Why Wealth Managers Need Lean Thinking to Stay Fighting Fit

From near dissolution and Bank of Japan bailout at the end of the 1940s to the largest automobile manufacturer in the world today with the best-selling car of all time.

Toyota has been a remarkable success story. Its secret?

Staying lean

Forty years ago, a young John Krafcik – who went on to become CEO of Hyundai Motor America and Waymo, Google’s self-driving car company – conducted a seminal MIT Sloan School of Management study. He examined dozens of automotive assembly plants in different countries to compare their productivity and quality.

Krafcik contrasted the inefficient “buffered” approach adopted by many auto manufacturers with the “lean” methods Toyota pioneered in the Toyota Production System (TPS). This lean thinking ethos focuses on maximising value for the customer while improving efficiency and minimising waste – of resources, time, energy and effort.

As Krafcik discovered: “Lean plants are more capable of simultaneously achieving high levels of productivity, quality, and mix complexity.”

Data management lessons for financial institutions

What lessons can today’s data-swamped financial services companies take from Toyota and Krafcik’s study?

Data management in most organisations runs counter to a lean approach:

In the Toyota Production System, waste (known as muda in Japanese) is anything within a process that doesn’t add value but does add unnecessary cost. The TPS focuses relentlessly on identifying and stripping out muda wherever it appears.

Data volumes in financial services are expanding exponentially, so firms need to ensure their data’s integrity and usability if they are to extract value from it. The problem is data errors, omissions, inconsistencies and replications are rampant, with no single, reliable source of the truth.

Relying on manual checks to rectify data problems comes with a high price in staff hours and extra headcount needed to investigate and fix errors. Incorrect data in regulatory and client reports can lead to fines and compensation claims. Indirectly, poor data also worsens decision making, hinders innovation and undermines critical business initiatives, including moves to automate, digitalise and adopt AI solutions.

Eliminating workflow unevenness or irregularities (mura) is central to the Just-In-Time system, a key TPS pillar.

Data in wealth managers is often siloed across teams, business lines and/or geographies, making it hard to access and cross-pollinate. Bottlenecks obstruct flow – a key lean thinking principle in which value-creating steps flow smoothly without interruptions or delays, improving productivity and quality.

Traditional financial institution operations focus on end-of-process data audit checks, whether for month-end reconciliations, client reports or regulatory submissions. These periodic “after-the-fact” reviews only reveal data errors once they have become baked into workflows and have cascaded across accounts, valuations, suitability assessments and regulatory submissions. It is like finding blueprint errors after a building is complete, Sandesh Gawande, CEO of data reliability platform iceDQ, warned in a recent Forbes article.

The TPS principle of jidoka (automation with human intelligence) strives to highlight problems as soon as they occur. Countermeasures can then be introduced immediately to solve the problem, prevent re-occurrence, and stop the waste that would otherwise result from the downstream defects errors produce.

In lean thinking, only activities that contribute to delivering a product or service the customer values are considered value-adding.

As digitalisation spreads across the financial industry, clients’ service expectations are growing with it. Customers want fast, seamless onboarding … responsive ongoing support … ready access to real-time information … flawless delivery of informative reports. The data that populates these interactions must be accurate, comprehensive and timely.

Where wealth managers struggle with poor quality or missing data, the customer experience suffers. Mistakes breed client distrust and service dissatisfaction. That can lead to reputational damage, customer desertions and potential revenue loss. Having to compensate customers for incorrect and restated reports also has a direct impact on the P&L.

Transform your results through kaizen

Continuous improvement is at the heart of lean thinking. Systematised as the Japanese concept of kaizen, the focus is on optimising processes by employing problem-solving and constant incremental improvements based on direct observation to promote efficiency, flexibility and quality – creating more customer-centred value and business sustainability with fewer resources.

Rather than dramatic, one-time leaps forward, kaizen focuses on multiple modest enhancements that are easier to implement and lower risk: many 1% improvements from everyone, every day, everywhere. Like the power of compound interest, and the British cycling team’s Olympic successes, small gains add up over time to produce impressive results.

Lean thinking is not just a methodology, but a systematic, continuous pursuit of excellence, notes the Kaizen Institute. It entails fostering an organisational culture where all employees – from frontline workers to top management – are empowered and actively engaged in identifying and implementing improvements and eliminating waste.

The prospective benefits to both your organisation and customers are transformational … as we’ll discuss in our next blogs.