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Publisher: Informa. 200+ pages
Price: £695.00

Strategic Focus on Increasing Customer Loyalty and Profitability in Retail Financial Services

This report examines the current focus on customer relationship management (CRM) in the retail financial sector. It aims to understand the rationale, to describe the changes that CRM will bring to the organisation, and to highlight the risks and returns. The 9 chapters and 14 case studies analyse and demonstrate many of the challenges and returns of implementing CRM.

1.There is strong evidence that retail financial institutions have done much to undermine their relationships with customers over the past 20 years.

2. CRM is a multifaceted thing, and many so-called CRM initiatives are not about relationship management, but about cost-cutting and implementing more efficient and standardised business processes.

3. CRM comes with no guarantees of success.


4. Organisational requirements depend entirely on the objectives, the business processes and the people.

5. In fact, people are at the core of CRM success and failure. Without staff buy-in, the chances of success are negligible.

6. The possibilities offered by ecommerce are unparalleled in the history of business.

7. Technology is a critical component in the current state of CRM thinking and practice, and it is a double-edged sword.

8. Enterprise application antegration (EAI) is one of the major obstacles to achieving a customer-centric focus, and it will be one of the biggest spend items, particularly as the web becomes more central to business.

9. Because IT does play a key role in implementing effective CRM, there is a new breed of software vendors, trailing clouds of consultants and systems integrators.

10. CRM is a mixed bag of tricks, some good, some bad. The challenges posed by technology are hugely significant, but probably less so than the people and cultural issues.

 

1. There is strong evidence that retail financial institutions have done much to undermine their relationships with customers over the past 20 years.

The rate of customer automation has created a wide distance between customers and service providers, and customers are showing rapidly growing disloyalty as new entrants offer cheaper and more customer-focused services. The culture of retail financial services is at odds with the requirements of customers and there is a big question mark over the sector’s ability to make the far-reaching cultural changes that effective CRM demands.

The effects of deregulation in the financial sector have led to many new entrants from any number of fields, not least the retail supermarkets and industrial giants. The internet and free markets are speeding up the process of disintermediation, and the retail financial sector must adopt a more customer-centric focus if it is to retain the existing customer base and attract new customers in the future.

The future of retail financial services is unclear. In effect, it is up for grabs, and there are no guarantees that today’s leaders will figure strongly in 10 or 20 years’ time. The combination of globalisation, the internet and the growth in mergers and acquisitions suggests that only a handful of existing retail institutions will continue to be successful and capable of generating the high profit margins that caused much negative press comment in August and September 1999.

The moves in mid-1999 by NatWest on Legal & General and the Bank of Scotland’s £22 billion bid for NatWest illustrate that operating in retail financial services, increasingly, is like swimming with the sharks. That environment is spreading across the rest of Europe, and we can see similarities in the French and German marketplaces. The likely upshot is wholesale consolidation across Europe.

Some drivers are shared, some are very specific, but the common thread throughout the sector is that consumers are disenchanted generally. They have little faith in the industry’s protestations of customer focus. The commoditisation of retail financial services illustrates that the specialist nature of the business is much eroded, and there is little reason for consumers to pay over the odds for services that are available from any number of retail outlets.

At a time when the internet facilitates easy window-shopping across the globe, there are few incentives for customers to deal with institutions that have tarnished what were once very strong brand names. The ease with which brand strength has been damaged is a key driver for rebuilding relationships, and the sector must become more effective at marketing the goods and services that customers want, at prices they will pay, across the many channels of customer contact.

They can only do this effectively and profitably if they operate from a strong position of detailed customer knowledge.

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2. CRM is a multifaceted thing, and many so-called CRM initiatives are not about relationship management, but about cost-cutting and implementing more efficient and standardised business processes.

This is particularly true where companies are implementing many front-office applications such as sales-force automation and customer contact systems. Often these are extensions of existing decision-support systems that standardised functions such as credit ratings. They do not, in themselves, add to the wealth of customer knowledge and contribute to more profitable CRM.

The touted benefits of CRM include cross-selling, upselling, achieving a bigger share of the wallet over a longer period of time and selling packed financial services at the front line.

To achieve any of these objectives requires that the sector establish the profitability of its customer base and, after very careful analysis, devise the appropriate business strategies to maximise the potential of the most profitable and make the neutral or loss-makers move into the profit zone.

The key issue in retail financial services is that most organisations do not know the profitability of their customers, and that is a fundamental business issue that must be addressed first and foremost. If anything, until that basepoint has been addressed and adopted as proof of concept, the more ambitious projects should be put on hold. They will be flawed if the customer knowledge is inadequate, the concept of profitable CRM will be undermined, and the return on investment will be reduced drastically.

To proclaim a customer focus without knowing what the individual means to the business – and, equally importantly, what the business means to the customer – is no more than lip service to a concept that happens to be in vogue.

Knowledge of customers must underpin the business models and all channels of contact, and more effective channel management policies should emerge from detailed customer knowledge. There are exciting possibilities for better alignment between the channels, the customers and the business objectives, but any changes to the existing channels or the introduction of new channels depends on the extent to which customers can be tempted and persuaded to use these channels. If they see new interfaces as nothing more than another attempt to cut costs at the expense of customer service, a higher proportion will simply walk away. In some instances that may be the CRM agenda, to shed the loss-making customers, but that policy has serious implications in terms of available money flows to the business; and there is no guarantee that the customers who walk are the ones that the business wants to lose.

Effective CRM is a confluence of several factors, but the most important is knowing the customers in much more detail. It is not a magic bullet. It may be a process of holistic change that encompasses every part of the organisation, or the incremental build-up of projects that are designed to lead to more profitable business relationships. Like every process of change, regardless of scope, its success relies on informed analysis of the business, its drivers and its components.

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3. CRM comes with no guarantees of success.

In fact, the high rate of failure, particularly in the field of sales-force automation, suggests that organisations are not building CRM cultures and systems in ways that lead to a high return on investment (ROI). The ROI is a variable feast. The case studies illustrate that returns can and do accrue when projects are well-planned and well-implemented, but the risks associated with CRM are high. They must be accounted for at the outset.

It is a truism that some customers are profitable and some are not, but as touched on above, there are risks that some initiatives will lead to higher defection rates among the profitable segments. Anything that is seen to have a negative impact on customer service and customer convenience is a risky policy to adopt. Hence the importance of choosing projects with the utmost care and choosing the suppliers, partners and enabling technologies with a wary and sceptical eye.

Whatever initiatives are implemented, they must be chosen from a business perspective. Possibly one of the greatest risks in the drive to CRM is that technology is leading the charge, and it is the IT vendors that are reaping rich rewards.

It is absolutely essential that CRM does not become the mother of all IT bandwagons. Knowing why a business should undertake an initiative is the starting point, and establishing how the business and existing business processes can be adapted to achieve the objectives entails key decisions. The IT set-up and investment should come last. IT is important – it is the enabler – but that should be the extent of its sphere of influence. It is critical but must be contained.

Sticking to the fundamental principle of identifying the most profitable customers and focusing on them initially is the best approach to contain risks and to generate relatively fast ROI that can be used to justify other projects.

 


4. Organisational requirements depend entirely on the objectives, the business processes and the people.

CRM is not rocket science and it ought to be regarded as project management. In the majority of cases, despite the complexity of many initiatives, that is exactly what it is. There are long-established rules and guidance for effective project and change management, and when these are applied rigorously to CRM initiatives, the organisational requirements and changes should be well-defined and manageable.

It is essential to perform detailed measurements and continual reviews, gathering hard facts and analysing those facts before proceeding to the next stage of a CRM strategy.

One of the key issues in terms of the organisation is ensuring staff buy-in, and one of the most essential requirements is to sell the project to staff, explaining the rationale for undertaking it in the first place. There is a weary cynicism on the part of many employees, largely because each year seems to bring a fresh round of business re-engineering, which causes disruption and insecurity. The hyperbole surrounding many business concepts lasts only as long as the media and business press is prepared to devote copy to the concepts, but if CRM is to become a long-term corporate change, persuading the staff of the need to be customer-centric will be a major part of the project. This requires effective PR, education, new performance measurement techniques and new remuneration policies.

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5. In fact, people are at the core of CRM success and failure. Without staff buy-in, the chances of success are negligible.

Staff, particularly sales staff, are adept at evading management attempts to standardise them, and what they perceive as attempts to ‘steal’ their personal relationships with customers and potential customers.

Equally, when organisations are considering implementing CRM initiatives, they usually question if their existing employees have the skills to operate in a customer-centric way.

Employees in financial services are no less adept at interpersonal skills than those in any other industry, and until the sector made its massive investments in call centres and directed customers towards the ranks of agents working from inflexible scripts, many financial services staff were performing skilled interpersonal functions. The retail banking functions may have been transactional rather than relationship-focused, but the fact is that people were dealing with people. Consumers like that, particularly if the subject matter is one close to their hearts, as personal finance tends to be.

The onus is firmly on management to identify the skills gaps and implement training and education policies to address those gaps, to make marketeers more numerate and to address the culture of call centres. If agents are skilled and knowledgeable, empowered to take responsibility for customer interactions at any point in the relationship, they will be more motivated. Study after study illustrates this piece of common sense. People prefer to do a satisfying job and to do it well than to serve time
and watch the clock.

Technology and automation have ensured that the performance of employees is a crucial differentiator for customers in what is becoming an increasingly bland and uniform service environment. CRM is about people, and the people on the front line to customers are probably best placed to inform the business about the state of its customer relationships.

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6. The possibilities offered by ecommerce are unparalleled in the history of business.

It will revolutionise business and business models, and it will usher in hordes of competitors many of whom are unheard of yet in the world of retail finance.

Threats, risks and opportunities are there in equal number, and it really is up to the financial sector to decide its own fate on the internet. The opportunities are as available to the sector as to anyone else, and unlike for most new entrants, the customer base exists already.

The internet represents a huge opportunity to build a new sales, marketing and customer care channel, and the advent of digital television will open it up to the mass of the population. Those unprofitable customers that institutions would like to see using the cheapest channel, today at least, are the ones least likely to use it. That could change very rapidly and the sector must be prepared for that.

Equally, many customers who would like to use it today are put off by poorly designed sites that appear to operate in isolation from other channels. The Web channel must offer service quality as good as, if not better than, that on other channels. Where there is no human intervention, the quality of service must be superb. That entails a heavy responsibility and reliance on technology since downtime on the internet is a very public statement of service failure.

Given the existing investments in call centres, there is a need for call centres to become multimedia interaction centres. This essential evolution highlights the driving need for staff to be skilled and capable of handling interactions with customers at any point in the relationship. It also highlights the need for ongoing investments in leading-edge technology and the plethora of integration technologies that are becoming crucial. Multiple channels must be integrated to create virtuous closed loops of information and information flows.

The investment in call centres, web technologies and the hugely complicated infrastructure that must be built to implement effective multiple-channel operation, will be daunting. The cost of operating successfully on the web will not be small, despite the superficial economics.

That investment must be regarded as part of the cost of doing business, and attempting to claw back some of those costs by charging customers for using the internet channel, as some institutions are doing, is a customer relations disaster. The new entrants don’t do it, and it is a nonsense to imagine that customers who are happy and familiar with the internet will continue to pay over the odds for commoditised financial services.

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7. Technology is a critical component in the current state of CRM thinking and practice, and it is a double-edged sword.

On one hand, it enables so much of the essential gathering, integration and analysis of information. On the other, the current focus on the so-called front-office technologies is potentially distracting and may undermine the returns on CRM.

The core CRM technologies are the more mundane, extremely expensive infrastructural investments in the data warehouse and analysis tools. The front-office software, sales-force automation, customer contact and, to a lesser extent, marketing automation systems are largely operational in nature. They can offer significant returns through efficiency and productivity improvements, and they do offer more analytical techniques than the previous generation of systems.

That said, without the data warehouse and the heavy-duty data analysis of customer and business information, CRM is virtually a non-starter. The data warehouse is the wellspring of CRM, particularly if the CRM strategy aims to encompass the business and the multiple business channels. The major challenge is integration of data and business information from any number of sources, and that is proving a major technical headache.

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8. Enterprise application antegration (EAI) is one of the major obstacles to achieving a customer-centric focus, and it will be one of the biggest spend items, particularly as the web becomes more central to business.

The integration must span legacy, current and future systems, and the integration of applications and infrastructures will be one of IT’s biggest challenges. To do it successfully will require significant resources and investment. There is a serious lack of the skills required to build the infrastructure, the applications and the interfaces, and the sheer complexity of the integration task means that inhouse systems development is unlikely to be successful. The days of ad hoc development are past, and businesses must look to implement as standardised an approach as is possible in order to minimise the problems of integration.


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9. Because IT does play a key role in implementing effective CRM, there is a new breed of software vendors, trailing clouds of consultants and systems integrators.

There is a high risk that the CRM market is becoming the most over-hyped growth area in the history of the IT industry. This is evidenced by the fact that just about every IT vendor is laying claim to CRM credentials. Many had not even heard of it until 1998, and we can only admire the speed with which they have acquired their expertise. The CRM vendors who know CRM were doing it long before the bandwagon.

Companies like Siebel, Vantive and Clarify focused on the front office initially, but they are now building systems that aim to cover the enterprise. There is an important distinction between offering enterprise systems and offering enterprise systems that work equally well at all points in the organisation. No one vendor has that enterprise capability to date, and the areas where these vendors really excel tend to reflect their roots, be it sales-force automation, customer care or call centres.

There are many companies operating in the CRM arena with specialist and niche capabilities, and the financial services industry may find that these companies offer the vertical systems that cater best for the particular needs of the sector. Similarly, there are more than language differences between the US and Europe, and what works in the US may not travel very well. European financial services may require a different approach to CRM systems. Choosing the appropriate IT and IT suppliers is fundamental to the success of a CRM initiative.

Similarly with the choice of consultants and systems integrators. Both can be hugely influential in the final choice and approach. The depth and breadth of their experience is obviously important, and in an ideal world, it is only the customer who should be learning on the job. Unfortunately, given the lack of CRM IT and business skills, that isn’t always the case.

Nonetheless, partners and third parties can play an invaluable role in looking at an organisation from a distance, providing a different perspective to help shape the CRM undertaking, and many are building the skillset to cross the IT and business divide.

Their strategic relationships with vendors may prove beneficial to customers, but these relationships bear a closer examination before organisations make significant financial commitments to suppliers.

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10. CRM is a mixed bag of tricks, some good, some bad. The challenges posed by technology are hugely significant, but probably less so than the people and cultural issues.

There are many obstacles to implementing good CRM, but the most challenging will be in persuading the people, staff and customers, to buy into the changes and to implement essential cultural and business changes.

Retail financial services organisations have hefty legacies that militate against achieving total views of the customer at all points of contact and interaction. The businesses tend to be organised in terms of products. The business models, the people and the existing IT infrastructures are arranged accordingly. Separate products from one organisation – insurance, pensions and current accounts – will each carry their own baggage of people, business processes and technology. Trying to achieve a single view of the customer when the business infrastructure is not architected to do so is no small undertaking.

This rigid business model is a major issue for organisations looking to become customer-centric. The integration of business and people silos is essential, but it is the degree of corporate complexity, certainly in the major financial institutions, that dictates the approach taken to CRM. It must be business-led and incremental.

To try to implement end-to-end enterprise CRM in what are hugely complicated business structures would be extremely risky and in most cases probably impossible. An incremental approach, formulated within the overall strategic commitment to becoming a customer-centric business, is the reality that most businesses must adopt.

Implementing CRM incrementally within a high-level strategic framework means that CRM can be holistic. It can touch all parts of the organisation in the long term, shaping company culture, and informing new approaches to branding and people management. Equally, given the competitive environment, there is real pressure to make changes as quickly as possible.

The drivers are not incompatible. By performing a programme of assessment and diagnostics, organisations can identify those areas of the business that will offer rapid and high ROI within the corporate framework of a customer relationship management strategy.

The starting point, needless to say, is to find out what the customers want.


 

 

 

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