There is a misnomer out there that when a financial institution makes any type of changes or improvements in their organization, they will see immediate results. However, this is not always the case. While there is a direct correlation between raising fees and an increase in non-interest income, most operational and process changes take time to yield results.
The Myth: Any Operational Efficiency Enhancements will Provide Quick Wins
Many financial institutions believe they will see immediate improvements in operational efficiency and productivity after making changes to their operational efficiency processes.
The Truth: Incremental Changes Result in Measurable Impact
Eighty percent of organizations are not performance focused and true organizational change takes small adjustments over time. These incremental changes add up along the way to create a measurable impact. Though many professionals make the argument that they are performance driven. In reality, they are driven by sales. There is nothing wrong with being sales driven, but there are other factors that are important performance drivers. Below are the four main drivers behind an organization’s overall performance:
Sales is the main driving factor behind any organization. Managers are often reviewed based on their sales performance and are constantly asking themselves, “How many loans did we sell? How many accounts did we open? How many deposits did we get?”
By productivity, we are referring to the management of the logistics and the pace of the organization. For example, you may ask yourself how many teller transactions you are completing per hour. How many loans should we be able to originate in any given day or month?
Using the teller transactions per hour as an example, financial institutions often note that some tellers perform at rates of 25 to 30 transactions per hour while others perform at much slower rates. Benchmarks and studies at numerous clients suggest most tellers should be able to process 20 to 30 transactions per hour.
Upon further analysis, an organization may discover that the average pace among its staff is 15 transactions per hour but find on heavy days this number doubles. Therefore, the financial institution should consider creating service expectations based on higher volume days. This might work out to 25 transactions per hour on average. This becomes the basis for employee expectations going forward. Once tellers consistently meet the higher productivity standard, a financial institution can begin to review staffing impacts from the increase in productivity change. Within a few months you should begin seeing results from that performance initiative.
The quality of your work is incredibly important when it come to overall performance. If your organization’s quality of work is excellent and accurate, you will spend less time with rework. Rework resulting from poor quality interactions creates waste in the process. The creation of quality expectations helps to reduce organizational waste.
Consistent quality operational performance leads to the ability to potentially reduce headcount or create more value-added capabilities improving organizational productivity and better financial results. The best way to combat this inefficiency is to create measurable Key Process Indicators or KPIs and hold your staff to them.
Financial goals are incredibly important to C-Suite executives, but they should also be important to cost center managers within the organization. As we mentioned in our previous blog, most managers do not know how much it costs to operate a branch or department. Not having visibility into the financials can hinder an organization. Allowing your managers access and responsibility to those financials often pays off in better performance and lowers overall operational costs.
Operational changes do not work like a light switch, you can’t just turn efficiency on and off. Most operational efficiency initiatives are going to take several months, or longer, while you retrain staff and begin the process the new way. This allows organizations to reduce staff, or as reduces the need for more staff as the organization grows. Having strong productivity metrics actually helps organizations understand when it is appropriate to increase or decrease staff based on changes in process volumes across time.
Remember, a cultural shift within your financial institution should never be abrupt. An abrupt change within an organization creates chaos. What you will accomplish with slow, methodical changes will better benefit the financial institution’s performance in the long run. Patience is key.
If you want to learn more about the common myths and misconceptions surrounding operational efficiency, make sure to check out Step 2 in our “Profitability Enhancement Playbook.”