This reality check has left companies facing harsh challenges, such as reduced profit margins, accelerated competition and greater consumer awareness. 2 AGENDA •Lean Six Sigma Introduction •ASQ definition •DMAIC Methodology •Pre-requisites for DMAIC projects •Tools … “You might say it’s totally inefficient that these guys are getting paid to sit in the station 80% of the time. A commercial bank receives many loan applications, and these application forms are submitted to the consumer loans department. How Student Loan Forgiveness Could Increase Inequality, Why Diverse Boards Can Help Close the Wealth Gap, How Cloud Platforms Can Enhance Digital Experiences. This article examines how this method has been implemented at one of Israel’s leading banks. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. 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. Vastly improve service through lean business process improvement of customer-facing business units. 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. A cross-organizational analysis of this scale and significance requires a powerful method of application. 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. 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. 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. Proper implementation of the methodology enables the organization to achieve constant longterm improvement. One of its core principles and a key part of process optimization is to minimize variability, which reduces errors and improves quality. The first indicator is subjective. “It’s more about getting smarter about what you do.”. The best way to begin a lean program is to map an entire end-to-end process, then look for ways to streamline it. All large transformations start with small success stories. “A change … 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 the process to succeed, the business, operating and human elements involved must work together perfectly. The Wharton School is committed to sharing its intellectual capital through the school’s online business journal, Knowledge@Wharton. As superfluous steps are managed away, the process becomes more efficient. Lean middle-market banks … Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. Below are Lean Six Sigma success stories in the Financial Services industry organized alphabetically. I think the same is true for lean.” Old habits are hard to break. “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.”. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. “Once these are shown to be a success, you can build momentum. 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. I am special. “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. Mainly used in the automotive industry, … Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress. Integrating Lean Six Sigma in Financial Services. 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. 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. “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. Far more common is an attempt to cut costs without undertaking an actual lean program. 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. “That’s why, intrinsically, the application of lean is harder in services.”. 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 … Inventory. 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. Financial services businesses can improve by elevating their quality of service, reducing cycle times, improving productivity, reducing waste and eliminating rework. We call it Non … “It’s incredibly important to do. You come home, you’re tired from work, and you have a beer. Get Knowledge@Wharton delivered to your inbox every week. Lower costs and fewer errors are just the beginning. 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 … For process-oriented industries such as financial services, lean holds enormous potential. 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. The results of lean initiatives can be dramatic: Given this potential, why hasn’t lean made more inroads in the financial services industry? In a system with no slack, a single defect in one item can easily snowball into a much larger problem. 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 isn’t simply about cost cutting, but about changing the way you work,” says Duthoit. 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 this Blog… we look at the impact that Lean Six Sigma can have across the financial services industry. “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. Notes Terwiesch: “They’ll say, `Well, lean doesn’t apply to me. As an example, lean thinking could be applied to investment operations to streamline processes and speed up decision-making, notes Terwiesch. It’s a marathon.”, But analysis and implementation are extremely different. Banks that take on successful lean programs … Still, many executives in those areas continue to deny that lean can improve their productivity. To deliver its value, the application of Lean Manufacturing to Financial Services focuses on: 1. “In theory, lean tools and techniques are pretty simple,” says Bartletta. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. It is a methodology that focuses on lean management. Although the Lean methodology got its start in manufacturing, today it is widely used across the globe in every sector including logistics and distribution, services, retail, healthcare, … 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. 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. Reduce … For example: technologically oriented as too personal relations / VIP etc. 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 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. AXA A Process … 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. 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. “Imagine you’re running a travel office,” says Terwiesch. So How Will Acclino’s Lean Training Model Work for the Financial Services Sector? Our most recent activity has been to help … We will walk you through the science, step by step, in a highly interactive, learning-by-doing workshop. Using lean in wholesale financial services Lean management boosts productivity by allowing formerly intractable bank processes to be transformed. 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. 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. An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions – while improving customer satisfaction through more differentiated service. This lack of coordination can be costly, particularly when allowed to continue long-term. It’s just the $50,000 a year underwriter, the simple banker in the branch office who should do lean. “It’s like your diet. Reduce project (product) size. The business component includes logical formation of the approach and the operating model. We will also teach you the art of process … Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome. 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. • 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 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. This will need to be backed up with all the required resources and support to ensure its successful completion. This kind of creative thinking often exposes a great deal of waste. 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. Lean management was created by Toyota in Japan and introduced into its factories in the 1970s. “You need to focus first on some pragmatic, easily implemented and meaningful applications of change,” Duthoit adds. “People are revisiting those partially integrated units, looking for next-generation synergies in operating models and work processes,” says Bartletta. However, you also want to heavily involve front-line workers and encourage them to share their ideas. But understanding what customers value isn’t always easy, he notes, especially when functional silos isolate employees from the front line or the marketplace. Sun Life Financial Application of Lean Six Sigma Methodology in Financial Services . Process improvement … For many banks, the first item on the lean agenda may be to increase the value and productivity of a merger or an acquisition. By standardizing processes and empowering front-line people, managers can cut out a lot of that risk. Many banks that have applied lean to back-office processing have reached a steady state followed by diminishing returns. The benefits of applying lean methodology to … Any work-in-process that is in excess of what is required to produce for the customer – … “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. This process of transferring operations is not only technical. 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. It takes time to build all the infrastructure required. 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.”. 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 fact, getting lean often requires creative thinking. While the basic idea of lean is familiar to many financial executives, getting them to follow through is another matter. The basic philosophy doesn’t really change.”. Formulate means of instruction and training for all branches and centers: concentrated training for employees / implementation teams in branches and centers, etc. 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. 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. All materials copyright of the Wharton School of the University of Pennsylvania. Improve earnings by transforming the entire financial services operation. “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. Nevertheless, to reap rewards from the process, even at the early stages, specific work packages for short term realization should be defined. Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or … “Finance is just a different kind of factory. 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. In the average big bank, many small groups perform separate reconciliations, “using different technologies, processes and standards.” That can lead to mistakes. The challenge of using lean in a service business is that the customer is much more closely connected to what’s being produced. In some cases, process inspection can lead to the entire process being removed. In addition to operating importance, this plan clarifies and presents the bank management’s commitment to the wider process. 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 Technique #4 KANBAN. One of the leading approaches employed by Tefen is based on “lean“ principles. This maintains the basic implementation principle – “implementation while in motion”. “Lean works best as a balanced top-down and bottom-up effort,” he explains. 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. Almost everything else should be cut. In effect, the customer is often the object moving through a service process, and that complicates matters immensely. The implementation of such a wide-scale process undoubtedly constitutes an enormous challenge. Like any major improvement effort, lean is not risk-free. 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.” Managers may see this as slowing down the lean effort, but ultimately it can simplify their task and improve the eventual outcome. “With lean, you can standardize, you can homogenize, you can roll up uniform processes and significantly cut exposure,” says Goyal. 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. The diagram below shows the various stages of the lean approach: We begin this stage with customer segmentation. Think more like a race-car pit crew, and process speed can improve dramatically. It is therefore important to clarify the factors influencing these channels and to review the situation with every central operation performed. '”, Part of the reluctance may have to do with lean’s shop-floor origins. Typically, everyone agrees it’s great for manufacturing, and then denies it could work in their business. But Goyal believes that lean most often reduces risk. This involves: We then need to define an operating model. 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, … “But you don’t eat 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 … Maintain lean principles to create efficient and streamlined processes in branches and centers. Lower costs and fewer errors are just the beginning. As a result of the 2008 economic crisis, most financial bodies made significant emergency cutbacks in order to keep afloat during turbulent times. At Acclino we know that transforming a process is both a science and an art. “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. Add to this the banker’s satisfaction and the message the customer receives from that banker. The methodology is based on five basic principles. Competitive Advantage Through Business Process Transformation. 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. Be in denial that lean Six Sigma success stories in other service industries improvement customer-facing! 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