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Making Complexity Manageable
BY PAUL McADAM AND RICK SPITLER
By improving proficiency and prioritization, retail bankers can take greater advantage of complex products and services at the branch point-of-sale.
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SYNOPSIS | Complexity on the front lines is a growing problem in banking, as institutions continue to multiply the tasks expected of front-line employees. However, experts at BAI Research and Novantas LLC argue that this complexity can also present opportunities for competitive advantage if handled appropriately by managers. These opportunities lie in five areas: employee hiring, retention and engagement; training, coaching and sales management; platform tools and processes; tactical prioritization; and response readiness.
Most of the largest institutions in the retail banking industry have moved to a sophisticated branch sales model that is intended to be more personalized and better able to win the customer's total business.
Branch representatives have been caught in the middle, however. Saddled with intense transactional responsibilities, they often strain to play an expanded role in resonating with customers and meeting a larger set of financial services needs.
As an example of the pressure being brought to bear on staff, BAI Research found that one major East Coast bank was fielding more than 125 branch product offerings through nine lines of business, backed by more than 350 marketing initiatives annually.
Complexity has reached intolerable levels at many institutions, in fact, fueling a vicious cycle of staff turnover and missed sales. Among surveyed executives from banks with more than $100 billion of assets, for example, 84% cited workload stress as the leading cause of front-line turnover, according to a 2004 study by BAI Research.
This is more than a process-oriented problem that can be overcome with precise analysis, as some experts have suggested. Our research paints a much larger picture. There are exciting opportunities to improve the ability of front-line staff to handle complex value propositions, for example, lessening the emphasis on defensive measures. And an entire management framework is needed for intelligent prioritization, ranging from strategy formulation to tactical sequencing at the branch level.
Leading banks have accepted that complexity is destined to persist and are learning to manage it to gain competitive advantage. To an extent, complexity is a reflection of the multifaceted responsiveness that helps the institution to win- it's better to improve the execution of the vision than to back away from the vision itself.
"The priority is not reducing complexity per se," says Richard Gold, executive vice president and head of retail banking at M&T Bank Corp., Buffalo, New York. "It is defining those elements of complexity that are most dear to the mission and then setting up branch staff to successfully execute the specific activities and behaviors with the highest payoffs."
BAI Research and Novantas LLC have identified five major opportunities for front line performance improvements that help the institution to manage complexity for advantage, including 1) employee hiring, retention and engagement; 2) training, coaching and sales management; 3) platform tools and processes; 4) tactical prioritization; and 5) response readiness. With the right management orientation, complexity is more of an opportunity to be exploited than a problem to be solved.
Product Creep
There are many factors contributing to front-line complexity at major banking companies. Some institutions have multiple product sets left over from prior mergers. Complicated investment-oriented products have been added as banks pursue the mass-affluent market for wealth management. And targeted marketing often entails new product variations, made ever easier to create and distribute through modern technology.
The result is that retail branch banking has become lopsided, with the typical suite of products and services overwhelming front-line staff. "So many front-line people are inexperienced and new to the company, yet with every passing year we are asking them to do more," says Richard Wright, executive vice president and head of the retail services division at WSFS Financial Corp., Wilmington, Del. "It is just an unbelievable challenge."
With most of the pain surfacing at the point of sale, there is a strong temptation to view complexity as a branch network production problem, evocative of structural considerations and tedious process analysis. It can be a helpless feeling in a big bank.
Our research findings, however, are much more positive and empowering. While senior management really does have to take responsibility for today's complexity conundrum, it turns out that there are quite a few levers that executives can pull to flip the issue into a positive context and gain competitive advantage.
A prime opportunity is improving the skill, engagement and tenure of front-line staff. Front-line capability is not a static factor that places a ceiling on output. Rather, it is a dynamic factor that can be significantly improved. Sports teams go to extraordinary lengths in recruiting, coaching, conditioning and motivating players because they know game plans succeed on the strength of superior execution. The same holds true in banking.
"The complexity challenge largely turns on the quality of staff, including those you acquire through mergers and those you recruit, and we approach our whole recruiting, retention and development process from this broader perspective," said Thomas FitzGibbon, executive vice president and head of retail banking at MB Financial Bank, Chicago, speaking at BAI's Retail Delivery Conference & Expo in Las Vegas last November.
A second major opportunity is improving organizational clarity on priorities. The advantaged bank understands its target customer segments and knows the strengths it will emphasize to reach them. It actively manages the branch conduit of product and marketing initiatives so that corporate priorities are reflected in the field. And it allocates resources where they will do the most good, be it by specific region or customer group.
"The goal is to work on the things that will move the needle the most," says Betty Cowell, senior vice president and group executive for retail and small business at Wachovia Corp., Charlotte, N.C. "We have to make sure the game plan is right and we're focusing our branch sales capacity on the right thing at the right time."
These two principles—proficiency and prioritization—run throughout the following five major recommendations on managing complexity for advantage.
Hiring, Retention and Engagement
Workforce composition and morale have everything to do with the functional capacity of front-line staff, and this is one of the reasons we say that cost/benefit analytics and process engineering won't overcome the complexity challenge. There's a serious human capital component to this issue, entailing important management challenges as well.
Many institutions are looking at ways to improve the recruiting and screening steps that yield the best hires, as measured by proficiency at entry, speed and degree of improvement and likelihood of staying on the job. While the banking industry has made great advances in its ability to target and acquire high-value customers, more of those skills should be brought to bear in the realm of human capital management.
"You've got to find people who can live and breathe in the branch environment and feel really engaged," says Wright of WSFS Financial.
In the new world of high-performance hiring, institutions will systematically compile employee demographic, attitudinal and proficiency-related data in electronic formats. This information will then be paired with individual performance results to derive statistically informed observations about the targeting and recruiting practices that work best, and the degrees to which factors such as compensation, screening and training can be varied to optimize performance and tenure.
Variations in employee retention also are profound. Among major retail banking companies, for example, it is not unusual to see branch employee turnover ranging from 20% to 30% annually. This turnover robs the institution of productive resources and customer relationship continuity and puts it on a treadmill of hiring and training.
Wachovia's Cowell says improving staff retention can be one of the single most important factors in managing complexity. In the early months of employment, new sales representatives typically stick with a handful of simple products. But as their tenure lengthens, Cowell says, reps become much more confident and versatile, for example in handling small business loans. "The more seasoned the staff, the better," she says.
It's also important to keep people motivated and involved. Based on a 2005 survey of over 17,000 branch employees drawn from 44 institutions conducted by BAI Research, only slightly more than a third of front-line employees view themselves as being actively engaged in their assignments.
BAI survey respondents were highly vocal about the importance of feeling they are valued members of a successful institution that is respected in the community. They're looking for trustworthy leaders who provide a strategic vision for the future of the bank and share reasons for decisions.
To meet these high expectations, leaders must first decide what the institution stands for. While big banks will need to take a mass-market approach to generate sufficient traffic for their extensive branch networks, one of the most persistent strategic problems in retail banking is the aspiration to be excellent in all things to all people. The "omni-excellent" approach is understandable, but has serious practical drawbacks in that reps don't know where to concentrate their efforts.
"By definition, if you have too many important things, then nothing is important," says Gold of M&T Bank. "You've got to look inward, and do your best to grasp the unequivocal elements of your strategy. Then you need to build a management system that focuses the organization on those defined elements."
For banks hungering for distinctiveness and a compelling formula for both customers and employees, the moral is to select two or three areas for special emphasis and build from there. Within retail banking, for example, there are five major functional aspects of distinctiveness, including 1) access; 2) products; 3) pricing; 4) service and sales; and 5) community resonance. It's not necessary to get an A+ in all five areas.
Each institution should be able to articulate its prime customers and select a corresponding blend of strengths in serving them. This chosen blend becomes the backbone of the brand, the delivery system, the customer experience and the front-line culture. In turn, strategic focus helps to create a more attractive atmosphere that inspires people to join the company, keeps them more engaged and more inclined to stay.
Training and Coaching
Even top talent requires training, coaching and sales management to reach consistent peak performance. Among the respondents to the branch employee survey conducted by BAI Research, only 15% described themselves as being highly prepared to sell, half took a neutral stance on the question, and the remainder—an alarming fourth of the group—flatly said they were unprepared.
Senior retail banking executives should take three steps to surmount this sales growth challenge. First, clarify the desired branch experience and conjoined sales model, and target the major areas where the reality falls short of the vision and lags key competitors. Second, improve the linkage between training, coaching and sales management so that reps better understand, remember and consistently demonstrate winning front-line behaviors. Third, systematically monitor branch sales behaviors, activities and results, and use the feedback to correct problems and sustain momentum.
Once the institution has identified the key sales behaviors that fulfill its chosen branch experience and competitive position, a disciplined sales performance system is needed to bring the desired experience to life with customers. This system includes training, coaching and sales management.
Many staffers quickly forget their training, often a reflection of too much material being thrown at people all at once. Novantas has found that a more effective approach is to pace courses over the year, dividing the content into smaller chunks that are more easily remembered and reinforced.
Training should also be tailored to accommodate major differences in the competitive, economic and demographic traits of each major market. The staff and training requirements are different for a high-end outlet in a luxury residential and shopping area, for example, than for a supermarket branch serving college students.
Next, to support improved training processes, coaching should be conducted on a regular basis and include discussions of front-line behaviors and results—supported by action plans to improve performance. Without continuous reinforcement, up to 80% of training is typically forgotten within four to six weeks.
"It is critical to provide reinforcement that is both immediate and precise," says Gold of M&T Bank. "Amidst all of the competing demands on staff's time and energy, you have got to figure out ways to get people to focus on those things that management believes are most closely tied to the downstream results the organization is seeking."
A sales management system also is needed to prioritize, coordinate and manage sales activities, and assure accountability. And regular, professional evaluations of the walk-in sales experience help to assure that all of the internal effort is consistently translated into a truly winning customer experience.
Tools and Processes
Just as the military relies on its equipment for success in the field, so too do branch representatives rely on platform capabilities to cut through the moment-to-moment complexities of their assignments. Yet the common story within the branch is one of maddening delays incurred while locating and interpreting data.
Another unresolved conflict in branch banking is the separation of the front office and the back office, which often leaves branch representatives unable to complete transactions at the moment of customer interaction.
On an ongoing basis, says Wachovia's Cowell, it is important to find ways "to let technology manage complexity for you," so that reps are freed from repetitive manual tasks and can escort customers through well-polished fulfillment processes.
Prospecting tools also are in need of improvement, especially with small business accounts and high-potential households. To generate an initial sale in 10 new small business banking relationships, for example, Novantas research shows that bankers typically must make from 20 to 35 in-person visits, and from 73 to 106 phone calls. Each new account typically requires from six to 18 months of effort—a period that exceeds the tenure of many branch representatives in this era of rapid turnover.
With modern market surveillance tools, it is possible to model the small business and retail sales potential within each branch footprint and to identify key prospects within the trade area with much greater precision. This identifies the key opportunities, but then a robust marketing and contact management system is needed to unlock them.
Most banks still need to integrate their customer information systems and marketing information systems, and rare is the institution that is able to provide centralized information and analytics to front-line staff via an integrated platform.
As with many platform activities, a principal challenge is bridging the gap between activities and results. Typically within branches and call centers, managers and reps have only a rough idea of what constitutes an effective conversation for the major types of account crisis scenarios.
Progressive institutions are breaking out of this trap with a new generation of "sales playbooks" based on ongoing test-and-learn activities. The process starts with the formulation of multiple hypotheses about dialogic approaches that will best resonate with customers. Varying techniques are then rolled out in pilot tests, facilitated by desktop technology that provides prompts and also captures reps' "click-screen" inputs on conversational initiatives and customer responses.
Results from thousands of interactions are then collectively analyzed to find the most powerful correlations between actions and outcomes, providing the basis for further refinements that again can be tested. This cycle enhances the ability of the institution to discover and institutionalize the very best dialogic approaches. Equipped with salient customer information and insights gleaned from thousands of prior conversations, reps can address customer needs more directly and effectively.
Tactical Prioritization
The first step in dealing with the problem of overlapping initiatives is to recognize that all opportunities are not created equal and the branch delivery pipeline is not infinitely expandable. Typically within retail banking, a small number of products and customers account for the overwhelming majority of revenues and profits. According to Novantas research, for example, more than 80% of retail banking customer profitability is derived from just three areas: checking, home lending and savings.
Such knowledge should become part of the fabric of corporate decision making and front-line execution. At Wachovia, for example, retail banking leaders gather at set intervals throughout the year to review all current and proposed branch sales initiatives. If, say, the credit card team has a new product campaign in mind, that has to be balanced against the potential incremental profitability that can be achieved through other initiatives, perhaps cross-sell of savings accounts to checking customers, or promoting activation of home equity lines of credit.
"Along with reducing the number of things we were asking for, we shut down the independent management communication channels to the branch and brought everything through an integrated process," Cowell says. "The goal was to assure consistency of message and alignment with strategy and to reduce the sheer volume of things going out to the folks in the marketplace. It was incredible what was being sent directly to the branches prior to this process being put in place."
Senior management can also make a difference by allocating resources where they will do the most good. While branch results can be described by averages, there are serious drawbacks in trying to manage them by averages. Each region has a different inherent rate of financial growth, population migration and competitive density, and numerous other differing factors that significantly affect revenue potential.
Progressive banks are capitalizing on these differences by adjusting expectations and resources according to the scope and shape of opportunity in each major market, thereby concentrating their firepower. To prioritize among regions in a cohesive fashion, one of the most effective models is based on active portfolio management, which recognizes that each asset is distinctive and requires a distinctive approach.
In banking, Regional Portfolio Management recognizes that various locales in the overall franchise have different types of customers, economic conditions, deposit and loan growth rates, competitive mix and intensity, behavioral norms and cost factors.
The portfolio concept is essential to answer the prioritization question we hear raised repeatedly by senior corporate managers with their retail banking executives: "If we were to spend another million dollars (or $10 million or $100 million) to drive profitable growth, how and where should we spend it? On better rates? Lower fees? Better training? Longer branch hours? Saturday service? More staffing? More branches? More advertising? Should we spend it evenly across all regions? More on today's high performers? Help out the poor performers?" These are not decisions that can be made without deep local knowledge, nor obviously can they be delegated to regional management.
Response Readiness
One of the big challenges at the point of sale is that opportunities tend to surface sporadically, with acres of time passing by and then suddenly the rep may have only a few minutes to respond.
Preparedness for the golden moments has many aspects, including customer information that facilitates an initial dialogue, solution sets that are lined up with the major types of customer needs, referral systems, and processes that support major priorities, such as customer onboarding. The goal is to map the major types of sales events and assemble the products, processes and tools needed to support client needs.
Clear organizing principles are needed for best results. Some institutions organize their offerings primarily around customer stage of life—young adult; marriage and household formation; child-rearing and education; household saving; retirement saving and actual retirement. In addition, many banks prepare for major life events, such as divorce, relocation and inheritance. A third priority is responding to major transaction events, including account opening, balance transfer, problem resolution, and needs for payments products and other services.
The end result of this prioritized preparation should be strongly reflected in training and coaching. Representatives should receive clear guidance on the major types of customer needs and events that drive the highest value for the institution, and the products, information tools and dialogic approaches that will enable the best response.
"Typically, at least three-fourths of the customer needs that surface in the branch can be met with a handful of products," says Wright of WSFS Financial. "So if representatives know these product offerings quite well, and how they apply to specific customer situations, then they can effectively deal with the majority of the business."
At Webster Bank, Waterbury, Conn., "We train our staff to look for 'cues and clues'—people having children, people moving into town, people who have died," said Scott McBrair, executive vice president and head of retail banking, during a presentation at BAI's Retail Delivery Conference. "As our representatives become more comfortable talking with people about things going on in their personal lives, then it becomes easier to ask proactive questions, and help customers with their larger needs."
Another important aspect of response readiness is effective referrals. Research by Novantas on call centers shows there can be up to a 50% difference in the effectiveness of sales referrals, depending on the manner in which the conversation is redirected, the effectiveness of specialty staff and the quality of information that is available to facilitate the dialogue and complete the transaction.
"To take advantage of specialized expertise, you have to make sure there's a smooth process to hand off customers to experts, so that people don't feel like it's a complete disconnect," says Wright of WSFS Financial.
With complexity at the point of sale representing both a potential customer opportunity and a potential execution challenge, there will never be an absolute answer, hence the emphasis on "managing" complexity. But the issue need not be approached from a defensive posture, as if it's all about limiting damage. To the contrary, stepping up to the complexity challenge presents rich opportunities for improvement in front-line performance—ultimately bolstering revenue growth.
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