Five Reasons Customer Centricity Fails

Since 1995 the Partners at RedPort have been working on Customer Centric business models in financial institutions across the globe. From the biggest banks and insurers like US Bank and USAA, to mid-sized credit unions, MFI’s and consumer lenders – we have seen countless customer centricity efforts – many which were successful – and some that were not .
In our experience, when customer centric efforts fail, they fail for one of 5 predictable reasons:

1. The FI doesn’t make a hard choice on “which customers” it is centered around

2. The company does not organize around these customers

3. The company doesn’t have the P&L mindset to manage customers as the profit center

4. Technology doesn’t support customer centricity

5. The company doesn’t measure customer profitability accurately

Segment Choices: Many customer-centricity efforts start with good intentions. Management, realizing the limits of product or channel centric models decides to migrate the FI to customer centricity. However, centering strategy around customers demands a sober choice of which customer groups the company will serve – and which groups they will not. These choices can be bound by demographic or psychographic traits, profit potential, geography or other factors – but choices have to be made or the company ends up trying to be all things to all segments – and invariably fails. (When we evaluate FI’s we ask for detailed descriptions of target customer segments. Truly customer-centric organizations can answer this at all levels of the organization.)

Organizational Alignment:  Other FI’s fail to organize their structure and incentives around customers. Many supposedly customer-centric companies continue to be organized by product (especially big insurers and banks), or channel. Additionally, the incentive plans of these FI’s often are based on product goals vs. goals that have to do with customer satisfaction, revenue penetration of customer segments or other customer oriented goals. (Clear sign – if your product managers control the P&L’s you are not customer centric!)

Product or Channel P&L Mindset: One of the first things we look at when we audit an FI is how they measure themselves. If the monthly management reports are product oriented (how much did we make on the P&C business?), or channel oriented (how much did we make in our direct channel?) we can be sure that the FI is not truly managing around customer segments. Committed customer centric companies measure their success on customer metrics like customer satisfaction, profit per customer and potential value of the customer pool. (Our trick is to ask “how is the business doing”?  If the answer is “we beat our mortgage goals”, or “combined ratios are too high”, we know the FI is managing products first. If instead we hear “customer satisfaction is up”, or “we increased customer profitability 10% last year” we know the company is managing customers first.)

Product Centric Technology: The technology stacks of many FI’s are built “product up” vs.  “customer segment down”. This is especially prevalent when the scope of the FI’s offerings span traditional product categories.  Banks often use different systems to support deposits, consumer lending, mortgages and plastic. Insurers often have different systems for their P&C, Life and Health businesses.

Truly customer-centric companies have IT infrastructures that enable management of customers first. World-class customer-centric IT stacks are much more than disparate CRM systems and data warehouses tied to core product admins systems. Instead customer-centric architectures are purposely designed to enable both seamless customer interactions that cross channels and product lines, AND enable the FI to manage customer data and insights in a holistic way.

Customer Profitability: Finally, we see supposedly customer-centric FI’s that do not have a clue about the profitability of individual customers or customer segments. FI’s that are committed to customer centricity must prioritize developing accurate, granular and flexible customer profitability systems – enabling them to manage all of the levers of value including measuring the impact of channel migration, qualifying the value of increased satisfaction, accurately measuring increases in product usage.

Visit us at www.redportinternational.com

Customer Experience 2020: The Emergence of the Autonomous Financial Institution

In the age of self-driving cars, additive “3D” manufacturing processes, and self-flying delivery drones – how can Financial Institutions capture similar opportunities enabled by continual advances in sensors, artificial intelligence and autonomous process automation?

Financial institutions need deep analytics solutions that:

1.  Start by allowing the definition of the desired business goal like growing market share, decreasing customer churn, increasing profitability – or even simultaneous combinations of these strategies.

2.  Use Artificial Intelligence in a self-learning mode, to continually optimize to the desired goal.

3.  Combine Machine Learning and AI algorithms with effective data management – all linked with opti-channel delivery channels. This gives FI’s the ability to execute sophisticated, automated marketing and customer management programs, with few manual processes and minimal human intervention.

4.  Take advantage of more and more value-creating opportunities (sales, marketing, financially accretive service interactions), to be more responsive to changes in the market place, and to significantly reduce marketing expenditures.

To achieve Customer Experience 2020, FIs need to:

  1. Develop insights faster and be smarter about prioritizing their customer interactions to achieve their financial and other goals…
  2. Act on those insights right away and be more responsive to changes in the marketplace – beating competitors to market opportunities…
  3. Automatically learn from the insights and be more efficient and operate more effectively at the lowest possible cost levels…

To learn more about Customer Experience 2020 and automated FI’s download our full white paper on our main website.

To learn about RedPort’s deep learning analytics technologies click the links below:

SmartBanker: Self-Learning analytics and marketing platform for banks, credit unions and consumer lenders.

SmartInsurer: Self-Learning analytics and marketing platform for insurance providers.

Elegant FI’s

If you thought you read Excellence in the title of this post, instead of Elegance, we’re glad you did.

To us, simplicity is elegance. The most successful banks, insurers and credit unions operate with an elegant simplicity that includes a clear focus on their customers, a deliberate commitment to knowing what those customers need, and the operational efficiency to deliver the products and services customers value most. And they all possess these attributes:

  1. Clear market definition and aligned value proposition
  2. Focused, accountable distribution
  3. Data-driven product and member-management practices
  4. Highly efficient operating platforms
  5. Prudent and proactive risk management
  6. Disciplined financial structure and processes
  7. Committed leadership
  8. Sober and realistic governance.

The transformation to elegant simplicity requires vision, pragmatism, and a leadership team with the capacity to change. Once senior leaders commit to the strategic need for change, the next step is to choose the other members of the team that will lead the organizational evolution. It may not be achievable with “the people who got us where we are today”.

Look Ahead

With the team in place, define the strategic scope of the organization; that is, determine the mix of competencies, business lines, geography, and customer/member segments on which it will focus. Starting with what works now and find ways to build on existing success, to expand organically, to extend into related products and businesses, or to acquire other entities.

With the scope defined, home in on your targets. Targeted consumer segments drive deeper understanding of key needs, relationship value, and other elements of a desirable customer experience. Without segmentation, there’s no way to differentiate value propositions, to align brands and customer experiences, to fully realize the potential value of your customer base, or to determine channel strategy, branch locations, product mix, and more.

Keep it Simple

Making your organization elegantly simple will ensure it’s primed to be exceptionally effective and efficient in serving your customers. But you’ll need commitment, capacity, an effective operating model, and a realistic plan. Most important, the elegant simplicity requires senior-level leaders who are prepared to make the sacrifices and hard-choices required.

Analytics: Strategy or Tactic?

You can hardly go anywhere or read anything anymore without hearing or seeing something about Big Data. People who aren’t in banking, insurance retail, or consumer marketing could be forgiven for thinking Big Data is like the second coming of Godzilla or something: “Big Data. It’s Everywhere!” But while high-consumer-based merchandisers have been building their businesses around data for quite some time, financial-services operations are just starting to dip their toes in the proverbial water, relatively speaking.

We could engage in the philosophical debate about whether data analytics constitutes a strategy or a tactic. However, there may not be a right or wrong side in that debate. In fact, some organizations might choose to enjoy some of the advantages of data analytics as a tactical approach, even as they re-tool their operating models to make analytics more of a strategic underpinning. Here’s how:

  • Tactical approach: Let’s say you decide to track the performance of one particular product. Maybe it’s an insurance line of business. Maybe it’s consumer-loan offering. And let’s say you have limited tracking capabilities; but you can track the customer segment to which the product is sold, the channel through which it’s sold, the geography in which it’s sold, and the person who sold it. Just having that limited amount of information would enable you to know if the product was a potential winner or loser.
  • Strategic approach: Given what you learned from your tactical experiment, you may decide to extend data analytics farther across the enterprise — or at least beyond one department or a single line of business. At the far end of the spectrum, you may opt to aggregate and analyze data from all your core and ancillary systems and data sources to get a closer look at overall operational performance, to better understand customers, to recognize successful products, to see trends that lead to opportunities, to identify and recognize high-performing employees, to make better marketing decisions, to refine pricing, and to decrease losses and expenses.

Clichés are True

The bottom line is this: You can employ analytics productively as a tactic. Every time you do, you’ll learn something. But you’ll employ analytics more productively if you see your way to employing it as the strategic underpinning for operations and decision-making.

According to the cliché, you can’t manage what you don’t measure. And we’ll agree that there are metrics at least as important as numbers. But if you employ analytics strategically to monitor, measure, and manage all your numbers, many other metrics will take care of themselves.

Do You Run A Spaghetti Strategy?

A number of strategies have been employed successfully by a great number of insurers around the world — five strategies, to be precise. One in particular, has failed miserably on every attempt. RedPort encourages the use of any of the first four. We highly recommend however you don’t even try the fifth; although, it may be the one that comes most naturally.

The four that have been employed successfully are these:

  1. The customer-centric strategy organizes around specific customer segments. It accommodates the wants or needs of a homogeneous group. One need might be ease-of–access, resulting in geographically defined segments that can be served by an office location. Another might be situational: USAA serves the needs of U.S. military members deployed abroad.
  2. The product-centric strategy aspires to be the best at a particular product, and then finds many channels through which to distribute that product to markets. Specialty-line insurers have built sustainable advantage by developing products for specific, often highly technical niches that require deep domain-specific knowledge.
  3. The channel-centric strategy model aspires to be the best at one particular distribution or delivery channel. By adhering to that strategic focus, successful channel-centric insurers create strong, sustainable advantage by concentrating on understanding every aspect of a particular channel’s workings and optimizing their delivery through it.
  4. The capital-centric strategy is one of the most common in the insurance industry. If executed properly, this strategy enhances the effect of the prior strategies by focus on the business — while reducing the cost of capital. Its primary advantage is centralizing, deploying, and employing surplus capital — leaving captives to employ any of the first three models and keeping their hands off the individual operating companies, letting them do what they do well.

Despite the four previous winners, some insurers still attempt spaghetti strategies.

Organizations try to deliver multiple products through multiple distribution channels to multiple customer segments means. They find themselves with average results … at best. And they end up creating densely bureaucratic organizations that systematically lose competitiveness as more focused companies concentrate on one product, channel, or segment.

Bottom line? Make the right strategic choices — and align your products, channels and customer segments under it. You’ll create more value for all your stakeholders.