Construction Delays

by John R. Engen

Intractable technology and thorny organizational and cultural challenges — will customer relationship management ever come together?

To say financial services executives are conflicted about CRM is an understatement. "Customer relationship management" is held out as a magic bullet that can help financial institutions build stronger and more profitable relationships in a competitive, slow-growth environment. But that promise has proven illusory.

Meridien Research estimates that financial institutions worldwide spent $19 billion in just the past four years on underlying technologies for CRM projects. The complex systems are supposed to enable large institutions to provide individualized service and uncover the most promising opportunities with each client. Seldom, however, have they produced results that justify their costs.

This is unacceptable for an industry as besieged as banking. Squeezed by competitive pressures and a softening economy, managers must either deliver long-promised CRM returns — soon — or retrench. A recent survey by Gartner found widespread frustration with CRM initiatives. "Every bank is struggling to prove the worth of these projects," says Mary Knox, a Durham, N.C.-based Gartner analyst.

The dilemma has far-reaching implications. CRM goes to the heart of banking's efforts to reverse the damage done to customer relationships by a decade of merger upheaval, rising fees and nonbank encroachment. By utilizing detailed customer information to provide more personalized and differentiated service, the theory goes, banks can rescue their offerings from commodity status. If CRM can't do the job, banks face the grim prospect of watching their market share erode further.

So what is going wrong? It's hard to argue with the basic idea that improved customer information will lead to improved service and sales. And CRM apparently is working well in other service industries. But the devil seems to be in the details. Banks are having a hard time collecting data from diverse sources, delivering it to front-line employees in a useful format, and then getting those employees to handle it correctly.

CRM is perhaps best described as an overarching business strategy built on a three-legged stool of technology, new business processes and cultural transformation. Neglect any one of the three legs, and projects teeter. One common failing among banks is to view CRM simply as another technology solution.

Because it must cut across product, channel and business-unit lines, CRM requires dramatic adjustments in an organization's culture, decision-making and business processes to reflect customer-centric priorities. The needs and aspirations of traditional product and channel silos, for example, must be subordinated to broader, institution-wide goals. That's not an easy adjustment.

There is also some controversy about the usefulness of information banks collect on their customers. Typically, data warehouses store behavioral data: current account status of customers, prior purchases and usage patterns. Consultant Christopher B. Kuenne says this data must be supplemented with insights into the true needs and attitudes of customers. "To understand the customer better, you must do more than just catalogue behaviors," says Kuenne, president of Rosetta Marketing Strategies in Princeton, N.J.

Recent, as-yet-unpublished research by BAI and Cambridge Group Inc. supports the view that many of today's CRM installations don't adequately reveal what customers need and want. "CRM provides a partial picture of the customer's financial wallet — at best," says Cambridge principal Navtej S. Nandra. "It yields data to improve what you're doing today, but it doesn't give insights or perspectives to plan for tomorrow."

The debate will surely continue. And until clear answers are found and organizational hurdles overcome, financial institutions will no doubt remain disappointed with their CRM projects.

Customers at Risk

CRM embodies technologies that enable institutions to collect, store, analyze and distribute massive amounts of data. When systems are properly integrated, CRM-enabled employees across the organization should be able to pull up screens of useful information — and even sales suggestions — at the very moment they are dealing with customers.

Large financial services organizations view this electronically-supplemented personalization as the key to recreating the rich customer interplay found in old-fashioned street-corner banking. "In the financial world, the only way to differentiate yourself is at the relationship level," says Richard McLaughlin, vice president of growth markets for Royal Bank of Canada, Toronto. "If you're not doing something like this, you're putting your institution at risk."

CRM starts with technology, then, since information has to be collected, analyzed and distributed to the front-line employees. Meridien identified four major categories of systems being purchased by banks for CRM projects: customer-decision support; data warehouses; back-office systems; and interactive selling capabilities. Customer- decision support technologies, which target the behaviors of customers to optimize sales and pricing, have been getting the most dollars recently, according to Meridien, which is based in Newton, Mass.

The separate elements won't add up to much, however, unless they're integrated properly. And this is where many institutions have fallen short. Customers want to be served in a coordinated and consistent manner, regardless of how they choose to contact the bank. This, in turn, requires that call centers and branches have access to the same information. The various units must also be able to modify databases after dealing with a customer and make that updated information available across the company.

Compartmentalization has hindered information-sharing at many large institutions, whose various product groups often employ dissimilar third-party processors and in-house technology solutions to gather and store information. Such a multiplicity of systems complicates efforts to gather and move data across the organization. Even systems purchased from the same vendor do not always interact with each other smoothly. In fact, an inability to "access all relevant customer information" emerged as the top CRM challenge in a worldwide survey of 125 financial services companies conducted last year by Cap Gemini Ernst & Young.

This is not to suggest that CRM success hinges solely on the resolution of technology issues, however. Kathleen Khiralla, a long-time observer of bank CRM projects, says many institutions tend to view CRM as a mere technology solution instead of a comprehensive strategy. "You can't just bolt on technology and expect to be successful with CRM," says the Los Angeles-based consultant with TowerGroup. "What you're really talking about is remaking the organization along a new paradigm."

CRM "Attitude"

Indeed, true CRM entails a completely new way of viewing and interacting with customers. Banks have traditionally organized around products such as loans, checking accounts and mortgages. Business units (or "silos") had the job of designing and marketing those offerings. The CRM gospel reverses that schematic by requiring institutions to ascertain their customers' needs first — that's where the insights gleaned from customer data come in — and then provide products and services to match.

A needs-driven approach, proponents argue, can boost sales, reduce account churn and attract more clients. "The essence of CRM is attitude," says Guenther Hartfeil, senior vice president and group executive for market information and targeting at Wachovia Corp., Winston- Salem, N.C. "Product and sales managers should be focusing on what customers want rather than trying to push something down their throats."

The logic is compelling, but implementing such a customer-centric strategy raises all sorts of sticky organizational issues. Product and channel expertise is still required. Yet the goals of the organization as a whole must predominate, and that tends to undercut traditional incentive and management structures. Product chiefs who find their roles subjugated to that of a segment or customer manager tasked with wringing the most profits out of a particular client group may resist such encroachments.

"When you try to either break up product silos or diminish their importance within the organization, you're threatening a lot of very important power bases," says Naras Eechambadi, a former top executive in First Union Corp.'s CRM program and now Charlotte-based president of Quaero, a CRM consulting firm.

A core precept of CRM involves differentiating service by customer segment. The more profitable customers may be accorded better service than others, for example, to cement and broaden such relationships. Employees brought up in a one-size-fits-all service environment balk at this concept, however.

At a call center, the remedy may be as simple as computerizing the routing of calls based on account numbers. Trying to discriminate among customers in the branch can breed staff resentment, however, even though differentiated service is not unknown in other industries. Major U.S. airlines, for example, long have accorded priority treatment to their most valuable passengers without incident. Says one senior banker, "It's difficult to get tellers to accept that some of the people they see frequently or like the most aren't the most profitable and might merit different treatment."

Getting employees and managers to embrace such shifts fully requires a thorough explanation of the new approach and corresponding changes in compensation and incentive plans. For example, call-center reps should be rewarded on the basis of customer satisfaction as well as productivity. And branch employees should receive incentives for facilitating sales of products that are identified by segment leaders as potential winners for customers. Similarly, employees of product groups must dramatically realign how success is defined and emphasize the organization's results over those of their own silos.

Wachovia, for example, asks its retail bankers to hand off high-net-worth clients to the private bank, a move that supports the company's strategy but hurts retail reps' sales performance and bonus potential. So Wachovia regularly compensates by adjusting unit budgets and goals. "We're taking money out of one silo and putting it into another," says Hartfeil, who worked on CRM ef- forts for both Bank One Corp. and the former BankBoston Corp. (now part of FleetBoston Financial Corp.) before joining Wachovia. "It's better for customers and the organization as a whole."

At the same time, it's neither necessary nor desirable to dismantle product groups, since that can disrupt the organization. Royal Bank, for example, emphasizes a team approach to satisfying customer needs. Silos still exist, but their managers work with segment or customer managers to fine-tune products to a specific group's needs, what McLaughlin describes as a "matrix" approach.

Control Groups

The technology is in place, the culture has been adjusted, and CRM is ready to take off, right? Not quite. There's one more important leg to the stool: business processes. This involves all the training, policies and metrics that govern daily interactions between a bank and its customers, typically encompassing literally thousands of issues.

Some issues are relatively easy to address at the policy level, such as empowering certain employees to waive fees for profitable customers if the situation warrants it. Others present thornier challenges that cut close to the heart of CRM itself, like figuring out how customer information is to be shared across the organization.

Consistency should be an overriding objective. After analyzing how representatives responded to typical customer inquiries on loans, fees and other topics, Royal Bank found wide variations between the call center and the branches, and even among branches. The bank is working to improve response consistency with the aid of software and data. "We'll never have 100% consistency, but we'll be close," McLaughlin says. "If CRM is going to work, the relationships with customers have to be based on trust. And to get trust, you need to provide a consistent experience."

Centralization of vital operational functions is equally important. Royal Bank has moved its marketing, sales and analytics operations from their former silos into "centers of expertise." The rationale: in a customer-centric world, it can be counter-productive to have individual product groups running such functions. Consultant Khiralla further recommends that institutions centrally coordinate technology purchases to improve systems integration across the organization.

Measuring is another critical business process. Managers must define what, exactly, they hope to achieve with a CRM strategy. Is it customer satisfaction? Lower attrition rates? Greater wallet share from top customers? Then they must constantly monitor progress towards those goals. "If you aren't actively measuring results, you'll never be able to go to executive management and credibly say, 'Here's the next program we need funding for,' " says Wachovia's Hartfeil.

To get a full picture of CRM's effects, many banks employ a modern metric called a balanced scorecard, which weights a variety of performance and customer satisfaction indices in accordance with the company's priorities. Such monitoring can rally the troops and convince the skeptics. But it requires discipline, which itself can cause conflicts.

To evaluate its sales and retention initiatives in private banking, for example, Wachovia uses an experimental technique called a control group. Some customers identified as candidates for priority treatment are left untouched, and their interactions are compared with those of other upscale customers who do get preferred treatment. Although some managers worry about losing control-group customers, Wachovia decided such experiments are necessary for valid measurements of CRM results, Hartfeil says.

Air Cover

Instead of a quick fix, CRM is a long-term effort, and that's why deep management support is crucial. Along with smart execution and buy-in from both investors and employees, such projects require strong leadership.

For example, Royal Bank's initiative has been spearheaded by James Rager, vice chairman of personal and commercial banking. After taking the helm of retail in 1997, Rager embraced CRM as a way to boost profits from a line of business that had been somewhat neglected. According to McLaughlin, Rager constantly preached to employees the virtues of a consistent customer experience. He also provided vital "air cover" from skeptics so the CRM team could do its work.

Leadership is also important at the project level. Ideally, the person overseeing CRM's implementation should be a respected executive within the organization — not an outsider. And this executive should be well versed in a broad range of technology, finance, marketing, statistics and pro- duct issues. In practice, however, many institutions assign CRM responsibility to either the information technology department, which alienates retail bankers, or to executives who lack technology expertise, which can lead to excessive spending.

Whoever ends up running the project needs some early wins to elicit support within the organization. Early in its CRM efforts, for example, First Union dramatically slashed attrition rates among profitable customers by giving them "high care" packages and preferential pricing on some products. The former BankBoston gave "smart screens" to its call center reps, which provided easy, logical sales suggestions based on backroom analyses of customer data.

But there's just no getting around the fact that CRM ultimately requires far-reaching organizational change. "To achieve the holistic perspective that CRM demands, you need your entire sales management system aligned around it," says Hartfeil.

That raises the question of whether major institutions really knew what they were getting into when they dived into CRM. It appears that many players fixated on the technology aspect while badly underestimating the human element. That needs to be turned around. Instead of simply throwing money at another technology, executives must recognize and deal with the full range of issues — technological, organizational and cultural — in order to move ahead.

Mr. Engen is a freelance writer based in Minneapolis.

Copyright © 2003 by Banking Strategies, published by BAI.

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