lean banking industry

Lean Management in Banking?

Lorenzo Del Marmol

June 21, 2018

After the financial blows the economy has suffered, banks and banking institutions have been searching for ways to effectively reduce their expenditures. They need this to be able to drastically boost their operational model as well as sustain and create a capital buffer as a requirement with financial regulations. Armed with this mindset, fiscal reduction campaigns have been massively implemented all over banking groups and other financial institutions.

Banks are required to provide customized customer service across various platforms as they proceed with their fiscal reduction initiatives. This is where Lean Management in Banking can be implemented to help lower operating expenses. In order to handle these major operational shifts, several banks are fast turning to efficient operating models following lean methodologies. Lean banking methodologies make use of lean processes as they are adapted in the banking industry. Lean processes are enterprise wide implementation which afford a standardized way to handle problems and concerns, as well as processes. As a process which started in manufacturing, prevention of wastage can be used as a starting point. This can then be used to implement various other process improvements which also improve customer engagements.

Since lean management concepts had a slow but steady beginning in the financial services industry, this article will deal with a few key principles and concepts that points toward the application of lean principles in banking. Adoption of lean banking techniques has slowly increased in recent years.

 The alignment of customer demands

Traditionally, banks and financial institutions were organized in a product-centric environment with products being directed towards the market instead of being demanded by clients. As business units center around products, every single business change or market need results in department specific campaigns.

Nowadays, banks shift to customer-centric ideas where the processes valued by clients are managed in an end-to-end manner, such as mortgage credit or credit card applications. These results in an organization where the processes are managed from the time the customer expresses their demand up to the point of delivery of the required product or service. To administer the process in the most efficient manner, process owners have to be identified to make sure that there will be an efficient collaboration and decision making by interconnecting various departments.

Since this kind of organization leads to a very radical shift for many banks and financial institutions, there is often resistance especially among functional managers. It is not uncommon for them to fear they would end up losing power to the process owners. It is important to underline during planning sessions that functional managers also happen to be process owners.

It is vital to identify the various roles and responsibilities via the Responsible, Accountable, and Consulted, Informed or RACI framework. A senior management board will be created which will comprise the process sponsors. They offer the budget and they will provide their authority to come up with a decision when conflicts arise in any of the end-to-end processes. In return the process owners report directly to the board.

The key to the success of this particular approach is the identification of the process owners. It is required that the owner has some bearing with the organization and should have a different set of skills, functional expertise, and extensive business knowledge. Hence, it is important to include a human resource representative early on to guarantee that the best and cream of the crop individuals perform the role.

 Lean banking – the bottom line

The main focus of lean banking is the establishment of a client-centric organization. As banks continuously struggle to provide an exemplary customer experience that is well suited to the customer’s needs.

Lean campaigns for banking are fast becoming the norm, yet the approach is very much centered on achieving operational excellence. Experts reveal that placing emphasis on the cultural side of lean would guarantee that the whole organization will be working together in developing their customer service. More importantly, all of the work personnel will be motivated to provide excellent customer service to all.

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