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Managing a Customer-Experience Transformation in Banking

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Regulation, fickle customer loyalties, nontraditional competitors are some of the woes of the global banking industry. As if a decade of razor-thin margins and reputation issues weren’t enough, the mix of challenges facing global banks makes it easy to see why so many now voice a commitment to improved customer experience as a legitimate differentiator in an increasingly competitive environment. The global large banks have now pledge themselves to some form of customer-experience transformation.

The benefits of such a strategy have been increasingly clear for some time across sectors and geographies. As demonstrated by some practitioners, real value resides not only in the products and services a company provides but also in the way that it delivers them.

A seamless customer experience can be worth at least as much as a superior product or efficient process—building customer loyalty, reducing costs, making employees happier, and boosting revenues significantly. One bank that undertook a customer-experience transformation concluded that the lifetime profitability of a satisfied customer willing to actively recommend the bank to his or her friends was five to eight times greater than one who had a negative perception.

Many leading banks are pouring tremendous resources into transforming the customer experience, often with mixed results. This is understandable. A customer’s banking relationship includes key journeys that range from onboarding and transacting to maintenance and problem resolution.

Effective transformations must not only recognize the complexity of these relationships but must also make a priority of the parts of the experience that matter most—in order to manage the cross-functional, end-to-end nature of customer needs rather than deferring to existing organizational structures.

Depending on a bank’s customer-experience goals, transformations can vary in regard to the time and resources required. A handful of elements are necessary to execute any program that will deliver durable impact. These include, among other things, a consistent focus on value, ensuring the customer’s central role in any transformation, and the ability to scale a program.

The following explores the ways that some banks have implemented these and other critical steps in constructing successful customer-experience transformations.

 

FAILURE MODES

Customers are central to a wave of new opportunities and challenges facing banking executives, with regulators increasingly expecting banks to deliver on more than just credit-risk management and associated capital requirements. For example, regulators around the world increasingly examine customer complaints for examples of problematic sales practices and inadequate customer service. For the biggest banks, how they treat their customers is becoming more of a political issue.

Customers’ loyalty is also at risk. Banks face an expanding array of new competitors. The entry of companies like Alipay, Amazon Cash, Facebook Messenger P2P, WeChat, and other services skilled at customer ease and experience may, in the longer term, disintermediate traditional banks from customer relationships and reduce banks’ distribution margins.

Another consequence is that players outside the traditional financial-services industry are starting to set the benchmarks for customer experience in banking. Internet retailers and other e-commerce players typically sit atop customer-satisfaction rankings. Banks often lumber in the middle of the pack.

As banks pour more effort into improving experience, we find three missteps to be the most likely culprits when efforts fall short of the mark. First, many banks ignore the need to achieve early, quick wins to demonstrate value and build momentum for change.

Teams eager to achieve dramatic impact set out to create moments of customer delight and fix pain points across all journeys or processes at the same time and are often overwhelmed by the complexity and costs of redesign.

Ironically, another way that customer-experience transformation efforts go awry is by leaving the customer out of a front-and-center focus in propelling a change effort. Despite the growing awareness of the value in superior customer experience, efforts to improve it are rarely held to the same rigor as an effort behind, say, a traditional productivity transformation. The customer’s voice is often left silent as change agents latch onto digitization to leapfrog competitors, self-service improvements, and revamped staffing models.

Finally, banks often fail to set up transformation programs with scaling in mind. In complex organizations it is easy for change efforts to get stuck in the depths of business silos, even when the objective is to create a cross-functional platform for tracking customer preferences and improving outcomes.

Efforts that don’t give customer experience the same top-team and board attention as large-scale productivity-improvement efforts, and that don’t devote the same resources to oversight and measurement, risk lapsing into cursory efforts marked by meaningless bulletin-board slogans such as “customer experience is everyone’s job.”

 

TOWARD A DURABLE TRANSFORMATION PROGRAM

Banks increasingly finding success with “at scale” transformation efforts. These efforts define the bank as a series of customer journeys that can be reimagined and applied across functions and the organization as a whole. As value is demonstrated, larger and larger parts of the organization are included.

In the early stages, such transformations take advantage of cross-functional teams that work within existing roles and in parallel with reporting structures. Over time, by emphasizing this type of agile collaboration, organizational structures can be revamped to deliver the new experiences sustainably over multiple years.

The result is a transformation that delivers early impact and momentum and an opportunity to evolve as needs change, without the disruptive shock of tearing up an operating model in the fragile, early stages.

Every customer-experience transformation following such a model relies on certain prerequisites:

These begin with a top-down, unwavering C-suite commitment to the program and to modeling the customer-experience behaviors that the organization espouses. They also include commitment to a bottom-up feedback loop to measure progress and involve employees in implementing and refining improvements.

At the center of such efforts lies a dedication to a customer’s end-to-end experience with his or her bank—that is, the whole journey rather than individual, transactional touchpoints in the relationship. In turning that commitment into a successful business strategy for banks, there are five elements critical to implementing a superior customer-journey and experience transformation at scale.

 

Hard wire customer experience to value

The financial benefits of improving customer experience are clear. Some customers see their banks as their main financial institution—a key driver of overall lifetime revenue. Many customer-experience programs are launched off the back of analyses such as this. However, few of these programs home in on where the value comes from. In addition, many do not hold themselves accountable to deliver greater profitability. Without a quantified link to value and a sound business case, transformation efforts can’t show early gains, build momentum among functional executives, or earn a seat at the executive team’s table.

To that end, it is useful for banks to apply the same rigor of value attribution to customer experience as they do for productivity programs.

 

Stay agile to ensure scalability

While the overall transformation needs to be broken up into manageable work efforts, setting up for scale should be the goal from the first day. Too often, retail banks build oversize, bespoke teams and processes to address individual customer journeys with inadequate ways of collaborating across functions and measuring progress.

The next step was to then systematically redesign and reengineer the customer journeys at scale. In order to provide senior management with a consistent way of discussing the status of journey redesign, bank managers set out to define a common “maturity” model that could be applied across all journeys.

The maturity model addressed four key gates to pass through on the way to customer-experience improvement.

The work at level one is to establish a fact base behind prioritized customer journeys, for example, understanding what truly drives customer experience and satisfaction in securing a home loan.

 

At the next level, define an overall target for improving the journey and established an “agile studio” to stimulate solution ideas and execute improvements. Such sprints take place over periods of two to four weeks. At the third level, map pain points to the underlying elements for each critical step in the journey and their importance to overall customer experience.

The end result: a set of actions that encourages early, better conversations with the customer on price. Throughout the process, a team also continuously tracks impact via customer and employee feedback.

 

Don’t forget the customer

Even banks that have thoughtfully created a flexible, iterative improvement process at times inadvertently overlook the most critical stakeholder: the customer. In the rush to digitally enable customer journeys and transform the customer experience, it’s easy to be swept away by a bias for technological solutions. But key customers can easily become skeptical about not having a human representative to call when things go wrong.

The right balance requires study, but when interactions are new or particularly complex, the personal touch is still an important differentiator of customer service. Without an explicit link to and inclusion of the customer, no transformation will ever be fully right.

Similarly, gathering and segmenting data are classic starting points in understanding customers. But data by themselves are insufficient. The most successful customer-experience efforts apply a human filter to collected information to address key questions about the motivations and wishes of customers.

Some of the successful transformations we’ve observed have included customers in their design via a variety of techniques: structured interviews, customer panels, zero-based-design workshops, and executives spending time in call centers and branches to experience firsthand what customers encounter and to shape customer-centric responses.

 

Continuously push for more value

Improving customer journeys is not a linear process. Often the first round of initiatives will not deliver the desired satisfaction levels. Moving from good improvement to great will require regularly going back to the drawing board and maintaining patience and a mind-set of always pushing for more in the interest of customers.

Such a continuous-improvement regimen can help foster a superior customer-experience mind-set. One way is at the front line, with employees closing the loop with customers on direct feedback, then using those insights to change the way the process is designed. A second benefit accrues from continuously improving service design.

Product companies understand better than banks and other service organizations that using customer insights is a way to develop a superior product. But banks have rarely invested the same way in service design. Creating a pipeline of feedback and actions, rather than simply reporting metrics, is one way to ensure that the customer’s voice is always present in any transformation effort.

 

Establish a cross-functional team with C-suite backing

Transforming customer experience in a bank requires bringing stakeholders from distribution, product, risk, legal, pricing, and other departments to the table. Regular risks include potentially conflicting agendas or timelines. Resolving these barriers requires active sponsorship from the top.

Leaders in customer experience pursue a number of approaches to overcome this kind of complexity. One way is to set up a dedicated customer-experience organization within the bank. Dedicated teams encourage a continuous focus on customer experience across product, service, and geographical silos. In contrast, trying to fit customer-experience team members seamlessly into the existing organization can wind up emphasizing narrow customer touchpoints, which reduces effectiveness. In all cases, the CEO must make customer experience a priority, and in some cases the appointment of a chief customer officer can serve to underline that commitment.

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Finance

Building a Sustainable Competitive Advantage in the Financial Market

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The prime differentiator among firms, and the heart of wholesale banking, is talent. A small subset of talent creates the majority of value in the industry, making it critical to identify, attract, develop, and retain the right people. This task has become more challenging, however, as financial services has lost some of its allure as a destination for many top new graduates.

Here is the challenge: banks must envision the future value chain for products, customers, and technologies in their sector and then pinpoint what talent they will need to bring this value chain to life. They must assess what sorts of talent their business lines need, recruit and identify the individuals best suited for those roles, align talent to the value those functions produce for the organization and maximize their productivity, and broaden their organizations’ reach to create more diverse and inclusive teams of talent.

Best-practice talent management can deliver highly cost-effective incremental value. At capital-markets firms, for instance, full ‘electronification’ combined with the astute talent management required to attract and retain the talent that remains could shrink the front office by 20 to 30 percent in the long term, while increasing the productivity, value, and rewards to the remaining team. For the largest capital markets and investment-banking firms, this combination of a smaller, more highly rewarded team could cut compensation costs by about 10 to 20 percent, realizing savings of $300 million to $600 million annually off of the average $9 billion in capital markets and investment-banking costs (3 to 7 percent).

Some banks are already reaping the benefits of investment in these kinds of improvements: in corporate banking, new skills and technology have produced significant revenue gains from a smaller staff of relationship managers (RMs), and shown gains in productivity on the order of 20 percent.

The impact of banking’s electronic transformation on talent

Automation and analytics are transforming the basic processes and economics of commercial and investment banking.

In capital markets, electronic venues will continue to supersede voice trading, shifting the source of value from traditional traders to trading platforms and, importantly, to the engineers who develop them.

Trading operations will continue to evolve from the factory floors of the past, with large, expensive teams of traders and salespeople showing little differentiation in performance, to select technology-focused staff. Automation is well underway, and will continue to reduce staffing needs for trading desks.

Off the trading floor, the automation and modernization of traditionally labor-intensive, as well as pre- and post-trade analysis and processing, will deliver significant cost savings.

In corporate banking, predictive analytics can anticipate customers’ credit needs, converting RMs’ traditional brute-force selling efforts into more targeted and timely offerings. And as customers increasingly rely on digital channels for day-to-day business, RMs will be freed from many administrative tasks and gain as much as 30 percent in time to develop client relationships.

Traditional approaches to networking and business development need to be updated to leverage the latest technology and analytics, raising the success rates and productivity of RMs, and with their returns on firms’ assets. The shift creates greater opportunity for each RM by enabling more targeted and strategic conversations, but also raises the bar to assemble the skills to leverage these new technologies.

Technology is central to the task, but as mentioned earlier, value in banking is centred on talent—as well as the firm’s balance sheet. Experience has shown that the top 10 percent of a capital-markets bank’s team creates as much as 50 percent of value, and that in corporate banking, RM production is similarly concentrated.

Research shows that current technologies could automate the work of more than 40 percent of positions across financial institutions. The reinvention of banks’ organizational mechanics is inevitable. Staffs will be smaller and more productive, and possess different talents and personal profiles.

To emerge with greater productivity, banks of all types will have to adapt their talent to the new structure, in their attitudes toward recruiting, training, succession management, and the work environment.

The gaps in banking talent

And yet, while many banks have come to realize the importance of these shifts in technology and environment to their talent management across all business segments, few have made the needed changes. Digital talent that is well versed in capital markets and commercial banking has always been scarce—and even greater challenge in the current competitive labour market.

Complicating the challenge, finance is no longer the preferred career destination for much of the talent banks so crucially need. Among tech-skilled candidates, large tech companies and start-ups are typically viewed as offering engineers more interesting and innovative problems to solve, as well as more collaborative cultures, than the command-and-control financial world. Moreover, potential tech recruits perceive a limited career path at financial institutions.

In recruiting more generally, the damage to the industry’s reputation from the financial crisis has dissuaded many students from pursuing financial careers.

Last, having stripped so many people from the cost base over the past several years, as well as reduced investment in training, many banks lack a strong internal bench of talent to develop. Thus, their organizational pyramids have become misaligned and show gaps at critical levels.

Talent management in three directions

To succeed in the technology evolution in banking, banks will need to retrain, restaff, and reorganize. They need to start by determining what skills they need, then identify individuals with those skills, and finally develop succession programs to ensure they have the right talent in the future.

Banks have many talent levers at their disposal, in the following three categories:

  • identifying talent and aligning talent to value
  • improving the productivity of talent
  • building more diverse, inclusive, and agile talent teams

Identifying talent

Banks tend to fill leadership positions with their biggest individual producers. But big producers do not necessarily make the best managers. In addition, the current generation of top producers may not possess the digital skills and experience needed to identify and act on future value-creation opportunities. Banks need a more expansive approach to hiring that recognizes the importance of digital skills.

Banks should also reconsider the practice of drawing senior producers from their industry competitors with lucrative pay packages. While proven production certainly has value, past successes may not be as relevant or lasting in a digital environment.

In recruiting, financial firms also tend to “hire in their own image”—for example, favouring candidates from a small circle of select business schools. Research has shown that graduates from a range of universities can perform as well as, and sometimes better than, those hired only from the elite schools, depending on the specific needs and requirements of function. These graduates also frequently stay at their firms longer, reducing the burden of having to replace talent in the future.

Conventional thinking about aligning talent to value holds that a business unit’s front office creates the most value. In a digital environment, however, a firm’s essential trading algorithms and platforms—and the software engineers that design them—may dominate the value equation and generate even more than its RMs, salespeople, and traders.

A talent-to-value approach assesses the value creation and protection potential of key technologies and positions, and then identifies the roles that enable the creation of that value. Further, it looks at the skills required to capture value and examines the fit of the incumbent team to those responsibilities. The last steps lead to a plan for managing talent succession with the existing team and for building and refreshing the skills of the team.

Banks that confine their value analyses to the top tiers of their organization can overlook 90 percent of critical roles. After a rigorous analysis, firms may find that in a digital world just 10 percent of their managers create 50 percent or more of the value, and yet none of them sit with the senior team. On the other hand, as many as 20 percent of firms’ managers may create little value.

Accordingly, firms must rigorously analyse value across the firm, both for business units as a whole and for their individual employees. To define value analysis at the individual level, firms can develop a detailed understanding of each role to distinguish the value expected from being present on a team (the “beta” of value from the average seat on the desk) from the incremental value attributable to unique talent (the “alpha” of the individual producer).

Taking a more expansive view of talent to value can produce impressive results: organizations that frequently reallocate high performers to their most critical strategic priorities are 2.2 times more likely to outperform their competitors on total returns to shareholders.

Improving productivity

Talent is both the scarcest resource and the greatest differentiator for banks, so they need to protect that resource and enhance productivity. We see three key ways to do so: through technology that leads to smarter decisions and more intelligent client coverage, through active coaching, and through training to supplement the skill base. Consumer banks have historically offered the following strong coaching and training programs for talent development, but such efforts tend to lag for most capital-markets firms and commercial banks:

  • Decision technology. Capital-markets firms closely track talent performance indicators that emphasize outputs such as profits and losses and sales credits. They often fall short, however, in quantifying inputs that can heavily influence overall results—such as collaboration between groups to foster cross-selling—based on firm priorities and culture.

Within ten years, digital technologies will be able to relieve corporate banking RMs of many non-client-facing tasks, giving them more time to devote to production. To maximize the opportunity to relieve their front-office staff of manual tasks, banks should invest in advanced analytics systems, such as for client relationship management, which can automatically suggest the “next product to buy” for their clients, for automation of credit decisions, and for automatic distribution of market colour and axes in capital markets.

  • Coaching. In day-to-day management, banks should implement real-time, fact-based coaching and feedback with team members, guided by clearly defined matrixes of expected capabilities for development. Managers in commercial and investment banking are at a particular disadvantage in coaching, as many have been promoted on their production prowess rather managerial mettle, and lack a coaching awareness.

In order to maximize their productivity, capital-markets banks must invest in concrete training that incorporates situations that confront managers and their reports.

Banks should also deeply assess the strengths of their top performers and use the resulting insights to develop management training. Individuals can learn where they lead or lag peers and learn practices to enhance their capabilities. Through such programs, companies across industries achieve repeatable gains in revenues of from 5 to 20 percent, driven by more effective management.

  • Training. Banks must develop a metrics-based approach to identify the attributes that generate productivity, then quantify and sharpen those skills. Leading banks are developing training and rotational programs tailored to building skills—in one case a week-long technology boot camp for all managers, in another a three-day executive training program to build collaboration.

Corporate banking RMs will need to handle a broader range of products, and in some cases assume a more strategic advisory role for clients, sometimes with CFOs and CEOs. They will need training in the products, of course, but might also require some psychology training to prepare them for the more empathetic role they may need to bring to these relationships.

Last, meetings are an ongoing pain point for most institutions and a drag on productivity. Banks can reduce the pain with a coherent set of meeting practices: for example, 45-minute time limits for standard meetings; mandatory advance agendas; discouraging attendance by multiple, similar senior managers (for example the CEO and COO of a business); and inviting only necessary attendees. Meetings need not be so frequent. Digital communications can readily supplant many face-to-face meetings, freeing the business to spend more time with clients.

Building more diverse, inclusive, and agile teams

Financial firms generally underperform in promoting women and people of colour to senior positions, in spite of strong evidence in its favour: across industries, firms in the top quartile for gender diversity are 27 percent more likely to create value, and those in the top quartile for diversity in both gender and ethnicity were 33 percent more likely to rank high in profitability.

Banks should expand their programs for diversity, and make those efforts known in recruiting programs. They should also act—leveraging data and analysis—to remove bias from promotions both in policies and practice.

Banks will also benefit from diversity through better integrating the talent in nearshore and offshore centres that are frequently ignored and untapped. Last, the foundation of agile banking operations is empowered, multifunctional teams. Increasing interactions among geographic business centres—head offices and technology and data hubs—will maximize the value of agile processes but requires careful planning and more integration among units.

  • By Matthieu Lemerle, et al

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