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Application of Lean Tool for Process Improvement of Bank Branches

Article in IIM Kozhikode Society & Management Review · April 2019

DOI: 10.1177/2277975219836502

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Application of Lean Tool for Process IIM Kozhikode Society & Management Review
8(2) 131–142, 2019
Improvement of Bank Branches © 2019 Indian Institute
of Management Kozhikode
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DOI: 10.1177/2277975219836502
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Pankaj Kumar Baag1
Kavitha P.1
Ashutosh Sarkar2

Abstract
The drawbacks in the service operations of the Indian public sector banks include high cost per employee and lower
service quality compared to private and foreign banks. This article for the first time confirms the application of lean think-
ing for process improvement of service operations in an Indian public sector bank through ‘value stream mapping’. The
article uses action research methodology and two case studies that describe the process and outcomes of the action
research to achieve the objective of studying the applicability of lean thinking and lean tools in process improvement of
bank branches. The results of introducing lean thinking in the branches of the public sector bank in India were efficiency
improvements through lower wait time for customers and lower stress levels for employees, besides increased customer
satisfaction, profit and business—factors which justify and support the use of lean thinking in banks.

Keywords
Process improvement, lean thinking, Indian banking, value stream mapping

Introduction in the trends of information technology have increased

Global banking has undergone profound changes in recent
years, especially following the global financial crisis
(Claessens, 2017).1 The external pressures in the form of
tightened regulatory supervision, stronger market discipline
along with digitalization, growing competition and customer
expectations have impelled bank management across the
world to adopt new strategies that ensure more efficient and
cost-effective operations without jeopardizing the quality
of service for their customers. Apart from these global
changes, the Indian banking sector has also experienced
the consequences of a sea change which it underwent after
the wave of economic liberalization in 1991. Deregulation
of the banking industry at national level, opening up of
financial markets to foreign institutions, increase in the
number of non-banking financial institutions and changes
competitive pressure among the banks (Hawkins &
Mihaljek, 2001; Kaura, Durga Prasad, & Sharma, 2015;
Sureshchandar, Rajendran, & Anantharaman, 2003).
Banks attach great importance to processes, and the
ability to manage the processes judiciously is the essence
of good management of commercial banks (Allen, 2006;
George, 2003; Wang, Bedi Guy Herve, & Shen, 2012).
Process improvement is one of the ways in which banks
can improve customer satisfaction and reduce customer
complaints (Makinde, Munyai, & Ramatsetse, 2017).
Process improvement involving process design and pro-
cess mapping is also very important for the management of
operational risk of banks (Hatzakis, Nair, & Pinedo, 2010).
The process improvements which reduce service operational
inefficiency have become so pressing that they no more
form a differentiating factor that provides some competitive

1
Accounting and Control, Finance Area, Indian Institute of Management Kozhikode, Kozhikode, Kerala, India.
2
Quantitative Methods and Operations Management Area, Indian Institute of Management Kozhikode, Kozhikode, Kerala, India.

Corresponding Author:
Kavitha P., Research Scholar, Accounting and Control, Finance Area, Indian Institute of Management Kozhikode, IIM Kozhikode Campus
P.O. 673570, Kozhikode, Kerala, India.
E-mail: kavithap08fpm@iimk.ac.in
132 IIM Kozhikode Society & Management Review 8(2)
advantage but a fundamental requirement to avoid com-
petitive disadvantages and a prerequisite to stay in business
(de Koning, Does, & Bisgaard, 2008). Even though
process improvement tools such as Six Sigma, operational
excellence tools and lean are very popular and well known
for their ability to improve customer satisfaction, their use
in banks remains limited worldwide due to the dearth of
studies regarding the applicability and success of these
tools in banking industry (Kovacs, 2015). Considering the
need for studies that discuss the suitability of process
improvement methods in the banking sector and the
benefits accruing from such improvements to the banks,
two case studies of process improvement were conducted
in two branches of a public sector bank (PSB) in India
using lean thinking as a philosophy for improvement.
Banking operations have features such as regularity,
repeatability, and relatively standardized processes—all
this makes it suitable for the implementation of lean
philosophy as an approach to realize business process
improvement (George, 1992; Kung & Hagen, 2007). Lean
philosophy emphasizes eliminating overburden (muri),
inconsistency (mura) and waste (muda) from operational
processes (Radnor & Osborne, 2013). With its unique
focus on the specification of value from a customer’s
perspective, lean is widely used by management as a tool
for process improvement (Kim, Spahlinger, Kin, & Billi,
2006). Even though this management philosophy and
associated tools have their origins in the manufacturing
industry, pioneered by Toyota Motor Corporation, lean has
proven its success in improving quality and efficiency in
both manufacturing and service sector industries (Abdi,
Shavarini, & Hoseini, 2006; Endsley, Magill, & Godfrey,
2006; Kosuge, Modig, & Ahlstrom, 2010). This was
fostered by the results of the studies of Womack and Jones
(1996) and Bowen and Youngdahl (1998) who formally
introduced the term ‘lean thinking’ and recommended the
application of the lean production techniques to non-
manufacturing processes, thereby indicating the applic-
ability of lean system to processes other than manufacturing
(Afshin Mansouri & Hadid, 2014). Womack (2002)
described lean thinking using the five principles it upholds:
(a) Value is specified by the customer; (b) value stream is
identified and managed; (c) there should be free flow of
services from the origin to the end; (d) pull where there is
no flow and (e) work towards continuously reducing the
time. A review of studies that analysed the benefits of
applying lean thinking in the service sector by Leite and
Vieira (2015) found that lean thinking when applied to
services can improve the behaviour of workers and ensure
significant economic and financial results. But literature
with a specific focus on lean applied to the service sector is
still scarce (Piercy & Rich, 2009b). In comparison to other
service industries such as transportation, health care, enter-
tainment and hospitality, financial services have been
given scant attention in the literature that studies applic-
ability of lean thinking in services (Hatzakis, Nair, &
Pinedo, 2010). Moreover, the unique operational charac-
teristics of financial services as enlisted and elaborated by
Hatzakis et al. (2010) make financial services a specific
context for analysis, which exacerbates the need for
this study.
Some of the tools associated with lean thinking as listed
by Radnor (2010) include Kaizen events, 5S, value stream
mapping (VSM) and visual management. He classified the
tools into three categories: those used for assessment,
improvement and monitoring. Among the tools for assess-
ing the operating process, VSM is an excellent tool for any
enterprise that wants to become lean (Russell & Taylor,
1999). VSM is a powerful tool which identifies process
inefficiencies, highlights mismatches in transaction and
communication as well as guides in improving the process
(Rother & Shook, 1999). Hines and Rich (1997) describe
value stream as a collection of all actions—value added as
well as non-value added—that are required to bring a prod-
uct or a group of products that use the same resources
through the main flow, from the raw material stage to the
hands of customers. VSM is generally carried out as the
first step towards lean implementation (Singh, Garg, &
Sharma, 2011). This study analyses the application of VSM
in the case of bank branches where lean thinking was intro-
duced for the first time, and VSM as a tool was used to
assess the existing process and to make improvements.
The objective of this article is to add to the available
limited knowledge on the application of lean using VSM as
a tool for process improvement in the financial sector. This
objective is achieved by elucidating the cases of two
branches of a PSB in India, where lean thinking was intro-
duced for the first time through VSM of the processes.
Through this study we contribute to the stream of literature
which addresses the issues in implementing lean in finan-
cial services, specifically banks, and also towards the
literature initiated by Radnor and Walley (2008) on how
application of lean in public sector undertakings is differ-
ent from that of private sector. Radnor and Walley (2008)
emphasize on the importance of the contextual factors in
the successful implementation of lean. The case studies
were conducted by one of the authors as part of an action
research. The characteristics of the bank branches, namely
its location in a rural insurgency prone area and state own-
ership, make the cases unique with respect to context. The
present study enriches this stream of literature which
discourses upon the appropriateness of lean in public sector.
Moreover, our study also captures the effect of failure
demand which arises out of failure to do something or
something right for the customer (Seddon & Brand, 2008)
Baag et al.
and the effect of ‘people issue’ (Gray, Radnor, & Boaden,
2008) prevalent in public sector undertakings on the imple-
mentation of lean (Radnor & Osborne, 2013). The findings
of this study offer insights to the banking practitioners
regarding the steps in introducing lean using VSM and the
potential benefits and challenges of introducing lean think-
ing in a bank branch. Indian banking sector is characterized
by the dominance of PSBs and a study by Sureshchandar,
Rajendran, and Anantharaman (2003) showed that the
service quality of PSBs as perceived by the customer is
lower than the private sector and foreign banks. Hence the
insights from the case studies can be used for introducing
lean thinking to PSBs to improve the banking experience
of their customers. The results of the application of VSM in
the bank branches studied here showed that the efficiency
of the branches had improved with less waiting time,
increased customer satisfaction, increased profits and
business and reduced stress for the employees.
The rest of this article is organized as follows: The sec-
tion ‘Literature Review’ reviews the related literature on
the application of lean in banking services and usage of
VSM as a tool for implementing lean. The next section,
‘Methodology’, describes the methodology and the details
of the case. The final section presents the conclusions and
the takeaway for practitioners from the study.
Literature Review
The firms which strive to achieve quality and operational
excellence engage themselves consistently in process
improvement (PI; Assarlind, Gremyr, & Backman, 2012).
There is well-established literature regarding the transfor-
mation of the manufacturing process through lean.
However, the use of lean tools to improve the quality of
service delivery within the service sector is relatively new,
and the academic and managerial arena possess a limited
understanding of this domain (Piercy & Rich, 2009a).
Allway and Corbett (2002, p. 45) defined a lean system for
a service context as ‘an approach focusing on eliminating
non-value added activities from processes by applying a
robust set of performance change tools, and emphasize
excellence in operations to deliver superior customer
services’. Afshin Mansouri and Hadid (2014) propose a
theoretical model in which lean constructs are identified
and operationalized to understand their interrelationships
and their impact on organizational performance.
In the early phases of lean, quality initiatives involved
localized methods like bottleneck analysis and waiting line
concepts, and the improvements from the implementation
of these techniques were also localized limiting the potential
for improvement of the whole system (Lummus, Vokurka,
& Rodeghiero, 2006). This was in line with the wrong
133
perception of lean as a set of tools and practices rather than
as a process improvement philosophy (Spear, 2004). As
companies began to understand the need and potential of a
tool which links these localized methods, the VSM was
born. VSM combines the tools and methodology to observe
the functioning of the entire process and identify the areas
which need to be improved to derive the utmost benefit for
the entire system. This is achieved by mapping every step,
or individual action, involved in the process for specific
services, and analysing the flow to identify and eliminate
waste. The identification of value-adding processes pro-
vides an important foundation for eliminating waste
(Kollberg, Brehmer, & Dahlgaard, 2006). Similar to the
manufacturing process, the operations in a bank branch
cannot be demarcated into sections without any spillover
effects and should be considered as a system which requires
to be mapped using value stream maps to identify the
potential for improvement. VSM lays the foundation for
introducing lean thinking, and in the case being examined
in this study, the branch where VSM was implemented was
very new to the idea of lean. Singh et al. (2011) provide a
comprehensive literature review of the studies that use
VSM for improving the production process. They have cate-
gorized the studies into four categories, namely conceptual
work, case studies, empirical work, and survey articles, and
maintain that case studies are extensively used as a research
method for studying the implementation of VSM in
companies.
The literature that discusses the applicability of lean in
the financial sector is sparse even though the financial
industry is a good candidate for lean services considering
the waste inherent in the process (Atkinson, 2004). The
results of the study conducted by Atkinson (2004) showed
that in 200 work activities falling under eight functions of
a financial firm represented waste in the form of reworking
the same activity several times. The findings of Swank
(2003) were also in alignment with that of Atkinson (2004),
and the study also provides legitimate evidence to justify
the use of process mapping techniques to identify exces-
sive processing time and unnecessary costs. Bhatia and
Drew (2006) elucidated the experience of a European bank
which employed lean service practices to decrease the
turnaround time for mortgage applications. Yavas and
Yasin (2001) also discuss the success story related to lean
service in banks.
Recently, some studies have analysed the firms that
have adopted both lean and Six Sigma for process improve-
ment. The change perceived after the introduction of lean,
in terms of the change in process and tools, and the advan-
tages and difficulties of implementing the lean component,
in an already established Six Sigma service organization
were studied by taking GE Money Portugal as a case by
Delgado, Ferreira, and Castelo Branco (2010). They also
134 IIM Kozhikode Society & Management Review 8(2)
analysed the difference in the critical success factors of
implementing lean in organizations of different countries
to understand the impact of cultural differences. They
found that the benefits of introducing lean practices include
an increase in productivity, improvement in revenue
through increased customer satisfaction and the ability to
service more number of customers owing to the reduced
operational cost by improving processing efficiency.
Wang and Chen (2010) further extend the use of Lean Six
Sigma by integrating it with TRIZ (Theoria Resheneyya
Isobretatelskehuh Zadach). TRIZ is another effective
method for analysing customer needs. The results of the
study show that the application of Lean Six Sigma methodo-
logy with TRIZ performs effectively in the improvement of
banking services. A review of 30 studies that analysed the
implementation of lean and Six Sigma in the financial
service industry by Vashishth, Chakraborty, and Antony
(2017) provides a comprehensive account of the benefits of
implementing lean and six sigma in the financial service
industry and reasons for lean not being popular in spite of
proving those benefits.
There are no studies that have examined the service
operation process of a state-owned bank branch. The state
ownership gives the bank the features of a firm that
provides public service, and Gray, Radnor, and Boaden,
(2008) claim that the ‘lean as it stands in public services is
not ‘pure’ when compared to what has been developed and
implemented in manufacturing, and some private service
organizations and has to be studied separately. The article
by Radnor and Walley (2008) reflects the appropriateness
of lean as a methodology for process improvement in the
public sector and suggests that lean should be implemented
only after considering the barriers found by analysing the
six case studies pertaining to public sector firms. The barri-
ers enlisted were (a) lack of clear customer focus; (b) too
many procedures; (c) people working in silos; (d) too
many targets; (e) lack of awareness of strategic direction;
(f) general belief that staff are overworked and underpaid
and (g) lack of understanding of the effect of variation,
systems thinking and process flow. To overcome these
barriers, Radnor and Osborne (2013) suggest the adoption
of public service-dominant logic while adopting lean in the
public sector. This study was conducted in a PSB, and hence
the introduction of lean was possible only after overcoming
the barriers. Thus the study provides insights for imple-
menting lean in other public sector organizations.
The literature review shows that there is a dearth in the
number of studies that document application of lean in the
service sector, in general, and in the financial sector, in
particular. There is also a need to understand the challenges
in applying lean in public sector undertakings. This article
addresses this gap in the existing literature by studying the
application of lean in bank branches of a PSB in India.
Methodology
The present study uses an action research methodology to
understand the process of introducing lean thinking using
VSM to the operations of a bank branch. Action research as
a methodology is relevant and valid for conducting research
in operations management domain because of its ability to
address the operational issues experienced by practising
managers while contributing to the knowledge domain
simultaneously (see Coughlan & Coghlan, 2002). Action
research is a disciplined process of enquiry conducted by
and for those taking the action. As a consequence of action
research, practices, people’s understanding of practices
and conditions under which they practise are modified to
solve a problem. Westbrook (1995) defines an action
researcher as ‘a participant in the implementation of a system,
but simultaneously wants to evaluate a certain intervention
technique. ... The action researcher is not an independent
observer, but becomes a participant, and the process of
change becomes the subject of research’. In this study, one
of the authors was directly involved in collecting and
analysing data, identifying and understanding the pitfalls
in the existing process and was instrumental in devising the
future improved course of action for the branch. The find-
ings and the process of action research are reported in the
form of narratives situated in the context of the evolving
experiences of the individuals involved. This report on the
action research conducted has been structured on the basis
of the principles proposed by Heikkinen, Huttunen, and
Syrjälä (2007). We use two cases to explain the context in
which the action research was conducted and to elucidate
the learning from the research. The action research was
conducted in the rural branches of a PSB in India.
The first step in lean thinking initiative is to understand
the concept of value as defined by the customer. In the
context of a bank branch, it can be lesser waiting time and
less need for repeated visits. This is followed by the second
step that is a first-hand examination of how the process is
operating currently. A representation flowchart called the
current state value stream map is created to provide an
objective graphical representation of the individual steps
necessary to complete the process from beginning to end.
Then the process is examined thoroughly with an objective
of achieving flow state in which the steps of the process
follow one another without stopping. Once the flow state is
achieved a new value stream map called future value
stream map is created incorporating the changes made.
The following sections describe the case facts and the
steps undertaken to introduce lean in the context.
Case Facts
Our case relates to a rural PSB branch, B1, located in Karbi
Anglong district, Assam, India, which in the books of the
Baag et al.
PSB is a difficult centre due to insurgency problem, and
remains closed for almost three months, in various stretches,
in a given year due to various reasons. The nearest similar
branch B2 is located within two kilometres of B1. We will
look at the branch B1 situation, although the processes
implemented in the branch B1 were later on also imple-
mented in branch B2. Therefore, the implementation in the
two branches was made in two different periods and under
different determinants. We discuss the situations of both
the branches, but concentrate mainly on B1 branch
concerning our study.
B1 period was from the year 2000 to 2002. The branch
was not computerized, the business turnover was very low,
loan recovery was a mere 25 per cent and non-performing
assets (NPA) was as high as 70 per cent. The branch was
showing a profit based on transfer price mechanism on
deposits, which were mostly from a few local government
establishments and few wealthy businesspersons cum
moneylenders cum farmers. It was located in the rural
market area in a single large hall with four supervising staff
which included the branch manager, a credit officer, an
accountant and a cash officer, besides four staff, two among
which catered to the cash section.
The branch had been termed as one of the ‘no hope’
branches where those serving will have no chances of a
career reward because of the poor business environment.
It was located about 30 km from the nearest town. The
service area of the branch included 42 villages spread over
a vast area and included hills and forests. The total popula-
tion under its service was around 20 thousand or around
5,000 families of which around 25 per cent were BPL. The
branch was around 25 years old and had shifted twice in
the past to improve its turnover.
Nearly 80 per cent of the families had taken in the past
a loan and had defaulted because of which around five
villages had already been listed as non-viable area. The
balance 20 per cent were either not reachable or did not
qualify for a loan. About 90 per cent of the loans were
under a government-sponsored scheme with almost no
recovery. Finally, the branch had to constantly depend
upon the nearest district branch for cash requirements,
which happened at least once a month as very little cash
actually came to the branch through the customers, and
thus as such it was a cash-outgoing branch.
The study of B2 branch was from 2003 to 2004, and the
branch was located inside a small cement factory owned by
the government with a strength of around 350 direct and
indirect employees. It also had a similar situation in all
respects except that the branch area was very small and that
the computerization of branch took place during the year
2003. Further, its service area was small with less number
of villages and mainly depended on the turnover of the
cement factory and the employees’ salary. Any excess
135
deposits of the factory were remitted frequently to the
factory head office located in a city 400 km from the branch
free of cost.
Both the branches also had a significant number of
pensioners and also catered to different schools located in
the area beyond the service area—the schools numbering
above 150—serving around 1,000 teachers on government
salaries. The salary was not regular, and the amount paid
was in bulk cash to the school’s heads. Also, salary reim-
bursement of several small government departments took
place in a similar manner.
Another negative factor was the fear psychosis of the
middle class or the upper-class farmers who feared back-
lash from the insurgents in terms of extortion and as such
avoided the branch visits. The fee income business was at
the minimal as business money transfer took place mostly
through the hundi method. In addition, many one-time
governments dole given for maternity care, old age, etc.,
created an additional rush to open accounts. The purpose
was to deposit the cheque received and encash it subse-
quently, after which the accounts remained inoperative.
It only added to the number of accounts to balance every
month as well as interest payments. However, there was no
economy-of-scale benefits.
Despite the scenarios as discussed, the numbers of
transactions were high in both branches. This is because
most of the village customers who had accounts withdrew
their cash in small amount frequently. With no restriction
on minimum amount withdrawal or minimum balance to
maintain in the branch, there was always a rush to open
accounts, and/or withdraw cash with the added responsibility
for the employees to write the withdrawal slips and the
account opening forms as most of the customers were
illiterate. Besides, the credit department of both the branches
had to comply with numerous controlling office returns
coupled with mandatory field visits.
The responsibilities were assigned to the officers
according to their respective designations, and nobody
gave a helping hand to the other in time of rush hours. So
is the scenario with the other staff. Everybody avoided
filling the account opening form or the withdrawal slip
mainly due to some unseen unavoidable accountability.
The customers will be requesting one staff after the other.
Any incorrect information or inability to properly identify
himself or herself led to cancellation of the form or post-
ponement of the opening of the account. The situation was
worse in the B2 as the branch space was small; tensions
and stress were frequent with no positive results.
In both the branches, there was also frequent absentee-
ism of staff/officers because of frequent closures of the
branches that encouraged them to leave the station and not
return in time due to either communication problems or
personal reasons. The staff/officers had been stuck there
136 IIM Kozhikode Society & Management Review 8(2)
for years together as nobody was willing to come there and
join. All this only demotivated the employees who saw no
future. At the same time, because of the lack of on-the-job
training, most of the staff and the officers were not compe-
tent enough to tackle various technical issues. The output
was slow as they insisted on following the standard operat-
ing procedures (SOPs) thoroughly. The personal stress on
the staff created constant unpleasant decisions, which
further led to erroneous completion of works, resulting in
delays and additional strains. Ultimately, both the branches
had put a limit on various services on a per day basis,
which created a constant push scenario in the branches.
The author joined the B1 as a credit officer and found that
the desire to improve the operations and business was still
prevalent but suppressed. This desire to improve was mainly
because of the performance-based reward that would have
created a chance for transfer with pride. It meant increasing
the operations efficiency, business turnover, profit, and
reduction of NPA level, customer complaints and costs.
Current State Value Stream Mapping
The first hurdle was to understand the branch, B1, and the
local area environment, besides bringing the credit depart-
ment in order as per the SOPs. The author took frequent
trips to the fields, the market area and interviewed the
defaulters to understand their problems (some of the
defaulters were surprised to find a bank official at their
doorstep after a gap of around two years and thought it to
be a routine check-up to confirm the existence of the
borrower). This continued on a daily basis; the routine was
to visit the branch, finish the daily SOPs, make a mental
note of the operational process that was taking place and
Figure 1. Stages of Customer Flow Through the Branch Operation Process System
Source: The authors.
mentally map the improvement opportunities. After that,
the author would leave for visiting the borrowers/default-
ers and understand their problems. Within a span of two
months, it became very clear that every situation demanded
a value-added process directly related to the desire of the
customer level of service expectations. The scenario was
the same when the author took over B2 branch as the
branch manager. He was posted to B2 to turn around the
branch after seeing the improvements he had made to
B1 branch.
In both the branches, each staff, officer had their own
suggestions of ‘the problem with this place’. The author of
course saw that lack of expertise in procedures and prac-
tices was a major drawback in both B1 and B2. Initially,
the author started with the mapping project all alone as no
one believed that branch B1 could be turned around. (Of
course, this was no more the situation, when the author
joined branch B2, as the staff by now had heard and seen
the success of B1 and were more than willing to be a part
of the mapping process.) The mapping project initially
looked at two parts: the first was the customer flow through
the branch operation process system, and the second was
the improvement in the skills of the staff. It was clear that
both were heavily interlinked. Ignoring the first part was a
logical step at that moment; the author started helping each
of the staff in their workload to develop the team spirit,
motivation and perhaps a sense of gratitude to work with
the author. Besides, a common complaint was less staff and
overwork. The officers and senior staff were not pleased
with the way the junior staff were working. Also, the work-
load seemed to be in the form of a wave (see Figure 1).
Stage 1 was when the branch opened and remained the
same for almost the next one hour; it reached Stage 2 just
about 15 minutes before the lunchtime with maximum
Baag et al.
customers inside the branch waiting for the service. It
reached Stage 3 about 40 minutes into the lunchtime, which
automatically delayed the lunchtime of the staff as well as
the officers. This resulted in late coming of staff into the
desk and resulted in Stage 4 with the day’s end work piled
up and several customers still waiting for the non-fund-
based services. Stage 5 was about two hours after the
closing time for the officers and one hour after the closing
time for the staff.
The reason for the Stage 1 situation was ‘what’s the
benefit, anyhow we will have to stay late, or it is not going
to give me a reward’ from the concerned staff in the
cash department and the staff at the accounts department.
At the same time, the customers’ complained that it were
the officers who were responsible for the delays. They will
start late with cash as well as keep everything pending until
the end of the day such as issuing passbook, draft delivery,
etc. At the same time, the customers surprisingly said that
the junior staff were more competent and delivered better
service than the seniors or the officers and thatthey were
aware of the personal daily requirement of the customers.
Along with this, the officers’ personality eccentricities
were noted and that the approximate time they required
to deliver a particular service was more than the juniors’.
(To the author’s surprise, a similar situation existed in B2.)
Thus, the root cause identified in the accounts and cash
department were the officers. These aged persons knew
that they will never get a promotion and as such were not
bothered with the reward system. The only alternative
seemed to be the respect from the customers in and out of
the branch. The author along with the two junior staff and
the branch manager in B1 began mapping the process
upstream, and downstream from these two points, that is,
the two officers with the belief that it is a point where waste
occurs in terms of time and quality of service, hence the
final product. Accordingly, value-added steps start from
these two point processes. The time variability in their
service process ranged from two minutes to one hour and
dependent on many factors/variables.
The cash officer may have to suddenly receive a high
quantity of soiled notes, or make a high-value payment for
which it may have to reopen the vault, which needs the
company of the second person who is none other than the
accountant. He may have to wait until the accountant seems
to be free. At the same time the accountant may really be
busy with tallying the signatures of the withdrawal custom-
ers, or simply will make the cash officer wait for no reason.
The vice versa may also happen, it may be just that the
accountant needs to take out a safe custody document,
which is kept inside the vault and needs the company of the
cash officer to open the vault when the cash officer is really
busy in counting back-office cash and simultaneously
separating the soiled notes.
137
It can also be that a customer first comes to the account-
ant with a request to open an account, who after the initial
interview goes to the concerned staff. The staff helps the
customer to fill up the form along with the enclosures and
forwards it to the accountant for approval; the accountant
looks into the form, scrutinizes it, requests for further
changes/corrections and sends him back to the staff. By
this time, the customer is frustrated. The procedure is again
repeated until the accountant is satisfied with the filled-up
form. The customer then goes to the cash department to
deposit the cash and waits for his number to come. Later
on, he/she comes to the bank to collect his passbook and
returns empty hand with advice to come and collect it the
next day. The fact is successfully opening an account in
the branch becomes considered as a real achievement by
the customer.
The author observed all these schedules and followed
the various processes from the moment a customer entered
the branch for a typical service. The bottleneck seemed to
be the accountant and the cash officer where process com-
pletion was on a FIFO basis and needed a push from the
next customer, ignoring consideration to time factors. Even
small signature verification or collection of an overnight
draft will take as much time. By now, the B1 branch
manager had become a part of the team to develop the
value stream process. Mapping of the current situation was
ultimately completed (Figure 2).
Future State Value Stream Mapping
In the banking industry, the in-process inventories are
not carried over for the next day, and therefore, it has to be
emptied before the work can stop for the day. As such, the
author ignored the SOPs period; the first step was the
branch manager taking the responsibility of the account-
opening procedure. The author took on the responsibility
of signing and releasing the drafts, including overnight
drafts by taking custody of the same every morning, since
the author by now had completed his regular field visits.
Also, it was decided that if and when the author/branch
manager is out of the branch, the other will take the respon-
sibility of the other’s part. Consequences were immediate,
inventory built up at Stage 4, and Stage 5 was no more.
The workflow became smooth with customers being pulled
in. Similarly, it was later decided that cash section will
open at starting office hours sharp in order to avoid the
inventory built up at Stages 1 and 2. This was possible only
after the staff found that the value-added steps were work-
ing for the accountant. The cash officer also willingly
cooperated in the process. The inventory built up at Stage
3 automatically vanished, as there was no more pushing
from Stage 5 inventories. Thus, the branch had successfully
shifted itself from a pushing system to a pulling system.
138 IIM Kozhikode Society & Management Review 8(2)

Figure 2. The Mapping of the Current State of Customer Flow in B1 Branch

Source: The authors.

The results were immediately visible; customers started
coming with non-fund-based business from nearby B2 as
well as from other localities, who were visiting the nearby
town. However, the accountant was expected to continue
with the same services during lean working days. Over a
period, the accountant realized that it was his inability to
serve in time, which had created the inventories. This resulted
in a marked improvement in his ability. The accountant was
promoted in the year 2003. B1 became the best branch in the
whole of northeast India, with regard to this concerned bank
in the year 2003. The author introduced the same process in
B2 later. A similar situation was found to be existing in B2,
but the accountant took a deep and sincere interest from the
very beginning, resulting in a promotion for him in the year
2004. However, the VSM was different for B2.
Such was the effect of the results that all the staff
were either promoted by 2004 from B1 or were ultimately
transferred to their chosen branch. There were now staff,
who were more than willing to serve in this branch. We
make a summarization of the principles that guided in the
creation of the new value-added process with different
considerations:
• By-pass lane creation to handle different services
round the time.
• A customer lost is potential revenue lost; a dissatis-
fied customer takes away another five customers
and vice-versa. Hence,
• No inventories can be carried over initially; later on,
no inventories can be allowed to build up.
Baag et al.
• Supervising staff with several employees will always
lead to a bottleneck.
• Motivations, teamwork, skills, trust are more impor-
tant initially. The reward comes automatically.
• Controlling management support is necessary in the
end.
What we did in the proposed process system was identi-
fying and separating the customers into separate groups
according to their needs. The account opening customers
were guided to the branch manager. As they were very few
in number, the branch manager was able to attend to them
immediately or within a short interval of time. The author
dealt with the non-fund-based customers. Non-fund-based
customers were also few in number but more compared
to the account-opening customers, who were regular
customers. The Accountant dealt with the last-minute or
unscheduled customers. With an average 15-minute cycle
time for a customer, one customer could be accommodated
every five minutes, provided it was spread evenly across
the day. Then this spread will do value addition because of
the capacity inbuilt, even though the customers are still
pushed because of the cycle time rate variation.
However, there remain the walk-in customers whose
daily numbers across a given period need to monitored to
Figure 3. Future Mapping of Customer Flow in the Branch
Source: The authors.
Note: Numbers 1, 2, 3 and 4 denote the different lanes which will be used by the customers.
139
do away with any future pushing at Stage 4 in Figure 2.
There also remains the fourth group of customers who just
needed a simple follow-up visit to the B1 accountant.
It was decided that these customers will be dealt directly by
the front desk, and if needed will be first directed to the
credit officer’s desk, who will then decide the course of
action to be taken. Thus, from the guard’s point, four FIFO
lanes will be generated, besides the lane directly for the
cash department (see Figure 3). Based on the above, the
guard’s priority was to keep the first lane empty, then Lane 2,
then Lane 3 and finally Lane 4. That is, if other lanes were
empty, and there still were customers in Lane 1, they will
be guided to the other two lanes, namely Lane 2 and Lane 3.
In spite of the improvements, if it was felt that the pro-
cess was being clogged because of unexpected long pro-
cess time at any of the lanes, the guard was advised to
inform the customers about the expected time he/she would
have to wait. In addition, he/she had the option of taking a
prior appointment from the credit officer for the next day/
any other day according to the customer’s convenience.
This system eliminated the chance of a customer returning
dissatisfied. It has to be understood that the build-up of
inventory is now taking place at the very beginning stage,
at the guard’s point, who immediately takes care of the
situation.
140 IIM Kozhikode Society & Management Review 8(2)
Scheduling of the Process System
The most important aspects of this ‘pull-flow process’ is
the use of a schedule which keeps a steady flow of customers.
The future value stream map was used for identifying the
lanes which allow free flow of customers in the branch
from one counter to another. Afterwards, B1 with trial and
error method and through the learning process could design
a schedule for giving appointments to the customers. This
over a period helped because the customers soon came to
know of the advantage of a prior appointment, which was
strictly followed by the branch. As the branch was dealing
with human beings and not machines, an acceptable time
of waiting was used to calculate the level of inventory
built up.
The scheduling process board starts with the expected
time available for the customers at each of the lanes
moving the day down as slots become full, if there is no
choice of the customer. Gaps are kept down the day to deal
with the daily jobs (see Table 1 for example of a one-hour
schedule process).
Over a period, the need to keep extra slots off for absen-
teeism was also recognized as well as for other field jobs
related to the branch manager and the credit officer at B1,
which also acted as a buffer against the unplanned rush of
walk-in customers. At the same time, it was important that
no business was lost due to a missed opportunity. The
vacant slots at the end of the day ensured less stress for the
staff in terms of additional workload.
Benefits and Challenges
This article presented a part of an actual experience of
process improvement and lean thinking through VSM in
service operations in an emerging market, namely public
sector banking services in India. The challenges were to
identify the different types of customers and schedule them
within a specific lane. The advantage was that the customers
Table 1. The Schedule Board for Serving the Customers in Different Lanes
Schedule Board
Time (am)
Lane 10.30 10.45 11.00
1 Scheduled Account-opening Account-opening
customers customers
2 Scheduled Non-fund business Scheduled
3 Quick Other branch-related Other branch-related
work work
4 Walk-in Scheduled Other branch work
Source: The authors.
Note: Scheduled refers to customers having prior appointments.
quickly got adapted to this method. The process also
discouraged inflexible customers. Though each lane capac-
ity did change from time to time, the overall output was
either constant or increased on any given day. The overall
performance of the branches improved. B1 under study
was awarded the Green Channel Award for being the best
performing Agricultural Development Branch at the Circle
level. A 600-percentage growth in the total business was
recorded after the implementation of lean practices.
A 200-percentage increase in the NPA recovery rate was
achieved as a result of the new and improved operations.
The new process also increased the turnover of the branch,
reduced wait time for customers and stress levels of the
staff. The process was duly recognized by rewarding the
staff, besides giving walk-in customers a separate priority.
In future the branches have to strive for reducing variations
in the established processes and application of tools like
Six Sigma to ensure the least variation in the service
quality.
Conclusion
This article, based on action research and author’s own
actual, applied experiences over a period of four years
through deutero-learning process, for the first time pro-
vides evidence for the suitability and success of lean think-
ing in improving the quality of banking operations through
VSM of the processes of bank branches. The transforma-
tion journey towards lean using VSM went through three
main stages which are current state mapping, target state
design and implementation through scheduling. The out-
comes of introducing lean and improved processes were
efficiency improvements through lower wait time, lower
stress levels of employees, besides increased customer
satisfaction, profit and business. The analysis of the situa-
tion and the findings provide insights to the practitioners
regarding the challenges that have to be encountered while
introducing lean in financial service operations. It also
11.15 11.30
Scheduled Other branch-related
work
Non-fund business Scheduled
Other branch-related Other branch-related
work work
Scheduled Other branch work
Baag et al.
brings out the problems of implementing lean in the public
sector undertakings and how such issues can be solved.
The article concludes that financial services operation
renovation can be a catalyst for change, but demands coor-
dination among the employees and a change in the culture
for sustaining the lean attitude. The VSM is just an initia-
tion of lean thinking and combination of lean tools with
other efficiency-enhancing tools like Six Sigma can
improve the results achieved. But implementation of pro-
cess variation measurement tools like Six Sigma requires
quantified key performance indicators (KPIs), which have
to be specified by the top management. This will provide a
foundation for the employment of other process improve-
ment tools such as continuous process improvement (CPI).
The top management has to comprehend appropriately the
outcomes, it should show commitment to lean thinking by
supporting it with better and quick tangible rewards and
recognition, and it should not treat or view lean thinking as
just another tool or policy. The top management should
ensure that it becomes part of the overall organizational
strategy by creating a whole ecosystem, and through a
structure, a culture and a thought process where service
operation innovation thrives. This will ensure quick accom-
plishments that essentially comprise a paradigm shift in the
way the bank branches works.
This study has some limitations concerning the general-
izability of the findings, which is inherent in studies which
use action research methodology. The unique characteris-
tics of the branches such as the location of the branch in the
rural areas and the branch being prone to insurgent attacks,
which makes it notorious among the staff of a PSB who
are deemed to be public servants, bring uniqueness to the
study and also manifest the limitations with respect to the
generalization of the study results. The future studies to
be conducted in similar settings are required to validate the
applicability of the results of this study.
Note
1. The study was conducted in two branches of State Bank of
India.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect
to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research,
authorship and/or publication of this article.
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