Lean 2.0, to the rescue of banking back offices March 2016
Bank transfers in a single click mobile payments, personalized online offers, 2
are some of the many experiences offered by banks to fulfil the expectations of their customers. But how do they go about satisfying these customers when check deposits or loan approvals require processing time which is reminiscent of the paper only years? An answer to this problem.lean 2.0 3
Back offices, differentiators of tomorrow s retail banking The competition from new entrants such as online banks and the proliferation of new technologies have pushed banks to develop their physical and digital distribution channels, sometimes at any cost. The initiatives have multiplied: online assistance provided by virtual advisors, implementation of electronic signature at bank branches (BPCE group), development of easy to use and ergonomic mobile applications So, what is the objective of these brands? Their goal is to meet the increasing demand for instant gratification / immediacy so as to capture new customers and to increase customer loyalty, but also to harness the data collected in order to develop dedicated and personalized offers. Thus, in June 2013, Crédit Agricole (a major French bank) launched the e-immo (or real estate) online platform in order to facilitate and speed up the process of subscribing to a housing loan by providing an instant response, given by the regional branch of the Internet user s catchment area. These initiatives have mainly been driven by marketing strategies aiming to always offer a little more (in terms of response time, accessibility, etc.) to customers, and have therefore, focused on developing customer interfaces (the front office ). However, it s difficult to honour these new customer promises : thus, although it s possible to stop a cheque in 2 clicks, the customer may have to wait for more than a week to receive his / her new card. The customer experience thereby gets impacted even in this day and age... However, alongside developing their front offices, banks have also embarked upon back office transformation programmes for over 10 years now. This transformation, driven primarily by the desire of achieving significant economies of scale was carried out in 2 stages: 1. Concentration of operations around a restricted number of service delivery centres (sometimes combined with off-shoring), combining size and critical mass to reduce costs. This movement was carried out around 2 dimensions, which were often combined: A strategy of having specialized back offices by business function, A strategy of grouping activities by geographical area national or international 1 Dimension 1: Specialisation by business function 2 Dimension 2: Pooling by geographical area Multi-functional banking back offices Banking back offices specialized by business function Regionalized banking back offices Banking back offices centralized by zone Back office: securities processing Geographical zone 1 Geographical zone 2 Geographical zone A Back office: bank credit Geographical zone 4 Geographical zone 3 Geographical zone B 2. Industrialisation of operations, relying mainly on operational consolidation and task automation. Depending on the banks past practices and the transformation strategy chosen, this common momentum has led to multiple organisational models. Today, the strategy of pooling operations, particularly off-shoring, is being continued, but at a slower pace (social impact, ROI not significant enough compared to the efforts to be invested, etc.). 4
Back offices, differentiators of tomorrow s retail banking Despite these changes and the numerous performance improvement programmes carried out, back offices today are still not in a position to fulfil the promises made by the front-office. As a result, competition among retail banks is constantly changing and is knocking at the door of back offices... In fact, while the main differentiator for banks lies in the quality of service provided, back offices are at the heart of the value chain since they are the ones who deliver these services: they are accountable for processing customer requests not only in terms of the response time, but also in terms of the quality of service provided (providing an appropriate response to each customer while integrating his / her specific requirements). Moreover, as the ones in charge of delivering services, banking back offices should have the required flexibility to adapt themselves to the rapidly and constantly changing customer demands. In this sense, banking back offices are the differentiators of tomorrow s retail banking In order to deal with the challenge of instant gratification, retail banks must fundamentally change their banking back offices from a structural point of view based on multiple levers: updating information systems, process optimisation, task automation, changes in the organisation and governance, ramping up the skills of their employees, etc. In this sense, it is essentially an overall transformation project, and this alone will enable retail banks to stay in the race in an environment which is increasingly competitive. Assessment There is a real disconnect between the front and back offices Our recommendations An overall transformation approach is required to deal with this disconnect Banking Back Office: outdated tools, lack of flexibility, very high processing time Banking Back Office Lean Management & digitization (Lean 2.0) Banking Front Office Banking Front Office: digital, agile and quick 5
An overall transformation driven by the Lean 2.0 approach In this context, Lean Management 2.0, a combination of Lean Management and the possibilities offered by digital technologies, seems to be a success factor for these projects: It integrates the cultural dimension of transformation, relies on field intelligence in order to build and sustain the identified solutions, and is enriched by the possibilities offered by digital technologies so as to augment the transformation capacity of organisations by facilitating disruptive innovation Lean 2.0 thus helps overcome the opposition that prevailed up until now between operational optimisation programmes on one hand and digital programmes on the other. Until now, operational excellence projects considered IT Systems mainly as an obstacle to performance. How many Lean projects have been carried out to simplify the process of retrieving data from complex legacy IT systems? At the same time, digital tools were deployed without involving business teams, with standard processes that were not very flexible, and often far removed from operational reality. Worse still, these two types of projects often succeeded one another Which bank hasn t undertaken an optimisation project for 6 months and has later decided to deploy a new workflow tool for the said process? On the contrary, Lean 2.0 is based on the possibilities offered by digital technologies at 2 levels, resulting in : Increasing the relevance of the operational assessment and increasing the impact of the solutions chosen Digital technologies and big data have now made it possible to harness the data accumulated by companies on a large scale and to thus facilitate the exercise of carrying out an operational assessment: identification of bottlenecks, processing delays, understanding the expectations of internal and external customers, etc. Furthermore, other solutions of mass data processing (Proxem) and process performance simulation (OnMap) can also be used (especially) to simulate the impact of the identified solutions before deploying them. Leveraging the digital lever as an optimisation lever in its own right (in addition to the operational, organisational levers, etc.) in a bid to improve process performance The deployment of tools not only helps simplify and optimize processes (task automation, digitization of operations, reduced wait times), but also helps strengthen activity and performance monitoring and makes teams more agile (for example, predictive analysis tools have now made it possible to anticipate the upcoming workload and to achieve significant gains through better resource allocation). But today, the industrialization of back office activities, which relied heavily on the possibilities offered by IT systems (workflow tools, EDM, etc.), is now facing two limitations: a high degree of obsolescence of IT systems and the inadequacy of interfaces between the front office and the back office. These limitations therefore require that banks reinvest in a new breed of IT tools to facilitate the processing of operations. Thus, the transformation of banking back offices depends on the digital lever. New solutions offered in the market help optimize processes significantly. For example, they can be leveraged to optimize documentation processes which have become particularly complex with the growth of multichannel strategies; this can be achieved by using unified platforms for acquiring, processing, storing and distributing documents. These solutions will enable banks to achieve gains (mainly in terms of quality and processing costs) with relatively quick returns on investment (for example, the ROI of a standard electronic invoicing project takes less than one year). While the digital lever is essential for the transformation of banking back offices, it is not enough, explains a Back Office Manager of a major French bank. The implementation of a new tool for the recovery process enabled us to cut down the processing time by 30%. However, with the automatic task allocation system, we lost the overall visibility of our processes and the versatility of our managers. Merely being content with setting up tools for existing processes: that is the pitfall to be avoided when digitizing your back-office. This transformation, driven by Lean 2.0, relies on the synergy of 2 additional levers for the digitization of processing operations: the optimisation of front to back operations supported by a de-siloed and agile organisation. 6
Lean 2.0 or what can be done to optimize Front to Back-office processes Transforming banking back offices on the basis of Lean 2.0 requires a paradigm shift: transforming operations throughout the value chain. The transformation of back offices in a bid to speed up the processing time only makes sense if operations throughout the value chain are considered: from acknowledging the customer request until the delivery of the service / product. Crédit Agricole carried out this exercise for the subscription and approval of housing loans. It s by analyzing the process in its entirety that they could come up with disruptive solutions: the e-immo (or real estate) platform, instant responses, call backs through a shared platform which has all the data Analyzing the entire value chain also provides an opportunity to balance the workflow and the associated workload. Too often, the work carried out on optimizing only one part of an activity ends up obstructing the upstream or downstream stages of the process. It is this paradigm shift that the solutions chosen by Axa (Mon Axa) or by Crédit Agricole fully exemplify (PacifiCA): for example, after analyzing the claims handling process in its entirety, we could find ways of reducing the declaration time. Henceforth, it is the customers who take care of this via an application available on their Smartphones! though scanning technologies were implemented in backoffices, cheques were still being transported in trucks from branches. This project helped optimize the entire process: from depositing a cheque at a bank branch to the amount being credited into the account. The result: a 40% reduction in the workload and processing time cut down by 30%*. How was this possible? By identifying low valueadded steps throughout the process and implementing digital levers in a bid to optimize front to back office processes. Does the transport of cheques impact the timelines? Are there dedicated employees within the back office for scanning these cheques? Most of the cheque deposit boxes at bank branches were replaced by automatic machines that directly scan the cheque at the time of deposit. This cheque is then processed automatically in an integrated application within the back-office. The result: the cheque is already in the process of being encashed while the customer has not even left the branch! Even though we continue the process of archiving paper cheques for legal reasons, this physical flow is henceforth completely desynchronised from the encashment process. Backoffice employees only get involved in very rare cases where the IT system is unable to process cheques automatically. The resources allocated for this activity were cut down by half and we could redeploy these employees to other remote banking activities that are on the rise. If the approach is a disruptive one, the results are even more so. From a goal of achieving productivity gains of about 15% by applying a classic approach to operational optimisation, we can henceforth see gains of up to 40%. A major French bank achieved similar results by adopting Lean 2.0 to improve its cheque encashment process. The cheque processing process had been improved over and over again, but without ever considering the problem from a cross-functional perspective says the Director of Operations. Thus, even * Results obtained for the boxes replaced by automatic machines 7
Lean 2.0 or what can be done to break down silos and to make banks more agile Process optimisation, within the context of a Front to back office strategy, would not be able to bring sustainable gains without an organisation and managerial engagement that support it. Given the current practices, it is necessary to break down silos and to make banks more agile, not only within banking back offices, but also (and perhaps especially) between the back office and the front office. Here again, Lean 2.0 provides disruptive and sustainable solutions. Instil cross-functional management within the organisation Matrix management involves steering and managing resources that belong to different reporting structures, but are pooled as part of a common activity or project. Matrix management, a technique that appeared in the late 1980s, did not however achieve the desired results because it was never instilled as part of governance nor as of part of the managerial culture. In principle, everyone agrees, but in reality, we work in silos and we all have objectives that are restricted to our respective perimeters, and which are sometimes even contradictory reveals a BU manager. However, in an unstable and changing environment, matrix management provides the agility needed to maintain service quality and to achieve our performance goals in the long term. This ambitious management technique is based on 3 key principles: Assigning a limited number of common and shared objectives to all employees involved in front to back office processes We carried out a quality improvement initiative for improving the quality of requests forwarded to us by upstream teams. The results were far beyond our expectations: +40% of the requests processed were first time right!. This was only possible because we were all assigned the same objective, i.e. the total time taken for processing requests says a team leader. Workload & capacity management on a regular basis to secure the handling capacity of teams for the entire process. Here again, digital technologies offer new possibilities: (without even going as far as big data and business planning capabilities based on predictive models) there are new tools that can be used to manage resource allocation live based on upcoming activities and the available capacity. Management by results of front to back office activities, along with the teams in a transparent manner. Activity management, particularly that of front to back office processes, should be carried out with the teams involved. It is the only condition that helps unite teams around a common activity; you will come across difficulties, but you will also meet success! And the use of digital tools now makes it possible to overcome the difficulties faced frequently: distributed delivery teams, work from home, etc. My team s interactive whiteboard not only displays our performance in real time, but also that of the upstream teams that we work with. This allows me to manage and track the activity in real time without losing sight of the overall picture and thus enables me to coordinate with the other teams recounts an Operations Manager. And the results are as expected, explains a member of the leadership team, who deployed this approach in a French bank: Even though it wasn t easy at first, the implementation of these principles enabled us to focus our energies towards achieving a common goal while setting aside our individual differences. We thus managed to reduce the processing time of customer claims by 25%. 8
Lean 2.0 or what can be done to break down silos and to make banks more agile Accelerate the time-to-solve (the time required for resolving problems) Several organisations fail to initiate a virtuous cycle of continuous improvement to sustainably improve their performance because the time consumed between identifying and resolving an operational problem is too high. Consequently: When solutions are actually deployed within teams, they no longer address the given situation (the organisation may have changed, the processes may have changed, etc.); The teams involved in resolving the given problem get demoralized and little by little start questioning the continuous improvement drive. To get out of this rut, banking back offices need to increase their ability to resolve problems by sharing a common methodology, based on an approach of short testing cycles and on their ability to involve experts for each problem they face. Lifecycle of an improvement project and main difficulties faced Scope of analysis unclear Imprecise objectives Lack of coordination with other projects Conventional solutions that don t generate gains Impact analysis carried out randomly Results not being monitored Deployment not brought to fruition Occurrence of the problem to be handled Project launch Problem analysis Identifying and building solutions Deployment Sustainability (ending the project mode) Superficial analysis of the problem Lack of factual elements Difficulty in deploying within teams that are outside the project manager s sphere of influence Experts not involved in the project Lack of sponsorship Examples of difficulties faced 9
Digitized solutions (VVM, Redpepper, obeya, etc.) are the answer: virtual analysis and brainstorming tools for conducting workshops remotely, virtual obeya room for monitoring the progress of A3 work streams These solutions help overcome organisational barriers not only for investigating cross-functional issues, but also for deploying best practices within teams. A common methodology : A3 thinking 1 Identify operational issues / opportunities of improvement Every week 2 Prioritize and implement improvement actions Every day STATE OF MIND 5 3 months to implement (on average) Update of operational procedures Implement and track benefits Weekly A3 meeting Daily / biweekly A3 meetings Daily / biweekly A3 meetings 3 Clarify the problem, align stakeholders on the objectives, define the KPIs to monitor 4 As-is situation and solutions design A3 methodology Short testing cycle Solution identification Solutions adjustments Solutions (re) prioritization Solution testing Results assessment Solution implementation Solution detailed design Solution testing Testing plan 10
Experts mobilisation This operational agility (linked to the mobilisation of experts and the testing approach) guarantees success, but requires a change in the company culture. In this sense, some people speak of cultural agility (the ability to question things and to explore new ways of doing things), which itself requires strong managerial agility This agility can t be partial / fragmented, and therefore, must be driven by a strong ambition for the entire organisation. Back office transformation is imperative for meeting the challenges of the market, largely driven by the customer need for instant gratification or immediacy. The solution for this can not be partial and requires an overall transformation because it is digital, operational and cultural in nature. To face this challenge, back offices can rely on a transformation approach driven by Lean 2.0 which combines all these levers in a bid to ensure continuous performance improvement. 11
Contacts Cécile André Vice President Banking services Capgemini Consulting cecile.andre@capgemini.com Valérie Gitenay Vice President Banking services Capgemini Consulting valerie.gitenay@capgemini.com Bastien Jourdan Principal In charge of Lean Services department Lean Banking Capgemini Consulting bastien.jourdan-de-la-passardiere@capgemini.com Antoine Genin Manager Lean Services Lean Banking Capgemini Consulting antoine.genin@capgemini.com About Capgemini and the Collaborative Business Experience Capgemini Consulting is the global strategy and transformation consulting organization of the Capgemini Group, specializing in advising and supporting enterprises in significant transformation, from innovative strategy to execution and with an unstinting focus on results. With the new digital economy creating significant disruptions and opportunities, our global team of over 3,600 talented individuals work with leading companies and governments to master Digital Transformation, drawing on our understanding of the digital economy and our leadership in business transformation and organizational change. With more than 125,000 people in 44 countries, Capgemini is one of the world s foremost providers of consulting, technology and outsourcing services. The Group reported 2012 global revenues of EUR 10.3 billion. Together with its clients, Capgemini creates and delivers business and technology solutions that fi t their needs and drive the results they want. A deeply multicultural organisation, Capgemini has developed its own way of working, the Collaborative Business Experience TM, and draws on Rightshore, its worldwide delivery model. Learn more about us at www.uk.capgemini.com Find out more at: http://www.capgemini-consulting.com/ Rightshore is a trademark belonging to Capgemini Capgemini Consulting is the strategy and transformation consulting brand of Capgemini Group. The information contained in this document is proprietary. 2016 Capgemini. All rights reserved.