Financial services can create a 'lean' productivity

Here are two telling statistics. Between 1970 and 2000, productivity growth in manufacturing industry was 150 per cent while productivity growth in service industry was just 50 per cent. Why are manufacturing industries apparently more productive than the service sector, and what can service industries - particularly financial services - do to close that productivity gap?

Financial services companies are under unprecedented pressure on various fronts. Customers are demanding better service, shareholders demand constantly improving performance and the markets are demanding improved cost/income ratios. Indeed, when financial services companies announce their financial results, the cost/income ratio is the figure that many analysts first look for - before they give any thought to profit and loss accounts and balance sheets.

This is why "Lean" - a cost-reduction approach pioneered in manufacturing - is becoming an increasingly popular tool in the service sector. Lean is derived from the production system introduced some years ago at the Toyota Motor Company. It involves a single-minded focus on customer satisfaction and the elimination of waste. At its simplest, the ethos of Lean is: "If the customer would not pay for the work done by staff, then don't do it."

At the heart of Lean is a cultural shift. It requires the organisation to turn itself upside-down, so to speak. Lean organisations have done away with command and control methods for managing staff and they have passed authority, responsibility and real ownership for results and customer satisfaction to the front line. Lean believes that staff are the ones with the unique ability to identify opportunities and fix problems as they occur.

As a result, the focus of front-line staff in a Lean organisation has shifted from simple routine processing to include improving the way the organisation works. In turn, the focus of managers has shifted to providing support, coaching, resources and advice to staff teams, combined with an interventionist approach to managing performance.

Financial services organisations, however, have yet to achieve the significant service and cost benefits that the application of Lean can bring.

In financial services organisations, in particular, there are many "moments of truth", where front-line staff interact with customers. Leaner processes with fewer hand-offs and motivated, empowered staff have the potential to transform the customer experience. However, consider the typical contact centre: there are multiple hand-offs, staff are likely to be given incentives to keep average call time to a minimum, and absenteeism and low job satisfaction remain perennial problems.

Creating "self-governing teams" responsible for the work they do has helped achieve the cultural shift in manufacturing.

While some banks are attempting to push greater influence and control down to branches, ultimately branch processes and roles have changed little for many years. Typically, it remains hierarchical and unwieldy with an ethos of command and control.

To speed up the process financial services organisations must focus on people, performance and practical interventions.

With experience, Lean practitioners have found that delivering and sustaining performance improvement requires, above all else, addressing the people aspects.

If financial services organisations are to accelerate the improvements in service and cost they must take a more radical approach than they typically do by adopting three principles:

1. Focus on people more than processes and tools

It is the way in which front-line staff are engaged in understanding where waste exists, how processes may be simplified, how customers perceive service and how they may do their job differently that will make the difference and begin the process of shifting mindsets and behaviours.

2. Take a top-down view to achieve the performance you need

From the outset the focus must be on performance. What performance do customers really seek? Accuracy and consistency might be critical for reduced customer hand-offs and response times. What are the measures that will tell you if you are getting there? For example, one bank continues to look at the number of support service transactions processed each day, rather than measuring quality and accuracy as the customer perceives it.

3. Develop a practical approach that develops Lean capability

The culture, the nature of the processes involved and your business objectives will influence your approach. Most significant is how you will encourage the capabilities of the front-line staff. For example, Lean requires a transparent and objective approach to performance management. Typically this will be a step change and will be resisted. The case for change must be made at all levels of the organisation to ensure both its adoption and the sustainability of this new way of working.

Taking the lessons from the manufacturing industry, Lean can deliver immediate results as well as building long-term improvements. Financial services organisations have the opportunity to learn from manufacturing to accelerate their current performance improvement initiatives and deliver significant performance improvements.

It requires early and sustained investment in involving front-line staff and building the capability, the will and the confidence to continue to improve. For financial services senior managers this requires a conscious change in the way they think and the way they manage their business and their staff.

Colm Reilly is head of PA Consulting Group in Ireland