CRM Reality Check!

Three Questions to Ask About Customer

Relationship Management (CRM) Strategy
For Financial Institutions

by Sam Kilmer
 CRM Reality Check, by Sam Kilmer
CRM Reality Check!
Three Questions to Ask.
While unfortunate, many financial institution executives
equate hearing the letters C-R-M with a wince of hype.
Some technology marketers have been misleading and
others, even if well intentioned, are misguided.
Application providers claiming the next greatest “CRM
technology” provide a confusing landscape for financial
institution managers trying to assess the fundamental
question – do they have a compelling need to change the
way they do business? After sorting through the case for a
change to a CRM business strategy, the next logical
question is what technology – or more importantly, what
functionality – will enable the business strategy. Lastly,
what type of implementation hurdles are involved?
First Question: Is CRM a compelling business strategy?
First and foremost, it is clear that Customer Relationship
Management (CRM) is a business strategy. In fact, CRM is
one of many potential business strategies that underscore
the need for any financial institution to identify and
leverage its primary competitive advantage. Treacy and
Wiersema, in their widely accepted Discipline of Market
Leaders, point out that leading businesses have one of three
primary competitive advantages which are identified and
leveraged.
1. Operational excellence
2. Product leadership
3. Customer intimacy
While all financial institutions need a minimum capacity
for all three abilities, there is one of these three that should
be the discipline in a successful business. Operational
excellence typically involves both the productivity and the
scale of a large organization, allowing the benefits to be
passed along to the consumer. This is arguably reserved to
the very largest financial institutions. Product leadership is
a difficult proposition in what has become an arguably
homogenous financial products market. This leaves
Customer intimacy as the most viable primary competitive
advantage for most financial institutions. In the view of the
pre-eminent industry researcher on the topic, Robert
Landry of the Tower Group, the choice is clear.
“Banks are going to have to gain the scale to be a low-cost
producer or follow a relationship strategy aimed at
expanding wallet share”, notes Landry. Simply put, a
financial institution’s board should pursue one of two
alternative courses of long-term strategic action: Leverage a
CRM business strategy to be the custodian of the customer
or consider the necessary mergers or acquisitions to become
a large national provider. For most banks and credit
unions in the U.S., that choice makes CRM the compelling
business strategy.
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Second Question: What type of technology -- or
functionality -- do I need to implement a CRM business
strategy?
Customer Relationship Management is truly a pervasive
change in the way of conducting business for a typical bank
or credit union. It takes quite a bit of coordination –
enabled by technology – to pull off the strategy successfully.
According to Tower Group’s Kathleen Khirallah, “The
Financial Institution with a CRM strategy should be
constantly asking itself about how it handles the next
interaction with each customer regardless of the point of
delivery. What experience do we want this customer to
have?”
And, according to Gartner’s Kimberly Collins, “To develop
a CRM strategy that generates a profit, a financial
institution will have to consider a variety of applications”.
But, sorting out these applications is a challenge.
Applications in the functional areas of front-end or
platform, business intelligence or analytics, and customer
interaction management are seldom described cohesively
and in their entirety. This picture is not always painted
clearly by many technology providers, because very few of
the providers offer the technology in its entirety. It is
important to understand, however, that certain
functionality, which crosses these areas, is absolutely
required to implement a successful CRM business strategy
in a typical financial institution. Some software providers,
including Harland Financial Solutions, have packaged and
integrated these applications. But clearly, without this
“CRM base functionality”, it would be difficult or
impossible to undertake a CRM business strategy. You
might even say that without these requirements, it cannot
truly be CRM.
CRM Base Functionality
Relational CRM
Most financial institutions recognize the value of their
personal interaction time with their customers. When it
comes to positively molding the customer relationship, the
discussion usually starts with empowering employees with
better information and processes to improve the customer
experience.
Relational CRM applications focus around the idea of
interactions between employees and the customer or
prospective customer. The Front-end CRM application is
interfaced to and complimentary to the core processing
solution. Whereas core processing applications tend to
focus on financial transactions, relational CRM
applications tend to manage interactions through a
combination of contact management functionality, flexible
displays of key client indicators, and follow-up workflow.
The relational CRM application is interfaced to and
complimentary to the core processing system.
A full documentation of service and sales interactions,
referrals, follow-up, ticklers, escalated issues, and
resolutions is managed. Normally integrated with email
 CRM Reality Check, by Sam Kilmer
and the company intranet, all client correspondence is
documented enterprise-wide. Performance management
goals for both service and sales can be tracked to catch
customers falling through the cracks, improve customer
interactions in aggregate, and increase individual and
group employee performance.
Whether in branches, call centers, departments, or a
combination of these, relational CRM applications
empower the employee to proactively deliver a consistent
and always-improving experience to the customer. Since
they tend to have a large number of in-person interactions,
community bank and credit union executives usually have
this functionality in mind when discussing CRM. Be aware
that with a fully mature CRM business strategy, customer
expectations are increased and, therefore, relational CRM
applications become mission critical. Successful
interactions become as important as successful transactions
in day-to-day operations.
Analytical CRM
To proactively manage customer relationships, there is a
critical need for information about customers, which is not
generated natively in front-end contact management
applications or core processing environments. Usually, this
intelligence – routinely stored in batch-oriented MCIF
systems, profitability systems, data marts, data
warehouses, or other “repositories” – has passed through
validated analytical processes which aid in decision-
making and personalizing the customer experience. For the
purposes of the Customer Relationship Management
business strategy, there are at least four analytical pieces of
business intelligence necessary: Householding,
Profitability, Demographics, and Propensity Information.
Often overlooked, a consistent householding of account
information from all sources is essential to a successful
CRM strategy in financial services. Institutional
information is often disparate and the core processing
environment might not even be aware of credit card, trust,
investments, or other information. Even if so, core
processing environments do not typically aggregate
accounts across the family household or business
relationship. Highly profitable households can appear to
be unprofitable customers and key decisions are negatively
affected with devastating results. Or, a valued money
market account holder can be mistakenly targeted as the
perfect candidate for an embarrassing offer to open a
money market account. With a CRM business strategy,
mistakes like these are not options. Householding is
mission-critical to the analysis.
Understanding the profitability of customers and the
entire household relationship, likewise, is essential. Often,
a CRM business strategy calls for segmenting and
protecting the organization’s most valuable customers.
Much like the airline industry’s gold and silver
delineations, this understanding of “valuable” must be
accurate, consistent, and appropriately used. While profit
segmentation information has historically been used for
research purposes in banking, the CRM business strategy
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often brings it front-and-center, on a per-client basis.
Calculations of revenue and costs should be client and
activity-specific and a funds transfer pricing methodology
will usually need to be employed.
Consistently refreshed demographic information, such as
age/income, presence of children, and homeowner/length-
of-residence are extremely helpful in the process of
proactively managing a customer relationship. Not to be
confused with the static demographic information captured
manually at a typical account opening, this information is
normally obtained through a validated third-party and
refreshed routinely to identify changes in customer
lifestyle. Historically, this information might have been
used for “segmentation” to categorize customers. Now,
demographics are essential to business intelligence because
of statistical modeling’s ongoing ability to create “segments
of one”. Demographics are among the most dependent
variables for statistical models that aid decisions in
financial services. In short, lifestyle information is critical
in making proactive decisions about next steps with
customers.
Lastly, information really began to take on meaningful
action with the proliferation of statistical modeling’s ability
to find propensity information. Modeling answers many
of the big sales and service questions -- Which customers
will likely buy which products?, Who will probably defect
or leave the institution?, Which unprofitable clients are
most likely to be profitable?, Who is most likely to respond
using which medium? – with total automation and with
accuracy much greater than human analysis and judgment.
This type of “artificial intelligence” is important because
the customer relationship changes so often and those
changes bring opportunities that only models can
efficiently and consistently find.
Interactive CRM
A financial institution’s customers utilize a mix of delivery
channels. Interactive CRM, sometimes called Customer
Interaction Management or Personalization technology,
aims to consistently deliver the CRM business strategy
across all delivery channels. It is the glue that connects the
analysis and the message to the different points of
presentation in the financial institution.
“CRM must be enterprise-wide and it must include your
electronic delivery channels”, according to the Tower
Group’s Khirallah. While Relational CRM applications
address the needs of employees dealing with customers, a
host of other applications usually manage the ATM,
interactive voice response (IVR/VRU), Internet Banking,
statement and mail rendering environments. Customer
Interaction Management technology provides the universal
business rules and standard messaging interfaces to ensure
a consistent and effective experience across the enterprise.
Interactive CRM technology could be viewed simply as the
organizational traffic cop. What are we going to do next
with this customer? Driven by Analytical CRM, but with
real-time contact management and knowledge of the
delivery channel being utilized at the time, the experience
 CRM Reality Check, by Sam Kilmer
is personalized with information or media stored centrally
or called at the individual delivery channels. The key point
is that the message is determined centrally and
coordinated, in real time, with other efforts throughout the
organization. The next experience at any point of delivery
will be changed, for example, if a customer responds to an
offer on another point. Customer retention, service, and
sales efforts are optimized and the results are measured for
effectiveness.
In summary, Relational, Analytical, and Interactive function
sets, working in concert with one-another and with the core
processing environment, enable a CRM business strategy.
Third Question: What Implementation Hurdles Are
Involved?
Gartner estimates that companies implementing a CRM
business strategy, to date, have spent three to five times
more on implementing the technology than they have on
acquiring the technology itself. Couple this with Gartner’s
estimate that half of all CRM implementations have failed
to meet their objectives, and it becomes clear:
Implementation is Everything.
Among others, there are three key factors that determine
the expense and success of an implementation of the CRM
business strategy: Employee/cultural issues, customization
issues, and system integration issues.
First, many CRM application technology implementations
have arrived as part of an early sales force automation
movement that has expanded its presence into a more
operational, customer service focus. In many cases, the
technology has arrived with an inherent sales tracking and
incentive-planning objective. While sales tracking and
performance incentives are consistent with a CRM business
strategy, they bring many organizational and cultural
issues to the forefront in the process of implementation.
However, CRM application technology implementations
that focus first on the customer, customer service, and
improving the customer experience can avoid many of
these cultural issues. Performance Management as a
discipline is increasingly important and, certainly,
organizations may wish to review and optimize their
compensation plans to include meeting defined service and
sales objectives. However, wading these cultural waters
take time and implementations should not be drowned by
them. The focus of a successful CRM implementation
needs to be about service first.
Second, customizing a CRM-related application,
particularly the Relational CRM application, is an iterative
process. However, for many organizations, it is an
© 2002 Harland Financial Solutions, Inc. All Rights Reserved.
www.harlandfinancialsolutions.com
Samuel Kilmer manages key alliances and relationships for Harland Financial Solutions. Sam has managed database marketing for national and
community financial institutions. He has also coordinated aspects of front-end, MCIF, profitability, Internet, data warehouse, and core processing
implementations. Sam can be reached at (888) 477-8926 or skilmer@harlandfs.com.
Page 3
overwhelming task just to get out of the gate. When an
application technology has been designed to cross
industries, fit various data models, and all screens need to
be customized, the implementation and its resources can
drag on for months and years. There is more than a subtle
difference between a “customizable” application and a
“customized” application. Banks and credit unions are
remarkably consistent in the types of interactions and
workflows they have. A “customizable” application can
take months to sort out even redundant contact
management tasks while a “customized” industry solution
can be implemented quickly with minor changes to
parameters and workflow.
Third, systems integration can be a struggle without either
the right resources or the right support. A solid
understanding of the connection between core processing,
Analytical CRM, Interactive CRM, and Relational CRM
applications environments is absolutely critical. Some
providers have much of the systems integration complete
which can minimize both time and resources. This
approach to implementation can have the effect of inverting
the Gartner estimate where implementation costs can be a
fraction of the technology acquisition costs.
Ultimate Reality: CRM is Compelling, Can Be Practical,
and Can Be Mission-Critical
Financial institutions are discovering the compelling nature
of the CRM business strategy. Protecting valued customers
is synonymous with protecting future earnings as an
alternative to being acquired or gaining massive scale.
Solutions providers are beginning to make CRM a reality
by leveraging both new and existing applications
technology, packaging and integrating them, and bringing
implementation costs down to a fraction of the costs of
acquiring the technology. Systems integration and support
will continue to be an ongoing priority.
Customer Relationship Management business strategies are
coming of age in larger organizations at a time when they
are now being born in credit unions and community banks.
According to many industry veterans and some weary
consumers, it’s not a moment too soon. Disconnected
efforts within financial institutions are a barrier to
maximizing and protecting profitable customer
relationships. Without a clear CRM strategy moving
forward, there will be a dilutive effect on a financial
institution’s ROA. As organizations are introduced to more
realistic means of implementing technologies and as
consumers truly begin to see tangible benefits, the CRM
business strategy will be as pervasive in the financial
services industry as it has become in so many others. Only
time, and a review of shareholders reports, will tell.