Overcoming Resistance to Lean in Financial Services - Interview with Peter Zorn, Deutsche Bank

It has been a difficult couple of years for financial services companies. The global economic outlook has gone from worse to worse after recent ratings downgrades of major Eurozone economies including France, Italy, Austria and Spain. So it’s not surprising that banks are again shedding staff in further cost cutting measures – Citi, Bank of America, Royal Bank of Scotland, are a few of the many banks to announce mass layoffs in the last few months.

But it’s wrong to associate layoffs with Lean process improvement, argues Peter Zorn, Head of Lean and Transitions at Deutsche Bank. In this PEX Network interview, Zorn discusses why Lean is more about ensuring that employees are busy doing the right things and explains why an organizational culture shift is necessary to ensure sustainable results.

This interview is based on a video interview, Lean on Me – Taking Waste Out of Offices, conducted with Peter Zorn last year.

The transcript has been edited for readability.

PEX Network: There's a lot of pressure on companies to remain competitive in an increasingly difficult economic environment. It’s not surprising that companies are turning to process improvement methods like Lean. But for many, Lean is somewhat distasteful as it’s perceived to be synonymous with lay-offs. What does Lean Office mean to you?

Peter Zorn: I think the first thing to clarify is really, what is Lean? That’s where, I think, the misperceptions come from. At its most basic principle, Lean is about the elimination of waste to serve a client: what the client wants, when they want it, where they want it. And so I think it’s very interesting when I hear people talking about resistance to Lean because it must (incorrectly) mean lay-offs.

I think almost every organization has to admit they have waste (and by waste, I refer to non-value-added activity). People may be busy, but are you busy doing the right things that the customer would be willing to pay for? In a lot of cases, when you go and do your deep-dive analysis into what people are spending time on, clients wouldn’t want to be paying for the sorts of activity that you find going on.

It is important to understand that when you’re eliminating waste, it does sometimes mean that you don’t need as many people to do the process and we've gotten used to a certain size of organisation, a certain way of doing things and a certain number of people doing it. In fact, we find - and I’ve seen this across many institutions - when you really start looking at what is value-added and central value-added, and you strip out as much of the waste as you can, you will find in many cases that in excess of 50% of the activity is waste. The important questions for all organisations is to start to look at this from a cultural perspective. What will you you do with that extra capacity [once you've stripped the waste out]?

Ideally, you should be looking at how you can add more value to customers. What other products should you be offering? What sort of client service can you be enhancing? Oftentimes, when you look at the voice of the customer, you will actually find that there are a lot more things you could be doing. So I always say, you should look at the rationale for doing your Lean program. Why are you doing this? What are you trying to get out of it? And you can look at it across things like more capacity; you can, of course, look at a reduction of cost; you can look at a control environment - there are many different potential goals.

If you ask someone in a normal office, do you like doing wasteful activities, rarely are they going to say yes. So if you could eliminate some of that pointless activity, give your employees new skills, offer them new opportunities to grow, then I believe that it is not difficult to get people to realise that Lean is about adding more value to the work that we are doing as a firm. I think it's crucial that organisations spend a fair amount of time in education and cultural awareness of why the Lean program has started in an organisation.

PEX Network: So you're saying that it’s really not about lay-offs? That although lay-offs might be one result of a Lean program, the ultimate purpose is really to channel people into the most effective activities?

Peter Zorn: Yes. Ultimately, it should always be about the client. And it’s surprising to me when I look across many different organizations – when you talk to the people on the floor, very few of them actually have direct contact with actual clients. You have your relationship management or your sales staff, but when you look at the whole infrastructure that supports the revenue-generating part of the business, most of the staff have very little contact with the customer. And it’s important to communicate with your staff about what customers want. What would add value to them and how can each staff member play a part? All employees should be continually trying to add more value to the client - to serve them better.

PEX Network: What would that actually look like in practise? Do you have a specific example that you can talk us through?

Peter Zorn: I have a very interesting example of wasteful activity that we were able to eliminate. We were working in an office in a country in Asia and there was a team of four people who were involved in an activity called Pre-settlement. Every day they came to our training course and they were there all morning – the whole team, all four of them, and then every day at two ‘o clock they had to leave. And they had to… we’ve got to go back to our office, we’ve got lots to do, but we’ll come back at four ‘o clock. So for five days in a row with the whole team there, there was no activity happening between nine and two, between two and four exceptionally busy and then four onwards, nothing happening.

They explained the concept of Pre-settlement notification and I said, by definition of pre-settlement, that means there must be a settlement notification that comes out in a couple of hours. And they said, yes, but we have to do this. So I applied a very simple technique which we call the Five Whys. So, why do you have to do it? They gave me what I call the "universal favourite answer", which is that someone else says so. In this case, compliance says so. And why does compliance say so? Because the regulator makes us do it. It took a few weeks to work through and to get the permission to do certain things, but we ultimately got an invitation to go and see the regulator.

We presented them with a series of these pre-settlement instructions and they looked at us very puzzlingly and I thought, maybe they didn’t understand the translation. I said, was there something that’s unclear? They said, yes, the unclear thing is why you are doing this because we repealed that law six years ago. So that was an interesting turn of events! So I turned back to my team and I ask so why do we need to continue doing this? The staff replied that it’s not regulation, it’s also clients – the clients value what we do. We picked two of our clients and go look at what they do with this information. Because even if they say they want it, I have to ask them, what value do they get out of it and would they be willing to pay for a team of four people to produce it?

So we went to visit the first client and they too looked at us and said, "oh, when we receive these we just delete them, we’re not sure why you continue to send them because the law changed six years ago. We wait two more hours for the final confirmation".

This is a typical example of people doing things because regulation or compliance said so. Oftentimes people will blame IT – they’ll say Standard Operating Procedures are just this way and it’s too difficult to make the change. And, there’s a whole host of other excuses why we don’t make change happen.

From my perspective, what good looks like in a Lean environment is that you have everyone trained and educated - at least to a basic awareness level. I’m talking about half-day classes or even online learning. And when everybody understands what non-value-added or wasteful activities are and you give them the necessary tools, such as coaching, and put structures in place so that they feel free and empowered to challenge why they are doing something.

I’m not saying that everybody should just go around making changes, but there should be a structure in which they are able to challenge the status quo and from that, when you then start seeing every person thinking every day about little ways to make things different, that is when you start getting to a real true sustainable Lean environment.

When you look at organisations like Toyota or GE or Motorola that are well-known for having Lean Offices, Lean Factories - they are Lean by definition - you don’t go and find teams of central people who are there saying, you have to do this, you have to do that; here’s how we’re going to organise this. The difference is that people naturally come into an environment where there is a whole structure there that everyday, people are able to talk about what went wrong, what could we do to fix it, who do we need to get involved to help us fix it? Because many problems are not caused by the person who has identified it - you need to get many people involved in the value stream.

And so, to me, when you have that sort of structure, that sort of educated audience, and people who are truly motivated to make a difference, that is when you’re looking at something that I would call a true Lean Office.