The issue of alternative delivery systems is among the hottest in the business these days. We have redefined "motherhood, apple pie, and Chevrolet" to include "alternative delivery."
How can one quarrel with such a noble concept? After all, alternative delivery systems will enable us bankers to turn our antiquated branch networks into an efficient network of offices much more like Merrill Lynch than the stand-alone buildings we have today.
Further, alternative delivery will help us turn the 70% of our customers on whom we lose money into winners. All it takes is to convert them to a totally electronic delivery mode and change them from multichannel users and "service hogs" into efficient users of our electronic delivery mechanisms.
No one can disagree with such infallible logic. However, the hitch, as always, comes in execution.
Alternative delivery systems are indeed a critical component of the bank of the future. Although there is disagreement as to how fast our customers are changing, one thing is certain: They are changing, and will continue to do so. Anyone who has young kids knows that the last two generations consider machines friends, not alien life forms as so many older people do.
But many banks have not successfully tackled several critical issues in implementing alternative delivery systems. Among those issues:
*If all customers migrate to alternative delivery, what will happen to the branches? How will we sell to our customers if they never show up at the store?
*If all customers are on alternative delivery modes, how do we differentiate ourselves from the thousands of other providers over the impersonal Internet? Would the winners be only those who can manipulate data the best?
Beyond such philosophical questions lie more mundane issues which must be addressed. For example:
Many of us are in a mad rush to build alternative delivery systems. Our ATM growth is explosive, and every bank worth its salt is establishing PC banking and phone banking, or at least is planning to do so.
Have you considered that we are simply layering one delivery system upon another, creating duplicate networks? Branch managers should have to demonstrate that their ATMs are fully utilized before they can hire another person at the branch. But most banks are building the branch staff and electronic delivery systems concurrently, creating two cost structures instead of one.
Pioneers of customer migration charged for using a live teller, and that caused huge growth in their ATM use. But though many tout the program as a great success, few have focused on how many customers have been turned off during this campaign.
Also, few have explored whether increased use of alternative delivery use has been accompanied by fewer routine transactions at the branches - yet another critical measure of the success of the program. Pure volume growth does not give sufficient information as to program effectiveness.
There are many lessons to be learned from those who to pioneered these uncharted waters and wound up on the "bleeding edge" of customer migration into alternative delivery.
As you plan your own strategy, it is helpful to clarify the following:
What are the exact goals of the program? Pure volume growth of ATM, phone, and PC use is not an effective goal, since it simply encourages service hogs to move from one expensive delivery channel to multiple uses of another.
How will pricing differentials truly affect the customer base? Should there be a cost to use of alternative delivery beyond certain use levels as well?
Do you want to use positive or negative stimuli to encourage the customers to migrate? There are pluses and minuses to both; the program needs to be consistent with your own culture and service posture in the marketplace.
Have you defined "success?" Do you have the measurement system in place to quantify it and track along specific measures?
How will you create differentiation over the alternative delivery channels?
How will you encourage customers to still visit the branch for possible cross-selling activities?
These and many other questions should be answered before activating a migration program.
Though alternative delivery systems are an integral part of our future, a migration program can have many negative side effects. Think your plan through carefully to ensure that you achieve the objectives you set out to reach while minimizing unpleasant surprises along the way.
Ms. Bird is chief operating officer of Roosevelt Financial Group, St. Louis.
