Financial Institutions across the country are experiencing financial pressure. This pressure comes from a myriad of sources—increased competition, reduced fees, reductions in loan volume, interest cap, shrinking liquidity and deposits to mention a few. All combine to exert a downward force on financial performance.
Typically financial institutions gauge their efficiency through their expense ratio, which is an expression of expenses as a percentage of revenue. While historically the expense ratio has been improved by increasing asset size and revenues, this strategy proves more challenging in today’s market conditions. This leaves financial institutions to focus on expense reduction.
It is imperative that leadership take a critical and deep analytical look at their operational efficiency, which drives expenses. It is only through this path that financial institutions will be able to transform their operating procedures and processes to reduce cost and, in the process making the institution more efficient, improving customer experiences and revenue.
The new economics of banking requires much lower back-office costs. In addition, regulators and consumers expect greater transparency, better credit and portfolio risk management, and heavily expedited data processing for customer accounts. Bank leaders are realizing they must take a different approach.
One proven methodology towards process improvement in the banking sector is Lean and Six Sigma. Lean Six Sigma is an improvement methodology, standard of excellence and a management system, that aims to produce the best quality, on-time delivery, and cost, doing so by engaging everybody in the improvement process, treating people with respect, and focusing on customer needs for the long-term good of the institution.