When Ken Thompson examined Wachovia Corp. in 2002 in the wake of the First Union merger, he saw a banking giant that was missing opportunities.
The Charlotte bank had strong distribution, a huge brokerage arm, and a healthy product line, Mr. Thompson said in an interview, but by not fully exploiting its customer base it was losing obvious opportunities to develop wallet share.
So Wachovia created a referral system called the Wachovia Client Partnership through which, by rethinking its incentive program, it began looking for cross-divisional cross-selling opportunities.
"I realized that, while each unit in each silo was doing a good job, we were not doing as good a job as could be done," he said. "We were not putting customers in the right delivery channel, and we weren't making all of our products available to all of our clients."
In the past three years, Wachovia has moved 50,000 customers with their accounts into channels more appropriate for them. And Mr. Thompson said added revenue attributable to the partnership platform will be $600 million to $800 million by 2007. It has generated an average of 1,200 "warm leads" per month this year, up from 860 a month in 2004 and 320 in 2003.
Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP, said Wachovia Client Partnership is probably the best referral program among the banks he covers.
"I think a lot of banks talk about cross-selling without having a specific plan," he said. "I think Wachovia has the advantage of being best-in-class in most businesses, and that makes cross-selling easier. They have the distribution system, a thought-out plan, and a strong track record."
Geoffrey Bobroff, the president of Bobroff Consulting in East Greenwich, R.I., said Wachovia's revenue expectations illustrate that the program is working.
Adding $600 million to $800 million of revenue "is a lot of money for cross-selling packaged services that tend not to be that high-revenue individually," he said. "But this isn't just about the initial revenue. Wachovia is also driving home to its customers that it is the place to come for solutions."
However, Richard Bove, an analyst at Punk, Ziegel & Co. who covers Wachovia, said he thinks the revenue target is too modest if the company really believes the program can be successful.
"For a $500 billion bank, $800 million isn't a lot of money," he said. "If they want to make an impact with a cross-selling program, they will have to get five to six times that amount, which is also doable."
Mary Mack, an executive vice president and director of Wachovia Client Partnership, said the revenue estimate appears modest because the new cross-selling platform is in addition to cross-selling initiatives within Wachovia's business units.
"We wanted to broaden our radar screen and look beyond the typical and expected cross-selling opportunities," she said. "This is an aggressive goal on top of everything else."
Wachovia's wealth management division introduced the program in April 2002 as the Wealth Client Partnership to increase wallet share by cross-selling to investment clients. The program assembled executives in each market from Wachovia's general bank and the wealth management, capital management, and corporate and investment banking groups to exchange leads to the wealthy clients each group had.
The program was tested in Charlotte and Jacksonville, Fla., and boosted assets under management by $140 million in those two markets - a 50% increase - by December 2002. Wachovia wealth management then launched the program nationally.
"There was a lot of obvious low-hanging fruit with our affluent customers," Mr. Thompson said. "We generated assets by shifting thousands of wealthy customers out of the bank branches and into the wealth channel."
The program also was expanded from the high-net-worth channel bank-wide as Wachovia Client Partnership in the fourth quarter of 2002.
Ms. Mack said that, in order to work, the program needed both carrots and a stick because "there is nothing in" the traditional cross-selling platform to reward cross-divisional cross-sales.
"This is the hardest area to penetrate," Ms. Mack said. "We are asking people to look outside of their line of business and refer customers to another division. This is not something that they'll generate revenue from. This is business that someone else will generate revenue from."
Wachovia Client Partnership created a broad incentive program that is integrated with preexisting cross-selling plans for each line of business. For example, financial specialists in retail bank branches get revenue credits for referrals in the same way they would get credits for selling a product themselves. Revenue credits earn cash incentive payments.
(To qualify for credit, the referral must be accepted by the receiving line of business, that is, not rejected as unqualified.)
Professionals in Wachovia's wholesale bank, corporate and investment bank, and wealth management division receive their incentive payments annually. Meeting Wachovia Client Partnership referral goals is a criterion for incentive payments.
On top of this, restricted stock awards are available to employees who demonstrate outstanding teamwork and establish partnerships across lines of business. Each winner may receive up to 200 shares of stock. At the most recent semiannual stock awards, in August, 47 people got shares.
Ms. Mack said even more important than monetary incentives is the recognition that accompanies them.
"Ken [Thompson] writes notes to the people that succeed with this program," she said. "That is even more impactful than stock."
Stanhope Kelly, the president of Wachovia's wealth management division, said cross-divisional cross-selling has succeeded because, in addition to the rewards, performance was demanded by Mr. Thompson rather than being optional.
"For most companies, even for Wachovia in the past, this has been a program that is something nice to do or something we encouraged you to do," he said. "But now, this isn't a nice thing to do. This is something you have to do. You are given goals, and you are rewarded. But this has teeth and the support of the CEO. It has to in order to drive results."
Mr. Kelly said Wachovia tracks and publishes companywide who is, or is not, meeting the cross-selling targets.
"In addition to financial accountability, there is a personal joy of recognition and the personal threat of humiliation," he said. "You don't want to be on the bottom of the list."
Ms. Mack said specific goals are established for each manager. "If a manager or a group is not meeting goals, that is reflected in their performance evaluations," she said.
Wachovia employees can pull up a "scorecard" on the bank's intranet system ranking performance geographically, by business unit, and individually, Ms. Mack said. "They can compare how they are doing and see which markets are performing well and which markets are not performing," she said.
Mr. Kelly said it is very competitive.
"Everyone wants the bragging rights of being the leading state or leading region," he said. "It is one of those things that gets you visibility with the CEO."
Gary Tenner, an analyst at SunTrust Robinson Humphrey in Atlanta, said some other midsize banking companies have used a "humiliation factor." Ranking employees on cross-selling performance has allowed these banks to focus attention on employees who were not succeeding and "coach them up or coach them out," he said.
Ms. Mack said no one at Wachovia is getting fired for being at the bottom of the list.
The company has established "rules of the road" to clearly define which lines of business handle specific clients, Ms. Mack said.
For example, the private advisory group is designed for clients with $250,000 to $2 million of investable assets; wealth management clients are defined as those with $2 million or more to invest. Mr. Thompson said that, while shifting 50,000 customers among channels in the past three years, Wachovia has retained 98% of them.
"It was an incredible situation," Mr. Thompson said. "Even customers that were moved out of the wealth management channel and back to the general [bank] bought more products after they moved. These customers that were small in the wealth management division were suddenly large clients in the general bank, and the higher touch generated more sales."
The company does not track the program's success by examining the number of products per customer it generates. Ms. Mack said the program tracks revenue generated through referrals. The program is expected to generate $295 million of revenue this year, up from $145 million last year.
"The average wealth management customer that is being referred to the wealth management division by another area of the bank is twice as large as the typical wealth management customer," Ms. Mack said.
Mr. Thompson said that establishing Wachovia Client Partnership as part of the bank's sales culture has established a new revenue stream that will continue to generate business and ideas.
For example, he said, the partnership program prompted Wachovia's purchase this year of Palmer & Cay Inc., a Savannah, Ga., insurance brokerage and benefits consulting firm, that made the banking company's insurance arm one of the top 10 U.S. brokerages. The deal also extended the company's reach to the West Coast.
"We have over one million commercial clients, and through the Wachovia Client Partnership we realized the opportunity we had to cross-sell property and casualty insurance to these customers," he said. "Each of these people buy property and casualty insurance from someone. With the success of the Wachovia Client Partnership, we are confident that we can cross-sell this to our customers."
Empowering executives and giving them broad incentives, Mr. Kelly said, has allowed Wachovia to operate in local markets much as a community bank. In the wake of Wachovia's purchase of SouthTrust Corp. in Birmingham, Ala., last November, the partnership program has stimulated cross-selling in Alabama and Mississippi, he said.
Mr. Thompson said he is confident that a culture built on cross-selling offers Wachovia the best chances. "We are going to continue to execute," he said. "We are going to look for more opportunities for cross-selling and continue to pursue them."
