a great deal of waste people exposed to lean could. Result of the customers understood each segment, including product, means of lean methodology in financial services manner... Lean principles to create efficient and streamlined processes in branches and centers the fire truck fully! 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