Birla Institute of Management Technology

PGDM

Lean operations and it’s Challenges in implementation in Banking

Industry
Operations Management Assignment Report

Submitted to: Dr. Ruchi Mishra

Submitted by:
G Anirudh Raghav (18DM069)
Jesspaul J Alukka (18DM090)
Kush Mehta (18DM096)
Konchada Sainath (18DM099)
Mayank Agarwal (18DM114)

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Muzammil Ali (18DM122)

Table of Contents
Lean operations and it’s Challenges in implementation in Banking Industry....................................... i
Abstract ................................................................................................................................................... 1
Introduction ............................................................................................................................................ 1
Definition ............................................................................................................................................ 1
Implementation of lean ....................................................................................................................... 1
Specify Value .................................................................................................................................. 1
Map ................................................................................................................................................. 1
Flow ................................................................................................................................................ 2
Pull .................................................................................................................................................. 2
Perfection ........................................................................................................................................ 2
Challenges in implementing Lean operations ......................................................................................... 2
Implementing Lean in Banking Sector .................................................................................................... 4
Globalization ................................................................................................................................... 4
Deregulation.................................................................................................................................... 4
Universalization .............................................................................................................................. 4
Innovation ....................................................................................................................................... 4
Methodology of implementation in lean ................................................................................................ 4
Conclusion ............................................................................................................................................... 6
References .............................................................................................................................................. 7

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Abstract
Lean operation is considered as fast growing manufacturing technique. The markets are
witnessing cut throat operations and the companies are forced to bring out innovative
techniques to beat their competitors. And hence Industries have to adopt to techniques like
lean operations. It is a technique which is used for elimination of all types of waste in
production process to improve the efficiency. The primary motive of lean is “ability to
respond to the customer and satisfy his requirements by making the process of production
efficient and waste free”. We will address the challenges in implementing Lean operations in
this particular assignment.

Introduction
“Change is the word that best characterizes the nature of modern societies and determines the
challenges that managers face “. In a world that is faced by problems of flexibility, Lean
operations makes sure that it binds all the process in an organization to bring it together. Lean
was invented in 1960 by Toyota as a management approach that improves any process at an
organizational level. In this assignment, We look at the challenges that are involved in the
process of implementing lean operations in an organization along with the limitations and the
barriers of the technique.

Definition
To take a look at this we must define Lean, There is no specific or clear definition of lean,
“Definitions given by Arlbjørn and Freytag (2013) are; ‘doing more with less’ and
‘manufacturing without waste’”. Taiichi ohno defines waste into several categories, they
being as follows (Chauhan and Singh, Womack and Jones, & Hayes, 2010):
 Just in time practice
 Resource reduction
 Human relations management
 Defects control
 Supply chain Management
 Standardization
 Scientific Management
 Bundled techniques
These nine elements are the core of every lean operation activity.
Implementation of lean
Specify Value
The final value is defined keeping the final customer in mind. The value is expressed in terms
of a specific product, which meets the customer’s needs of price and value.
Map
The value stream is then identified, then a three round critical management process is made to
undergo by the product, they being: problem-solving tasks, information management tasks
and the physical transformation task. And then create a map of current state and the future
state

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Flow
The remaining steps are made into a value stream flow. Then the fictional barriers are
eliminated and a product focused organization is developed which drastically reduces the lead
time
Pull
In an attempt to eliminate sales forecast products chosen are the products that pull the
customers
Perfection
The process of reducing time, effort, cost and mistake is a never-ending process. The entire
process is repeated again until optimum results are obtained1.

Challenges in implementing Lean operations

The techniques developed by ((Repenning, 2001) brings out the challenges in implementation
of Lean operations and provides solution for improvement.
“The first factor is: time spends on working and capability, which are the “physics” of
process improvement “. “Often it turns out that even if time is added for improvements, it
takes time for the problem in the process to be identified, then the causes of it to be
discovered and eliminated, then solutions introduced”. “Unfortunately, it happens that even
after such efforts they not necessarily immediately leads to improving process capability “.
“Other question is that even improving capability will not last forever, if for example this is
applied to technical equipment that is amortization and getting obsolete or where the
products are changing often “.
“This seems to be connected with the management decision regarding reaching the desired
goal”.” This could be performed in 2 ways – work harder or work smarter”. “In work harder
during working time situation, the management pushes the workers to work harder so to
meet the target, or just add more working hours, which in most cases leads to great
pressure and high levels of stress”. “The alternative is to increase the capability of the
process and that way to improve performance “. “In working smarter situation management
gives the employees the possibility to experiment with new ideas and find a solution for
performing the work better “. “The authors ((Repenning, 2001) though do not accept
as totally positive the second approach and criticize it as a substantial delay between
dedicating the time for improvements and the actual improvement happening – the benefits
of invested time and other resources comes much later in the implementation process “. “This
is also connected to the complexity of the improvement. Unfortunately, that results to
mostly applying of the technique “work harder”, because the main targets should be
reached and often the management and employees never find time for improvements “.
“Focusing on the hitting the final target is always leading as it is mainly characterizing with
less time for non –work related activities as improvement for example “.
“To determines this managerial behaviour of achieving the short-term goals as so-called
reinvestment loop- a temporary emphasise on one option at the expense of the other could
become permanent “. “It operates towards increasing of work pressure and minimal levels of
process capability. “In the opposite situation it could be a positive feedback that would
reinforce the behaviour that dominates. If an organization put enough efforts in improving its
process capability, its performance will rise “. “The same authors develop a model that shows

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https://www.lean.org

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the dynamics of the system response to work harder versus work smarter and helps to explain
why the companies fall into capability trap-the interaction between balancing shortcuts loop
and reinvestment loop “. “In the situation of working harder, cutting the investments for
process improvements erodes process capability and decreases the performance in a long
term“. Because of the pressure to meet the high target from the beginning the performance is
higher than in general, which delude the work towards less investment in improvements.
Later on, the capability declines to extend that the actual performance declines as well.

Secondly another challenge in implementing lean is employees leave the company when
advanced level of lean is implemented in a system (Lewis, 2000). Employee’s experience
skill and knowledge.

“These skills have a market value for the particular company and if externally visible to
other competitors in the same field (i.e. after the national training award, or other public
conferences where managers describe the value of their staff), a risk of staff leaving to
leverage this value appears. “When key members of staff are being headhunted by other
larger organisations willing to offer substantial benefits, to retain these staff becomes time
consuming, expensive and can have a major impact on morale in single status firms“.
“The human resource policy in the observed company based on low levels of staff turnover,
experience a struggle to replace key workers after their leaving”.” Even though that staff
expressed loyalty to the company in all surveys conducted, in the face of such incentives
they still left “.

The next major problem in implementing lean is claimed by the author Gottfredson in his
book (Gottfredson) claimed that techniques against reducing the inventory reduce wide range
of stock keeping units which are also known as SKU’s. This problem occurs because the
technique is implemented to the process and the product mix. And hence this problem stays
invisible to the manager who is focused on achieving his target and meeting customer
requirement. This in turn leads to more work pressure and incorrect prediction of the supply
forecast which ultimately leading to more expenditure than expected.

Another challenge faced by companies in implementing lean is choosing each process

differently to implement lean in an organization, hence many researchers felt it would be
better if all the tools used in implementing lean can be integrated into one complete tool
where every thing related to lean can be operated at one go. And the repercussion of having
so many tools was that the organizations started focusing on the environmental changes and
neglected the environmental changes the implementation caused (Cornelissen, 28th
November 2013).

For lean to work, especially for the Just-in-Time to work in the whole supply chain,
involvement of suppliers is of prime importance. The organizations supplier has to agree with
them, in order for the organization to become a lean manufacturing company and because of
this the organization does not only have to trust the supplier, they have to continue with the
same supplier without changing them very frequently. This ties the organizations hands, it
does not allow them to explore new vendors who come up with new technology.

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Implementing Lean in Banking Sector
In the banking sector the main objective to meet the customer expectation and achieve
profitable operations while providing efficient, reliable and affordable services. The industry
has been notorious in the past few years and has been susceptible to changes, The main drive
for the above mentioned change are as follows:
Globalization: Integration of international financial market and the need for banks to expand
their market
Deregulation: The process of gradual reduction on regulations that has effects on the
economic activity and banking sector
Universalization: Banks are trying to expand their markets by getting into common tools
which help increase the market share and competitiveness
Innovation: There’s a need for banks to innovate in order to meet customer expectations and
stay competitive in the market

The authors Womack and Jones (1996) described five lean principles: specifying value from
customers’ perspective, understanding the value stream, improving the flow, producing based
on customers’ pull and striving for perfection. Taking into account those principles, banks
characteristics and reflections from multiple research studies the critical success factors for a
holistic lean banking implementation can be summarized as the following:
Customer segmentation and focus;
 Identification of value drivers;
 Diagnostic and analysis of the companies’ current state;
 Definition of a shared vision and goals;
 Raise consciousness and awareness;

 Employees empowerment and training;

 Top management commitment;
 Gradual implementation;
 Measuring success and sharing the results;
 Creating a lean culture.

Methodology of implementation in lean

A bank in Portugal was chosen to study the implementation of Lean operations. The bank
was a profitable bank with over two million customers (maria do rosário Cabrita). The
outbreak of new financial crisis in the globe raised concerns leading to loss in profits and
reduction in the market shares. Hence to achieve better process performance and have a
competitive advantage over the others. The steps that the project team took prior the lean
implementation was the following:
 Processes prioritization;
 Selection of agents of change (bank’s employees);
 Preliminary process analysis

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Targeting on these processes gave positive results for the experiment conducted by Maria
Cabrita. Additionally, the employees had to choose three process in the banking process in
their perspective that had great opportunity for enhancement. And the results were that most
of the employees chose maintenance of accounts needed most enhancement.

The account maintenance of the customer is one of the banking activities that further fosters
the establishment of a long - term relationship between bank and customer. This includes any
changes that a customer may wish to make or is obliged to make to manage his bank account
according to his will. The process requires coordination between front and back employees
and back office and it’s usually performed through a software application. Its operations
mainly include the collection, scanning and indexing of customer documents, the printing of
documents such as terms and conditions and the completion of forms. There are several
validation and approval points throughout the process to minimize operational risk and ensure
the validity of the operations.

For the value streaming the process the operations were divided into two processes, and the
processes were put into a form of flow chart

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These detailed representations enabled the identification of several opportunities of
improvement.

The opportunities of improvement were systematized in five categories and for each there
were defined multiple solutions summarized below:

Working Methods: To deal with the lack of consistent and standardized working methods,
several templates, checklists and best practices have been proposed.

Technology: To carry out certain operation the process showed lack of adequate technological
support. As a result, it was much slower and prone to errors than it could potentially be. The
proposed solutions in this regard was to adapt relevant technologies already used in other processes
and develop the software application used, aiming to add new functionalities that enable a better
process monitoring, automate certain form filling tasks and minimize errors.

Bureaucracy: With regard to the bureaucracy detected in this process, it is important to

distinguish between excessive and essential formalities in order, for example, to minimize the
operational risk. After a thorough analysis, it was proposed that all validation and approval
points should be eliminated and kept to a minimum in all administrative procedure

Innovation: In view of the increasing competitiveness of the market and the emergence of
innovative solutions, it is essential to keep pace with the new trends and find new ways of
doing business while still meeting the evolving needs and desires of the customer in order to
preserve the competitive advantage. In this scenario, the solution proposed was a greater use
of online channels to perform great part of the processes. Elimination of scanning was also
proposed to eliminated the worry of signature fraud.

Quality: Several solutions can be applied to the promotion of higher quality in all operations
and the consequent reduction of the return rate, in particular the establishment of the best
working methods and the recurrence of technology to minimize errors.

With the implementations mentioned in the above solutions the lead time and the rate of return
decreased extensively resulting in the increase of the efficiency.

Conclusion
From this paper we can understand the implementation of Lean in banking sector. The
assignment identified various different critical processes in the banking environment some of
them being employee empowerment, current state and gradual implementation.

The main lean concepts guiding the approach were waste reduction, standardization of work,
teamwork and continuous flow. The value stream mapping and brainstorming should be
highlighted with the lean tools used.

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References
(Black, 2., Bhasin, 2., Shah and Ward, 2., & Liker and Morgan, 2. (2007). Design rules for
implementing the Toyota Production System, International Journal of Production Research,
Vol. 45 No. 16, pp. 3639-3664.

(Repenning, S. 2. (2001). Sterman 2001.

Chauhan and Singh, 2., Womack and Jones, 2., & Hayes, 2. (2010). Lean Thinking.

Cornelissen, R. (28th November 2013). What are the main challenges when implementing lean and
how do industry and company characteristics influence these challenges? Wageningen:
Wageningen University.

Gottfredson, M. &. (n.d.). Innovation versus complexity: What is too much of a good thing. Harvard
business review, vol. 83, no. 11, pp. 62.

Lewis. (2000). Lewis .

maria do rosário Cabrita, J. S. (n.d.). Lean Banking: Application of lean concepts and tools to the
banking industry. July 2016: research gate.

S.Gobinath, D. S. (2015). Lean Manufacturing Issues and Challenges in Manufacturing. Coimbatore,

Tamilnadu, India: International Journal of ChemTech Research.

Singh, C. G. (n.d.). Measuring parameters of lean manufacturing realization, Measuring Business

Excellence, Vol. 16 No. 3. 2012.