Hey, How Is Your Gemba At The Bank?

Process Improvement In Banking

This isn’t a personal question, but it is a question that is growing in popularity. Knowing that efficiency is highly correlated to return, many banks, including us, are taking a look at their largest processes (like lending) and going to their Gemba to do it. With more banks adopting a Six Sigma approach and with banks cutting obvious costs, now is time to reassess your banks production of credit, deposits and services. If you want to know more about how understanding your gemba can help in banking, read on.

 

Gemba is a Japanese term that means “the real place” and it is the heart of any process. It might be your teller line for branch transactions, your credit department for underwriting or a whole chain of people and departments for trust services. It is similar to gemba’s Western equivalent “Managing By Walking Around” that came out of the Hewlett Packard fame in the 1990’s except gemba has more of a structured purpose. In short, gemba attempts to reduce the distance between management, the customer and production in order to understand a bank’s strengthens and weakness. This lays the groundwork for continuous process improvement.

 

Taking A Good Gemba Walk

 

When it comes to process improvement, you first collect the data on the operation and then you take a “gemba walk” to understand the reality. A gemba walk starts with an objective view of your operation and an open mind. The effort is fueled by an honest curiosity to know what is going on and doesn’t rely on other staff’s interpretation or reports. To understand gemba is to practice direct observation and to question each step in the process, without judgment, as to why certain actions take place.

 

Gemba In Action – Small Business Loan Production

 

Currently, there is a move afoot to shorten loan production time to less than 15 days from receipt of full information to funding. This is where large banks are and hundreds of community banks are trying to come close. We have successfully shorten this to 7 days (which we have embodied this workflow in our SmartBiz product that is available to all banks) so we can speak from experience. Typically, the process breaks down to the following:

 

Loan Production Effort

 

As can be seen, there is lots of areas of improvement. Shortening the sales process screams for review as does creating an automated system for gathering documents and collecting data electronically. The classic example of gemba in the loan process is observing and recording which actual bits of data the underwriters use to decision a loan. What you will is that on average, only 20% of the data within the credit memo is substantive enough to play into the final decision. Most banks can shave time by simplifying the format, making it more numerical driven, reducing the narrative and creating dropdown answers for many common questions. In addition, allowing the customer to directly upload their financial information and background information saves time and effort. 

 

The point is, it is only by direct observation, questioning and testing can a process really be improved. If you just asked your underwriting team, they would say that all the information is important. However, it is only through observation do you find out that while all information might seem important, only a fraction of it really is or is really utilized.

 

Further, there are likely problems that require observation in the board room, at the customer or associated with equipment or vendors. The point is, the gemba is wherever activity associated with the process is performed. Find the activity and you will find your gemba.

 

Tips From Experience

 

To truly understand gemba, you also have to assume that not everything observed is reality. There are many processes that are unobservable. What happens inside a person’s head, internal political considerations and bias all can play a part and so extra steps must be taken to validate your observations. This is where testing comes in. Reducing the information in the credit file and then re-observing will help determine if you can find tune the process.

 

It is also important to understand that a gemba walk is not all about finding problems or fault. Many a banker started on a gemba walk only to start to criticize which then altered behavior destroying the original mission. The more open, authentic and non-judgmental the gemba process is, the better the quality of observation.

 

Conclusion

 

Your gemba is likely pretty good but needs an update given new technologies, processes and best practices. Going to the gemba is becoming popular in banking for the simple reason that it is powerfully effective and can help drop your efficiency ratio. If you have cut obvious costs, now is the time to take a Six Sigma gemba-style walk in order to redesign the many processes that make up your bank. You will find that doing so, only results in cost cutting ideas, but will serve to speed up production while increasing morale at the same time.