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Operational Excellence is a journey

Great organizations are not only about amazing products and excellent customer experience, but also about Operational Excellence that brings it all together.

"Excellence is a CONTINUOUS process, not an accident!" – A P J Abdul Kalam

Great organizations, especially the ones that require strong processes (front and back-end) to deliver quality product, services & transactions cannot dream of becoming big & successful unless they know how to achieve Operational Excellence.

I remember discussions that we had when we embarked on a project to implement Operations Risk Management system (ORM) around 13-14 years back in my previous organization. One of the mandatory tasks of the project was to list down the processes, inherent risk and value associated with those likely risks and defaults. This, to my mind, was the biggest benefit since it gave a number or value to the risk. While a capital is allocated to the value of risk, a matured organization also embarks on a journey to reduce the errors or grey areas in operations to minimize the occurrences. A natural progression to reducing risk in identified area, leading to lower capital allocation.

My own experience and tryst with ‘quest for operations excellence (degree of it, since it is a journey)’ was at one of the finest institutions of India, especially in Banking. The learning was more valid and relevant since I experienced it with the organization achieving massive scale in a period of just over 2 decades, an unprecedented growth not only in India but globally. Talking of scale, it was not alone for the verticals in business areas that we started with but also the ones that were added subsequently, those too quickly adopted the standards followed by others.

Simplistically put, ‘Operational Excellence’ is essentially a consistent manner in which an operational activity is performed, each time, every time. Easier said than done through.

Then how is Operational Excellence achieved or pursued, what are the components that are essential part of the journey? Let’s look at some of those here in this blog;

Standardization & Documentation

Skipping the discussion on JD and Role & Responsibilities of resources, I will straight away jump to “Identification of process owner or owners”.

For any process needing improvement and standardization, the starting point itself is to identify the Process Owner. Once this is done, next logical step is to document the process.

An approved and documented process is like a holy bible and has to be adhered-to by all engaged with the process. Documentation of process and adherence becomes even more critical in scenario where a process is executed at various locations, such as Clearing of Cheques, executing of Trade Finance transaction or opening an account.

Processes that require multiple participants for completion should have the collective agreement and responsibility for each constituent should be clearly defined & documented.

The process may also start at one location and may go through various players, spread over other offices and cities, before it gets completed. Such complexities do not justify process not being adhered to by anyone in the chain. A customer ‘account opening document’ starting from a retail branch, going through various clearances before the account is opened in a Core Banking Application, is one such example. An LC document submitted by customer at branch, finally issued by a Centralized Unit, a Vehicle Loan document received at branch, going through input team, taken over by Risk Team, cleared by Credit Team, and finally disbursed by Operations team are other examples of multi-party process ownership. Such processes require greater degree of preparatory work, same to ensure quality to keep FTNR (First Time Not Right) at minimal.

Standardization of process is to ensure everyone, no matter the volume he/she handles and where is one located, follows the process without any localization, unless approved specifically.

Any subsequent changes to the process must be formally shared with everyone concerned and organization must ensure all adopt the revised process completely, and old one is discarded diligently.

Do it Right, First Time Right

An incorrect process can lead to error, losses or customer dissatisfaction. Every transaction or activity in a process, or the process itself has to be executed correctly, without flaws.

There should be little or no tolerance to errors and exception and First Time Right (FTR) should be the motto & objective. Errors should be recorded and measured and should be categorized as First Time Not Right or (FTNR). The process should be reiterated to the person causing an FTNR and the errors should be linked to performance measurement of resource.

Addressing FTNRs provides opportunity to greatly increase efficiencies, reduce risk and achieving greater customer satisfaction. Illustratively speaking, an FTNR case in an account opening document sourced from customer can lead to a delay of one day and beyond, or a Forex Transaction not executed same day can lead to business losses and a massive customer complaints.

What gets measured gets addressed

The errors in processing should not be allowed to go unaddressed. An identification and review method should be in place to ensure mistakes are not repeated. Corrective measures, such as training need, sensitizing process contributor on need to do things correctly, any system tweaking required to reduce errors or even reviewing competency of staff should be initiated. A tolerance level must be defined for errors and breach should be linked to performance of Process Owners.

Reporting of errors should be a rule and not left to the liking of process owner or authority managing the operations shop.

A system should be put in place to report all errors while remedial measures taken should be tracked.

Controls is the key to ensuring quality

HDFC Bank limited, especially for Wholesale Banking Operations which ran an impeccable operations shop under their Group Head Bhavesh Zaveri, had gradually built an environment of significant checks and balances. The structure was reflection of Mr. Zaveri’s quest for error free operations. Known well in the banking industry for having achieved a remarkably impressive Transaction Banking Journey, Mr. Zaveri, when faced with an error, would often ask, “have you fixed the process?” Fair ask, to ensure it doesn’t happen again. And it worked, phenomenally well.

HDFC Bank assigned the responsibility of monitoring and controlling the errors to another unit. “Branch Control Unit” or BCU was entrusted with the responsibility to ensure all the operating units in the bank adhered to the process that was defined and approved. A distributed or regional structure was created within BCU to ensure each and every location in the country was audited by a competent BCU representative who armed with Audited Process would submit his report to Regional Head of Operations.

In addition, Audit, the central agency to ensure fraud prevention, control adherence and even monitoring Turn Around Time (TATs) between business and operations, would also play a role. The systems were suitably changed to ensure Audit could get the information it needed to carry out its task. Password sharing, wrongly processed transactions, connivance with others to cause organization any harm was typically the areas that attracted maximum attention of Audit team.

Between Audit and BCU teams, bank ran a tight operation, a shop that with well-defined processes could seamlessly scale-up, scale-down if required or add new functions and processes, with utmost ease.

Each unit was audited exhaustively as per agreed frequency and a report on performance was submitted to the Managing Director of the Bank, besides the Operations & Function Head. Below par or inadequate ratings had implication for Function, State Head and even Regional Head.

There is no alternative to Training

In a rapidly growing & high churn environment, such as Insurance Sector or Banking, a lot many new resources are added at the existing shops or newly added locations. It is important to ensure the users, especially new, no matter which area of process they get engaged with, are adequately trained.

While on the job training is taken as a short cut, it always makes sense for organization to impart a formal training program on all new employees. There should be a measure to also monitor progress and performance of any new staff that is added to the process.

Retraining needs are critical component as over period of time the process goes through modification, and mismatches at various locations may happen. Retraining program also provide an opportunity to take feedback from process owners and contributors to improve on process defined & followed.

Review & revalidate process periodically

In an increasingly automated environment, a process is subject to constant changes. The processes may be revised because of new addition in steps, a tech change that alters the sequence, adds a step or removes one, regulatory or business change warranting altered process needs a periodic review.

Besides witnessing & facilitating many others, I have personally participated in changes that took place in critical processes for variety of reasons. A new solution that automates a manual process, better method suggested to carry out a process and an adverse feedback from users on a process executed through application warranting a complete overhaul. This meant a process had to be redefined to complete the activity under revised method.

An example of process change, to meet the new business environment of demand, was the decentralization of Trade Finance (FX) transactions to 50 odd locations from then existing 4. It was a significant change that required system modification, monitoring and control of operations shop through various reports.

Another example; Collection of charges for Cheque Processing was automated and no longer collected by centers processing clearing. This again gave way to new process of monitoring of charges recovery by application centrally at Mumbai.

Bank, known for its operational excellence had centralized its Trade Finance Operations at 4 Metros in 2003. It gave the desired results where staff with minimal expertise at trade branches at various locations, could simply initiate the transaction on Digital Platforms. But over period of time, owing mainly to business demands for faster processing time or better TATs & increasing volume at some of the big cities like Bangalore and Hyderabad, necessitated a relook at processing. Bank took a call to decentralize operations to more than 50 locations within no time.

Process refinement needs constant Review and Course correction.

Don’t reinvent the wheel but don’t resist the change either

Operational Excellence warrants a focused approach on efficiencies in critical processes. While a process defined might be working satisfactorily, it may always offer opportunities for improvement. A tech driven opportunity to electronically read (OCR) documents and populating the information in Workflow applications may be one such opportunity. While the migration to new process may be painful, the revised process may offer enormous benefits. Bite the bullet whence it is due !!

Keep exploring opportunities to automate a manual process. A physical report verification process for transactions processed, replaced with Digital Application will surely provide immense benefits & better control and must be given serious thoughts.

Benchmark Operational Excellence

While documented processes that are owned by Identified Process Owners and followed by executing team is a sign of matured organization, there are always opportunities to take the process to the next level. In certain areas of operations, at least, organization can obtain certification such as ISO.

For its In-house automation unit, which developed low cost, scalable applications and platforms, the Bank, understanding the criticality of the unit and work involved, obtained a 3rd party review of development environment and subsequently achieved CMMi level 3 certification. The process ensured ‘the environment’ subscribed to documented processes and was subjected to validations.

The advantage of quality certification is that firstly, organization can revalidate the processes at defined frequency and secondly, can also use it to showcase to its customers that their organization is driven by Quality Considerations.

The Final words

The quest for Operational Excellence is never ending and it keeps the organization busy with its own challenges and opportunities. The organizations that have Operational Excellence as their mission statement and pursue it diligently will have the advantage of an error free environment that will also ensure a happy user base, not to forget the end customer using services or products.

Matured organizations with fair degree of Operational Excellence have tangible benefit of cost savings, which can be a substantial value contributing to the balance sheet.

Organizations should make efforts to imbibe Operational Excellence in their DNA where the pursuit of it is not limited to few individuals but followed more as process across the enterprise.

“Excellence is doing extraordinary things extraordinarily well" - John W Gardner

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