Financial Services Six Sigma

Yellow Belt, White Belt, Purple Belt, Green Belt, Black Belt... you have to stop at one point and ask yourself what do all these colors really mean? It really means the end-buyer is at risk.  This dilution effect in the world of Six Sigma training has come about for one central reason- The Six Sigma training and certification market is not standardized.

When you are dealing with a deregulated marketplace such as the Six Sigma training and certification market, the seller has taken on the task of defining what the training should look like.  Eager to enter new marketplaces - healthcare, services and financial services - some firms have begun to introduce new, (never existed before) Six Sigma training platforms like yellow belt and purple belt.  The problem with these platforms is that they are nothing more than the waterd-down version of the manufacturing training platform.  For the most part it is the original 4 week training, stripped down to 3 days or 1 week of training.   In the end it is a feeble attempt to make a maufacturing based methodology fit a transactional based market segement - trying to fit a square peg in a round hole. The impact to the buyer is great:

1. You are getting training that doesn't have enough depth to be applied to anything tangible in your world.  Therefore there is no ROI that you can apply to that training.  It is just sunk cost.
2. You incease your chances of failure because you will have a trained base that has only a cursory understanding of the methodology - leading to misapplication of the tools and Six Sigma rigour.  In the end the failure will be blamed on the methodology instead of the inappropriate training.

Look at this way: how is it that for the past 20-30 years, while Six Sigma was only in the manufacturing realm, did companies only need two tiers of training and certification: Green Belt and Black Belt.  And now that we have entered new marketplaces do we need a rainbow colored variety of training?  When it comes to problem solving, regardless of the sector, organizations need the same level of rigour and sophistication.  So could it be that this new phenomenon is just a money making tool created by few, and that it has turned into a frenzy in a deregulated market? 

There will be more to come on this subject.

Sheila Shaffie - ProcessArc, Inc. 

Posted by Sheila Shaffie at 11:58 AM | Permalink | Comments (1)

Did you know that on average 30-40% of financial institutions’ back office cost and infrastructure is spent on catching and fixing errors?  That, in the world of Six Sigma is called hidden cost.  Meanwhile 36% of banking executives, in a recent survey, indicated that narrowing margins and increasing operating costs are of utmost importance.

In our world, branches or retail divisions most often receive the greatest amount of “attention.”  This is understandable given that they are the first point of customer contact and a source of revenue generation.  Conversely, back office transactions or the operations division is the most overlooked unit.  This neglected area is riddled with operational inefficiencies and processes that are not-customer centric.  The end results have been:

1.      High cost per transaction

2.      Operational risk in the millions

3.      Customer service delivery variation

While overlooked, the operations unit represents a key milestone in the overall value chain of a transaction. This unit, while invisible to the customer (as there is no direct interaction with them), delivers equal value via the speed and accuracy with which it completes a transaction.

If the operations unit maintains the status quo and does not engage in process improvements, it will continue to pose great risks - operational and financial - to institutions for the following reasons:

• Inconsistent Service Delivery - The customer experience does not end at the branch.  It ends at the back office where their requested transaction is completed, i.e., opening a new account, performing a wire transfer or an ACH transaction.  Inefficient operational processes lead to inconsistent service delivery.  Just remember that your customers remember “foul-ups” and not average performance.
• High Operational Costs - Process inefficiencies are directly linked to high transaction cost and unidentified operational risk.  Given that most financial transactions are not visible, improving them is difficult. Therefore, the first step to reducing cost is through mapping out the current state of your operations.
• Poor Process Controllership – Sarbanes-Oxely has been the force behind process documentation in order to help institutions identify process failure and risk points.  When processes are inefficient they inherently bear risk.

In the drive to satisfy your customer needs  focus first on improvements in the back office.  Not only has this simple fact been overlooked for decades, resulting in highly customized (read not sustainable) processes, but it is the critical point in the value chain where errors are identified and corrected.

Sheila Shaffie - ProcessArc, Inc. 

Posted by Sheila Shaffie at 07:32 PM | Permalink | Comments (1)

So we begin at a very basic level – discussing why manufacturing Six Sigma is not the same as healthcare, or as financial services.  Applying Six Sigma in its manufacturing iteration will decrease your probability of success in a transactional/information driven environment.

There are 4 key tenets or truisms financial services firms must keep in mind as they undertake the Quality journey.  These same tenets are also the reasons why manufacturing Six Sigma, which is a compilation of disparate, complex tools, cannot be applied - in its original form – to a financial services environment:

1. Manufacturing is driven by a visible or tangible product.  The critical driver in financial services is information

2.   In manufacturing, processes negotiate hundredths of a millimeter to improve a product. There are no such tight “tolerances” in financial services at this stage.

      3. Manufacturing Six Sigma has matured and has gotten beyond the “detection” stage and is now well on the path to “prevention.”  financial services Six Sigma is still in its infancy, focusing first on stabilizing and standardizing processes.

      4. Manufacturing processes are highly automated.  Despite its IT infrastructure, financial services relies heavily on human input/manipulation.

So how do these truisms translate into differences in the Six Sigma methodology?  Manufacturing Six Sigma is a compilation of complex tools designed to address the tight tolerances in the manufacturing process (i.e. hundredths of a millimeter in variation).  It also inherently assumes that the process being used to develop a product is fully visible and standard among all of its users.  And so its goal, in the way that the tools are designed and used, is to prevent an error from occurring.

On the other hand, the central goal of Six Sigma in financial services is to first develop the infrastructure to detect an error and then move on to preventing it.  Because financial services processes are not as visible as those in manufacturing, and those processes (by default) rely significantly more on human interaction, the central focus of financial services Six Sigma is to stabilize the process.  By stabilizing the process you can begin to detect errors and ultimately move on to preventing them.

For these central reasons manufacturing Six Sigma uses a different set of tools or methodology (most often more complex) than financial services. We should understand Six Sigma in this sector as an ever-evolving set of tools.  Ten years ago senior executives in the financial services sector may not have considered adopting such a rigorous, data-driven methodology in their daily business operations.  But today, simple economics and some forward-thinking practitioners have proven that the methodology will benefit the sector in innumerable ways.

Shahbaz Shahbazi - ProcessArc, Inc. 

Posted by Sheila Shaffie at 07:09 PM | Permalink | Comments (0)

While for over two decades Six Sigma has become synonymous with Quality in manufacturing, it has only been in the past 5-7 years that the methodology has made its way to the financial services sector.  For all the financial institutions who have announced a Six Sigma deployment there have been nothing but rave reviews and millions of dollars saved.  But for those still in “discovery” mode, this can be a journey filled with confusion and more importantly, risk. 

Today, there is more misinformation about this unique Quality platform than there is accurate and reliable anecdote.  Until recently, Financial Services Six Sigma was being clumped under Services Six Sigma – implying that it did not warrant its own categorization.  How can airlines or retailing have the same operational issues as banking or insurance?  For the most part they don’t, which then begs the question:

How can one think that they would use the same exact tool kit to resolve sector-specific problems?

This brings us to the main objectives of this blog – one that we intentionally called Financial Services Six Sigma:

1. Bring clarity and understanding on how and why Financial Services Six Sigma is different from other Six Sigma platforms
2. Share best practices from the industry as a lot of the challenges are common and plague most in the industry
3. Discuss recent, industry specific trends as it pertains to Quality

Our central belief is that the more we demystify this iteration of Six Sigma the more people and institutions will embrace it – improving returns to shareholders, employees and the organization.  So here is what we ask of you, our readers: in order to make this a real value add source of information, get involved, provide feedback and raise issues.

Sheila Shaffie & Shahbaz Shahbazi - ProcessArc, Inc. 

Posted by Sheila Shaffie at 07:01 PM | Permalink | Comments (0)