3 Process Improvement Lessons From Financial Firms

While financial firms are notorious for being slow to adopt new business processes, operations teams within some financial firms are finding ways to break down organizational silos and gain new efficiencies.

How are they doing this? To understand their path to success, it’s important to first understand the silo mentality within financial firms.

A Silo Mentality

In many financial firms, there is a disconnect between the front-office team and the operations team. One reason for this silo mentality is a front-office focused mindset.

The Front Office Drives Revenue

Front office teams drive most of a firm’s revenue, whereas operations teams are ancillary. Therefore, it is no surprise that most executives funnel more money into improving technology or sales materials for front-office teams.

This mindset is one reason why process improvement is not a priority for many financial firms. From the perspective of the typical financial firm, focusing on revenue can result in millions of dollars in growth, whereas process improvement or process reengineering may only save a few hundred thousand. Many companies view business process management as a cost saving measure, not a money maker.

The Operations Department Drives Efficiency

There are undoubtedly benefits when a firm focuses on efficiency. One company that represents this operations-focused approach is Bridgewater, one of the largest hedge funds in the world. Bridgewater relies heavily on algorithms and building custom software solutions.

Instead of operations being the neglected department, they work with the front office to design processes that allow analysts to dive deeper and work faster. The firm has a policy that rigorously vets and tests new technologies before adopting them. In fact, Ray Dalio, the founder of Bridgewater, states that “Bridgewater is even more a technology company than it is a hedge fund.”

How can one financial firm be so quick to embrace progress while other firms are so resistant to change? This is quite literally a million-dollar question, especially from an operations perspective.

In order for a firm to embrace a mindset of change, it is essential to make the the front-office team understand that the operations team is there for their benefit, and that change can make their lives easier.

3 Process Improvement Tips

Once a company changes its front-office focused mindset and breaks down its organizational silos, it can begin process improvement. Following are three tips for improving business processes:

1. Understand What the Front Office Wants

It can be difficult for operations to approach the front office to propose new ideas or changes. After all, disrupting the workflow of a portfolio manager working with billions of dollars can mean very expensive missed opportunities. However, it’s essential for operations to collaborate with the front office when it comes to process improvement.

All too often, operations teams work in a vacuum with no understanding of what the front office desires. This results in improvements that don’t solve front-office employees’ biggest issues.

The first step towards effective process improvement is for operations managers to understand front-office employees’ workflows. This includes common workflows (such as placing a trade) and uncommon processes that take a significant amount of time (such as monthly portfolio rebalances).

Nearly all financial firms still have labor-intensive, manual processes that can be overhauled. To identify these processes, we recommend conducting meetings to learn about the front office’s current headaches. During these meetings, try to understand what employees’ ideal workflows would look like.

Understanding each user’s workflow gives the operations team the opportunity to make small, incremental changes that streamline workflows – ultimately winning the favor to implement more significant changes.

2. Understand That Changes are Iterative

While it’s important to make end users realize that changes are for their benefit, do not overpromise. After all, large changes are iterative.

One reason for the iterative nature of change is that processes need to be tested, especially if they are heavily driven by technology.

When testing a process, never present a test to end users that has questionable calculations. First impressions are important, and the smallest error will make the end user question all numbers they see in the future.

Even if all numbers and calculations are accurate, a proposed process may not be wildly popular the first time it’s demonstrated. This does not mean the process should be discarded. Just be sure to take stakeholders’ suggestions into account and fix whatever shortcomings were noted. If stakeholders have opportunity for input, and they see an efficiency gain, they are less likely to deny the change.

However, some stakeholders, especially traders, can be set in their ways. They may push back simply because they are unwilling to change. Often, you can convince these individuals by crafting a simple message like, “you save two clicks each time you do this.” While this may sound small, a trader that places fifty or more trades a day can save a significant amount of clicking in a day.

Panorama often helps clients develop communication plans as part of their change management initiatives. These plans outline different messages that are likely to resonate with each type of end user.

3. Document and Share Process Changes

A process change is of no use if only one employee adopts it. This is why it’s essential to document process changes and share them with all end users. Knowledge preservation is especially important when a new employee joins the company or critical individuals leave the firm.

For traders and portfolio managers, providing a one-page print out can help them adopt business process changes more easily. This sheet might provide answers to frequently asked questions, freeing up resources within operations to focus on more critical tasks.

For more significant process changes affecting multiple departments and involving new technology, formalized training is necessary. When Panorama helps clients manage change, end users attend customized training sessions that familiarize them with the new processes within their own functional areas.

Shifting the Front-office Mindset

Within many financial institutions, inefficiency is primarily a result of a disconnect between front-office and operations teams. The two teams should not operate in silos but in collaboration to bring process changes that benefit both parties.

A critical step towards collaboration is eliminating the front-office focused mindset in favor of a team-oriented mindset. While this can take months or even years, it is essential that the front office understands that the operations team is there to help them – not hinder them.

While the operations team will never be the primary revenue driver for the firm, it’s a powerful ally to the front office. Operations teams that understand their role should instill this “alliance mindset” into the front office, so both parties can suggest and adopt process improvements.

Panorama’s business transformation consultants can help your company break down organizational silos and encourage collaboration, regardless of what industry you operate in. We’ll listen to every department’s unique needs, ensuring organizational and process changes benefit the whole organization.