Why Six Sigma for Financial Services?

Meet the challenge of managing increasingly complex processes at lower overall cost

As customer expectations continue to rise and the sophistication of products and services increases, there is simply no room for operational error. The challenge for business today is to manage increasingly complex processes at lower overall cost, whilst at the same time improving customer service in an ever more competitive market place.

Many financial service companies have achieved short-term cost savings by moving call centres and back office functions to lower cost locations. This will not deliver competitive advantage unless the business maintains highly efficient processes in the new location, remains close to the customer and continues to deliver innovative products and services that meet or exceed customer expectations.

Against this background, the growth of Six Sigma in the financial services sector is no surprise. Proven as an effective method of improving business performance and customer experience, Six Sigma plays a critical part in three key areas:

• Bringing clarity and focus to factors that are really important to the customer
• Improving and continually reassessing business processes to reduce cost
• Systematically removing sources of error within the business.

Unlike other programmes that have come and gone over the last 20 years, Six Sigma has not yet reached its peak - it may well have 20 years to go before it does.

In the following pages we describe what Six Sigma is and outline Celerant’s implementation approach. This has proven its worth for international companies in a variety of industries, because of its focus on delivering substantial results in defined time frames, with an annualised return on the investment in implementation ranging from 3:1 to 10:1, in the first year.

Thinking big is the key to Six Sigma success

To achieve its full potential, Six Sigma needs to be applied to the big challenges and opportunities facing a business. This statement immediately contrasts with the more common understanding of Six Sigma: that it’s about conducting multiple projects, each of which will deliver cost savings of typically €250,000. Celerant’s experience is that Six Sigma works best when applied where the amounts involved - whether it be cost savings or business growth - are in the order of tens of millions of euros or more.

Applying Six Sigma at this level requires a different approach from the norm. Rather than simply training a certain number of "Black Belts" and sending them into the organisation to find projects that have the potential to yield €250,000 each (at a typical success rate of only 60 - 70%), Celerant adopts a three-phased approach focused squarely on an agreed set of objectives.

Celerant’s three-phased approach typically delivers an annualised 3:1 to 10:1 return on investment, as opposed to the more typical 1:1 most companies experience in their first year with Six Sigma:

Figure 1: Three-phase Six Sigma approach

Phase 1: Executive Scoping

This phase engages senior management in determining at the outset what the Six Sigma programme is required to achieve.

Typically scoping would include:

• What success would look like after 1, 2 and 5 years
• The key issues and opportunities that need to be addressed now
• The fit with and extension of existing initiatives
• Aligning the key business stakeholders involved in the programme

Phase 2: Assessment and Programme Design

The most important aspect of this phase is the identification and quantification of potential Six Sigma projects and their associated business benefits. The programme structure, training plan, responsibilities and accountabilities are all developed at this stage. The vital elements of a deployment are:

• The programme architecture including the number of projects fully scoped, the resources required, the deployment roadmap and the governance of the overall programme
• The alignment to the strategy and the imperatives set out by the leadership
• The level of behavioural change required at the various business levels (leaders, middle management, taskforce and individuals)
• The value proposition in terms of return on investment, risk sharing and benefits profile.

The findings of this phase help to define and develop the most
appropriate programme to deliver the results needed. In many cases, the skills required will include elements from other methodologies such as Lean, as well as Six Sigma. The important thing is not to be wedded to one methodology or another and that all the key people within the company are committed to making it happen.

Phase 3: Implementation

A Six Sigma programme should deliver significant, measurable and sustainable results. The programme for any company needs to be adapted to that company’s organisation and culture - by means of the appropriate management systems, processes, tools and techniques.

A properly run Six Sigma initiative will achieve a step-change, measurable and sustainable results for an organisation - but only if it is considered and run as a major change programme. At Celerant, we believe that sustainable results and profound change can only be achieved through behaviour change, which in turn is achieved through an organisation’s systems, processes and people.

Fig 2: The Five Box model(TM) for achieving results

Experience repeatedly shows that addressing all three elements - systems, processes and people in using tools and techniques - in a coherent way, leads to the behaviour change required for sustainable excellence in meeting customer, product quality and cost expectations.

Systems: A Six Sigma programme should always be supported by a properly functioning Management Control and Reporting System (MCRSTM). This does not mean more spend on IT solutions - it is a simple but highly effective method for ensuring that the correct key performance indicators are in place, monitored and managed on an appropriate timescale by the right people.

Processes: A Six Sigma approach encourages an organisation to view its activities as a process, or series of processes. These processes have often developed over time and have usually become overly complex. Employees find shortcuts to get the job done, leading to a loss of transparency and control. The end result is typically a higher rate of defects and longer cycle times - quite the opposite of what was intended when the processes were originally designed. As a result the percentage of straight-through processing (STP) i.e. the ability to process a transaction from beginning to end without manual intervention, reduces.

By combining Six Sigma and Lean principles, an organisation can
substantially increase the percentage of STP by reducing the complexity and defect rate of its key processes, leading to reduced cycle time and a higher level of customer satisfaction at lower cost.

Fig 3: Three views of processes

Last but by no means least, an organisation’s people are key to the success of any Six Sigma implementation programme. They must be given the appropriate level of training, in the right way, at the right time and should be coached throughout the programme.

Underpinning the Systems, Processes and People elements of a deployment programme are the Six Sigma tools and techniques. There are well over 200 of these in the Six Sigma toolbox, so it’s important to select those that are the most relevant. This will depend on the current state of the organisation’s processes, which is evaluated during the Assessment and
Programme Design phase.

Fig 4: Utilising the right tools at the right time to achieve Operational Excellence

It is also vital to strike the right balance between ‘hard’ tools such as statistical analysis and ‘soft’ tools such as leadership, project management and change management (sometimes referred to as ‘even harder tools’).

Key considerations in selecting a partner

Many companies embarking on a Six Sigma programme realise that they will need some form of external help. Given the multitude of Six Sigma service providers, choosing the right one can be a challenge. Before embarking on the selection process, a company should be clear on the overall objectives and scale of the programme. Is it to up-skill a number of employees to make them more quality-conscious and achieve small incremental gains, or to deliver step-change results and truly improve the behaviours of the organisation? In our experience, a ‘training only’
approach almost always yields disappointing results.

Whatever the objective, it’s important to choose a partner with real implementation experience. Having agreed the objectives of the programme, many companies find it helpful to identify and prioritise the criteria by which they will select their partner. An example can be seen below:

Fig 5: Real company example of criteria used in selecting a partner

A further consideration before starting off is to have a strong sense of building on what has been achieved already. This will automatically require a high degree of tailoring in the Six Sigma programme, which providers should be able to demonstrate. Cost is clearly an important factor in any choice of provider - but it needs to be seen in the context of the benefits that will be delivered. A serious provider will put their own fee at risk, dependent on results.

Conclusion

The key deliverables of Six Sigma - clarity and focus on what really matters to the customer - efficient processes to reduce cost, and systematic elimination of error. These will increasingly differentiate the leaders from the laggards in the continued globalisation of business, as more companies relocate aspects of their operations to avail themselves of lower labour and material costs.

Experience shows that Six Sigma yields the greatest value in conditions where:

• Six Sigma is applied to major issues that directly affect the customer
• The organisation is equipped with the skills it needs to meet the programme objectives
• Six Sigma is applied to build on the successes the organisation has already achieved, not replace the means that achieved them
• The provider of Six Sigma services and support has a track record of delivering large successes

Celerant’s experience is that Six Sigma works best when applied where the amounts involved - as savings or business growth - are in the order of tens of millions of euros or more:

• Celerant’s three-phased approach has been found to typically deliver an annualised 3:1 to 10:1 return on investment, as opposed to the more typical 1:1 most companies experience in their first year with Six Sigma
• Six Sigma programmes should reflect what the company needs rather than simply a standard offering from a training company

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To find out about creating more value in your organisation through Six Sigma please contact your nearest Celerant office or Julian Ferguson, Marketing Director, Process Excellence on +44 (0)20 8338 5108 Email: julian.ferguson@celerant.cc