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By Jeanne Capachin

Financial institutions can learn to be Lean

Now that financial institutions are focusing on increasing operational efficiency and reducing costs, there are lessons to be learned from Lean Processing. Lean Processing has been trying to make its way into fFinancial iInstitutions 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, has long held a place in manufacturing. However, itbut has yet to find many converts on the services side, and especially within financial services. But the key tenets of lean are exactly the focus of many financial institution operational and IT groups right now. Lean at its essence is really about creating more value for customers by eliminating wasted activities and increasing efficiency. In practice, it is about making continuous improvements to processes.
 
It's not that financial services firms - and particularly banks - are against continuous improvement. Similar efforts have been tried in the past and some are still ongoing, however, many initiatives have failed to gain traction despite large expenditures of time, effort and money for a number of reasons.
 
First, it takes a sustained work effort. Usually there is exceptional energy and focus for Lean initiatives within financial services organizations at the start. However, sSustaining this effort however becomes increasingly challenging through management or 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. This kind of sustained effort really requires championship at senior levels within the organization so that resources will continue to be assigned to the projects.
 
There's also a nNeed to work across silos. Efficiencies - and related cost savings - happen when processes are reviewed end to end. This means cutting across operational constraints within manythat are pervasive within large institutions and dealing with the related political and resource issues. This factor highlights gets to the need for many institutions to look outside of their own organization for Lean expertise, either from consulting firms or vendors, in order to bring neutral resources to bear on these efforts. Unfortunately, internal resources are already viewed with distrust, it is only by bringing in trusted third parties that change can happen for some organizations.
 
Perhaps the biggest impediment to implementing Lean efforts is the organization mindset 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.
 
Finally, its not just about technology. Too often within financial services, 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 before applying technology. In many cases, institutions have found that their business unit is dysfunctional and improvements in people and processes pay significant dividends even 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.
 
In order for Lean to gain acceptance and success within financial institutions, it must first be ingrained into each financial institution's culture. This starts by senior level executives endorsing Lean initiatives and following through with constant reinforcement of the goals and objectives. In addition, champions should be designated as part of this effort. While technology can lead the way, efforts must be joint with business leaders. as sSuccess depends on working with across the various lines of business and supporting groups to achieve measurable results.
 
Despite the lack of acceptance to date, there is much that financial services companies can learn from Lean. 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.

Jeanne Capachin is Research Vice President for the Global Banking and Insurance practice at IDC Financial Insights.