Marketing - S4 - Tailieu Branches In Bloom

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Branches in bloom Will growing investment in branches bear fruit for banks? It was not long ago that electronic banking was expected to replace the branch as customers’ channel of choice. However, many of the developments that were expected to signal the branch’s demise are increasing its importance as a critical component of banks’ customer service strategies. The adoption of self-service, alternative channels has increased customers’ demand for 24x7 multi-channel access to accounts and has raised expectations for convenient, professional service from branch personnel. Major banks are now in a race to expand and renew their branch networks as a way to enter new markets, increase penetration of existing markets and build wallet share among customers. But simply having the most extensive or best-designed branch network may not be enough to succeed. In order to differentiate themselves from their competitors and achieve their growth objectives, banks must be able to attract customers to their branches, identify the needs of each customer in the branch and have the in-branch capabilities necessary to meet those needs. For branch transformation efforts to bear fruit, banks must blend their physical presence with innovative products, trained and motivated personnel and IT proficiency (both out front and behind the scenes) for a fully integrated approach to creating value.

Back to the future: Banking on the branch Branch transformation has been widely touted as a target area for opportunity and growth. Research shows that branch network expansion and renewal can contribute to asset growth and stronger operating performance.1 In the midst of increased competition, the key to creating value will be to move past what branch banking has been to understand what it has the potential to be in the future. A successful branch strategy depends on making smarter choices that will bear fruit long into the future.

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To boost productivity, increase sales and cut costs, banks must choose the right blend of three crucial elements: • The integration of a renewed branch presence and innovative products and services tailored to meet defined customer needs • The selection, training, compensation and motivation of branch staff • The proficient use of IT to support sales and streamline customer-facing and back office processes across channels.

Beyond the buzz: Basis for change Branches still have considerable impact on where and how customers bank. How customers pick a bank depends largely on the branch network – 49 percent of customers cite convenient location as a top reason they chose their bank.2 And in spite of the availability of online channels, branch activity is nearly uniform across all age demographics when it comes to purchasing new products. But customers’ continued reliance on the branch does not guarantee fruitful business results. The vast majority of customers seek branch service for low-value transactions. Forty to 60 percent of teller transactions are high-volume, low-value.3 These low-value transactions drain banks’ resources, taking time away from potentially higher-value customer relationship building activities. Forty-seven percent of banks say increasing product sales (e.g., new accounts, loans, deposits and CDs) will be the cornerstone of their branch strategy.4 Many banks, however, struggle to execute on this strategy since their branch staff lack necessary sales skills. Furthermore, banks are facing turnover rates as high as 30 percent resulting from exceptionally low pay and limited career opportunities.5 Banks are also increasing their investment in renewing and improving the capabilities of existing branches. IT spending is expected to focus on communication technology upgrades, teller systems and Customer Relationship Management (CRM) functionality. However, it may be difficult for banks to benefit fully from IT investments without also addressing workforce and sales strategy challenges. Finally, banks have to attract profitable customers to their branches before the competition does. Recent rapid expansion, and the race to gain wallet share through the branch, has amplified competition.6

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Getting a high yield from branch strategy Taking branch transformation to the next level requires an integrated approach. Focusing on finding the right mix of the following elements can help banks differentiate, and overtake the competition. Presence and products: Tailored by design – Some banks are changing branch presence and products to better cater to customers. By changing the look and feel of the branch, improving and streamlining service and offering attractive and innovative products, banks aim to target customers interested in high-value transactions. Successful branch strategy includes a blend of location, look and feel, and products that are tailored for target customers. • Physical presence – Optimizing the branch network helps banks take advantage of their organizational assets, including physical locations, human capital expertise, distribution alliances and brand equity. Banks should also consider redesigning their branches with layouts that serve customers more effectively and increase sales activities. Upon entering the branch, customers should be directed to the most effective point of service either by branch personnel or through clearly designated branch layout cues – or better still, both. Banks have begun taking cues from leading retailers, making the branch a more welcoming, efficient and exciting place to be. Their new designs include a mix of self-service options (to direct low-value transactions away from tellers), more free-roaming branch staff that ask and answer questions, and centralized and open “discovery zones” where customers can browse for information on banking products. • Products – Providing access to higher-value, consultative products and services including financial advice and planning, wealth management, investments, retirement products, insurance, tax and accounting services, and business services should be a key tenet of any branch transformation strategy. Products should be innovative, competitively priced and marketed to target customers at appropriate points in their lifecycles, instead of on a transaction-by-transaction basis. People: Building a sales culture – In a recent survey, banks’ goal of increasing product sales was superseded only by the desire to improve staff productivity (see Figure 1). In fact, developing and retaining effective and efficient branch personnel is critical to the success of any branch strategy.

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Figure 1. Main business goals of banks’ branch strategies. Improve staff productivity

50

Increase product sales

47

Enhance wealth management

43

Automate core teller functions

33

Integrate branches with other channels

18 5

Cut business costs 0

10

20

30

40

50

60

Percent of respondents Note: Survey base includes IT executives at 50 U.S. banks. Source: Datamonitor, “Branch renewal for community banks and credit unions,” June 2004.

As demands on branch personnel increase, banks need to modify their criteria for hiring and promoting front-line staff. Furthermore, employees need to know how they are doing in order to continue to develop their skills. Banks should provide supervisory on-the-job coaching as a tool for sales management. Continually reassessing how sales strategies and employee incentives are implemented is paramount: building a sales culture is an ongoing process of experimenting, learning and refining. The branch sales strategy should be regularly amended to reflect changes in target markets, types of products sold and the capabilities of branch staff. IT proficiency: Optimize your assets – Technology investments should do three things: support employees’ ability to sell, improve customer service and cut costs by improving efficiency. Whether a customer is banking online, at an ATM or at the branch, interactions should be seamless – both behind the scenes and on the sales floor. • Multi-channel sales and delivery – While only one-third of all customers prefer to use multiple channels, the majority of heavy bank users seek multi-channel access.7 Banks are increasingly motivated by the opportunity the branch presents as a key part of an integrated delivery system; the branch is expected to continue to lead all other channels in multi-channel delivery solution spending.8 But the true value of the branch network can be realized only if it is supported by a multichannel delivery strategy and architecture. This architecture should leverage common business logic so that individual channels handle customer transactions identically. A component-based architecture allows the bank to assemble and configure enterprisewide, scalable business systems quickly, recycling components across delivery channels.

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• Technology and process improvements – Pairing the right technologies with process reengineering helps branch staff focus their time on customers, instead of transactions. In addition, reengineering and streamlining branch processes to increase service efficiency, reduce manual and paper-based intervention and enable better integration across channels is crucial. But to remain competitive, banks need to take technology to the next level in the branch. Branch personnel should be equipped with advanced sales tools including mobile devices, knowledge management and scripting applications, as well as staffing optimization and performance monitoring applications that enable more effective sales efforts. Migrating transactional, or low-value, customer interactions to self-service channels and refining process automation allows branch staff to spend more time selling products to customers.

Test yourself To get the most out of your branch transformation investment, you first have to ask the right questions. A well-integrated branch strategy hinges on the knowledge that success is not wholly dependent on any one aspect of change – be it physical presence, people or IT proficiency – but on how these aspects are blended to meet banks’ goals. The following questions are designed to help banking executives begin to formulate a more fruitful approach to branch transformation. Figure 2. How fruitful are your branches? Do you have the branch designs and product offerings necessary to optimize revenue?

Does your branch provide a customer experience that supports sales goals?

Do your employees have the skills and incentives necessary to build a sales culture in your branches?

Do branch design, processes and technology effectively support branch offerings?

Are branch employees equipped with the customer data and tools they need to sell effectively?

Do you have the in-branch tools and integrated multichannel capabilities needed to optimize branch productivity?

Source: IBM Institute for Business Value analysis.

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Conclusion Is there an overarching, prescribed strategy for making branch transformation investments worthwhile? Unfortunately, no. It’s not as easy as an innovative lobby design. Nor is the answer a slick IT application. In order to draw out the most value, banks must choose the precise blend of physical presence, products, people and IT proficiency for their particular needs, as well as the needs of the customers they want to target. To gain competitive advantage and achieve a fruitful return on investment, banks must blend the elements of branch transformation to not only generate more revenue, but to serve customers throughout the customer lifecycle as well. Branch banking must also become a fully integrated aspect of multi-channel banking where customers can receive exceptional in-person service from knowledgeable, wellequipped bank personnel. To request the full version of this paper and understand how your company’s branch transformation investment can become more fruitful, please e-mail us at [email protected].

About the authors Sunny Banerjea is the Global Banking Industry Leader for the IBM Institute for Business Value. He can be contacted at [email protected]. Kimberly Hedley is a Senior Consultant for the IBM Institute for Business Value. She can be contacted at [email protected]. John White is a Managing Consultant for the IBM Institute for Business Value. He can be contacted at [email protected]. Contributors Daniel W. Latimore, Partner, Executive Director, IBM Institute for Business Value Bryan Lee, Retail Banking Solutions Management, IBM Global Financial Services Sector

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About the IBM Institute for Business Value IBM Business Consulting Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. This executive brief is based on an indepth study by the Institute’s research team. It is part of an ongoing commitment by IBM Business Consulting Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to [email protected] for more information.

References

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IBM Institute for Business Value analysis of public company information.

2

Shevlin, Ron. “What Influences Consumers’ Choice of Banks?” Forrester Research, Inc. October 2004.

3

Taylor, Keith. “Counter Those Teller Problems.” thebanker.com. December 2003.

4

“Branch Renewal for Community Banks and Credit Unions.” Datamonitor. June 2004.

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De Paula, Matthew. “With Rising Teller Turnover, Banks Aim to Retain.” U.S. Banker. January 2005.

6

Spieker, Ronald L., “Bank Branch Growth Has Been Steady – Will It Continue?” FDIC. August 2004.

7

Anderson, Doug. “Back to the Future: Bank Branches in an Electronic Age.” TowerGroup. June 2002.

8

“Retail Bank Delivery Channel Spending in the United States: 2001-2005.” TowerGroup. December 2001.

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