What Can Lean Do for the Banking Industry?

The banking industry comprises many accounting, regulatory, process, and management challenges, and because its customer-satisfaction and efficiency rates are ripe for improvement, many feel Lean improvement initiatives can transform these financial institutions. A book published just this month titled Lean for Banks: Improving Quality, Productivity, and Morale in Financial Offices, authored by Bohdan Oppenheim and Marek Felbur,shows how Lean and Six Sigma can significantly improve the efficiency of bank operations.

During a recent conversation with Bohdan Oppenheim, I asked him: "Why should financial organizations choose Lean as a methodology to transform and improve their culture and results?" Here is his complete response: 

Few traditional banks are aware that they have vast reserves of productivity. Typically in such banks, both managers and staff work extremely hard, often overtime. Their intuition tells them that there is no reserves left in the system, and that the system is "as Lean as it can be." The knee-jerk reaction is to blame this frantic pace on an excessive amount of work and a lack of employees. The solution appears to hire more employees, but this often has the opposite effect. With more people hired, the system becomes even more difficult to manage, more convoluted, and less efficient.

Fortunately, an excellent solution exists: Lean Thinking. In Lean, employees transition from fighting crises to increasing both customer satisfaction and bank competitiveness. Work becomes more predictable, stable, and pleasant. It soon becomes truly shocking to both management and staff how much work can be accomplished in the same amount of time and with the same resources, simultaneously improving productivity, quality, cost, work morale, and customer satisfaction.

The effects of Lean can be dramatic: up to doubled productivity in the entire system; process times cut by 50-90%; the number of errors reduced by 50-90%; development time for new bank products reduced by half; approval time cut by 90%; modest capital investments (only training); dramatically better human relations at all levels; and, most importantly, vastly better customer satisfaction and company competitiveness.

When faced with stiff competition, traditional companies brutally cut costs, usually by massive layoffs, head-count reductions, and by overworking the remaining employees and suppliers. Without addressing underlying systemic problems, these cuts simply eliminate needed resources and therefore slow down the operations. This causes more frantic work pace, loss of quality, and decreasing customer satisfaction. When this happens, additional customers and profits are lost, resulting in even more cuts and more layoffs. This spiral of failure can easily lead to collapse.

In contrast, Lean focuses on recovering productivity reserves by waste elimination. This in turn leads to lower costs, higher quality, and increased customer satisfaction. Lower operating costs enable banks to keep the employees on the payroll because they will be needed as customer satisfaction attracts more business. During the Lean deployment period, the employees can address those improvements for which there was never enough time, contributing to better productivity and quality. So, the success spiral occurs without layoffs.

One of the most pervasive myths in banking industry is that higher quality requires higher costs. This may be true in the superficial sense of marble floors in front offices, but is totally wrong in terms of the cost of operations. Lean demonstrates that a high quality of operations is actually the least expensive. In Lean, we avoid the high costs of mistakes, errors, defects, rework, delays, frustrations, and subsequent crises, and focus instead on making operations better and better.

The bank industry seems to be one of the last Lean frontiers, delayed no doubt due to the severe 2007-2011 crisis and subsequent massive layoffs in the industry. However, pioneering banks, listed in the book, are rapidly implementing Lean. 

Do you agree with Bohdan's assessment? In which area do you feel Lean can acutely improve financial institutions and the banking industry?

Grasping Lean

A very handy new book was published last month called The Lean Anthology: A Practical Primer in Continual Improvement, authored by Rebecca Goldberg and Elliott N. Weiss, and it provides simple case studies of people observing and integrating the principles of Lean into their personal and professional lives.

I had a chance to discuss the book with Rebecca and asked her: "Which aspect of a Lean initiative is usually the toughest to grasp by those without an operations management background?" Here is her complete answer:

The successful understanding and teaching of Lean means getting people engaged, involved, and committed. This is the toughest aspect of those involved in a a Lean initiative to grasp and those leading the initiative to overcome. So often, students of Lean -- whether in a corporate or an academic setting -- get lost in the esoteric, “armchair Lean” side of the methodology. This misplaced focus prevents or delays success. The Lean Anthology: A Practical Primer in Continual Improvement uses practical examples that readers can intuitively understand and apply -- bridging the gap between Lean theory and true Lean integration. Colleagues and associates are engaged when they understand the benefits of change and are able to generalize Lean concepts in a holistic way. 

Here are some examples: Two people discuss their approaches to car care -- which helps to explain predictive, preventive, and reactive maintenance. A busy executive changes his daily routine to accomplish the same amount of work, yet preserves more time for family. A busy mother designs a "critical path" to shepherd her children to the school bus each day without any "defects." The stories in The Lean Anthology walk participants through a strategic path toward a Lean conversion, represented as the 5-Cs of Customer, Capability, Control, Coordination, and Context/Culture. The best investment an organization can make in successful change is to support true understanding and engagement -- our book makes that investment tangible and accessible. 

How do colleagues without an operations or engineering background in your organization function within a Lean initiative? Has it significantly hindered their involvement?