Lean & process · Whitepaper · 5 min read
A square peg in a round hole: why manufacturing Six Sigma won't work in financial services
Published · Updated
Key takeaways
- • In financial services the critical driver is information, not a tangible product.
- • Defective transactions are hard to see and get passed to the next step.
- • Financial services Six Sigma must first stabilise the process to detect errors, then prevent them.
In the late 1970s, most companies that signed on to quality initiatives did so with their backs against the wall. Leading US manufacturers such as Xerox and Ford were losing share to Japanese competitors using Total Quality Management and Lean. By the 1990s, Jack Welch at General Electric had introduced the new game changer: Six Sigma.
Today, facing competitive pressure and demanding regulation, leading financial services firms have embraced Six Sigma. But manufacturing Six Sigma, a compilation of complex tools, cannot be applied in its original form to a transaction-based financial services environment.
Four tenets for financial services
- Manufacturing is driven by a visible, tangible product. The critical driver in financial services is information.
- Manufacturing processes negotiate hundredths of a millimetre. There are no such tight tolerances in financial services.
- Manufacturing Six Sigma has moved beyond detection to prevention. Financial services Six Sigma must first build the ability to detect errors.
- Manufacturing processes are highly automated. Despite its IT infrastructure, financial services relies heavily on human input.
What is financial services Six Sigma?
Six Sigma uses people, data and statistics to reduce operational cost and risk while improving customer service. It measures processes in terms of defects: rework, wait time and rejects. In financial services, defects often come from missing information, a lack of standardisation, or incomplete transactions passed to the next step, and their hidden cost runs into millions of dollars.
Why the manufacturing version doesn't fit
In manufacturing, defective parts, inventory build-up and bottlenecks are easy to see. In financial services, incomplete or defective transactions are hard to identify and get passed to the next phase, and the workflow is hidden across hundreds of desks and systems. Workers "customise" their daily transactions over time, introducing variation.
So the central goal of Six Sigma in financial services is to stabilise the process first. Once it is stable you can detect errors, and then move on to preventing them. That calls for a different set of tools from those designed for the factory floor, which is why ProcessArc built its own financial services curriculum, later approved by ASQ as the standard for the sector.
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Sheila ShaffieCo-founderBusiness transformation leader who honed her skills at three GE businesses: Plastics, Healthcare and Capital. GE Master Black Belt, University of Chicago MBA and co-author of The McGraw-Hill 36-Hour Course: Lean Six Sigma.