The Ties That Bind

By Steve Klinkerman

Information systems give clues as to customer preferences, but author Fred Wiersema says a human touch is required in learning what people really want.

Is banking becoming a totally dispassionate exercise? One would certainly think so, judging by the proliferation of information technology in this industry. Increasingly, daily sales and service decisions are based on statistical assessments of customer preferences and relationship value, and transactions are migrating from the personal banker to the personal computer.

But former Harvard Business School professor Fred Wiersema warns that banks are approaching things backwards when they base customer approaches on sterile statistics. Instead of compiling details and observations and then trying to deduce what drives customer decisions, banks should solicit direct feedback from customers about the key factors that influence their loyalty and satisfaction. Senior managers should involve themselves and middle managers in this process, moreover, so the organization can have the best possible chance of aligning its strengths with customer preferences.

"To the maximum extent possible, you want to make sure you are addressing the issues that really count from the customer point of view," says Wiersema, who is the author of The Discipline of Market Leaders, Customer Intimacy and Customer Service. "You can't confine yourself to statistical output from a customer information system."

Wiersema talked with Banking Strategies during the Bank Administration Institute's recent Retail Delivery conference in Las Vegas.

Banking Strategies: You've had the opportunity to interact with companies in a variety of industry sectors. How does the banking industry stack up, in terms of its ability to make use of information technology to serve customers in a way that is valuable, distinctive and profitable?

Wiersema: There are more similarities -- with chemicals, with high tech, with automotive, with retailing -- than you might imagine. Everybody is facing big challenges in dealing with increasingly competitive markets, getting and keeping customers and using technology in the best way possible.

One difference in finance is that there are still many processes that conspicuously lend themselves to streamlining. Significant additional efficiency gains can be had from technology. This seems especially apparent within the context of mergers. But one of the biggest challenges in banking is merger integration. Not only are elaborate systems being combined, but also business models, workforces and customer bases. Things get complicated rather quickly.

Banking Strategies: It seems like there's a huge assumption being made that customer loyalty and profitability can be held constant even as infrastructure is aggressively collapsed.

Wiersema: You are raising an issue that worries me. For any organization, there is only so much time and energy available to tackle any change issue. If infrastructure implosion consumes 90% of our energy, and only 10% is left to worry about customers, then we are putting things at risk.

Given the magnitude of efficiency gains available, it is understandable that the managerial center of gravity would tend to swing toward internal issues. But when the pendulum swings too far, customers start sensing that they are not getting the same level of attention. They feel a sense of abandonment. Then they are ripe for the taking by other financial services organizations that are willing to pay attention. I think that happens often. And when it does, it offsets some of the gains that can be had from back office consolidation.

That's why the next stage in banking has to be about reinforcing the customer connection. Especially in banking, the emotional connection with customers is built on trust -- a feeling that it's safe to confide in the banker, a feeling that the institution is protecting your hard-earned money and is looking out for your financial future. When an institution starts to worry more about itself than about its customers, then it starts to play a very tricky game with the bedrock of this industry -- the trust aspect.

Banking Strategies: How do managers capitalize on their newly won technological strengths while developing the caring organizational persona you are talking about?

Wiersema: The reality is that many people in financial services are more comfortable with the physical and numerical aspects of business. That is just a basic personality trait of the people attracted to this field. But it doesn't mean they are incapable of building connections with customers. When given the chance, they can respond. It just isn't the top priority.

Typically, senior managers find it is an eye-opening experience to meet and deal with customers directly. And I don't mean the ones with a high net worth and social connections. No, I'm talking about the average customer who normally interacts with a teller or a branch officer.

But laboratory settings won't do. We tend to get into all sorts of focus groups, where we can watch people through one-way glass rather than sit in a room with them. We are viewing the customers as if they are mice in the lab, just observing them. And the situation itself is contrived. The participants don't really have anything at stake in such discussions.

So how do you get beyond close observation to intimacy? Let me give you some practical approaches. Give each executive a list of three ordinary clients. The assignment is to call the customers at home or at work and see what they like and dislike about the bank. Just do that three times a month for three months, and you will be amazed at the discoveries.

The second technique is a very practical one. Many banks have customer call centers. Slot two hours on Friday afternoon, and put on the headphones and listen to the calls. Listen to what the customers are complaining or raving about, and then listen to what the customer service people are telling them. You will be alternately frustrated and delighted, but you will get a fresh appreciation of how your bank interacts with customers.

Banking Strategies: Put yourself in the shoes of a hypothetical superregional CEO who has operations in multiple states, more than $50 billion of assets and more than 10,000 employees. Even if his immediate team goes through the regimen you suggest, that might not be the total answer for the organization. What he really needs is a broad-based program that involves large numbers of employees and customers.

Wiersema: You ask the question that of course is on the mind of anyone aspiring to a market leadership position. How do you evoke a company-wide determination to deal with customer issues?

Typically, the gap is not with the people on the front lines, because they are dealing with customers every day. So the question turns to the people in middle management. How do you reach them? From my perspective, it starts with getting people in senior management to see what's happening, and then cascading that orientation to the next level.

Every week at Dell Computer Corp., for example, a half-dozen top executives get together in a room, and they invite another hundred people from the top and middle levels of the organization for a two-hour meeting. The first thing that happens is that they get customers on the speakerphone talking about complaints and service issues. Then they get into a discussion. What does this tell us? What are the causes of this? Why haven't we been able to deal with this? What could we possibly do about this? So the awareness extends from a handful of top executives to a hundred people, who then are going to share with many others. Now you have a thousand people pulling together.

This is not based on some wonderful type of strategic scheme; it is not based on some great analytical concept put together by really deep thinkers. It comes down to getting a group of people to collectively realize that there are really just a few basic principles that we need worry about when it comes to customer relationships, and that they will work only if you practice them. I can watch Tiger Woods, but that won't help my golf game. The only way I can get better is by making sure I've identified the basic principles to work on and then practice, practice, practice.

Banking Strategies: This seems to imply a shift from the traditional control mentality of banking to something that is more flexible. The idea is not so much to uphold a rigid internal hierarchy, but to meet customers' needs as expressed in any given moment. If you agree, then how do you assure that outcome?

Wiersema: I agree that we would be moving away from a hierarchical, command-and-control structure to something having a lot more equality and empowerment. But that's true for every industry right now. The reason is obvious. Previously, you had maybe 10 people who were the brains in the organization. That was a limited approach. In the empowered organization, you may have 100,000 people exercising their intelligence, applying their knowledge and making decisions.

That's not to say that the transformation should lead to extremes of spontaneity and improvisation, like in jazz music. Alexander the Great basically conquered all of Asia. He called the shots, but because he didn't have the technology to talk with his troops on a moment-to-moment basis, he had to rely on them to make the right decisions in the heat of battle. These were not unstructured decisions. The troops were well trained and clearly understood the overall goals, so they could make the right calls on the spot.

The same principles were at work on D-Day in Europe. The invasion was all planned. It was all orchestrated. We had our strategies in place. But as soon as the Allies hit the coast of Normandy it was chaos. The soldiers had to make the decisions. That's not jazz. It is orchestrated empowerment.

My main point is that a lot of our command-and-control notions aren't applicable any more because they are defensive in nature. They assume that the world isn't changing much. When that's the case, then protecting and controlling things makes total sense. But the world is changing, and the old-fashioned protective measures leave us unprepared to deal with the onslaught of new competition. You don't win the battle if you have a superb defense but no offense.

Banking Strategies: But the superregional banker might say, "I've also been working with the major consulting firms. I have all these information systems, I love statistics and models, and I'm convinced that these tools ultimately will help me and my staff make better decisions about how to serve customers." Is there some common ground that can be found, so that information technology also plays a meaningful role in helping the institution get close to customers?

Wiersema: I have two reactions. The first is that by the time you figure out all those things that you are analytically comfortable with, by the time you have done all the statistics, when you finally feel that you can act -- by that time the customer is so fed up with you that he has probably written you off. If you over-analyze, then ultimately you're not meeting a major customer concern, which is responsiveness.

The second reaction is that I believe people who think logically, analytically, with statistics and numbers, really do much better if you give them some tangible, number-based goals and activities to deal with. This framework is built around a customer scorecard, and I'm seeing it employed in one organization after another. Look at your most valuable customers. Ask yourself what are the top five to seven factors that influence whether they will continue doing business with you. These factors now allow you to build a scorecard that focuses your efforts and helps you gauge how you are doing.

But keep in mind, this is not done in an isolated, clinical setting. You do surveys. You talk to people. You benchmark yourself against other industries and companies. To the maximum extent possible, you want to make sure you are addressing the issues that really count from the customer's point of view.

I would point to three major customer priorities. The first is transparency. If customers feel that you are accurate, reliable and responsive, that you are not wasting their time and energy, then they give you better ratings. The second is distinctiveness. Are you giving them a clear and compelling reason to choose you over other alternatives they might be considering? The third is leadership. Customers love to associate themselves with leaders, with winners, with companies that are going places.

You can back into specific scorecard metrics that address these three broad priorities by asking open-ended questions. Don't lead off by inquiring about specific performance details, such as loan approval times, and then try to deduce which factors sway overall customer perceptions and behavior. Go the opposite direction. For example, ask customers which factors distinguish your bank from a short list of alternative providers. As customers respond to this type of open-ended question, themes will surface and repeat themselves. And these themes will give you a data-driven way of tracking things.

Banking Strategies: This approach seems compelling, but within a historical context it also seems to border on the extravagant. Why should bankers go to such lengths?

Wiersema: It all comes down to the fact that the paradigm of competition has changed. Capital is in plentiful supply, and the people who control it no longer run the show. The real issue is customer scarcity. There's a shortage of customers and a glut of suppliers.

Hierarchical, mimetic thinking doesn't work under these circumstances. You have to stand for something, not just in the boardroom, but in the customer's eyes. We see that the bank across the street offers a new product, and the first thing we want to do is replicate it. But are we asking ourselves whether we should have fewer product lines, and just make sure that we offer only the things that give us real good ratings on the customer scorecard? No. We have this ferocious appetite to add products, to add choices, to simply look like everybody else.

If you do it the other way around, and say, "I'm just going to focus on this set of customers, and on being this type of company, and this is how we are going to be known, and this is how we are going to push things forward," then, yes, you might lose a few customers. But the ones that you keep are going to be doubly happy with you, and they will be doubly committed to you, because they know you are concentrating on something that they want to support. To line up your strengths in this way, you need deep customer feedback. You can't confine yourself to statistical output from a customer information system.

Banking Strategies: This has some of the resonance of a test. You're subjecting yourself to the judgement of the customers, and that doesn't sound like it's always easy to do.

Wiersema: Precisely. And at a personal level, this is one of the biggest challenges the CEO faces in adopting a customer-centric approach. At the very moment when you're opening yourself to the customer -- when the Southwest Airlines Co. executive works behind the ticket counter, when the Dell executive fields a customer complaint, when the Charles Schwab & Co. manager monitors a client-broker phone conversation -- it viscerally hits you that you are not totally in control. Suddenly you see that the customer is in the driver's seat. It's a threatening feeling, and it's out of keeping with the cues top executives get from within their own organizations.

At the same time, the moment of interaction can also be the moment of enlightenment about how to align the organization's strengths with customer needs. Don't view this exercise as punishment. View it as nutrition. The more you work with customers and incorporate their feedback into your approach, the more comfortable you will become and the better you will perform.

Banking Strategies: At least in banking, it doesn't seem that companies are universally confident in this approach. All across the country, major institutions are electing to sell. They seem to be saying that they can't reach the next level with customers. Is this just the sad fact in this industry?

Wiersema: There is no question that competition is stiffer. Also, for a variety of reasons, there is a general shift towards younger executives -- between the ages of 40 and 50, instead of 55 to 65. One way to react is with resignation, just wait until somebody buys you out.

But for every seller you can name, I can name a company that is committing itself to these customer-based principles. They are saying that they are going to deal with the disadvantages, that they are going to define themselves and become stronger, that they are going to put these ideas into effect. If that still is not enough for them to remain competitive, then at least they will have improved the company so much that they can command a far better valuation at sale than they could get today.

Mr. Klinkerman is managing editor of Banking Strategies.

Copyright © 2003 by Banking Strategies, published by BAI.

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