Lean Six Sigma helps reorganize, streamline front-to-back process for European bank

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A European investment bank wanted to improve its cash payment process to reduce errors and delays, and ultimately improve customer service.
The bank used lean Six Sigma to uncover rework, as well as unnecessary and duplicative actions, to realign activities from its front offices to operations and back offices.

BACKGROUND:

CRÉDIT AGRICOLE GROUP is one of Europe’s largest banks—it has more than 54 million customers, 160,000 employees, 11,600 branches worldwide and several specialized subsidiaries. Its investment banking arm, the Paris-based Crédit Agricole Corporate and Investment Bank (CA-CIB), recently launched a lean Six Sigma (LSS) initiative and identified its cash payments process as one area ripe for substantial improvement.

Cash management is a high volume and low-revenue transactional business that offers little opportunity for growth, but it remains a core customer offering for banks. It covers cash management services and payment products, such as electronic transfers, standing orders and wire transfers, which are any customer- requested international or domestic payments.

IT improvement opportunities in this area already had been optimized. To drive improvement, further gains would need to come through process improvements and reorganization across the value chain.

CA-CIB applied LSS tools and techniques to tackle the problems, which included redefining the front-to- back process (from front office to operations and back office) and developing solutions that challenged not only the process, but also how the business line itself was organized.

Ultimately, a diverse team of employees and experts delivered a productivity gain of more than 10%. The key to success was a concerted effort to engage business users at every step.

The project was launched as part of the bank’s pro- cess improvement and efficiency (PRIME) program, a multiyear optimization program that looks to:

Improve CA-CIB’s end-to-end operational processes.
Strengthen the quality of client service.
Improve global efficiency by promoting synergies  and working across processes.
Reduce costs.
Reinforce risk management.

Project business case

CA-CIB’s cash payments project began in April 2011. The process had been identified as an improvement area because of decreasing revenues (attributed to historically low interest rates) and rising costs.  “It was a question of survival to streamline this business … to reduce cost, but not at the expense of quality,” said Laurent Ripoche, head of transaction and commercial banking at CA-CIB and sponsor of the project.

Initial data analysis showed 280 million op- erations per year are 99.8% straight-through pro- cessing (STP). The remaining non-STP payments, about 35,000 manual transactions per month, are handled by 200 full-time equivalents (FTE) in the front-to-back process. See Figures 1-3 for breakdowns and time estimates of the activities.

Project approach

The project followed an aggressive approach within a five-month timeline (Figure 4, p. 34) from defining the problem to identifying solutions. The project team included key representatives from the front-to-back value chain in the form of operational Green Belts, Yel- low Belts and subject matter experts. The team also included project specialists and key operational ex- perts trained in LSS. See Online Figure 1 at this article’s webpage at www.qualityprogress.com for more on the team’s composition and expertise.

The LSS team followed define, measure, analyze improve and control (DMAIC) to identify key problem areas and sources of nonvalue-added activity. This included mapping and understanding the process, and challenging nonvalue-added activity and tasks.

Data were collected on transaction volumes in an effort to accurately calculate costs of poor quality (COPQ). Improvement solutions were identified and validated by operational employees during kaizen workshops, with a sharp focus on external customer satisfaction.

The define phase activities included:

• Agreeing to the project charter and objectives.

• Formulating supplier, inputs, process, outputs and customer (SIPOC) diagrams.

• Creating 64 detailed process maps to summarize the front-to-back processes.

• Identifying critical-to-quality (CTQ) objectives for clients and management.

CTQ drivers were identified, and members of the steering committee, the front office and senior opera- tional management agreed on the drivers, which were divided into two categories:

Customer focus: These drivers centered on improving quality and efficiency for internal and external clients. For example, quantifying the percentage of requests addressed effectively within an accept- able timeframe (proactive), and reducing the level of complaints (reactive).

Customer focus also considered responsiveness toward customers (internal and external), for example, considering a single point of contact for requests (qualitative), as well as improved reporting (qualitative).

Operational focus: These drivers centered on reducing operational risks, such as cutting the number of payment errors (output of process). This focus also included reducing manual interventions and increasing STP protocols (process), and reducing duplicative tasks and rework.

In the measure phase, the team worked to under- stand process performance in terms of the project’s two focus areas:

Mapping processes and performing an effort  analysis, including start-stop measurements of  manual files (Online Figure 2).
Identifying value-add and nonvalue-added activities (Figure 5, p. 36).

Measurement Findings

Defects identified were quantified, and the COPQ was assessed to help prioritize CTQ drivers of the project:

Customer focus. Customer satisfaction levels were captured to ensure the process aligned to customer expectations. In addition to the metrics from customer key process indicators, customers were frustrated because of a lack of responsiveness in some of the services provided. It was not possible to measure this alone, but it became obvious there were multiple entry points for customers with questions and requests, and no clear division of roles and responsibilities between the front and back office to resolve customer issues.

Management and customers could see that this accountability issue could be addressed by creating single points of entry for customers. From the customer’s perspective, this could be highly beneficial because it would improve communication and service.

Operational focus. Dysfunctions and waste that had been identified were assessed. Using transaction volumes and processing effort analysis to prioritize the operational focus, analysis helped estimate potential gains in time savings.

Lean analysis also was used to identify operational inefficiencies in the flow of the front-to-back, end-to- end process:

Rework—defects causing elements to be worked on several times.
Duplication of activity among workers in the valuechain.
Excessive motion—caused by poor coordination between front office and back-office teams and team members.
Overproduction—Duplicative control processes among teams and workers.
Waiting—Poor coordination across the front-to-back process, which greatly affects customer wait times and creates bottlenecks in the production process.

To estimate the front office and operational core and noncore business tasks, as well as uncover nonvalue-added activities, processes were mapped (Figure 5). Specific actions to complete this analysis included:

Interviewing front office and operations stakeholders.
Defining core and noncore business tasks.
Documenting tasks performed by all profiles in detail.
Measuring processing time.
Applying a decision tree and transferring noncore business tasks and nonvalue-added tasks to dedicated teams.

Holding collaborative kaizen workshops to focus  on the ultimate customer, as well as front-office sales needs. Online Figures 3-4 show the operational measurements gathered. For instance, more than 50% of front- office time was dedicated to nonsales tasks, and about 80% of front-office time was being spent performing 11 processes. Operational defects, as measured by the project team, showed 4,640 hours each month were identified as COPQ because:

Many activities were being handled manually that could be accomplished through STP.

Certain process steps could be removed and stan- dardized across teams. Task analyses were performed on front-office jobs

to determine the exact amount of time each position was spending on specific activities. Online Figures 5-9 show time and task breakdowns for corporate bank- ers, account managers and transaction services of- ficers. Online Figure 10 breaks down potential gains from nonsales tasks being performed by the front of- fice personnel.

Further study showed 960 hours per month of re- work and a duplication of activities among teams. It became obvious that accountability was unclear, and many of the same tasks were being completed in paral- lel by multiple teams. Another 480 hours were being wasted each month because of the poor streamlining of the operation. Reporting and project management were being performed inefficiently by multiple teams.

Analyze phase

The kaizen approach was used extensively by the LSS team to not only identify root causes and develop opti- mal, business-led solutions, but also to manage change.

The role of the head of CA-CIB’s PRIME program within this LSS initiative is as a facilitator for change, but the change team cannot own the change implementation and the new processes that will be implemented on its own. It was critical to get all of these different stakeholders in the same room and agree on common improvement objectives.

That’s one of the reasons the project team ran 26 workshops at all business levels. Each workshop had a structured agenda and data—including process maps, and information on transaction volumes and times to process each step—to drive discussion. Attendees could offer their opinions on issues and determine priorities for improvement projects, which were scored transparently.

All issues identified at these workshops were collated and prioritized against CTQ drivers in a house of dysfunction and waste, a simplification of the house of quality tool, so each potential improvement could be assessed and scored against strategic objectives.

We had to convince the different teams to overcome their silos and adopt an end-to-end view and owner- ship of their activities. To do that, we used client- focused data and linked each operational silo and its performance to client satisfaction and global metrics. Everything was data driven.

Ultimately, this use of data broke down silos and made people work together productively.

All of the solutions the team developed originated at these workshops, or the solutions were validated in other solution workshops, and shared with management for decision making and implementation planning. This led to increasing buy-in for implementation because the workshop audience had directly agreed to the solutions.

The strength of these workshops was that all levels of the organization (management and operations) ex- pressed themselves freely without feeling conclusions had already been made in advance of these sessions.

Solutions identified

Potential solutions were designed by or validated with the business in the solution workshops and shared with management for decision making and implementation planning. This was aided by:

Increased buy-in for implementation because the workshop audience agreed with potential solutions.

Full project engagement by the front-office sponsor and the operational front-to-back management teams, along with operational GBs familiar with front and back-office operations.

After extensive analysis, CA-CIB not only rede- signed the processes, but also reorganized business line functions into several distinct activities, as shown in Online Figure 11:

The front office was realigned to focus on its core business—product development and sales—while the back office remained in charge of claims management activities.

Two new activities were created: a middle office to ensure better management of the end-to-end pro- cess, and a reporting team to monitor ongoing activity and enable timely follow-up on risks.  These new activities, coupled with the realignment of front-office tasks related to commercial actions, are aimed at improving customer service while removing nonvalue-added activities and delivering efficiency gains.  There were two primary reasons for reorganizing the functions in this way. The first was lack of clarity over what exactly the front office and the back office should be doing. There were quite a few administrative tasks the front office was performing that would have fit better under a back or middle office. Additionally, there were things that were being done by both sides because roles and responsibilities weren’t clearly defined. An effectively designed middle office in banks is a rare thing. This one has been designed the right way: bottom up, not top down.

That is what has been very good about this project. It is functionally aligned rather than just the result of the management team saying, “Let’s call them a middle office now.”

The realignment helped the LSS team find more efficiencies than it could have from simply improving processes.

Results

The main customer benefit resulting from the creation of the customer support setup was the improved responsiveness to customer requests. Inquiries are now addressed by a single dedicated team, and a single entry point handles communication and follow-up with customers, both internal and external. This improves accountability and responsiveness to customer requests.

Since implementation, external customers are experiencing improved quality and responsiveness through:

Reduced errors in processing of payments.
Fewer delays.
Fewer complaints.

Internal clients, too, have noticed:

Reduced operational risk through a clearer span of control in the front-to-back process.
Avoidance of duplicative tasks and rework across teams.
New perspectives for CA-CIB managers on the operational performance of teams through a single front-to-back reporting and monitoring team.
Organizational realignment of front office and operations personnel.

Operational improvements

The project was a front-to-back process review that analyzed value-added activity from a customer perspective and functionally aligned processes to aid efficient performance.

Process-led improvements along the value chain delivered a gain of more than 13% in productivity across this large front-to-back team:

Reducing manual activities: 5%.
Eliminating nonvalue-added activities: 4%.
Removing rework and duplication of activities: 3%.
Streamlining operations and aligning to customer needs: 1%.

Lessons learned

By focusing on the organizational design—instead of just improving and optimizing an existing process—we improved global efficiency because we allowed the front office and the support function to be more focused on their core activities. Some of the success can be attributed to the fact that the project encompassed the entire process from the customer’s perspective.

Every process identified at CA-CIB always starts with a siloed view, and it’s so easy to forget customers in that. Those involved become a part of the machine rather than the front-to-back service the customer sees. What makes PRIME successful is that it reminds all of the actors in the process—front to back—about what their customer sees.

Finally, the project team designed a global implementation plan created with business involvement and owned by the business. The plan included key mile- stones, ownership and agreed-on dates.

This business involvement in the changes was critical, and the PRIME program identified that it was essential to engage business users at every step of the way to ensure that the changes made had maximum impact and would be adopted.

The project demonstrated the ability of CA-CIB’s lean Six Sigma team to implement a global, end-to-end, front-to-back solution, overcome organizational silos and realize efficiency gains can be identified at the interfaces between departments.

ADRIAN GRANT is a coach, trainer and technician (MBB) at ‘Lean Six Sigma Unlimited’ and worked as a program advisor / delivery lead for CA-CIB. He holds a master’s degree in international business and finance from Birkbeck, University of London. Adrian has extensive process change / TOM experience and has recently successfully implemented the ‘Robotics’ pilot in Front Office (Trade Capture) for a tier 1 Investment Bank and he has also worked on numerous Regulatory and Financial transformation programmes.

Connect with him on LinkedIn.

ISABELLE MONIER-VINARD is the global head of the process improvement and efficiency program at Crédit Agricole Corporate and Investment Bank (CA-CIB) in Paris. She holds a master’s degree in finance from the Paris Institute of Political Science.