A well-designed and well-executed customer relationship management program is the single most effective program for retail banks to increase customer relationship profitability. So why has CRM become a name for programs that fail to deliver conclusive results, are too expensive, and fail to focus the organization on delivering measurable improvements in relationship profitability?
Consulting companies are promoting large investments on infrastructure and strategy development related to CRM. In turn, banks are investing in large consulting engagements, and installing leading-edge customer contact platforms, decisioning engines, and data-warehousing projects.
These efforts are misguided. Instead, banks should be setting up a coordinated group of small, tactical initiatives for acquisition, retention, cross-selling, account management, origination, channel optimization, and customer service - initiatives that create real change in the banks' customer management processes.
Consider the following real examples, drawn from retail banking over the past two years:
- Bank X, a top-eight retail bank managed as a group of separate geographic institutions, establishes a bankwide CRM program. The program starts with a large strategy consulting engagement with a 15-person team from a major CRM consultancy, which conducts a vision, strategy, and gap analysis. Even though the consultancy has capable, experienced consultants who do what they said they would, the bank is dissatisfied and decides not to move forward with any consulting company for Phase 2 of the program.
- Bank Y, a top-five retail bank, initiates a CRM pilot to demonstrate the value of advanced customer management approaches for increasing customer profitability. A major component of the initiative is the purchase of an industry-leading decision engine that will be integrated with the bank's customer-contact platform. The initiative gets bogged down with the integration of large, complex customer management systems, and never shows the power of using customer information to drive interactions and to increase retention and profitability.
- Bank Z, a large regional bank, starts a CRM program with a focused, short-term trial that brings together strategy, assessment, and tactical execution. Phase 2, however, is a large technology initiative to replace the bank's proprietary customer contact platform with state-of-the-art commercial software. When the project runs into performance problems, all customer management IT resources are directed to the project, delaying other customer management initiatives that could improve relationship profitability.
What do these examples have in common? In each case, large infrastructure and/or strategy development initiatives dominate the banks' CRM program.To create lasting impact, a CRM program must focus on executing a coordinated set of basic tactical initiatives. A coordinated CRM program has four major components: Active support from the head of the organization; program leadership from different parts of the bank; an enterprisewide view of the customer; and a common measure of profitability.
The real work, however, is executing tactical initiatives that require data access, customer analytics, program development, channel integration, feedback, and learning.
Every CRM initiative will touch each environment of the bank's customer architecture - data, decisioning, customer contact, back-office system, and reporting. It is implausible to require major infrastructure improvements prior to initiating a CRM program, since technology improvements are associated with the best practices in CRM - data warehousing, decisioning engines, campaign management systems, customer contact platforms, e-commerce, market automation, etc.
A well-designed CRM program will have short-run returns and can, in general, be delivered effectively using the bank's existing infrastructure. The program will consist of initiatives that typically fall into the following categories: Outbound direct marketing; inbound cross-sell; customer retention; credit underwriting; asset account management; liability account management; collections and recovery; and channel optimization.
Every CRM initiative is based on executing a closed-loop process involving variations of the follow steps:
Data access. Accessing all available customer information to create a multi-dimensional view of customer behaviors and attributes.
Customer decisioning. Analyzing customer data, building models, and developing business rules to drive customer interactions.
Customer contact. Delivering customer actions consistently across multiple customer contact channels.
Continuous improvement. Reporting, analysis, experimental design, and learning to improve programs based on customer response behavior.
The dirty secret of CRM is that 80% of customer management is labor intensive, requiring experienced analysts, developers, and managers. It isn't glamorous, doesn't get a high profile, isn't particularly strategic, and is often seen as low-level grunt work. But that's where the real returns will be found in retail banking.
Mr. Schneider is the founder and chief executive officer of Sagitta Consulting, a customer management consulting firm in Blue Bell, Pa.
