5 Lean Principles that Drive CX Innovation in Banking

5 Lean Principles that Drive Innovation in Banking

The term ‘Lean’ refers to a philosophy that is used in the field of operational management. ‘Lean Principles’ are a set of rules or guidelines used to achieve operational excellence by delivering value from a customer’s perspective, reducing, or eliminating waste, improving existing processes, and devising new ones to ensure increased efficiency. The concept of ‘Lean Principles’ can be applied in any field to ensure operational efficiency, especially within banking.

Understanding the Concept of Lean Operations

‘Lean Operations’ is a business management philosophy that focuses on maximizing value delivered with minimal waste i.e. getting the most work done with the least amount of wasted effort. This approach was first adopted in the manufacturing sector to increase productivity and operational efficiency, but now it’s widely used in other industries. For instance, healthcare, software development, the restaurant and food service industry, and more.

The main idea is to identify anything that doesn’t add value to the final product or service that the customer gets, and then get rid of it. This “waste” can be things like:

  • Production exceeding mandated requirements
  • Inventory accumulating in an idle state
  • Process steps exhibiting unnecessary complexity
  • Resource allocation towards rectifying preventable errors

By eliminating waste, Lean Operations aim to make businesses:

  • More efficient – things get done faster and with fewer resources
  • Higher quality – there’s less chance of errors if there are fewer steps involved
  • More responsive to customer needs – the focus is on delivering what the customer wants, not on internal processes

The ‘Lean’ way of carrying out a process benefits the business and the customer as well.

The 5 Lean Principles that Accelerate Innovation

5 Lean Management Principles

These five principles known as ‘Lean Principles’ were devised to ensure continuous improvement in a process. Effective allocation of work, minimizing waste of resources, time, and skills, low percentage of errors, and timely preventive actions are some of the many positive outcomes that stemmed from actions that were initially implemented as improvement techniques in the process.

  1. Understanding and Defining Customer Value: In simpler terms, customer value is what a particular product/service is worth to the customer. This is directly dependent on how much the customer is benefiting from that product or service. When a business makes the effort to understand, define, and profile the underlying needs of its existing and potential customer base, it realizes what is missing, ultimately driving innovation by developing new products and services or modifying the existing ones. This principle nudges the business towards gathering in-depth information about customer preferences and needs. It can be done through feedback forms, web analytics, surveys, and demographic analysis.

Benefit: By understanding customer value, banks can address real customer needs such as seamless online banking, personalized financial advice, and quick loan approvals.  

  1. Value Stream Mapping: The second principle involves carefully mapping the value stream. This requires observation and brainstorming to identify all the activities involved in delivering a product or service to the customer. Customer value is the guiding principle here. Businesses should identify all activities that directly contribute to creating value for the customer. Activities that don’t add value (waste) are then eliminated or minimized. Waste can be categorized into two main types:
  • Non-Value-Added but Necessary: These activities are not essential for the final product or service, but they are unavoidable due to current limitations. The goal is to continuously improve these processes to reduce waste.
  • Non-Value-Added and Unnecessary: These activities provide no benefit to the customer and should be eliminated.

Benefit: By mapping out the entire customer journey, banks and financial institutions can identify areas of waste, and inefficiencies such as redundant paperwork, and unnecessary approval workflows or bottlenecks. 

  1. Creating a Workflow: This principle focuses on creating a smooth and uninterrupted flow of work through the remaining value-adding activities identified in the value stream mapping stage. The goal is to eliminate delays and ensure a continuous process. To achieve smooth flow, several practices can be implemented:
  • Breaking Down Silos: Breaking down barriers between different departments (silos) encourages collaboration and information sharing.
  • Cross-functional Teams: Forming teams with members from different departments can improve problem-solving and efficiency.
  • Upskilling and Reskilling: Providing employees with the necessary skills and knowledge allows them to adapt to changes and contribute effectively.
  • Appropriate Work Allocation: Assigning tasks based on employee skills and expertise optimizes workflow.
  • Work-Life Balance: Promoting healthy work-life practices reduces burnout and improves employee well-being, ultimately contributing to a smoother workflow.

Benefit: By creating a strategic workflow, companies/businesses can achieve optimum efficiency and meet production goals on time. This is important because when customers fail to acquire to get what they need in a timely manner, they are tempted to choose from competitors to satisfy their needs.

  1. Establishing Pull: In Layman’s terms, this principle aims to keep supply in balance with demand. A pull-based system limits inventory and unfinished goods (work-in-process, or WIP) while ensuring that essential materials or data are readily available for a smoother workflow. This approach encourages companies to adopt Just-in-Time (JIT) delivery, producing goods only when needed and in the exact quantities required. This principle advises reading the value stream and kind of work backward through the production system.

Benefit: The pull-based principle offers banking and financial organizations the opportunity to respond more quickly to customer demands and market changes.

  1. Pursuing Perfection: This last Lean Principle focuses on encouraging employees to pursue perfection. Thus, it is arguably the most crucial principle among the five. It implies that every employee should continuously strive to improve processes by seeking the best possible outcomes. When this perfectionist mindset becomes a part of an organization’s work culture, it ensures that the company never loses sight of what the customer is asking for or the customer’s value.

Benefit: A drive for perfection encourages businesses to refine their offerings constantly. This can lead to features, functionality, and experiences that accurately meet customer needs and even exceed expectations at times, allowing organizations to stay ahead of evolving consumer needs and market trends.

Empowering Teams through Lean Thinking for Customer-Centric Innovation

Lean thinking in the banking and financial industry emphasizes the importance of empowering teams and fostering a culture of continuous improvement. By providing teams with the tools, resources, and autonomy to make decisions, organizations can drive customer-centric innovation. Teams can identify opportunities for improvement, experiment with new ideas, and collaborate to deliver innovative solutions that meet customer needs.

Modern CX

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