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 the 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 the 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.

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