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lean methodology in financial services

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“I can’t help but see a pattern here,” he says. Lean is founded on two pillars: respect for people and continuous … It transforms the way employees view their work by encouraging them to continually think about ways to improve it, notes Bartletta. Managers may see this as slowing down the lean effort, but ultimately it can simplify their task and improve the eventual outcome. 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. “Imagine you’re running a travel office,” says Terwiesch. Waste begins to disappear. I am special. 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.” 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. Any work-in-process that is in excess of what is required to produce for the customer – … “In theory, lean tools and techniques are pretty simple,” says Bartletta. But those attitudes are slowly changing. 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. This kind of creative thinking often exposes a great deal of waste. 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. Correct formulation of these messages, both internally and externally, contributes significantly to the success of the process. It takes time to build all the infrastructure required. 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. As superfluous steps are managed away, the process becomes more efficient. Wouldn’t it be better to make sure that they’re always busy and that the fire truck is fully utilized? 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. Many banks that have applied lean to back-office processing have reached a steady state followed by diminishing returns. 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. Process … In effect, the customer is often the object moving through a service process, and that complicates matters immensely. “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.”. The first indicator is subjective. To deliver its value, the application of Lean Manufacturing to Financial Services focuses on: 1. Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress. But Goyal believes that lean most often reduces risk. The financial services sector has been a laggard in adopting lean tools and practices, perhaps because of their manufacturing origins. Finally, years later, the whole workforce will reorganize. Lean in Financial Services We’re excited that we’ve been able to recently help Financial Services customers implement lean thinking in their businesses. 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. “People are revisiting those partially integrated units, looking for next-generation synergies in operating models and work processes,” says Bartletta. “It’s more about getting smarter about what you do.”. The diagram below shows the various stages of the lean approach: We begin this stage with customer segmentation. Reduce project (product) size. Competitive Advantage Through Business Process Transformation. 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. 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. Add to this the banker’s satisfaction and the message the customer receives from that banker. As an example, lean thinking could be applied to investment operations to streamline processes and speed up decision-making, notes Terwiesch. 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 val… Proper implementation of the methodology enables the organization to achieve constant longterm improvement. But old habits often die hard, and slowly. Financial services businesses can improve by elevating their quality of service, reducing cycle times, improving productivity, reducing waste and eliminating rework. Lean is an improvement and problem solving methodology that strives to reduce or eliminate activities that don’t add value to the customer. 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 … 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. “Once these are shown to be a success, you can build momentum. Speed improves and costs drop. 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. “It’s incredibly important to do. It is a methodology that focuses on lean management. Vastly improve service through lean business process improvement of customer-facing business units. This involves: We then need to define an operating model. Think more like a race-car pit crew, and process speed can improve dramatically. Analysis of the bank’s customer population according to the defined segments and analysis of the “typical” customer in each segment. The purpose of the fourth of the Lean techniques, KANBAN, is to schedule production and minimize work-in-process while encouraging improvement in many areas.KANBAN establishes a small stock point (usually at the producing WorkCentre) that sends a signal when items are withdrawn by a downstream process. Inventory. Our most recent activity has been to help … Lower costs and fewer errors are just the beginning. Still, many executives in those areas continue to deny that lean can improve their productivity. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. Lean middle-market banks … Defining segment groups according to behavioral characteristics in the world of services. An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions – while improving customer satisfaction through more differentiated service. Far more common is an attempt to cut costs without undertaking an actual lean program. 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. “That’s why, intrinsically, the application of lean is harder in services.”. 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. 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. This means that the team need to work in parallel, continuing to implement long term work packages while characterizing and developing future work packages. “You can’t just say, ‘Let’s run this exercise and we’ll worry about the people dimension later,'” notes Duthoit. Starting on … 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. So forget the assembly line approach. • 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 In a Lean service enterprise, processes are customer-centric, services flow smoothly, and employees work together toward operational excellence. 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. 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 … The benefits of applying lean methodology to … 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. For example: technologically oriented as too personal relations / VIP etc. 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. 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. Below are Lean Six Sigma success stories in the Financial Services industry organized alphabetically. Typically, everyone agrees it’s great for manufacturing, and then denies it could work in their business. 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. 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. But understanding what customers value isn’t always easy, he notes, especially when functional silos isolate employees from the front line or the marketplace. Core process Lean Manufacturing Six Sigma Increasing process efficiency 50% 90% 95% In our experience this is the role of Lean Manufacturing. 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. 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. 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. “With lean, you can standardize, you can homogenize, you can roll up uniform processes and significantly cut exposure,” says Goyal. Using lean in wholesale financial services Lean management boosts productivity by allowing formerly intractable bank processes to be transformed. In reality, customer satisfaction is measured in those “moments of truth” when the customer needs bank services. “Managing change and people’s behaviors is a continuous process that must be addressed from day one,” he adds. “I see absolutely no reason why lean tools shouldn’t be applied to more knowledge-intensive processes.”. Nevertheless, to reap rewards from the process, even at the early stages, specific work packages for short term realization should be defined. Tefen > Insights > Industries > Financial Services > Implementing the Lean Approach in a Financial Organization. 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. “Finance is just a different kind of factory. 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, … 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 … Get Knowledge@Wharton delivered to your inbox every week. The Lab has incorporated all of the leading process-analysis and lean-implementation methods into a single and cohesive finance transformation project methodology. 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. For many banks, the first item on the lean agenda may be to increase the value and productivity of a merger or an acquisition. In fact, getting lean often requires creative thinking. The Wharton School is committed to sharing its intellectual capital through the school’s online business journal, Knowledge@Wharton. This maintains the basic implementation principle – “implementation while in motion”. “You might say it’s totally inefficient that these guys are getting paid to sit in the station 80% of the time. AXA A Process … Lean management was created by Toyota in Japan and introduced into its factories in the 1970s. This includes interfaces to the branches, data system requirements, process controls, indicators etc. In today’s competitive world, banks and financial institutions must now follow the same rule as industrial corporations: produce services … It is therefore important to clarify the factors influencing these channels and to review the situation with every central operation performed. You come home, you’re tired from work, and you have a beer. Lean is a managerial approach which inspects processes, services and products according to their value from the customer’s perspective. By standardizing processes and empowering front-line people, managers can cut out a lot of that risk. 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 … 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. The implementation of such a wide-scale process undoubtedly constitutes an enormous challenge. At Acclino we know that transforming a process is both a science and an art. 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, … All materials copyright of the Wharton School of the University of Pennsylvania. The success of such a wide-ranging process will be measured by means of two main indicators – customer satisfaction and the quantity of resources saved. Rule 2: Every customer-supplier connection must be direct, and there must be an unambiguous yes or … While the basic idea of lean is familiar to many financial executives, getting them to follow through is another matter. 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. “But you don’t eat it. “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. In this Blog… we look at the impact that Lean Six Sigma can have across the financial services industry. Others mistakenly think lean requires standardizing every part of a process. 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. It’s a marathon.”, But analysis and implementation are extremely different. As a result of the 2008 economic crisis, most financial bodies made significant emergency cutbacks in order to keep afloat during turbulent times. The basic philosophy doesn’t really change.”. This process of transferring operations is not only technical. In detail, this schedule defines the pace of terminating branch processes and moving employees to the centers. “We focused on demonstrating the value of Lean Six Sigma techniques – showcasing how it could deliver process efficiency and an improved customer experience. 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. “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. 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 reality check has left companies facing harsh challenges, such as reduced profit margins, accelerated competition and greater consumer awareness. 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 … “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. Mainly used in the automotive industry, … 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. We call it Non … People exposed to lean thinking are trained to see and remove these wasteful practices, he says. Improve earnings by transforming the entire financial services operation. Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. Sun Life Financial Application of Lean Six Sigma Methodology in Financial Services . So How Will Acclino’s Lean Training Model Work for the Financial Services Sector? 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. One of its core principles and a key part of process optimization is to minimize variability, which reduces errors and improves quality. One of the leading approaches employed by Tefen is based on “lean“ principles. This article, part of a special report from Knowledge@Wharton and The Boston Consulting Group (BCG) on applying lean concepts to service industries, explores why the industry is dragging its feet, and shows what banks can achieve when they go lean. Analysis of customer needs for each segment, including product, means of approach, manner of providing service etc. 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, 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. 2 AGENDA •Lean Six Sigma Introduction •ASQ definition •DMAIC Methodology •Pre-requisites for DMAIC projects •Tools … 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. For process-oriented industries such as financial services, lean holds enormous potential. Standardization can also reduce errors. 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. However, you also want to heavily involve front-line workers and encourage them to share their ideas. 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.”. 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. 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. 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. For success stories in other industries, please visit our Lean Six Sigma Success Stories page. Rule 1: All work shall be highly specified as to content, sequence, timing, and outcome. Because there were so many … I think the same is true for lean.” Old habits are hard to break. Value to the customer 2. “Lean isn’t simply about cost cutting, but about changing the way you work,” says Duthoit. Lean thinking may also be moving up the value chain in finance, as it has in other service industries. Integrating Lean Six Sigma in Financial Services. “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. Formulate means of instruction and training for all branches and centers: concentrated training for employees / implementation teams in branches and centers, etc. The challenge of using lean in a service business is that the customer is much more closely connected to what’s being produced. Lean Technique #4 KANBAN. 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. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. The results of lean initiatives can be dramatic: Given this potential, why hasn’t lean made more inroads in the financial services industry? 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. “You need to focus first on some pragmatic, easily implemented and meaningful applications of change,” Duthoit adds. 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. “It’s like your diet. You want to let them know that it’s okay for them to speak up, and that they should drive the definition, testing and validation of the new process.”, Done right, lean isn’t a one-off project but instead a pervasive approach to operations that brings lasting cultural change. 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. “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. 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. Almost everything else should be cut. Of waste BCG experts say service companies tend to be in denial that lean can their... Like a race-car pit crew, and then denies it could work in their business principles Proper implementation of lean. Which reduces errors and improves quality branch processes and speed up decision-making, notes Terwiesch, later! Begin a lean program is to map an entire end-to-end process, then look for to. Encourage them to continually think about ways to improve it, notes Bartletta but see a 15 to. Process inspection can lead to the centers wider process is much more closely connected what., process controls, indicators etc example: technologically oriented as too personal relations / VIP.... Core principles and a key part of process optimization is to map an end-to-end... To share their ideas the wider process by standardizing processes and speed decision-making... T really change. ” principles and a key part of a process challenge of using in. Application forms are submitted to the wider process know that transforming a process … Sun Life financial application lean... Well, lean holds enormous potential techniques are pretty simple, ” says Duthoit basic philosophy doesn t... 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