Retail Banking

Retail Banking

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Lean and banking: the pot of gold waiting to be discovered

Banks are identifying areas for efficiency gains as they update their strategy and vision; aligning business to current market trends and legislation. The fast pace and complex environment, within which banks operate, can often lead to the use of temporary mechanisms to bypass issues, as opposed to identifying and remedying the root cause of the issue. 

This oversight is something which Lean principles could address.

What is the philosophy?

The philosophy of Lean originates from the 1940s and is based on Toyota’s production system which has completely changed the production process of automobiles - from batch production to single piece flow, while removing waste and reducing costs. The philosophy of Lean has since been adopted in many other sectors, with the principles applied across manufacturing, as we as translated to the services sector. It’s quite simple - every  industry offers a product or a service, and a process is required to produce it. So even if you are not manufacturing, the principles can still be applied.

Let’s take the ‘current account creation’ process (below) as an example:

The process involves multiple departments and ends with a customer opening an account. This creates value for the customer, but in doing so, there are costs associated with the process. Banks generally follow a loss leader pricing strategy. That is, they provide certain products such as current accounts at a cost below their market value with the understanding that these will lead to the sales of more profitable products, such as loans and mortgages.

What is the benefit to the bank and the customer?

This strategy highlights the importance of driving down costs for low revenue generating processes, paving the way for Lean continuous improvement within the banking industry. Let’s consider possible optimisations based on lean principles, looking at the process outlined above; once due diligence has been conducted, is there really a need for a face to face appointment? Perhaps replacing this could be replaced by a virtual meeting, an improvement already being explored within the banking industry? This would reduce the lead time and remove the need for customers to travel to branches.

How about the secondary check conducted by the branch manager, is there really a need for this?  If enough authorisation and responsibility is given to the personal banker during their due diligence and verification checks, could the secondary check step be removed from the process? This in turn again reduces the lead time for the process which means that the customer will have an account created and ready within quicker time period.

The application of the Lean philosophy within a bank drives continuous improvement, eliminates waste, adds value and reduces costs. Various tools and techniques are used, and employees are coached through the Lean transformation journey. This training also leads to improved levels of morale, as individuals are encouraged to continuously solve problems with a greater sense of autonomy.

There are clear examples of banks reducing operating costs, for example, Scotiabank’s insight into operating cost reduction. However, can often result in ‘idle’ projects; costs may reduce if implemented well, but these result in one off benefits. If there is no focus on maintaining, sustaining, and embedding continuous improvement, costs soon increase again. This is where the adoption of lean principles really pays off.

A driven workforce looking to continuously improve processes, and ways of working, results in more innovation and proactive risk management. In addition, KPIs are aligned to the business strategy and are cascaded to management to ensure that performance is monitored more effectively.

Embedding a Lean culture within banks

Key to the sustainability of Lean principles are willing adoption and sustainable embedding, here are five recommendations for banks to assist with this:

1.     Engage with the board: understand the board’s strategy and vision moving forward. Any proposed changes must be articulated in line with the strategy; senior-buy and messaging will prove invaluable when embedding Lean principles

2.     Diagnose the end-to-end process: map processes (as-is) to determine the current state of affairs. Engage with stakeholders and determine waste based on TIMWOODS, highlighting non-value adding elements of the process. In addition, review the business’ KPIs

3.     Design new ways of working: develop future state (to-be) process maps with stakeholders. Conduct problem solving sessions to eliminate problems and design new KPIs

4.     Pilot a new process and implement change: pilot the new process using the principles of ‘Plan, Do, Check, Act’ (PDCA). Once the pilot runs prove to be successful, look to implement and standardise the new way of working. Typical implementation changes could involve visual management, smoothing workflow and reducing variation

5.     Sustain and continuous improvement: This is the final and most important step. Employees should aim to continuously use the various lean tools and techniques to continuously improve ongoing performance.

This final step is imperative, if Lean is not embedded as the new way of working, the transformation efforts become a one off improvement, rather than the intended change in culture. This can be achieved by training all employees with various lean tools and techniques. Transformation maps (T-Maps) and 100 day plans can support the need to continuously improve ways of working.

Communication cells can also be set up at each level allowing the continuous monitoring of performance and improvement initiatives. Equally, ‘lean audits’ can be held at each level by all management/hierarchy to ensure that the organisation is still continuously improving. This empowers employees and ensures that performance is visible throughout the organisation.

The financial industry is advancing in line with technological changes while remaining focussed on various legislative changes, which are enforcing new ways of working. However, we need to remember that behind a new way of working sits a process. Much of banks’ focus is on innovation, but we should not ignore the inefficient processes that run in the background. Within these processes lie millions of pounds which could be saved by banks all over the UK. If cost saving becomes a natural subconscious way of working, the benefits are truly priceless. 

About the author

Sangat Singh Mann
Sangat Singh Mann
Sangat is a Consultant in the Operational Excellence capability of Capgemini Consulting UK. He has 3 years of industry experience working in performance improvement across various sectors.

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