A relentless focus on productivity: A view from Lloyds Banking Group

Jennifer Tippin, group director of people and productivity for Lloyds Banking, talks about the productivity mindset and building the “bank of the future.”

In this interview, conducted in October 2019, Jennifer Tippin of Lloyds Banking (Lloyds) talks to McKinsey about how the bank uses a productivity-driven mindset to address the challenges in today’s environment. Taking us through the bank’s productivity journey—from its beginnings in the post–financial-crisis environment to the rise of digital and its current efforts to build the “bank of the future”—Tippin touches on a number of crucial levers, including reducing organizational layers, revisiting third-party relationships for maximum efficiency, and systematically rethinking end-to-end customer journeys. Underlying the bank’s approach is a groupwide effort to think continually about how it can do better tomorrow. An edited transcript of the conversation follows.

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A relentless focus on productivity: A view from Lloyds Banking Group

Jennifer Tippin: First of all, let me just explain why productivity is so important to us at Lloyds. We’re in an environment of unprecedented change. The expectations of our customers are higher than they ever have been. And obviously, we’re seeing major disruption to our business coming from digital and technology, affecting how customers think and how they like to bank—and of course, affecting our colleagues as well.

So for us, productivity is really important because it gives us the space to be able to invest in the right platforms, the right infrastructure, and the right propositions, which then help our customers. We see it as a unique source of competitive advantage for us, particularly in a world where there’s much more uncertainty than certainty.

McKinsey: How has Lloyds’s productivity journey evolved?

Jennifer Tippin: When our CEO first came on board eight or nine years ago, the major priority was to stabilize the business after the financial crisis. Lloyds had just acquired Halifax, a division of the Bank of Scotland. We had a significant amount of toxic debt to work through, and we needed to get the business back on stable and secure footing.

The second phase focused on two main aspects, I would say. First, paying the taxpayer back: we returned the business to private ownership at a profit back in 2017. Second, starting down the road of digitizing our business: we went from really having no customers banking on their mobile devices or using our app to the point where, now, we’re the largest digital bank in the UK.

The third phase we’re calling “building”—essentially, the bank of the future. Having gotten the bank onto stable footing but also recognizing the significant change that we see out there for our customers and our colleagues, we felt the next phase of our strategic journey needed to be all about building the bank of the future and responding to those key trends we’re seeing in customer behavior. So for us, productivity is absolutely at the center of that because, as I said before, it gives us a space to invest—to make sure that we remain relevant for the next 250 years for our customers.

McKinsey: What productivity levers have had the greatest impact?

Jennifer Tippin: I think there are two or three big levers that we’ve been able to pull. First, we’ve really thought about our organizational design. We’ve really thought about how we best get messages to our colleagues as quickly as possible. And that’s meant looking at span of control; it’s meant looking at the number of layers in the organization. When our CEO first came on board, there were over nine layers in our organization, and now we’re mostly in six or seven, and that really speeds up communication and makes it easier for everybody to work together as a team.

Another thing we’ve done is to look very deeply at our third-party relationships. So in areas like procurement, where we spend over £5 billion, we’ve looked really hard at different categories; we’ve looked at our spend end to end across our business.

Then the final thing we’ve done is to look at cost truly end to end across our business. We initially started out looking at customer journeys—key processes that our customers would go through on a day-to-day basis, whether that’s buying their first home, starting up their first business, or taking out a loan with us. We’ve tried to look at every part of that process systematically across our business to try and understand whether it’s efficient and how we can improve it for both our customers and our colleagues. And what that’s enabled us to do is to look at cost end to end across our business, through a series of what we call “cost-management units”—for example, in operational spend, IT spend, resource spend, travel spend, marketing spend, and property spend.

We appoint accountable executives—senior people within our organizations—to actually own those cost categories on behalf of the group. That enables us to look really deeply at those cost drivers end to end and to drive initiatives relentlessly, really, to try and get the best for both our customers and our colleagues.

McKinsey: How has learning been applied to core internal functions?

Jennifer Tippin: We’ve tried to apply some of the learning that we’ve found by looking at customer journeys to some of the core processes that our colleagues use on a day-to-day basis. We’ve tried to adopt the same methodology and the same framework, and that has also enabled us to drive not just efficiency but also a better experience for our colleagues, as well, which is what this is all about. To give you a small example, we used to have 60 different HR systems across the bank. We now have one, and it’s used by every single person in the organization. That means we can get a much richer source of data around what’s happening in our business—which, again, enables us to make improvements.

McKinsey: What’s the key to maintaining performance on cost reduction?

Jennifer Tippin: We’ve gone from an operating cost of around £9.6 billion to where we’ll end this year under £8 billion. That’s despite having absorbed rising inflation cost, wage growth, and new technology and infrastructure costs. Those mean that it becomes harder and harder, obviously, to get that net cost reduction, but that’s absolutely our determination and focus. How we do it, really, is by having a productivity mindset built into how we organize and run our business.

First, by having these cost-management units that I was describing to you before, we look at cost categories end to end. Setting the right kind of governance and controls in place for cost spend needs to be done sensitively and carefully because you’re trying to balance not weighing the business down with lots of process and controls with, at the same time, making sure that every pound we spend is spent wisely in the business as well.

Then I think the other thing that we’ve invested a lot in over the last two years in particular is looking at new tools and metrics to measure productivity. We have a dashboard that we look at across the whole group that measures some of the key operations that we deliver for our customers and our colleagues. We build in expectations around continuous improvement, and we look at where we can improve going forward. So part of it is the tools and the infrastructure and the governance, but more importantly, I think, it’s about the mindset and encouraging everybody across the organization to think about how you can do better tomorrow than you’ve done today.

McKinsey: What’s next for Lloyds’s productivity journey?

Jennifer Tippin: Well, we’re midway through digitizing and transforming our business, so the first thing we have to do is, obviously, complete that journey. I think the second thing for us is that we are experimenting with new ways of working. I mentioned before rolling out agile; we want to complete that, and we really want to embed it so that we’re seeing the benefits for our customers and colleagues going forward.

I think another thing is that we want to continue to learn. We know that we don’t have all the answers. And the more we look outside banking and financial services, we see the potential to experiment more and bring some of that learning back to our business to improve for the future.

The final thing I would say is that, in this market—where there is such a high degree of disruption and level of change, driven by technology but also by the changing nature of economics, the forces that we work with, and competition, even more so than ever was the case—our people are a unique source of competitive advantage, and our people are going through lots and lots of change. Many of our traditional job types are changing very significantly. There are new job types opening up all the time, and the “skills life” is receding.

So one of the biggest things is how we invest in our colleagues so that we really equip them with the right skills, the right behaviors, and the right capabilities to help us build the bank of the future—and that is a massive undertaking for us. I fundamentally believe that it will affect every single colleague that works for the organization, and we have 70,000 people who work for our business, and upward of 20,000 contractors as well. So for us, it’s about absolutely recognizing that the world of work is changing—our customer needs are changing—and we need to change with it. And a really important part of that is reskilling and upskilling our workforce for the future.

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