Effectiveness of Business Process Improvement for Equipment Financing Companies
Executive Summary:
This study examines the success of BPI practices for the equipment finance segment. Previous research for the greater financial services industry, of which equipment finance is a member, has shown BPI initiatives to be effective in general for enhancing service quality, productivity, cost savings, error reduction, and delivery time. This study assesses the effectiveness of BPI practices by interviewing executives at 30 equipment financing companies concerning the efficacy of general, customer-supplier, Six Sigma, and lean management BPI practices. A unique contribution of this research is an appraisal of the linkages of BPI characteristics, such as BPI implementation and program results, with four company characteristics:
- type of firm (including bank-related, captive, independents, and multi-line),
- firm size,
- market size, and
- type of underlying, core technology.
Generally speaking, this study finds that the use of BPI practices is common among the study respondents, irrespective of the firm being a captive, independent, bank-owned, or multi-line finance company. While most firms in the study use BPI practices in some form, the overall findings suggest variable rates of deployment for each of BPI, with some of the lesser-utilized BPI tools rated as more effective. As listed in Figure 1, BPI tools include activities and practices associated with each of the 4 BPI tool categories: 1) general, 2) customer-supplier, 3) Six Sigma, and 4) lean management tools. This study finds that it is common for companies to deploy about two or three BPI tools from each category, with the greatest number of tools from the general BPI category and the least from the Six Sigma tools. Aligning the 23 BPI tools with the three stages of organizational change suggests that the most common practices are for the diagnosis stage, a moderate number for the improvement stage, and only two BPI practices for the learning stage.
This study indicates differing effectiveness for the 4 BPI categories and 23 tools. BPI tool effectiveness is defined as quality improvement, customer satisfaction increase, cost savings, reduced frequency of errors, and reduced severity of errors. For commonly implemented BPI practices, some tools are found to be effective for each category. Specifically, frequently deployed tools include general practices (such as employee recognition, teams, and Plan-Do-Check/Study-Act method), external initiatives (such as customer satisfaction measures, competitive benchmarking, and Critical-To-Quality metrics), Six Sigma practices (such as project reviews, Define-Measure-Analyze- Improve-Control process, and Statistical Process Control), and lean initiatives (such as process mapping and kaizen). According to a financing company’s Vice President of Operations, these basic initiatives (as listed in Figure 1) are essential to drive programs for capturing new ideas from employees and problem solving. Other executives report the need for employee recognition, teams, and BPI projects to drive a “process improvement mentality”.
However, some of these common BPI tools are related to only one of the program results, such as BPI teams with quality improvement results, employee rewards with net cost savings results, and customer satisfaction measures with customer satisfaction increase. So these basic BPI practices do achieve their goal of improving effectiveness, but for only those specific outcomes. More advanced common tools, for example benchmarking, CTQ metrics, DMAIC, and process mapping, are significantly correlated with at least 4 of the 5 program results. These intermediary and more time-consuming practices improve a broader spectrum of results. As a financing company president stated, more advanced tools such as process mapping result in streamlined operations that allow the firm to expand into new types of business. Furthermore, some of the most sophisticated and least deployed tools, such as Failure Modes and Effects Analysis, Black Belt or Green Belt training, fail-safing, and Supplier Quality Evaluation, also correlate significantly with at least 4 of the 5 results metrics. Deployment of some of these least common BPI tools, in addition to the proven baseline tools, would provide a more highly effective program overall.
A well implemented BPI program would be beneficial for a financing company, regardless of its characteristics. Digging deeper into the interview information reveals novel insights on the effects of equipment finance company characteristics and the relationships with core technology applications. Surprisingly, the four company characteristics (firm type, size, market, and technology) do not have an overall impact on the adoption or success of BPI tools. Also, some firms have started BPI initiatives for a specific segment of their business, and later expanded the BPI program scope as the benefits became apparent.
As a Senior Vice President remarked, BPI was not perceived to be needed for large ticket deals, but recent use of process mapping for other markets proved so successful that they realized it should have been initiated for all of their business years ago. Also unexpectedly for all firm types, sizes, and markets, the most often deployed BPI tools (customer satisfaction evaluation, employee rewards, and teams) do not result in the highest combination of quality improvement, customer satisfaction increase, net cost savings, and reduced frequency and severity of errors. Some lesser utilized BPI tools result in greater overall benefits for all company types, sizes, and markets, suggesting competitive advantages for all financing firms that implement uncommon BPI practices well.
Greater utilization of financing technology applications relates highly to the success of general and customer-supplier BPI tools. A financing executive stated the need to extensively use process mapping as the business has evolved to a more ambitious business strategy and has adopted more sophisticated IT systems. So for the Six Sigma and lean management tools, their effectiveness may depend on the coordination of those tools with financing technology applications, such as when a financing CEO described the use process mapping with a cross-functional team of IT and Six Sigma trained employees.
Many firms are successfully introducing BPI tools along with the improvement of their IT systems. For example at a financing company, the implementation of process mapping plus enhancing the technology configuration resulted in the elimination of thirty unnecessary steps for the credit department and reduced throughput time for the origination department. However, changes in technology applications require employees to work alongside the IT staff and can take months to implement, as a Senior Vice President remarked. Therefore, this study points toward new directions for the adoption of underutilized but more effective BPI practices, especially Six Sigma and lean management tools, and more sophisticated IT systems, for all types of financing firms.
The financing executive interviews for this study finished with their advice about lessons learned for improving BPI programs. These insights focused on several suggestions, such as employee process improvement mentality and practical training, common understanding of BPI tools, a “bubble-up” deployment approach, management buy-in, cross-functional project teams, small dedicated BPI staff, realistic improvement goals, and selection of the most appropriate BPI tools (such as benchmarking, CTQ metrics, DMAIC, and process mapping). The Six Sigma tools received the greatest attention due to a perception they are an “allor- nothing” option. Some financing executives opined that Six Sigma tools were too expensive with a distant or insufficient payoff. Moreover, a BPI Director expressed the concern that a universal Six Sigma program could sink the entire organization due to costs and the lengthy cycle time for employee training and process implementation. Also executives commented on how some firms have over emphasized Six Sigma and on the challenge to engage all employees in more complex BPI tools. However, this study reveals that the less utilized Six Sigma and lean practices are actually highly related to many facets of BPI program success.
Many financing executives remarked how the implementation of BPI practices has evolved over the last several years. Also, a CEO reported the recent trend toward more education and a “strong lean champion” to encourage middle-to-low managers to adopt lean practices in spite of their time consuming nature. In addition, larger firms maintain a dedicated BPI staff to direct projects and lead managers in working with BPI teams. Many executives encourage the selection of the right BPI tools for each scenario, training for employee understanding of each tool, and choice of appropriate metrics to track results. Therefore, most financing companies are engaged with many of the basic BPI practices but there are considerable opportunities for expanding BPI adoption toward more of the advanced and generally effective BPI tools.
Table of Contents:
- Problem Statement
- Executive Overview
- Introduction
- General Process Improvement Practices
- Customer, Supplier, and Competitive Practices
- Six Sigma Practices
- Lean Management Practices
- Findings
- Lessons Learned
- Conclusions
- Study Methods
- Measures
- About the Researcher
- Acknowledgements
- References
- Appendix: Interview Protocol
