In a recent episode of the Risk Intel Podcast, industry veteran Shawn Ryan joined host, Ed Vincent to share invaluable insights into the hidden risks lurking within banking operations. With over 30 years of experience in financial institutions, Shawn shed light on a concept called "Hidden Factories" and exposes their implications for banks. Click below to listen to full conversation or read the summary to learn about the key takeaways from this enlightening discussion.
According to a recent Harvard Business Review (HBR) study, a hidden factory refers to any set of activities or processes within an organization that operates outside of established protocols or prescribed procedures. These activities may not be readily apparent or documented, hence the term "hidden." While not necessarily malicious in nature, hidden factories often arise due to systemic inefficiencies, gaps in technology, or reliance on outdated methods. The concept of hidden factories encompasses a wide range of activities, from manual processes to deviations from standard procedures, all of which can contribute to inefficiency, errors, and increased risk within the organization.
According to Dr. Armand Feigenbaum, author of "Total Quality Control", hidden factories can account for 20-40% of an organization's total capacity. The HBR studys cost of hidden factories, estimating $3.1 trillion dollars per year are spent on poor data quality or the ‘hidden data factory’, which they define as the “lengthy and expensive process of manually checking over poor data and making corrections to that data.”
Addressing hidden factories requires a concerted effort to identify and rectify underlying issues within the organization. This may involve implementing better technology solutions, streamlining processes, and fostering a culture of transparency and accountability. By uncovering hidden inefficiencies and aligning processes with strategic objectives, organizations can improve their overall performance, mitigate risks, and foster a more resilient and adaptive organizational culture. Ultimately, recognizing and addressing hidden factories is essential for ensuring organizational success and competitiveness in today's dynamic business environment.
Drawing from Shawn Ryan's experience and insights, a hidden factory within a bank manifests itself in various ways. Shawn's extensive background in financial institutions provides valuable context for understanding what a hidden factory might look like within a bank:
"Activities conducted outside of established procedures may go unnoticed, potentially exposing the bank to financial losses or regulatory scrutiny."
Addressing these hidden inefficiencies requires a comprehensive approach focused on improving processes, enhancing technology infrastructure, and fostering a culture of transparency and accountability within the bank.
Hidden factories within a bank pose various risks that can undermine operational efficiency, increase regulatory compliance issues, and jeopardize financial stability. Some examples include...
Overall, hidden factories pose significant risks to banks, including operational inefficiencies, compliance violations, financial losses, reputational damage, cultural erosion, and strategic misalignment. Identifying and addressing hidden inefficiencies is essential for banks to mitigate these risks, enhance operational resilience, and safeguard their long-term viability in the financial marketplace.
Stay tuned for future episodes on this topic as we go into detail around:
Contact us today to learn how our solutions can help your bank mitigate hidden factory risks and optimize operational performance.
References:
https://hbr.org/1985/09/the-hidden-factory
https://www.ease.io/blog/what-is-the-hidden-factory-costing-your-organization/
https://mitsloan.mit.edu/ideas-made-to-matter/how-to-find-and-fix-hidden-factories
%20(600%20%C3%97%20350%20px)%20(1).png)
.png)
%20(350%20%C3%97%20400%20px)%20(1000%20%C3%97%20800%20px)%20(2).png)