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Adapting Lean For Customized Bank Processes

Even steps that require customization and expert judgement can be streamlined effectively.

Many corporate banks and other financial institutions routinely apply the management principles of lean manufacturing to help standardize straightforward business procedures, such as the straight-through processing of securities transactions. The advantages include speedier operations, lower costs, better products, and an improved customer experience. But many of an institution’s most valuable activities involve dozens or even hundreds of steps that may require sophisticated customization and expert judgment from numerous sources—and thus resist standardization.

This was the problem facing a specialized commercial lender that had expanded its sales force to fuel rising levels of business from several industries but couldn’t keep pace with demand for new loans. Constrained by head office limits on the number of new hires, its only alternative was to investigate ways of making its processes less complex.

The silo mentality of the bank’s functional advisory and underwriting experts represented a particular challenge, inadvertently made worse by the high degree of independence required of them to ensure that lending decisions were sound. While specialists in such functions as risk and environmental compliance, for example, provided crucial inputs at discrete stages of the process, none had a direct stake in the outcome of individual loans, much less the motivation to examine the effectiveness of the overall process governing the deals. Moreover, since the responsibility for loans changed hands as work moved from one function to another, there was little accountability to ensure that work was completed on time.

The bank responded on a number of different fronts:

  • First, it established multifunctional loan teams for the industries of its major clients. Each team had a designated leader responsible for the team’s effectiveness and business output (as measured by the success of loan decisions, team collaboration, and problem solving).
  • To win the buy-in of functional experts, the leader reported to a new-deal committee comprising senior executives from the functions represented on the sector teams. The committee streamlined loan processes by assigning loans to one of four standard tracks based on a combination of risk and regulatory factors (exhibit).
  • The bank then kept the momentum going through a combination of clear milestones and deadlines, as well as the use of tools such as real or electronic whiteboards to identify bottlenecks and areas for improvement at the team’s regular meetings.

As a result of these actions, the time required to complete a transaction shrank by 70 percent, and productivity improved by 30 percent.

The task of choreographing the activities of the credit analysts, lawyers, product managers, technology specialists, and various other experts who support a financial institution’s complex, high-value activities can seem daunting. It needn’t be. The key is for banks and other financial institutions to focus not only on the operational manifestations of the problem (the tailored processes and ineffective handoffs that slow down turnarounds) but also on the organizational shortcomings that inhibit collaboration, accountability, and a sense of common purpose among teams. By adopting this integrated approach, senior managers in a variety of financial settings—including corporate lending, investment banking, and project finance—might extend the benefits of lean production to their businesses. The results, on top of improved productivity, will probably include happier employees and more satisfied customers.