12.15.2014

What Can Lean Do for the Banking Industry?

The banking industry comprises many accounting, regulatory, process, and management challenges, and because its customer-satisfaction and efficiency rates are ripe for improvement, many feel Lean improvement initiatives can transform these financial institutions. A book published just this month titled Lean for Banks: Improving Quality, Productivity, and Morale in Financial Offices, authored by Bohdan Oppenheim and Marek Felbur,shows how Lean and Six Sigma can significantly improve the efficiency of bank operations.

During a recent conversation with Bohdan Oppenheim, I asked him: "Why should financial organizations choose Lean as a methodology to transform and improve their culture and results?" Here is his complete response: 

Few traditional banks are aware that they have vast reserves of productivity. Typically in such banks, both managers and staff work extremely hard, often overtime. Their intuition tells them that there is no reserves left in the system, and that the system is "as Lean as it can be." The knee-jerk reaction is to blame this frantic pace on an excessive amount of work and a lack of employees. The solution appears to hire more employees, but this often has the opposite effect. With more people hired, the system becomes even more difficult to manage, more convoluted, and less efficient.

Fortunately, an excellent solution exists: Lean Thinking. In Lean, employees transition from fighting crises to increasing both customer satisfaction and bank competitiveness. Work becomes more predictable, stable, and pleasant. It soon becomes truly shocking to both management and staff how much work can be accomplished in the same amount of time and with the same resources, simultaneously improving productivity, quality, cost, work morale, and customer satisfaction.

The effects of Lean can be dramatic: up to doubled productivity in the entire system; process times cut by 50-90%; the number of errors reduced by 50-90%; development time for new bank products reduced by half; approval time cut by 90%; modest capital investments (only training); dramatically better human relations at all levels; and, most importantly, vastly better customer satisfaction and company competitiveness.

When faced with stiff competition, traditional companies brutally cut costs, usually by massive layoffs, head-count reductions, and by overworking the remaining employees and suppliers. Without addressing underlying systemic problems, these cuts simply eliminate needed resources and therefore slow down the operations. This causes more frantic work pace, loss of quality, and decreasing customer satisfaction. When this happens, additional customers and profits are lost, resulting in even more cuts and more layoffs. This spiral of failure can easily lead to collapse.

In contrast, Lean focuses on recovering productivity reserves by waste elimination. This in turn leads to lower costs, higher quality, and increased customer satisfaction. Lower operating costs enable banks to keep the employees on the payroll because they will be needed as customer satisfaction attracts more business. During the Lean deployment period, the employees can address those improvements for which there was never enough time, contributing to better productivity and quality. So, the success spiral occurs without layoffs.

One of the most pervasive myths in banking industry is that higher quality requires higher costs. This may be true in the superficial sense of marble floors in front offices, but is totally wrong in terms of the cost of operations. Lean demonstrates that a high quality of operations is actually the least expensive. In Lean, we avoid the high costs of mistakes, errors, defects, rework, delays, frustrations, and subsequent crises, and focus instead on making operations better and better.

The bank industry seems to be one of the last Lean frontiers, delayed no doubt due to the severe 2007-2011 crisis and subsequent massive layoffs in the industry. However, pioneering banks, listed in the book, are rapidly implementing Lean. 

Do you agree with Bohdan's assessment? In which area do you feel Lean can acutely improve financial institutions and the banking industry?

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