SET THE PACE - Oliver Wyman

AUTHORS

Vivek Sen

Jonathan Lee

Melissa Lam

SET THE PACE A NEW METHOD FOR BREAKTHROUGH PROCESS IMPROVEMENT

“Our operational processes are like station wagons with flat tires competing in a motor race.”

– Bank Chief Operating Officer

Pace creates an operating foundation and culture that makes future change much easier, helping yield those 1-1.5 seconds of improvement every year.

In a world where step-change improvement in efficiency, effectiveness and cycle

times is key to winning, financial institutions are being held back by weak operational

processes.

Last year, there were 60,000+ CFPB consumer complaints and 20+ regulatory sanctions

involving CCAR-regulated banks1,2 all related to breakdowns in operational processes.

Despite significant investment and a plethora of re-engineering and automation

initiatives, most institutions are seeing marginal gains. Change is being delivered in

a series of false starts. As a result, errors reappear. Silos form yet again. Unwanted

behaviors return. Costs creep back.

In the world of motorsports, somehow, auto racing teams improve lap times by 1-1.5

seconds per lap, every season. And this happens every year, even in the face of new

regulations and safety restrictions.

Expert, multidisciplinary teams pore over race results, diagnosing where and how to

improve car and driver performance. Rapid pit crew corrections occur in the heat of

the race. Engineers gather feedback from drivers, retreat to design new solutions and

rebuild the car. All this activity is underpinned by a consistent, repeatable method that is

used to deliver constant and sustainable improvement.

We believe that financial institutions can turn these station wagon operational processes

into Ferraris. To do so, they need to adopt a new way of driving continuous change in

operations, one that mimics the approach taken by great auto racing teams.

At Oliver Wyman, we call this method Pace.

With Pace, immature operations are rapidly transformed into a set of well-managed,

efficient and effective end-to-end processes. This is achieved by deploying an agile

execution approach that emphasizes interdisciplinary teaming, a structured approach

to embed automation and forced integration of siloed change initiatives. Financial

institutions that have deployed this method have realized immediate gains, and

established an operating foundation and culture that has made future change much

easier, helping yield those 1-1.5 seconds of improvement every year.

1 Source: Consumer Financial Protection Bureau; Federal Reserve, OCC, FDIC, OTS, CFPB, and FinCEN; Oliver Wyman analysis

2 Consists of publicly issued orders that impose significant ongoing obligations and/or a material fine

Copyright © 2018 Oliver Wyman 3

DEEP DIAGNOSTICSRoot cause analysis across

end-to-end processes resulting in a backlog of solution

opportunities

1COURSE CORRECTIONS

High priority “pit stop” fixes that deliver immediate impact and

mitigate critical risks

2ENGINEERING EXCELLENCE

Modular solutions that encompass people, process and

technology to create a step-change in performance

3APPLIED ANALYTICS

Key metrics and actionable insights on process and workforce performance

4

THE PROCESSESTHE SYSTEMS

THE PEOPLE

PACE CREW PACE COMMAND CENTER

THE ORGANIZATION

PACE GARAGE

PACE PLAYBOOK

An integrated, multidisciplinary team that works together. Experts,

diagnosticians, pit mechanics, solution

engineers, and data scientists

Actionable insights for management on team performance, guiding

investment and resourcing decisions

PACE A NEW PROCESS IMPROVEMENT METHOD

Copyright © 2018 Oliver Wyman4

THE PACEPLAYBOOK


KNOW WHAT IS SLOWING YOU DOWN AND WHY

Many process improvement methods begin with establishing an understanding of the current

state. While this is logical, we find that most financial institutions make a few critical mistakes in

this foundational step.

Financial institutions tend to be good at identifying what has gone wrong, but not why it has gone

wrong. Understanding the why requires going beyond traditional multi-level process mapping.

Deep Diagnostics combines the information that process maps provide with new sources

of insight such as customer engagement and co-creation, and analysis of alternative data

sources such as customer complaints, operational issues, and audit logs. This creates a more

holistic view of root cause and opportunity.

Another common flaw is to jump into examination without a common and customized process

taxonomy. While the concept of “end-to-end processes” is well understood, in practice, it

is applied sporadically or incompletely. Pace relies on a customized process taxonomy that

organizes operational work into no more than 15-20 end-to-end processes, with sub-processes

underneath. There are multiple ways to define these “end-to-end” and a careful assessment of the

alternatives is important prior to embarking on diagnostic work.

Finally, most current state exercises yield a roadmap that is a mix of short-term and long-term

solutions that impact people, process and technology. At this stage, organizations tend to

segment these projects, typically by complexity, or bifurcate between technology and non-

technology dependent activities. Instead, Pace teams operate against an integrated “backlog” of

activities that is managed and prioritized as a single book of work. Drawing from the philosophy

of Agile development, this backlog is routinely reprioritized by the Process Owner, ensuring that

all solutions impacting the process, regardless of type, and their dependencies are considered

in unison. Rather than run a one-time linear process, at any stage, that backlog can consist of

diagnostic, design and execution activities, creating a model for continuous change.

1. DEEP DIAGNOSTICS

Fatigue and mental strain caused by dehydration

Tire type not suited for track conditions

Engine overheating due to lodged debris


TAKE A QUICK PIT-STOP TO MAKE SURE YOU FINISH THE RACE

A race car traveling at 200 miles an hour covers 300 feet per second. A 6-second pit stop allows

competitors to gain a third of a mile on the stopped car. And yet, the pit stop is a vital part of

staying ahead – rapid, crucial corrections enable the car and driver to continue performing

at their maximum potential.

Operational processes need Course Corrections as well. These are immediate, tangible

results that can be attained, which are necessary to keep the lights on, reduce risk

of operational failure, meet a near-term efficiency goal, or cope with a new source of

product or customer complexity.

For example, at a large bank, it took just 1 week to create and deploy a scripted desktop tool

to automate data transformations, saving 20 hours of ongoing work per week. At another

bank, a manual control failure impacting updates to prices was fixed in a day and prevented

millions of customers from being mispriced.

While these Course Corrections are seldom a structural solution, they are a vital part of

maintaining a resilient and effective process. No pit stop can be executed without the right

crew; the ability to make smart tactical changes relies on a highly versatile team that brings

together a wide range of skills. Team members need to be able to rapidly script a desktop

tool or workflow, possess industry knowledge to design a robust loan closing checklist,

or understand risk measurement to implement a process control that complies with a

new regulation.

2. COURSE CORRECTIONS

Driver rehydrates rapidly during pit stop

Tire compound changed to improve grip

Small debris removed from

the engine area


FROM THE DRAWING BOARD TO THE RACETRACK

While pit mechanics keep things running and reduce the chances of failure during a race, it

falls to the engineering team to continuously raise and exceed the performance bar. After

each race, cars are stripped down and each component is reviewed, modified, or replaced

completely. The driver and support team are also scrutinized for opportunities to improve

performance.

This modular approach to Engineering Excellence gives teams the flexibility to rapidly

and continuously improve. They can keep what works while modifying what doesn’t

in everything from the underlying engine and systems, to the way the team organizes

itself, to the overall strategy it has chosen to adopt.

Financial institutions can also embrace this modular approach to process improvement.

For example, rather than wait for multi-year “big bang” systems upgrades and endure

inefficiencies and errors until major conversions occur, Pace encourages organizations to

create connective tissue between systems that suffer from poor information exchange. Tools

such as workflow managers, decisioning engines, custom process manager dashboards,

and control panels can be rapidly prototyped, developed and deployed in 8-12 weeks with

minimal disruption to legacy systems. Rather than deploy these piecemeal as is common

today, Pace develops and integrates these against a consistent target architecture vision,

and with a common, modern technology stack, to avoid creating new technical debt. In

concert with development work, Pace teams deploy other “modules” such as upskilling

programs, or an organizational structure change to create consistency. Most process

improvement techniques tend to look at the problem from a single dimension such as

waste, errors, variation, or cost. Instead, Engineering Excellence brings together a series

of modular solutions to make the car go faster, and the process perform at a higher level.

Redesign to comply with new regulations that increase downforce

3. ENGINEERING EXCELLENCE3

Modular modifications done end-to-end

Replace the engine to improve fuel e�ciency

Improve core body strength to better withstand g-forces

Test new compounds for improved durability


CASE STUDY

ENGINEERING EXCELLENCE AT A LEADING US BANKThe bank’s Head of Pricing Operations was struggling

to answer the question, “Have we charged prices to our

customers accurately and efficiently based on our pricing

strategy and our contracts?”

The process at the time relied on manual intervention

and hand-offs between teams, business logic wasn’t

documented or well-understood, and data was distributed

across multiple excel files and databases. This led to

instances of mispriced loans and the need for ad-hoc

reviews of thousands of newly originated loans each month.

Oliver Wyman worked closely with Pricing Operations

team members to identify and execute eight Course Correction and three Engineering Excellence solutions.

A new Pricing Operations Manager was built in a modular

fashion, consisting of scripted processes with automated

controls, an automated controls engine to identify

potential pricing error, and a management dashboard

to provide insight on end-to-end process performance.

Because of the tool’s modular architecture, each

component can be upgraded or swapped out by the bank

as its needs change, teams evolve, and the underlying

systems infrastructure improves.

The introduction of a new tool and simplified process also

unlocked opportunities to improve the organizational

model. We consolidated Pricing Operations teams

to minimize hand-offs and gain efficiencies, and

recommended the bank invest in new talent with stronger

analytical skills as transactional work was automated.

By applying the Pace method, the bank realized a 20%

reduction in errors, 50% reduction in cycle-time, and

30% reduction in cost, all within a year. All of this was

accomplished while avoiding costly re-platforming of

underlying systems. The pricing process now has end-to-

end accountability: process managers have transparency

into activities, and can proactively resolve new problems

that occur, minimizing risk of customer harm.

ENGINEERING AUTOMATION INTO BANK PRICING OPERATIONS

End users

Tools

Legacy systems

NEW PRICES MARKET RATES AD-HOC ERROR ANALYSIS

RATE DATA TRANSFORMATION

INDEX RATE CALCULATION

RATES FOR PRICING ENGINE

UPDATES TOVARIABLE LOANS

PRICINGENGINE

BOOKING ACCOUNT SERVICING

PRICINGENGINE

BOOKING ACCOUNT SERVICING

MGMT.DASHBOARD

SCRIPTEDPROCESS

QA ANDEXCEPTION REPORTING

ENGINE

LOGIC SCRIPT

STANDARD DATA LAYER

2+ days of dedicated work to implement new rates

Ad hoc review of ‘000s of new loan prices each month

5+ pricing operations teams

50% reduction in turnaround time for rate changes

20% reduction in pricing errors

30% reduction in pricing operations FTE

BEFORE AFTER

X X X X

X X

X

XX X

XA

TXT TXT

TXT TXT

TXT TXT

TXT TXT

TXT

TXT

AA

X

X

X X


FINE TUNE PERFORMANCE WITH DATA DRIVEN INSIGHTS

The team has put in a new engine and signed on a new elite driver. Congratulations, but how

do you know that what you have done is enough to hit your target lap time?

An important component of Pace is to put in place the conditions for process ownership

and ongoing process management. Most financial institutions have invested in continuous

improvement teams with marginal gains. Some have experimented with the concept of

process ownership, but found it hard to implement. Senior executives often complain that

they have shifted from a proliferation of spreadsheets and PDF performance reports, to a

proliferation of data clusters and web-based dashboards, without real improvement in day-

to-day management and decision making.

Applied Analytics seeks to embed continuous improvement at the source, by

implementing technology-based management tools, real-time information and

performance management mechanisms that allow process owners to do their job.

One example of this is the Pace Cockpit, which gives an end-to-end process owner an

unmatched level of visibility and control over their process in a single platform. This

helps them in numerous ways, including tracking operational activity, indicating where

performance is meeting SLAs, identifying where and why breakdowns are occurring, and

providing a single source to track initiatives and projects directly impacting the end-to-

end process. Process owners have analytics at their fingertips to assess whether things are

working. They have prioritized alerts and actions to see areas where issues are occurring.

They can interrogate the data to determine what the root causes of underperformance are,

with maximum transparency.

All this insight is delivered through an intuitive interface, and real-time tools rather than

through scores of governance meetings, planning and coordination sessions. An example

of how we customized this to a bank’s highly manual Know Your Customer operations is

provided on the opposite page.

4. APPLIED ANALYTICS

Track driver biometrics and health using real-time sensors

Real-time data to analyze break wear, tire

change, and power management strategies

Simulate competitor strategies to determine ideal pit-stop strategy


CASE STUDY

APPLIED ANALYTICS AT A GLOBAL INVESTMENT BANKA global bank’s Know Your Customer (KYC) function was

looking to improve productivity and reduce errors. Like

its peers, the execution of KYC reports for customers

was a highly manual process that evolved in reaction

to increasing regulatory standards and pressure, both

in the U.S. and abroad. Due to the complexity of the

process and the local idiosyncrasies of a dispersed

global function, there was a wide range in performance

between teams.

Our crews started by conducting Deep Diagnostics on

the root drivers of performance, identifying drivers that

were in and out of the control of KYC officers. Rather than

apply aggregate measures of productivity, we used this

insight to develop a modular portfolio of workflow and

Applied Analytics tools to improve accountability and

transparency of performance across the process.

Using these tools, KYC teams are monitored and

evaluated in four areas of performance: productivity,

quality, timeliness, and knowledge contribution.

Productivity targets are set based on a regression model

that determines the “fair” production benchmark for

each KYC team adjusting for variables that are generally

outside their control. This includes factoring each KYC

officer’s ability to directly reach out to existing customers

to request key KYC inputs, as opposed to relying on the

front office which can delay the process.

Our Pace crew brought together an understanding of the

process and a mix of skillsets to deliver a series of tactical

process improvements and develop structured performance

measures that the end-to-end process owner could use.

By increasing transparency and linking incentives to

performance, this enabled a productivity improvement of

20%, leading to savings of tens of millions of dollars.

KYC PROCESS PERFORMANCE MANAGEMENT COCKPIT

1© Oliver Wyman©

Show Filters Help Export

Wholesale Client Onboarding & KYC Portal

Reset

Content Usage

Performance Management > KYC Procedures Portal Impact

Defect Rate Analysis

Data As Of March 16, 2018 02/09/18 03/16/18

90Defects Per 100 Views

32,277Total Defects

32,034Views By Users with

DefectsSection

(All) (All) (All) (All) (All)

Sub-section Page User Manager User Name

Number Of Defects By KYC System Section Weekly Procedures Usage & Defects

2,517

2,046 1,944 1,9411,740

1,554 1,485

Customer Due

Diligence -Business Info

AML Risk Summary -Customer

Profile

Country Due Diligence -

UK

AML Risk Summary -Conclusion

AML Risk Summary - Potential Areas of Concern

Related Parties -

Ownership

Related Parties -

Ownership and Related

Party

5,8354,920 4,833

5,7695,571

5,349

0

2,000

4,000

6,000

8,000

20-Feb6-Feb 13-Feb 27-Feb 6-Mar 13-MarNumber of Defects Views By Users With Defects

7.6% 9.4%

Average weekly defect rate

6.4%

Lowest weekly defect rate (3/9/18)

Highest weekly defect rate (2/16/18)

Portal Views & Number Of Defects – By Page

PageDefects Per 100 Views

Total Defects

Views By Users With Defects

Domestic ACH - PDD 6,300 63 3

Transaction Activity Review - ADD 4,422 1,017 69

AML Program – AML Record… 3,300 66 36

SpDD 2,922 1,140 105

Remote Deposit Capture 2,400 48 12

Customer Account Activity - ADD 1,974 237 84

Trade Finance - PDD 1,356 270 129

Page

Portal Views & Number Of Defects – By User

User NameDefects Per 100 Views

Total Defects

Views By Users With Defects

Davies, Alex 21,300 213 15

Hayman, Emily 20,700 207 24

Ling, Jordan 12,900 129 9

Smith, John 10,200 102 18

Doe, Jane 8,700 87 24

Folger, Jessica 7,950 78 36

Ruth, Chris 5,940 57 27

User Name

KYC System Section Analysis

Productivity Evaluation

John.Smith

12:56 PM 100%


THE PACE GARAGEOrganizing For Success

Experts

Diagnosticians

Pit Mechanics

Solution Engineers

Data Scientists

THE PACE CREW AN INTEGRATED MULTIDISCIPLINARY TEAM

Diagnosticians bring end-to-end

transparency to a process area via Deep Diagnostics and pinpoint what, where,

how, and why it needs to be improved

Pit Mechanics rapidly deploy Course Corrections, drawing from an extensive

solutions repository, focusing on delivering the highest

impact in the shortest time frame

Solution Engineers take a modular and design-

led approach to Engineering Excellence, ensuring that

business outcomes are met through a marriage of

people, process, and technology

Data Scientists obsess over performance metrics using an

Applied Analytics toolkit which delivers

insights on demand

Industry experts infuse work with

industry knowledge and best practices, tailoring

each opportunity to the requirements of

the business


A tremendous amount of duplication, inertia and friction

from poor knowledge transfer is created in the way

process improvement is designed and executed. Pace

enforces a radically different – and significantly more

efficient – team concept. Within the Pace Garage are

multidisciplinary crews, embedded within operational

processes. These crews are cross-trained so that even

though individuals may major in one area, they are able

to communicate with each other effectively and see the

problem from each other’s view. Crews work closely with

the day-to-day operations process or product owner, as a

continuous unit from diagnosis to solution delivery, and

shift from one wave of improvements to the next. Within

this core team structure, different skill sets can be dialed

up or down, sourced internally or externally, while the

structure of the crew stays intact.

Crews can be established to support a concentrated

process improvement initiative but are much more

powerful as an ongoing business-as-usual construct

to drive continuous improvement. Creating this team

structure is radically different from the way process

engineering teams and continuous improvement

oversight functions run today. It requires investing

in the right skills and a new talent model, but the

benefits it yields on the process far outweighs the

added investment.

TRADITIONAL PROCESS IMPROVEMENT TEAMS

WORK IN SILOS

PACE CREWS EVOLVE OVER PROGRAM PHASES

“I need to rapidly course correct and

stop errors”

“I need to automate manual work and controls”

THE PACE CREW AN INTEGRATED MULTIDISCIPLINARY TEAM


In addition to a new team

concept, the Pace Garage is

also designed to give crews

and process owners full

transparency on the work

at hand, with insights and

alerts that ensure the crew

stays on track.

The Pace Command Center is

a platform that helps financial

institutions run a scalable

and well-managed change

program, without significant

top-heavy governance and

bureaucracy. In a single source,

crews can track their activities

and outputs. Program owners

can see Deep Diagnostics

findings. A portfolio of

Course Corrections is made

transparent so that crews can

learn from approaches being

taken by others. Engineering

Excellence solutions are

aggregated, to ensure

that dependencies across

end-to-end processes are

understood, and to enable the

organization’s executives to

determine where to prioritize

resources.

All of this digitizes day-to-

day program management,

and keeps the focus on the

action within the crews,

rather than on administration

and governance.

THE PACE COMMAND CENTER MANAGEMENT INSIGHTS AT YOUR FINGERTIPS

Pace Program Summary presents key business outcome metrics being achieved through the process improvement program

Deep Diagnosis Backlog presents a single view of the maturity of end-to-end processes and sub-processes, against the Pace taxonomy

Course Correction Backlog presents the highest priority tactical fixes to address areas where operational processes are impacting customers, or areas of non-compliance

Engineering Excellence Backlog shows granular progress against high-investment projects delivering major changes such as automation, organization restructuring and training

Consolidated Backlog presents a prioritized long list of potential project opportunities


THE NEXT 1 – 1.5 SECONDS

The best Ferrari is a car I have not yet created”

– Enzo Ferrari

The first Scuderia Ferrari appeared on the race track in 1950. It is the oldest surviving and

most successful Formula 1 team in history. From day one, Enzo Ferrari challenged the

company to constantly search for new ways to improve performance, and keep redefining

the bar for excellence. He drove the team to continuously rebuild and improve the cars

that they raced, and the teams that they fielded. Enzo made sure that this obsession for

continuous change reverberated through the organization.

We believe that financial institutions can do the same. The industry needs to move beyond

outdated, ineffective approaches and techniques that are not yielding the right outcomes.

Pace is Oliver Wyman’s approach to achieving breakthrough improvement in a sustainable

and scalable way by embedding new capabilities, a new way of working, and a new mindset

deep within the operational processes which need it most. It ensures operations run

smoothly at their full potential come race day, while unlocking the ability to shave off the

next 1-1.5 seconds for future races.

ABOUT THE AUTHORS

www.oliverwyman.com

Oliver Wyman is a global leader in management consulting that combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation.

For more information please contact the marketing department by email at [email protected] or by phone at one of the following locations:

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Copyright © 2018 Oliver Wyman

All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without the written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect.

The information and opinions in this report were prepared by Oliver Wyman. This report is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accountants, tax, legal or financial advisors. Oliver Wyman has made every effort to use reliable, up-to-date and comprehensive information and analysis, but all information is provided without warranty of any kind, express or implied. Oliver Wyman disclaims any responsibility to update the information or conclusions in this report. Oliver Wyman accepts no liability for any loss arising from any action taken or refrained from as a result of information contained in this report or any reports or sources of information referred to herein, or for any consequential, special or similar damages even if advised of the possibility of such damages. The report is not an offer to buy or sell securities or a solicitation of an offer to buy or sell securities. This report may not be sold without the written consent of Oliver Wyman.

Cover photo by chuttersnap on Unsplash

ABOUT THE AUTHORS

Vivek Sen

Partner, Financial Services

and Digital, Technology

and Analytics practices

[email protected]

Jonathan Lee

Principal, Financial Services

and Digital, Technology

and Analytics practices

[email protected]

Melissa Lam

Engagement Manager, Digital,

Technology and Analytics practice

[email protected]

http://www.oliverwyman.com

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SET THE PACE - Oliver Wyman

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