SIX SIGMA IN FINANCIAL SERVICES: Customer Focus and Institutional Performance

How can leading financial services institutions like Bank of America and J.P. Morgan Chase be bragging about "six sigma", when this expression still has a manufacturing stigma? These two words had their call to fame in the 1990's when industrial companies started reporting the results from process improvement programs to their shareholders. Motorola (who owns the Six Sigma trademark for process improvement) followed by Allied Signal (now Honeywell), and then by Jack Welch in his charismatic leadership of the GE industrial conglomerate are among the most notable examples. Such fame stemmed from the accepted wisdom that making perfect widgets is better than producing defective ones, as customers prefer dependable and predictable manufactured goods rather than putting up with items of wildly variable quality.

While Six Sigma means virtually zero defects (fewer than 3.4 per million) and predictable quality, what really ended up propelling these methodologies within these industrial giants was an appetite for bottom line performance, competitive advantage and cultural change. It turns out that these process improvement methods simplify and speed up production while eliminating defects and their associated waste. Consequently, Six Sigma processes perform much faster and cheaper. Competitors have a tough time matching such amazing quality and productivity standards through conventional techniques. And finally, Six Sigma improvement activities open up new dimensions of teamwork and empowerment for managers and employees.

How did these quantum improvements percolate into the conservative world of financial services? For many individuals, seeing is believing. GE Capital Services, a division from one of the giants with annual revenues in the 60 billion dollar range, has readily embraced this corporate improvement gift. It was also that a few visionary leaders in large financial institutions saw the opportunity to transport Six Sigma methods into the services arena as a break out strategy.

After many decades of tweaking, patching, convoluting and reconciling their administrative flows, financial institutions were stuck with fragmented and largely deteriorated processes that typically entail up to 90% of wasteful steps. Their customer satisfaction across other service and manufacturing companies ranked in the bottom tier, barely above the level of the Internal Revenue Service. The dependability of older processes was visibly low, to the point that airline customers were more likely to get their baggage delivered without any hassle than financial services customers seeing their transactions processed timely and accurately. Over the years, financial institutions had managed to educate their customers to put up with unacceptable quality. Therefore, improving old processes has become a quintessential source of customer satisfaction, cost efficiency, and competitive advantage.

Several visionary CEOs at financial institutions sensed a strategic opportunity to boost bottom-line performance and customer loyalty by improving ailing processes. Among others, Ken Lewis at Bank of America, Bill Harrison at J.P. Morgan Chase, Phil Humann at SunTrust, and Ken Chenault at American Express have explicitly mentioned their Six Sigma and quality reengineering programs for customer impact, efficiency and growth in their respective annual letters to shareholders. In the aggregate, visible process transformations at these companies have already contributed billions of dollars in cost efficiencies and revenue growth. A key challenge in attaining such performance gains is championing a process improvement culture across the organization.

To be effective, major business transformations in financial services require an end-to-end customer perspective that cuts across functional lines. Indeed, a distinctive feature of Six Sigma improvements is employing diverse methods and tools that focus on maximizing customer value through collaborative solutions. By adopting a customer perspective, financial institutions completely redefine the performance improvement opportunity by shifting the attention from tactical cost cutting measures at individual departments into a cohesive quest at their group or corporate levels to address critical and strategic business priorities.

A holistic process perspective also helps illustrate how financial institutions find strategic performance value in Six Sigma. For example, a widely adopted tool known as DMAIC (define, measure, analyze, improve and control), hinges on a systemic improvement process. A technique known as "Voice of the Customer" helps in revealing critical needs and issues from various surveys and feedback sources. Savvy institutions also incorporate an equivalent "Voice of the Employee" feedback, as employee performance affects the customer experience. At a business sponsor level, these critical needs and issues are then framed as a strategic problem or opportunity. Sponsors specify a high-level process scope and improvement target, and empower a project team to design and implement the targeted business transformation.

This is where the statistical aspects of Six Sigma may help financial institutions to fully understand the problem and set a baseline for process improvement. Financial transaction or service environments may provide abundant performance indicators that are relevant to the customer, and statistical process control tools may pinpoint problem areas. In any case, DMAIC plows through the maze of financial processes by employing a variety of problem and value-added analysis tools that drill down into deeper issues and root causes. Specialized team facilitation by "black belt" experts and quality professionals is pivotal to this improvement process. By framing relevant issues and root causes, cross-functional teams can then come up with breakthrough transformations (such as straight-through processing paths) that greatly simplify and speed up the process. The resulting end-to-end process improvements eradicate the sources of errors, customer dissatisfaction, and operational overhead. Project management techniques ensure the successful implementation of the required changes across business, operations and technology areas. To achieve sustainable results, these improvements are linked to institutional performance tracking and control mechanisms that gauge the actual return on investment and customer impact.

Account opening processes provide a classical example of how banking, securities, and insurance institutions have employed Six Sigma tools for visible performance improvements. As customers open accounts in order to transact in diverse financial products, they are especially sensitive to the time involved in the process, to any repetitive information requests or inaccuracies affecting their individual data. The account opening challenges increase as financial institutions seek to cross sell additional products from diverse business lines. For example, a retail customer relationship may span a combination of mortgage, credit card, brokerage, insurance, or investment management products. Traditionally, the people, processes, and technology involved across such wide product spectrum represent a disparate array that results in wasteful hand-offs, inconsistencies, and delays. In such context, opening an account may take several days, cost a few hundred dollars, and score low in customer satisfaction. By combining and rearranging multiple steps, institutions may streamline account opening through a standardized and flexible front-end solution that feeds relevant data to the underlying product processing capabilities. Total time could reduce to hours rather than days and cost get slashed to a fraction. Consequently, customer business is secured and their transactions start flowing earlier. This results in both tangible expense reduction and revenue growth.

Beyond the direct benefits attained through these process improvements, institutions find the Six Sigma toolkit to be a valuable management tool that fosters teamwork and customer-focused behavior. As financial institutions care about customer relationships, these tools bring unique capabilities to identify the variables that are most relevant to world-class performance in order to drive the appropriate process transformations. Despite its manufacturing and statistical roots, the Six Sigma methodology epitomizes a powerful approach for innovation and cross-functional collaboration in financial services. Customers and shareholders have welcomed the results.

This article originally appeared in Bank Systems & Technology eNEWS,a weekly e-mail newsletter. To order a free subscription, click here:www.submag.com/sub/by?tc=1&wp=wpdly1&pk=WMNE