Chaucer Quarterly Review Issue 1 EN
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This document discusses priorities and challenges for the banking industry in 2009 following the 2008 financial crisis. It summarizes responses from banking and insurance colleagues on their plans to focus on costs, quality over quantity of projects, and addressing regulation. It also notes divisions in the industry, with some institutions better positioned than others. The document advocates for lean processing techniques to reduce costs and eliminate waste. It provides examples of how to map processes and identify opportunities to streamline workflows and make them more efficient.
Chaucer Quarterly Review Issue 1 EN
- 1. 1936 1941 1946 100 150 200 PriceHistory 1946 00 50 1971 1976 1978 250 200 150 150 500 PriceHistory 0 0 0 0 0 2000 20052005 1,550 1,100 3,100 2,200 1,850 2 6002,600 3,100 3,650 PriceHistory Priorities for 2009 Pursue strategy Grow business Cut back Cost reduction Regulation Debt management Corporate & Investment Banking Retail Insurance Cards Priorities for 2009 Pursue strategy Grow business Cut back Cost reduction Regulation Debt management Corporate& InvestmentBanking Retail Insurance Cards In this issue: Quarterly Review The Issue one 2009 Which way for 2009? It’s 14 months since Northern Rock customers queued for their money,2 months since HBOS confirmed its talks with Lloyds TSB and one month since the government applied the jump leads to the banking system. How much more intervention will be needed, and how long before the recovery kicks in? What you’ve told us We asked our banking and insurance colleagues about their organisations’ change plans for 2009. There was a reassuring consistency in some of what they said: “We will focus on cost”, “Quality not quantity of projects will be the measure”, “There will be no nice-to-haves”, and “There will be fewer initiatives, and for those that do go ahead the bar will be set higher”. All identified regulation as a key loading on their change capacity, including the expectation of the new regulation arising from the financial crisis. But the responses also showed the divisive effects of the crisis. Within insurance the protection market appears buoyant and pensions resilient, as falls in fund performance can be passed on to customers via market value adjustments and reduced bonuses. Some lenders have been less touched by those toxic loan portfolios, possibly due to their corporate stance, inspired management foresight or just good fortune. These organisations will be freer to realise their strategies in 2009, whether driving global shared processing or developing new propositions to support their customers’ new priorities and concerns in the new uncertain world. And the herd behaviour of consumers has meant that some institutions have seen massive inflows of deposits at the expense of others. Some businesses believe they will struggle in 2009. For them, 2009 means:“refocus all our efforts on the key priorities”,“focus on risk and impairment”, in other words, all hands to the pumps. The strings attached to the government’s intervention will inevitably impact the 2009 agenda for some institutions, who will need to prioritise UK retail at the expense of corporate and global development priorities. Will this give the others a competitive advantage? There is no doubt that the UK economy needs a strong financial sector. In 2009 we will see the consequences of the crucial decisions our leading fi- .sevlesmehtroftesevahyehtshtapehtdnanekatevahsnoitutitsnilaicnan The next 12 months will be interesting times indeed. 4 Key factors that drive change 2-3 Now is the time to reduce costs 2 Time to Innovate JulianThompson For more information please contact Julian Thompson Julian.Thompson@Chaucerconsulting.com Financialrecoverygraphs
- 2. Improved individual stepsXX Zero process lossesXX Short lead timeXX Low work in progressXX High speedXX 2 Now is the time Time to Innovate (TCO), rationalising the SOx processes, regula- tory fulfilment and continuity services? Who is radicalising the supply chain – and regain- ing control. Who? Well if not you, then maybe your direct competitors. Incremental may have been acceptable, but in the current climate‘Radical’is‘in’. The key is the approach and the small expert teams that bring this about; the leading fi- nancial process engineers, systems leaders and radical thinkers who know the underly- ing systems, the underlying processes and controls, how they are currently carried out, what is needed and what is not, for today and tomorrow. Those who built the past along with those who can envisage the future and radically rework your Strategy into Action: The images are fading; traumatised banks emptying out their staff, carry- ing away their possessions in card- board boxes. Yet the fall-out contin- ues, as many firms shed cost, plans and people in knee-jerk reactions to balance their books and absorb the impacts. The wider economy is now being affected by the secondary consumer confidence multi- plier, talking us towards recession. But not all is doom and gloom, not all are battening down the hatches. Some are quietly planning their future with skill, imagination and a de- gree of radical inventiveness. You may have seen the recent obituary of the innovative engineer HaroldWaterman, whose reaction to the ravages of the commercial property crunch of the 1970’s was to develop radically cheaper construction techniques that made large scale development viable in more straitened times, halving the average build time, leading to brilliant innovative re- development schemes such as No1. Canada Square and Hays Galleria. He forged a world- wide engineering design company – world leaders in innovation. So who is doing the same in banking and insurance? Who is challenging convention? Who is radi- cally rethinking all your operations? Not just accelerating the outsourcing of existing tired models, but fully reviewing ‘Strategy into Ac- tion’. Then proving benefits by building a challenge operation to work alongside the current one and eventually replace it? Who is radically re-engineering the customer propo- sition for the next 10-15 years, the new end- to-end service model, the new service fulfil- ment processes including people and IT? Who is reworking theTotal Cost of Ownership During periods of expansion and plenty it is easy to become distract- ed from the need to manage costs down to an optimum level. As a result, when a downturn approaches, thoughts turn to ways to minimise expendi- ture without sacrificing service levels or quality. It is at times like these that techniques like Lean processing become central. Lean processing is about ensuring that your processes flow smoothly and simply, and that all waste is eliminated. The first thing to emphasise is that you don’t just hire a consultant to ‘do lean to you’. It is absolutely vital that your team leaders and staff are actively involved in improving their own processes alongside the consultant. To‘Lean’the process is to eliminate waste, and develop high speed flows, short lead times and cost reductions. There are a number of tools and techniques available to assist in doing this. The first step is to work together to develop a value stream map of the process.This sets out the steps in the process (just as in basic flow- charting), and then collects data and popu- lates the map for each step as follows: Process TimeXX Time per unit spent adding value Queuing TimeXX How long do items wait to be proc- essed? Challenging convention The new competitor market model; whatXX matters and what does not? The new customer propositions; whatXX stays, what goes and what’s new? The new end-to-end service model –XX the key to global re-engineering The new service fulfilment engines –XX global, regional, local matrix People, organisationZZ BusinessZZ ITZZ Reworking the TCOXX Radicalising the SOx processesXX Integrating Regulatory fulfilmentXX Ensuring continuity of servicesXX Radicalising the supply chain – andXX regaining control RogerBaker For more information please contact Roger Baker Roger.Baker@Chaucerconsulting.com
- 3. 6.9 0 9 3 to reduce costs Takt TimeXX Takt Time has been likened to a drum- beat, with each beat representing the completion of another unit. What is the frequency of the drum beat? Change-Over timeXX How long does it take to switch from one task to another, including setting up and getting up to full speed? UptimeXX Time actually spent in production – i.e. working time less interruptions and rest periods Defects and ReworkXX Time and cost of repairing defective output DemandXX The volume of work arriving to be completed Work in Progress levelsXX Howmanyitemssitbetweenprocesses waiting for the next stage of process- ing to be completed? Effectiveness ratesXX Effectiveness is defined as ‘Uptime x Speed x Quality’ Staffing levelsXX How many FTE are employed on each activity? CapacitiesXX How many units could be produced with existing resources working at full strength? Value adding and Non-value add-XX ing activities Does the activity add value or not? In this context Value added means: activities that transform or shape a product or service towards that which is sold to the customer. Non-value added means activities that take time, resources or space, but do not add to the value of the product or service itself. Lines of communicationsXX Show all the contacts between players in the process Once we have collected all this information about the way the process currently works, we can begin to make improvements and to make our process lean, firstly by eliminating waste. Chaucer Confidence Index: 6.9 We asked our colleagues in the industry what, on a scale of 0-9, was their level of confidence that they would successfully realise their change agenda over the next 12 months. This relatively high figure may be due to the fact that we are at the start of a new change cycle, with many institutions still to finalise their 2009 budgets and portfolios. We will continue to sample opinions on subsequent issues, and highlight the factors which have led the index to move up or down. For more information on Lean Processing techniques contact Steve Crawley Overproduction This is the creation of high levels of work in progress which occurs when one step produces output at a rate which exceeds the capacity of the next step in the process Transportation Occurs with the movement of paperwork around offices and between locations Inventory For example, piles of forms awaiting processing Defects Getting it wrong e.g. incorrect records or documents Over-processing A process which is not efficient i.e. excessive and unnecessary steps in the process Motion Excessive, time-and-energy- consuming movement. A good example of this is too many keystrokes to complete a record Waiting Time spent‘on hold’- the inability to progress until information from a previous process becomes available Work on reducing these sources of waste and you will go a long way toward producing leaner and lower cost processes. There are many other techniques within the Lean armoury that can be used. There are seven kinds of waste SteveCrawley Steve.Crawley@Chaucerconsulting.com
- 4. 4 www.chaucerconsulting.com Key factors that drive change Upcoming events It is a truism but winners always emerge out of recessions stronger then when they went in. It’s a result of paying heed to the SAS motto‘Who dares wins’. This doesn’t mean taking unnecessary risks, but is rather about continuing to pro- actively manage your business in response to its market and the wider operating environment. It is about being bold and taking advantage of the opportunities that do arise, and not adopting a bunker mentality. Below is a list of 6 areas where we believe an organisation should change to take advantage of those opportunities and emerge from the recession stronger than its competitors. 1 Strategy and planning – It’s imperative that the Board or Executive Team take time out to develop a strategy and plan to help the organisation through hard times. Simply meas- uring negative variances against old plans is meaningless. Now is the time to adapt to the circumstances around you, and develop a plan to help manage the organisation’s route. Without a map and plan you’re hopelessly lost. 2 Innovation – Innovation reflects energy within an organisation. Simply churning out the same old products and services reflects introspection and a lack of ideas. It indicates an organisation that’s not responsive to its marketplace. Continue to develop and market new propositions – don’t be afraid if these take you in new directions you weren’t antici- pating. 3 Talent acquisition – Most organisations – particularly those where HR acts as the lead cost cutting agent rather than a business partner – look to retrench and cut head count. Winning organisations see the tough times as an opportunity to strengthen their team through the targeted acquisition of strong hires. Build the organisation which will let you accelerate away faster than the competition when the recovery appears. 4 Variable costs – Businesses with a variable cost model are much better placed to adapt to tougher environments than those with a high level of fixed costs. Organisations which have sought to lock in talent through expensive bonus guarantees will suffer the double whammy of a high fixed cost base in conjunction with a team of people who have no incentive to grow the business – their money is already guaranteed. Review your cost base and look to turn as many of your fixed costs as possible into variable ones. 5 Lean organisation - Operational efficiency and effectiveness is a key attribute of win- ning organisations. They look to cut out any fat which has accumulated during more prosperous times. Operational and financial metrics (such as those used in Lean Six Sigma) will highlight those areas which are inefficient or ineffective and where action needs to be taken, and will also chart progress as it is made. 6 Culture – As the external environment changes, the ability to adapt and re-organise in- ternally becomes key. Companies must embrace change, and the culture must reflect this from the top down. A leadership team which is paralysed and incapable of demonstrat- ing clear leadership is destined for failure, and the rest of business can only stagnate. CharlesAsher Chaucer Breakfast Briefing, Central London, 11th December Chaucer will be holding a Breakfast Briefing for senior executives on Thursday 11th December at 8am at the Institute of Directors, in Central London. The theme for the briefing will be ‘The Financial Crisis – whatever next?’ We are lucky to have three leading repre- sentatives from the Financial Services in- dustry, to provide us with very different perspectives: Mike Bussey – CEO, Arbuthnot Latham Pri- vate Bank. Mike has significant experience of leading private banking organisations and was previously CEO of Rothschild Pri- vate Bank and Trust and before that held a number of senior management positions internationally with HSBC. Ruth Lea – Economic Adviser and Group Non-Executive Director at Arbuthnot Latham Group. Ruth is also a member of the shadow MPC, ex-Head of the Policy Unit at the IoD, and ex-Chief UK economist at Lehman Brothers. Quentin Thom – Director, Amber Partners. Quentin is an expert in Operational Risk Management and has implemented risk frameworks inTier 1 banking and brokerage organisations as well as in hedge funds through his current role. If you would be interested in attending or have any comments about this newsletter please contact Charles Asher (editor) on 07834 265572 or e-mail him at Charles.Asher@Chaucerconsulting.com For more information please contact David Powell. David.Powell@Chaucerconsulting.com DavidPowell 67-68 Preston Street • Faversham • Kent • ME13 8PB • UK Tel: +44 (0)1795 542500 Fax: +44 (0)1795 542510