New Report on Applying Lean Concepts to Banks

The financial services sector has been a laggard in adopting lean tools and practices, perhaps because of their manufacturing origins. But those attitudes are slowly changing. As more banks discover the benefits of lean operations -- such as lower costs, fewer errors, faster cycle times and far greater efficiency -- wide-scale adoption by the industry is just a matter of time. But old habits often die hard, and slowly.

This article, part of a special report from Knowledge@Wharton and The Boston Consulting Group (BCG) on applying lean concepts to service industries, explores why the industry is dragging its feet, and shows what banks can achieve when they go lean.

Opportunity and Challenges

For process-oriented industries such as financial services, lean holds enormous potential. Lower costs and fewer errors are just the beginning. Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. Lean thinking can even help management understand which customer groups are most profitable and where service can be enhanced most cost-effectively, says Amyn Merchant, a senior partner in BCG's New York office. The results of lean initiatives can be dramatic:

* An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions - while improving customer satisfaction through more differentiated service.

* A lean audit of one North American asset manager uncovered ways to make product pricing 12%-20% more efficient by carefully identifying and eliminating non-value added activities.

* Analysts using a lean approach in one investment bank reportedly gained 20%-30% in analyst productivity - and a 60% reduction in cycle time -- by redefining credit processes.

Given this potential, why hasn't lean made more inroads in the financial services industry? Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress.

Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. Typically, everyone agrees it's great for manufacturing, and then denies it could work in their business. A few years later -- perhaps after a competitor has shown some success with a lean approach -- some managers concede that lean could work, but only in the back office and other lower-value parts of the operation. Finally, years later, the whole workforce will reorganize. "I can't help but see a pattern here," he says.

In fact, lean for manufacturing and lean for finance are not all that different, says Deepak Goyal, a partner in BCG's New York office. "Finance is just a different kind of factory. It is a processing factory, and there's a lot of waste. The basic philosophy doesn't really change."

Becoming lean involves eliminating the "seven deadly sins" of waste in a process -- overproduction, waiting, poor transportation/logistics, over-processing, sub-optimal inventory control, rework, and unneeded movement. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. As superfluous steps are managed away, the process becomes more efficient. Waste begins to disappear. Speed improves and costs drop.

Article continues at Knowledge@wharton.com

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2373

Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for financial institutions. Bank CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleasetermiations.com