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Financial Institutions Can Learn to Be Lean

By David Potterton, IDC Financial Insights Lean Processing has been trying to make its way into financial institutions for the past 10 years or more. While success has been limited, there is much financial institutions can learn from Lean. Lean, based on the principles of Toyota's Production System, is really about creating more value for customers by eliminating wasted activities and increasing efficiency. Many times it is paired with elements of Six Sigma (which is based on quality i

By David Potterton, IDC Financial Insights

Lean Processing has been trying to make its way into financial institutions for the past 10 years or more. While success has been limited, there is much financial institutions can learn from Lean. Lean, based on the principles of Toyota's Production System, is really about creating more value for customers by eliminating wasted activities and increasing efficiency. Many times it is paired with elements of Six Sigma (which is based on quality improvement and defect management and is, therefore, more about accuracy and precision), to provide the best of both disciplines.It's not that financial services firms (and particularly banks) are against continuous improvement. There are, in fact, institutions today that are utilizing Lean tools and Six Sigma successfully. However, other financial institutions have tried similar efforts in the past and these efforts have failed to gain traction despite large expenditures of time, effort and money for the following reasons:

It takes a sustained work effort: Usually there is exceptional energy and focus for Lean initiatives within financial services organizations at the start. Sustaining this effort, however, becomes increasingly challenging through management/personnel changes and competing priorities. Unfortunately, the dollars and cents benefits of Lean accrue not in identifying improvement opportunities, but in actually driving the action plans, metrics and tracking mechanisms to ensure identified changes occur and cost savings are actually achieved. This takes sustained effort and commitment from financial services organizations.

Need to work across silos: Efficiencies (and related cost savings) happen when processes are reviewed end to end. This means cutting across operational constraints within many institutions and dealing with the related political and resource issues. This factor highlights the need for many institutions to look outside of their own organization for Lean expertise (either consulting firms or vendors) in order to bring neutral resources to bear.

We've always done it that way: Perhaps the biggest impediment to implementing Lean efforts is the organization mind set against change. Yet this is exactly what financial institutions should be challenging in order to bring benefits across the organization. In fact, once employees are brought into the Lean process, they become empowered to think beyond the status quo and actually become advocates of change.

It's not just about technology: Too often, technology is the panacea for every business issue facing the organization. Yet automating a bad process is just time and money thrown away. With Lean, the focus is to make processes as efficient as possible before applying technology. In many cases, institutions have found that their business unit is dysfunctional and improvements in people and processes pay significant dividends without technology changes. When changes are required however, Lean allows financial institutions to be confident they are maximizing scarce IT resources to the fullest extent.

Finally, Lean acceptance within financial institutions can only be successful if senior level executives endorse Lean initiatives and follow through with constant re-enforcement of the goals and objectives of the effort. In addition, a champion(s) should be designated as part of this effort. While technology can lead the way, there must be joint efforts with business leaders as success depends on working with the various lines of business to achieve measurable results.

Despite the lack of acceptance to date, there is much that financial services companies can learn from Lean and these lessons have become more imperative in an environment where costs and efficiencies should be priority one for financial institutions. Forward thinking organizations are already there. For others, economic conditions should be driving them to look at the benefits of Lean.

David Potterton is vice president of global research at Boston-based IDC Financial Insights.

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