A lean-led approach to operating model transformation in financial services

This leading research provides a perspective on "lean" toolkits and the benefits of using "lean" principles in financial services. Market trends are adding pressure on financial institutions to cut costs and grow simultaneously. A "lean led" business transformation can help address these pressures by providing rapid improvement in cost structures, client service and risk.

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Operating model transformation in financial services
x lean-led approach A

John Plansky Partner +1-617-521-8801 [email protected]

Kelley Mavros Partner +1-312-578-4715 [email protected]

This report was originally published by Booz & Company in 2010.
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Lean is an approach to fundamentally transform an organization
Philosophy of continuous improvement •  A leadership philosophy that creates a long-term vision for excellence and fosters a culture of continuous learning to maximize customer value, from top management down to front-line staff


Organizational capacity •  Improves productivity by reducing waste in processes •  Creates capacity opportunities to redeploy for new business Employee engagement •  Enables managers and staff to share ideas, network across the division, and contribute to the future operating model Risk mitigation •  Enables implementation of best practices and standard technology use, in support of risk management and loss reduction Client satisfaction •  Improves responsiveness, including the ability to provide clients with more timely information •  Reduces errors resulting in higher quality of service

Key benefits of lean




“Lean-led transformation” uses this approach to provide rapid improvement to cost structures, client service, and risk reduction
•  The lean approach originated in manufacturing in the 1940s. More recently, it has been applied by leading financial institutions, primarily through targeted improvement programs •  However, financial institutions are increasingly under pressure to cut costs and grow. By applying lean principles more broadly, institutions can fundamentally transform their operating models •  A lean-led business transformation builds a robust, factual understanding of the current state, exposing improvement opportunities to design an end-state operating model that: –  Achieves best-in-class efficiency –  Reduces client, financial, and regulatory risk –  Creates measurable client impact –  Scales with growth •  The lean-led approach is proven. Financial institutions have generated significant results, reducing relevant cost structures by 20% to 30% while generating marked improvement in client service •  A lean-led business transformation embeds continuous improvement into the organization, and engages employees to help business leaders successfully govern and execute change



Why lean-led transformation? Market trends are adding pressure on financial institutions to simultaneously cut costs and grow
Commoditization of basic services

•  Value of basic stand-alone services is declining •  Increase in integrated services, with custody used to sell other services •  Growth in cross-border activity, alternative investments, and alternative exchanges


•  Decreased unit margins per transaction

Increased complexity and globalization of investments

•  Technology and compliance investment requirements •  Growth and revenue diversification opportunity •  New processes and technologies to comply with regulations •  Increased client need for advisory services

Stricter regulation

•  Increased regulatory oversight: for example, consumer protection and the volcker rule

Increasing focus on risk management

•  Increased risk aversion and demand for risk management

•  New risk assessment capabilities and oversight practices

Change in consumer behavior

•  Reduced willingness to incur debt •  Deterioration of trust and customer loyalty

•  Declining profitability •  Increased competition for creditworthy consumers

Lean meets these challenges, helping transform operating models to improve service, restructure costs, and foster growth
Transformation objectives Improved service •  •  •  •  Key actions Align customization, pricing, and value Meet customer requirements Execute seamlessly Deliver real-time information to customers Executable lean program

•  Differentiated Client Service •  Operational Improvement •  Risk Mitigation

Restructured costs

•  Establish optimal global footprint with a strategy for local and regional delivery •  Standardize technology and processes •  Make all business units and functions clearly accountable for costs •  Deploy technology platforms that allow rapid reaction to market and regulatory demands •  Create scale •  Build the flexibility to expand quickly as needed

•  •  •  • 

Operational Improvement Cost Efficiency Post-Merger Integration Risk Mitigation


•  Operational Improvement •  Post-Merger Integration •  Differentiated Client Service



Benefit #1: Rigorous, factual assessments of the current business, including structural factors, performance, and value
•  You gain clarity on how things are actually performed, versus how they are perceived •  You build a broad and analytic base to identify and build buy-in for improvement opportunities Example: Five-step current state assessment
Customer and customer purpose
•  Clients manage variety of fund types, sizes, and strategies, trading in many instruments

Example: Sample output of time study data
Sample Analytical Outputs of Time Study Data
Shift Time by Process Step (in minutes) Other Processes 449
31 7 9 14 19 29 32 35 40 7 11 8 Ancillary Processing Navigator Pricing Cash Recon Client Directed Activity Corporate Actions Trade Review Communication 59 Pricing Sub Ledger to Ledger Tie 31 Income Waiting on Inputs / Downtime 116 Pricing Validation - out 3% 7% 5% 4% 4% 2%
1% 1% 1% 1% 1% 1%

Demand type and frequency

•  Workload drivers: # of instrument types, # of external entities per instrument, # / nature of exceptions, external data input •  Clients serviced by one or several teams, vary from 3 to 25 staffers

Collection of cycle times by process step for each fund type enables workload modeling

Expense Accruals Third Party Reconciliation

Shift Time by Activity Type (in minutes)





Current performance

Identification of process wastes and underutilization

Shift Time (in minutes)

Value Stream

•  Several security-level controls within each team •  Some reconciliations in Excel

150 136 124

Daily Time Spend per Fund, by Client (minutes)

77 54


7563 58

45 42 35


Environmental/ structural factors

•  Workflow interruptions: unrelated e-mail, manual workarounds •  Limited visual controls on open task status or work allocation

1818 17 17

Capture of key benchmarks across teams and departments to drive bestpractice sharing, focused improvements, etc.



Benefit #2: A better understanding of all customers (internal and external) and their requirements
•  You redesign the operating model to maximize customer value while minimizing waste •  You capture a complete view of the process from the standpoint of the customer –  Value added –  Minimal value added but necessary to the business –  No value added

Example: Actions taken based on customer surveys

Voice of the customer

Customer issue

Critical to quality

“I wish my service manager was more proactive”
Actual statements and comments about:

Customer wants service manager to call him on a regular basis

Service manager calls client 12x per year

The real customer concerns, values, or expectations:




Benefit #3: A leading-edge operating model with organization, process, technology, and footprint improvements
•  You apply lean principles to process, technology, organization, footprint and metrics design •  You optimize resource utilization against demand to create capacity and improve staff satisfaction •  You articulate short-, medium-, and long-term opportunities more clearly

Example: Target state operating model



Benefit #4: A cycle of continuous improvement that promotes operational excellence
•  You assign and develop “Lean Masters” to support implementation and to deploy on future Lean projects •  You empower staff at all levels to identify challenges and suggest improvement opportunities •  You design approaches to continually develop people over time

Example: Improvement cycle of an operations team
Pilot Communicate & train

Periodically review progress & design

Make results visible

Solicit improvement ideas at all levels



These lean benefits lead to tangible results: evident in financial performance, risk mitigation, customer and staff satisfaction
Financial performance •  Greater efficiency and effectiveness: –  Better alignment of resources with demand and capacity •  Process and technology improvements: –  Standardization of inefficient processes –  Realization of automation opportunities –  Adoption of best practices across teams –  Retirement of redundant systems •  Additional savings opportunities: –  Consolidation of location footprint –  Low-cost worksites reduce salary inconsistencies –  Rapid implementation of process improvements with little or no investment Customer, employee, and risk benefits •  Customer service: –  Improved accuracy and responsiveness –  Flexibility to meet client requirements –  Online access to real-time information •  Risk mitigation: –  Automation of manual processes –  Reduced losses –  Better alignment to changing regulations •  Staff satisfaction: –  Alignment of resources to skill levels –  Alternative workforce strategies such as flexible and part-time programs –  Increased confidence in knowledge and capabilities –  Increased employee engagement and retention
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The lean tool kit provides a rich set of tools that can be applied to meet defined corporate goals
The lean three-step process is comprehensive, but can be executed with relatively high speed •  You define program goals early, aligning how and where to use lean •  You identify the right people to involve, from the executive to the business unit level •  You define success metrics up front to measure performance •  You communicate often and clearly to embed a culture of continuous improvement in the organization
•  •  •  •  •  • 


Current state assessment
5-step current state assessment –  Customer and customer purpose –  Demand type and frequency –  Current performance –  Value stream –  Environmental/ structuralfactors

•  • 

Target state design
Operating model design Lean design principles –  Standardized work –  Quality at the source –  Workplace organization –  Visual control and management –  Pull systems –  People involvement –  Batch reduction/ elimination –  Cellular/integrated team concepts –  Equipment reliability –  Leveling –  Reduce setup time


Implementation road map
Quantify benefits


Prioritize projects

Time and motion study Value stream mapping Identifying Waste


Develop implementation plans

•  Workload profiling Structured solutioning Risk assessment •  Risk analytics and solution •  •  Workload balancing

Update documentation




Successful execution requires strong governance and leadership to drive implementation and ensure results are achieved
Governance body
Executive sponsor

•  Define strategic objectives •  Manage scope and priorities across stakeholders

Keys to success •  Ongoing senior management support and prioritization is imperative to success •  The transformation team needs to be dedicated to the program
–  Create project plans –  Enforce discipline on deadlines –  Identify problems and quickly communicate solutions –  Run program management office –  Enforce chosen methodology

Lean PMO

•  Provide executive oversight and direction •  Serve as decision-making and issue resolution body •  Approve major implementation decisions •  Confirm program results and benefits •  Drive achievement of program goals, leading overall solution development •  Communicate to stakeholders •  Manage program across workstreams, evaluating progress against plans

Working group Working group Working group (One per wave)

Stream 1


Stream X

•  Plan and execute work against plan •  Identify issue and mitigating actions •  Generate deliverables

•  Working group participants should align to the lean objective, scope, and activities

Booz & Company


One global bank has applied lean-led transformation across multiple business lines and geographies
Global bank lean results
38 34 34 31 28 28 26 25 23 19 11 10 10 Average of 24%

The overall lean transformation has created more than US$50 million in savings: •  Leading to a new service delivery model that addressed quality and product inconsistencies •  Transforming the operating model to refocus departments on functional alignment (instead of product alignment), driving efficiency gains •  Highlighting significant revenue opportunities by evaluating pricing against cost to serve •  Optimizing a standard, global target operating model across two merging companies •  Identifying opportunities to retire inefficient technology platforms and realize savings










% Cost saving per lean project
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This report was originally published by Booz & Company in 2010.

© 2010 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/ structure for further details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.