Without lean IT, our banks cannot fight the competition

In April, Orange announced the acquisition of 65% of Groupama bank, a move that will allow the French telecommunications giant – which has some 30 million customers in France – to launch a 100% mobile banking service in early 2017.

It is hard to imagine what the implications of Orange's entry into the banking market will be, but what is certain is that banks all over the world have been coming under increasing pressure.

I believe there are three main challenges for them:

• First, negative interest rates are costing banks considerable revenue. Their usual response – sales (of insurance products, for example) –, however, is not enough to tackle the problem.
• A second critical challenge banks face is the growing number of regulations they must comply with. As a result of the 2008 financial crisis, regulators want to make sure banks protect their customers – which results in new rules being introduced regularly. A new European Union regulation known as KYC (Know Your Customer), for example, introduced new provisions for identifying customers and verifying their identity – this forces banks to interview each customer before selling a product to make sure they are aware of what they are buying and that they are knowledgeable about money and banking. When you have one or two million customers, conducting individual interviews becomes an incredibly time-consuming and draining effort. Banks will have to find a way to meet regulatory requirements without sacrificing their ability to operate day after day.
• The third challenge, which I have already mentioned, is increased competition – a result of the digitalization of the financial sector. More than ever, the margins are in the distribution of a product (rather than in its creation and management). For startups and financial technology companies, acting as an interface between the customer and the bank is very easy, which puts them in a great position to rapidly erode the market share that traditional financial organizations have enjoyed until now. Moreover, the Orange example shows that it is not only tech-savvy startups that pose a threat to the very existence of the industry.

Faced with these problems, there is only one thing banks can do to avoid reaching a point of no return: practice lean IT.

So, how can lean IT help?

1. IMPROVING THE CUSTOMER EXPERIENCE

When you ask customers who are opening an account at your bank to sign 18 pages, are you really creating value for them? I think it's safe to say “no.” In fact, I think that, if asked, most customers would say they see the process as a colossal waste of time. The same goes for many of the processes that currently take place in most banks.

So how can lean (and lean IT, more specifically) help solve this and the other challenges I mentioned?

First of all, lean teaches the organization the invaluable practice of “going to see” – visiting a call center to hear the complaints customers have, for example, is a useful exercise that can help the organization understand demand and the problems that need to be solved. Banks don't do this enough. I recently had a discussion with a team responsible for launching an app used to buy and sell stocks. They had a lot of ideas about the app, but no clue about users' expectations. In the end, the project leader remembered that, months earlier, he had received a file with all the requests/questions users had put to the bank's call center: when he opened that file, he found 430 topics. With so many items to complete, the team did a Pareto and selected 18 unique expectations – an approach typical of a “GAFA” company [GAFA is an acronym commonly used in Europe to refer to Google, Apple, Facebook and Amazon], but quite unusual for a bank.

As Dan Jones and Jim Womack explain in “Lean Solutions,” you have a lot to gain by removing waste from the customer experience. This is the first way in which lean IT can be useful.

2. SPEED AS A COMPETITIVE ADVANTAGE

Another contribution lean IT can make to the transformation of banks is to make their processes faster and more efficient. Just as in a lean manufacturing environment the product moves continuously, with value added at each step of the process, banks' IT departments should aspire to make their way of operating flow without interruption (in a bank, IT is the equivalent of an operations department, and no transformation can succeed without going through it). Instead, their work is currently bogged down with delays and a lot of waiting. When a bank takes up to a year to enable a simple feature that requires no more than 10 days of work, customers will look to fintech companies that use continuous delivery to incrementally innovate their products – and who could blame them? Financial organizations need to find ways to facilitate the delivery of value in a digital world, and this can only be achieved by introducing flow and lean into their IT departments. For an example of how BNP Paribas managed to reduce the lead time of an IT process by 20% using lean thinking, check out this video (in English).

3. FIND BETTER WAYS TO MAKE DECISIONS AND MANAGE WORK

Another challenge we talked about is complying with an ever-growing number of regulatory requirements. Using an obeya room is one of the things banks can do to make daily decisions faster and manage the workload in a way that keeps costs low, minimizing the negative impact on the back office (which, because it is usually overloaded, is a common source of delays). I recently witnessed a discussion between two French CIOs about how they dealt with the introduction of a new automated declaration – the DSN, déclaration sociale nominative – as part of the DADS (every year, companies must share with the government data on their employees – such as the salaries paid to each of them): using an obeya, one of the CIOs needed six man-years to complete the transition (the DSN was introduced by law in 2012), while the other CIO, who managed the project in the traditional way, needed one hundred man-years – 16 times more.

It is obvious that a leaner system that creates real value for the customer allows value to flow uninterrupted and encourages the customer to pull, having a positive effect on a bank's bottom line. Lower costs can also offset the effect of negative interest rates.

In conclusion, banks are still relatively new to using lean IT, but until they fully embrace it, the obstacles they are currently facing will remain impossible to overcome. There is potential for a revolution in the way banks operate. The question is: will they pursue the change, or are they too short-sighted to see how necessary it is?