Financial Services

Lean Six Sigma in Financial Services

Why apply Lean Six Sigma in Financial Services?

The effectiveness of Lean Six Sigma (LSS) in improving financial services is just as impressive as in the manufacturing sector, where LSS was first developed, and often with much more rapid results because of the nature of services which involve information flow and intangible products such as investments.

Like in manufacturing, successful LSS implementation in financial services has delivered the benefits of lower operational costs, more streamlined processes, higher product or service quality and greater efficiency, which lead to higher productivity, agility and versatility for the organisation. Improvement in finance and accounting, being integral to every organisation, can create competitive advantages for organisations in almost any industry.

Like in all service industries, the interaction between people (customers and staff) and processes determines the speed and quality of customer service, which directly impacts customer satisfaction/ loyalty and indirectly, market share and general business performance. Increasing operational efficiency in financial services is not only about cutting costs but also growing revenue and improving organisation culture.

The trained LSS professionals use data taken from all aspects of the finance industry and construct ways to change an organisation’s day to day practices. They can also minimise risks for the organisation in an interconnected global economy where the effects of monetary policies and financial markets are felt around the world.

What are the key principles of Lean Six Sigma?

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.

LSS centres on the customer who ultimately determines where value is created in a process. It follows that identifying the value and non-value adding steps in a process is crucial in LSS for improving existing operations or designing new ones.

LSS is about continuous improvement at the process and organisational level. This requires the commitment of management and staff for improvements to be sustained indefinitely. Employee empowerment and management support belong to the LSS set of principles.

How is Lean Six Sigma applied in Financial Services?

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. Financial institutions do not deal with the same types of products and processes as manufacturing organisations, so the areas of opportunity can be more difficult to identify and measure. The cost savings generated by LSS are usually sufficiently attractive to warrant the effort in overcoming these unique challenges.

A finance team analyses data in order to suggest certain changes and improvements within the organisation. 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.

An essential and powerful LSS technique is process mapping, which quantitatively identifies key leverage points for improvement. By defining the boundaries and requirements of the current process, LSS professionals can see the underlying problems and solve them to improve the process or remove non-value adding processes entirely.

Lean Six Sigma focuses on the reduction of waste, which is sometimes translated as increased speed. The following are some examples of waste in the finance industry:

  1. Delays
    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 negative effects of customer delay are experienced.
  2. Duplication
    Having to re-enter data, repeat details on forms, copy the information across multiple screens or applications and answer queries from several sources within the same organisation.
  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.

In the accounting function, LSS has contributed to reduced errors in invoice processing, reduction in cycle time, and optimised cash flow. Other examples include improving account withdrawal accuracy, reducing cycle time from weeks to days and defect rate to almost zero in the billing process by removing unnecessary reconciliation checkpoints and manual workflows, and creating new standardised processes for accounts payable services for greater customer satisfaction.

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. Others have employed LSS to streamline credit application processing and consolidate credit card portfolios.

Cause validation techniques are used in LSS to discover the multiple causes contributing to delayed responsiveness. By moving from “usual suspects” to an in-depth investigation to determine true root causes, an organisation can increase the number of tasks completed and reduce enquiry response time from weeks to days.

With some minor modifications to address the unique characteristics of financial institutions, Lean Six Sigma practices have been highly successful when applied to a firm’s operations, and are rapidly proving their value within other functional areas such as sales, marketing and technology.

How can CBIS help you?

Please contact us if you need more details on how our expert team can assist you. We are simply experts in the application of Lean Six Sigma in the financial service sector.

22 Jun 2022
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