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The value of strong customer relationships
The Jakarta Post , Jakarta | Wed, 09/27/2006 9:29 AM
Gaby Motuloh
With the tough competition in the banking industry, where most banks are going after the same market segments and ""good"" names, strong customer relationships serve as both entry and exit barriers.
Characterized by significant use of a bank's range of products, high share of ""wallet"" and personalized relationships across both organization hierarchies, strong client relationships produce profitable and sustainable business, contrary to the squeezed, volatile returns resulting from marginal and opportunistic relationships -- driven by short-term incentives.
Retaining and deepening existing relationships has thus become more critical, and at the same time demands more thoughtful strategy and actions. Loosing ""good"" customers is clearly a waste of valuable investments (high initiation costs, long sales-cycles) and reduces the bank's competitive leverage.
Building solid relationships requires in-depth understanding of the customers' changing needs (and risks), and continuous upgrading and alignment of a bank's resource capabilities to be able to serve these needs.
It takes the whole organization's efforts and commitment to make things happen -- starting with the top management.
Customer-focused strategy (CFS)? Yes, it is an integrated framework and process to build a profitable, competitively positioned and sustainable business, by developing strong relationships with target customers, and aligning and strengthening a bank's resource capabilities to address customer needs orchestrated by account officers or relationship managers.
CFS implementation encompasses: - communication roll-out & training - infra-structures and capabilities strengthening and alignment - analysis and profiling of relationships across products - account planning and monitoring - business and product segments analysis including potential (""wallet"") sizing - defining/re-defining the target market - strategy review and refinement - clients feedback - measurements and reward schemes
What are benefits of implementing CFS?
Implementing CFS means embedding a new/refined customer-driven approach and focus in a bank's strategy and processes, to maximize its short and long-term growth potential.
It benefits the bank by:
Putting in place a disciplined process to understand customers' changing needs/problems, and to proactively offer the right/optimal solutions.
Providing a big picture of the bank's share of market revenues, potentials and competitive tiers across products/business segments/branch/bank-wide -- as inputs for its growth strategy.
Placing competitors under the radar -- valuable inputs for account planning, business strategy, service improvement, innovation initiatives, etc.
Providing a road map and common language in pursuing a bank's objectives.
Changing internal mind-set from being product/silo-oriented to customer-oriented.
Motivating cross-selling and cross-functional teamwork.
Introducing the concept of risk and economic capital costs-adjusted returns.
Enforcing alignment and upgrading of the bank's processes, resources and capabilities -- driven by customer need and expectations.
Linking performance to business results through the right measurements and reward systems.
Triggering continuous reviewing and sharpening of a bank's strategic focus.
Implementation hurdles and priorities:
The biggest hurdles to a ""perfect"" implementation of CFS are often to do with: MIS (account and product profitability, allocated costs), technology infrastructures and risk-management readiness (risk ratings) -- which cannot be turned around in a short period of time. These, nevertheless, should not hold back a bank from implementing CFS.
The key priority should be to introduce the framework to account officers/relationship managers and provide them with the necessary knowledge and skills (through training), so they can immediately embark on profiling, cross-selling and deepening their customer relationships -- while addressing the other building blocks.
The writer is managing director of Daiva Asia, a banking advisory and training firm in Jakarta. She can be reached at gabymotuloh@cbn.net.id
