Financial Services Six Sigma

Where is the accountability in the financial sector?  A few weeks back I read an article by Landon Thomas Jr. in the Sunday NY Times titled What’s $34 Billion on Wall St.?  The story focused on Dow Kim and Thomas G. Maheras – two highly successful - before the sub-prime mess that is - executives at Merrill Lynch and Citigroup, respectively.  The two gentlemen swiftly exited from their institutions in January of 2008, when the enormity of their gambling became known.  However, rather than laying low for a while and allowing the short-term memory of the public to work its magic, Mr. Kim “has been crisscrossing the globe in recent months raising money for his new hedge fund…” and Mr. Maheras “has had serious discussions with several investment banks…about taking on a top management position”.

I don’t point this out to re-iterate the obvious, rather it dawned on me that as consultants in the sector, we have to dig, slice, probe, and wrestle to create share holder value and help our clients realize savings that are in the millions of dollars.  It takes a Herculean effort to convince executives to adopt a Quality methodology.  And it should.  Laying out dollars in promise of future savings or revenue increase ought to be an exercise that comes with a near guarantee.  It is disheartening to see that those Quality efforts are not complimented with similar rigor when investment vehicle decisions are made (for all the responses that I know will come saying that investing should not have constraints, I say balderdash).  Contrasting our efforts in delivering shareholder value is the brazenness of executives who seemingly dismiss losses of the kind incurred by Mr. Kim and Mr. Maheras. 

I despise those ‘I told you so’ columns appearing after every debacle hits and the media feeding frenzy ensues.  But it should be standard industry practice to demand accountability from those who are investing our dollars in lieu of rewarding their losing of $34 Billion.  Charles Prince and Stanley O’Neal are partially to blame - if for no other reason - for failing to assess the risks (theoretically their core competency) associated with an endeavor of this magnitude.  In any other sector, Mr. Kim and Mr. Maheras would be outcast as untouchables, but on Wall Street they apparently are celebrities.

I wonder how many Six Sigma projects must be undertaken to recover this kind of loss?

Shahbaz Shahbazi - ProcessArc, Inc. 

Posted by Shahbaz Shahbazi at 08:42 PM | Comments (0) | Send to a Friend

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I am not aggravated by the phone calls or emails, but rather by most recruiters’ lack of understanding of the Six Sigma position for which they are recruiting.  If you barely understand the difference between a Green Belt, Black Belt, Master Black Belt and a Quality Leader, how can you possibly filter and identify the right candidate?  Granted, these positions are not traditional ones in the industry, like a Business Analyst, or an Underwriter.  But for god’s sake pick up a book and read up on the methodology.  I guess what bugs me most is when we actually spend the time “educating” the recruiter on what they should be looking for in a candidate (length of experience in a Six Sigma position, certification guidelines, achievements, depth of knowledge…) – because after all you cannot be looking for someone who can be “sort of a Black Belt, or a Master Black Belt” you have to make up your mind.   Why do I spend the time talking to some recruiters?  Because we all have a vested interested in making sure that the application of Six Sigma is successful in this industry.  And that starts with having the right Six Sigma people in the right positions.  Consequently, you cannot afford to have a Green Belt trained and certified through an online course, with minimal relevant experience, running a Six Sigma organization (You can, but then you will need to adjust your expectations). 

But really the crux of the problem stems from a point we discussed over a year ago: that we are operating in an industry lacking standardization (i.e., what it takes to get certified, training content, job descriptions…), which also happens to be experiencing rapid growth.  And this puts the pressure on you to truly define for the recruiter the candidate qualification standards.   Because while there is typically a 90-120 day “return policy” on candidates, by the time someone realizes that this person doesn’t have the right skill set the damage is already done.  Or worse yet, it took you so long to find out that the candidate is under-qualified that you may just chose to live with it.

I think for the next blog we will provide some of the basic requirements for each type of candidate.  In the meantime, don’t let the recruiter define what you should be looking for in a BB, GB or MBB.

Sheila Shaffie - ProcessArc, Inc. 

Posted by Sheila Shaffie at 08:10 AM | Comments (0) | Send to a Friend

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As the year comes to an end, your Six Sigma team should be thinking of two things:

1. Recognition/compensation for the team
2. Finalizing the financial benefits for their projects
   

While Black Belt roles are meant to be stretch assignments – almost like corporate boot camp – their hard work (or lack thereof) needs to be assessed and recognized accordingly. The BB position is not an easy one: it involves constantly uncovering issues which some managers may not take to too kindly.  As a BB you have to diplomatically gain consensus on recognizing the issue, come up with a fix and then hope that the area manager ensures control of the improvements. 

These same series of concepts apply to the team members involved in the project.  I think it is even more critical to recognize them:  they have full time jobs, yet go beyond the call of duty to support the BBs and the Six Sigma corporate initiative.  While recognition will boost the Six Sigma initiative, create more buy-in and improve morale, it has another benefit.  It helps identify people who didn’t fully support the project (potential risk for future projects) or did not possess the level of talent that was originally assumed (will need to be replaced).

But the most gratifying part for a BB and MBB is calculating the financial benefits delivered for the given year.  And please, if the numbers are good, i.e., you met or exceeded your target, advertise it.  If you didn’t meet your targets, hopefully it is not a surprise, but if it is the MBB/BB need to determine its root cause and mitigate it for future projects.

By completing the steps above you can be assured that you have completed part of your due diligence on your Six Sigma initiative – ensuring future success: making certain that you have the right people on the team, they are kept motivated and that the financial targets are met & communicated.
Sheila Shaffie - ProcessArc, Inc.

Posted by Sheila Shaffie at 09:01 PM | Comments (0) | Send to a Friend

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Six Sigma Pricing by Navdeep Sodhi and Manmohan Sodhi is a successful effort by all accounts.  This is a Six Sigma book in the most generic sense, yet it isn’t like most other subject-specific books in the Quality marketplace.  The central reason I make this statement is because the authors are very systematic in laying out the content of the book and do a fine job conveying their intellectual intentions.  Following an eerily regimented (read logical) approach to the subject matter, the authors successfully illustrate how business leaders in addition to MBA students can benefit from their pricing logic.

The authors are very clear about the objectives of this undertaking: they state early in the book that their effort is not to be misunderstood as yet another rally in support of Six Sigma.  Rather, they distinguish themselves from the multitude of authors and experts who are either waving the banner of Six Sigma or are busy condemning it as the reason for all the ills in corporate America (no comment on how one can blame a methodology – a set of statistical tools – for the foibles of corporations).  To clarify, I quote from the book:

When we set out to write this book, our goal was not to capitalize on the current popularity of Six Sigma, but to capitalize on the ideas behind Six Sigma that predate this methodology.  These ideas will survive Six Sigma when some other methodology replaces it in popularity (pg xxi).

Clearly, this book has pedagogic intent as its driving force. The authors want to impart their experience with a rather complex subject matter to corporations and business students.  When pricing is the topic of discussion today, it is most often concerning strategy and the impact of external forces.  It is the feeling of the authors that seldom do organizations approach pricing from an “internal” viewpoint.  Having experienced the highly intense world of medical equipment pricing, I couldn’t agree more with this assertion.  By employing the term “internal” the authors are referring to the core processes within a company as they are bringing a product to market.

To drive their point  into even more relevance, the authors make this claim: the discipline employed by firms as they control the cost side of business has been lacking in large part on the revenue side.  In their opinion this creates leakage from top line sales.  Neither defects in the form of excessive discounts or opportunistic high prices that lead to customer dissatisfaction and eventual loss in future sales are acceptable.  Rather, it is shown to the audience that implementing mechanisms (utilizing Six Sigma) that control the actions of setting and maintaining price can go a very long way in increasing long term profitability.

The case made by Navdeep and Manmohan Sodhi is simple and compelling.  Pricing, much like other functions withing a corporation needs to follow a systematic and data-driven path.  As every company needs to show a stable and uniform face to their cusotmers, rigorous pricing of products and services is left to staff with good intentions but lacking the core knowledge and training.  Six Sigma Pricing both makes the case and shows the way for appropriate managers.

Shahbaz Shahbazi - www.processarc.com 

Posted by Shahbaz Shahbazi at 09:07 AM | Comments (2) | Send to a Friend

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A few blog posts back (“Metrics driving bad behavior”), I talked about a Six Sigma project focused on increasing sales.  The Six Sigma team had selected brokers (customers) who had maintained the same level of relationship, i.e., were sending the same number of deals even though the total market size was increasing.  If you recall, the team conducted site visits with these brokers.  Their key finding for the root cause of this behavior was linked to the compensation metrics (which had stayed static for the past 18 months) & an increase in competition.  Here is how this team solved the problem and the corresponding results:

1. The brokers were segmented into 4 distinct categories based on their deal volume: Super, large, medium and small.  There was agreement amongst the team members that a $1 Million broker should have a very different level of service and compensation plan than a $250K one.

2.  The compensation model for the “super” category was designed differently from the others. The main premise supporting the model was as follows:  They are the largest brokers, and hence provide the largest growth potential for the firm (it is easier to go after 10 brokers to hit your targets, than 50).  The primary focus was to lock out the competition so that the majority of the brokers' leads would be funneled to the firm.  Hence, the more deals the firm was getting, the more they could give back to the broker.  An aggressive deal target was designed for this category of brokers backed by a very generous compensation plan.  But there was a catch – it was designed as an all or nothing package - the broker had to meet the target to get the compensation; the plan was not tiered.

3.  The other three categories were given a tiered compensation plan with an option to provide either:
- A certain dollar amount of deals, or
- Ensure that the firm received a fixed % of their total deals

This option was provided as the smaller brokers would not be able to hit the dollar target. 

The results:

1. 80% of the super brokers hit their aggressive target – to increase incoming volume by 25%.
2. The total deals received from the other categories increased by 15%
3. The dealers’ performance is now being monitored weekly and targets adjusted quarterly
   

On a final note, I have to point out that the toughest part of this project was not collecting or analyzing data but having to take a risky decision based on the expertise of the sales director and team.  No amount of data could really have proved that their “super” broker model was going to work.  It was a risk they took; that for the time being is paying off (may require tweaking or revamping in 2008).  But sometimes taking these types of risks are part of the development of a Black Belt and the Six Sigma initiative as a whole.  While data-driven decision making is paramount, there are occasions where common sense and the knowledge of business leaders can be impactful.

Posted by Sheila Shaffie at 11:08 AM | Comments (0) | Send to a Friend

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The weekend edition of the Wall Street Journal on September 15-16, 2007 contained an article titled “Customer Service Is Best For Banks” by Liam Pleven.  The article was based on research conducted by Sandler O’Neil & Partners (an investment bank) through visits at 12 NYC banks. The researchers evaluated 3 branches of each bank on the following criteria:

            - Wait time
            - Branch appearance
            - Staff professionalism

In the article we were provided with some of the findings that the researchers came away with and quite frankly I am wondering why these “indicators” were selected to measure customer service (the reason dawned on me later on…and I will explain).  For example one of the Sandler O’Neil & Partners researchers told a banking representative that he was banking at a rival institution (as a means to solicit feedback).  The representative then made a disparaging comment about the other bank – this was deemed poor customer service.  Another example of ‘bad’ customer service – as determined by the researchers was being handed a “94 page brochure”.  While these may not be shining examples of good service, they hardly qualify as explanations for why a customer may leave a bank or have a complaint. 

While I care about wait time when standing in line, I don’t feel that rating the appearance of an institution will give us an indication of their customer service level.  Yes, a good lawyer could make a case for appearance having much to do with customers being content…but here we are not in a court of law or an attorney’s office.

Unfortunately the article didn’t really help define Service Excellence and how to measure it.  And frankly they couldn’t because the researchers’ hands were tied, here is why:

1. To measure Excellence you need the voice of your customers – especially the ones that left you or did not select you & industry benchmark data (what your competitors are doing)

2. When you think about a bank branch, given the thousands of transactions initiated therein - wire transfers, money orders, new account opening - the majority of them are completed in the back office.  It is there that errors are caught or generated because of poor data collection.  These errors most often lead to customer complaints or transaction errors.

And so to really measure Service Excellence you need access to process and customer data.   An investment bank conducting an undercover study will not have this information – they only see and experience a small part of the picture: the branch. Unfortunately, this forces the researcher to rely on cursory and somewhat meaningless measures to define the performance of a bank. 

Shahbaz Shahbazi - www.processarc.com 

Posted by Shahbaz Shahbazi at 09:29 AM | Comments (2) | Send to a Friend

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Robust organizations constantly strive to get more out of their sales force or sales network.   Improving sales processes/performance is a common area of focus for Six Sigma.  The goal of a recent project in a lending organization was to determine the root cause of why sales volume was staying flat.  Unlike most Six Sigma projects that require rigorous data collection, analysis, reanalysis and more data collection, we stumbled on the root cause of this problem while in step 1 of the methodology – collecting the voice of customers (VOC).  We selected a group of customers to visit – in this case “secondary” customers, i.e., brokers.  While these customers are regarded as loyal to the company (continue to do business with the lender), they had not increased their relationship (sales volume) with the lender during the previous 2 years.

Prior to the customer visit, a cross functional team developed a list of questions to drive at the root cause of the flat performance.  A date was set for the interview, and a team of people from the lending firm visited the brokers.  The first question posed to all brokers was “what do you like most about working with our firm?”  And regardless of the customer (broker) visited the answer surprisingly was the same: “I like being recognized as one of your top 20 brokers.  I particularly like the incentives that come along with being a top producer for you.”  The natural next question was “then why have you not increased your business with us?” The very simple response was (abbreviated of course): “because you have not changed your targets and regardless of whether I give you $1MM or $3MM you pay me the same amount.”  Well, there we had it – the market size was increasing, the brokers were doing more business, but because our targets for the brokers had stayed static for the past 18 months the incentives had also stayed static.  What the customer was telling us quite plainly was that they were only working as hard as they needed to attain the targets/goals that had been defined for them.

The assumption that a target will function as a constant in the marketplace is erroneous but this epiphany will not visit you unless you ask, probe and talk to your customer. We always harp on data driven decisions and metrics as a means to control/monitor…but through this simple exercise we were reminded that these metrics have to stay relevant in order to drive the desired behavior.

Sheila Shaffie - www.processarc.com

Posted by Sheila Shaffie at 11:01 AM | Comments (1) | Send to a Friend

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I recently commissioned a survey to better understand/establish the level of familiarity and usage with financial services Six Sigma (FSSS) in the professional and educational sectors.  We decided to target businesses over $10 billion in asset-size and universities with a distinct track record in teaching Six Sigma.

This piece is not really about the overall findings, but more about some of the specifics.  Overall, the survey found that most large to mid-size financial institutions have some cursory knowledge of Quality, and a smaller subset has either started an initiative or is planning to launch one in 2008. This was very good news and the executives at these firms should be applauded.

What shocked me right out of the happy zone was the finding that over 75% of university professors either did not think FSSS was any different than manufacturing Six Sigma, or they were not aware of its specific application in the market currently.

If a financial organization chooses not to adopt a particular methodology, it is a simple matter of choice: The executives are either,

i)                    Ignoring market trends
ii)                   Simply unaware, or
iii)                 Do not find the methodology valuable

Conversely, when transitioning this logic to the educational realm, the facts and consequences change.  I explain in more detail below:

For a university professor to not be aware of this methodology is simply unacceptable and the implication spells trouble.  Instructors at the university level are expected to be well informed and have ready access to trends in their area of expertise.  If, as our survey shows, a majority of them are either unaware or cannot distinguish between methodologies, then what specifically are they teaching?  How can this person purport to educate the next generation when they are unaware of a significant movement within their area of expertise.  As for those professors claiming that FSSS is no different than any other form of Six Sigma, I can only say that they are WRONG.  It can be argued that their claim is driven by pure self-interest, but I would only make that allegation on a case-by-case basis.

I will elaborate more on the repercussion of the two above scenarios in my next blog.

Shahbaz Shahbazi - ProcessArc, Inc. 

Posted by Shahbaz Shahbazi at 01:53 PM | Comments (1) | Send to a Friend

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