Towards Improving Banking Services Quality - 8 - Foundational Principles of Lean Management

Towards Improving Banking Services Quality

8.

Foundational Principles of Lean Management

 

Lean management principles have revolutionized industries worldwide by emphasizing efficiency, waste reduction, and value delivery. These principles are now extending their influence into service industries, particularly banking, where customer-centric processes and operational excellence are vital. By adopting the foundational principles of Lean management, banks can enhance customer satisfaction, streamline processes, and adapt to a rapidly changing financial landscape. The relevance of these principles to banking lies in their ability to identify and eliminate inefficiencies while fostering a culture of continuous improvement.

 

First Principle – Identify Value

 

Value is always defined by the customer.

 

Essential part of the Lean philosophy is to focus on what matters to the customer.

 

Value is what the customer is willing to pay for. Find out what are the features of the product or service that provide value to the customer.

 

The role of the manufacturer or the service provider is to provide value to its customers.

 

To identify value, find out needs and expectations of the customer including delivery requirement, product characteristics etc.

For example, a bank determines that its customers value quick, hassle-free account opening. By analyzing customer feedback, the bank implements an online platform that reduces the account opening time from two days to just a few minutes. This improvement aligns with customer expectations and enhances satisfaction. This demonstrates how identifying what the customer values most can lead to targeted improvements.

 

Second Principle – Map the Value Stream

 

Once the value (end goal) is determined, the next step is mapping the “value stream,” or all the steps and processes involved in delivering the specific service to the customer or producing a specific product from raw materials and delivering the final product to the customer. Value-stream mapping is a simple but eye-opening experience that identifies all the actions that take a product or service through any process.

 

Value stream includes: (i) the flow of service or physical material, and (ii) the flow of information.

 

Identify: (i) What is value-added (VA) activities, and (ii) What is non-value-added (NVA) activities.

 

Non-value-added (NVA) activities are waste. Some of these activities might be required (must) activities and some activities could be avoided or removed from the process.

 

Figure 2: Lean Management Foundational Principles

 

The goal is to identify every step that does not create value and then find ways to eliminate those wasteful steps. Value-stream mapping is sometimes referred to as process re-engineering. Ultimately this exercise also results in a better understanding of the entire business operation.

 

For example, a bank reviews its mortgage loan processing workflow and identifies bottlenecks, such as redundant document reviews and delays in credit approval. By mapping the process and categorizing activities as value-added (e.g., credit checks) or non-value-added (e.g., repetitive approvals), the bank eliminates redundant steps and automates document verification, reducing processing time. Mapping the value stream highlights wasteful activities, enabling the bank to streamline operations and reduce costs.

 

Third Principle – Create Flow

 

After eliminating non-value-activities (NVAs), say wasteful steps, the next step is to be sure the remaining steps flow smoothly with no interruptions, delays, breakdowns or bottlenecks. The remaining action is to ensure that the flow of the remaining steps run smoothly without interruptions or delays. Some strategies for ensuring that value-adding activities flow smoothly include: breaking down steps, reconfiguring the production steps, leveling out the workload, creating cross-functional departments, and training employees to be multi-skilled and adaptive.

 

For example, a bank creates a seamless onboarding experience by integrating its systems across departments (e.g., KYC procedure, credit checks, and account creation). The bank implements a single-window system where customers interact with one representative, cutting down the onboarding time. Smooth flow across processes minimizes delays and improves the customer experience.

 

Fourth Principle – Pull

 

With improved flow, time to customer or market can be dramatically improved. This makes it much easier to deliver product or service as needed, as in “just in time” (JIT) manufacturing or delivery. This means the customer can “pull” the product or service from the provider as needed (often in weeks, instead of months).

 

One of the biggest and most serious waste in manufacturing organizations is having excessive inventory. The pull system ensures customer demand-based production or service delivery.

 

As a result, products don’t need to be built in advance or materials stockpiled, creating expensive inventory that needs to be managed, saving money for both the manufacturer / provider and the customer. The pull system encourages reducing inventory and work-in-process (WIP) resulting in the production of just the right quantity or service delivery at the right time (say just in time – JIT).

For example, a bank shifts from asking for all documents upfront to a pull-based system where only necessary documents are requested at each stage of loan processing. This avoids burdening customers and eliminates the storage of unnecessary paperwork. The pull system ensures resources are used based on demand, avoiding unnecessary inventory or effort.

 

Fifth Principle – Seek Perfection

 

Perhaps the most important principle is to seek perfection by making lean thinking and process improvement part of your organizational culture so that employees of your organization constantly strive to achieve perfection, set up a culture of continuous improvement and make things better every day.

 

As the Lean methodology seeks perfection in processes, people involved in processes constantly analyze each process for the increase in value (reduced cost, time, resources used, space, etc.). People focus on the elements that add value and eliminate those that do not. They tighten the flow and deliver the value as the customer needs.

 

For example, a bank introduces customer feedback mechanisms through post-transaction surveys and monthly reviews of service delivery. This feedback is used to refine processes and train employees continuously, aiming for incremental improvements in areas like call response times or ATM uptime. Building a culture of continuous improvement helps banks strive toward operational perfection and sustained customer satisfaction.

 

Implementing the foundational principles of Lean management, following improvements have been seen:

 

·       A Bank in America improved its mortgage processing system by eliminating redundant steps, leading to faster processing times and reduced customer complaints.

 

·       A regional bank in Japan used Lean principles to automate routine tasks in loan disbursal, achieving a 30% reduction in cycle time.

 

·       A mid-sized bank introduced an AI-powered chatbot for customer onboarding. The bank identified redundant steps in the verification process and automated them. This reduced the average onboarding time.

 

·       A global bank mapped its value stream for personal loan approvals and found excessive manual intervention at multiple stages. By implementing workflow automation and reducing non-value-adding steps, it decreased loan approval times.

 

·       A Japanese bank applied Kaizen to its branch operations, focusing on customer service. By encouraging employees to suggest small, incremental improvements, the bank reduced queue times by reorganizing counters, optimizing service workflows, and cross-training staff. This approach led to higher customer satisfaction and improved employee engagement.

 

·       An Indian public-sector bank analysed its fixed-deposit account opening process. By eliminating non-value-added steps such as duplicating forms and implementing e-signatures, the bank reduced the process time and lowered costs significantly. This digital transformation also improved compliance and customer satisfaction.

 

At the end it can be stated that the foundational principles of Lean management are more than operational strategies—they represent a philosophy of continuous improvement and customer-centricity. For the banking sector, these principles can drive transformational changes, from streamlining loan processing to enhancing customer interactions. By embedding Lean thinking into their culture, banks can achieve operational excellence, adapt to evolving customer demands, and remain competitive in a dynamic industry. Lean banking is not just about process efficiency; it’s about delivering value at every touchpoint while fostering innovation and collaboration.

I welcome your comments, questions and suggestions.

Warm regards,

Keshav Ram Singhal 

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