This case study is devoted to the analysis of the current position of the Capital One Bank. The Bank has recently faced problems connected with mortgage process flow caused by inefficient internal communication. The Bank even stopped taking applications because of negative impact on customers.
A detailed implementation plan will be developed to resolve the issues the Bank faced. The improvement of the processes will include several operations management techniques. The resources needed for implementation of the plan will be identified on the basement of analysis of actual data. Short-term and long-term implications of the operations techniques will be outlined.
1. Background of the Problem
Currently, the bank is subjected to operational, strategic, and financial risks. Mortgage, flow and accountability processes are dysfunctional because of ineffective organization of mortgage process, poor internal communication and absence of accountability between internal departments.
Typically, customers expect to receive a mortgage at the best price, timely closing and minimum paperwork. For the bank, the mortgage process must include the following internal requirements: fast loan booking, minimal costs, effective management of mortgage process, operational control, and efficient use of resources.
Mortgage process can be improved by using traditional and non-traditional methods. Traditional methods may include the following steps: reduction of overall workload, process redesign, re-organization of work and facilities, automation of processes, improvement leadership skills. Non-traditional methods are connected with shifts in delivery models, offshoring and outsourcing servicing, application of straight-through processing for low-risk mortgages. Taking into account the problems the Capital One Bank faced, changes in the mortgage process will be associated with improvement of paperwork and ensuring effective communication between the departments involved in to the mortgage process. Thus, the operations management techniques will be aimed at improvement of communication between departments, namely: improvement of leadership skills, improvement of departments’ interaction, and improvement of the quality of information transmitted to other departments.
2. Operations Techniques Needed for Improvement of the Process
Typically, mortgage process in the Capital One Bank consists of the following steps: interview, workflow coordination, underwriting, quality assurance, and closing. The Bank encountered several issues associated with the mortgage process. The problems are connected with poor quality of applications, excessive workload of underwriters, and high percentage of rework.
Underwriting is the most complicated job in the mortgage process. Each underwriter typically has 20-50 applications in the process. The majority of applications require additional information and refinement. Quality assurance department return approximately 10% of applications to underwriters for refinement (Immaneni and Terwiesch, 2007).
Thus, the Capital One Bank should improve flow and accountability processes. According to operations management concepts, improvement of work flow process and involve greater responsibility of associates interviewing customers and collecting applications. Thus, improvement of the processes will be connected with reduction of waste activities and rework. Waste activities in the case of the Capital one Bank are mainly associated with poor quality of applications provided by marketing department that collects applications and interviews potential customers. Also, waste activities may be associated with correction of mistakes, unnecessary paperwork, and papers traveling between departments and offices. Another issue is unnecessary motion associated with useless intensive work and repetitive actions (Kamauff, 2010).
If appropriate measures will not be taken, the Bank can be exposed to operational risks connected with efficiency of operational activity, availability of innovative technologies, and ineffective communication. Operational risks when not eliminated of reduced, may cause strategic risks, such as reputational damage connected with unfavorable publicity and customers’ dissatisfaction (Casualty Actuarial Society, 2003).
3. Implementation Plan
Table 1 Implementation Plan
Analysis of the team involved in change implementation process; analysis of objectives set; analysis of the impact of changes
Confirmation that the process is consistent with the plan
Identification of the audience that should be informed regarding the changes; chose preferred communication vehicle (who, what, when, should be informed about the changes)
Identification of the audience for training, training requirements, time and place when training is to be conducted, method of delivering training
The first step of implementation plan relates analysis of the impact made by the changes in operational process. The objectives of the change process are to improve workflow process reducing wasteful activity and rework. The changes will affect the following sections of the mortgage process, namely: interviewing, workflow, underwriting, and quality assurance processes. First of all, the whole process of interviewing must be reconsidered. Currently, a phone call to a customer lasts approximately 20-25 minutes. However, the information collected during the call is often incomplete. It results in returning 70% of applications back to the interviewers. If the time of interview will be extended to 30-35 minutes, it would significantly simplify complex work of underwriters (Immaneni and Terwiesch, 2007).
Testing is the process which describes the model of the changes that are to be made. Testing is the process which helps implement planned changes in practice. Also, testing will help analyze possible mistakes and make appropriate conclusions regarding process design. It will also help reveal potential problems and inconsistence between the model and real life situations.
The audience that should be informed regarding the changes includes mortgage process chain, including employees of marketing department, workflow managers, underwriters, quality assurance, and closing department. The changes must be communicated to the employees of the above-listed departments participating in the mortgage process after approval of the implementation plan during the general meeting. Then, the actions should be undertaken in accordance with timetable within set deadline (Appendix 1).
There is a need to conduct trainings to ensure an appropriate level of knowledge that is necessary for implementation of control over applications. Another aim of training is to enhance professional expertize of the marketing department who conduct interviews so the applications would be more comprehensive. The employees of the marketing department should have learned the nuances of underwriting work with regard to applications. The employees of marketing department must understand which difficulties underwriters face when they have to analyze incomplete applications. As lack of leadership qualities of the personnel caused a lot of problems, leadership trainings need to be conducted to increase the level of accountability of the staff. Also, the staff of the Bank must receive communication training to be able to build effective internal communication. The trainings can be conducted after working day or on the weekend in the Bank. The time should be discussed with employees. The trainings will be carried out periodically, at least once every three months because requirements are often changed. The trainings will be conducted by a specialized organization on the basement of a contract.
4. Resources and Timetable for the Project Implementation
As it was identified above, two operations management techniques will be applied to improve service quality, namely: reducing wasteful activity and removing physical strain. The succession of implementation of these techniques is shown in the Appendix 1. There were principles of lean manufacturing used in the process. In this case it would be more comfortable to call this principles “lean servicing” because banks are the organizations offering services. The principles of lean manufacturing emerged in Japan and then became wide spread all over the world (Kamauff, 2010).
Lean manufacturing principles include the following: waste reduction or elimination, continuous improvement, humanity, balanced workload, just-in-time production, high performance and product or service quality. In the case with the Capital One Bank an accent will be placed on waste reduction, humanity, high level of performance, and service quality.
The loan approval process in the Capital One Bank consists of five stages, namely: interview, workflow coordination, underwriting, quality assurance, and closing. Marketing department contacts potential customers offering loans. The associates of marketing department fill in the questionnaires that are forwarded to workflow manager. Then, the applications are sent to the underwriting department for approval. The aim of the workflow manager is to distribute workloads in a balanced manner. Underwriting is the most complex function which consists of six steps. Underwriting requires qualification, but it also includes low-skilled activities, such as photocopying, data entry, and preparing files. Usually, the majority of applications await additional information.
Lean servicing is to resolve the following issues: improve applications quality making longer interviews; reduce the workload of underwriters at the expense of re-distributing low-skilled work to workflow manager; improve applications quality reducing the percentage of resending applications down to 2% maximum.
The following resources will be needed for implementation of lean servicing: human resources to reduce the workload of underwriting department; financial resources to pay for the trainings and new software; and technology improvement to simplify paperwork.
The need in human resources will depend on how lean servicing will be organized. For example, if the Bank management decides that there will be a need in additional low-skilled position to check the application for completeness and to do photocopies. Otherwise, this part of work can be re-distributed between marketing department and workflow manager. So, the need in human resources will depend on the decision made.
Financial resources will be needed to pay for the trainings. There are two alternatives: to use own base for trainings or to invite specialized training companies to provide training activity. Usually, trainings provided by human resource department require less financing than trainings provided by specialized companies. Financing will also depend on the kind of training the Bank is planning. Also, buying new software will require additional funds. Financing will require making up a special budget.
In order to reduce paperwork and workload of the participants of the mortgage process, new software can be used. The aim of introducing new software is to reduce paperwork and reduce the time papers spend between the departments.
5. Application of Operations Techniques
Lean manufacturing principles aim to improve flow process and internal communication.
In the process of analysis it appeared that there were several problems the Bank recently encountered. Productivity of labor of the underwriting department could be significantly improves if several lean measures would be applied.
First, elimination of waste is one of the core principles of lean manufacturing. Usually, waste in service process associated with rework, information and papers on the way to the next stage of the mortgage process or waiting for actions to proceed with work. Reducing waste products or waste of time can make processes more efficient (Kamauff, 2010).
The Capital One Bank deals with waste of time connected with detailing information related applications. Usually, each underwriter has 20-50 applications in the process. If the applications contain full information, then the underwriter can complete the underwriting process in less than 30 minutes. As most applications require detailed elaboration, underwriting takes more time. In addition, 1-2 hours per day spent on follow-up calls. This time could be used for processing another 2-4 applications. The time spent on follow-up calls can be reduced if applications will be more comprehensive. As the work of underwriter is more complex and requires higher qualification, the function of detailing applications can be re-distributed to the marketing department employees involved in the process of collecting information. Employees of the marketing department must be taught the nuances of filling applications. Insignificant elaboration will be made by underwriters while applications having significant faults should be sent back for improvement.
In addition, each underwriter has to do low-skilled work as well. This function can delegate this function to a workflow manager. The only function of workflow manager is to distribute applications between underwriters. Thus, he or she could help underwriters in making photocopies and making files. Reducing waste of time can help increase productivity of underwriters for 8.6% in average that would definitely make an impact on revenues (Immaneni and Terwiesch, 2007).
Second, quality is the major requirement in lean manufacturing. Quality must be built in any manufacturing or servicing process so the organization can effectively compete in the market (Kamauff, 2010). When considering mortgage process, quality of the documents is meant. If the employees of the marketing department receive trainings related quality of applications, the number of applications that require rework would be reduced saving much time for effective motion.
Third, communication issues were a significant lag in the mortgage process in the Bank. The lack of qualification and unwillingness to understand other employees had led to difficulties in the mortgage process. The Bank even stopped acceptance of applications. Previously, the marketing department and the underwriting department had issues when trying to clarify which department should deal with inaccuracy in applications. In order to avoid this misunderstanding, the new functions must be written in the job descriptions. Also, there were leadership training proposed to improve personal qualities of the employees. It would help improve communication between the employees of the departments contributing to positive working environment in the Bank.
6. Discussion of Implications of Operations Techniques
Lean servicing processes have a lot of benefits including reduced time for servicing and increase in earnings. Productivity can be significantly improved using lean thinking. Also, it helps reduce waste activities and save time for more productive actions.
Among short-term implications are: increase in productivity, better internal environment, and service quality improvement. Increase in productivity will allow underwriters to handle more applications. Processing of applications will take less time thus improving quality of servicing process. Quality service will help gain more customers in future. It will contribute to the creation of loyal customers’ base. Besides, positive feedback from customers will contribute in development of new positive image of the Capital One Bank thus reducing strategic risk of reputational damage. Nowadays, having good reputation in the saturated market is a matter of crucial importance. Reducing waste activities will contribute to cost saving when processing applications thus increasing commissions. Further, revenue surplus can be used for purchasing innovative technologies that could be implemented for the improvement of the mortgage process in future. One of the most important principles of lean manufacturing is humanity. Recently, servicing processes are established according to this requirement. In this case humanity is a side effect of the process improvement. Thus, if the workload will be re-distributed according to the lean manufacturing principles, the underwriters, whose work is the most complicated, will have more opportunities for improving quality of the files. It is help reduce the percentage of files returned for rework till 2% maximum. Currently, the percentage of returned files is 10%. Thus, application of lean manufacturing principles will help significantly reduce the percentage of rework that is the worst problem in any process (Kamauff, 2010).
Leadership trainings are necessary to improve personnel qualities contributing to the communication process. Thus, operational risk connected with empowerment can be reduced (Casualty Actuarial Society, 2003).
The long-term implications could be increased revenues and more loyal customers serviced by the Bank. An increase in revenues is a result of well-coordinated work. Lean thinking is a powerful tool for improvement servicing process that aims to eliminate liquidity risks ensuring constant cash flow. Gaining more loyal and returning customers will ensure elimination of strategic risk connected with customers’ dissatisfaction. The current banking services industry is focused on customer needs. It is crucially important to interact with other members of the team. Well-coordinated work largely depends on well-organized communication process. Currently, communication process in the Bank is not well-organized causing troubles and negatively influencing the mortgage process. Better quality of the services will help win more loyal customers. The number of loyal customers as will make positive impact on the commissions received by the Bank. The amount of commissions is proportional to the revenues gained. Also, increase in revenues will help with customers and know their needs. Increase in revenues will contribute to creation of competitive advantage in the market of banking services. Thus, strategic risk of not being able to compete can be reduced through this way (Casualty Actuarial Society, 2003). Old and new designs of the mortgage process are shown in the Appendix 2.
The current paper relates improvement of the mortgage process in the Capital One Bank. The process was improved with the help of lean manufacturing principles. Lean manufacturing helps improve performance of an organization and reduce operational, strategic, and financial risks. For the purposes of the performance improvement the implementation plan was developed. Also, the stages of the project implementation were outlined in the timetable for the plan. The resources required for the implementation of the plan were identified. Application of operations techniques was described in detail. The long-term and short-term implications of the operations techniques were outlined. The differences between old and new process were summarized. The actions that should be undertaken were described and the results were evaluated. The new process is more effective and contributes into increase of revenue. Also, waste activities were removed of the process contributing to saving of time.
Timetable for the Project
of the scope
of a team
Approval of the project
by top management
Selection of operations
of lean servicing
Testing the process
in real environment
Monitoring the results
Appendix 2 Old and New Process Design
Casualty Actuarial Society. (2003). Overview of enterprise risk management. Enterprise Risk Management Committee, 15(2), 1-62.
Immaneni, A. and Terwiesch. (2007). Loan processing at Capital One. Retrieved from http://cachon-terwiesch.net/3e/sample_cases/CapitalOneV2(2008).pdf
Kamauff, J. W. (2010). Manager's guide to operations management. New York: McGraw-Hill.