Lean Six Sigma is a process improvement programme that combines two ideas: Lean – a collection of techniques for reducing the time needed to provide products or services, and Six Sigma – a collection of techniques for improving the quality of products and services, substantially contributing to increased customer satisfaction.
Functional support areas such as finance, accounting, marketing, human resources, procurement, and retail,, have generally not kept pace with manufacturing in implementing Lean Six Sigma programs.
Lean Six Sigma within the finance industry helps to reduce costs that are based on strategic decisions. These decisions are often made from statistical data collected from specific sources throughout this quality improvement process.
A finance team analyses data in order to suggest certain changes and improvements within the organization. These projects are run by Lean Six Sigma professionals, and these individuals are a part of a team that comprises different levels of certified professionals.
Once taught to use special tools, these individuals are able to use data taken from all aspects of the finance industry and construct ways to change an organization’s day to day practices.
Waste in the finance industry
Lean Six Sigma focuses on the reduction of waste, which is sometimes translated as increased speed. The following are some examples of wastage in the finance industry:
Customers waiting for services, waiting for delivery of paperwork, waiting in queues and waiting for institutional responses. The customer’s time may seem free to the provider, but when they take their business elsewhere the effects of customer delay are experienced.
Having to re-enter data, repeat details on forms, copy information across multiple screens or applications and answer queries from several sources within the same organization.
3. Unnecessary Movement
Queuing several times, the absence of a one-stop experience, poor ergonomics in the service encounter, single activity touching multiple desks.
4. Unclear communication
The waste associated with seeking clarification, confusion over product or service use, wasting time finding information that may result in misuse or duplication
5. Incorrect inventory
In banking, this is usually characterised by not having the correct product or service information readily available.
6. Lost opportunity
To retain or win customers, a failure to establish rapport, ignoring customers, unfriendliness, and outright rudeness.
7. Errors in the service transaction
Include incorrect articulation of various product options, process status or decision options.
Lean Six Sigma in Accounting and Finance
The Lean Six Sigma Methodology has made its way into the accounting function and has contributed to reduced errors in invoice processing, reduction in cycle time, and optimized cash flow.
The accounting department at a healthcare insurance provider, for instance, developed an applied Lean Six Sigma Methodology to improve account withdrawal accuracy.
Prior to Lean Six Sigma implementation, rectifying an error in the billing process involved a number of reconciliation checkpoints and manual workflow, which resulted in 60% of customer accounts being charged less than the amount due and about 40% being overcharged. After Lean Six Sigma implementation, the defect rate reached near zero and cycle times were reduced from two weeks to three days.
The U.S. Coast Guard Finance Centre used Lean Six Sigma to create a new standardized process for accounts payable services, which improved customer satisfaction levels.
A number of companies have applied Lean Six Sigma to the finance process to reduce variability in cycle times, error rates, costs, “days to pay” of accounts payable, and improve employees’ productivity ratios. Other companies have used Lean Six Sigma to reduce the cycle time of the quarterly financial reporting process and to reduce the time needed to close books, reduce variability in financial reporting, improve shareholder value, and increase the accuracy of the finance process.
Challenges of Applying Lean Six Sigma to Finance
The cost savings Lean Six Sigma can generate are, of course, quite attractive to companies that operate in the finance sector. However, there are certain challenges that need to be addressed when implementing Lean Six Sigma projects in these types of companies. Financial institutions do not deal with the same types of products and processes as manufacturing organizations, so their areas of opportunity can be more difficult to identify and measure.
The good news is that with some minor modifications, the principles of Lean Six Sigma can be effectively put to use by finance institutions and other service providers. Lean Six Sigma practices have already proven to be highly successful when applied to a firm’s operations, and they are rapidly proving their value within other functional areas such as sales, marketing and technology.
Lean Six Sigma Success Stories in the Financial Services Industry
Bank of America
One of the key areas where Bank of America’s IT organization has contributed to the bottom line has been through its systems integration work following its April 2004 acquisition of FleetBoston Financial Corp. The effort to consolidate systems between the two banks, which was completed last autumn, helped contribute to $1.85 billion in pre-tax operational savings for Bank of America,. In other merger follow-ups, the IT organization plans to combine the bank’s credit card portfolio onto the IT platforms of MBNA Corp., a Wilmington, Delaware.-based credit card issuer that Bank of America acquired in January. This effort, which will take 1 million staff-hours to complete, is expected to help generate $850 million in after-tax cost efficiencies .
Bank of Montreal
BMO Financial Group Wins International Quality and Productivity Awards. Global Lean Six Sigma Awards judge BMO among industry-leading companies worldwide:
Process initiatives to provide $55 million in savings on just $5.3 million investments.
Using Lean Six Sigma methodologies, BMO’s deployment, has reduced errors, improved cycle-time, eliminated waste and is already anticipated to provide annualized savings of nearly $55 million over a five-year benefit period on just $5.3 million in investments.
Capital One banks on Lean Six Sigma for strategy execution and culture transformation.
When a major shift in strategy propelled the Capital One Direct Banking business in a new direction, the organization—arming itself with Lean Six Sigma expertise and capabilities—set out to change its management model, redesign its major business processes, and nurture a culture cantered around customer focus and continuous improvement. Three years later, the associates have embraced this new culture of customer focus and a commitment to continuous improvement—all with enviable results to the bottom line. The Direct Banking business has been recognised both internally within Capital One and by external organizations with numerous awards for accomplishing this impressive cultural transformation.
In a business environment where many questioned the applicability of Lean Six Sigma, the quality team at HSBC transformed an under-performing unit in HSBC’s Investment Banking unit with a single DMAIC project, using Lean Six Sigma tools such as Process Mapping and Activity Based Costing and data partitioning. The result: a 274% improvement in net income and a business 100% focused on continuous improvement.
Unnamed Financial Services Company
Facing an inquiry response time 4 times longer than their own set standard of 5 days, an unnamed Financial Service Company turns to a caue validation techniques to discover the multiple causes contributing to delayed responsiveness. By moving from “usual suspects” to an in-depth investigation to determine true root causes, this company was able to increase the number of tasks completed in 5 days to 97% – 19% better than their original rate, and 2% over their own goal.
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