Lean Banking: It Is Not Always Just Single-Piece Flow

“Let the process flow.” “Let the customer pull.” This is what is written in manufacturing books about making processes Lean. But it is not always that simple.

Consider this banking example. A customer arrives at a bank branch: He enters, is welcomed by an employee and offered a cup of coffee. He explains his interest in obtaining a loan and a salesperson asks the right questions to identify his exact needs. They enter a lot of data into the bank’s computer systems. The data is evaluated at a central clearing point where a decision is made to approve the loan, and the customer gets the money.

On the surface, this seems like a Lean process. There is flow in the process, no batching and the customer pulls (nobody gives him advice, or a loan, unless he comes into the bank or otherwise expresses his interest). But is the process Lean?

Actually, in most cases it is far from Lean given these factors:

  • The double entry into different systems that were not linked
  • Many data points that were not really needed
  • A lot of waste because decision making had to be taken to the central underwriters

There are many projects where Lean is not about flow and pull, but about straightforward waste reduction. Most of the waste is relatively easy to find but hard to eliminate from an information technology-driven process. The key is to make Lean thinking (and usability) a key building block of the design and the review of IT applications.

Lean Approach Should Differ by Industry

A successful Lean approach needs to be designed for the industry in which it is supposed to deliver results. It is not enough to adapt the manufacturing experience. And it is certainly not enough to use a reduced manufacturing toolkit. Lean banking includes elements that Lean manufacturing gurus have never thought of.

One of the challenges in banking and financial services is that processes often are not easily seen because they are hidden in workflow systems, phone calls and emails. There is no production line to follow with a “walk the process” as a first step in trying to find waste. But the further apart process steps are from each other, the more important and eye-opening a walk the process becomes. Sometimes people up and down the process have never even talked to each other before.

At another bank, the back office was carrying a significant backlog and the decision was made to use Lean to improve the situation. Of course, it was useful to do 5S (an approach to ensure having “a place for everything and everything in its place”) and to eliminate some non-value-added steps. When selling loans over the phone, there is no batching either and a transaction is only initiated once the customer says go. No job for the introduction of flow and pull. However, while the front office was selling extremely well, it too was overloaded at times. The answer was level loading, or smoothing the demand curve to avoid extreme peaks and deep valleys leading to a better capacity management. Generally, idle time for staff is an important area for waste in services and transactions.

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Mistake Proofing as a Lean Solution

Customers are regularly required to fill out insurance claim forms, loan applications or other documents. Unfortunately these documents too often are incomplete or incorrectly filled out. This can be a big problem and a challenge for Lean. That also is true of customers who move without providing their new address. A great deal of waste is generated and sales volumes are reduced when applications are not completed, and extra resources must be expended to fill the missing gaps or correct the errors.

Mistake proofing (designing errors out of the process using simple solutions) is the most promising Lean answer to these problems, and it can be implemented relatively easily in electronic application processes. In many situations, simplifying requirements is the key to success. The less asked of the customer, the less the chance the customer will make an error or forget something, or be frustrated by their own mistake. But sometimes mistake proofing is not required; the bank need only explain why it needs the information in question.

Flow also is difficult to implement if the bank must wait for the customer to react. Take a collections process for example. The agent calls, the customer pays (or does not pay), the agent calls again, the customers pays, and often stops paying again. In this case, the bank was able to improve the performance without even thinking about flow. The solution was to standardize the process, the decisions and their consequences. Giving call agents clear guidelines and simplifying a process for them and the customer can make collecting the outstanding money more effective while keeping customers away from the hassle and costs of legal actions.

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Of course, flow makes great sense for longer banking processes, such as mortgage applications. There are many successful examples of this. However, for shorter processes or ones that do not need attention to flow and pull, Lean can still be successfully applied.

Next Challenge: ‘Deliberate Simplification’

“Deliberate simplification” is banking’s next big challenge after Lean. Most people have had the experience of shopping for a product such as a mobile phone, and finding that the salespeople were unable to explain all of the phone service’s many options. Even if many product engineers and marketing people admire complexity (they call it “sophistication”), most customers love and want simple, hassle-free services.

Comments 2

  1. Alan Wooldridge

    Your comment about “The double entry into different systems that were not linked” could not be more correct. One challenge our company (banking software) struggled with in the past was the integration between the bank’s existing core system and our software. We found that we needed to create a “bridge” to their existing systems so that productivity was not negatively affected. In the end, we came up with a feature that bridges the gap and our clients are quite pleased. Thanks for this helpful article, as it summarizes something we learned the hard way! :)

  2. rohit

    I don`t quite like the thinking that it`s not about creating pull or Flow but straightaway waste elimination. While many organizations go about lean journey by way of waste identification and reduction ,but this piecemeal approach only gets them limited success. Even if we talk about waste reduction the ultimate goal is to create flow which continuously expose the wastes in our process and hence room for continuous improvement. Yes lean Tools & techniques have to be translated for every industry vertical and can`t be straight-jacket fit from manufacturing. Couple of years back (say 2005-2010) people would reject idea if flow can be infused in our software development process and there`re hardly any credible examples even after lot of Google research, but today you enter “kanban implementation” and one will find more examples of software development process than manufacturing in creating flow.

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