Capital Markets Point of View Refocusing on trust and relevance:

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1 Capital Markets Point of View Refocusing on trust and relevance: The client service imperative for capital markets businesses

2 Why deeper client understanding is essential for sustaining high performance Executive Summary Client Centricity is not a new concept; before the crisis it was mostly a loose and woolly one, but issues of trust, as well as economic and regulatory pressures have made it a more tangible part of the strategy of capital markets businesses. Companies are considering ways to move away from siloed, product driven businesses to ones which are focused on what clients want. This is a good thing not only for re-establishing consumer trust and the relevance in the industry but also its economics. However, there are reasons to question if the large-scale client relationship management (CRM) projects underway or being started at many Capital Markets businesses are the best way to attack this problem. To design, build and implement a CRM solution that works for a business as large, varied and complex as most Capital Markets businesses, without carving up and simplifying the problem as a first step, in Accenture s view is very hard to do or get right. Rather, we believe that there are significant advantages to a more pragmatic approach, that: Makes best use of the fact that the number of clients a Capital Markets business has is comparatively low Recognises that some of the peculiarities of Capital Markets businesses, such as high complexity, silos, fiefdoms and regulatory issues, make it very hard to get large CRM projects to succeed.

3 The approach set out in this point of view doesn t seek to define the dream world CRM solution from the word go. Instead, it looks to create the basis for simplifying the problem and approaching the question of client centricity starting with the client rather than with a CRM solution that can never be more than a tool supporting the client centric business. Specifically, we would suggest that businesses: Refocusing on trust and relevance Start with a relatively simple analysis of existing data on clients and their behaviours, which is possible as the number of source systems and clients is relatively small Create an initial segmentation based on economic value and potential of clients, their behaviour and needs Look at product offering and ways to align offering and channels to these client segments Use the outputs of these three steps to map out a future model where the business serves its clients in a way that is profitable and, at the same time creates relevance and trust, thereby strengthening the brand. In Accenture s experience, such an approach has enabled businesses to keep costs in relation to both value created and certainty of successful outcome, and created the momentum and focus required to turn capital markets businesses into high performing, client centric organisations. Putting clients back at the heart of the capital markets business In the wake of the financial crisis, many leading capital markets businesses including investment banks, asset managers, and wealth managers are reestablishing a strong and clear focus on client relationships. They are right to do so. In the years leading up to the crisis, capital markets businesses moved away from their traditional role as client-focused intermediaries, and instead began concentrating on developing products. In doing so, many firms effectively turned themselves into product factories selling to a broad and diverse portfolio of clients. Moreover, the different silos of the product factories have become increasingly complex and separated, making it very hard to see and serve clients in a unified manner. Today, the shortcomings of this product-driven approach have become increasingly evident. With capital requirements rising and profit margins declining, a combination of client demands, regulatory changes and commercial pressures is shifting the emphasis away from products, and back towards client intimacy and satisfaction. Why? Because, in turning themselves into product factories, capital markets businesses have endangered their relevance for clients, and undermined their economic focus. Going forward, those firms that can truly understand clients behaviour and needs and thereby align their service offerings with what their clients seek and value will stand out from their competitors, and be better placed to grow revenues and client profitability over time. Achieving this differentiation requires a firm to undertake a journey to become a client-centric organisation.

4 Not an option - but an imperative In Accenture s view, refocusing on the client is not just a smart thing for capital markets businesses to do, but also a prerequisite for future high performance. Over a prolonged period of fat years, firms neglected investment in client service in favour of developing ever more highly engineered products from within different silos. As a result, they have undermined the value and loyalty on which long-term client relationships depend, while simultaneously losing any unified or consistent view of each client s needs, and also profitability. Today, in the colder post-crisis environment, this legacy has resulted in two major fault-lines in firms client relationships. The first fault-line is a crisis of relevance and trust. The focus on developing and selling products has made clients feel that firms are pushing different products through separate parts of their organisation, with little all-round understanding of the client s requirements. Experience shows that clients trust firms that they feel understand them and that as a result consistently provide them with relevant products that meet their needs. The widening gap between the products on offer and clients real needs coupled with underperformance by some of the products themselves has critically undermined this trust. The second fault-line is the economic unsustainability of the product range, the business and operational complexity in involves, the sales and client service model. By effectively becoming factories churning out products through siloed, product-focused sales teams, capital markets businesses have made it very hard to create and maintain an integrated and unified all-round view not just of client need, but of client profitability. And conversely, this also means that it is very hard, if not impossible to evaluate the degree to which a significant amount of the complexity and cost in a modern capital markets business actually creates value. At the same time, reduced client willingness to buy complex, high-margin products has forced firms to refocus on some of their more commoditised offerings, driving down margins still further. The problem is compounded because, as mentioned above, capital markets businesses have allowed complexity and cost in their operations to spiral, reflecting the growing range and diversity of their activities. This complexity and cost aren t necessarily a problem in themselves (apart from making risk, cost and capital management more difficult) provided they create value for clients that the clients are willing to pay for. However, it is questionable whether clients do value all of their providers complexity, and in the current configuration it is very hard for firm to distinguish value creating from value destroying complexity. Taken together, the combination of these two fault-lines with firms rising complexity and cost means leaving things as they are is not an option. Post-crisis, it is increasingly clear that what key segments of a capital markets firm s client base now value and will pay for is not products for products sake. Instead, they want a service that is aligned to and serves their specific business needs for an acceptable price. Delivering this in a world of tighter margins and higher capital requirements is the challenge now facing capital markets businesses worldwide.

5 The way forward: client centricity There is a proven way by which firms can simultaneously address both the crisis of relevance, and the economic unsustainability of their product and sales model. By putting the client s behaviours and needs at the heart of everything they do, and aligning every aspect of their service and product offering with these, firms can rebuild relevance and trust and regain visibility and control over client profitability. Once client centricity is embedded, the sales and marketing teams can increase the benefits still further, by using the new client insight to identify and target highpotential clients with the optimal combination of product, service and channel. Equally importantly, the firm will have clear sight of the return on investment from these efforts. In seeking to achieve customer centricity, capital markets businesses need to take into account two ongoing shifts on the client side. One is that today s clients are more diverse than ever before, with more specialised needs and preferences so understanding them requires correspondingly more insight and precision. The other is that customer expectations are rising as fast as their sense of sense of loyalty declines, with the result that satisfying clients requirements now demands more focus and consistency than in the past. So, how can capital markets businesses achieve the benefits of client centricity in a way that takes account of these challenges?

6 Creating the client-centric capital markets business of the future Four key building-blocks Accenture has helped a number of leading capital markets firms to reshape and revitalise their client relationships. Our approach draws on our deep experience in building and optimising customer relationship value across a wide range of industries, while taking account of the unique characteristics, competitive dynamics and opportunities inherent to the capital markets industry. Based on this experience, we have defined an approach that is both pragmatic and effective. Getting customer centricity off the ground does not require a large upfront investment. Instead, a firm can make real and substantial progress by extracting its existing client data, and applying relevant, targeted analytics quickly and at low cost. The momentum behind the resulting ongoing improvement in client relationships and profitability can then be built up progressively over time. Our experience shows that four key steps can enable a capital markets firm to begin the journey towards putting clients back at the heart of its business. The four steps are: 1 Conduct basic analytics to understand clients needs and buying behaviours 2 Group clients into segments reflecting behaviour and need 3 Realign your product offering and delivery channels to support client needs and profitability 4 Initiate actions to enhance your parent brand progressively over time A firm that focuses successfully on all four of these areas will find it can build deeper, more durable and more profitable client relationships based on mutual trust and value. 1. Conduct basic analytics to understand clients buying needs Building better and deeper client understanding may sound like a good idea in theory. But how can it be achieved in practice? Many capital markets businesses assume the answer must be a major multi-year, multi-million pound CRM investment programme that transforms and integrates the management and analysis of client data across the business. However, our experience shows that a more pragmatic and phased approach requiring far less up-front investment actually has a far greater chance of success. In many cases, efforts to impose a customer-centric culture from top-down through a massive systems implementation project fail because of three challenges. The first is the siloed structure of much of the legacy IT infrastructure, with different business units unable to share information easily or effectively. The second is issues around data protection and client privacy, again preventing sharing of data. The third is that embedded fiefdoms in the business may be unwilling to share client information and relationships that they feel belong to them individually, rather than to the firm as a whole. These same barriers have the effect of impeding cross-selling and an allround view of client profitability.

7 Starting small: a pragmatic approach to analytics Given these issues, a large systems implementation effort is usually not the best way forward, and will struggle to deliver. Client data may exist at many points across the business, in many formats. A more workable and effective solution may be to pull together these disparate elements of data into one place, and then conduct analytics to identify and understand the patterns in clients behaviours and needs. In industries where companies have hundreds of thousands or even millions of clients, this approach would be impracticable. But capital markets businesses benefit from having relatively small numbers of relatively large clients, rather than a multitude of small ones. And a comparatively limited amount of effort in pulling together the required data can produce dramatic results, enabling the firm to create hypotheses around how to improve the offering to each client, or at least clusters of similar clients. Launching a small initial pilot programme of client data analytics also brings several additional benefits. By kick-starting deeper client understanding, it can help to highlight not just patterns of client behaviour, but also the most pertinent elements of data that will help to clarify and illuminate those patterns. As more and better data is pulled in, the analytics can be iterated to progressively sharpen the insights. And the early findings can be leveraged to produce quick wins that deliver good returns in a short timeframe, helping to sell the idea of analytics-based segmentation to the sales team and across the business as a whole. Compounding the benefits Once the iterative analytics programme is embedded and gaining momentum, the insights generated can be incorporated into the firm s management information and incentives going forward, thus facilitating the cultural shift required. One approach for extending and embedding the programme is to build simple software that collects and analyses the client data firm various sources thereby replicating many of the benefits of rebuilding the CRM infrastructure, but at a far lower cost and much higher speed. In the longer term, the benefits of better client understanding will be felt throughout the organisation. By providing senior management with insights into why customers buy particular product and service offerings, it enables the business to regain control of client understanding and insight from the fiefdoms. Furthermore, unifying the client data across products and sales teams enables individual client profitability to be tracked, managed and improved. And if regulators ask why a particular product was sold to a particular client, robust information is available to show why the product purchase was in line with the client s needs and behaviour.

8 2. Group clients into segments based on behaviour and need Having gained a better understanding of clients, the next step is to segment them into groups or clusters sharing similar behaviours and needs. This provides the basis on which to develop and deliver a specific blend of products and services that meets the requirements and expectations of each client grouping. Accenture s ongoing research shows that the way high performance businesses create customer loyalty is by delivering an experience that is highly relevant to the needs and intentions of specific customer segments. This requirement is especially important in today s hyper-competitive capital markets environment, where the ability to deliver a relevant client offering and experience is the best - and potentially only - source of sustainable competitive advantage. Even when clients view overall service quality as good, they are quick to leave when they feel relevance has been lost, because their specific expectations are being overlooked. To restore relevance and trust, firms need to return to a clear view of how their clients behave, and of the attributes that shape that behaviour. This means viewing the customer base as a structured portfolio of clients, each with specific needs and requirements that place them in particular segments. Looking through the client s eyes Another key step in moving towards client centricity is to look at the firm s own organisation through the eyes of a client. What do the firm s activities and services look like to you as the client and how do they relate to your needs? What are your expectations of a firm that is worthy of keeping your business? What drives your decisions to stay with rather than leave your current provider? This outside-in approach can be taken further, to ask how efficient and effective the firm is at delivering this desired experience, and to debate how competitive trends will impact this picture. Having worked out the client experience that the firm wants to offer, the inside-out thinking then kicks in, with the aim of driving this client experience throughout the organisation (see Figure 1). Figure 1: Creating client focus Defining an appropriate client experience requires an outside-in perspective Developing and enabling the right client centric operating model requires an inside-out approach Voice of the Client Business and Operating Principles Operational Capability Client Experience Design Outside-in Client Centric Operating Model Inside-out Market Landscape Operational Delivery Business Economics $ Actively balancing and aligning both outside-in and inside-out perspectives delivers a value-focused capability

9 3. Realign your product offering and delivery channels to profitably support client needs Having identified segments based on clients behaviours and needs, the next step is to develop a hypothesis about the overall value proposition - including service model, product offering and channels - that will best satisfy the specific customer. This will include the definition of clusters and categories showing what some clients buy and others don t, taking into account the relative importance of multiple customer values, including speed, reliability and convenience as well as price. Through this approach, the firm can assemble the right service elements to optimise the client s experience - and the resulting buying behaviour - consistently across customer channels and touchpoints. In this way, the firm can move its offering to each client to the point where the right client behaviour, experience and economics intersect, giving the client and the firm itself every reason to continue doing business together. By tailoring client contact in this way as part of a thought through and structured overall offering, capital markets firms are able to reach the right clients at the right times in the right places, and engage in a two-way exchange of information. This offering dovetails with the client s preferred behaviour, to deliver a consistent and highly relevant customer experience and offering that generate trust and loyalty. The result is differentiation and growth for the business. Putting the client in control In shaping the segmented offering, one issue to address is the perception that electronic channels are somehow more impersonal and less engaging than personal contact. This concern can create tensions between the attractions of electronic channels lower costs and greater efficiency, and the need to maintain client relationships based on relevance and trust. In some cases, the primary driver behind using electronic channels may be cost: online order entry may be more economic than having the client call a member of the broking team. But the growing sophistication and personalisation possible with electronic channels means they can now be more personalised than face-to-face contact. An electronic interface can be tailored so closely to the client that it becomes my part of your world - delivering an experience that may be far more informative and engaging than talking to a mid-ranking sales person. At the same time, electronic channels are often actually more convenient to use, and provide feedback and visibility of client behaviour. In this context, an increasingly important success factor in building client engagement at low cost is providing channels where clients have a growing element of control. Rather than reducing service levels or moving service operations to lowcost locations, firms are reducing client contact costs by increasing the availability of lower-cost self-service channels for client segments that prefer this option.

10 4. Initiate actions to enhance your parent brand progressively over time In any marketplace, brands are built up in people s heads mostly through their personal experience of interactions with the brand itself. In one consumer survey conducted by Accenture, 45 percent of respondents indicated that they continue buying from companies because they have learned to trust their products. One key factor in trust creation is the credibility that stems from consistent delivery. Some 30 percent of participants in the same survey said that loss of credibility plays a strong role in their decisions to leave a provider. In combination, the first three building-blocks of customer centricity that we have described will enable the business to reach the right clients with the right messages for the right products via the right channels at the right time. They will also enable the firm to keep clients at the centre of strategic decision making, process design and management, organizational design, and talent management. In achieving these goals, the fourth building block becomes possible: fulfilling the brand promise in a way that can be continually improved through ongoing client feedback and behavioural analytics. Accenture research suggests that, even in times of limited credit and scarce capital, demonstrating a commitment to delivering a highly relevant, high-quality customer experience can be a powerful factor in both retaining and attracting customers. Harnessing the power of relevance When a capital markets business builds trust through relevance to client s behaviour and needs, this trust does not just apply to the immediate products being bought, but to its wider brand offering and values. This enables the firm to embed its brand with clients, boost client cross-sell and profitability, and optimise sales and marketing investment in new opportunities. A capital markets business that understands clients behaviour can tailor and target messages accurately and effectively not just at existing major clients, but also at clients who have the potential to become much bigger than they are. Where this is achieved, the outcome is a virtuous circle of improving relevance and rising brand strength, together with a growing organisational culture of client focus. A cultural bias towards the client does not happen by accident, but can only come about by design. This culture can be further embedded and accelerated by aligning the organisational culture with organisational accountability. To do this, the firm should establish corporate-level structures for performance measurement, oversight and accountability, directly linked to how well the customer experience is managed. This would include creating incentives that encourage all employees to cultivate a positive customer experience, focusing less on driving customer transactions for short-term gain of the individual in the firm, and more on fostering trust-based relationships with the firm s brand over the long term.

11 Conclusion: trust - the critical enabler It is impossible to pinpoint how all the factors affecting the capital markets industry - economic, commercial, regulatory - will play out during the coming years. However, what is clear is that a customer-centric organization will stay very close to its clients during these uncertain times. It will do this by maintaining a clear view of what each client wants from it, and of how successfully the firm is fulfilling that specific client s behavioural and business requirements. Put simply, a customer-centric capital markets business will differentiate itself with clients by staying relevant to them in difficult times. And its clients will appreciate and remember this relevance. They will come to trust the firm and its brand in a way that is both deeply intimate and highly professional. This in turn will open up opportunities for profitable growth. The critical enabler for capitalising on these opportunities is trust. A product can be commoditised. A trusted relationship, however, will always remain a unique differentiator. In Accenture s view, the successful capital markets businesses over the next few years will be those that make it their first priority to help clients achieve their long-term aspirations in the way they want to achieve them as opposed to simply convincing them to buy more products at any consequence. Crucially, firms can embark on this journey speedily, pragmatically and at low cost. The client data needed to support greater customer understanding already exists at various points within the organisation. Analytics are readily available that will quickly identify patterns and segments. The first step is to bring the data and analytics together, and then to act on the findings to build momentum from there. To find out more about how Accenture can help your capital markets firm put customers back at the heart of its business, please contact: Lupus Maltzahn, Accenture Capital Markets lupus.maltzahn@accenture.com

12 About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 211,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, Its home page is Copyright 2011 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.