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?

Product Improvement -- Which Approach?

Jay Mandelbaum, along with three co-authors, published a book titled Value Engineering Synergies with Lean Six Sigma: Combining Methodologies for Enhanced Results, and I recently had the chance to ask him a few questions during a phone conversation. I wanted some more clarification on value engineering, but more specifically, I asked him: "Why is it important to use more than one approach to product improvement?" Here is Jay's response:

Different process and product improvement methods were developed under different circumstances -- each has its own unique strengths and weaknesses. Value Engineering (VE) is a practice that is distinguished from other techniques by three elements -- analysis of functions; a multidisciplinary team approach; and the step-by-step VE Job methodology.

VE works synergistically with all other continuous improvement initiatives. It makes any project better by using a unique approach to problem solving that includes the analysis of the functions of an item or a process to determine best value. More specifically, VE systematically determines all of the necessary functions of the item or process, identifies those functions that cost more than they are worth, and brainstorms alternative ways to perform those functions for further evaluation. This distinctive approach drives innovation because it encourages people to think about solutions in atypical ways.

An example recently came to my attention. The New York City FAIRTAX software integrates 40 major systems, 3,000 programs, and 1,400 job streams into seven subsystems, incorporating state-of-the-art technologies and an advanced development environment. The subsystems are: Taxpayer ID, Returns Processing, Property Management, Charge Processing, Accounts Receivable, Collections, and Case Tracking. The amount of information that needed to be input exceeded the capacity of all existing technologies. A Value Team analyzed the functions of the system architecture, software development, hardware, implementation plan, and staffing requirements. The study produced a change in the program to reduce the computer capacity requirements and a revised implementation and staffing plan which yielded monthly savings of $325,000.

What do you think of Jay's response? Do you have any experience using value engineering?

A Lean Six Sigma and Environmental Practices Survey

James Marsh, a PhD candidate at Sheffield Hallam University in the UK, is currently researching the environmental benefits and/or trade offs resulting from Lean and Six Sigma initiatives. Mr. Marsh is analyzing the key differences from various industries and departmental functions and would like Lean and Six Sigma leaders and team members from the widest cross section of global companies possible to complete this survey he created.

This survey takes only about 5 to 10 minutes to complete, and all users retain their anonymity. Please do participate and feel free to pass this survey on to other colleagues actively involved in Lean and Six Sigma initiatives -- the more data gathered, the more accurate the research.

Corporate Sigma: Making Lean Six Sigma Holistic

One of the common complaints I hear about Lean Sigma initiatives is the failure of the organization to maintain momentum. Often the initiative begins with enthusiasm and energy and important strides are accomplished, but then it encounters the "glass wall" -- the initiative plateaus and the crucial goals remain unattainable. I posed the question "Why do Lean Sigma initiatives often deliver below expectations?" to Anwar El-Homsi (author of Corporate Sigma: Optimizing the Health of Your Company with Systems Thinking). He offered this reply:

"Lean Six Sigma tools have been successful in improving processes within the corporation, and several of these successes are well documented by many the companies. However, even with the documented successes due to the application of these tools, many companies still failed to meet strategic business goals. Why these corporations failed in spite of a successful Lean Six Sigma program? What did they miss? Some of the Lean Six Sigma program success factors include the need to have the right leadership, a compelling organizational vision, a well defined business plan, projects that are truly linked to business objectives, engaged and motivated people to execute the plan, etc. But one of the most important factors that imperative for success is the utilization of systems thinking. We need to think about improving the entire company holistically - not just focus on individual processes.

Sometimes, an improvement to a process in one area of the corporation can negatively impact another area or the entire company/business. Often, this negative effect is delayed and the impact is not realized until it is too late to do anything about it. The concept of 'Corporate Sigma' eliminates this problem and it addresses all the factors listed above. It combines the power of Lean Six Sigma and Systems Thinking to assess the performance and the quality level of the entire company, assuring both Lean Six Sigma program and corporate success."