Commercial Loan Automation
Small Business Banking
BirdsEye Viewcontinuous improvement - it's all it's cracked up to be
Words like Kaizen and Lean were flying at our recent Operations Forum and were an integral part of the conversations. Banks around the table have embraced the concept of continuous improvement and are using different methodologies (which are strikingly similar regardless to their name) to get at the root causes of process inefficiencies. It was heartening to see Operations executives looking for new ways to get the job done without clinging to old ownerships and processes.
The driving force behind this drive is our industry’s need to get to market faster, serve the customers more efficiently, simplify our over-complex processes and cut unnecessary costs in the process. It is difficult to accept change under any circumstances, and especially when the change has to do with generations-old processes whose output is at the base of our industry’s value proposition: posting debits and credits accurately; processing deposits efficiently; producing and documenting loans; sending money through ACH and other electronic means; etc.
Continuous Improvement is a discipline that needs to be embedded in the culture of an organization. It is not just a stated goal or mandated use of a toolset. Rather, it entails a structured process where certified professionals (most often bank employees) lead a cross-disciplinary group in mapping a specific process as it stands today, and, through such mapping, identify moments of value to the customer while eliminating waste such as individual step duplication, delays, unnecessary hand-offs, quality reviews not at the source, etc. The skinned-down process can then be launched with better value for the customer and often lower costs but most importantly, a process being managed by an empowered team that strives to improve everyday
One excellent example of applying this discipline is the mortgage origination process at First National Bank of Omaha. The process took 45-60 days – not unlike many in our industry – and Management was determined to shorten that to 20 days. The leadership team of the Operations group set this as a major goal for the year, and made it the battle cry of the team, creating focus and a sense of urgency around it.
Step One was the fact-finding step – understanding what the process looks like today. A small group of mortgage lenders, credit professionals and operational fulfillment people was assembled to map the current process out, to be followed by recommendations for improvement. No management or compliance was at the table except when information requests were made. The group was free to leave no stone unturned. After using many stickie’s, the current process involved 184 steps. (NOTE: Please don’t gasp; we all have these processes, we just don’t know it yet). The stated goal – slim the process down to 20 days without any incremental technology.
The group set principles to guide their activities and decision making:
CREATE VALUE FOR THE CUSTOMER
Management believed that the bank cannot be successful without the unrelenting focus on delivery of value to the customer on the customer’s terms.
RESPECT EVERY INDIVIDUAL
Good ideas can come from anywhere, said Management. Every learner is also a teacher and vice versa (AB: That, by itself, is excellent learning). Embrace challenge, feedback and work to foster an environment where everyone can become excellent.
OPTIMIZE THE WHOLE
Management believes that the impact of synergy – how things work together – is far greater than the sum of the parts. Therefore, they expected the teams to look beyond their immediate situation and consider the customer and company goals in their work, as well as the long-term impact of their work.
FOCUS ON THE PROCESS
If the right process leads to the right results, it follows that it’s not the people that are the issue but the process. Keep asking WHY – not WHO – to find the underlying cause for the problem.
IMPROVE THE FLOW OF THE WORK
Customer value is maximized through consistent, continuous and uninterrupted flow. Therefore, process improvement should strive to:
• Eliminate waste
• Ensure quality at the source (disable the option of passing defects forward, mistake-proof the process as much as possible)
• Pull not push (design the process to flow smoothly, producing what the customer wants when they want it, by “pulling” work through rather than “pushing” it
SOLVE PROBLEMS BASED ON DATA AND DIRECT OBSERVATION
All too often problem-solving is based on anecdotal information. Instead, ensure your problem-solving process is informed by a clear view of what actually happens. Use metrics and measurement to build transparency into your process so you can identify problems and solve them with an open mind.
KEEP GETTING BETTER
Management believes in continually challenging the status quo, no matter how excellent you’ve become. Celebrate improvements – large and small – and then set out to improve again and again. Integrate improving the work with doing the work. It’s OK to seek perfection while not really expecting to find it.
In order to execute on this noble principles, Management developed a set of practices that integrate improving the work with doing the work.
1. Key performance indicators:
• Measure for customer experience, employee experience, quality, delivery, inventory and productivity
• Include work performed to create customer value
• Only use actionable indicators
• Seek leading indicators to become more proactive
• Compare actual performance against the expect standard daily
2. Visually display your KPIs - This practice is common in Call Centers and other businesses. It should be adopted into the entire Operations environment.
• Display your KPI charts close enough to the people who do the work such that they can quickly understand where they are relative to their goals
• Update the charts daily
3. Daily huddles - Huddles create focus and excitement. We know that since they are so common in sales areas. Why not institute them in the back office as well for the same great results?
• Brief standup conversation, typically in the morning
• Discuss process KPIs and how to respond to gaps
• Celebrate success and new ideas
• Led by all team members including the manager
• Prioritize the most impactful problems and opportunities
• The team should solve their own problems whenever possible
• Test and learn using these four simple steps: Plan, Do, Study, Adjust (The building blocks of an agile process)
• Keep standard work current
5. Leadership’s role
• Leaders and business partners frequently visit the KPI displays and huddles to answer questions and celebrate success throughout the day
• Avoid solving the problem and offering suggestions; let the team solve performance gaps while seeking to understand how processes are performing and how the team is addressing the gaps. Help the team become more self-sufficient in its process observation and perfecting process
The process improvement undertaking was extremely successful. The process was reduced to 50 steps, and was tested in the first phase by a small group of early adopters. Their success led to further adoption, and the laggards were then swept into it as well. The group also focused on the products that constituted the majority of the customer demand (99.5%), and did not address roughly 20% of the products that weren’t in high demand.
Management then proceeded to organize its lenders and support people in small groups which they call neighborhoods. Several neighborhoods form a community. These simple semantic tools are powerful because they convey a set of behavior rules that are familiar to all, focusing on inter-dependencies and mutual support.
This process improvement effort yielded benefits too numerous to name. They ranged from significant improvements in the customer experience to a stronger team ethic between the front and back office (since they were now in small neighborhoods and communities) to even changes in rate-lock policy since the loans could be processed much faster than in the past.
• Daily performance management works in all environments, not just sales
• Information is power and needs to be reviewed multiple times throughout the day for midcourse corrections and celebrations by the team and leadership
• The goal is teaching the team how to fish by helping them become self-sufficient in process improvement and idea generation
• The use of words such as NEIGHBORHOOD and COMMUNITY is pivotal to creating the mutual trust within the groups and setting implicit expectations about cross-reliance and relationship-building