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INTRODUCTION
In this chapter, we discuss just a few of the considerations involved in implementing CRM in investment banking or financial markets. Although nearly all of the rest of this book focuses on retail financial services, we thought it appropriate to cover briefly some aspects of a research programme focusing on investment banking and financial markets CRM that was being undertaken at IBM at the time of writing this book. In the past few years, insurers and retail banks have made most of the running in CRM. Increased competition and shrinking margins have forced them to deploy CRM strategies and technologies in order to respond to the needs of shareholders and clients. More recently, investment banks have begun to realize the intrinsic value of CRM. The principles of CRM hold true for this sector. Just because investment banking is a business-to-business application does not take away the fact that recognition of the client is still key for CRM success. However, most of CRM in investment banking is still work in progress. It is a missed opportunity since it offers banks a chance to rethink their fundamental approach to client management, to redesign their coverage strategies and to use technology to bring this about.
Better client management is no longer optional. In nearly all business-to-business markets in which clients are as large as, or as in this case, often much larger than their suppliers, the latter must respond quickly to pressures from their clients to improve client management processes and systems. Banks can no longer rely on an information advantage over clients. Clients are better informed than ever and are hence more discriminating. Awareness of the full spectrum of what can be offered (and at what price) leads to increased needs and more stringent demands but lower brand loyalty. To keep their clients, banks need to manage relationships with them better, for mutual advantage. Even if banks themselves are not working hard to manage clients better, through analysis, segmentation, design and delivery of the proposition, and tracking performance, clients themselves are often focusing on how to manage their suppliers to their own advantage. In particular, leading-edge clients are concentrating their business with fewer stronger suppliers that seem likely to provide them with a cost, capital and competitive advantage for their own marketplace.
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Coverage is an area of great weakness for many investment banks. They rely on the instinct and energy of their sales and research people to determine which clients to focus upon and then to win business from them. This approach which has worked for many years is now unsustainable. The marketplace is changing. Margins are constantly being squeezed. Consolidation of the sector and better information have increased transparency of internal operations. Clients expectations about levels of service and cost-effectiveness are rising all the time. Investment banking is characterized by two very different types of relationships with clients, as follows:
Share of mind relationships focus the bank on doing a few large high-impact transactions for the client. While these deals are often opportunistic, they require intense investment of time by key people in the bank so as to build strong and differentiated relationships with key decision makers. The aim is to build access and influence with the right clients within the client organization before the deal. Share of wallet relationships involve very large-scale coordination of many people, each of whom is operating separately from the others. As banks have merged and clients have become larger (also because of mergers on their side of the market) the scope and complexity of these relationships have increased. The challenge for banks is to transform individual relationships into a broader institutional relationship. There are many variations on these two types of relationship, and each of the businesses debt, equity, asset management and banking have a different view of this. A central need for client management is to align objectives across products and functions. This is hard to do. Most firms find it hard to agree a process to make trade-offs between differing product, functional and geographic objectives. Of course, CRM is not the only requirement. Two of the main determinants of business success in investment banking are client satisfaction and product quality. We believe that these two variables account for well over 90 per cent of the differences in financial results over time. CRM plays a key role but by itself only makes a marginal difference. When used to increase client satisfaction its effect is much greater. When used to make sure clients have access to the right products at the right time, its effect is greater still. However, the quality of people and the discipline with which they are managed and measured, the quality of products, the infrastructure of the bank all these have much larger impact on financial performance.
CORE PROVIDERS
As clients have merged and consolidated, they have come under increasing pressure from their shareholders to deliver higher returns. As a result, clients seek greater efficiencies from banks they regard as their core providers of services. Clients want fewer banks that will help them achieve these new levels of performance while reducing their costs and risks. By concentrating their business with fewer banks, clients hope to achieve higher degrees of control over their banks, greater accountability for results and improved transparency in financial terms. They want to see new levels of bank commitment associated with this privileged core relationship position. Clients require a tight linkage between all the following variables: long-term commitment and leading market position; geographic and product spread; ability to provide global coverage and delivery. Most clients classify banks on the basis of ability to deliver on certain criteria, in particular: 1) long-term ability to deliver results; 2) impact on the clients performance. Clients are concerned that many banks may not survive todays mergers and consolidations. Developing and sustaining solid working relationships requires an investment on the part of the client. Increasingly, clients are looking to make a strategic choice of core providers, rather than just making opportunistic and tactical decisions. They want to be supplied by banks for whom they are core clients and for whom their business is a core business. They expect a consistent, long-term commitment to market leadership. For example, clients involved in mergers or acquisitions need to extract value from these mergers or acquisitions by breaking down product and geographic boundaries, and this requires coordinated coverage from their core service providers. Global clients require consistent product delivery across geographies. The ability of the bank to execute a meaningful role in terms of geographic presence and product footprint is critical to being a core provider. Finally, in order for this to be effective the bank must provide the level of coverage and delivery infrastructure so as to make the whole process efficient, accountable and transparent to the client. More demanding expectations of core providers are forcing clients to take coverage issues more seriously. They are beginning to evaluate banks more critically, on the basis of their ability to provide them with this necessary increased level of commitment and coverage. Just as banks cover many of their strategic clients using client service teams as part of key account management programmes, many clients are creating team coverage models for relating to their banks more efficiently. Large clients are increasingly reorganizing themselves so as to achieve performance enhancements and lower costs. There is a direct correlation between their ability to achieve these performance benefits and their success in managing and integrating with their banks more efficiently.
At many clients today, all team members within the buying organization, regardless of location, require and expect the same high standard of service from internal resources as well as from their external providers. The new internal structures of many global clients involve matrix organizations with a number of people having more than one reporting line and a number of functions having global and local activities. If the 10 people at the bank covering a particular client are not organized and aligned so that they work jointly on the coverage of that client, then it will be apparent to the client. Clients want to know: how client coverage officers are assigned to them; how many clients they cover; how often they are reassigned; who will assure them of consistency of service.
Client coverage discipline at banks has moved from being an internal efficiency consideration to being driven by their top-tier clients. As a result, many banks are entering a phase of change, in which their understanding, shared knowledge and focused communication will be significant factors in the share of wallet they win. Banks that can deliver these efficiencies will command relationship premiums that will differentiate them from their peers in terms of status as well as profitability. The relationship premium is based on the banks ability to provide connectivity, communication and client focus. A core providers primary objective is to help its client achieve its strategic goals. Once a bank becomes a core provider, it must define a strategy for maintaining its position as well as for gradually increasing its share of the strategic clients wallet over time. As a core provider, a bank is permissioned by the client to present its case for adding value across a range of products, geographies and needs. Clients are optimizers and they know what a bank is good at. Banks must build a role for themselves that maximizes exploitation of their capabilities. The banks objective is to increase the level of permissioning to the point where it has influence over the buying behaviour. As a core provider the client feels that the bank is adding value. It has been permissioned to provide a service or product of which it is perceived to be an excellent provider. So, it is the banks challenge to position itself strategically in the mind of the client and maximize its share of the clients wallet. As it increases its level of permissioning its relationship becomes more important to the client and its edge against its competitors grows. To maximize this benefit a bank must: align product and coverage functions; define overall objectives for the client; measure performance against objectives; continuously validate strategy with the client.
Clients want core providers that will help them achieve their strategic goals. They need to be convinced of that. The clients perception of the deliverables and their benefits/value must be very clear. They want to be involved in shaping the deliverables. They want the provider to have formalized and definable objectives that will translate into mutually agreed deliverables. Below is an example request for information (RFI) from a global client. The information is intended to help the communication between the two parties to be more efficient as well as to convince the client of the banks degree of commitment. It would typically be sent with an organization chart describing client roles and responsibilities by product and location so that the bank knows the key decision makers as well as those that may require their services or products.
Objectives What are your critical account objectives for this year with us? What is your estimated present share of wallet with us by product or service? What would you like it to be by product or service?
NON-CORE PROVIDERS
Being a core provider is increasingly imposing levels of client commitment that may make the economic feasibility of the relationship less attractive. Increasingly, clients will be willing to remove providers from their top-tier lists if they are unable to meet these challenges with more than the traditional lip-service. For those left out, this will mean that their relationships and role will increasingly come under pressure from top-tier providers who can provide a similar product or service. Clients expect from their non-core providers: 1) focus and excellence in a narrow product set; 2) superior execution, pricing and value. In order to remain competitive, non-core providers need to achieve the following: lower cost of coverage than their competition; very competitive pricing; high share of wallet in a narrow product set; opportunistic cross-selling from areas of product strength.
Many investment banks have already attempted to implement CRM. This usually involves either the IT division anticipating a requirement for a system and supplying what it thinks will be the answer, or the request to implement CRM being made by the business with a broad idea as to what should be delivered but with little idea as to how to make it work once implemented. We regard both of these approaches as poor practice and likely to lead to failure as has indeed been the case with most CRM initiatives in financial services markets of any kind. Putting the technology at the heart of CRM strategy is problematic for a number of reasons, listed below.
As Chapter 31 shows, CRM system implementation is most likely to be successful when the organizational capacity for change is taken into account. Too much too soon causes confusion and distrust of the system, leading to problems with uptake. Many CRM solutions require a complete implementation for the system to be effective. This is generally too much for the organization to take and the expensive package ends up being a glorified contact management system, with few of the management information, client planning or client intelligence benefits.
streamlining the bank to meet the needs of the client; aligning a set of measures and related incentives to respond to client needs; institutionalizing the breadth of client knowledge; closing the loop: incorporating client feedback.
understand first hand client attitude and satisfaction (and the relationship between satisfaction, loyalty and profitability); understand client commitment; experience what clients experience; develop benchmarks and understand the competitive environment better.
Organizational design
Recognizing the dangers of the diseconomies of complexity, the bank adopted a matrix structure for serving its global clients, as follows.
Table 13.1 Moving to a global focus
Prior to initiative The bank was organized outside-in: first by geography, then by product and finally by client. There was a myopic focus on revenue measured from product silos in individual geographies little emphasis on crosssubsidization across products and intra-country. Revenue was the key business driver. Businesses was defined by broad geographical areas (little integration). As a consequence of initiative The bank reorganized on an inside-out basis: around client first, then by product and finally by geography. Focus became broader the bank aimed for higher growth and higher return. It looked to maximize cross-border opportunities via global clients. A balanced business scorecard was deployed to measure performance. Business became truly global: New organizational hierarchy was adopted throughout the bank. Processes were standardized and well communicated. Re-education programme was undertaken as part of change management. Products were rationalized on the basis of what was important to global clients.
Account planning
The bank has recognized the need for a disciplined approach to relationship development. It has developed an understanding of the relationship between level of effort/time expended and the share of wallet achieved. Their clients are plotted on a relationship development curve and segmented accordingly, and potential revenue can be assessed (eg they may rate as a high priority prospect or a strategic partner delivering over $1m with much more to come). This model provides the basis for further analysis, industry planning, relationship planning, activity and scarce resource tracking, and finally for deal tracking and a single integrated pipeline.
Lessons learnt
The bank learnt some simple yet powerful lessons: 1. Have a knowledge of the client at the micro-level. Understand not only the company and the industry that it is a player within (macro level), but endeavour to understand the individuals within the company, the competitive pressures they are under, their strategies and direction, their strengths and weaknesses (micro level). The bank aims to have a better conscious awareness of this than the client does. Anticipate requirement at the micro-level. Through an understanding of the client, issues can be addressed before they become needs. The bank always attempts to allocate employees time according to these anticipated requirements. Consistently deliver as promised. Aim to deliver to need and ensure delivery of what the client values, eg intellectual property, speed of response, value for money, etc. Aim to be a top-three provider. The bank believes that points 13 above give them competitive advantage. It aims to ensure that it is deemed to be one of the top three providers, since this is where clients spend most of their money.
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