Customer-centric business models

14 October 2013

Edwin Sim looks at financial industry customer-centric business models.

Recently, several financial industry clients mentioned that everyone is implementing new customer-centric business models that are integrated around customers’ specific needs.

Traditional financial services models in Asia, they said have been structured around internal product and service groups (or silos) that are organization-centric.

Most innovations were inevitably launched and maintained by each silo, with its own sales and distribution models, technology and infrastructure.

This model prevents financial institutions from understanding across the organization which products and services customers purchased, used or needed.

Last week, I ran across two recent publications, one by McKinsey and Company, “Retail Banking in Asia – actionable insights for new opportunities,” and the other by PwC’s Financial Services Institute entitled “Getting to Know You: building a customer-centric business model for retail banks” that go a long way in explaining why many cutting-edge Asia Pacific financial institutions are adopting customer-centric strategies.

Customer-centric strategies

Implementing customer-centric strategies focus on three critical elements: breaking down product and services silos, understanding individual customer’s needs and enhancing their experiences and interaction with the financial institution. 1

To promote customer-centric cultures within their organizations, many financial institutions are also restructuring incentives.

“The objective is to better understand customer behavior and needs as well as the organization’s profitability drivers.”

The main competitive objective is to deliver consistent high-quality services. Each of these elements requires sound customer analytics and a customer-focused process improvement approach.

Why customer-centric focus?

After the recent crisis, many financial institutions worldwide began saying they were increasingly making customers the center of their business models.

Being customer-centric means more than greeting savers at the door – it’s a deeper level of engagement, particularly in Asia.

In today’s fast changing business environment, customer expectations for service levels, advisory quality, and integration of channels are rising. Overall customer loyalty is also decreasing.

According to PwC, customer-centric business models lead to greater loyalty, higher cross-selling, and lower customer attrition, all leading to more revenue and profits.

Many financial institutions especially banks and insurance companies are embracing the difficult changes in organization, technology, and compensation required to dismantle product silos and become world-class customer-centric organizations.

PwC notes that rather than investing in high advertising volumes, banks are “contact- optimizing”. The key to successful contact optimization are programs and processes that help financial organizations more clearly understand their clients.

What is customer-centricity?

A customer-centric business model allows financial institutions to continuously understand how best to restructure channels, processes, and products tailored to meet the different segments’ needs.

In customer-centric models, customers who want to open accounts, work with the staff to identify their needs and complete a single application form for multiple products, while loyalty programs take the full customer relationship into account.

Channel-or product-centric models require each department to push products and services and customers

Assess current positions

Banks should thoroughly analyze current positions through customers and competitors’ perspectives, including seeking answers to the following questions:

What are the most important decision factors—convenience, service, pricing, customer orientation, and relationship—for customers to start a relationship and then to deepen their links?

How do customers perceive the financial institution and it main competitors on these dimensions? External market research must be used to answer these questions. The staff at various levels in the organization will also be asked the same question to compare external and internal perceptions.

Key goals in a model customer-centric framework

According to PwC, in order to effectively create an enterprise-view of all customers, financial institutions must integrate data across all channels.

The key goal is transitioning from a product-view to a customer-view of operation.

Financial institutions must also align incentives with organization-wide value-maximization rather than rewarding individual business units for revenues or volumes generated.

Creating enterprise-wide view of customers

(1) Breaking down silos

An enterprise-wide view of customers feature products and services built around a customers’ specific needs

Today, financial institution systems must meet a customer’s 24 hours a day, seven days a week expectations. They are now demanding personalized services, and the organization’s systems must continuously gather information across product lines, distribution channels and internal business divisions to create up-to-date, integrated customer records.

Employees throughout the organization will then have access to the same enterprise-wide view of the customer that enables them to meet their specific needs quickly and effectively.

These on-going data integration changes are long-term time-consuming processes. It will not be simple because it requires a thorough evaluation of integration objectives, existing IT systems and security requirement and continuous software realignments.

(2) Realigning employee behaviors

As part of the overall transformation, financial institutions must continuously realign employee behaviors by modifying the organization, incentives and reporting systems.

They must have the skill sets and propensity to enhance the organization’s ability to deepen customer relationships through sales or communications abilities.

Employees will also experience on-going training that teaches them how to recognize customer life-cycle triggers and suggest relevant products and services.

New communications and reporting strategies must reinforce a customer-centric focus. Leadership messages must be consistent, straightforward and frequently heard by both front-line and back-office employees.

Perhaps most importantly, performance metrics now include measures of customer satisfaction and profitability.

(3) Understanding customers

A most critical customer-centric business model goal is ensuring that the organization fully understands its customers and their activities throughout the organization.

Over the long term, the systems should capture and analyze data across channels include call centers, branches or social media.

With this information, the organization will be able to base product development and pricing decisions on maximizing total customer value rather than individual department sales volumes.

The key objective is clearly defining organizational goals as well as identifying the customers they are preparing to serve both now and in the future.

(4) Creating the right culture

Finally, a financial organization’s culture must encourage enthusiastic pro-active responses to customer needs and wants.

They must strive to be the best-in-class customer centric financial institution by making customer satisfaction a corporate key performance indicator.

Ideally, customer-satisfaction scorecards should be published across the organization and be sources of pride. All unsolicited feedback will also be analyzed and the organization will strive for real time responses to critical issues and complaints as a normal part of its culture and DNA.

1 Getting to Know You: building a customer-centric business model for retail banks, a publication of PwC’s Financial Services Institute, 2013