Thinking about 'lean' business practices has expanded from its original manufacturing base to embrace many service sectors. How businesses choose to take the benefits from improved productivity through lean is also changing.
A good example of this is in financial services, where banks in Australia are coming to terms with subdued credit demand, higher funding costs and increasing capital requirements. These pressures have triggered a renewed interest in productivity and doing 'more with less'.
However, the story is not purely focused on the cost side of the profit equation. More and more, Australian banks are focusing on releasing capacity of their front-line staff to improve customer experiences and drive sales.
To explain how this works in practice, consider a typical lending process from the point of origination through to the drawdown of funds. Although this is one of the most common banking processes, negative experiences can sometimes be observed, characterised by processing errors and lengthy turnaround times.
To address these issues, most banks have invested heavily in core process transformation programs. However, the tangible improvement in the customer's end-to-end experience of applying for a loan is often questioned.
Why is this so and, more importantly, what can banks do to make a real difference?
Here are some key pointers:
- Start by defining value across the end-to-end process from the customer's point of view. Anything that is not value creating from the customer's point of view is waste and should be eliminated to the greatest extent possible.
- Constructively challenge claims of necessary non value adding steps.
- Link the (value adding) steps together to create flow. Make sure everybody understands the relationship between queues and an extended customer experience (an image that helps is picturing an inbox of applications as the customers standing at the desk with application in hand).
- Adhere to the principle of first-in-first out wherever possible (extending our image: “Sorry I know you've been waiting the longest, but I'd rather serve somebody else”).
- Take the time to communicate and engage staff across the end-to-end process and help them understand how their actions affect their downstream colleagues.
- Systematically address the root causes of rework and blockages to the flow.
- Create visual dashboards so that staff can clearly see how their team performance (quality, delivery and efficiency) impacts the customer and help them make the necessary improvements before service is affected.
- Provide ongoing coaching and mentoring to ensure old habits do not creep back in to the process.
- Do not think that once you've made the first set of improvements that your process transformation is complete. The truth is the journey never ends and you should be looking to skill your staff to recognise waste in a process and empower them to take corrective actions. This is continuous improvement and the goal is perfection.
KPMG finds the key issue affecting conversion rates is long application processing times.
Delays are critical because every day a would-be borrower waits for the outcome of a loan application is another opportunity to take their business elsewhere.
Excessive delays are essentially the sum of queue times between process steps, rather than the steps themselves. It follows that improving the flow of work is the only way to achieve substantial reductions in processing times. The long response time combined with the lack of transparency as to the status of the application also results in customers contacting the bank for an update. These 'chase calls' consume considerable additional capacity, so much so that is not unusual to see these update processes improved in the name of efficiency.
So how could we use lean principles to overcome these problems?
- To understand the customer experience we would study a robust sample of interactions with customers to understand demand types and volumes, how well these different types of demand are currently serviced and identify broken process that are causing customers issues ('failure demand', e.g. chase calls).
- To improve the customer experience we would enhance staff skills to better match actual customer needs and expectations and address the root cause(s) of failure demand. This often involves, improving the clarity of our information and proactively communicating with customers to improve the visibility of the application process.
- To reduce application processing times (from the customer's perspective) we would stop managing to SLAs; instead concentrating on improving the flow of work between value-adding steps and actively adjusting capacity to match demand before backlogs accumulate. Increased accountability between process steps also highlights process issues in real time, allowing managers to respond in a timelier manner and significantly improving process balance and productivity over time.
- To continually improve the effectiveness of the lending process we would seek to classify each instance of customer leakage; Pareto rank the causes and use the Plan-Do-Check-Act (PDCA) cycle to systematically eliminate the root cause(s) of those problems that are actually encouraging customers and prospects to look elsewhere.
These things are eminently doable. Here is the proof. One Australian bank that followed the above steps, and with no extra IT investment, reduced its throughput time by a staggering 94 percent, almost completely eliminated progress 'chase calls' and lifted its conversion rate by 35 percent. There is nothing 'lean' about that result.