Application of Lean Tool for Process Improvement of Bank Branches

Abstract

The drawbacks in the service operations of the Indian public sector banks include high cost per employee and lower service quality compared to private and foreign banks. This article for the first time confirms the application of lean thinking for process improvement of service operations in an Indian public sector bank through ‘value stream mapping’. The article uses action research methodology and two case studies that describe the process and outcomes of the action research to achieve the objective of studying the applicability of lean thinking and lean tools in process improvement of bank branches. The results of introducing lean thinking in the branches of the public sector bank in India were efficiency improvements through lower wait time for customers and lower stress levels for employees, besides increased customer satisfaction, profit and business—factors which justify and support the use of lean thinking in banks.

Keywords

Process improvement lean thinking Indian banking value stream mapping

Introduction

Global banking has undergone profound changes in recent years, especially following the global financial crisis (Claessens, 2017).¹ The external pressures in the form of tightened regulatory supervision, stronger market discipline along with digitalization, growing competition and customer expectations have impelled bank management across the world to adopt new strategies that ensure more efficient and cost-effective operations without jeopardizing the quality of service for their customers. Apart from these global changes, the Indian banking sector has also experienced the consequences of a sea change which it underwent after the wave of economic liberalization in 1991. Deregulation of the banking industry at national level, opening up of financial markets to foreign institutions, increase in the number of non-banking financial institutions and changes in the trends of information technology have increased competitive pressure among the banks (Hawkins & Mihaljek, 2001; Kaura, Durga Prasad, & Sharma, 2015; Sureshchandar, Rajendran, & Anantharaman, 2003).

Banks attach great importance to processes, and the ability to manage the processes judiciously is the essence of good management of commercial banks (Allen, 2006; George, 2003; Wang, Bedi Guy Herve, & Shen, 2012). Process improvement is one of the ways in which banks can improve customer satisfaction and reduce customer complaints (Makinde, Munyai, & Ramatsetse, 2017). Process improvement involving process design and process mapping is also very important for the management of operational risk of banks (Hatzakis, Nair, & Pinedo, 2010). The process improvements which reduce service operational inefficiency have become so pressing that they no more form a differentiating factor that provides some competitive advantage but a fundamental requirement to avoid competitive disadvantages and a prerequisite to stay in business (de Koning, Does, & Bisgaard, 2008). Even though process improvement tools such as Six Sigma, operational excellence tools and lean are very popular and well known for their ability to improve customer satisfaction, their use in banks remains limited worldwide due to the dearth of studies regarding the applicability and success of these tools in banking industry (Kovacs, 2015). Considering the need for studies that discuss the suitability of process improvement methods in the banking sector and the benefits accruing from such improvements to the banks, two case studies of process improvement were conducted in two branches of a public sector bank (PSB) in India using lean thinking as a philosophy for improvement.

Banking operations have features such as regularity, repeatability, and relatively standardized processes—all this makes it suitable for the implementation of lean philosophy as an approach to realize business process improvement (George, 1992; Kung & Hagen, 2007). Lean philosophy emphasizes eliminating overburden (muri), inconsistency (mura) and waste (muda) from operational processes (Radnor & Osborne, 2013). With its unique focus on the specification of value from a customer’s perspective, lean is widely used by management as a tool for process improvement (Kim, Spahlinger, Kin, & Billi, 2006). Even though this management philosophy and associated tools have their origins in the manufacturing industry, pioneered by Toyota Motor Corporation, lean has proven its success in improving quality and efficiency in both manufacturing and service sector industries (Abdi, Shavarini, & Hoseini, 2006; Endsley, Magill, & Godfrey, 2006; Kosuge, Modig, & Ahlstrom, 2010). This was fostered by the results of the studies of Womack and Jones (1996) and Bowen and Youngdahl (1998) who formally introduced the term ‘lean thinking’ and recommended the application of the lean production techniques to non- manufacturing processes, thereby indicating the applicability of lean system to processes other than manufacturing (Afshin Mansouri & Hadid, 2014). Womack (2002) described lean thinking using the five principles it upholds: (a) Value is specified by the customer; (b) value stream is identified and managed; (c) there should be free flow of services from the origin to the end; (d) pull where there is no flow and (e) work towards continuously reducing the time. A review of studies that analysed the benefits of applying lean thinking in the service sector by Leite and Vieira (2015) found that lean thinking when applied to services can improve the behaviour of workers and ensure significant economic and financial results. But literature with a specific focus on lean applied to the service sector is still scarce (Piercy & Rich, 2009b). In comparison to other service industries such as transportation, health care, entertainment and hospitality, financial services have been given scant attention in the literature that studies applicability of lean thinking in services (Hatzakis, Nair, & Pinedo, 2010). Moreover, the unique operational characteristics of financial services as enlisted and elaborated by Hatzakis et al. (2010) make financial services a specific context for analysis, which exacerbates the need for this study.

Some of the tools associated with lean thinking as listed by Radnor (2010) include Kaizen events, 5S, value stream mapping (VSM) and visual management. He classified the tools into three categories: those used for assessment, improvement and monitoring. Among the tools for assessing the operating process, VSM is an excellent tool for any enterprise that wants to become lean (Russell & Taylor, 1999). VSM is a powerful tool which identifies process inefficiencies, highlights mismatches in transaction and communication as well as guides in improving the process (Rother & Shook, 1999). Hines and Rich (1997) describe value stream as a collection of all actions—value added as well as non-value added—that are required to bring a product or a group of products that use the same resources through the main flow, from the raw material stage to the hands of customers. VSM is generally carried out as the first step towards lean implementation (Singh, Garg, & Sharma, 2011). This study analyses the application of VSM in the case of bank branches where lean thinking was introduced for the first time, and VSM as a tool was used to assess the existing process and to make improvements.

The objective of this article is to add to the available limited knowledge on the application of lean using VSM as a tool for process improvement in the financial sector. This objective is achieved by elucidating the cases of two branches of a PSB in India, where lean thinking was introduced for the first time through VSM of the processes. Through this study we contribute to the stream of literature which addresses the issues in implementing lean in financial services, specifically banks, and also towards the literature initiated by Radnor and Walley (2008) on how application of lean in public sector undertakings is different from that of private sector. Radnor and Walley (2008) emphasize on the importance of the contextual factors in the successful implementation of lean. The case studies were conducted by one of the authors as part of an action research. The characteristics of the bank branches, namely its location in a rural insurgency prone area and state ownership, make the cases unique with respect to context. The present study enriches this stream of literature which discourses upon the appropriateness of lean in public sector. Moreover, our study also captures the effect of failure demand which arises out of failure to do something or something right for the customer (Seddon & Brand, 2008) and the effect of ‘people issue’ (Gray, Radnor, & Boaden, 2008) prevalent in public sector undertakings on the implementation of lean (Radnor & Osborne, 2013). The findings of this study offer insights to the banking practitioners regarding the steps in introducing lean using VSM and the potential benefits and challenges of introducing lean thinking in a bank branch. Indian banking sector is characterized by the dominance of PSBs and a study by Sureshchandar, Rajendran, and Anantharaman (2003) showed that the service quality of PSBs as perceived by the customer is lower than the private sector and foreign banks. Hence the insights from the case studies can be used for introducing lean thinking to PSBs to improve the banking experience of their customers. The results of the application of VSM in the bank branches studied here showed that the efficiency of the branches had improved with less waiting time, increased customer satisfaction, increased profits and business and reduced stress for the employees.

The rest of this article is organized as follows: The section ‘Literature Review’ reviews the related literature on the application of lean in banking services and usage of VSM as a tool for implementing lean. The next section, ‘Methodology’, describes the methodology and the details of the case. The final section presents the conclusions and the takeaway for practitioners from the study.

Literature Review

The firms which strive to achieve quality and operational excellence engage themselves consistently in process improvement (PI; Assarlind, Gremyr, & Backman, 2012). There is well-established literature regarding the transformation of the manufacturing process through lean. However, the use of lean tools to improve the quality of service delivery within the service sector is relatively new, and the academic and managerial arena possess a limited understanding of this domain (Piercy & Rich, 2009a). Allway and Corbett (2002, p. 45) defined a lean system for a service context as ‘an approach focusing on eliminating non-value added activities from processes by applying a robust set of performance change tools, and emphasize excellence in operations to deliver superior customer services’. Afshin Mansouri and Hadid (2014) propose a theoretical model in which lean constructs are identified and operationalized to understand their interrelationships and their impact on organizational performance.

In the early phases of lean, quality initiatives involved localized methods like bottleneck analysis and waiting line concepts, and the improvements from the implementation of these techniques were also localized limiting the potential for improvement of the whole system (Lummus, Vokurka, & Rodeghiero, 2006). This was in line with the wrong perception of lean as a set of tools and practices rather than as a process improvement philosophy (Spear, 2004). As companies began to understand the need and potential of a tool which links these localized methods, the VSM was born. VSM combines the tools and methodology to observe the functioning of the entire process and identify the areas which need to be improved to derive the utmost benefit for the entire system. This is achieved by mapping every step, or individual action, involved in the process for specific services, and analysing the flow to identify and eliminate waste. The identification of value-adding processes provides an important foundation for eliminating waste (Kollberg, Brehmer, & Dahlgaard, 2006). Similar to the manufacturing process, the operations in a bank branch cannot be demarcated into sections without any spillover effects and should be considered as a system which requires to be mapped using value stream maps to identify the potential for improvement. VSM lays the foundation for introducing lean thinking, and in the case being examined in this study, the branch where VSM was implemented was very new to the idea of lean. Singh et al. (2011) provide a comprehensive literature review of the studies that use VSM for improving the production process. They have categorized the studies into four categories, namely conceptual work, case studies, empirical work, and survey articles, and maintain that case studies are extensively used as a research method for studying the implementation of VSM in companies.

The literature that discusses the applicability of lean in the financial sector is sparse even though the financial industry is a good candidate for lean services considering the waste inherent in the process (Atkinson, 2004). The results of the study conducted by Atkinson (2004) showed that in 200 work activities falling under eight functions of a financial firm represented waste in the form of reworking the same activity several times. The findings of Swank (2003) were also in alignment with that of Atkinson (2004), and the study also provides legitimate evidence to justify the use of process mapping techniques to identify excessive processing time and unnecessary costs. Bhatia and Drew (2006) elucidated the experience of a European bank which employed lean service practices to decrease the turnaround time for mortgage applications. Yavas and Yasin (2001) also discuss the success story related to lean service in banks.

Recently, some studies have analysed the firms that have adopted both lean and Six Sigma for process improvement. The change perceived after the introduction of lean, in terms of the change in process and tools, and the advantages and difficulties of implementing the lean component, in an already established Six Sigma service organization were studied by taking GE Money Portugal as a case by Delgado, Ferreira, and Castelo Branco (2010). They also analysed the difference in the critical success factors of implementing lean in organizations of different countries to understand the impact of cultural differences. They found that the benefits of introducing lean practices include an increase in productivity, improvement in revenue through increased customer satisfaction and the ability to service more number of customers owing to the reduced operational cost by improving processing efficiency. Wang and Chen (2010) further extend the use of Lean Six Sigma by integrating it with TRIZ (Theoria Resheneyya Isobretatelskehuh Zadach). TRIZ is another effective method for analysing customer needs. The results of the study show that the application of Lean Six Sigma methodology with TRIZ performs effectively in the improvement of banking services. A review of 30 studies that analysed the implementation of lean and Six Sigma in the financial service industry by Vashishth, Chakraborty, and Antony (2017) provides a comprehensive account of the benefits of implementing lean and six sigma in the financial service industry and reasons for lean not being popular in spite of proving those benefits.

There are no studies that have examined the service operation process of a state-owned bank branch. The state ownership gives the bank the features of a firm that provides public service, and Gray, Radnor, and Boaden, (2008) claim that the ‘lean as it stands in public services is not ‘pure’ when compared to what has been developed and implemented in manufacturing, and some private service organizations and has to be studied separately. The article by Radnor and Walley (2008) reflects the appropriateness of lean as a methodology for process improvement in the public sector and suggests that lean should be implemented only after considering the barriers found by analysing the six case studies pertaining to public sector firms. The barriers enlisted were (a) lack of clear customer focus; (b) too many procedures; (c) people working in silos; (d) too many targets; (e) lack of awareness of strategic direction; (f) general belief that staff are overworked and underpaid and (g) lack of understanding of the effect of variation, systems thinking and process flow. To overcome these barriers, Radnor and Osborne (2013) suggest the adoption of public service-dominant logic while adopting lean in the public sector. This study was conducted in a PSB, and hence the introduction of lean was possible only after overcoming the barriers. Thus the study provides insights for implementing lean in other public sector organizations.

The literature review shows that there is a dearth in the number of studies that document application of lean in the service sector, in general, and in the financial sector, in particular. There is also a need to understand the challenges in applying lean in public sector undertakings. This article addresses this gap in the existing literature by studying the application of lean in bank branches of a PSB in India.

Methodology

The present study uses an action research methodology to understand the process of introducing lean thinking using VSM to the operations of a bank branch. Action research as a methodology is relevant and valid for conducting research in operations management domain because of its ability to address the operational issues experienced by practising managers while contributing to the knowledge domain simultaneously (see Coughlan & Coghlan, 2002). Action research is a disciplined process of enquiry conducted by and for those taking the action. As a consequence of action research, practices, people’s understanding of practices and conditions under which they practise are modified to solve a problem. Westbrook (1995) defines an action researcher as ‘a participant in the implementation of a system, but simultaneously wants to evaluate a certain intervention technique. … The action researcher is not an independent observer, but becomes a participant, and the process of change becomes the subject of research’. In this study, one of the authors was directly involved in collecting and analysing data, identifying and understanding the pitfalls in the existing process and was instrumental in devising the future improved course of action for the branch. The findings and the process of action research are reported in the form of narratives situated in the context of the evolving experiences of the individuals involved. This report on the action research conducted has been structured on the basis of the principles proposed by Heikkinen, Huttunen, and Syrjälä (2007). We use two cases to explain the context in which the action research was conducted and to elucidate the learning from the research. The action research was conducted in the rural branches of a PSB in India.

The first step in lean thinking initiative is to understand the concept of value as defined by the customer. In the context of a bank branch, it can be lesser waiting time and less need for repeated visits. This is followed by the second step that is a first-hand examination of how the process is operating currently. A representation flowchart called the current state value stream map is created to provide an objective graphical representation of the individual steps necessary to complete the process from beginning to end. Then the process is examined thoroughly with an objective of achieving flow state in which the steps of the process follow one another without stopping. Once the flow state is achieved a new value stream map called future value stream map is created incorporating the changes made.

The following sections describe the case facts and the steps undertaken to introduce lean in the context.

Case Facts

Our case relates to a rural PSB branch, B1, located in Karbi Anglong district, Assam, India, which in the books of the PSB is a difficult centre due to insurgency problem, and remains closed for almost three months, in various stretches, in a given year due to various reasons. The nearest similar branch B2 is located within two kilometres of B1. We will look at the branch B1 situation, although the processes implemented in the branch B1 were later on also implemented in branch B2. Therefore, the implementation in the two branches was made in two different periods and under different determinants. We discuss the situations of both the branches, but concentrate mainly on B1 branch concerning our study.

B1 period was from the year 2000 to 2002. The branch was not computerized, the business turnover was very low, loan recovery was a mere 25 per cent and non-performing assets (NPA) was as high as 70 per cent. The branch was showing a profit based on transfer price mechanism on deposits, which were mostly from a few local government establishments and few wealthy businesspersons cum moneylenders cum farmers. It was located in the rural market area in a single large hall with four supervising staff which included the branch manager, a credit officer, an accountant and a cash officer, besides four staff, two among which catered to the cash section.

The branch had been termed as one of the ‘no hope’ branches where those serving will have no chances of a career reward because of the poor business environment. It was located about 30 km from the nearest town. The service area of the branch included 42 villages spread over a vast area and included hills and forests. The total population under its service was around 20 thousand or around 5,000 families of which around 25 per cent were BPL. The branch was around 25 years old and had shifted twice in the past to improve its turnover.

Nearly 80 per cent of the families had taken in the past a loan and had defaulted because of which around five villages had already been listed as non-viable area. The balance 20 per cent were either not reachable or did not qualify for a loan. About 90 per cent of the loans were under a government-sponsored scheme with almost no recovery. Finally, the branch had to constantly depend upon the nearest district branch for cash requirements, which happened at least once a month as very little cash actually came to the branch through the customers, and thus as such it was a cash-outgoing branch.

The study of B2 branch was from 2003 to 2004, and the branch was located inside a small cement factory owned by the government with a strength of around 350 direct and indirect employees. It also had a similar situation in all respects except that the branch area was very small and that the computerization of branch took place during the year 2003. Further, its service area was small with less number of villages and mainly depended on the turnover of the cement factory and the employees’ salary. Any excess deposits of the factory were remitted frequently to the factory head office located in a city 400 km from the branch free of cost.

Both the branches also had a significant number of pensioners and also catered to different schools located in the area beyond the service area—the schools numbering above 150—serving around 1,000 teachers on government salaries. The salary was not regular, and the amount paid was in bulk cash to the school’s heads. Also, salary reimbursement of several small government departments took place in a similar manner.

Another negative factor was the fear psychosis of the middle class or the upper-class farmers who feared backlash from the insurgents in terms of extortion and as such avoided the branch visits. The fee income business was at the minimal as business money transfer took place mostly through the hundi method. In addition, many one-time governments dole given for maternity care, old age, etc., created an additional rush to open accounts. The purpose was to deposit the cheque received and encash it subsequently, after which the accounts remained inoperative. It only added to the number of accounts to balance every month as well as interest payments. However, there was no economy-of-scale benefits.

Despite the scenarios as discussed, the numbers of transactions were high in both branches. This is because most of the village customers who had accounts withdrew their cash in small amount frequently. With no restriction on minimum amount withdrawal or minimum balance to maintain in the branch, there was always a rush to open accounts, and/or withdraw cash with the added responsibility for the employees to write the withdrawal slips and the account opening forms as most of the customers were illiterate. Besides, the credit department of both the branches had to comply with numerous controlling office returns coupled with mandatory field visits.

The responsibilities were assigned to the officers according to their respective designations, and nobody gave a helping hand to the other in time of rush hours. So is the scenario with the other staff. Everybody avoided filling the account opening form or the withdrawal slip mainly due to some unseen unavoidable accountability. The customers will be requesting one staff after the other. Any incorrect information or inability to properly identify himself or herself led to cancellation of the form or postponement of the opening of the account. The situation was worse in the B2 as the branch space was small; tensions and stress were frequent with no positive results.

In both the branches, there was also frequent absenteeism of staff/officers because of frequent closures of the branches that encouraged them to leave the station and not return in time due to either communication problems or personal reasons. The staff/officers had been stuck there for years together as nobody was willing to come there and join. All this only demotivated the employees who saw no future. At the same time, because of the lack of on-the-job training, most of the staff and the officers were not competent enough to tackle various technical issues. The output was slow as they insisted on following the standard operating procedures (SOPs) thoroughly. The personal stress on the staff created constant unpleasant decisions, which further led to erroneous completion of works, resulting in delays and additional strains. Ultimately, both the branches had put a limit on various services on a per day basis, which created a constant push scenario in the branches. The author joined the B1 as a credit officer and found that the desire to improve the operations and business was still prevalent but suppressed. This desire to improve was mainly because of the performance-based reward that would have created a chance for transfer with pride. It meant increasing the operations efficiency, business turnover, profit, and reduction of NPA level, customer complaints and costs.

Current State Value Stream Mapping

The first hurdle was to understand the branch, B1, and the local area environment, besides bringing the credit department in order as per the SOPs. The author took frequent trips to the fields, the market area and interviewed the defaulters to understand their problems (some of the defaulters were surprised to find a bank official at their doorstep after a gap of around two years and thought it to be a routine check-up to confirm the existence of the borrower). This continued on a daily basis; the routine was to visit the branch, finish the daily SOPs, make a mental note of the operational process that was taking place and mentally map the improvement opportunities. After that, the author would leave for visiting the borrowers/defaulters and understand their problems. Within a span of two months, it became very clear that every situation demanded a value-added process directly related to the desire of the customer level of service expectations. The scenario was the same when the author took over B2 branch as the branch manager. He was posted to B2 to turn around the branch after seeing the improvements he had made to B1 branch.

In both the branches, each staff, officer had their own suggestions of ‘the problem with this place’. The author of course saw that lack of expertise in procedures and practices was a major drawback in both B1 and B2. Initially, the author started with the mapping project all alone as no one believed that branch B1 could be turned around. (Of course, this was no more the situation, when the author joined branch B2, as the staff by now had heard and seen the success of B1 and were more than willing to be a part of the mapping process.) The mapping project initially looked at two parts: the first was the customer flow through the branch operation process system, and the second was the improvement in the skills of the staff. It was clear that both were heavily interlinked. Ignoring the first part was a logical step at that moment; the author started helping each of the staff in their workload to develop the team spirit, motivation and perhaps a sense of gratitude to work with the author. Besides, a common complaint was less staff and overwork. The officers and senior staff were not pleased with the way the junior staff were working. Also, the workload seemed to be in the form of a wave (see Figure 1).

Figure 1.

Source: The authors.

Stage 1 was when the branch opened and remained the same for almost the next one hour; it reached Stage 2 just about 15 minutes before the lunchtime with maximum customers inside the branch waiting for the service. It reached Stage 3 about 40 minutes into the lunchtime, which automatically delayed the lunchtime of the staff as well as the officers. This resulted in late coming of staff into the desk and resulted in Stage 4 with the day’s end work piled up and several customers still waiting for the non-fund-based services. Stage 5 was about two hours after the closing time for the officers and one hour after the closing time for the staff.

The reason for the Stage 1 situation was ‘what’s the benefit, anyhow we will have to stay late, or it is not going to give me a reward’ from the concerned staff in the cash department and the staff at the accounts department. At the same time, the customers’ complained that it were the officers who were responsible for the delays. They will start late with cash as well as keep everything pending until the end of the day such as issuing passbook, draft delivery, etc. At the same time, the customers surprisingly said that the junior staff were more competent and delivered better service than the seniors or the officers and thatthey were aware of the personal daily requirement of the customers. Along with this, the officers’ personality eccentricities were noted and that the approximate time they required to deliver a particular service was more than the juniors’. (To the author’s surprise, a similar situation existed in B2.)

Thus, the root cause identified in the accounts and cash department were the officers. These aged persons knew that they will never get a promotion and as such were not bothered with the reward system. The only alternative seemed to be the respect from the customers in and out of the branch. The author along with the two junior staff and the branch manager in B1 began mapping the process upstream, and downstream from these two points, that is, the two officers with the belief that it is a point where waste occurs in terms of time and quality of service, hence the final product. Accordingly, value-added steps start from these two point processes. The time variability in their service process ranged from two minutes to one hour and dependent on many factors/variables.

The cash officer may have to suddenly receive a high quantity of soiled notes, or make a high-value payment for which it may have to reopen the vault, which needs the company of the second person who is none other than the accountant. He may have to wait until the accountant seems to be free. At the same time the accountant may really be busy with tallying the signatures of the withdrawal customers, or simply will make the cash officer wait for no reason. The vice versa may also happen, it may be just that the accountant needs to take out a safe custody document, which is kept inside the vault and needs the company of the cash officer to open the vault when the cash officer is really busy in counting back-office cash and simultaneously separating the soiled notes.

It can also be that a customer first comes to the accountant with a request to open an account, who after the initial interview goes to the concerned staff. The staff helps the customer to fill up the form along with the enclosures and forwards it to the accountant for approval; the accountant looks into the form, scrutinizes it, requests for further changes/corrections and sends him back to the staff. By this time, the customer is frustrated. The procedure is again repeated until the accountant is satisfied with the filled-up form. The customer then goes to the cash department to deposit the cash and waits for his number to come. Later on, he/she comes to the bank to collect his passbook and returns empty hand with advice to come and collect it the next day. The fact is successfully opening an account in the branch becomes considered as a real achievement by the customer.

The author observed all these schedules and followed the various processes from the moment a customer entered the branch for a typical service. The bottleneck seemed to be the accountant and the cash officer where process completion was on a FIFO basis and needed a push from the next customer, ignoring consideration to time factors. Even small signature verification or collection of an overnight draft will take as much time. By now, the B1 branch manager had become a part of the team to develop the value stream process. Mapping of the current situation was ultimately completed (Figure 2).

Figure 2.

Source: The authors.

Future State Value Stream Mapping

In the banking industry, the in-process inventories are not carried over for the next day, and therefore, it has to be emptied before the work can stop for the day. As such, the author ignored the SOPs period; the first step was the branch manager taking the responsibility of the account-opening procedure. The author took on the responsibility of signing and releasing the drafts, including overnight drafts by taking custody of the same every morning, since the author by now had completed his regular field visits. Also, it was decided that if and when the author/branch manager is out of the branch, the other will take the responsibility of the other’s part. Consequences were immediate, inventory built up at Stage 4, and Stage 5 was no more. The workflow became smooth with customers being pulled in. Similarly, it was later decided that cash section will open at starting office hours sharp in order to avoid the inventory built up at Stages 1 and 2. This was possible only after the staff found that the value-added steps were working for the accountant. The cash officer also willingly cooperated in the process. The inventory built up at Stage 3 automatically vanished, as there was no more pushing from Stage 5 inventories. Thus, the branch had successfully shifted itself from a pushing system to a pulling system.

The results were immediately visible; customers started coming with non-fund-based business from nearby B2 as well as from other localities, who were visiting the nearby town. However, the accountant was expected to continue with the same services during lean working days. Over a period, the accountant realized that it was his inability to serve in time, which had created the inventories. This resulted in a marked improvement in his ability. The accountant was promoted in the year 2003. B1 became the best branch in the whole of northeast India, with regard to this concerned bank in the year 2003. The author introduced the same process in B2 later. A similar situation was found to be existing in B2, but the accountant took a deep and sincere interest from the very beginning, resulting in a promotion for him in the year 2004. However, the VSM was different for B2.

Such was the effect of the results that all the staff were either promoted by 2004 from B1 or were ultimately transferred to their chosen branch. There were now staff, who were more than willing to serve in this branch. We make a summarization of the principles that guided in the creation of the new value-added process with different considerations:

By-pass lane creation to handle different services round the time.

A customer lost is potential revenue lost; a dissatisfied customer takes away another five customers and vice-versa. Hence,

No inventories can be carried over initially; later on, no inventories can be allowed to build up.

Supervising staff with several employees will always lead to a bottleneck.

Motivations, teamwork, skills, trust are more important initially. The reward comes automatically.

Controlling management support is necessary in the end.

What we did in the proposed process system was identifying and separating the customers into separate groups according to their needs. The account opening customers were guided to the branch manager. As they were very few in number, the branch manager was able to attend to them immediately or within a short interval of time. The author dealt with the non-fund-based customers. Non-fund-based customers were also few in number but more compared to the account-opening customers, who were regular customers. The Accountant dealt with the last-minute or unscheduled customers. With an average 15-minute cycle time for a customer, one customer could be accommodated every five minutes, provided it was spread evenly across the day. Then this spread will do value addition because of the capacity inbuilt, even though the customers are still pushed because of the cycle time rate variation.

However, there remain the walk-in customers whose daily numbers across a given period need to monitored to do away with any future pushing at Stage 4 in Figure 2. There also remains the fourth group of customers who just needed a simple follow-up visit to the B1 accountant. It was decided that these customers will be dealt directly by the front desk, and if needed will be first directed to the credit officer’s desk, who will then decide the course of action to be taken. Thus, from the guard’s point, four FIFO lanes will be generated, besides the lane directly for the cash department (see Figure 3). Based on the above, the guard’s priority was to keep the first lane empty, then Lane 2, then Lane 3 and finally Lane 4. That is, if other lanes were empty, and there still were customers in Lane 1, they will be guided to the other two lanes, namely Lane 2 and Lane 3.

Figure 3.

Source: The authors.

In spite of the improvements, if it was felt that the process was being clogged because of unexpected long process time at any of the lanes, the guard was advised to inform the customers about the expected time he/she would have to wait. In addition, he/she had the option of taking a prior appointment from the credit officer for the next day/any other day according to the customer’s convenience. This system eliminated the chance of a customer returning dissatisfied. It has to be understood that the build-up of inventory is now taking place at the very beginning stage, at the guard’s point, who immediately takes care of the situation.

Scheduling of the Process System

The most important aspects of this ‘pull-flow process’ is the use of a schedule which keeps a steady flow of customers. The future value stream map was used for identifying the lanes which allow free flow of customers in the branch from one counter to another. Afterwards, B1 with trial and error method and through the learning process could design a schedule for giving appointments to the customers. This over a period helped because the customers soon came to know of the advantage of a prior appointment, which was strictly followed by the branch. As the branch was dealing with human beings and not machines, an acceptable time of waiting was used to calculate the level of inventory built up.

The scheduling process board starts with the expected time available for the customers at each of the lanes moving the day down as slots become full, if there is no choice of the customer. Gaps are kept down the day to deal with the daily jobs (see Table 1 for example of a one-hour schedule process).

Over a period, the need to keep extra slots off for absenteeism was also recognized as well as for other field jobs related to the branch manager and the credit officer at B1, which also acted as a buffer against the unplanned rush of walk-in customers. At the same time, it was important that no business was lost due to a missed opportunity. The vacant slots at the end of the day ensured less stress for the staff in terms of additional workload.

Benefits and Challenges

This article presented a part of an actual experience of process improvement and lean thinking through VSM in service operations in an emerging market, namely public sector banking services in India. The challenges were to identify the different types of customers and schedule them within a specific lane. The advantage was that the customers quickly got adapted to this method. The process also discouraged inflexible customers. Though each lane capacity did change from time to time, the overall output was either constant or increased on any given day. The overall performance of the branches improved. B1 under study was awarded the Green Channel Award for being the best performing Agricultural Development Branch at the Circle level. A 600-percentage growth in the total business was recorded after the implementation of lean practices. A 200-percentage increase in the NPA recovery rate was achieved as a result of the new and improved operations. The new process also increased the turnover of the branch, reduced wait time for customers and stress levels of the staff. The process was duly recognized by rewarding the staff, besides giving walk-in customers a separate priority. In future the branches have to strive for reducing variations in the established processes and application of tools like Six Sigma to ensure the least variation in the service quality.

Conclusion

This article, based on action research and author’s own actual, applied experiences over a period of four years through deutero-learning process, for the first time provides evidence for the suitability and success of lean thinking in improving the quality of banking operations through VSM of the processes of bank branches. The transformation journey towards lean using VSM went through three main stages which are current state mapping, target state design and implementation through scheduling. The outcomes of introducing lean and improved processes were efficiency improvements through lower wait time, lower stress levels of employees, besides increased customer satisfaction, profit and business. The analysis of the situation and the findings provide insights to the practitioners regarding the challenges that have to be encountered while introducing lean in financial service operations. It also brings out the problems of implementing lean in the public sector undertakings and how such issues can be solved.

Table 1.

The Schedule Board for Serving the Customers in Different Lanes

Schedule Board
	Time (am)
Lane	10.30	10.45	11.00	11.15	11.30
1	Scheduled	Account-opening customers	Account-opening customers	Scheduled	Other branch-related work
2	Scheduled	Non-fund business	Scheduled	Non-fund business	Scheduled
3	Quick	Other branch-related work	Other branch-related work	Other branch-related work	Other branch-related work
4	Walk-in	Scheduled	Other branch work	Scheduled	Other branch work

Source: The authors.

Note: Scheduled refers to customers having prior appointments.

The article concludes that financial services operation renovation can be a catalyst for change, but demands coordination among the employees and a change in the culture for sustaining the lean attitude. The VSM is just an initiation of lean thinking and combination of lean tools with other efficiency-enhancing tools like Six Sigma can improve the results achieved. But implementation of process variation measurement tools like Six Sigma requires quantified key performance indicators (KPIs), which have to be specified by the top management. This will provide a foundation for the employment of other process improvement tools such as continuous process improvement (CPI). The top management has to comprehend appropriately the outcomes, it should show commitment to lean thinking by supporting it with better and quick tangible rewards and recognition, and it should not treat or view lean thinking as just another tool or policy. The top management should ensure that it becomes part of the overall organizational strategy by creating a whole ecosystem, and through a structure, a culture and a thought process where service operation innovation thrives. This will ensure quick accomplishments that essentially comprise a paradigm shift in the way the bank branches works.

This study has some limitations concerning the generalizability of the findings, which is inherent in studies which use action research methodology. The unique characteristics of the branches such as the location of the branch in the rural areas and the branch being prone to insurgent attacks, which makes it notorious among the staff of a PSB who are deemed to be public servants, bring uniqueness to the study and also manifest the limitations with respect to the generalization of the study results. The future studies to be conducted in similar settings are required to validate the applicability of the results of this study.

Footnotes

Note

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

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