Financial Services: Using Lean to Fatten Up Profits

Due to the recession, changing consumer demographics and a growing regulatory burden, the Financial Services (FS) industry will need help reaching historical profit levels over the next couple of years.  New strategies are needed that can reduce cost, streamline processes and increase agility.  Lean-based programs have the potential to do this given their success in manufacturing and early traction in some FS firms.  Lean is a set of practices and tools that seek to eliminate seven causes of inefficiency in a process:  overproduction, waiting, poor transportation/logistics, over-processing, sub-optimal inventory control, rework, and unneeded movement. Lean practitioners are trained to identify and remove these wasteful practices through redesigning processes. At the same time, Lean is not just about cost reduction.  Another key principle focuses on abolishing all redundant activities which are not customer-relevant or part of value delivery.

Lean programs are ideal for process-oriented industries such as FS, manufacturing and health care.  These sectors typically have complex processes, a myriad of products & services and high error rates that result in higher than necessary costs, risks and service times. Yet, lower costs and fewer errors are just the beginning of Lean’s benefits.  According to The Wharton School, Banks that have implemented Lean programs have witnessed a 15% to 25% improvement in efficiency.  Cycle time improvement can be even more dramatic, with 30% to 60% gains possible.  Finally, Lean delivers a variety of intangible benefits including reduced operational risk, improved decision making and higher customer satisfaction.

Given this potential, why hasn’t Lean made more inroads in FS?  For one thing, many executives misdiagnose their operational challenges, and as a result, do not see the applicability of Lean to their process-intensive companies.  In actuality, Lean for manufacturing and Lean for finance are not all that different.  According to Deepak Goyal, a partner at the consultancy BCG, “Finance is just a different kind of factory. It is a processing factory, and there’s a lot of waste. The basic philosophy doesn’t really change.”

How do you overcome inertia around deploying Lean in FS?

Develop a convincing business case

The potential value of Lean in FS is such that a well-defined business case can create a “burning platform” to overcoming internal inertia.  However, managers will need to quantify the benefits and develop a compelling strategic narrative and a pragmatic roll out plan.  Although gathering operational data, process flows and customer behavior may entail considerable work, much of the information is usually accessible within the firm albeit spread out among different departments and locations.  Moreover, there are enough Lean case studies to help demonstrate financial value and illustrate best practices.

Change mind sets

Lean isn’t simply about cost cutting but about changing the way firms operate.  To accomplish this, companies need a dual approach that stresses long-term leadership and change management.  Recognizing that old habits are hard to break, leaders should embrace ambitious goals, bottom-up collaboration and executional fortitude to fully realize Lean’s potential.  Furthermore, companies should employ proven change management tools that are designed to overcome hidden psychological and cultural barriers to change.

Creatively tackle processes

Advances in IT automation combined with manufacturing-based Lean best practices can supercharge FS efforts to dramatically redesign systems and processes that radically cut waste and process time. For example, designing retail banking operations back from each customer interaction point (as opposed to from the distribution of the product or service) has the potential to improve delivered value, customer satisfaction and reduce cost.  Most often, the best way to develop internal Lean competencies and company-wide alignment is to identify and execute a Lean pilot project based on an existing low risk/high cost process.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.


1 comment so far

  1. […] the back office: Look for efficiency gains and cost savings in back office operations like custody, accounting and record […]

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