Front-Line Performance Gap

By Paul McAdam and Ajay Nagarkatte

Even with plans, process and technology in place, retail banking executives reveal overall dissatisfaction with results, indicating widespread need for improvement in hiring, training and front-line tactics.

Between the plan and the execution sits a yawning gap — and an increasingly serious problem for retail banking institutions.

Over the last decade, banks both large and small have emphasized relationship-based strategies to drive profitable revenue growth. Once reserved for private banking or high net-worth individuals, relationship-building approaches have now migrated to the mass market, with the promise of delivering a greater share of the consumer wallet while decreasing attrition rates — two critical components of profitability.

Yet BAI's recent survey of retail financial services executives, The Front-Line Factor, finds an increasing disconnect between expectations and successful execution. Our July 2004 survey of more than 500 retail banking executives reveals a divide between the sophistication of customer relationship strategies and management's satisfaction with the ability of front-line employees to effectively deliver on those strategies.

While previous studies have noted problems in this area, The Front-Line Factor breaks new ground with its focus on the linkage between front-line performance as assessed by bank management and intangible assets, such as human resources. Specifically, the study finds that major improvements are needed in the way banks hire, train, incent and manage their front-line employees, i.e., the workers who interface directly with customers in the branch and call center. At the same time, the study reports a re-thinking in the importance assigned to relationship-based selling. The research detected an increasing emphasis among executives from community, regional and large banks on improving customer service quality, with the expectation that relationship-based selling efforts will blossom only if customers are satisfied with baseline levels of service.

Part of the problem has to do with hiring, as banks say they are often unable to attract employees with the appropriate sales and services aptitudes. Workers who are hired, acknowledges senior management, are then not provided with the training, incentives and coaching they need. Consequently, top retail executives find that their front-line staffs lack the sales skills required to pursue a service-oriented, relationship-based approach with clients.

Falling Short

Since the deregulation of the early 1980s, the leading retail banks in the United States have become more national in scope and increasingly focused on meeting a broader set of customers' financial services needs. This race to gain consumer wallet share intensified over the past decade as initiatives such as customer relationship management, sales culture development, customer profitability analysis and segmentation were launched with great fanfare. While the larger multi-state regional banks have led the charge, smaller community banks have occasionally joined the fray.

Yet The Front-Line Factor reveals widespread dissatisfaction among top retail executives with the results so far achieved. This dissatisfaction is rooted in a recognition that banks face several major challenges in their efforts to manage relationships with certain groups of customers. Three of the top four challenges relate to front-line skills and were cited by all sizes and types of institutions. These three, which extend across the spectrum of customer-facing activities, are:

• The identification of customer needs during the new account opening process;
• The recognition of cross-sell opportunities;
• The assessment of when customers are at risk to leave the institution.

The fourth major challenge involves the measurement and management of front-line activities. Almost 70% of the executives stated that their sales measurement processes are not up to par, which makes it difficult to track front-line activities and results to ensure that relationship management initiatives are consistently acted upon. They also broadly agreed that their front-line personnel are not consistently executing some fundamental processes that are crucial to the institution's relationship development objectives.

Customer profiling programs, for example, are not applied consistently during the new account opening process. Also, information gathered during these conversations is generally sub-optimized after the account-opening event. In many cases, profiling information is not stored electronically in a database for future applications in service and sales interactions.

In terms of cross-selling and retention management programs, executives are generally dissatisfied with the results front-line staff are achieving with propensity, trigger-based or risk-based models. The concern is not so much with the accuracy of the models, but rather with the capabilities of front-line staff to recognize when and how to approach customers with the appropriate recommendations.

In summary, many senior executives expressed an overriding concern that the complexity of their institutions' relationship-based strategies may have outpaced the ability of their front-line employees to leverage all of these capabilities to their true potential. The research suggests that the volume of additional duties and expectations placed on front-line staff leads to stress that ultimately manifests itself in the form of higher employee turnover, particularly within the larger banks.

Eighty-four percent of retail executives from institutions with assets greater than $100 billion stated that stress due to the amount of additional duties and expectations placed on employees was a leading cause of front-line employee turnover compared to 44% of banks with assets less than $5 billion. This employee turnover dilemma weighs heavily on institutions as the constant cycle of hiring and training new front-line staff is expensive. It also significantly diminishes productivity and can alienate customers.

While not retreating from the idea of relationship-based selling, bank executives display a shift in emphasis back to customer service quality, believing that service quality lays a foundation for earning greater customer wallet share down the road. They reason that most consumers' financial services purchase decisions are largely driven by life stage changes that are well beyond the control of bankers and that institutions must develop customer relationships based on a foundation of adequate service quality for a customer to even consider the institution when the time for an additional financial services purchase arises.

Our research suggests that this viewpoint prevails among executives within smaller community and regional banks, and that big bank executives are beginning to shift their thinking as well. As one explained, "We are training the staff in our branches to help them understand that customer relationship management is actually achieved through a tight linkage of service and sales. Sales is really proactive service, and service is reactive selling."

New Account Opening

The foundation of a customer's relationship with a retail banking institution is shaped through the account opening process, as the vast majority of new account openings still take place face-to-face in a branch. From the customer's perspective, critical first impressions of the institution's quality, capabilities and trustworthiness are established. In large part, the institution's brand promise is personified by the skills displayed by the front-line employee. From the institution's perspective, the account opening event provides the best, and possibly only, opportunity to comprehend customers' needs and educate them on the appropriate financial solutions.

In most cases, the institution's overall objective in the account opening process is to become the consumer's primary bank. And for good reason: Previous national consumer research conducted by BAI reveals that consumers keep an average of 3.4 financial products with the institution they consider to be their primary bank, compared to only 1.8 products with institutions that are considered secondary. The primary bank captures the vast majority of wallet share as well.

The same research shows that consumers keep 90% of their total checking account wallet and 80% of their total savings and money market deposit wallet with their primary bank. In addition, the account opening event represents a prime cross-selling opportunity. Detailed benchmarking of the deposit households of 19 large banks by BAI Research and MarkeTech Systems International in an earlier study reveals that 24% of the total cross-sales that banks obtain from their checking account households actually takes place during the account opening event, and another 4% of total cross-sales take place within the first 30 days following account opening.

Given all this potential, it's no wonder that institutions of all sizes are actively supplementing their new account opening processes with a host of tactical initiatives, such as profiling, onboarding, welcome kits and switch kits. In fact, the research suggests that the commitment of management talent and organizational resources to improving the capabilities of staff in new account opening and customer onboarding processes is the most important investment that a banking institution can make in its front-line sales staff. Onboarding refers to a structured customer orientation program supported by a series of proactive contacts with customers to ensure that the products they purchased match their needs, the rates and fees on the accounts were transparent and understood, the fulfillment process was smooth, accurate and timely, and any problems associated with the account opening process were addressed immediately.

The retail executives who participated in our research were generally satisfied with their institutions' performance in new account opening activities — much more satisfied than they were with their performance in cross-selling and retention management. This is certainly due to the fact that new account openings have long been a core routine performed within branches, second only to processing teller transactions. When compared to cross-selling and retention management, the results of a new account opening are also more immediately measurable. And it's the easiest process for banks to perform, as it is driven by customers who walk into a branch to initiate the activity.

Still, our research uncovers some significant gaps in new account opening performance among different types of institutions. Due to their proclivity toward relationship management, mid-tier and large banks tend to place relatively more emphasis on account opening activities. For example, more than half (52%) of management from banks with assets of less than $5 billion say they have a poorly implemented profiling process or that they do not use a profiling process at all. Among banks with assets greater than $5 billion, only 23% report a similar result.

Similar performance gaps between large and small banks are found in activities such as: the payment of incentives to front-line staff for the completion of profiles; the existence of dedicated staff training on profiling skills; the storage of profiling information in a database; and making onboarding phone calls to new customers in the days and weeks following new account openings to ensure overall customer satisfaction and verify the quality of fulfillment.

The survey results reflect larger institutions' more process-oriented cultures and greater resources allocated to customer intelligence, sales management and training programs. Smaller institutions appear to place more emphasis on maintaining their friendly and local positioning.

On a relative basis, customer profiling continues to be the dominant opportunity for improved performance across all bank sizes. Efforts within most institutions are concentrated on a more systematized use of profiling and storing the information collected during account opening sessions so it can be later leveraged as an organizational asset. High-priority remedies mentioned by three-quarters of banking executives include the need for better front-line employee sales skills and increased training and coaching.

However, some executives acknowledge that they ultimately need to cope with a deeper issue — front-line employee selection — to improve their organizations' abilities to maximize the new account opening opportunity. Nearly eight out of 10 bankers surveyed responded that their staffs lack the adequate sales skills. Bankers broadly recognize that many of the employees hired for front-line branch positions lack the life experience and soft skills required to conduct credible conversations with customers about their financial goals. Banks are fine-tuning their recruitment procedures to attract employees who have natural aptitudes for customer service, consultative selling and multi-tasking. Potential employees with prior retail sales experience are often sought.

Relationship Expansion

Expanding client relationships, through efforts to increase balances held with the institution or through the sale of additional products, is a responsibility that front-line staff in branches and contact centers share with other areas of the bank. Direct mail is a major contributor to cross-selling, as are promotions through online channels and the direct-sales efforts of investment, trust or mortgage specialists. However, previous consumer research and benchmarking conducted by BAI reveals that the average deposit household still conducts 17 branch-based service transactions and holds several conversations with a live contact center representative on an annual basis. This volume of front-line customer interaction suggests two key areas of opportunity.

The first is service quality, which lays a foundation that will eventually lead to increased share of customer wallet. Second, institutions are certainly missing relationship expansion opportunities if they do not provide the support mechanisms required for front-line staff to recognize opportunities and capitalize on them.

The key idea here is to recognize opportunities. Benchmarking of retail deposit households by BAI and MarkeTech reveals that it takes four or more years before banking institutions start to experience meaningful increases in retail deposit and loan cross-sell rates. After the initial account opening event, relationship expansion opportunities tend to emerge slowly as a large portion of consumers' financial services purchase decisions are driven by a specific need that arises due to life stage changes. Consumers are not necessarily motivated by cross-selling offers from their financial institutions. A key to relationship expansion, earlier research suggests, is to provide customers with solid, reliable service quality and to use service transactions, when appropriate, to understand customer needs and educate customers about the options available to them.

On an overall basis, banking executives surveyed in The Front-Line Factor view cross-selling as very important, but are generally not satisfied with their results. Across banks of all asset ranges, executives express some common execution challenges, most significantly, the lack of management oversight and measurement mechanisms of cross-selling programs. Fifty-eight percent of the bankers surveyed rate their ability to track the performance of their cross-sell programs as poor; another 26% rate their performance as only average. The application of purchase propensity and trigger-based modeling that predicts the next most likely product a consumer may purchase was also a key challenge, with 71% of bankers giving themselves a poor grade. The use of such modeling is commonplace among banks with assets greater than $100 billion, spotty at banks below $100 billion.

Relating to oversight and measurement, a principal challenge experienced by banks of all sizes is the ability to measure the effectiveness of these models and ensure that cross-sell leads sent to the front-line are acted upon in a timely fashion, if at all. The research indicates that bankers recognize the importance of these challenges and are taking steps to address them.

From a technology standpoint, 56% of the bankers who completed our survey indicate that their institutions plan to invest in sales tracking technologies within the next year. Several of the executives we interviewed also indicate that they have active programs in place, or under development, to prioritize leads based on their profitability potential to improve the success rate of front-line staff and increase their motivation to use the leads.

Many banks say they are prepared to make technology investments to assist these efforts. Fifty-two percent of the banks surveyed state that investments in customer value/profitability solutions, used for the relationship management of high-profitability or high-potential customers, are forthcoming within the next 12 months. Plans to invest in these two technology solutions are evident across banks of all sizes. However, banks in the $25 billion to $99 billion asset range revealed a pronounced interest — most likely in an attempt to keep pace with the technology sophistication of larger banks.

Smaller banks tend to have larger challenges with training front-line staff to identify cross-selling opportunities and supervisory focus on coaching. In addition, particularly at smaller institutions, bankers face challenges in ensuring that front-line personnel are able to allocate enough time for proactive selling.

Retention Management

Heightened competition for consumers' banking wallets and increased consumer mobility has elevated retention management to a top-of-mind concern for banks of all sizes, as reflected in recent research conducted by BAI. Customer retention is difficult to manage because there are a multitude of drivers that prompt customers to terminate relationships. Often these key drivers are interconnected, meaning that customers decide to defect due to a combination of circumstances that build up over time. The common controllable drivers of customer attrition include service quality problems, dissatisfaction with product pricing and/or minimum balance requirements, unexpected fees, and the attraction of a competitive product offer.

In response to these attrition drivers, institutions have deployed a variety of initiatives, such as: identifying and fixing the causes of recurring service breakdowns; using attrition risk models to proactively intervene before customers close accounts; and establishing specific account-closing protocols designed to retain customers who have expressed the intention to defect. As the mass market nature of their customer bases leaves them more vulnerable to attrition, larger institutions have invested significantly in these types of initiatives. Smaller institutions are largely shunning technology-driven retention solutions and are generally opting to rely on their ability to provide personalized service and leverage affinity-based relationships with customers.

No matter their size or technological sophistication, all banks rely significantly on front-line staff to implement retention programs. Bankers in our survey recognize the urgent need to upgrade the skills set and training of their employees — 68% of the surveyed bankers stated that they needed to do a better job of giving front-line employees the tools and training required to identify and react to customers whose accounts are at risk.

While the need to develop these capabilities among staff is clear, the solution is not. Successful retention intervention requires employees who can quickly pick up on the cues of a potential defection, formulate a response and effectively communicate a proposal to the customer. How quickly? Most executives agree that attrition intervention leads, as generated by centralized modeling units, must be acted upon within 72 hours, or it's generally too late. That's a lot to ask from otherwise occupied branch employees.

An Opportunity for Banks

Execution of relationship strategies is feasible for many institutions, but only if it is aligned with strategy and correctly supported by a variety of critical front-line programs and activities. Our research suggests that vital investments in the three primary domains of front-line relationship management activities — new account openings, relationship expansion and retention management — should be prioritized to directly support an institution's top strategic growth initiatives.

Very few institutions will be able to simultaneously invest in all three domains, so competitive and market realities may dictate that some activities be valued more than others. For example, institutions that are based in mature, slow-growth markets may opt to prioritize relationship expansion among the existing customer base and invest in the related front-line cross-selling capabilities. For institutions that operate under different market dynamics, prioritization of new household growth and new account opening competencies may be more appropriate.

No matter which strategy or domain is selected, The Front-Line Factor shows that the vast majority of institutions share a common set of tactical opportunities to improve front-line relationship management. For banks that focus on the new account opening domain, the key is process improvements, as most institutions tend to be relatively more comfortable with the skill set of their front-line staff. The top performance improvement priorities across banks in this domain are the consistency and systemization of customer profiling, as well as the storage of this information for future relationship management efforts. Establishment of new customer onboarding processes is also important.

In the relationship expansion and retention management domains, certain process improvements in the areas of sales performance tracking and the use of cross-sell and attrition models are clearly warranted. However, the research also suggests that banks focus additional attention on the capabilities of front-line employees and supervisors. The need for additional staff training to identity customer retention and cross-sell opportunities is important, as is the need for front-line management to allocate more time to coaching and training.

Retail banking is a people-oriented business, and will remain so for some time to come. This point is driven home by the fact that 90% of the banking executives participating in our research state that their institutions are attempting to differentiate themselves via relationship banking or service quality. These value propositions are founded upon the institution's ability to build trust based on a reliable, service-oriented delivery model that provides front-line staff with the capability of responding to customer needs. While technology and process can facilitate that objective, executing on that vision depends on front-line employees and their immediate managers. Quite simply, those who execute better will win.

We believe such achievements will increasingly require senior and mid-level managers to perform the type of assessment prompted by The Front-Line Factor: understand your front-line sales and service strengths and weaknesses and then determine your priorities for allocating management attention and financial resources to improve performance.

Mr. McAdam is a managing director and Mr. Nagarkatte a director of research at BAI.

Copyright © 2004 by Banking Strategies, published by BAI.

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