CUSTOMER PROCESSES AND THEIR APPLICATION TO BANK BRANCHES

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1 CUSTOMER PROCESSES AND THEIR APPLICATION TO BANK BRANCHES Priscilla Sarai Duerrschmidt, Frankfurt School of Finance & Management, Frankfurt am Main, Germany, Maurits Weigand, Frankfurt School of Finance & Management, Frankfurt am Main, Germany, Anne Dohmen, ProcessLab, Frankfurt School of Finance & Management, Frankfurt am Main, Germany, Abstract Although banks continuously claim to offer customer-oriented services, they focus on delivering financial products instead of providing solutions to their customers. Consequently, banks are forced to focus stronger on the customer needs and to implement the customer-centric view into the design of their business. This paper aims to present how the bank branch of the future could look like in order to support banking-related customer processes. It will be shown that the identification of customer processes and the consequent alignment with business processes improve customer orientation. Concepts of future bank branch designs are evaluated in order to find an appropriate one for customer-centric banking. Moreover, the support of a specific customer process will be demonstrated on the innovative multi-touch computing application Microsoft Surface. This paper shows a customer oriented design of a future bank branch focusing on innovative technology that provides the opportunity to create functional and emotional value. Keywords Customer-centric banking, customer processes, future bank branch, innovative technology 1 INTRODUCTION Banks are facing a dynamic competition that intensifies continuously. According to the results of the study Bank & Future 2009, the increased price competition of standard products is one of the main challenges for banks (Spath et al., 2009, p. 1). The comparison of prices and conditions has become easily accessible due to new information technology (e.g. Internet), resulting in an increased cost transparency of financial products (Hedley et al., 2005, p. 1). Moreover, the global financial crisis has troubled the industry and negatively affected its profitability. At the same time, customers are better informed and more demanding concerning the costs and the quality of products and services. One of the two biggest trends IBM Institute for Business Value identified is Customers will redefine the rules of the game (Hedley et al., 2005, p. 3). Additionally, the customer loyalty towards traditional banks is diminishing and the strong relationship between banks and their customers weakens continuously (Engstler, 2006, p. 121; Shah et al., 2006, p. 114). Furthermore, the demographic development will form a large group of older people and a smaller group of young people. The challenge for banks is to serve those unequal customer groups and their different expectations (Rauscher, 2005, p. 16). To differentiate themselves from their competitors, banks have to find new ways to compete especially in case of standardized retail banking products. Due to the convergence of banking products, banks are forced to focus consequently on the customer needs by implementing the customer-centric view in the design of their business in order to create value for customers

2 (Vandermerwe, 2000, p. 28; Moormann and Wilkerling, 2006, p. 58). The results of the efforts to create customer-centric business models have not necessarily been successful in the past. According to Booz Allen Hamilton [...] too many banks have invested in supposedly customer-centric strategies without reorienting their business model around the consumer. They have translated customercentric to mean cross-selling (Booz Allen Hamilton, 2003a, p. 1). Customer orientation has often been translated into offering customer oriented products and services instead of providing solutions to the customers (Schmid et al., 2000, p. 3). The business models of the banks are still product-oriented (inside-out-perspective) and have to adapt a stronger external view concentrating on the specific customer needs (outside-in-perspective). A promising approach to improve customer orientation is to view the customer as the starting point for the business design and the consequent alignment of all banking services to customer processes. Banks should offer solutions for specific phases of the customer life cycle which are always related to individual lifestyle needs (Rauscher, 2005, p. 16). New technology provides opportunities to serve customers more individually throughout their entire process (Schmid et al., 2000, p. 3; Oesterle, 2002, p. 27). How can banks support their customers entirely and thereby create potential for differentiation and competitiveness? This paper aims to present how the bank branch of the future could look like in order to provide support for banking-related customer processes. To assess opportunities for banks to support, it is necessary to identify the customer processes. In the second part of the paper a literature review describes customer processes and the alignment of business processes with customer processes is presented on a specific housing process. This process is chosen because of its high customer need to be supported due to its complexity and lack of experience by customers. A customer-centric business model and a look at the technical architecture of a Customer Relationship Management complete this part. The third chapter deals with different future bank branch concepts in order to deviate one for customer-centric banking. The use of an innovative multi-touch computing application of Microsoft Surface to support the specific customer process housing is illustrated in the fourth part. This paper ends with a conclusion and avenues for further research. 2 CUSTOMER PROCESSES IN BANKS 2.1 Definition of Customer Processes The need of a customer to use financial services does usually not occur isolated but within a so called customer process. A customer process can be characterized as the entire procedure or end-to-end process that a customer passes through to meet a desired outcome. The basis is a specific customer need and the process includes every step that the customer has to take until a specific wish is fulfilled or the problem has been solved (Schmid et al., 2000, p. 3; Behara et al., 2002, p. 604). Customer processes that aim to purchase a product or to sign a service contract include similar steps concerning their basic structure. The design can be based on the Customer Buying Cycle (CBC) that comprises four phases - stimulation, evaluation, purchase and after-sales (Heinrich, 2002, p. 77). The identification of the customer processes requires a deep understanding of the customer needs and procedures. Therefore, several surveys and workshops have been conducted in literature to identify the single steps within the customer processes (Heckl and Moormann, 2007; Kahmer and Moormann, 2005; Alt and Puschmann, 2005). Banks usually offer products for single parts of the customer needs, e.g. financing and neglect to identify the intrinsic need or original desire of customers, e.g. housing. A lot of information, services and financial products are demanded by the customer within his process. As a result, the customer has to identify his single problems by himself to search for solutions and get into contact with different suppliers, such as real-estate-agents, architects, construction companies, insurance companies, etc. The customer has to deal with a huge organizational complexity and tasks he might have never done before as customers usually do not buy houses that often (Heinrich, 2002, p. 78f; Schmid et al., 2000, p. 3f).

3 2.2 Matching Customer Processes with Banking Processes It is often claimed that there is a lack of literature on business processes of banks that are based on customer processes (Heckl and Moormann, 2007, p. 68). Based on the customer process, the bank can determine which bank service processes could be handled by the bank to fulfill the customer needs (Heinrich, 2002, p. 85; Winter, 2003, p. 101). Figure 1 presents an example of the customer process housing and the opportunities for the bank to support. Figure 1. Customer Process Housing This example shows how a bank can provide support for the entire customer process housing and create an enormous value for the customer, who has only one primary contact person. Instead of gathering all the important information, services and products on his own, the customer can take advantage of the bank s know-how. Generally, only the customer processes that are ranked to be important for a bank should be supported. The customers should also want to have support according to these processes so that a bank can provide additional value for them (Kahmer and Moormann, 2005, p. 33). The next step for the bank is to decide which services should be accomplished by the bank itself and which activities should be carried out by external suppliers. These decisions are primarily based on the business model (Winter, 2003, p. 101). 2.3 Customer-Centric Business Model Winter presents a business collaboration model that consists of several needs which are derived from a customer process, fulfilled by several suppliers (e.g. real-estate agencies) and the bank itself. Within that cooperation network, the bank acts as the service integrator and bundles its own and the partners offerings and thus serves as the primary contact for the customer. Consequently, the bank is able to support the customer in his entire process instead of offering single products in isolation. This creates value for the customer and several advantages for the bank as well, such as increased personal contacts

4 and customer loyalty as a result of the entire customer process support. The suppliers can increase the number of customers and generate more economies of scale (Winter, 2003, p. 96). However, the customer has to present a lot of personal information to the bank for the procedure and he also might feel uncomfortable to be dependent on the banks advice. Moreover, the customer must be convinced that the bank has the required know-how and that the offerings really support him. Schmid et al. (2000, p. 8) point out that the amount of suppliers as well as the neutrality towards them are critical success factors for a bank. As a result, the customer s acceptance, awareness as well as his trust in the bank s services are crucial requirements. Therefore, a bank can offer product and service comparisons to obtain the necessary trust (Schmid et al., 2000, p. 8). 2.4 Architecture of the Customer Relationship Management CRM To enable the customer to be accompanied by the bank through the entire process, one central data base, called CRM (Customer Relationship Management) 1, is needed. The vision for the customer process is a multichannel process. This allows the customer to use different channels to complete his process. He can for example start his housing -process in the branch (e.g. advisory service to define his need), continue through online banking (e.g. review presented property offerings) and proceeds the process in the branch (e.g. financing). The biggest challenge for such a CRM is the connection to the backend system of the bank and the supplier which is needed for the service integrator function of the bank. Due to security reason and current law, every company has to keep their backend systems secret. Figure 2 shows a construction that offers a solution to overcome this boundary. Figure 2. CRM Construction The first level shows the different channels the client can use. It is important to say, that all those channels have to be monitored and managed by the bank. To realize a multichannel process all different channels have to be connected to the CRM of the bank. Due to one central data base the bank has the overview of all customer data and transactions he has done. The second level includes the CRM itself as well as the temporary storage. The CRM makes use of and coordinates backend services. It is a platform that coordinates incoming and outgoing services requests for the bank and for the suppliers. A firewall protects the transmission of unwanted 1 The understanding of CRM includes the management of the customer relationship as well as a process control.

5 information. The CRM is managed and covered by the bank, which means that it controls and manages the information flow. The third level includes the backend systems of the bank and the suppliers that are connected to the CRM with a specific certificate of high trust. As the backend systems of the bank provide different software services, the high level of trust is indispensable to use the software through the CRM. A firewall between CRM and backend systems controls the information flow. An insurmountable firewall avoids any interconnection of internal and external backend systems, to keep the highest security level. Taking everything into consideration, it can be concluded that the customer as well as the bank gain from such a construction. The customer can use different channels within and is accompanied by the bank through his entire process. Furthermore, he is connected to a broad network of trustable and reliable companies. For the bank the centralized data improve data quality and enable a more specific, customer-oriented advisory and marketing. Moreover, the improved customer relationship by supporting the customer throughout his entire process raises customer loyalty. 3 DESIGN OF THE BRANCH OF THE FUTURE The banking industry and the way of meeting the customers have seen a massive change within the past. New technology provides new opportunities for clients as well as for banks and make the changing process of the environment even faster. Technology innovation like internet and has given the bank and the clients a new way to communicate and raises the question: Which customer value does a branch add? Although new distribution channels such as online and mobile banking have become more important, the role of branches is central and has experienced a turnaround in terms of its importance in the last years (Engstler, 2006, p. 109.). According to a study from Booz Allen Hamilton, 90% of customer relationships are formed and lost in branches. The results showed that other channels (e.g. online) are used for gathering information but sales are still preferred face-to-face even for simple products (Booz Allen Hamilton, 2003b, p.1). New technology enables the bank to use different channels to communicate with the customer and distribute financial services (Köhler and Lang, 2008, p. 9). In a future bank branch, interactive advisory services can be used to reduce the complexity of explaining financial products. Due to the growing individualization of financial products, also explanatory services cannot be standardized. This kind of service in addition to a personal contact can be a strategic advantage compared to online-banks. 3.1 Future Bank Branch Concepts Taking a more detailed look at the branch itself, different types of future branches can be found in literature (Köhler and Lang, 2008, p. 12). The goal is to find an appropriate design for a customercentric bank branch. To keep the focus, three types will be described within the next part. The concepts have an individual character with the three factors to differentiate: customer groups, opening hours and range of services. Future Branch Experience This concept means to provide services beyond the core banking services. Those services can be close to the banking sector (e.g. insurance), be far away from the banking industry (e.g. registration office) or not related to the bank at all (e.g. notebook). Customers will join the branch to enjoy a relaxed atmosphere that can be created through several possibilities (e.g. cup of coffee). This is a kind of emotional banking which tries to establish an emotional connection between the client and the bank (Wörrle, 2009). This can also be expanded to enthusiasm through asking the customers about desires, trouble and ideas for improvement. As a result, a deep loyalty and a good initial position for a long relationship are created (Aigner and Rauscher, 2002, p. 47).

6 Future Branch Banking Shop The second possibility of the future bank branch focuses on the distribution of standardized banking products. The branch is often located in areas where a lot of people walk pass day by day. The customers are served by bank employees who are not educated to offer high quality advisory. Due to easiness of the products, the conclusion of a business transaction is often done within a short period of time. To keep the fixed costs at a low level, the branch has a smaller sales area and a low number of employees, too. Future Branch Full Service As the name of the concepts already describes, the concept offers a wide range of financial services to all groups of customers. The future full service branch will include self service areas for standardized financial transactions. Discreet, separated areas and well educated advisors provide advisory services for individual customer needs. 3.2 Design of a Customer-Centric Bank Branch Studies show that future clients are looking for personal contact to the bank in case of complex financial questions (Booz Allen Hamilton, 2003b, p.1). Standardized banking services will be chosen by price but individual solutions for financial needs will be chosen by feeling of trust. Therefore banks have to create additional customer value that is recognized by the client. Taking everything into consideration, the three mentioned concepts offer core banking services which customers expects by thinking about a branch and aim to meet customer needs, but neither focus on customer processes nor accompany them. The advisory quality of a full service branch combined with the use of innovative technology to create experience is a possibility to design the branch of the future. New technology offers the opportunity to support the entire customer process which is indeed a functional added value for the customer. In addition, emotional value can be created through individualized solutions which are worked out interactively between the customer and the advisor. New ways of visualization help the customer to get a better understanding of financial solutions. The next chapter presents one opportunity to support a customer process with the help new technology. 4 APPLICATION OF MICROSOFT SURFACE FOR CUSTOMER- CENTRIC BANKING Microsoft Surface (MS) is a multi-touch computer application table with a 30 inch horizontal user interface. The development of this technology started in the late nineties and is ready for the market since last year. Four key attributes describe the possibilities of MS (Microsoft, 2009): Direct interaction as the users grab information by touching and swiping the screen with their hands, so that neither a mouse nor a keyboard is needed. Information can be zoomed in or out and can be shifted from one point of the table to another. The multi-touch application recognizes a maximum of 52 points of contacts at once. Several users can work together at the same time. It is easy for those users to take a seat around MS as it is designed in the form of a table. MS does not only recognize fingers but also other items like e.g. account card for loading customer data or a toy car to load car financing solutions. Although the technology looks very complex, MS is based on a normal computer and a beamer which are inside the MS. This simplifies the maintenance as MS can be easily integrated in the local network (e.g. use printers or upload local software) and the computer in the inside can be changed after a while if it does not fulfill the technical requirements to run the newest software. Taking a look in the banking industry, several banks (e.g. Barclays) have started to use MS in flagstores but until today no bank is using it nationwide. Barclays offers currently one product via MS and

7 could increase sales by 50% since December 2008 (Sisk, 2009). According to the knowledge of the authors, there is no application aiming to support entire customer processes, like housing. 4.1 Application of Microsoft Surface for the Customer Process Housing The following application is based on the idea that the MS is used within advisory in the customercentric bank branch of the future in order to support entire customer processes. The customer identification to gather the relevant customer data from the CRM can be accomplished by e.g. a chip code that can be on the regular bank customer card and is recognized if put on MS. The following presents an example of the application of Surface within an advisory of the customer process housing : CRM CRM CRM Supplier 1. Choiceof customer process (CP) The MS illustrates the different banking-related customer processes, such as wealth accumulation or housing etc. The customer can choose his particular process by touching the corresponding button. 2. Choice of customer process housing The yellow agenda on the left hand side provides an overview for the customer throughout the whole process. By touching the button housing, an input mask appears, asking the customer whether he has already decided what he wants to do (e.g. buy a house) or if he is searching and needs further advisory and information. In the latter case, the bank offers advisory service to analyze the customer s demand through asking several questions and comparing advantages and disadvantages for the different options (e.g. house vs. flat) which are visualized on MS. If the customer already knows what he wants, he is directly forwarded to the next mask. 3. Need definition In this mask the customer has to specify his need through touching the corresponding buttons (e.g. buy vs. rent or house vs. flat etc.), resulting in a clear definition of what the customer wants, e.g. Buy existing house with partner. This is shown on the MS asking the customer for his confirmation, forwarding him to the next step or redefinition, returning him to the input mask. 4. Information research In this step, the bank offers information and helps to search the right property with the customer. Therefore, questions are presented on MS and have to be answered by the customer, e.g. which region/location or requirements concerning the property (square meter, number of rooms etc.). Based on the given information of the customer, possible properties are shown and visualized on the MS, giving the customer the chance to not only look at them in a 360 degree view but also to enter them virtually. According to every property offer, location and region information are provided (e.g. public transport stations, school etc.). Additionally, the customer can take a look at the region via Microsoft Virtual Earth and can zoom with touching and swiping the screen with his fingers. After the customer has chosen his new home he will be forwarded to the next mask.

8 CRM CRM CRM Supplier Supplier Supplier 5. Decision and transaction execution At the beginning, the customer has to give information about his chosen property. Afterwards, the next steps for the customer are presented with buttons on the MS, consisting of: financing, sign of contract, renovation & moving and authority/legal service registration. By touching the buttons step by step, the customer is directed through all the necessary steps to execute the transaction. Touching the financing button, different criteria such as maturity, amount of yearly repayment, etc. are shown. According to the customer needs, a financing solution for the customer that meets his demand can be designed on the MS and graphically visualized. The customer can adjust the criteria on the MS and the impact on his financing will be immediately illustrated through graphics and numbers. The next step sign of contract has to be executed with a notary to comply with legal requirements. To support the customer, an appointment request can be directly made and send from the MS. By touching renovation and moving a list of important activities and appropriate suppliers (e.g. painter, craftsman, transportation etc.) which can best fulfill the customer needs will be presented as well as a comparison of the different offerings. The customer can directly buy chosen offerings by touching the buy button and gets a confirmation from the supplier. Within the next step authority/legal service registration, the customer will be provided with a list of the relevant authorities as well as with ready-made letters for informing about his new address. 6. Future costs and protection planning Within this final step, the buttons future costs and protection are shown on the MS. The first one includes e.g. estimates of maintenance costs (e.g. new roof, etc.) and provides solutions such as insurances or saving plans which are graphically illustrated on the MS. By touching the button protection, possible risks as well solutions for the customer and his family are presented individually (e.g. life insurance). 4.2 Benefits and Challenges The presented application of MS helps to support the entire customer process by illustrating and individualizing the single steps within that process containing the necessary information, services and products to meet a customer s desire or to solve his problem. Moreover, MS enables the customer to experience a different kind of advisory service. On the one hand, the customer receives a different visualization of the required information, services and products, e.g. entering properties virtually. The bank advisor and the customer are interacting together, designing the solutions by touching the surface according to the customer needs. Watching the same surface and information while sitting around the MS increases transparency and create a more comfortable atmosphere for the customer. There is no hidden information on the screen compared to the regular advisory and the atmosphere can also be more comfortable if the bank advisor is sitting next to the customer instead of being across. The acceptance of the application and of the support of the entire process is critical for the successful customer-centric banking. Not only the customers but also the bank employees need to accept and use the new services and products. It is important that the customer s perception of the bank as an entire solution provider is created. Moreover, the high initial costs for purchase and implementation of MS require a frequent use.

9 5 CONCLUSION AND AVENUES FOR FUTURE RESEARCH To conclude, the application of MS helps to support the entire customer process but also enables an innovative way of customer-centric banking. Through new possibilities of visualization, emotional value can be created. Although other banks are already using MS partially, there would still be a firstmover effect due to the way MS is used: not only for a specific product (e.g. Barclays) but for the support of entire customer processes. This new way of customer centric banking has potential for differentiation and therefore provides enormous competitive advantage. The branch as distribution channel will exist in the future as customers desire personal advisory for difficult financial problems. The design is the challenge as it has to support customer processes. The branch has to become a place where a client feels comfortable. New technology gives the opportunity to make banking more dynamic and interactive. By concentrating on innovative technologies as a possibility to better accompany customers and to provide additional value, banks can overcome the challenges of the banking industry. The technology is not the innovation, but the way the bank makes use of it is the real innovation. REFERENCES Alt, R. and Puschmann, T. (2005), Developing customer process orientation: the case of Pharma Corp. in Business Process Management Journal, 11 (4), Aigner, B. and Rauscher, C. (2002), Restrukturieren oder einfach auf die Kunden hören? in Banktechnik, 11-12/02, Behara, R. S. and Fontenot, G. F. and Gresham, A. B. (2002), Customer Approach to Building Loyalty in Total Quality Management, 13 (5), Bolton, M. (2004), Customer centric business processing in International Journal of Productivity, 53 (1), Booz Allen Hamilton (2003a), The Customer-Centric Bank, Debunking the Myth that Cross-Sell = Customer-Centric, [Retrieved: ] Booz Allen Hamilton (2003b), Implementing the Customer-Centric Bank, The Rebirth of the Forgotten Branch, [Retrieved: ] Chen, I.J. and Popovich, K. (2003), Understanding customer relationship management (CRM), People, process and technology in Business Process Management, 9 (5), Engstler, M. (2006), Strategien im Finanzvertrieb Innovationen für die Kundeninteraktion in Effert, D. and Wunder, M. (eds.), Dialog-Center-Lösungen für Banken, Strategien und Praxis, Gabler, Wiesbaden, Heinrich, B. (2002), Die konzeptionelle Gestaltung des Multichannel-Vertriebs anhand von Kundenbedürfnissen in Leist, S. and Winter, R. (eds.), Retailbanking im Informationszeitalter, Springer, Berlin, Heckl, D. and Moormann, J. (2007), How to design customer-centric business processes in the banking industry in Journal of Financial Transformation, 21, Hedley, K. and White, J. and de la Roche, C. P. and Banerjea, S. (2005), The paradox of Banking 2015 Achieving more by doing less in IBM Business Consulting Services/ IBM Institute for Business Value. Kahmer, N. and Moormann, J. (2005), Alignment of Web Sites to Customer Processes, A Study in the Banking Industry in Proceedings of the 7th International Conference on Enterprise Information Systems (ICEIS), Miami/FL, 4, Kotler, P. and Bliemel, P. (1999), Marketing-Management: Analyse, Planung, Umsetzung und Steuerung, 9th Edition, Schäffer-Poeschel, Stuttgart.

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