1 OrganizingforSuccess EdgarDunn Burg

Organizing For Success
Pascal Burg
Director
Edgar, Dunn & Company
20-22 September 2005
Today’s Discussion
We will discuss three topics

1. Organizational structures for small business cards
 What are the main options?
2. Bank survey
What are banks actually doing?
3. Insights into best practices

What should you consider when organizing for
success?
Visa International Small Business Forum 2

1. Organizational structures for small
business cards
 What are the main options?
Visa International Small Business Forum 2005 3

How to Organize?
By Product By Function
 Transaction accounts  Sales
 Deposit accounts  Marketing
 Mortgage  Operations
 Personal loans  IT
 Cards  Finance
Hybrid
By Customer By Geography
 Value segment 1  North
 Value segment 2  South
 Value segment 3  East
 Etc.  West

For efficiency (and effectiveness?), most organisations
today tend to have a hybrid structure
o rk
isk etw g
ng R N i n
eti it & h ss
Example: Australian bank k c e
ar red ran r oc
M C B P
Manager – Consumer
Personal Finance
Manager – Home
Financial Lending
Services Manager – Investment

Products
Manager – Funding
Corporate Products
Manager – Investment
Financial Products
Manager – Commercial
Services
Cards
Customer Product
Management Management
In this example, marketing of different products tends to
be distinct, but other functions are shared
ork
i sk etw g
g R N i n
ti n & s
rke di
t
nch c es
a e a o
M Cr Br Pr
Credit
Cards
Manager – Consumer Debit
Finance Cards
Personal Personal
Loans
Financial Deposit
Manager – Investment Accounts
Services Products Securities
Accounts
Manager – Home
Lending

A major bank in Taiwan Bank provides
another example of a hybrid structure
Initially Product x Function

Functional
Management
Fi
Ri na
sk nc
Br M e
an an I.T unt
ch ag
. rds ge co
Op em
- C a
rt g a
it Ac
er en er o os
at t g - M p
ion a na g er – De
s M na er
uct a g
rod ctM a na
P u tM
rod u c
P od
P r
Pr
Man oduct
agem
ent

Then migrated to three dimensions
Product x Function x Value Segment Functional

Management
Fi
Ri na
sk nc
M e
Br an I.T
an ag . nt
ch e m ards ge cc
ou
Op en C ga
What happens when t er
- rt it A
er
at g Mo po
s
responsibilities ion na er
- e
s t Ma na
g r–
D
intersect? duc M a a ge
o ct an
Pr u M
od t
Manager Pr uc
Value Segment 1 P r od
Increasing
customer Manager
value to Value Segment 2 Pr
Man oduct
bank agem
Manager e nt
Value Segment 3
Customer
Management

2. Bank survey
 What are banks actually doing?

We conducted interviews
among small business card issuers
Interviewed small business card issuers in the following markets:

 USA (2)
 Australia
 Germany
Objectives of this “mini” survey

 Understand existing organizational structure and rationale
 Organizational “location” for small business cards?
 Sharing of activities across the value chain (account recruitment,
application processing, card production, customer service, etc.)?
 Identify key benefits and limitations associated with chosen
structure

Case study 1: US issuer
 Context: <250k accounts, main acquisition channels: agent banks, and direct
marketing
 Organizational alignment: small business card group is within the credit card
group (consumer and small business), as part of the consumer bank
 Driver: maximize efficiencies and economies of scale
Internal organization: small business vs. consumer

Shared components Dedicated for small business
Current  Card production  Marketing
Situation  Transaction processing  Risk management
 Statementing  Customer Service
 Collections  Dispute management
Drivers  Economies of scale  Different expertise / experience
 Higher touch requirements

Efficient organizational structure but limited cross-selling

 Positives
 Focus on card as a product
 Economies of scale
 Profitable product
 Negatives
 Limited cross-selling - each product group is keen to maintain
ownership and control over client relationship
 Hard to obtain IT development resources for small business
projects (shared resource with consumer card products)

 Context: >250k accounts, main acquisition channels: branch network
 Organizational alignment: payment division that is separate from retail
bank and from corporate bank
 Small business card under “retail payment group” with consumer cards

Current  Card production  Marketing
Situation  Statementing  Customer Service
 Dispute management  Risk Management
 Collections
 Incentives (monthly commissions and quarterly bonuses)

 Paid to in-branch banker based on (1) sales, and (2) activation (larger
incentive)
 Paid to branch manager and district manager based on sales
Focused organizational structure but requires strong relationship with

branch network (primary channel)
 Positives
 Internal center of expertise re payment
 Negatives
 Requires setting up and maintaining personal relationships and formal
referral arrangements with all groups that can serve as a sales
channel
 Branch network owns a full P&L for all products, excluding payments
(no shadow accounting)

Case study 3: Australian issuer
 Context: <250k accounts, main acquisition channels: business

banking referrals
 Organizational alignment: small business card as part of the Card
Issuing group (under the retail bank)

Current  Card production  Sales team of 5 FTEs
Situation  Transaction processing  Application processing
 Statementing  Separate business
 Customer Service management (budgets,
 Dispute management performance targets)
 Risk management
 Collections

Case study 3: Australian issuer
Focused organizational structure but requires strong relationship

with business banking
 Positives
 Negatives / requirements
 Requires working closely with business banking and
institutional banking
 Inadequate internal mechanism to compensate for
concessional pricing or for referrals

Case study 4: German issuer
 Context: <250k accounts, main acquisition channels: direct mail,

telemarketing, conversion from consumer cards
 Organizational alignment: small business card as part of the Card
Issuing group (along with consumer cards)

Current  Application processing  Customer Service
Situation  Card production
 Transaction processing
 Statementing
 Customer Service
 Dispute management
 Risk management
 Collections

Case study 4: German issuer
Small business card as a subset of consumer cards

 Positives
 Enabled higher profitability compared to standard consumer
card
 Negatives / requirements
 Very limited customization for small business customers (e.g.,
insurance package)
 Limited penetration of the small business card opportunity

Bank survey: overall conclusions
1. The group in charge of small business cards tends to be

located with consumer cards
 Drivers: similarities in product features
2. High-level of common systems and resources between small

business and consumer cards
 Drivers: economies of scale
 Exceptions: customer-facing activities such as Sales /
Marketing, and Customer Service
3. Key issues encountered by small business card group

 Limited incentives for cross-selling
 Hard to obtain investment dollars and management focus

3. Insights into best practices
 What should you consider when
organizing for success?

At first, what do we mean
by “organizing for success”?
Its not only the organization chart

 Organizing for success implies defining:
 Roles and responsibilities across the value chain
 Incentive mechanism for sales / cross-sell / retention
 Support (e.g., coaching, training)
 Performance metrics
 Organizing for success is an on-going process, not an one-off:

 Need to re-adjust organizational structure based on:
– Portfolio growth
– Introduction of new products
– Changing customer requirements
– Competitor activities

Of key importance: the structure you select should
align with your chosen business and marketing
strategies
Strategy & Structure pulling in Strategy & Structure pulling in

conflicting directions the same direction

Examples of alignment
between strategy and structure
Example 1: focus on cobrand card (e.g., airline)

 Will create requirement for:
 Dedicated cobrand card team (at least for relationship management)
 And/or strong partnership with acquiring group (if bank also involved in
acquiring for the cobrand partner such as an airline)
Example 2: development of package (e.g., package including

current account, Internet banking, card)
 Will create requirements for:
 Mechanism to balance of revenues and costs (i.e., organizational
incentive) across the product groups that are involved
 Appropriate reporting on adoption, usage and retention rates
 Product development coordination

Case in point: organizing for success in sales
Limited success to cross-sell into small business customers
More than 20 44%

 Average small visits
business goes 23%
10-19 visits
inside their branch
15 times per month: Fewer than 10 28%
Never 5%
0% 10% 20% 30% 40% 50%
 Two thirds (64%) have never been asked about new products or services
when visiting their branch
Most cross-sales take place in the first three months

 60% of total cross-sales take place in the first month of a new current account
relationship, 13% in the next two months
 Very low cross-sales rates thereafter: lack of customer interest, or lack of pro-
active sales approach? Source: American Banker, BAI Research
What is required organizationally to be successful at cross-selling?
Most important activities for cross-selling

 Front-line staff trained to identify cross-selling opportunities (1)
 Supervisors focus primarily on coaching (3)
 Front-line staff receives the proper incentives (4)
 Management has the ability to track cross-sell leads (5)
Top 3 challenges
Lack of sales 79%
skills
Not adequate
sales training or 68%
coaching
Difficult to track 68%

activ ities / results
60% 65% 70% 75% 80%
Source: BAI Research among 400 bank executives

Industry practices regarding incentives

Variable compensation is increasing
 Average pay: 5.8% of total compensation for teller positions
 Bank A: at least 7% for platform staff, and as much as 35% for branch managers
Trade-off in speed (focus on upfront sales vs. on-going relationship)

 Bank B pays bonuses and commissions monthly or quarterly
 Other banks pay deferred bonuses to reward customer retention
Ability to track revenue (based on sales accounting system / shadow

accounting) to credit the group that generated the referral
Source: WorldAtWork, BAI

Best practices involve mostly block-and-tackle tactics

Incentive best practices
 Define clear targets in line with business strategy
 For instance, targets including a combination of sales and activation
metrics
 Design creative and clear incentive program
 For instance, limiting the program complexity
 Ensure basic management of the incentive program, including:
 Clear and timely communication
 Timely review of performance
 Collection of employee feedback for future incentive programs
Source: WorldAtWork, BAI

Finally, a wider issue: banks tend
to manage payments on a silo basis
Typical Bank “Silo” Structure

Financial Institution
Retail Banking Wholesale Banking
Card Treasury
Other EBPP ACH Other
Issuing Services
Sales Sales Sales Sales Sales Sales
Product Product Product Product Product Product

Management Management Management Management Management Management
Customer Customer Customer Customer Customer Customer

Service Service Service Service Service Service
Operations Operations Operations Operations Operations Operations
Applications Applications Applications Applications Applications Applications

Development Development Development Development Development Development
Technical Technical Technical Technical Technical Technical

Support Support Support Support Support Support

Resulting in a sub-optimal financial contribution
 The goals, objectives, and activities of payments business units may be

inconsistent with enterprise objectives regarding growth and penetration
of customer relationships
 Left to formulate strategies independently, business units may proceed in
directions that are counterproductive to other payment division strategies
(e.g., lowering prices in one unit to boost volume may adversely impact
another unit’s profitability, and customer relationships)
 This silo approach is inconsistent with the customer’s more holistic view
and can lead to disintermediation of parts of the banking relationship
 A piece-meal view of a customer relationship makes it more difficult to
create unique offerings for individual customers or targeted segments
 A silo approach can result in higher delivery costs due to multiple
technology platforms, sub-optimal use of other infrastructure, such as
customer service groups, multiple sales calls on the same customer, etc.
Source: EDC survey among 18 banks

A majority of banks interviewed by EDC have
established a committee or “Payments Council”
Payments Councils are generally composed of very senior

executives representing the retail and wholesale parts of
the bank, as well as operations and information technology
 Generally they report to a Vice Chairman or some reasonably comparable
position; occasionally they report into the IT organization
 Council meetings tend to be either monthly or quarterly
 Councils typically supported by small staff that monitors bank’s payment-
related activity/performance, and assists with specific issues
 Support staff size staff ranges from 5-6 to as many as 25
 In addition to addressing specific issues, the staffs tend also to work with
the business units that are most immediately affected by a particular issue
 A few banks have no dedicated staff; payments issues identified by the
Council are staffed by ad hoc groups

Payments Councils can be
effective at coordinating goals and
policies for sustainable competitive advantage
Key Attributes
Primary Areas of Focus Key Attributes
 Filters business unit strategies
through corporate goals
Coordination of  Coordinates goals and strategies of
business unit separate retail / wholesale business
strategies units to exploit interrelationships
 Encompasses both existing business
units and the selection of new markets
Payments  Provides ability to rapidly identify and
Strategy exploit interrelationships across the
bank
 Generates opportunities to reduce
Selection of markets in costs or enhance differentiation
which the bank should  Does not replace or eliminate the
compete need for separate business units or
business unit strategies

The most effective Payments Councils are
proactive forums (vs. reactive) for getting in front
of payment issues
 Established respect and credibility with payments

business units
Very experienced
Looked to for strategic advice on payments issues
Increasing Effectiveness of

 Implemented reporting and monitoring processes
Payments Council
 Looking for new business and market opportunities

 Have attention of CEO/COO
Somewhat  Have not fully established credibility with the business
experienced, but units
still feeling their  Have not implemented reporting processes
way
Just getting  Commissioned study to size payments business, map

started products and processes
 Do not recognize payments as anything but an ancillary
Status quo part of the credit and deposit-taking business
 Happy with traditional silo approach to payments

Conclusion: order of events
1. Understand (a) small business card market opportunity and

(b) internal assets / expertise to tap into this opportunity
2. Develop a business strategy based on this understanding
3. Ensure small business card structure is aligned with strategy

 Roles and responsibilities
 Incentives, coaching, training
 Performance metrics
4. Coordinate with other product silos

Breakout Session
Applying organizational best practices

1 OrganizingforSuccess EdgarDunn Burg

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Organizing For Success

We will discuss three topics

3. Insights into best practices

Visa International Small Business Forum 2

Visa International Small Business Forum 2005 3

Visa International Small Business Forum 4

Services Manager – Investment

Visa International Small Business Forum 6

Initially Product x Function

Visa International Small Business Forum 7

Product x Function x Value Segment Functional

Visa International Small Business Forum 8

Visa International Small Business Forum 2005 9

Interviewed small business card issuers in the following markets:

Objectives of this “mini” survey

Visa International Small Business Forum 10

Internal organization: small business vs. consumer

Visa International Small Business Forum 11

Efficient organizational structure but limited cross-selling

Visa International Small Business Forum 12

Internal organization: small business vs. consumer

 Incentives (monthly commissions and quarterly bonuses)

Focused organizational structure but requires strong relationship with

Visa International Small Business Forum 14

 Context: <250k accounts, main acquisition channels: business

Internal organization: small business vs. consumer

Visa International Small Business Forum 15

Focused organizational structure but requires strong relationship

Visa International Small Business Forum 16

 Context: <250k accounts, main acquisition channels: direct mail,

Internal organization: small business vs. consumer

Visa International Small Business Forum 17

Small business card as a subset of consumer cards

Visa International Small Business Forum 18

1. The group in charge of small business cards tends to be

2. High-level of common systems and resources between small

3. Key issues encountered by small business card group

Visa International Small Business Forum 19

Visa International Small Business Forum 2005 20

Its not only the organization chart

 Organizing for success is an on-going process, not an one-off:

Visa International Small Business Forum 21

Strategy & Structure pulling in Strategy & Structure pulling in

Visa International Small Business Forum 22

Example 1: focus on cobrand card (e.g., airline)

Example 2: development of package (e.g., package including

Visa International Small Business Forum 23

Limited success to cross-sell into small business customers

More than 20 44%

0% 10% 20% 30% 40% 50%

Most cross-sales take place in the first three months

What is required organizationally to be successful at cross-selling?

Most important activities for cross-selling

Difficult to track 68%

60% 65% 70% 75% 80%

Source: BAI Research among 400 bank executives

Visa International Small Business Forum 25

Industry practices regarding incentives

Trade-off in speed (focus on upfront sales vs. on-going relationship)

Ability to track revenue (based on sales accounting system / shadow

Source: WorldAtWork, BAI

Visa International Small Business Forum 26