Proper implementation of the methodology enables the organization to achieve constant longterm improvement. “Once these are shown to be a success, you can build momentum. In the average big bank, many small groups perform separate reconciliations, “using different technologies, processes and standards.” That can lead to mistakes. 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. 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. All materials copyright of the Wharton School of the University of Pennsylvania. 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 … Formulating USP (unique selling proposition) while taking into account the bank’s potential for profit, Detailed characterization of the operating model –, Define branch operations by process / sector / subject / customers / segment, Define joint center structure and work methods, Define branch interfaces and work methods in conjunction with centers, Plan and estimate number of employees required to perform operations in joint centers versus number of employees required in branches, where workload has been cut, Build plan for transfer of workforce from branches to centers, based on skills and bank’s needs, Formulate plans for early employee retirement where necessary, Find technological solutions and expertise for successful implementation of the approach and operating model. It’s just the $50,000 a year underwriter, the simple banker in the branch office who should do lean. For many banks, the first item on the lean agenda may be to increase the value and productivity of a merger or an acquisition. Core process Lean Manufacturing Six Sigma Increasing process efficiency 50% 90% 95% In our experience this is the role of Lean Manufacturing. We call it Non … “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. 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. In a system with no slack, a single defect in one item can easily snowball into a much larger problem. Lean thinking may also be moving up the value chain in finance, as it has in other service industries. Lean management was created by Toyota in Japan and introduced into its factories in the 1970s. 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. The Lab has incorporated all of the leading process-analysis and lean-implementation methods into a single and cohesive finance transformation project methodology. The rest was frittered away on such unproductive activities as processing loans that were unlikely to be accepted by customers because the bank had taken too long to respond, or processing loans that should have been rejected because the applicant’s credit status was obviously too low, and trying – repeatedly but unsuccessfully — to reach customers on the telephone. 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. The challenge of using lean in a service business is that the customer is much more closely connected to what’s being produced. We will also teach you the art of process … Lean thinking is nothing new, of course, but BCG consultants say more banks have talked about it than tried it. It is a methodology that focuses on lean management. “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, … “You need to focus first on some pragmatic, easily implemented and meaningful applications of change,” Duthoit adds. “With lean, you can standardize, you can homogenize, you can roll up uniform processes and significantly cut exposure,” says Goyal. 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 … For process-oriented industries such as financial services, lean holds enormous potential. 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. 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. Still, many executives in those areas continue to deny that lean can improve their productivity. Lean middle-market banks … The diagram below shows the various stages of the lean approach: We begin this stage with customer segmentation. Many banks that have applied lean to back-office processing have reached a steady state followed by diminishing returns. Managers may see this as slowing down the lean effort, but ultimately it can simplify their task and improve the eventual outcome. 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. “Imagine you’re running a travel office,” says Terwiesch. But Goyal believes that lean most often reduces risk. 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. Lower costs and fewer errors are just the beginning. “Managing change and people’s behaviors is a continuous process that must be addressed from day one,” he adds. 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. Defining segment groups according to behavioral characteristics in the world of services. The Wharton School is committed to sharing its intellectual capital through the school’s online business journal, Knowledge@Wharton. Maintain lean principles to create efficient and streamlined processes in branches and centers. Notes Terwiesch: “They’ll say, `Well, lean doesn’t apply to me. Because there were so many … Using lean in wholesale financial services Lean management boosts productivity by allowing formerly intractable bank processes to be transformed. 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. 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. For example: technologically oriented as too personal relations / VIP etc. “But you don’t eat it. Some executives may equate lean to dumbing down a job. 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 process-oriented industries such as financial services, lean holds enormous potential. Reduce project (product) size. One of the leading approaches employed by Tefen is based on “lean“ principles. 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. Improve earnings by transforming the entire financial services operation. Add to this the banker’s satisfaction and the message the customer receives from that banker. 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. 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. Like any major improvement effort, lean is not risk-free. 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. 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. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. However, you also want to heavily involve front-line workers and encourage them to share their ideas. The best way to begin a lean program is to map an entire end-to-end process, then look for ways to streamline it. “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. “It’s incredibly important to do. While the basic idea of lean is familiar to many financial executives, getting them to follow through is another matter. 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. Lean Technique #4 KANBAN. 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. Lean is founded on two pillars: respect for people and continuous … 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 … For the process to succeed, the business, operating and human elements involved must work together perfectly. All large transformations start with small success stories. Banks that take on successful lean programs … “A change … This process of transferring operations is not only technical. 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. 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. 2 AGENDA •Lean Six Sigma Introduction •ASQ definition •DMAIC Methodology •Pre-requisites for DMAIC projects •Tools … In addition to operating importance, this plan clarifies and presents the bank management’s commitment to the wider process. 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. “I can’t help but see a pattern here,” he says. “Lean works best as a balanced top-down and bottom-up effort,” he explains. Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. It takes time to build all the infrastructure required. 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. “In theory, lean tools and techniques are pretty simple,” says Bartletta. But going lean would not be a good way to run a fire department, Terwiesch says. Analysis of customer needs for each segment, including product, means of approach, manner of providing service etc. As a result of the 2008 economic crisis, most financial bodies made significant emergency cutbacks in order to keep afloat during turbulent times. 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. “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. So How Will Acclino’s Lean Training Model Work for the Financial Services Sector? Our most recent activity has been to help … Lean in Financial Services We’re excited that we’ve been able to recently help Financial Services customers implement lean thinking in their businesses. 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. A cross-organizational analysis of this scale and significance requires a powerful method of application. 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… So forget the assembly line approach. The first indicator is subjective. 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 effect, the customer is often the object moving through a service process, and that complicates matters immensely. You come home, you’re tired from work, and you have a beer. Integrating Lean Six Sigma in Financial Services. We will walk you through the science, step by step, in a highly interactive, learning-by-doing workshop. By standardizing processes and empowering front-line people, managers can cut out a lot of that risk. The business component includes logical formation of the approach and the operating model. But those attitudes are slowly changing. 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. To deliver its value, the application of Lean Manufacturing to Financial Services focuses on: 1. Others mistakenly think lean requires standardizing every part of a process. Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or … At Acclino we know that transforming a process is both a science and an art. Lean is an improvement and problem solving methodology that strives to reduce or eliminate activities that don’t add value to the customer. Sign up for the weekly Knowledge@Wharton e-mail newsletter, offering business leaders cutting-edge research and ideas from Wharton faculty and other experts. Wouldn’t it be better to make sure that they’re always busy and that the fire truck is fully utilized? 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. 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. “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. 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. Correct formulation of these messages, both internally and externally, contributes significantly to the success of the process. Almost everything else should be cut. In detail, this schedule defines the pace of terminating branch processes and moving employees to the centers. “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.”. This maintains the basic implementation principle – “implementation while in motion”. Vastly improve service through lean business process improvement of customer-facing business units. An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions – while improving customer satisfaction through more differentiated service. But it doesn’t, Duthoit says. 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 is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. This involves: We then need to define an operating model. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. 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. Competitive Advantage Through Business Process Transformation. For success stories in other industries, please visit our Lean Six Sigma Success Stories page. It’s a marathon.”, But analysis and implementation are extremely different. “It’s like your diet. “The perfect lean team might get its processes right and do everything consistently, but suppose a customer wants to talk for 30 minutes before booking a flight?” The process may not allow for such lengthy conversations. This includes interfaces to the branches, data system requirements, process controls, indicators etc. 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. Inventory. Process … The benefits of applying lean methodology to … This will need to be backed up with all the required resources and support to ensure its successful completion. “Lean isn’t simply about cost cutting, but about changing the way you work,” says Duthoit. Nevertheless, to reap rewards from the process, even at the early stages, specific work packages for short term realization should be defined. 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. The basic philosophy doesn’t really change.”. Lower costs and fewer errors are just the beginning. 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. In a Lean service enterprise, processes are customer-centric, services flow smoothly, and employees work together toward operational excellence. You know what to eat, I know what to eat, it’s not that hard to know,” Terwiesch says. Waste begins to disappear. In this Blog… we look at the impact that Lean Six Sigma can have across the financial services industry. AXA A Process … 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 … The methodology is based on five basic principles. Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress. “You might say it’s totally inefficient that these guys are getting paid to sit in the station 80% of the time. I think the same is true for lean.” Old habits are hard to break. Mainly used in the automotive industry, … In fact, getting lean often requires creative thinking. Typically, everyone agrees it’s great for manufacturing, and then denies it could work in their business. “It’s more about getting smarter about what you do.”. 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. Starting on … But old habits often die hard, and slowly. Process 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. How Student Loan Forgiveness Could Increase Inequality, Why Diverse Boards Can Help Close the Wealth Gap, How Cloud Platforms Can Enhance Digital Experiences. 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