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Dynamic customer environments demand new capabilities from banks

This article appears in the issue December 1998 [Volume 7, Issue 13]

With the demise of the Glass-Steagall Act, the effects of increased competition from non-banks is forcing banks to find new ways to do business. One obvious strategy is to acquire as many customers, channels and products as possible, resulting in the unprecedented merger mania that has swept the industry. Each new merger tops the last in scale and complexity. When it is over, most banks will either be one of a few big "financial supermarkets" or a boutique that serves a unique customer set. The products they sell might be developed in-house, or they might be sourced from other financial services vendors. Ultimately, we expect the customer to win.

With all these new customers, channels and products, the obvious question is, "How do we get the right financial service product to a customer through the right channel?" Although most of this is no surprise to bankers, a few important themes keep surfacing.

Banks have to know their customers, what they want, when they want it, and find a way to get it to them. The cost of switching banks has dropped too low to rely on it to anchor customer loyalty. There are plenty of new, tough competitors like Charles Schwab, Intuit and Microsoft who are prepared to snap up any customer who starts looking elsewhere for the right product.

If channels cannot cooperate effectively, the "supermarket" advantage is lost to the cute little boutique down the street, where service comes at a premium, but where customers appreciate that "at least they know who I am."

Product development and servicing have to be rigorously efficient and flawlessly executed, because the margins people are willing to pay are dropping while customers are migrating to other providers for new products. The mortgage loan industry is a great example: for the most part, banks have ceded the mortgage franchise to lower cost mortgage brokers who are able to source a dizzying variety of products.

We have actually been working with our clients to develop these capabilities on strategic, organizational and technological fronts. They seek our assistance because of the experience we have demonstrated dealing with highly complex and dynamic product environments. The work is far from over.

Technology can be a tremendous help, but there are no magic bullets. The business community has to be prepared to learn how to use the new tools, and new ways of doing things will need to be developed. Data warehousing is a good example: most banks have data warehouses, but few have succeeded relative to the cost. Product and channel managers are not measured by the customer data in the data warehouse, even when that is the best source available of margin and profitability information. Until those quantitative measurements are the source of success, data warehousing will continue to be an auxiliary source of information, instead of the core of database marketing and performance measurement.

Give people who run channels and product groups a way to cooperate and share information

For any bank desiring to remain competitive and flexible, a "knowledge infrastructure" is an essential platform development initiative. Knowledge management is about knowing what you know, and knowing how to get that information to the right people at the right time. The principal barriers to managing knowledge lie in organizing people in the front office to learn about opportunities and address them. E-mail is too primitive for this; the intranet is an essential tool for this problem, but it can't be just a big card catalog. An intranet has to provide tools to help people organize themselves quickly around a specific topic, figure out what action to take, then track their progress. Integrating the intranet with document management can help you organize and care for your documents, but documents won't be used if people can't find what they need, when they need it.

Achieve E-operations

The cost of moving paper around can be dramatically cut by restructuring back office processing around electronic transactions: image processing is really only the catalyst for a whole host of improvements. Paper isn't going away for a long time yet, so it is necessary to learn how to smoothly handle items and exception processing that might start as paper, image or electronic transactions. Integrating the various systems necessary to convert exception processing to an "e-item" basis is a good place to start. Once you've learned how to handle the information, operations in back office processes can be improved with workflow, but the real added value from workflow only comes after you've migrated to "e-items."

Improve product development and servicing

The banking environment and the product landscape are changing very rapidly; only a market-style approach will allow banks to adapt quickly enough. New customer needs and product concepts can be accommodated by sourcing products from other organizations. XML and object technologies provide a good way to describe transaction content and exchange information securely without the tremendous overhead of Electronic Data Interchange (EDI), and without conceding interchange formats to groups like Microsoft and Visa, who are masters at driving competition through domination of the standards game.

A world of ever-finer segmentation and shiny new retailing concepts requires quick response, and people have become accustomed to the frantic pace of "Web-years"; if it takes a year to put a new concept in front of the customer, you lose. A new product must be delivered through any and all of your channels; thin-client architectures can be the key to providing timely systems support with minimal changes between channels such as the Internet and the ATM. Mainframes are arguably still the fastest, most economical way to process huge numbers of transactions, but they're not set up to be the quick change artists that customers demand.

The banking industry is being reassembled into a new form, but no one really knows the shape it will take. We can be sure the customer will expect a higher degree of service at a lower price, and the banks that tie technology initiatives to specific business objectives which address dynamic customer demands will see the greatest return on their efforts.

About Pyramid Consulting Group

Pyramid Consulting Group is a consulting and technology partner that specializes in knowledge management, digital commerce and human capital management solutions that support strategic business initiatives. Pyramid is an expert in building solutions for the Securities and Banking industries. Pyramid understands that the ability to leverage technology for better client service is critical to ensuring success

Pyramid is part of Nextera Enterprises, L.L.C., an organization of specialized consulting firms dedicated to helping clients increase their performance by taking advantage of the latest developments in business strategy, high performance business processes, the management of human capital and the utilization of information technology.


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