Are lean six sigma initiatives within financial services enough to achieve the efficiencies needed to gain and / or maintain competitive advantage in post-trade operations?

Unless such an initiative is an operationally wide programme; from trade inception through middle office, operations, risk and finance, is governed and funded as a key strategic initiative at CEO level, and resourced by process change professionals, then the answer is a resounding no.

Despite their prevalence, the viability of lean six sigma programmes is a hotly debated topic within the financial services industry. Most professionals agree that any initiative to streamline processes and improve efficiency represents a step in the right direction, and that empowering staff to think in terms of operational efficiency is of benefit to the business. However, such initiatives are often siloed into business lines (e.g. operations), and even more often sub-siloed into product lines (e.g. Rates) where the key stakeholders’ main concern is achieving their own headcount targets. Consequently, little thought is given to the downstream impact of changes made under such initiatives.

Despite being potentially harmful to the business at large, such ‘departmentally introverted’ initiatives are commonplace within banks and a consequence of the current budgetary environment, where it is increasingly difficult for operational managers to obtain any form of investment funding for change initiatives that are not linked to a regulatory programme. When coupled with increasing year-on-year demands for efficiency improvements of 20% or so, and an increasingly depleted operations workforce, it is no wonder that the increased focus on regulatory compliance programmes and consequent lack of funding for operational efficiency initiatives has lead operations professionals to look introspectively at their particular business lines in order meet the efficiency targets imposed on them.

Whether such practices can be classified as lean six sigma or not, they are counterproductive.

Truly beneficial operational efficiency gains can only be achieved by operations managers who either; have the strategic vision and associated funding to make truly transformational change to the way a business is run through the full post trade environment; or provide the agility to make strategic change via self-funding initiatives. While I am aware of a handful of leading investment banks with the capital capacity for transformational change, for the vast majority, self-funding, strategically-focused initiatives represent the only option in an industry of depleted bottom lines and budgetary drought. So, upon first inspection it appears that lean six sigma is the only approach available to the vast majority. However, this is not the case.

As previously discussed, support for the lean six sigma approach varies greatly. Personally, I believe that, while such initiatives are effective in tuning a process, they are largely ineffective in changing or improving the process itself. So imminent targets are met, but the root causes of the inefficiencies remain unaddressed. In order to truly resolve the underlying causes of inefficiency, the required approach needs to be a revolutionary challenge to the status quo. It should be driven with strong governance by professionals having extensive experience across the financial services sector; who have the knowledge and capability to revolutionise in a controlled, cost-effective manner.

Finding sufficiently ‘grey-haired’ individuals who have lived and breathed this environment and who still have the foresight to drive transformational change is surprisingly easy. The difficult part is the process.

When it comes to the change process, a number of lessons can be learned from technology change programmes. The traditional waterfall approach to technology change is being revolutionised by agile development, where progress is closely managed through ‘sprints’, and short-term deliverables are agreed and tracked. Most importantly, the agile approach enables project managers to easily monitor and contain costs.

Can this approach be applied in an operational environment? My opinion is that an agile operational efficiency approach is a viable option and, as such, will win the battle of the belts!