Lean Six Sigma

Background

The Royal Commission in 2018 enforced changes for advice firms that generally had the effect of higher costs due to increased compliance and administrative tasks. This has increased the cost to serve a client, exposing a few issues for the typical Australian advice firm. 

These increased costs have raised the break-even point for a client, resulting in many more clients falling into the unprofitable category and essentially costing the firm more money to service. This is amplified due to technology not being used as effectively as it could be, leading to the extra time and higher costs associated with manual compliance and administrative tasks. Overall, this means advisers, on average, have 142 clients versus successful, profitable firms in the UK that have 160¹.

This comes at a time when Australia is about to enter a significant risk/reward moment in the advice market, with $3.9tn at stake in inter-generational wealth transfer over the next 5-10 years, according to CoreData modelling². The winners will be those with a product offering that customers are looking for, at a compelling price point, resulting in sustainable profit for the advice business.

1. CoreData – Australian and UK Licensee Research June 2022
2. CoreData – Market Intelligence modelling April 2022

What is the Lean Six Sigma methodology?

Put simply, “Lean Six Sigma is a way of thinking about finding improved quality and reducing waste.”¹ It is a practice consisting of continuous improvement to ensure our customers are receiving what they expect. As a customer-centric approach to running a business, Lean Six Sigma (LSS) advocates continuous improvement ‘as long as value is imperfectly created, and waste exists’. While its background lies in manufacturing, for the last 20 years it has been applied to any business where efficiency gains can lead to growth.

While the LSS methodology is a relatively new concept outside of manufacturing firms, its origins can be traced back to 1913 and Henry Ford’s Model T before Toyota’s more modern iteration the ‘Toyota Production System’. It is now used by many of the world’s most successful companies, including Microsoft, Tesla and Apple. In recent times, it has been successfully adopted by a small selection of advice firms in the Australian market in response to the raft of changes the industry has seen in the past few years and the need to find efficiencies to keep costs down. 

This paper outlines the history of LSS, the core methodology, the process of implementation and the role it can play in the advice industry using case studies from businesses BT has worked with. 

The core methodology

LSS thinking begins with an understanding of the value-driven purpose of the organisation or the problem they are trying to solve. 

As LSS is a socially conscious methodology, it focuses on the value created for customers – much like a successful advice practice will focus on customer outcomes first while ensuring that they can maintain sufficient profitability. 

In order for this methodology to work, every employee must be able to answer the question of purpose and value and be engaged in working towards it. From there, the business needs to be able to answer these five questions:

Lean Six Sigma in action

Background

A medium-sized advice firm BT worked with in WA provides a good example of how LSS can be put into practice. This practice had six advisers each serving an average of 100 clients, with one-to-two support staff per adviser. The principal adviser and practice manager identified a bottleneck with the support staff in the preparation and implementation of advice for ongoing clients, causing significant strain on staff capacity. However, they did not know whether they simply needed to hire more staff to solve the capacity issue or find a way to save time with the people and technology already in place.

Issue

A thorough analysis of the business processes revealed that the adviser was losing visibility over the progress of advice tasks after conducting the review meeting. Plus, there was no consistent approach for the support staff to follow for prioritising tasks effectively, creating not one, but two issues to solve. Without understanding the capacity of a given function, there was no way to determine whether the firm had sufficient resources in place. Lack of oversight for ongoing tasks, meant there was no way to identify inefficiencies in the process.
The result was employees repeating tasks and delaying advice implementation for the client. In some cases, ongoing advice tasks touched four different people before processing.

Solution

By automating the allocation of tasks, the company was able to gain oversight of the process, identify the root cause of their resourcing issues and increase the capacity of their team without increasing their headcount. To ensure this additional capacity was not wasted, the firm implemented agile meetings to prioritise tasks and projects and optimise team capacity.

Outcome

As a result of these changes, the practice saved approximately 660 hours (82.5 days) per year. This translated to almost $50,000 saved in non-value add administrative work. This capacity can now be used to follow through on their growth initiatives and goals.

Benefits to a business

The common benefits to the business from implementing the Lean methodology can be categorised into three interlinked categories, known as the ‘Golden Triangle’:

The secondary benefits can be seen in areas such as staff satisfaction, with people having the opportunity to upskill and/or do more meaningful work. A positive outcome our BT team had not thought of when implementing Lean Six Sigma principles with our clients was the benefit to individual careers. For example, one more junior adviser in a practice we worked with recently was excited and optimistic about what these changes would mean for their career and their future.

One key consideration for any business is the lasting impact of any change or transformation project. A common phrase heard whenever a business tries to implement change is, ‘you’ve no idea how many people have tried to change or improve this before’. The benefit to a business of implementing the Lean Six Sigma methodology is that it involves a complete change in thinking across the business and a transfer of skills and knowledge from people like our team at BT to the business we are working with. The result is change that has a habit of sticking as people have seen and experienced the benefits, and they also feel empowered to continue to apply this going forward.

This should, ultimately, mean the business is able to not only get ahead of the competition but achieve the arguably harder task of remaining there, as can be seen with Toyota.

Bringing this into the business

For advice practices looking to harness the benefits of LSS methodology, there are some different approaches to consider depending on their situation and goals.

One of these is to organise for advisers to be accredited. There are four standard levels of accreditation, with the first course, the ‘yellow belt’ certification, achievable through a one-day course. This will ensure staff are educated on the LSS principles in just seven hours. 

Either following this step, or as an exercise to assess the value of the Lean Six Sigma approach, advice practices can work through a current problem using the Lean Six Sigma methodology and begin to analyse problems through a customer-centric lens. By continually addressing the fundamental question of purpose, process and people, a advisers can make use of the LSS methodology and start to see its impact. 

To dig a little deeper or seek more support, the BT team may be able to work with your advice practice to train staff in Lean Six Sigma methodologies and analyse what may be causing the problems identified. This can help an advice practice find the true root cause of an issue as well as transfer the Lean Six Sigma knowledge and skills to team members.