How banks are cashing in on Lean practices

When you think of banks, seldom does efficiency come to mind. Instead, they are frequently characterized by their poor customer service and slow operations – you're likely to think of long lines of people waiting for tellers, transactions that take days to post and getting passed around to different call centers while trying to take care of financial matters on the phone.

When you look behind the scenes, operations tend to get even worse. Many financial institutions were gravely affected by the economic recession and have had to lay off employees, cut services and product offerings and further take steps to reduce costs. The effort to size down has had a dramatic impact on banks' efforts to grow and expand as the economy starts to swing back.

“In the past, large financial institutions were able to increase revenues through increased market share fueled by mergers and acquisitions and through total market growth,” a recent white paper from Northhighland asserts. “In todays economy, however, firms no longer have the luxury of improving profit simply by increasing revenue. In addition, due to the significant headcount reductions in the financial services industry, these firms will need to improve operational efficiencies to merely support existing processes with fewer resources.”

Lean banking

With efficiency becoming a core priority for financial institutions, a number of them are turning to Lean operations. At the largest banks, a key indicator of profitability is efficiency ratios that compare the total revenue generated with the resources spent to accomplish those gains. By utilizing philosophies and practices from Lean manufacturing, financial institutions can maximize their efficiency ratios.

Many banks noted the positive impact Lean had for manufacturers. For example, a 2007 study from Technology Forecasters found that 63 percent of Lean manufacturers had lower overall costs, while 75 percent enjoyed net profit margins greater than 5 percent of revenue. Data such as this suggested the potential of Lean practices deployed in financial institutions.

Banks can kick off their Lean initiatives by searching for wasteful tasks and procedures. In a financial institution setting, this could include everything from redundant and time-consuming processes (having to get paperwork and transactions approved by multiple people) to poor floor plans that hinder the flow of foot traffic.