The Bank of New York Mellon has slashed expenses by hundreds of millions of dollars in recent years by focusing on what Executive Vice President Jeffrey Kuhn calls "the low-hanging fruit" moving jobs to lower-cost locations, merging back-office functions of companies it acquired and eliminating some layers of middle management.
Now comes the hard part. If BNY Mellon is to maintain its status as the world's largest custody bank, Kuhn says it needs to ramp up its efficiency drive. That means lowering real estate costs by consolidating offices, streamlining the procurement process by reducing its number of suppliers and minimizing bottlenecks in its transaction processing.
The 230-year-old bank is counting on its recently launched Continuous Process Improvement strategy to drive its transformation. Overseen by Kuhn, who is also the bank's co-head of client service delivery, CPI is a broad-based initiative that aims to not just increase efficiency, but also boost quality, improve service and reduce risk.
There are goals linked to the initiative generate up to $200 million in savings by 2016, for one but, as the name implies, Continuous Process Improvement is a mindset, "not a project or a program," according to Kuhn.
"This is about looking at the work flowing through the organization and making it continually better," Kuhn says.
A case in point is transaction processing. BNY Mellon, which has $1.6 trillion of assets under management, processes millions of wire transfers, currency transfers and other transactions each day for clients worldwide, and any number of them can be held up by simple errors, such as incomplete documentation and incorrect coding. These "exceptions" take time and money to resolve and Kuhn says that identifying their cause and effect is crucial to improving the bank's and its clients' productivity.
Kuhn discussed bank's CPI initiative in an interview Tuesday at the Pegaworld conference in Washington, D.C., where he was a keynote speaker. (The conference was hosted by the Cambridge, Mass.-based tech vendor Pegasystems.) What follows is an edited transcript of that discussion.
American Banker: CPI is obviously a huge endeavor for BNY Mellon. How did you come to be in charge of it?
Jeffrey Kuhn: In my career in banking I've been in charge of a lot of projects where I've been asked to fix big thorny issues. For example, you may recall we did this swap with [JPMorgan] Chase where we sold our retail to them and acquired their corporate trust business. I was one of the people managing the onboarding. At the time we were also eight or nine siloed businesses and one of my responsibilities was to look at expense targets by identifying common functions, things like billing, reconciliation, abandoned property, [know-your-customer], each of which were being managed by a different group head. At the end of 2013, we decided we needed to formalize this [efficiency effort] and take it to the next level and create a program that is really focused on continual improvement.
Why is this so important?
No organization should be satisfied with the status quo. Clients change, technology gets optimized there are ways to continually improve.
During your keynote presentation you discussed who this is for. Could you repeat that for our readers?
It's for the financial side and our shareholders. All banks are under tremendous financial pressure in this environment. We think we are an extremely well positioned bank financially, but we have to manage expenses as aggressively as possible, and we have to do it in a way that we can maintain our quality, our controls.
Also, the service levels improve if you do this right, so that benefits the client.
We also manage our operations staff on operational losses, so if I have a more efficient, more controlled process with fewer failures, I'm going to have less operational losses. We do not want operational losses.
Lastly, if we do this right and we're on a journey and it doesn't happen overnight our staff is going to be in a position to do more interesting and more challenging work. My goal is to really up the game and have a more sophisticated team of associates and staff.
BNY Mellon is a huge, complex company. How did you even know where to start?
For the first the time, we looked across all of our operations to identify what are the major processes of work that we do. We identified about 45 and then looked at how these processes line up to our expenses. Then we identified the largest [processes] by dollars and found that the top eight or 10 make up for much of the total expense. These are things like fund accounting, fund administration, data management, cash processing for treasury services, onboarding as a process. Those are the major processes that take up 50% of total expenses.