To deliver its value, the application of Lean Manufacturing to Financial Services focuses on: 1. “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. Sun Life Financial Application of Lean Six Sigma Methodology in Financial Services . 2 AGENDA •Lean Six Sigma Introduction •ASQ definition •DMAIC Methodology •Pre-requisites for DMAIC projects •Tools … 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. Nevertheless, to reap rewards from the process, even at the early stages, specific work packages for short term realization should be defined. Reduce project (product) size. Financial services businesses can improve by elevating their quality of service, reducing cycle times, improving productivity, reducing waste and eliminating rework. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. So How Will Acclino’s Lean Training Model Work for the Financial Services Sector? 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. “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. 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. Below are Lean Six Sigma success stories in the Financial Services industry organized alphabetically. 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. Standardization can also reduce errors. “Finance is just a different kind of factory. 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 … For many banks, the first item on the lean agenda may be to increase the value and productivity of a merger or an acquisition. Like any major improvement effort, lean is not risk-free. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. It’s just the $50,000 a year underwriter, the simple banker in the branch office who should do lean. 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. 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. 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. 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. You come home, you’re tired from work, and you have a beer. The operations to be removed from the branches must be clearly defined and their value in the eyes of the customers understood. Tefen > Insights > Industries > Financial Services > Implementing the Lean Approach in a Financial Organization. One of its core principles and a key part of process optimization is to minimize variability, which reduces errors and improves quality. This will need to be backed up with all the required resources and support to ensure its successful completion. How Student Loan Forgiveness Could Increase Inequality, Why Diverse Boards Can Help Close the Wealth Gap, How Cloud Platforms Can Enhance Digital Experiences. “With lean, you can standardize, you can homogenize, you can roll up uniform processes and significantly cut exposure,” says Goyal. Lean thinking is nothing new, of course, but BCG consultants say more banks have talked about it than tried it. The Wharton School is committed to sharing its intellectual capital through the school’s online business journal, Knowledge@Wharton. 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 management was created by Toyota in Japan and introduced into its factories in the 1970s. 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. 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. The basic philosophy doesn’t really change.”. As superfluous steps are managed away, the process becomes more efficient. The results of lean initiatives can be dramatic: Given this potential, why hasn’t lean made more inroads in the financial services industry? Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. Inventory. Value to the customer 2. This lack of coordination can be costly, particularly when allowed to continue long-term. For process-oriented industries such as financial services, lean holds enormous potential. 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. We will walk you through the science, step by step, in a highly interactive, learning-by-doing workshop. In a system with no slack, a single defect in one item can easily snowball into a much larger problem. I am special. 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. “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.”. 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. Still, many executives in those areas continue to deny that lean can improve their productivity. “Managing change and people’s behaviors is a continuous process that must be addressed from day one,” he adds. The challenge of using lean in a service business is that the customer is much more closely connected to what’s being produced. But going lean would not be a good way to run a fire department, Terwiesch says. The best way to begin a lean program is to map an entire end-to-end process, then look for ways to streamline it. 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 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. The methodology is based on five basic principles. Any work-in-process that is in excess of what is required to produce for the customer – … In a Lean service enterprise, processes are customer-centric, services flow smoothly, and employees work together toward operational excellence. But old habits often die hard, and slowly. This reality check has left companies facing harsh challenges, such as reduced profit margins, accelerated competition and greater consumer awareness. 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… 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. Some executives may equate lean to dumbing down a job. The implementation of such a wide-scale process undoubtedly constitutes an enormous challenge. Many banks that have applied lean to back-office processing have reached a steady state followed by diminishing returns. But it doesn’t, Duthoit says. “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. This means that the team need to work in parallel, continuing to implement long term work packages while characterizing and developing future work packages. Notes Terwiesch: “They’ll say, `Well, lean doesn’t apply to me. “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. 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. 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. 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. The methodology is based on five basic principles Proper implementation of the methodology enables the organization to achieve constant longterm improvement. It takes time to build all the infrastructure required. So forget the assembly line approach. “I see absolutely no reason why lean tools shouldn’t be applied to more knowledge-intensive processes.”. For example: technologically oriented as too personal relations / VIP etc. 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. Far more common is an attempt to cut costs without undertaking an actual lean program. In the average big bank, many small groups perform separate reconciliations, “using different technologies, processes and standards.” That can lead to mistakes. “Imagine you’re running a travel office,” says Terwiesch. 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. 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. Lower costs and fewer errors are just the beginning. “You can’t just say, ‘Let’s run this exercise and we’ll worry about the people dimension later,'” notes Duthoit. 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 … This process of transferring operations is not only technical. AXA A Process … “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. In detail, this schedule defines the pace of terminating branch processes and moving employees to the centers. “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. Think more like a race-car pit crew, and process speed can improve dramatically. Others mistakenly think lean requires standardizing every part of a process. 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. Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome. This involves: We then need to define an operating model. Correct formulation of these messages, both internally and externally, contributes significantly to the success of the process. Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. “People are revisiting those partially integrated units, looking for next-generation synergies in operating models and work processes,” says Bartletta. You know what to eat, I know what to eat, it’s not that hard to know,” Terwiesch says. By standardizing processes and empowering front-line people, managers can cut out a lot of that risk. “That’s why, intrinsically, the application of lean is harder in services.”. But understanding what customers value isn’t always easy, he notes, especially when functional silos isolate employees from the front line or the marketplace. Our most recent activity has been to help … 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, … Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress. 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. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. 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. 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 … It is a processing factory, and there’s a lot of waste. 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