Hype Cycle for CRM in Financial Services, 2003

K. Collins, S. Nelson Strategic Analysis Report 13 June 2003 Hype Cycle for CRM in Financial Services, 2003 The financial services industry has been a leading adopter of customer relationship management technology. Financial services providers should carefully evaluate emerging cross-industry and vertical CRM options. Management Summary Financial services providers (FSPs) are moving beyond disillusionment with customer relationship management (CRM) technologies to focusing on how to derive business value from them. The financial services industry has been leading the way in CRM adoption. Early adopters of new technology are using CRM solutions to support their corporate business strategies. FSPs tend to be ahead of other industries in most technical areas of CRM, with the exception of partner relationship management (PRM), which lags other industries and is positioned further behind on this Hype Cycle than the general CRM Hype Cycle. However, although FSPs are typically more advanced in CRM than other industry sectors, it may take them longer to reach the Plateau of Productivity. There are several reasons for this: the conservative nature of sectors like insurance, the effect of the slow economy on the investment sector and the large number of small-to-midsize financial organizations that are typically moderate or conservative adopters of new technologies. As CRM strategies mature in the financial services industry and technology adoption moves to the mainstream, more vertical-specific applications are emerging. Many of these vertical solutions will allow those FSPs that have invested in CRM to achieve the next level of CRM sophistication. Others will be of greater value to moderate adopters of new technology and midmarket FSPs looking at first-time CRM investments. Gartner Entire contents 2003 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

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CONTENTS 1.0 The Hype Cycle...5 2.0 On the Rise...5 2.1 Text Mining in the Call Center...5 2.2 Dynamic Online Pricing Tools...6 2.3 Back-Office Financial Services Applications...6 2.4 Partner Relationship Management...6 2.5 Wireless CRM...7 2.6 Marketing Optimization...7 3.0 At the Peak...7 3.1 Front-Office Financial Services Applications...7 3.2 Customer Experience Management...8 3.3 Desktop Tools for Scenario Planning...8 3.4 CRM Framework Vendors...8 3.5 Marketing Resources Management...8 3.6 Real-Time Analytics...9 4.0 Sliding Into the Trough...9 4.1 Lead Management Solutions...9 4.2 Verticalization...9 4.3 CRM External Service Providers...10 4.4 Fully Integrated Self-Service and Selling...10 4.5 CRM Suites...10 4.6 Customer Data Integration and Data Quality...11 5.0 Climbing the Slope...11 5.1 CRM Overall...11 5.2 E-Marketing...11 5.3 Campaign Management Systems...12 5.4 Affinity/Loyalty Programs...12 6.0 Entering the Plateau...12 6.1 Sales Force Automation...12 6.2 Segmentation...13 7.0 Conclusion...13 Appendix A:Hype Cycle Definitions...14 Appendix B:Acronym Key...15 13 June 2003 3

FIGURES Figure 1. Hype Cycle for CRM in Financial Services, 2003...5 13 June 2003 4

1.0 The Hype Cycle Visibility Desktop Tools for Scenario Planning Key: Time to Plateau Front-Office Financial Services Applications CEM MRM CRM Framework Vendors Real-Time Analytics Lead Management Solutions Verticalization Less than two years Twotofiveyears Five to 10 years Segmentation SFA Partner Relationship Management Dynamic Online Pricing Tools Marketing Optimization Wireless CRM Back-Office Financial Services Applications Text Mining in the Call Center CRM ESPs CDI and Affinity/Loyalty Programs Data Quality CMS E-Marketing CRM Overall CRM Suites Fully Integrated Self-Service and Selling As of June 2003 Technology Trigger Peak of Inflated Expectations Trough of Disillusionment Slope of Enlightenment Plateau of Productivity Maturity Acronym Key CDI customer data integration CEM customer experience management CMS campaign management system CRM ESP MRM SFA customer relationship management external service provider marketing resources management sales force automation Source: Gartner Research (June 2003) Figure 1. Hype Cycle for CRM in Financial Services, 2003 2.0 On the Rise 2.1 Text Mining in the Call Center Definition: Tools that mine text from call center transcripts to look for customer issues. Justification for Hype Cycle Position/Adoption Speed: Although leading edge today, text mining is predicted to take off quickly because it is a tactical solution that will generate immediately visible benefits. Business Impact Areas: Financial services companies looking to identify customer issues in the call center to improve customer service and satisfaction. Information from text mining can trigger alerts or notifications to call center or other staff. Can be used to monitor the customer experience. 13 June 2003 5

2.2 Dynamic Online Pricing Tools Definition: Analytic tools that business users, such as relationship managers, can use to dynamically price and bundle products and services on a per-customer basis. Considers a variety of factors, including customer profitability and risk. Time to Plateau/Adoption Speed: Five to 10 years. Justification for Hype Cycle Position/Adoption Speed: A few corporate banks have developed analytical tools that leverage customer profitability information at the activity-based costing level to automate a previously manual bargaining process. Business Impact Areas: Will be used by corporate finance to improve customer profitability by pricing according to risk/reward ratios. Automotive finance companies can also leverage these tools through their dealer networks. May eventually be used online by customers themselves to select bundled products and services and determine price. Retail finance will follow. 2.3 Back-Office Financial Services Applications Definition: Applications, such as core systems, whose vendors have integrated CRM functionality with back-office processes to ensure greater and more-rapid data access. Justification for Hype Cycle Position/Adoption Speed: To date, FSPs have not widely adopted these solutions, which are probably a more-viable alternative for the midmarket. Business Impact Areas: Integration of legacy and core systems will give FSPs improved data access. Selected Vendors: Fidelity Information Services, Fiserv, Metavante, Jack Henry, SAP, Systems Access and Temenos. 2.4 Partner Relationship Management Definition: Partnership relationship management (PRM) is CRM extended to partners such as agents, brokers, dealers, issuers, financial advisors and planners. Time to Plateau/Adoption Speed: Five to 10 years. Justification for Hype Cycle Position/Adoption Speed: With the exception of a few insurance companies, PRM has remained untapped in the financial services market. Business Impact Areas: Insurance, followed by the investment industry, will benefit from better managing their demand networks. Industries such as credit cards can benefit from managing coalition loyalty partners. Automotive finance companies can use it to manage dealer networks. Selected Vendors: Chordiant Software, Click Commerce, InfoNow and MarketSoft. 13 June 2003 6

2.5 Wireless CRM Definition: Use of wireless devices to send CRM information to customer contact employees and customers. Justification for Hype Cycle Position/Adoption Speed: In financial services, wireless CRM has taken off only in a few sectors, such as investments, and in certain geographies, such as Europe. But it has yet to achieve widespread adoption. Business Impact Areas: Growth in the investment industry is likely, particularly once the economy rebounds. Outside of Europe, other industry sectors will lag. 2.6 Marketing Optimization Definition: Optimizes marketing campaigns by offering multiple constraints and decision points to determine best offers based on advanced statistical techniques, including nonlinear regression and mathematical modeling. Time to Plateau/Adoption Speed: Five to 10 years. Justification for Hype Cycle Position/Adoption Speed: Leading FSPs are looking to marketing optimization as the next level of marketing sophistication. Most firms, however, will be unlikely to adopt in the near term, requiring a better analytical foundation first. Business Impact Areas: Optimization will enable FSPs to further improve marketing efficiencies and increase the effectiveness of their marketing efforts and customer offers. Technology can also support optimization of marketing functions and workforce alignment. Selected Vendors: Marketswitch. 3.0 At the Peak 3.1 Front-Office Financial Services Applications Definition: Front-office applications such as branch automation and Internet banking that integrate frontoffice processes with CRM processes. Justification for Hype Cycle Position/Adoption Speed: Most financial services deployments have been tactically focused on a channel. FSPs have generally been skeptical of enterprise deployments. Business Impact Areas: FSPs can achieve a more-integrated front office that supports channel management. Adoption in the branch and call center are most likely. Selected Vendors: Argo Data Resource, John H. Harland, London Bridge Group, S1 and WebTone Technologies. 13 June 2003 7

3.2 Customer Experience Management Definition: Customer experience management (CEM) is working with the customer or analyzing customer data to determine the appropriate contact method or delivery channel. Justification for Hype Cycle Position/Adoption Speed: Many FSPs are considering how to redesign their branches, call centers and Web sites to meet customer expectations. However, few have executed successfully on CEM. Business Impact Areas: FSPs will be able to create better customer experiences within and across the different channels, improving customer satisfaction and fueling relationship growth. 3.3 Desktop Tools for Scenario Planning Definition: A desktop system that incorporates CRM and business intelligence functionality, enabling relationship managers or product specialists to perform scenario planning on the customer's portfolio. It supports relationship and account planning. Justification for Hype Cycle Position/Adoption Speed: A few corporate FSPs have built such systems, sometimes in conjunction with a vendor leveraging their CRM platforms. Business Impact Areas: Use in corporate and wholesale banking will broaden to include the wider corporate financial services market. Scenario planning could eventually include business-to-business-toconsumer models such as insurance and brokerage. 3.4 CRM Framework Vendors Definition: CRM framework vendors offer a platform, typically based on Java Enterprise Edition, Version 2, from which to build CRM components. These usually require 60 percent or more customization. Justification for Hype Cycle Position/Adoption Speed: As the build-vs.-buy dilemma for CRM rages, some FSPs are considering this as a middle-of-the-road strategy to leverage the vendor as a partner to build a more-customer-oriented solution. Business Impact Areas: A less-expensive and more-practical long-term alternative for FSPs that are considering building, particularly in sectors with few verticalized prepackaged applications, such as corporate finance and investment sector. Selected Vendors: AIT Group, Chordiant, Eontec and J.D. Edwards. 3.5 Marketing Resources Management Definition: Marketing resources management (MRM) is the attempt to automate marketing processes. 13 June 2003 8

Justification for Hype Cycle Position/Adoption Speed: Many FSPs have attempted to automate this process using less-desirable spreadsheet technologies. As adoption of MRM solutions grows, enterprises can improve the marketing function. Business Impact Areas: FSPs will be better able to manage complex marketing operations while justifying marketing resources and optimizing budgets. Selected Vendors: Aprimo, AssetLink, MarketSoft, SmartPath and Unica. 3.6 Real-Time Analytics Definition: Analyzing data in real time, or close to real time, including event triggering, state-based monitoring, profiling and scoring. Justification for Hype Cycle Position/Adoption Speed: More FSPs are monitoring events to trigger customer actions in close to real time (usually 24 hours). Few FSPs are using real-time scoring during the inbound customer communication. Business Impact Areas: Real-time analytics will enable FSPs to detect and respond quickly to customer attrition threats and identify cross-selling opportunities. Selected Vendors: Elity, E.piphany, DataDistelleries, Harte-Hanks, SAS and Synapse Technology. 4.0 Sliding Into the Trough 4.1 Lead Management Solutions Definition: Tools that support the integration of lead generation, collection, qualification, prioritization, execution, monitoring, escalation and measurement. Justification for Hype Cycle Position/Adoption Speed: Retail FSPs have adopted lead management with an emphasis on lead generation, but most of these processes will break down. Solutions implemented to date are often tied to narrow sets of CRM functionalities, such as sales or marketing, but need to automate leads across various CRM functions. Business Impact Areas: Will improve the ability of financial services to manage leads within the enterprise and across demand networks in intermediary-driven organizations. Selected Vendors: MarketSoft and Webtone. 4.2 Verticalization Definition: Verticalization of CRM applications to support industry-specific requirements. 13 June 2003 9

Justification for Hype Cycle Position/Adoption Speed: Early verticalized CRM solutions leveraged financial services data models. More are beginning to incorporate financial services best practices, business processes and functions. Business Impact Areas: Verticalized applications will offer greater appeal to Type B (moderate adopters of new technology) FSPs and the midmarket. They will provide greater integration to established systems and related business processes. Selected Vendors: E.piphany, NCR Teradata, Onyx, PeopleSoft, SAP, SAS and Siebel Systems. 4.3 CRM External Service Providers Definition: CRM external service providers (ESPs) are third parties that provide professional services around CRM software. Justification for Hype Cycle Position/Adoption Speed: Most large CRM deals in financial services have an ESP associated with them. However, some FSPs commit their own resources. As CRM moves into the mainstream, FSPs are looking to ESPs for business strategy, not just implementation experience. Business Impact Areas: The role of services, particularly in areas such as marketing processes and sales training, will augment FSPs' strategic capabilities and allow them to improve CRM effectiveness. Selected Vendors: Accenture, IBM, eloyalty, Quaero and Sophron Marketing. 4.4 Fully Integrated Self-Service and Selling Definition: Allowing customers to meet their own service requests and buy products via self-service channels. Justification for Hype Cycle Position/Adoption Speed: Having spent significantly on self-service channels several years ago that did not bring expected returns, FSPs are refocusing on these channels and integrating them with traditional channels. Business Impact Areas: Realizing that customers do not replace one channel with another, FSPs will refocus these channels on their potential for revenue generation via marketing and sales, and not just on cost reduction via service. Selected Vendors: S1 and WebTone Technologies. 4.5 CRM Suites Definition: Software applications that combine sales, marketing and customer service functionality in one package. 13 June 2003 10

Justification for Hype Cycle Position/Adoption Speed: Most large, early adopter FSPs have tactical or best-of-breed CRM deployments. Few have taken an enterprise approach and really integrated the CRM suite. Poor economic conditions will prevent rapid deployment of enterprise solutions. Business Impact Areas: FSPs will achieve cross-functional CRM process integration that drive enterprise CRM. Those considering integration with broader business processes may look to other solutions. Selected Vendors: Siebel Systems, PeopleSoft, Onyx Software, Oracle and SAP. 4.6 Customer Data Integration and Data Quality Definition: Customer data integration (CDI) and data quality is a combination of cleansing, hygiene, standardization and data strategies. Making sure data is accurate, relevant and appropriate. Justification for Hype Cycle Position/Adoption Speed: FSPs have data all over the enterprise and many have yet to resolve their data integration and quality issues, often not recognizing the problem until they are far along in a CRM implementation. Business Impact Areas: FSPs will be able to achieve a better understanding of their customers through data and analysis, and interact with them in more-meaningful ways through data quality and CDI tools. Selected Vendors: Acxiom, Continuous Computing (Trillium), Experian and Group 1 Software,. 5.0 Climbing the Slope 5.1 CRM Overall Definition: CRM is a business strategy, the goal of which is to discern key business information and to apply that information to a business advantage. Justification for Hype Cycle Position/Adoption Speed: Many FSPs are recognizing the value that CRM can bring to them by enabling them to grow organically through customer retention and cross selling. Business Impact Areas: Banks are leading on this front, followed by insurance, nontraditional providers (for example, auto finance) and the investment industry. 5.2 E-Marketing Definition: Use of electronic channels to carry a marketing message. Would include areas such as e-mail marketing, banners, and personalized Web content. Justification for Hype Cycle Position/Adoption Speed: FSPs are realizing that prospecting via e-mail and traditional advertising via Web sites are not working. Many are rethinking their e-marketing strategies and how these relate to broader marketing initiatives. 13 June 2003 11

Business Impact Areas: Prospecting and profiling on the Web site will enable FSPs to generate leads. E- mail will be used for customer communications and permission-based marketing. Selected Vendors: Blue Martini Software, BroadVision, E.piphany and Kana. 5.3 Campaign Management Systems Definition: Campaign management systems (CMSs) are central communication hubs for marketing campaigns. Justification for Hype Cycle Position/Adoption Speed: Thirty-one percent of FSPs use CMSs. Many are still used primarily for direct mail, but their use with other channels, such as branch and call centers, is growing. Business Impact Areas: FSPs will be able to coordinate the execution and measure results across different campaigns and multiple channels. Selected Vendors: Chordiant, DoubleClick, E.piphany, NuEdge, SAS, Teradata and Unica. 5.4 Affinity/Loyalty Programs Definition: Programs to encourage loyalty. Justification for Hype Cycle Position/Adoption Speed: There is wide divergence in the sophistication of loyalty programs across financial services sectors, but credit card issuers are clearly leading in this area. Business Impact Areas: Other industry sectors such as banks, investment and insurance will benefit from loyalty programs that improve the customer experience and provide benefits. 6.0 Entering the Plateau 6.1 Sales Force Automation Definition: Sales force automation (SFA) uses technology to automate the sales process. Technologies include laptop computers, personal digital assistants, contact databases and interactive or guided selling systems. Justification for Hype Cycle Position/Adoption Speed: Previous SFA implementations in financial services did not focus enough on change management, and tools received limited use. FSPs are now developing more-effective training and incentive programs. Business Impact Areas: FSPs will recognize improvements in the sales process and increased ability to effectively cross-sell products and services. Corporate FSPs will gain benefits first, followed by retail financial services. 13 June 2003 12

Selected Vendors: Oracle, PeopleSoft, SAP and Siebel Systems. 6.2 Segmentation Definition: Dividing customers into replicable groups. Justification for Hype Cycle Position/Adoption Speed: Just greater than half of all FSPs perform customer segmentation, including almost all banks. Most others are planning to do so by year-end 2004. Business Impact Areas: Formal, along with tactical, segmentation will enable FSPs to match customer characteristics, preferences and behavior to marketing sales and service strategies. 7.0 Conclusion CRM in financial services is not only here to stay, it is getting hotter. Moderate and conservative adopters of new technologies have more options to choose from, and many of the new verticalized solutions are ideal for moderate adopters or the midmarket FSP. Newer CRM applications and tools will also enable early-adopter FSPs to take their CRM strategies to the next level of sophistication, enabling them to stay ahead of the mainstream competition. 13 June 2003 13

Appendix A: Hype Cycle Definitions Technology Trigger: A breakthrough, public demonstration, product launch or other event generates significant press and industry interest. Peak of Inflated Expectations: During this phase of overenthusiasm and unrealistic projections, a flurry of well-publicized activity by technology leaders results in some successes, but more failures, as the technology is pushed to its limits. The only enterprises making money are conference organizers and magazine publishers. Trough of Disillusionment: Because the technology does not live up to its overinflated expectations, it rapidly becomes unfashionable. Media interest wanes, except for a few cautionary tales. Slope of Enlightenment: Focused experimentation and solid hard work by an increasingly diverse range of organizations lead to a true understanding of the technology's applicability, risks and benefits. Commercial, off-the-shelf methodologies and tools ease the development process. Plateau of Productivity: The real-world benefits of the technology are demonstrated and accepted. Tools and methodologies are increasingly stable as they enter their second and third generations. The final height of the plateau varies according to whether the technology is broadly applicable or benefits only a niche market. Approximately 30 percent of the technology's target audience has or is adopting the technology as it enters the Plateau. Time to Plateau/Adoption Speed: The time required for the technology to reach the Plateau of Productivity. 13 June 2003 14

Appendix B: Acronym Key CDI CEM CMS CRM ESP FSP MRM PRM SFA customer data integration customer experience management campaign management system customer relationship management external service provider financial services provider marketing resources management partner relationship management sales force automation 13 June 2003 15