Breaking Bottlenecks (Not the Bank) - Applying Lean to Financial Services

Since the 1940s, the production of automobiles and countless other modern-day commodities has been repeatedly reinvented, with a dual-focus on both quality and efficiency. Now it's spread to other industries. Here's how Lean is helping financial institutions today.

What began so many decades ago as the Toyota Production System developed into what would later be known generically as Lean Process Management, with an ultimate focus on creating better value for the customer while trimming away unnecessary expenses - largely through waste reduction, but increasingly through a focus on value-add - to make operations as efficient and cost effective as possible.

In a recent Bank Systems & Technology (BST) report, James Cook, Principal at Workforce Management Consulting, and Malysa O'Connor, Director at Kronos, noted that financial institutions operate many areas that resemble vehicle manufacturing plants. For example, the processing involved in loan origination or payments operations involves a number of steps, each carried out by specialised staff and chained together in what they call a meta-process that can span the entire organisation.

As the authors pointed out, the end product in financial services has two core values associated with it - the value to the customer and the cost incurred by the institution creating it. "Unfortunately, in many cases, the latter cost is higher than the value placed on the product by the customer," they warned. "The similarity between automobiles and banking is good news for the financial services industry, because it implies that Lean production practices can be applied to complex operations at the bank to gain efficiency and improve quality. Lean production has been proven to gain efficiencies and increase quality across multiple dimensions that can benefit banks."

First on the list is actually finding waste and dealing with it. The simplest way to immediately identify where wasted processing and manpower exist is to conduct a basic Lean analysis. This should allow financial organisations to uncover any excess or unnecessary work and idle time resulting from so-called 'choke points' or bottlenecks. These will generally occur where one department cannot proceed until a preceding group has released work or resources to it. With even minor procedural changes, firms can see dramatic improvements once these bottlenecks are identified and eliminated.

Attention can then move on to eliminating variances between work arrival and staffing levels, which once determined can lead to improved workforce capacity planning. "Managers can accurately staff for anticipated work periods without overstaffing in order to ensure that service levels can be met. In some cases, the actual work processes are found to have steps that contain large variances. These can be reengineered to smooth the work flow," the BST report explained.

Now that cost-to-value is quantifiable, it is possible to construct more accurate analyses of returns on investments for new initiative or process changes. The authors noted how empirical data collection can be used to model changes with a considerable degree of confidence, prior to the adjustments actually having been made. "This data can also be used to improve pricing for existing and new products in the market," they added.

A Lean approach to financial services can also play an important role in improving workforce performance, at both individual and departmental levels. The report said: "Using empirical and consistent data, staff and managers can have objective and transparent discussions about individual performance, leading to improved work quality and the creation of best practices using real life experiences." Where Lean practices are deployed, there is also a certain emphasis placed on holistic views of production, so employees on an individual level feel like a vital part of something much bigger.

"By translating Lean principles from the original manufacturing lexicon to the back office, banks can create a powerful infrastructure to identify waste where it exists and to quantify the cost of doing business," the authors concluded. Essentially, the Lean Production model, where applied to financial services organisations, can deliver a win-win situation. Customers benefit from a higher-quality 'product' while the bank itself can run much better and achieve its core aims at a notably lower cost.