Financial Services Six Sigma

I would like to get your thoughts on something.   It is as though most companies are in a state of paralysis.  Wouldn’t you think that given the sharp drop in output and hence revenue, companies should be looking at ways to systematically cut costs or look for ways in increase market share?  When it has been proven over and over again that most financial institutions don’t know a thing about process risk (ironically risk management should be their core competency) why aren’t they leveraging proven platforms to fix this?  A friend, the president of a correspondent banking unit, put it best “It is part of the arrogance…people in the financial sector think that they are all analytical minded and that fixing process/policy issues are simple tasks…that they have all the answers.  But the problem is that they don’t have the tools”.

What I am trying to discuss here is part of the frustration with the bail out.  I am not saying that I am pro or against it, just that you cannot throw money at a problem without fundamentally understanding and fixing the root causes.  Otherwise we are doing nothing but applying a gigantic band-aid to our problems.  One of our interns pointed out a job posting to me yesterday for a Loan Officer at a regional bank.  The job description scared me for its complete detachment from the realities of the sector today:
 
“The Loan Officer performs all phases of investment real estate lending, including the review and coordination of new and existing business development, loan origination, underwriting, processing, closing and servicing…”

It is as if we have learned nothing; the guy who is being incentivized to bring a loan through the door, is also responsible for underwriting it, funding it and ultimately monitoring it.  This is but one huge conflict of interest. Where is the control in this process?  Why are institutions being given money so that they can continue with processes that got us (partially) here?

S.Shaffie, ProcessArc, Inc. 

Posted by Sheila Shaffie at 09:56 PM | Comments (3) | Send to a Friend

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I know that there is an economic meltdown going on, but I am having my very own thanks to my insurance company. I get a phone call from them with the wonderful news that unless we address our “roof issue” underwriting has suggested that our policy should not get renewed.  Roof issue?  Does having a flat roof constitute an issue? Perfect example of process breakdown…when the right hand doesn’t know what the left one is doing.  In this case the claims department is not accurately relaying information to underwriting, leaving the home owner with an “issue”.  A few months back we called our insurance company (perhaps that was our first mistake) to put in a claim for damages done by ice damming.  We thought that since the roof was being replaced we might as well address some other issues; after all that is what insurance is for, no?  

Next thing you know we have adjusters and structural engineers walking around the house, taking photos.  And I am trying to guide them to the damage area, but I was basically talking to the “wall”.  They were camera happy.  The roof gets replaced, we decided not to put in the claim, months go by and then we get the phone call.   Thank god for the patient claims manager because I was about to lose it.   The underwriters, based on the findings of the adjuster, had decided that a flat roof with over 3” of snow is considered hazardous.  Well there we have it people, never walk into another commercial building when it snows.  So you can forget about all the big box stores, grocery stores, malls, etc.  The underwriting department’s suggestion was for us to change the pitch of the flat roof.   As the claims manager is trying to explain this to me, I am trying to figure out how did we end up here?  How did we go from “can you please replace a few water damaged areas” to “your entire roof structure, which by the way a commercial roofing company just replaced, is hazardous”?  Better yet, if that is really the case, why they heck did they wait 5 months to tell me this critical piece of information?  By the end of the conversation even the claims manager was beginning to realize the absurdity of the situation, talk about a snow ball effect.  After several more phone calls, we are finally in the clear, the pitch of our roof does not have to change, we no longer live in a hazardous house, but I am going to change my insurance company.

S.Shaffie, ProcessArc, Inc. 

Posted by Sheila Shaffie at 06:30 PM | Comments (2) | Send to a Friend

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Since the “melt-down” I have been thinking that the timing couldn’t be better for process re-engineering.  I am mean if there is a time that companies need to reassess their business processes for risk and cost cutting, this would be it.  Every business division in firms should be challenged to deliver productivity – recognizing and removing all the costs that are hidden in plain sight.  But to quote a dear friend who is a bank president, “everyone is hiding in their bunkers and waiting to see when they should bring their heads out”.   And to his point no one is moving, transaction volume is down and financial companies’ response is to lay people off and that is where things are stopping.  So the minute (and this will happen one day) that things begin to go back to normal, what will these financial institutions do…they will go out and hire people again.  All the inefficiencies, redundancies, and operational risk will just sit there.  So why don’t these executives get it: spend the money, the $200-400K, train your people to think differently about business and processes, uncover the costs and risk and fix it realizing real financial benefits that are sustainable.  Not ones that fluctuate depending on how many people you hire and fire.  There seems to be some hope with at least 13% of CFOs interview by Robert Half Management Resources.  When asked “in what areas are CFOs most likely to use project professionals in the next three years?” 13% responded “ Business Process Re-engineering”.  So I fell vindicated, but only slightly…

S. Shaffie, ProcessArc, Inc. 

Posted by Sheila Shaffie at 08:23 AM | Comments (0) | Send to a Friend

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With all the focus on lending, the retail division hasn’t been getting much attention, until now that is.  It is almost as though banks forgot where the money was coming from: retail customers.  This notion may help partially explain the product proliferation in the sector and the lack luster service levels.  Mind you, everyone was talking about “service excellence”, but there was not much of a strategy supporting it.  However, the pendulum is about to swing to other side and the challenge will be figuring out how to achieve optimum returns from the client base.  And the answer will be shifting the retail operations culture into a customer centric one, the basic principle of Six Sigma, i.e., making sure that you provide to your customers, what they want, when they want it and at the right price.  This is a rather daunting task, especially because it would mean getting your hands on a lot of customer data.

One of the biggest challenges in the financial sector is collecting data in an organized and cohesive fashion.  While there is plenty of customer data in banks, it resides in product-centered silos: lending, retail, insurance… And every time you compartmentalize data you are bound to experience revenue leakage. 

Historically I have not been a big fan of CRM tools, partially because I don’t think they have been ever implemented or leveraged correctly.  But the logic behind CRM has potential – to centralize key customer data so that accurate and timely decisions can be made by all in the organization.  The part that was missed by the CRM wave was the required culture change in an organization to reap its benefits.  But the timing maybe just right now.  Because if banks are going to restore their liquidity, they have to learn how to turn their retail business into a cash machine by providing service excellence.  And to accomplish this they need access to timely and accurate customer data.

S. Shaffie, ProcessArc Inc.  

Posted by Sheila Shaffie at 07:47 AM | Comments (2) | Send to a Friend

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Over time we, as process architects, have learned one key lesson: that regardless of the project, make sure to get an IT personnel assigned as a team member to your six sigma project.   They are the only ones who seem to know how to pull data from the database abyss or know how the system should/can work.  And without fail as we begin to understand the process flow and its inefficiencies, the complexities of the IT infrastructure begins to rear its often-ugly head.  It usually doesn’t take too long to understand that much of the process’ poor performance has actually more to do with the IT infrastructure than the people working with it. A recent article in the Financial Times, “IT-related productivity gains in decline” outlines the central issues with IT investment and its role in actually decreasing the efficiency levels in companies.   The article outlines that between 1995 and 2000 IT investments led to an increased production of goods and services than originally anticipated.  However, these gains have been on a decline ever since.  And the root causes of this decline have been linked to:

1. The increase in complexity of large IT systems

2. The fact that companies have been left to themselves to determine how to bolt-on these various software and hardware

The end result according to Bob Zukis, a partner at PwC  is “ unchecked IT spending, unnecessary complexity, redundant systems, under-utilized hardware and data centers, the need for expensive IT security and inevitably diminishing returns from IT”.

From our perspective, two additional key elements have led to the diminishing ROI alluded to above:

1. The processes that the software/hardware are intended to support are not always well defined/designed

2. The end users of the system are not always engaged adequately (sometimes not at all) in the need-definition/selection process

This adds to the complexity of the system, as this (not really) “off-the-shelf” platform has to get further customized or band-aided to function as intended.

What has all of this meant in real terms for companies and their multi-million dollar IT budgets:  only 13% of the average IT budget goes into supporting process or product innovation.  The other 87% is simply spent on general maintenance and upkeep.

Our key take away from this over the years has been that as Six Sigma experts we need to help bridge the gap between operations and IT.  IT for the most part is a support function for branches and back-office …Operations is the internal customer.  While we cannot fight the companies that make the software/hardware systems, we can create more educated buyers.  Which means that the:

1. End users should clearly define their needs (CTQs) and provide a design for optimal information/process flow

2. The IT department should help identify the best provider based on the end users’ expectation and how well it will interface with exiting systems (incremental cost).  Ensuring that brings us an end-to-end solution.

S. Shaffie ProcessArc, Inc. Financial Services Six Sigma 

Posted by Sheila Shaffie at 05:23 PM | Comments (0) | Send to a Friend

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It is hard to talk about Quality as it relates to today’s market condition…where do you start.  But as I read through a recent Wall Street Journal article, ”SEC Faulted for Missing Red Flags at Bear” I couldn’t help but to draw parallels to a firm’s Quality team.  The article states that the “SEC simply failed to carryout its mission in its oversight at Bear Stearns”.  Under Mr. Cox’s (the SEC chairman) watch, the agency no longer has large firms left to oversee; Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs have either gone bankrupt, been bought-out or morphed into a new entity.  The root causes of the failure discussed in the article were:
 

1. That the SEC did not have enough authority to effectively oversee the banks

2. Enforcement cases were stalled in part because the agency’s staff were asked to jump through additional loops

3. The idea of rapid deregulation (change) and having enough staff to keep up with audits was briefly discussed

Oddly enough these are the root causes for the failure of any once-healthy organization.  So it goes for the Quality team of a firm that is falling apart before the team can even take form.  This team is put in a position of leadership without any authority to drive change…textbook case of a paper tiger.  The Quality leader is given the charge to drive improvements and changes across the organization.  But the speed and the quality of the change are suffocated by the various committees and subcommittees that have to buy in before anything is accepted.  The concept of leadership is totally lost in the process.

Because leadership is afraid to take a decision, various layers of red tap are introduced.  And before you know it what was once the right thing to do for the company (based on data) has morphed into something unrecognizable.  As we sit (literally and figuratively) on the side lines and watch, we cannot help but to feel sorry, helpless and frustrated for the Quality team.  We know it is just a matter of time before the whole concept gets abandoned.  What once was a good and necessary idea (an independent team to drive unbiased change) is cast aside because the foundation (read leadership) from the start was weak (read not completely on board).  This the most unfortunate and also the least  controllable outcome from an external consultant’s perspective.  If anyone has ideas as to how we can combat this please share!

S. Shaffie ProcessArc, Financial Services Six Sigma

Posted by Sheila Shaffie at 05:37 PM | Comments (0) | Send to a Friend

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Change is an amazing phenomenon to observe, let alone study. Change happens all the time and is ubiquitous in nature – everywhere, at any time around us, there are hundreds of examples of change: from the lady on the corner dropping her smoking habit to the office building across the street where everyone is trying to use less paper, in an effort to be environmentally conscious. Change is neither your friend nor enemy; at least it’s not intended to be. However, depending on where one stands, change can be beneficial or it can be a royal pain. Six Sigma Black Belts, in the eyes of coworkers, are often the face of change. Therefore, depending on our co-worker’s stand point, we can personally become their pain… and they can easily become ours.

Having had a good taste of both supporting managers and straight up road blockers, I’ve realized the importance of the “soft skills” we’re not often required to work on.  More specifically, I am referring to a strong knowledge of negotiation tools. The truth is that change, no matter how subtle or inconsequential, is often the result of a negotiation between the current state of doing things and a more desired future state. But the success of this “change” most often relies on those who are very comfortable with the status quo. After all, it’s very likely they created it!

As Black Belts we can always find someone to help us gather data, calculate values and understand variables, but when the time comes to push for a Quality-focused measurement system or data driven decisions, it’s up to us to deliver the message. Having the right set of tools to negotiate, creating a need, and sharing a vision are not to be looked at as commodities, but rather an intrinsic necessity. My advice is for you to go to the library – old school – and pick up a few titles on negotiation (Harvard’s Negotiation Model is my personal favorite) and start trying out some tools, I believe you’ll find that most road blockers in your way are potentially your biggest sponsors, they just haven’t seen “what’s in it for me” yet.. And that, folks, is one fun job for a Black Belt…

Luis G - Black Belt, Fortune 100 Financial Company, Venezuela

Posted by Sheila Shaffie at 09:02 PM | Comments (2) | Send to a Friend

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