Lean Financial Services June, 2010

Chris Vogel - founder Compass Affiliates, providing management consulting for Lean leadership and design. Former Senior Vice President of Wells Fargo, Chris conducts Lean readiness assessments & action planning, provides Lean implementation consulting, works with leaders to develop Lean cultural systems, standardized Gemba walks, and leader development planning.

Discussion Overview Lean Lean Leadership Policy Deployment Planning Wells Fargo Case Study Motivations and opportunities for change Changing the Document Management culture Where Wells started An example of the first major transformation What was learned and what was done next Results Myths, Achievements and Challenges Where to start Questions

Lean What is it not? It is not tools, projects, cost cutting or people reductions It is not a way to make people work harder It is not a passive activity practiced by one group and not another It is not a transition to the next “method” What is it? It is a total company system connecting Purpose, People, Process and all departments to increase Customer value, profitability and growth

Wells Fargo Case Study Who is Document Management? Document Management is an operations team providing paper imaging, electronic document routing, data lifting and document storage services to the Home and Consumer Finance division of Wells Fargo. Services provided were integrated with back-end and front-end transactional processing. The Home and Consumer Finance division included the following groups; Home Mortgage, Financial, Insurance, Home Equity Lending, Credit Cards, Student Loans, Trust Services. To serve our internal Business Partners we had operations in NC, MN and Iowa. We had 1,200 team members providing services over two shifts, six days a week. Processes were continuously improved in partnership with business partners to provide the most quality centric, secure and cost effective value, meeting the needs of Customers.

Conditions Motivating Change Organic growth of imaging and data lifting across unconnected groups Technical infrastructure was becoming highly variable in design increasing cost Operations disciplines were defined by each separate process and department Volume nearly tripled to a record high following the Federal Reserve’s response to the 911 attacks

Opportunities for Lean Departments were merged into a single division allowing a central vision to develop The value of work effort was not clearly identifiable Many, many handoffs Processes were designed around batching work Work inventory was stored in rooms out of the way and out of site until it was processed Defect rates and service performance were hard to measure Without adequate processes, management was required to respond to the “loudest” priority

Where Did We Start? Began value stream mapping our process Made our processes obvious; and started changing them Built our Operational Excellence (Lean) Model

Began Value Stream Mapping Our Process We engaged external vsm expertise to help us get started and to teach us the discipline Began conducting Kaizen events, created change proposals began 30-60 day implementations (short cycles of improvement) Made Our Processes Obvious Started to create flow and began shrinking batch sizes Began physically connecting processes and making operations visible Began to exchange post process auditing for a balance of in-process quality Began to explore work standardization through 5S Created initial baseline reporting for similar functions

Built Our Operational Excellence (Lean) Model Created our Operational Excellence (Lean) visual model for reference, training, and communication We started experimenting with different training exercises to discourage batching and show the benefits of standardization We began creating production teams and breaking down the independent contributor system

Continuous Improvement Process We followed the typical high-level Continuous Improvement Process Identified Goals Mapped Current State Identified Waste Mapped Future State Implemented

Present State Value Stream Map Legend CT = Cycle Time C0 = change over time UT = uptime FPY = first pass yield

Future State Value Stream Map Legend CT = Cycle Time C0 = change over time UT = uptime FPY = first pass yield

Operational Flow – Before 9 9 PSS 1200 ft. File Travel 8 Back Flows 9 Intersections 10 9 9 Validation 7 6 12 8 8 1 13 8 8 11 2 3 3 4 4 5 5 5 5 5 5

Operational Flow – After Door Receiving PSS Milk Runs Conv Imaging Module Govt Imaging Module Govt Match Loan Packages Out Elevator Freight Assurance Quality File Room Docs Buildout Future Final Design Objectives: Critical path is consolidated into main production space. Elimination of backflows and intersections. Circular flow from monument (freight elevator). 75% reduction in travel.

Transformational Timeline Analysis & Design Layout Prototype Full Volume Add Capacity Transition and Stabilize Environment Timing: Key Themes: 8 week 6 weeks 8 weeks 4 weeks 12 weeks Physical Layout Cost Projections Current flow analysis Purchase equipment Setup physical Space Recruit team Train operators Test receiving and imaging line Document results Go/NoGo Decision Build out space on lines to handle the co-location volume and timeline. Convert all MPLS volume to new flow design

Initial State

First Generation Flow Lean Imaging Flow (Scanning, QC and Reconstruct)

Year 1 – First Imaging Line

Imaging Lines – Year 2 Better IMAGING TEAM STRAIGHT LINE PROCESSING – NOTE CONVEYOR BELT MOVEMENT OF PACKAGES

Second Generation Flow Imaging Flow (Scanning, QC and Reconstruct)

Imaging Cells – Year 4 ADR CELLS – LARGE VIEW

Andon shows normal vs. abnormal for administrative work

What Did We Learn? People need to envision their efforts fitting into an overall vision or Lean operational model Staff have kaizen knowledge and are very willing to contribute In order to be successful, all team members must contribute as a learning organization therefore a learning strategy was required Batching work is a natural tendency for people and requires a conscious choice to overcome Leadership at all levels needed to spend dedicated time on the floor to understand and respond to the needs of the system If you cannot differentiate abnormal from normal operating conditions, you don’t have standardized work and cannot kaizen Check / Adjust is just as important as Plan / Do

How Did We Adjust? We developed a training strategy for all team member levels, clearly showing expected skills and development timelines We did training at all levels showing the pitfalls of batching and benefits of flow We required managers to spend dedicated time on the production floor every day and IT support in operations We realized our weakness in standardized work, trained leadership to recognize, trained staff on the value and took it to the next level We clarified the relationship of team members and their accountabilities concerning Kaizen, variation, overburden, change approval, etc… We evolved the Operational Excellence (Lean) model and stated the cultural norms

Doc Mgmt Lean System

Philosophical Underpinnings Focus on business partner / customer value People are the most critical element A commitment to continuous improvement

Managerial Culture Generosity of spirit and sustained sense of trust Accountability at all levels of the organization to improve their work Fact based decision making Commitment to creation of sustained learning Problems are considered good things because they help direct us to our improvement opportunities All support functions, technology development and projects focus on direct operational value stream improvement

Tools Standard Operational & Lean Product Development Tools Tools A3 Format Value Stream Mapping Small lot processing Just in time Quality in process (jidoka) 5S Production Boards Andons Standardized Work Charts Product Development Tools Agile Processes Burn Down Charts Agile activity tracking software Tools Flow Pull Gemba walks Action Boards Kanban Pareto Charts Mistake Proof (poka yoke) PDCA discipline Many others…..

Results Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Overall Improvement Operations Cost per Image (decrease) 13% 24% 25% 34% 28% 76% Images per FTE (increase) (21%) 27% 30% 40% 21% 17% 168% Image Availability Lead time (decrease) 45% 20% 31% 92% Space Consumption (decrease) 33% 26% 0% 50% First Pass Yield 64.0% 78% 99.5% 99.8% 99.9% 35.9 pct pts Business Partner Service Level Compliance 75% 99% 99.7% 49.7 pct pts Transactional Volume 12% (10%) 100% 111% 371%

What happened after that? Creating Level Pull Improving the connection between leadership objectives and production staff (A3 and Catch ball) Improving synergies between operations and project management / software development initiatives Further ingrain the cultural norm that leaders are teachers and give everyone the skills to grow knowledge Infect others

What we might have changed? Spend more time communicating the cultural vision and the mechanisms of our Lean model Lead with the A3 Hoshin Kanri process Involve staff earlier in the process (training, work flow design, production boards) Train, educate, and emphasize standardized work What Strategies Worked Well? Start with focus on value definition Begin value stream mapping Focus on making work visible and connected Continue to favor action over analysis

Hoshin Kanri – True North Performance, gaps, and targets   This year's action plan SLA CPL CPI CPK Goals Activities J F M A S O N D Last Year Targets: DM 98% na $ 0.121 ? A. Strengthen strategic planning 1. Teach Management Hoshin Kanri WFHM $ 22.69 $ 0.082 and policy deployment process 2. Require mgmt to build Mother A3s and WFF $ 0.076 baby A3s within departments CCG 3. Communicate goal / strategies to staff CS through catch ball Last Year Actual: 99.70% B. Deliver cost reduction 25% 1. Standardize work at all sites 99.64% $19.03 $ 0.085 greater than budget 2. Kaizen not Kaikaku 99.8% $ 0.063 3. Empower staff to manage muda C. Institutionalize OE culture 1. Execute training program focus on at all levels OE & Muda for staff, A3 & Stan Wk for mgr Reflection on last year's activities 2. All non-staff spends 2 days in cell Activity Rating Key Results / Issues Meet Financial Obj G Goals met D. Institutionalize effective BCP 1. Operationalize new Des Moines site Stabilize ops & tech Y Cannot easily move work between sites and rate rally redundancies 2. Common capture platform all sites Support CORE Dates made, resource split effective Engage staff in process Idea boards put in place, don’t own muda E. Institutionalize effective 1. Mature Lean/Agile project practices project execution 2. Align team with function (create zones) Pass Audit Flying colors 3. Measure and forecast velocity 4. Create effective tracking & comm Advance Ops Excellence Training prgm stalled, mgrs cant do work F. Instantiate financial allocations 1. Deliver high level KPIs Analysis / Justification to this year's activities and metrics 2. Roll out allocation method for all BPs 3. Standard reporting formats / goals Cost burden to business partners limits process improvement opportunities. Follow-up / Unresolved issues Operations are unstable and improvements are not sustainable. 1. Catch ball may not be well understood by staff by end of 2007 We are unable to forecast project execution and deliver expected results on schedule. 2. Training program will not be well integrated with Corporate L&D team Inconsistent communication of financial allocations, metrics, and SLAs confuse business 3. Long term second site will still need to be identified partners and erode confidence in the corporate business model. 4. High level KPIs and operational reporting may not be synchronous 5. Intense focus on our operational needs is often an obstacle for BPs. Signatures: Author: Chris Vogel Version and date: V2 4/2/2007

Hoshin On Production Floor

Production support responds real-time to andons for administrative work

Employee Engagement

Common Myths Challenges Operation discipline doesn’t allow for good customer service Standardized work is an insult to personal creativity Lean tools are designed to get rid of people Leaders can deploy the OE system from their office Challenges Underestimating the criticality of standardized work Overcoming staff perception of Lean being a people cutting method Creating discipline for management time spent on the floor

Questions