six sigma banking sector

PRODUCTION AND OPERATION MANAGEMENT PROJECT SIX SIGMA AND ITS APPLICATION IN BANKING SECTOR

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SUBMITTED BY: CHARVI AHUJA 50047 DIVYA ARORA 50053 DIVYA WADHAWAN 50054 HULLAS ARORA 50069

INTRODUCTION Six Sigma is a systematical process of ―quality improvement through the disciplined data-analyzing approach, and by improving the organizational process by eliminating the defects or the obstacles which prevents the organizations to reach the perfection‖. Six sigma points out the total number of the defects that has come across in an organizational performance. Any type of defects, apart from the customer specification, is considered as the defect, according to Six Sigma. With the help of the statistical representation of the Six Sigma, it is easy to find out how a process is performing on quantitatively aspects. A Defect according to Six Sigma is nonconformity of the product or the service of an organization. Since the fundamental aim of the Six Sigma is the application of the improvement on the specified process, through a measurement-based strategy, Six Sigma is considered as a registered service mark or the trade mark. Six Sigma has its own rules and methodologies to be applied. In order to achieve this service mark, the process should not produce defects more than 3.4. These numbers of defects are considered as ―the rate of the defects in a process should not exceed beyond the rate 3.4 per million opportunities‖. The Six Sigma ensures the quality control, total quality management and zero defects. Through the implementation of the Six Sigma it is made sure that the goals are set on the improvement of all processes to reach the level of better quality. ―The Six Sigma‖ shows the organization‘s ability of highly capable processing in producing the outputs within the limited specifications. There fore it can be said that the processes that operates with the Six Sigma quality, is able to produce a quality products at a low rate of defects. When a process attains the certification of Six Sigma quality, it is clear that the organization has attained the standard deviations from the means of the production till the specific limitations, and so can make sure that there is no room for the items to fail to meet the specifications. Altogether we can consider the Six Sigma as the professionalizing of the quality management functions

The Six Sigma Approach In order to eliminate defects, Six Sigma focuses on minimizing variation, because variation results in inconsistency in meeting customer specifications (defects), which in turn leads to dissatisfied customers. The sigma level corresponds to where a process or product performance falls when compared to customer specifications. In other words, the difference between the upper and lower bounds of the customer specification (denoted by the Lower Specification Limit, or LSL, and Upper Specification Limit, or USL, respectively, in Figure 1.1) represents the range within which the product or service must fall in order to meet customer specifications, with optimumdesign or target (T) at the center. This range is called the design width. The actual range in which the developed product or service falls, or the process spread, is called the process width.

A process that is centered has a normal distribution (or can be represented by a bell curve) with mean (μ) aligned with target (T), and the specifications placed six standard deviations to either side of the mean, as shown in Figure 1.1. Due to the natural drift that occurs in process execution, it is observed that over time the process mean drifts from the target by as much as 1.5 standard deviations. In the manufacturing world, such drift is typically due to tool wear and tear, while in the software world, it is due to reduced process adherence by humans over time changes in processes and tools. The consequence of this drift is that a small portion of the distribution extends beyond the specification limits—3.4 parts in 1 million to be precise. Another concept that is relevant to understanding variation is that of accuracy and precision. The process width, or the standard deviation of a distribution, is also referred to as precision. The difference between the mean and target is referred to as accuracy. Therefore, asa process spreads, its precision decreases. Likewise, the further away the mean is from the target,the less accurate the process is. In Six Sigma, the quest to reduce variation consists of two primary goals to be achieved in the following sequence: 1. Reduce spread: Reduce process width so that less and less of the product or process falls outside of the specification limit. In other words, increase process precision (or reduce variation). 2. Center the process: Center the process mean on the center so that more and more of the process or product average (mean) falls on target (T). In other words, increase process accuracy.

Another way to monitor whether or not a process or product is within specification limits is by plotting these data points using a control chart, as shown in Figure 1.3. In addition to the customer specifications (USL and LSL), the control chart uses additional safeguards (represented by upper control limit, or UCL, and lower control limit, or LCL), which represent thresholds that,if breached , indicate ―special cause‖ variation that, if left unchecked, will result in the customer specifications being breached (defect). This is the reason why the UCL and LCL fall within the USL and LSL. Such special-cause variation thus indicates the need for corrective action to bring the process back under control so that the customer specification limits are not breached and no defects result. Indeed, from a Six Sigma perspective, when the control chart for a process or product is plotted, the first order of business is to look for any such ―out of control‖ data points representing special-cause variation and to bring them back within the UCL and LCL control limits. In other words, reduce process spread and improve process precision. The next step is to look at the process average (or mean) to see how far from target it is in order to determine ways to improve the process average so that it falls on target. In other words, center the process and improve process accuracy.

The Concept of Sigma Levels Higher levels of sigma correspond to fewer and fewer defects, and thus higher and higher levels of customer satisfaction. In fact, each additional sigma level results in an exponential reduction in defects. For example, a move from four sigma to five sigma requires 27 times improvement in performance, and a move from five sigma to six sigma requires more than 60 times improvement in performance. Six Sigma (6_) represents the near elimination of defects at 99.9997 percent goodness, or only 3.4 defects per million opportunities (DPMO)—a quality level that is synonymous with world-class quality

It ultimately boils down to an organizational decision on what sigma level is the most appropriate from a cost-benefit perspective. In other words, every process or product does not have to reflect Six Sigma quality. Generally, products and processes involving human safety, health, and money are most likely to strive for Six Sigma quality.7 Indeed, the airline industry operates with less than one fatality per million travelers, which is better than the Six Sigma level of 3.4 fatalities per million travelers.

Six Sigma Improvement Methodologies and Tools The suite of Six Sigma improvement methodologies comprises three key methodologies, each appropriate for use for a specific purpose: ▲ DMAIC (Define, Measure, Analyze, Improve, Control) for process improvement by reducing process variation and defects. ▲ DFSS (Design for Six Sigma) for designing new processes and products. is a systematic methodology utilizing tools, training and measurements to enable us to design products and processes that meet customer expectations and can be produced at Six Sigma quality levels

Lean Six Sigma (or simply, Lean) for improving process efficiency and speed. As a rule of thumb, a DMAIC project may result in anywhere from a modest to a significant improvement, typically up to 50 percent improvement. On the other hand, a DFSS or Lean Six Sigma project is more likely to result in a radical or breakthrough improvement, and it may deliver as much as 100 percent or more improvement to a process or product. Key measurements used in Six Sigma include critical to quality (CTQ), mean (μ), standard deviation (_), DPMO, and process capability (Cp, Cpk). Tools used in Six Sigma include qualitative and quantitative (statistical) tools for data analysis, root cause analysis, root cause validation, and identification and selection of improvements. ▲ Qualitative tools include but are not limited to process mapping, fishbone diagram, cause and effect matrix, five whys, failure mode effects analysis (FMEA), and so on. ▲ Quantitative tools include but are not limited to Kruskal-Wallis, one- and two-sample T-test, analysis of variance, confidence intervals, F-tests, one- and two-proportion tests, Monte Carlo simulation, regression, Design of Experiments (DOE), and so on.

DMAIC Overview Explained in simple terms, in DMAIC methodology, the purpose of the: ▲ Define phase is to define the problem or improvement opportunity (Big Y) and translate it into critical customer requirements (CCRs) ▲ Measure phase is to gather data on current process performance ▲ Analyze phase is to analyze the data to gather information on the causes that are resulting in the problem(s), or the factors that can be adjusted to improve performance (Small Xs) ▲ Improve phase is to identify the specific improvements to be implemented

▲ Control phase is to ensure that there is a plan in place to secure the gains and make them permanent, including mechanisms for detection of deviation in process or product execution from desired levels.The DMAIC phases are executed sequentially, although there may be some overlap and iterations between phases, as well as feedback from subsequent phases to previous ones. Key activities in the Define phase are: ▲ Define the problem statement or improvement opportunity in a way that effectively articulates why the Six Sigma project is necessary and why it is necessary right now. ▲ Develop the project charter. ▲ Map the current process. ▲ Gather the voice of the customer (VOC). ▲ Form the project team. Key activities in the Measure phase are: ▲ Identify the measurements to collect. ▲ Develop and execute the measurements collection plan. ▲ Develop and validate the measurement system. ▲ Identify baseline performance measurements as Cp/Cpk or DPMO (and sigma level). Key activities in the Analyze phase are: ▲ Stratify data to identify the underlying problem(s). ▲ Identify root causes. ▲ Validate root causes. Key activities in the Improve phase include the following: ▲ Identify potential solutions. ▲ Evaluate and select potential solutions. Key activities in Control phase include the following: ▲ Pilot potential solutions (if needed). ▲ Evaluate pilot results (if applicable). ▲ Develop the control plan. ▲ Develop the change implementation plan. ▲ Develop procedures, standards, and training material. ▲ Deliver training. ▲ Communicate improvements. ▲ Implement improvements.

DFSS Overview The DFSS methodology is appropriate for designing new products or processes, or redesigning existing ones if incremental improvements are not sufficient and breakthrough improvements become necessary. The most widely used framework for DFSS is DMADV (Define, Measure, Analyze, Design, and Verify). In this methodology, the purpose of the: ▲ Define phase is to define the design goal or improvement opportunity (Big Y) and translate it into CCRs ▲ Measure phase is to identify and gather data for key metrics that best quantify the VOC ▲ Analyze phase is to identify key design factors that influence the CCRs, identify design alternatives, and select a design approach ▲ Design phase is to identify design parameters, flow down the CCRs to design parameters, assess the impact of variability in design parameters on CCRs, assess design gaps, and identify corrective actions ▲ Verify phase is to identify potential design failure modes, exercise the new design via pilots and prototypes, and prepare for deployment of the new design Besides the DMADV framework, other popular DFSS frameworks include: ▲ Identify, Design, Optimize, Verify (IDOV) ▲ Concept, Design, Optimize, Verify (CDOV) ▲ Define, Measure, Analyze, Design, Optimize, Verify (DMADOV)

Lean Six Sigma Overview Lean Six Sigma is focused on eliminating waste and reducing capital investment in an organization by focusing only on activities that create value. Principles of Lean include: ▲ Zero waiting time ▲ Zero inventory ▲ Scheduling (internal customer pull instead of a push system) ▲ Batch to flow (reduced batch sizes) ▲ Line balancing ▲ Reducing actual process cycle times Given that Lean Six Sigma is focused on improving process efficiency and speed, one may wonder what Lean Six Sigma has to do with solving problems, improving performance, reducing defects, and improving sigma levels. Let us consider a couple of different perspectives. One view is to consider Lean and its tools such as value stream mapping, cycle time analysis, and pull systems (kanban) as yet another toolkit that is part of the overall Six Sigma toolkit. This means that within the scope of a traditional DMAIC project, where the Big Y is to reduce cycle time, one can leverage Lean tools such as value stream mapping to map out thecurrent process and perform a cycle time analysis to identify improvement opportunities that help achieve the Big Y of the project, and thus help solve a problem or improve performance. Another view is that by eliminating nonvalue-added steps in the process, Lean Six Sigma helps reduce the number of opportunities, which in turn results in fewer defects and thus increases the ―percentage good‖ for the same sigma level. As an example, if a 20-step process operating at four sigma is made lean by eliminating 10 steps, the percentage good improves from 88.29 percent to 93.96 percent. Now, if one were to apply the traditional DMAIC methodology of Six Sigma to improve the process to five sigma, the percentage good improvesdramatically—to 99.768 percent!

SIX SIGMA CORE CONCEPTS 1. Quality Tools Control Chart – Monitors variance in a process over time and alerts the business to unexpected variance which may cause defects. Defect Measurement – Accounting for the number or frequency of defects that cause lapses in product or service quality. Pareto Diagram – Focuses on efforts or the problems that have the greatest potential for improvement by showing relative frequency and/or size in a descending bar graph. Based on the proven Pareto principle: 20% of the sources cause 80% of any problems. Process Mapping – Illustrated description of how things get done, which enables participants to visualize an entire process and identify areas of strength and weaknesses. It helps reduce cycle time and defects while recognizing the value of individual contributions. Root Cause Analysis – Study of original reason for nonconformance with a process. When the root cause is removed or corrected, the nonconformance will be eliminated. Statistical Process Control – The application of statistical methods to analyze data, study and monitor process capability and performance. Tree Diagram – Graphically shows any broad goal broken into different levels of detailed actions. It encourages team members to expand their thinking when creating solutions. 2. Quality Terms Black Belt – Leaders of team responsible for measuring, analyzing, improving and controlling key processes that influence customer satisfaction and/or productivity growth. Black Belts are full-time positions. Control – The state of stability, normal variation and predictability. Process of regulating and guiding operations and processes using quantitative data. CTQ: Critical to Quality (Critical "Y") – Element of a process or practice which has a direct impact on its perceived quality. Defects – Sources of customer irritation. Defects are costly to both customers and to manufacturers or service providers. Eliminating defects provides cost benefits. Green Belt – Similar to Black Belt but not a full-time position. Master Black Belt – First and foremost teachers. They also review and mentor Black Belts. Selection criteria for Master Black Belts are quantitative skills and the ability to teach and mentor. Master Black Belts are fulltime positions.

Certification Corporations such as early Six Sigma pioneers General Electric and Motorola developed certification programs as part of their Six Sigma implementation, verifying individuals' command of the Six Sigma methods at the relevant skill level (Green Belt, Black Belt etc.). Following this approach, many organizations in the 1990s started offering Six Sigma certifications to their employees. Criteria for Green Belt and Black Belt certification vary; some companies simply require participation in a course and a Six Sigma project.[19] There is no standard certification body, and different certification services are offered by various quality associations and other providers against a fee. The American Society for Quality for example requires Black Belt applicants to pass a written exam and to provide a signed affidavit stating that they have completed two projects, or one project combined with three years' practical experience in the body of knowledge. The International Quality Federation offers an online certification exam that organizations can use for their internal certification programs; it is statistically more demanding than the ASQ certification.Other providers offering certification services include the Institute of Industrial Engineers, the Juran Institute, Six Sigma Qualtec, Air Academy Associates and others. One key innovation of Six Sigma involves the "professionalizing" of quality management functions. Prior to Six Sigma, quality management in practice was largely relegated to the production floor and to statisticians in a separate quality department. Formal Six Sigma programs adopt a ranking terminology (similar to some martial arts systems) to define a hierarchy (and career path) that cuts across all business functions.

Six Sigma Training Six Sigma Training is one of the most important factors that contributes to and helps modify and shape an organization's culture. This article will help identify who in your organization is required to be Six Sigma trained and what type of Six Sigma training they should receive. Who and What Type of Training ? 1. Senior Management Senior Management, also known as 'C-Level Management' (CEO, CIO, CFO and peers), are the individuals that set, communicate and drive the overall business objectives. They are also the individuals that are required to incorporate Six Sigma objectives into their operational plans. Examples of objectives might include:  X% of employees through Six Sigma training by a certain date  Y% reduction in defects for all customer visible processes by quarter end  $Z in back-office projects savings by year end Six Sigma training for Senior Management should include a program overview, business and financial benefits of implementation, real-world examples of successful deployments, specific application to business/industry, and the required Six Sigma training and tools to ensure successful implementation. Depending on Senior Management time availability and their desire to learn the details, Black Belt training is also recommended.

2. Functional / Process Managers Functional and Process Managers are the level of management directly reporting to the Senior Management. Depending on the size of the organization, they might include functional managers from areas such as human resources, finance and training, and process managers from areas such as assembly, production and call center. These managers are sometimes referred to as 'sponsors' and 'champions' because they are known to champion the cause within their business organization. These champions translate Senior Management's strategic directions into tactical objectives and actions with the help of their Quality Leader and Project Leaders. Six Sigma training for Functional and Process Managers is more detailed than that provided to Senior Management. Topics would include the Six Sigma concept, methodology, tools and requirements to ensure successful implementation within their organization. Depending on Functional / Process Manager time availability and their desire to learn the details, Black Belt training is also recommended. 3. Quality Leaders Quality Leaders, also known as Quality Managers and Master Black Belts, help Functional and Process Managers set and lead the Six Sigma vision within their specific areas. They maintain rolled up budgets, track business cost savings, ensure training goals are met, coach Functional and Process Managers, Project Leaders and Employees, review projects at milestones, share best practices, and ensure appropriate use of tools and methodologies. Six Sigma training for Quality Leaders includes detailed information about the concept, methodology and tools, as well as detailed statistics training and computer analysis tool use. Depending on the instructor, the duration is usually between three and four weeks. 4. Project Leaders Project Leaders, also known as Black Belts, implement the Six Sigma methodology and tools within the business. They lead the intra- and inter-function projects, maintain time lines and budget, determine appropriate tool use, perform analyses, and act as the central point of contact for specific process improvement projects. Six Sigma training for Project Leaders includes detailed information about the concept, methodology and tools. Depending on the instructor, the duration is usually between two and four weeks, and may include one of more weeks in between sections. Statistics is included in the agenda, but typically does not include as much detail as that provided to Quality Leaders. 5. Employees Employees, also known as Green Belts, may also take Six Sigma training courses developed specifically for part time Project Leaders. Six Sigma training for Green Belts is similar to Black Belt training, but shorter in duration because less detail on complex tools and statistics is provided. Employees are instead told to ask their Black Belt for help in specific areas. Some organizations use additional belt colours, such as Yellow Belts, for employees that have basic training in Six Sigma tools and generally participate in projects and 'white belts' for those locally trained in the concepts but do not participate in the project team.

Advantages of six sigma Financial Advantages 

Six Sigma reduces process-output variation, which increases process efficiency and reduces operating costs. Six Sigma's focus on process improvement saves money by removing the causes of defects, which increases the company's profit margin. Motorola says it has "documented over $17 billion in savings" in over 20 years of using Six Sigma. ) Six Sigma is successfully implemented in virtually every business category including return on sales, return on investment, employment growth and stock value growth.

Quality Advantages 

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While focusing on removing all causes of defects, the Six Sigma approach improves the overall quality of the final product sold. The fundamental goal of Six Sigma is to eliminate the waste of resources, but customers also purchase products that work better and last longer. Companies that successfully implement Six Sigma increase customer satisfaction and retention by providing higher-quality consumer products without raising prices, because of the cost-saving aspect of this quality-control strategy. Six Sigma is prospective methodology as compared to other quality programs as it focuses on prevention on defects rather than fixing it.

Employee Commitment 

Implementing Six Sigma affects the organizational culture of a company and requires employee buy-in from the entire organization. Six Sigma relies more heavily on this commitment than most other methods; the complex statistical methods and implementation process force many companies to hire outside Six Sigma experts, which can be costly but immediately shows commitment from the organization's upper management. The lower-level employees also need to buy into the strategy, because the Six Sigma experts will be working closely with them on a daily basis to better understand the process and possible sources of defects

Criticisms of six sigma 

Lack of originality Noted quality expert Joseph M. Juran has described Six Sigma as "a basic version of quality improvement", stating that "there is nothing new there. It includes what we used to call facilitators. They've adopted more flamboyant terms, like belts with different colors.. The American Society for Quality long ago established certificates, such as for reliability engineers."]

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0Role of consultants The use of "Black Belts" as itinerant change agents has (controversially) fostered an industry of training and certification. Critics argue there is overselling of Six Sigma by too great a number of consulting firms, many of which claim expertise in Six Sigma when they have only a rudimentary understanding of the tools and techniques involved.

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Potential negative effects A Fortune article stated that "of 58 large companies that have announced Six Sigma programs, 91 percent have trailed the S&P 500 since". The statement was attributed to "an analysis by Charles Holland of consulting firm Qualpro (which espouses a competing quality-improvement process)."[33] The summary of the article is that Six Sigma is effective at what it is intended to do, but that it is "narrowly designed to fix an existing process" and does not help in "coming up with new products or disruptive technologies." Advocates of Six Sigma have argued that many of these claims are in error or ill-informed

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A more direct criticism is the "rigid" nature of Six Sigma with its over-reliance on methods and tools. In most cases, more attention is paid to reducing variation and less attention is paid to developing robustness (which can altogether eliminate the need for reducing variation).

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A BusinessWeek article says that James McNerney's introduction of Six Sigma at 3M had the effect of stifling creativity and reports its removal from the research function. It cites two Wharton School professors who say that Six Sigma leads to incremental innovation at the expense of blue skies research.[38] This phenomenon is further explored in the book Going Lean, which describes a related approach known as lean dynamics and provides data to show that Ford's "6 Sigma" program did little to change its fortunes

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Lack of evidence of its success In articles and especially on Internet sites and in text books, claims are made about the huge successes and millions of dollars that Six Sigma has saved. Six Sigma seems to be a "silver bullet" method. However, there does not seem to be trustworthy evidence for this:

[P]robably more to the Six Sigma literature than concepts, relates to the evidence for Six Sigma‘s success. So far, documented case studies using the Six Sigma methods are presented as the strongest evidence for its success. However, looking at these documented cases, and apart from a few that are detailed from the experience of leading organizations like GE and Motorola, most cases are not documented in a systemic or academic manner. In fact, the majority are case studies illustrated on websites, and are, at best, sketchy. They provide no mention of any specific Six Sigma methods that were used to resolve the problems. It has been argued that by relying on the Six Sigma criteria, management is lulled into the idea that something is being done about quality, whereas any resulting improvement is accidental (Latzko 1995). Thus, when looking at the evidence put forward for Six Sigma success, mostly by consultants and people with vested interests, the question that begs to be asked is: are we making a true improvement with Six Sigma methods or just getting skilled at telling stories? Everyone seems to believe that we are making true improvements, but there is some way to go to document these empirically and clarify the causal relations.[36]

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Based on arbitrary standards

While 3.4 defects per million opportunities might work well for certain products/processes, it might not operate optimally or cost effectively for others. A pacemaker process might need higher standards, for example, whereas a direct mail advertising campaign might need lower standards. The basis and justification for choosing six (as opposed to five or seven, for example) as the number of standard deviations, together with the 1.5 sigma shift is not clearly explained. In addition, the Six Sigma model assumes that the process data always conform to the normal distribution. The calculation of defect rates for situations where the normal distribution model does not apply is not properly addressed in the current Six Sigma literature. This specially counts for reliability related defects and other not time invariant problems. The IEC, ARP, EN-ISO, DIN and other (inter)national standardization organizations have not created standards for the Six Sigma process. This might be the reason that it became a dominant domain of consultants (see critics above).[4] 

Criticism of the 1.5 sigma shift

The 1.5 sigma shift has also become contentious because it results in stated "sigma levels" that reflect short-term rather than long-term performance: a process that has long-term defect levels corresponding to 4.5 sigma performance is, by Six Sigma convention, described as a "six sigma process. The accepted Six Sigma scoring system thus cannot be equated to actual normal distribution probabilities for the stated number of standard deviations, and this has been a key bone of contention about how Six Sigma measures are defined.The fact that it is rarely explained that a "6 sigma" process will have long-term defect rates corresponding to 4.5 sigma performance rather than actual 6 sigma performance has led several commentators to express the opinion that Six Sigma is a confidence trick.

Large organizations that have adopted six sigma These are some the large Indian and International organizations that have used Six Sigma. There are thousands more all over the world.

3M

Campbell Soup

Kraft General

Seagate

AB Dick

Chevron

Foods

Sony

Adolph Coors

Citicorp

Lear Astronics

Star Quality

Advanced Micro

Clorox

Lockheed martin

Texaco

Devices

Danon

McDonnell Douglas

Texas Instruments

Allied Signal

Dow

Microsoft

TRW

Alcoa

Fidelity

Motorola

US Army

Aeropspace Corp

Intel

NASA

US Air Force

Abbotts Labs

Ford

Northrop Corp

United

Apple Computer

General

Pentagon

Technologies

Bank of USA

Dynamics

Parkview Hospital

UPS

Beatrice Foods

GE

Rockwell Int

Xerox

Bell Helicopter

HP

Rohm and Haas

Airtel

Boeing

Honeywell

ICICI

Bharti

Bristol Myers

Kaiser

HDFC

TATA

Squibb

Aluminium

Wipro

Reliance

City of Dallas

Infosys

TCS

Six sigma concept within banking system Six Sigma was developed in the 1980's to reduce defects that were quite common in the manufacturing industry. However, with the development of new concepts and methodologies, Six Sigma is now being used in the service sector as well. It helps to improve the quality of the services rendered. Finance industry is considerably applying six sigma quality process with the aim of eliminating defects. Six sigma is a powerful system. Even banks are applying the six sigma model to continuously improve quality and gain a competitive advantage. The Six Sigma methodology can help reduce the amount of wasted time and resources as well as reduce cycle time to create banking applications. Result is lower maintenance, schedule overrun and development cost.. Applying Six Sigma to Banks Six Sigma allows a banks to monitor and respond to:   

Number of consumer complaints How long to process a specific transaction (e.g. loan) Delivery of services to customers

Benefits from Six Sigma Program     

Higher Shareholder Return Financial Benefits Improvement in Customer Satisfaction Process Orientation Change in Culture.

Recently the banking giants Bank of America and Citicorp implemented Six Sigma into their cultures and the results have been astoundingly positive. Bank officials recognize that the Six Sigma doctrine has not only helped them manage and control their operating procedures, but the additional benefits of increased customer support have also been realized.

Reducing customer complaints and reduction in the processing time of products such as loans and the time taken to take a call are just a few examples. Six Sigma projects can be aimed to improve branch operations, branch office profitability, client retention, accounts conversion operations and as vendor management. With Six Sigma initiatives there can be efforts put in for reduction in check deposit defects, payment failures, funding and documentation delays, re-documentation and even trading failures.

EXAMPLES OF SIX SIGMA IN BANKING INDUSTRY Suntrust Bank, Citigroup and JPMorgan Chase & Co. are few examples of initial Six Sigma success in banks. JPMorgan Chase & Co is the second largest bank in the US. With Six Sigma, it has generated wonderful results through expense reduction, revenue increase and enhanced customer satisfaction. American Express began with Six Sigma in 1998. It has benefited with billions of dollars of benefits since then. Bank of America started with Six Sigma in 2001 and has announced huge savings through increased savings, increased revenue and enhanced customer satisfaction. Among Indian companies, Benchmark Six Sigma has had participation from good number of financial sector participants in recent training programs. Few of them are ABN AMRO, IDBI, HDFC Bank and ICICI Bank.

DMAIC SIX SIGMA MODEL OF IMPROVEMENT Table 1. DMAIC method for analyses and improvement of processes.

Six sigma processes of improvement Improvement of processes Design/redesign of processes 1. Define

• To identify • To determine requests • To set planned result

• To identify specific or general problems • To define planned result/apply vision • Explain scope and requests of customers

2. Measure

• To confirm a problem / process • To purify the problem / planned result • To measure key steps / entrances

• To measure performances according to requests • To gather data on process efficiency

3. Analyze

• To develop hypothesis on samples • To identify "vital minority" of cause root • To confirm hypothesis

• To identify "the best practice" • To evaluate process design • Adding / not adding values • Bottlenecks/interruptions • Alternative ways • To purify requests

4. Improve

• To develop ideas for removing the root of cause • To test solutions • To standardize solution / measure results

5. Control

• To establish standard measuring for performance maintenance • To correct problems when needed

• To design new process • To check assumptions • To apply creativity • Principles of work flow • To implement new process, structures, systems • To establish measurements and re-investigate in order to maintain performances • To correct problems when needed

Core of six sigma is DMAIC (define-measure-analyze- improve-control), method for analyses and improvement of business processes Adopting Six Sigma successfully in the banking industry can be implemented most successfully with the DMAIC approach

Define:In the ‗define‘ phase of DMAIC, Six Sigma professionals define the objectives and boundaries of a particular business process, in consultation with the em0ployees and senior management. In most banks, customer satisfaction is the main objective, making it necessary to define all the processes that involve customer interactions and directly affect customer satisfaction. Some of the processes that involve customer interaction include address change request processing, new account openings, teller window transactions and CD rollovers. Measure:In the ‗measure‘ phase of DMAIC, Six Sigma professionals deploy quantitative procedures to collect statistical data in consultation with the business managers. The statistical data is then used for measuring the impact of the various business processes on customer satisfaction. Different processes have different impact on customer satisfaction. It is financially not viable to improve every business process. The measurement of impact of the individual processes helps the banks to concentrate on improving the processes that have the maximum impact on customer satisfaction. In the banking industry, wait times are said to have the maximum impact on customer satisfaction. Banks can employ observers at their different branches to measure the average wait time, under different work conditions. Analyze: In the ‗analyze‘ phase of DMAIC, Six Sigma professionals analyze the collected data according to predefined parameters to identify the processes that can be improved at minimum costs. The analysis covers every aspect of a business process that directly affects customer satisfaction. For example, a check cashing transaction involves the customer coming to the teller window, the teller receiving the customer‘s request and the teller seeking a manager‘s approval for processing the request. These three different, single transactions need to be analyzed individually to ascertain which one has the maximum impact on the overall transaction time. Improve: In the ‗improve‘ phase of DMAIC, Six Sigma professionals apply corrective measures to improve processes that cause problems in consultation with the bank staff and the branch manager. All improvement measures are based on facts and statistics. Advanced simulation tools can also be employed to study the impact of the proposed improvement initiative on business processes. Control: In the control phase of DMAIC, control systems are put in place to monitor the impact of the improvement initiatives. If a business process is still not performing in accordance to the desired Six Sigma levels, the process is referred back to the ‗define‘ phase. However, if a small problem is affecting the performance, then corrective measures are taken and the whole process is not referred back. Six Sigma methodology has been successfully implemented by banks in last few decades to improve service delivery and customer satisfaction.

Six sigma in different banking department Loan Department 1. Reducing the cycle time to Process a Loan Application (both Mortgage & Personal loans). 2. Improving the Customer Information gathering processes. 3. Improving the Credit Evaluation Process 4. Improving Productivity of loan processing agents Account Opening 1. Reducing the time to open an account 2. Reducing errors in account opening process. 3. Reducing rework in processing customer applications Other Projects in Retail Banking 1. Reducing the Credit Card Delivery time. 2. Reducing Bank Statements Processing & Delivery time. 3. Reducing the errors in money transfer 4. Improving accuracy, timeliness and completeness of customer communication. 5. Developing new products (timeliness, business potential) 6. Improving Market Share of existing banking products. 7. Improving the Branch Banking Processes

SIX SIGMA AT CITIBANK Citibank, a Citigroup company, has set a goal to be the premier international financial company in the next millennium. To achieve this clearly ambitious goal, the global giant had to implement quality initiatives that satisfied customers quickly and flawlessly at every interaction anywhere in the world. Six Sigma quality was always in the domain of the manufacturing arena--could it work in the service industry? Could it work worldwide for a financial organization? Citibank undertook this challenge to improve total customer satisfaction by investigating well-known manufacturing management theories and attempted to apply them to their own nonmanufacturing environment. Methodologies like cycle time reduction (CTR), coupled with the detection of defects using Six Sigma methods and implemented globally by using empowered teams, have resulted in significant improvements in process timelines, cash management and customer loyalty and satisfaction.

Cycle time reduction In 1997, Citibank hired Motorola University Consulting and Training Services to teach Six Sigma defect reduction and CTR to its employees. Most people think reducing cycle time applies only in the manufacturing sector, but Citibank found CTR to be extremely useful in financial areas, such as consumer banking and emerging markets.

To achieve CTR, Motorola University (MU) developed the cross-functional process mapping (CFPM) methodology. CFPM involves developing "maps" of process flows by describing the functions involved in each step of a particular process. Maps are developed for both the way things are being done (called the "as is" map) and the ways things should be handled (the "should be" map). In the beginning, Citibank established the Citibank Cross-Functional Performance Challenge within its banking divisions by using the Six Sigma methodology to identify defects, CFPM to map the steps for improvement and empowered teams to correct the defects. At its core, CFPM involves eliminating wasteful steps, which are defined as any activities that don't contribute to the goal of meeting customers' needs.

Relocating, retraining and regaining A few years ago, John Podkowsky, managing director and business head for Citibank's Asset-Based Finance division, faced a serious problem when his back- office operation relocated from New York to Delaware. "The department went through a transition period, and when that period was completed, there were some people who chose not to relocate," he says. "So it was left in the hands of the new people who were basically inexperienced in the job they were handling. When problems came up, neither they nor their supervisors knew how to fix them." To address the problem, Podkowsky's department implemented the Asset-Based Finance Cross-Functional Performance Challenge. A crucial part of the Asset-Based Finance team's progress was vesting the authority to "sign off" on loan availment to his team. By reducing the number of "hand-offs" necessary to make funds available, the cycle time for this segment of the availment process was reduced by an average of 75 percent, from two hours to 30 minutes. "We've completed that project, and it's been very successful with reduced cycle time," notes Podkowsky. "Instead of getting complaints from customers, we're now getting compliments." Identifying defects using Six Sigma Customers who do business with Citibank's Private Bank sometimes initiate manual funds transfers. When they want to send money from their accounts, they call their banker and then fax, phone or mail in requests to have the transaction processed. Because the process was so complicated, customers complained. Most of the complaints lodged with the department dealt with the time it took to complete the process, from "I can't understand why you don't have my request," to "When will my transaction be confirmed?" "If the request wasn't the banker's top priority for the day, it would sit there for two or three hours before it even went to the back office," explains Cherylann Munoz, compliance director for Citibank's Private Bank in the United States and the Western Hemisphere. Once Citibank employees had identified the primary obstacles preventing them from achieving total customer satisfaction at Private Bank, they were able to correct the problems with the Six Sigma program. A sigma is a statistical term that measures to what extent a process deviates from perfection. Three sigma equals 66,807 defects per million opportunities; six sigma equals 3.4 defects per million opportunities--virtual perfection. Citibank's goal is to reduce in defects and cycle time by 10 times by December 2000 and reduce defects and cycle time by 10 times every two years thereafter. Six Sigma is achieved using simple tools such as the Pareto chart. The data on the chart identifies which problems occur most often or incur the highest cost. It provides direct evidence of what should be corrected first. Vilfredo Pareto, the Italian economist for whom the chart is named, theorized that 20 percent of possible causes are responsible for 80 percent of any problem. A team composed of bankers and operations people identified the entire funds transfer process, tabulating defects and analyzing them using a Pareto chart. High on the chart of defects was the internal call-back

procedure, which required staff to call the person requesting the funds transfer to make sure that the instructions were correct and hadn't been altered. "We cut monthly call backs from 8,000 to 1,000, and we eliminated call backs for 73 percent of the transactions coming in," Munoz says. In another example, Citibank's Global Cash and Trade Organization used Six Sigma methodology to help track defects and document the results by teaching team members to identify appropriate metrics, determine a baseline, establish appropriate standards and monitor execution. These solutions required employees to form teams to solve the issues discovered. To reduce the time for opening an account, Citibank formed a cross-functional global team of 80 people. The team first identified sponsors and formed a steering committee to champion the effort. Employees were invited to participate based on their subject matter expertise and ability to assist with the solution. The largest obstacle was enabling them to find time to participate while juggling daily job responsibilities. MU consultants helped to define the management system around which the team was organized. Sue Andros, a global process owner in the Global Cash and Trade Organization who is responsible for the endto-end customer experience, says CFPM "lets people get to know one another." "Team members worked well together, because achieving the objectives would make their professional responsibilities easier and would benefit their customers--a win-win situation for everyone," says Andros. "The focus on cycle time and defects has made an impact on how we serve customers," she continues. "It's not just a matter of doing things faster; it's doing things better. This means no redundancy, minimal hand-offs and metrics that reflect performance in the eyes of the customer." Those sentiments are echoed by Dipak Rastogi, executive vice president for Citibank's Eastern European/Central Asia and Africa region (whose headquarters are in London). "Introducing quality as a core strategy was viewed as a unique opportunity and differentiating feature not only vis-a-vis our customers, but also our staff," com- ments Rastogi. "When implemented correctly, quality increases customer satisfaction and leads to shorter reaction time and faster introduction of new products--providing a sustainable competitive advantage." Working together The first step in process mapping is establishing a team, typically of 30 to 50 people, drawn from every unit that contributes to the process. Cross-functional teams, made up of representatives from each functional department, develop maps. They include employees deep within the company--the "doers" of the current process. Because of their close vantage point, these employees can offer valuable insight into daily business operations. Management empowers the team to implement any changes they develop that will reduce the cycle time and improve customer satisfaction. Citibank's CFPM has five phases. First there's planning, when the critical business processes to be mapped are identified and a team is selected. Next, the team meets for four to five days to map all current steps and identify what is not working now--the "as is" process.

The team then takes the map back to colleagues throughout the organization to verify its accuracy and to see if there are any more problems or issues they want to add; this helps secure buy-in for sim- plifying the process. Ronnie Wackstein, a vice president in the Private Bank observes: "The 'as is' mapping session is a very critical step in the process. Until you map those processes out, you don't know where the problems are. This step enables you to design a streamlined 'should be' process map." After completing the "as is" map, the team meets again to map out the desired, streamlined process, the "should be," which has removed nonvalue-added steps. The last phase, which is probably the most difficult and can take several months, is the implementation of the action items to achieve the "should be" process. Even after the process has been improved, CFPM doesn't end. People helping people For CFPM to work, there must be a commitment at all levels, with everyone taking leadership roles. In fact, key team members spend one-fourth of their time on the project. Team leaders spend at least three-fourths of their time for up to a year. When these teams are challenged to reduce cycle times within their departments, they become empowered to make improvements, which improves the corporate culture. Citibank's Worldwide Securities Services (WWSS) is primarily in the business of clearing and settling crossborder securities for major broker dealers, custodian banks and institutional investors. When the WWSS team was challenged to reduce the securities fail rate by 60 percent for eight large customers in six emerging markets, the team not only attained the goal, but three team members have also gone on to initiate other programs to improve other processes in their area. "These staff members know what is wrong with their piece of the process," says Sandy Jaffee, division executive for WWSS. "By bringing them together, we're able to understand what's wrong with the process endto-end, design an improved process and give them time to implement it. The tools help the team stay focused and understand the root cause of the problem." The results are amazing Using process mapping, Motorola has driven down manufacturing time for pagers from 40 days to less than one hour. This kind of improvement is an indication of why Citibank chose Motorola's mapping process, and what a quality culture can accomplish--how cycle times can radically be reduced by a factor of 10 every two years. "Motorola has done a particularly good job of assessing its competitive position, and has become pretty wellknown in the industry for reducing cycle time," asserts Ed Montero, who heads Citibank's Private Bank in the company's Western Hemisphere region.

CTR has met the challenges of many Citibank groups, including the following: Private Bank--Western Hemisphere, which serves wealthy individuals. This group reduced internal call backs by 80 percent, external call backs by 85 percent and the credit process time by 50 percent. Global Equipment Finance, which provides global financing and leasing services to Citibank customers. This group improved all steps' cycle times from when a customer places an order to product delivery. The group also reduced the credit decision cycle by 67 percent, from three days to one day. Copeland Companies, subsidiaries of Travelers Life & Annuity, which are distributors and record keepers of financial service products, primarily through defined contributions such as 401(k) plans. This division used CFPM methods to improve the accuracy and timeliness of statements. The group achieved 100-percent accuracy within a four-month period. It also reduced the cycle time of processing statements from 28 days to 15 days. Commitment is needed from the top Teams involved in the Citibank Quality Challenge needed to have full autonomy to make decisions about changes to the process. To champion the work, senior managers sponsored the quality initiatives or served on steering committees and kept an "open door" policy so that teams could gain access to them as needed. According to Peter Klimes, quality director for Citibank in the Czech Republic, the involvement of senior sponsors is a continuous process all the way from setting critical business issues and objectives to making the final presentation. "We have had a well-balanced split between projects initiated by senior management and those initiated by staff," Klimes says. "Our senior country operations officer and our corporate bank head were our most active supporters of our CFPM projects. Their commitment helps balance back- and front-office aspects of the projects." The big picture Citibank began its quality training initiative in 1997. From May 1997 to October 1997, more than 650 senior managers were trained. Between November 1997 and the end of 1998, another 7,500 employees attended sessions as part of senior-manager-led teams. By early 1999, 92,000 employees worldwide had been trained. Citibank's goal of becoming the premier international financial company in the next millennium will require a devotion to excellence on the part of every em- ployee. The goal is ambitious, but Citibank has implemented quality initiatives to make certain that it satisfies customers flawlessly and quickly at the point of every interaction anywhere around the world. By making innovative use of information technology and operations management through Six Sigma and CFPM, employees are working faster and creating high levels of customer satisfaction.

What are the Problems With Six Sigma Use in the Banking Industry? Six Sigma is a popular business process used to increase efficiency in business practices, especially businesses that have a manufacturing component. As Six Sigma increased in popularity, its processes of analysis were adopted by more businesses across different industries. Some businesses, however, struggled to use Six Sigma effectively, specifically the financial service companies. Skepticism 

Six Sigma was originally designed for factories that create products, especially complicated products like cars. Many banks have difficulty adopting Six Sigma practices because banking employees and executives often don't believe that the same process can be transferred to the banking industry, a serviceoriented business. This skepticism can keep Six Sigma from being used effectively.

Measurements 

If a bank does adopt Six Sigma processes, it may face issues with the measurement stages of Six Sigma, which are designed to accurately measure the production levels, errors and waste. These are easily quantifiable in manufacturing, but harder to measure in the banking industry.

Rigid Regulations and Forces 

Banks must deal with very rigid regulations in most of their services.This can make it very difficult for banks to make any widespread change in their processes. Banks may not have a choice when it comes to many clerical steps or service offerings, which are influenced by customer demand.

Strategic Differences 

Banks are service industries, which means much of their focus is on their customers and customer relations. Manufacturing businesses rarely deal with customers directly and have the freedom to conduct many studies of value and production efficiency. In the banking industry, this constant recording and fact-checking can take away from time with customers and slow down bank processes, creating an unfavorable image.