Business process improvement, or BPI, as used here is a catch-all term for any number of workflow improvement methodologies such as Six Sigma, Total Quality Management, Business Process Reengineering, Lean systems, Kaizen, Continuous Improvement Process, etc. These “reengineering disciplines” have roots in the manufacturing world, going back to the early 20th century (wasn’t Henry Ford really doing business process improvement when he implemented the first assembly line in 1908?). Much back office work in financial institutions is information-intensive and document driven, but widespread adoption of these techniques has never really caught on in other than the very largest financial institutions. As community bankers, this is to our detriment.
Much of the internal workflow in the typical financial institution is based on historical, paper-driven processes. No matter that it is now possible to completely eliminate paper transactions within a community bank; many processes still adhere to the workflow and sequencings developed decades ago, when paper was king. Furthermore, banking is often considered a commodity business, and in the past merely copying industry best practices enabled a certain degree of efficiency. But the future does not belong to the copycats! The future belongs to those banks that (1) have a distinctive strategy, and (2) couple it with operational excellence in executing that strategy, so that true strategic differentiation exists. The ability to create and deliver superior value — new products and services — will be the secret to the future. Long-term competitive advantage requires more than constant cost reduction. Establishing a BPI function is an excellent, albeit long-term, strategy to start being more of an innovator and less of an imitator.
First, look at the bank’s strategy. BPI cannot be successful without a clear understanding of the markets, competitors, strengths and weakness of the organization. Then, against the context of that strategic analysis, find those processes that appear to need improvement, whether via customer complaints, striking inefficiencies, competitive disadvantages, etc. It’s not important to determine what is possible, but it is important to determine what will be cost-effective. That seems self-evident, but we have seen clients dedicate significant effort toward optimizing, say, accounts payable. Even if the process is made 25% more efficient, how many new customers can be attracted or full time equivalents saved? We’re in favor of optimizing any process, but given that the typical bank will have one accounts payable person for every 356 FTE, unless the bank is very large, the savings from a BPI project in A/P will probably never justify the cost of the project. But consider any bank’s branch network, where a 10% gain in efficiency could result in better customer service and/or numerous FTE savings. Processes that are either strategic differentiators or that have a high and immediate payback are best-suited for BPI.
And that A/P analogy leads to another critical point: All too often BPI is perceived as “reengineering,” or a code word for layoffs. BPI is so much more than that! Done well, BPI delivers:
So while using benchmarks to identify areas of inefficiency is important, it is equally imperative to look for customer service improvement. BPI is sometimes at its best when it does not deliver one nickel in direct cost savings but measurably improves customer satisfaction.
Most of the improvement methodologies at the beginning if this article can be made to work satisfactorily. Purists and academicians debate the merits of each, but so few institutions are doing anything with BPI that any step in that direction is a good thing!
Industry-wide metrics are one way, but in some areas (I.T., call center) metrics that are broader-based than just the financial industry may be relevant. The important point is to figure out where the inefficiencies are and perform a cost-benefit analysis to determine the probability that the potential for savings exceeds the cost of the analysis and whatever other investments will be required.
No BPI effort will be successful without retraining the people who will ultimately work with the revised processes. If the people most affected by BPI are afraid for their jobs, or if they believe that their years of experience count for little, those obstacles will be difficult or impossible to overcome. Conversely, if those who are most affected have their suggestions listened to and adopted, the odds of success are dramatically improved.
Some financial institutions have been able to achieve striking efficiency ratios without the use of formal BPI analysis and structures, usually by leveraging extremely low wage and cost structures and without a fundamental reevaluation of the underlying business processes. BPI requires a fundamental, ongoing reevaluation of what is done and why. It is a long-term strategy that requires a long-term commitment. In the future, those organizations that have embraced BPI on an enduring basis will find themselves much more agile and better able to compete than those whose strategy for performance improvement is “Me, too” for whatever the competition is doing.
A well designed process improvement effort in your organization can result in long-term value for the organization by providing:
Cornerstone Advisors helps organizations develop a disciplined approach to process improvement that can identify not only short-term financial improvement opportunities but, more importantly, improvements that are in alignment with your organization’s overall strategy.