(Summary) European Management Journal Vol

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European Management JournalVol. 18, No. 3, pp. 312327, 2000

Pergamon 2000 Elsevier Science Ltd. All rights reservedPrinted in Great Britain

PII: S0263-2373(00)00013-X 0263-2373/00 $20.00

Customer RelationshipManagement (CRM) in

Financial ServicesJOE PEPPARD, Cranfield University School of Management, UKToday, many financial services organisations are

rushing to become more customer focused. A key

component of many initiatives is the implementationof Customer Relationship Management

(CRM) software. Our research has highlighted that

most institutions take a rather narrow view of CRM

and as such, benefits have been limited. While

second generation CRM has emerged to embrace

the total organisation (hence Enterprise CRM), success

in general has still not been widespread. In the

paper, a framework is presented which is based on

incorporating ebusiness activities, channel management,

relationship management and backoffice/

front-office integration within a customer

centric strategy. 2000 Elsevier Science Ltd. All

rights reservedOnce upon a time retailers, banks, insurance companiesand car dealers had a close relationship withtheir customers. They often knew them individually,understood what they wanted, and satisfied theirneeds through personal customised service. As aresult, they earned loyalty and a large share of theircustomers business. This, however, was a costly andinefficient system and customers effectively subsidisedthis relationship by paying higher prices. Overthe years, through mass marketing and increasedconsumerism customers traded relationships foranonymity, reduced variety and lower prices.

Today, through the effective use of information andcommunications technology, such a tradeoff is nownot necessary; organisations can offer their customersvariety, lower prices and personalised service and allat the same time. An airline gate attendant whomyou have never set eyes on knows you are a valuablecustomer and upgrades your seat to first class in preferenceto a once-a-year holiday traveler. Your garagereminds you that your car is due for service. A carhire company takes your reservation on a dedicated


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line, then presents you with a waiting rental car completewith your name in lights when you arrive at312 European Management Journal Vol 18 No 3 June 2000

your destination. Your bank informs you that youhave excess funds in a non-interest bearing account.These companies are practicing elements of anapproach to marketing that uses continuously refinedinformation about current and potential customers toanticipate and respond to their needs. This is thepractice of Customer Relationship Management(CRM).1 Many businesses today realise the importanceof CRM and its potential to help them achieveand sustain a competitive edge. These organisationsare already changing their business processes andbuilding technology solutions that enable them toacquire new customers, retain existing ones, andmaximise their lifetime value.Although CRM is a recent concept, its tenets havebeen around for some time. Marketeers have alwayspromoted close relationships with customers.2 Customer

profitability has been touted as significant formany years, but has been difficult to determine asmany institutions are organised along product orchannel lines as opposed to customer. Similarly, theconcept of mass customisation has been in the literaturefor nearly a decade (Pine, 1993). However, allhave remained essentially theoretical concepts; aspirationsrather than a practical or commercial reality.Today, due to advances in information and communicationstechnology, the promise of one-to-onerelationships, customer-value analysis and mass customisationare now possible. Yet, despite the role oftechnology these manifestations are less of a technological

phenomenon than a profound change in theeconomics of information (see Box 1) (Evans andWurster, 1997, 1999; Rayport and Sviokla, 1995). Anew business ecosystem is emerging.

BOX 1: THE NEW ECONOMICS OF

INFORMATION

The new marketplace is characterised by achange in the economics of information. TheCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

traditional economics of information can berepresented by a tradeoff between the richnessof information and reach of message (Evansand Wurster, 1997, 1999). Reach is aboutaccess and connection; it means how manycustomers a business can connect with andhow many products it can offer to thosecustomers. Richness is the depth and detail ofinformation that can be given to customers aswell as the depth and detail of theinformation collected about customers.The conventional economics of informationdictates that information rich in dialogue,customisation and interactivity can only reach


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a limited audience. For example, thetraditional sales pitch to a client usuallyincludes a presentation, perhaps incorporatingvideo and other client testimonies; questionscan be posed and answered in an interactivesession. The reach, or audience connected to,is one company but the richness of theinformation exchange is huge, particularlywhen compared to that on a typical newspaper advertisement. Using this media, theadvertiser has to be very selective on theamount of information displayed on the ad asspace is limited, but it does however reach amass audience.Today, sophisticated technologies like theInternet, Digital TV, and wirelesstelecommunications mean that this tradeoff,illustrated by the curve in the above diagram,is now not necessary. A rich message canpotentially be conveyed to a wide base of

customers. These newer technologies define anenvironment that is fundamentally differentfrom older technologies in a number of ways.And it is in this new environment orecosystem where the old rules of business nolonger hold.The technologies available today are differentin three respects to those of the past. Theypermit an increased connectivity capability;distinctions between different technologytypes are blurring; and technology is nowinteractive.Connectivity. Today it is relatively easy and

cheap to connect to global networks, resultingin the PC and mobile phone emerging asubiquitous devices. One of the consistentEuropean Management Journal Vol 18 No 3 June 2000 313

lessons of technological innovation is that theemergence of standards stimulates bothuptake and investment and this hascharacterised technological developmentsduring the 1990s. It is now accepted that thevalue of the network increases with anincrease in numbers, often referred to as thephenomenon of network externalities;imagine being the first person with a faxmachine or a mobile phone? The value of anetworked good, such as a telephone or PC,increased as to the square of the number ofother people in the network. For example, anetwork with a node of one has a value of nil;a network with two nodes has a value of one;a network of three nodes has a value of three;a network of 7 nodes has a value of 21, etc.Convergence. Digital technologies themselvesare converging. The emerging Wireless


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Application Protocol (WAP) technology, forexample, permits Internet access using thewireless cellular network blurring furtherdistinctions between fixed and mobiletechnologies.Interactivity. New technology provides for trueinteractivity. This interactive element is ofcrucial importance since much businessactivity consists of interactions (human andtechnical communication, data gathering,collaborative problem-solving, negotiation).Indeed, a recent McKinsey report suggestedthat 51 per cent of US and 46 per cent ofGerman labour costs are accounted for byinteractive events (Butleret al., 1997).Interactivity today allows the customer toshape the product or service and the supplierto learn from the customer.The effective management of information has a crucialrole to play in CRM. Information is critical for

product tailoring; for service innovation (e.g. tailoredwebsites); for providing a single and consolidatedview of the customer; for calculating customer lifetimevalue; for establishing an integrated multi-channelcapability. Yet it is not just about having bettercustomer information and perhaps then being ableto offer new services (e.g. prompting customers totransfer money if they build up a large balance on anon-interest bearing account) but also personalisingthe transaction. The customer should be knowneverywhereif they phone, if they go to an ATM,if they use the Internet or if they visit a differentbranch. This concern for consistency of service across

channels is becoming a recurring theme propagatingthe imperative for an integrated channel.Although a recent phenomenon, the CRM concepthas already been extended to include the wholeenterprise in dealing with customers and ECRMCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

(where E 5 enterprise) has emerged as its currentmanifestation. Research to date would suggest thatfinancial institutions in particular must adopt anenterprise-wide perspective, with front-office/backofficeintegration, if they are to become truly customer-centric and capitalise on the opportunitiesprovided by the information which this makes availableto them.Our research has highlighted that most financial serviceorganisations have a rather narrow view ofECRM. For some, ECRM is seen as a technology solutionrather than a strategy. Software packages arechosen to overcome the problems inherent in incompatiblelegacy IT systems, often due to merger andacquisition activity, where providing a consolidatedview of customers is difficult if not impossible, severelyimplicating frontline staff in their interactions


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with customers. The CRM solution is seen as providingthe platform to provide an integrate view of thecustomer. In other organisations, the ECRM projectis driven by the requirements of one function ratherthan as part of an overall enterprise-wide customercentricstrategy. In essence, this manifests the factthat despite the many re-engineering initiatives thathave taken place in financial services institutionsover the last decade, different departments within anorganisation still operate as silos and consequentlyhorizontal end-to-end customer processes are still notwell understood or defined. In an increasing numberof organisations the CRM initiative is being drivenby the marketing department who see the end resultof a repository of customer information and wish toutilise datamining techniques seek to extract patternsfrom this data for marketing decision-making purposes.Yet, European financial service institutions candeliver value from their ECRM investments, but todo this they must take a broader perspective of the

concept.3 Our research suggests that such a comprehensiveperspective can be captured using the acronymECRM but where these letters denote four centralconcepts. These concepts areE: Ebusiness and more importantly the integrationof ebusiness activities within the frameworkof all existing and future commercial activities.C: Channel managementthe channel of greatestimpact or economy anytime, anywhere, andanyoneintegrated and interactive channels ofaccess and distribution.R: Relationshipsreal commercial relationshipsbuilt on service excellence, value and convenience.

M: Management of the total enterprisetotalback-office/front-office process integration.In the remainder of this paper we develop these fourconcepts in the context of a CRM initiative. While the314 European Management Journal Vol 18 No 3 June 2000

focus is on financial services organisations many ofthe issues are equally relevant for other industries.We illustrate how each of the four concepts is challengingtraditional players suggesting how theymight be addressed.

EbusinessThere has been tremendous hype surrounding theconcept of ebusiness,4 much of it fueled by technology

vendors and a media feeding frenzy, the likeof which has not be seen before. One only has to pickup a newspaper to see the variety of e-related storiesand advertisements. While there is a changingworld out there it is important to maintain a senseof proportion and reality and be clear as to what itis that is changing.The word ebusiness itself is something of a misnomer.The word as spoken colloquially is generallyused without any real clarity, in an almost flippant


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way as if everyone understands what it means. Fromour experience this is not the case; asking a groupof managers what e-business means to them usuallyresults in a wide variety of responses.In its current manifestation, ebusiness falls into twobroad categories. First is the use of technology to reengineerbusiness processes that are primarilyinternalto the organisation. This could entail usingcomponent-based technologies to develop a new lifeand pensions application or developing a web-basedloan processing application on the corporate Intranet.Second, it relates to the use of technology in how theorganisation interfaces with business partnerswhether they are customers or suppliersan externalfocus. For example, enabling customers transactbusiness over the Internet or establishing a neworganisational model, what has been referred to as avirtual organisation (Venkatraman and Henderson,1998). In reality, e-business labeled initiatives inorganisations generally exhibit attributes of both

these categories. As a preliminary perspective of ebusiness,it is concerned with an organisation establishingan electronic business platform within a strategicbusiness context.Creating this platform is somewhat similar todeveloping an IS/IT strategy, which many organisationhave done for the last 30 years. Technology maybe more sophisticated than it was back then but thebasic premise still holds: an organisation shouldexamine technological advancements in developingits business strategy and articulate how technologywill support its strategic thrust. This, however, ismore than mere alignment of IT investments with

business strategy; the duality of technology is that itboth enables strategies as well as creates strategies.Unfortunately, many organisations have mistakenlysought to develop a separate ebusiness strategy inCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

order to conquer this revolution. An ebusiness strategyshould notbe seen as an adjunct to the businessstrategy but become an integral part of the businessstrategy. We firmly believe that when the hype diesdown that the e will be dropped and that there will be no false distinction between business and ebusinessit will all just be considered business. This inclusivestrategy of the business will incorporate the opportunitiesprovided by technology, enabling the organisationto establish the electronic business platformthat is fully integrated into its business model. Businessis converging with technology and the messageis no different from that of IT and competitive advantage, argument of the 1980s: technologydecisions are essentially business decisions (Peppard,1993; see also Porter and Miller, 1985).

The New Business Ecosystem

The new economics of information creates a new


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business environmenta new ecosystem. What isdifferent today, and this is the central aspect, is thatmore and more business gets transacted in a computer-mediated environment; and this environmentis significantly different than the physical world. Itrepresents a shift from conducting business transactionsin the physical marketplace to the virtual orcyber marketspace. This new space has also beenreferred to as the New Economy (Cambridge TechnologyPartners, 1999).Conducting business in this ecosystem has tremendousimplications for the rules (Kelly, 1998; Hageland Singer, 1999; Channon, 1998; Bate et al., 1997) andtraditional practice of business (Rayport and Sviokla,1994) as well as overall market efficiency (see Taylor,1999). Internet trading, for example, is rewritinginvesting rules in the US and Europe (Business Week,1998, 1999a; Financial Times, 1998, 1999); capital markets,it is argued, will become more liquid andefficient (Farrell, 1999; Business Week, 1999a, b). The

ecosystem of the New Economy is different andoperating in this new ecosystem presents bothopportunities and threats for traditional financial serviceindustry players and indeed for our currentunderstanding of the industry (Dowling et al., 1998).Cognisance and due recognition must also be givento the rapid deregulation and economic restructuringtaking place in Europe in both financial services andtelecommunications as well as increased globalisationwhich are further impacting the financial servicesindustry and adding to the turmoil (Guyon,1999; Fluret al., 1997).The evidence to date suggests that traditional business

models are unlikely to translate profitably intothe new ecosystem (Kelly, 1998; Tapscott et al., 1998).The prescription is that organisations should look fornew opportunities provided by new technologies.Competing and operating in the marketspace opensup a wide range of strategic options and opport-European Management Journal Vol 18 No 3 June 2000 315

unities for innovative products and services and thecreation of new business models. Examples include:v Establishing e-banks with no presence in thephysical worldv E-billing or electronic bill presentation (Borths andYoung, 2000; Authers, 1999; Ouren et al., 1998)v Banks establishing online purchasing sites(Ferguson, 1999)v Issuing e-bonds (Business Week, 1999b; Catan andChaffin, 2000)v Virtual wallets (Mackintosh, 1999a)The original e-banking route relied on a PC andmodem for direct access to bank accounts. The servicegenerally provided poor functionality and customersnormally had to download account detailsinto additional money-management software. The


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Internet, with its interactive capabilities, enablesbanks to provide a significantly enhanced service.The first Internet bank to provide electronic bankingwas Security First Network Bank in October 1995.Since then many more institutions have followed.European institutions in general (with the exceptionof Scandinavian countriessee Box 2) had initiallybeen slow to respond to opportunities provided bythe Internet but have since gathered momentum. TheUKs Barclays Bank, Germanys Commerzbank andBayerische Banks, Norways Christiana Bank, andCredit Suisse all have Internet offerings.But activity should not be confused with success.Recent research in the UK suggests that the financialservices industry is investing in e-business as an actof faith, motivated by the fear of being left behind with little knowledge of the eventual value of theinvestment (CBI, 2000).BOX 2 MERITANORDBANKEN

Finnish banks were looking at ways to push

out from Bricks and mortar well before thebanking crisis of the early 1990s forced banksto radically reassess their cost bases. Electronicmeans of banking have proved such a successthat cheques have been a rarity in Finlandsince the end of the 1970s when most otherEuropean Banking systems were stillswamped in paper.MeritaNordbanken, Finlands largest bankformed from the merger between FinlandsMerita Bank and Nordbanken of Sweden in1997 is arguably the most developedelectronic bank in the world. It offers

customers a large array of e-banking accessdevices, a multitude of customer-centricfinancial offerings and has developed itsbusiness strategy to leverage its existing retailcustomer base to offer value-added services toCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

its corporate clients. It brought in telephonebanking in 1982, PC banking in 1984 andinvestments trading in 1988. In 1992, a mobilepayments service was added to the overallmix.The move into open ebusiness networks tookplace in 1996 which, by the year-end, nettedMerita 250,000 Internet Banking customers.Two years later, e-billing and Internet TVwere added and the bank developed a set ofelectronic identification and signature codesthat customers could use across the variousaccess platforms.Meritas e-banking customers can access theironline account via payment ATMs, telephone,GSM mobile, PC, Internet TV, and soon,wireless application protocol (WAP)


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interactive mobile phones, making its accessmix one of the richest in the world. It offersbasic banking, stock trading, investment fundtransactions, purchase and sale of bonds,account opening, credit cards ordering, creditcard transactions viewing, general billbalances via GSM mobile and loanauthorisation guaranteed within one hourwithout any paperwork being signed. It hasestablished open pages geared to building uplife-event combinations to avoid offeringstraight deposits, loans and paymentproducts. They approach it from a personslife eventslike studies, going abroad,retirement, the need to move somewhere, etc.Merita has 600,000 Finnish Internet bankingcustomers, 500,000 of which actively use theservice on a monthly basis, representing 42per cent of its retail customer base in Finland.The take-up rate is about 15,000 customers per

month and the current monthly logon is twomillion per month, or four logons per activecustomer. 26 per cent of all bill payment1.5 million per monthtake place via theInternet.Operating in this new ecosystem has a number ofimplications. These are:v Reduce cost of businessv Increase service levelsv Reduce entry barriersv Extend global reachv Challenge brandsv Bundling and unbundling products and services

v Dislocation of locationv Returns power and control back to the customerIn the remaineder of this section these implicationsare examined.316 European Management Journal Vol 18 No 3 June 2000

Reduce Cost of Business

Many financial organisations have been re-engineeringtheir core business processes over the last decade(Drew, 1994a, b; Dutta and Teboul, 1994; Currie andWillcocks, 1996). This has lead to cost reductions, andin some cases these have been quite significant. Yeteven today, many banks still have a high costincome ratio. Even highly efficient banks such as

Bank of Scotland and Lloyds TSB have ratios around50 per cent (49.5 and 46.6 per cent respectively). AtDeutsche Bank, the ratio in 1998 climbed to 78 percent.New distribution channels provide opportunities toreduce costs of processing transactions. It is estimatedthat the cost differential between transactingbusiness in a branch and over the Internet is quitesignificant (see Table 1).5 Branches are increasingbeing considered a cul-de-sac and by pruning the


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branch network, it is argued that banks couldimmediately reduce their cost structure.From a customer perspective savings can be equallysignificant. Over the last three years the cost of buyingand selling shares have been impacted by theInternet. While traditional brokerages charge a commissionof 12 per cent on the value of every trade,companies like datek.com offers trading at $9.99 pertrade no matter what the value of the trade is andthere are suggestions that in the near future tradingwill be for free.E*Trade was established as a purely Internet onlyoperation which enables stock transactions to beinitiated. The fact that E*Trade has been electronicsince its inception creates obvious cost efficiencies.Today, E*Trade is possibly twice as efficient asCharles Schwab in terms of the amount of trades percustomer it can handle. Net.B@nks (an Internet only bank) operating expenses are about half those of acomparable traditional bank so they can pay higher

interest rates on accounts and avoid service charges(The Economist, 1999). For the insurance industry, abig advantage of selling via the Internet is that theclient does the work and even pays the connectioncosts.Table 1 Service Delivery Channels and AssociatedTransaction CostsDelivery mechanism Transaction costs (Stg)In-branch teller 1.20ATM 0.40Telephone 0.30PC Banking 0.20Internet banking 0.01Source: Datamonitor 1999.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

Increase Service Levels

The marketspace provides opportunities for banks toreposition existing products and services as well asdevise new offerings, increasing the quality of servicewhich they deliver to customers. An increasing numberof retail banks are allowing customers to accessaccount information direct from a PC or mobilephone. They can also move funds between accountsas well as pay bills or apply for overdraft facilities orloans on-line. Customers can now choose the channelof most convenience; with 24 hours a day availability.

Lower Entry Barriers

One of the consequences of this new marketspace is

that pirates can infiltrate the value chain of traditional players (Ghosh, 1998). Just look at whatAmazom.com has done for book retailing. Virtualbanks can be established relatively easily; there is noneed for an expensive bricks and mortar distributionsystem and already many traditional Europeanbanks are being caught off guard (BusinessWeek, 1999c; The Economist, 1999). Net.B@nk is anexclusively Internet only bank. Retailer Tesco is planning


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to launch an online banking service linked to itsfast growing Internet home-shopping service (Voyle,1999). Some established players, like the HalifaxBuilding Society, see the Internet as an opportunityto act like a new entrant (Garfield, 1999).E-loan.com, Mortgage.com and QuickenMortgage.com are the top three sites with regard to onlinemortgage provisioning in the US. Neither are traditionalfinancial players. E-loan lets customersresearch more than 50,000 mortgage products from70 lenders, then submit and track loan applicationsonline. E-loan doesnt just offer a gateway to otherlenders and their rates; it actually raises the moneyitself for the mortgages it provides. The companydraws up its own loans, closes the loan, takes care ofthe fund-raising and the capital markets itself. Whilethis type of lending is risky, E-loan claims to transfercredit risk to financial markets through securitisation.While many German banks currently offer homebanking via the Internet, no German financial institution

focused exclusively on the Internet as the soledistribution channel until the arrival of [email protected] in 1998 by seven Sparda banks that capitalisedNet.B@nk with DM20 million ($11.03 million),the Hamburg-based company expects to attract50,000 customers and grow at a net worth of Euro600 million over the next five years. Currently, it hasonly 10 employees and uses the back-office systemsof the Sparda branches in Hamburg. Under the trademarknetgic, Net.B@nk is offering basic bankingplus non-financial third-party products. The coreproduct is the negic account. It includes a currentaccount with an overdraft facility, a savings account,

fixed term-deposit and a transaction account forsecurities held on deposit.European Management Journal Vol 18 No 3 June 2000 317

The flip side of low entry cost is that the significantmarketing spend of financial entrants can itselfbecome a barrier to entry (Business Week, 1999d;Hill, 1999). Many players argue that aquiring customerswill never be as cheap; E*trade, for example,is spending $300 million on advertising arguing thatthis investment will be a significant barrier to entry.However, traditional financial services organisationsstill have three huge advantages: brand (see below),capital and customer base. It is also possible thatretail banks may be less vulnerable to on-line competitionthan stockbrokers. Share trading has little usefor long-term relationships and trust while these areinherent in banking.

Extend Global Reach

Once established, a financial institution with a presenceon the Internet is a global player (Quelch andKlein, 1996). It has a footprint in a bigger marketplacethan a branch in the physical world could ever hopeto have. The flip side, of course, is that it faces competition


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from institutions which it perhaps never heardof operating out of a country never before consideredas a source of competition. Today, for example, it ispossible to trade stocks from European countriesusing the services of Datek, DLJDirect or Schwab, allUS-based companies. Only a few banks are at presentplanning to use the net to do what no onland bankhas done: develop a pan-European bank. This is whatfirst-e, a cooperation between Banque dEscompt, amid-sized French bank and ENBA, a Dublin-baseddeveloper of Internet-only financial services, plans todo. Lloyds TSB have also announced plans to launcha pan-European Internet bank as part of moves toshed its domestic UK bank image (Mackintosh, 2000).Challenge Brands

The issue of branding is an interesting one whenoperating in the new ecosystem. Does the Internetsignal the death of traditional brands? Or do brandsincrease in importance? Strong brands instantly conveysolid trust; and trust is integral to effective customer

relationships.Confidentiality and security are components of thetrust that are so essential to banking. How do youbuild this trust in the new ecology? In the physicalworld, trust is usually associated with animateobjects, such as buildings, and people. These aspectsare absent in the virtual world and so present a challengeto the cybermarketer in the quest to establishbrand equity. Researchers in consumer behaviourhave found that consumers recognise differences insize and reputation among Internet stores and thatthese differences influence their assessment of storetrustworthiness, their perception of risk, and their

willingness to shop with a particular store. A cusCUSTOMERRELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

tomer who believes that there is a physical branch(or chain) behind a website is more likely to trust thesite on first encounter (Jarvenpaa and Grazioli, 1999).Reputation and size are harder to convey and makeclose consumer relationships more difficult todevelop in cyberspace than in traditional physicalsettings.The evidence from early forays on the Internet suggeststhat traditional brands may not necessarilytranslate very well to the new ecosystem. Forexample, American Express went into the onlineinvesting space with a fabulous financial servicesbrand but was unable to make a success of it.Bank One, the fifth largest banking holding companyin the US, recently launched WingspanBank.com as aseparate site in direct competition with itself. Indeed,advertisements for the new bank critise the poor servicein bank branches! The new on-line service acts asbanker, money manager, stockbroker and insuranceagent. Customers can open checking accounts, paybills online, apply for loans, and make and manage


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investments. It also searches the Internet to help findthe best deals on mortgages and insurance alertingcustomers through email when the best offerappears.What is interesting is that it has been launched as aseparate brand with its own identity. The companywanted a name that was Internet appropriate andstood out and also captured the depth and breadthof products and services offered. The group did notwant any baggage inherent in the new brand. Thecompany felt that if you try and extend Bank Oneor First USA (also part of the group) to places thatconsumers may not associate with either of thosebrands, it can create conflict and a lack of clarityabout its purpose, creating confusion for customers.WingspanBank.com is an integral part of Bank Onesmulti-brand strategy designed to target a variety ofcustomer segments with differing needs. Bank Onealso offers online services through bankone.com andFirstUSA.com. The different online banking initiatives

will complement and compete with one another,providing products and services developed by bothBank One and third parties.In the UK, Prudential have implemented a subbrandingstrategy with Egg, its direct banking operation.The company has actively chosen to forgoshort-term profits to acquire as many customers aspossible. It is targeting a million new accounts within12 months through a $150 million marketing push.They believe that acquiring accounts will never be ascheap again, and as long as this trend continues, theywill continue to invest in marketing. They have projectedthat the market will shake out and that the

$150 million marketing spend has raised the bar fornew entrants.318 European Management Journal Vol 18 No 3 June 2000

Bundled and Unbundled Products and Services

Financial services organisations have traditionallybundled their offerings to the marketplace. This permittedthe cross-subsidisation of products and servicesand also provided them with critical mass. Inthe new business ecosystem, such offerings can nowbe unbundled, increasingly a competitive necessity,given the rise in customer power (see below). Differentinstitutions providing a variety of products andservices are only a click away and it is likely that customers will deal with many institutions in thefuture.One emerging strategy is that online banks may concentrateon integrated personal financial managementusing technology to map the financial profileof customers and offer products that best meet needs.In effect, institutions may re-bundle products to meetthese needs but such products may not be actuallyprovided by them. Consequently, institutions will nolonger focus on cross-selling in the traditional sense.


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Todays buzz word is open finance; firms no longersell only their own products but instead offer the bestavailable, whoever the provider isor risk losingcustomers.Dislocating Location

The mantra of the traditional retailer has beenlocation, location, location. Choosing the wrong location can mean the difference between profitabilityand obscurity. Location is also important in thephysical world because it is at the branch or officethat the institution and the customer connect; it iswhere the customer has his or her account. In thenew ecosystem the concept of location as currentlyconceptualised is irrelevant. Further evidence is providedby the fact that there isnt a major e-retailercategory in which a bricks-and-mortar retailer has aleading market share (Evans and Wurster, 1999).Rise in Customer Power

Competing in the marketspace returns power andcontrol to the customer. The customer is no longer at

the mercy of a single institution or operating in totalignorance. The marketspace customers can search outthe best deals, often using the services of infomediaries(Hagel and Rayport, 1997) or electronic gobetweenservice providers (Vandermerwe, 1999). Forexample, Homeshark, an Internet based mortgagebroker, uses agent technology to search out the bestdeals for customers. InsWeb offers a best-quotesearch engine for insurance policies. Using reverseauctions it is only time before customers will posttheir financial requirements and financial institutionstogether with other non-banks will bid for their businessand custom.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICESThis rise in customer power is also amplified by thefact that competitors are only a click away. Retail banks, for example, have always operated on thepremise that it was both difficult and inconvenientfor customers to move bank accounts. Word of mouseis a potent force. As power continues to shift fromseller to buyers, expect to see more widespread customerdefections.Customers are in control, particularly for commodityproducts. For more complex products like pensions,it is likely that the branch or agent will still providethe assistance necessary but technology could beused to enhance the relationship and help in crossselling.

Channel ManagementTechnology provides the financial service organisationwith the capability to reach out to their customersthrough a variety of different channels. Theadvent of the Internet, Digital TV, smart cards, GSMphones and Kiosks holds the potential to radicallyalter the distribution channel landscape for retailfinancial services. No longer is it necessary for the


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banking business of the retail customer to be conductedin the high-street branch. Interactive televisionsin homes across Europe, non-stop access to servicesand newly empowered consumers will have a majorimpact on financial services marketing. Financial servicesfirms will have to develop a deeper understandingof these consumers in order to brand and targetproducts accordingly. A proliferation of potentialnew distribution channels over recent years has elevateddistribution channel strategy to the forefront ofboth business and IT managers minds.When Midland Bank (now part of HSBC) didresearch before establishing their telephone bankingoperation First Direct, they found some surprisingresults: one in five customers had not visited a branchin the last month, one in ten not in the last 6 months,one-half (51 per cent) said they would rather visittheir branch as little as possible. Many customers didnot like the appointment systems and 48 per cent hadnever met their bank manager (Peppard and Rowland,

1995).Figure 1 captures the demands of todays customer,putting pressure on the old way of conducting business.The old business model was time and placerestricted with the marketplace treated as a massmarket. Customers today are more discerning,demanding to be treated as individuals and want tobe able to engage in transactions from any place, atany time and from any location. In essence, choosethe channel of convenience whatever that channelmight be. Financial institutions, particularly in retailbanking must respond to these demands. Those thatdont, risk losing in the new business ecosystem.

European Management Journal Vol 18 No 3 June 2000 319Figure 1 Requirement for New Channels to Market

Many institutions operate different channels and theinformation contained in them independently. Aneffective channel management strategy requires thatall channelsthe call centre, direct mail, branch,head office, Internet and Interactive TV (or transactionaldigital TV)to be fully integrated. Thisintegration must produce an effortless sharing ofknowledge about a customers relationship with thecompany. Figure 2 illustrates the complexity of managingmultiple channels across multiple customercontact points. The challenge is to devise a channelstrategy which optimises cost and value.

Delivery channels must be viewed in terms of appropriatenessto the task that the customer wants to perform.By understanding customer usage of channelsand building models that reflect customers propensities,actions and needs, a financial institution canstart to build the appropriate infrastructure to supporttheir customers changing needs and the financialinstitutions economic needs.The major cost advantages offered by direct channels


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Figure 2 Channels and Customer Contact Points


outlined earlier must also be set against the loss offace-to-face interactions that was previously a keyfeature of the branch. Banks must remember the lessonsfrom the introduction of ATMs 20 years ago. Formany, this strategy was merely to get the customer

out of the branch, not realising the impact on relationship building and cross-selling. Althoughtelephone banking offers an element of person-topersoninteraction, it remains more suitable as amedium for product support and sales of commodity-based financial products, such as carinsurance. Customers seeking to purchase highvalue,complex financial products, such as pensions,are likely to continue to value face-to-face interactionof the branch environment.

Channel Conflict

One discussion which institutions face when theyestablish an online presence relates to the impact of

new distribution channels on existing channel revenue(see Bucklin et al., 1997). Investing in an Internetchannel may mean embracing technologies that willdestroy the value of past investments. There is alsothe likelihood of having to cannibalise existing businessto build new business.There will inevitably be channel conflict with themove to the web. For example, when an insurancecompany selling primarily through brokers and independentfinancial agents (IFAs) decides to selldirectly to the consumer, what will be the impact ofa new Internet channel on the branch network? BarclaysBank is to close 200 branches as customers

move to the Internet and telephone banking(Mackintosh, 1999b).US share trade institutions have been reluctant to cutfees as Charles Schwab has done with its on-line tradingoperation. Charles Schwab established a separateon-line unit e-Schwab, with its own staff, own officesand own sense of mission. And they did the unthinkable:they let eSchwab eat Schwab. The moment oftruth came in late 1997 just as demand for eSchwabs$29.95 online trades was booming beyond anyonesexpectation. The problem was, customers withCharles Schwabs traditional brokerage still had to pay an average of $65 per trade. The two-tiered pricingstructure was awkward. The company made a

radical decision: all trades would be at $29.95. Inessence, all of Schwab would become eSchwab. Theprice cut would shave an estimated $125 million offrevenues. In January 1998 when the price cut tookeffect, Schwabs stock lost almost a third of its value but total accounts climbed from 3 to 6.2 million. Thestock recovered. $51 billion in new money poured in.The site now accounts for 42 per cent of all web trades.Full service stockbrokers, such a Merill Lynch are


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hampered by conflict between their channels of deliv-320 European Management Journal Vol 18 No 3 June 2000

ery and for a long time, Merrill Lynch resisted themove to go head-to-head with an Internet channel(see Box 3). Part of the reason was cultural, particularlywhen one realised that they had 17,000 commissionedbrokers versus the 7000 salaried brokersat Schwab.

BOX 3 MERILL LYNCH AND COMPANY

For a long time Merrill Lynch and Companyignored technology and the structural changestaking place in its marketplace. It is currentlytransforming itself into an Internet-basedfirm (Business Week, 1999e; Burns, 1999). On the retail side, the company is probably twoyears too late in embracing the Internet fortrading and has lost ground to both itstraditional competitors and newer pirates. On the institutional side, the company isbuilding a portal which will provide an array

of services, enabling a corporate treasurer todo most of his business with Merrill Lynch atone web site, with one password. This systemis an electronic replication of Merrills globalmarkets business which have 17,000employees and $6.5 billion in revenues. Acritical challenge that the company faces is tointegrate new online offerings with its existingon-land capabilities, its people and its offices.To attract more customers Merrill is trying tounlock the value of its analysts, bankers,traders and brokers by translating theirknowledge and experience into content that

can be tapped on line.One suggestion to overcoming the channel conflictproblem is for an organisation to consider establishinga separate new business entity. Indeed, thereis compelling evidence that organisations that havesuccessfully built a strong market position in the faceof disruptive, radically new technologies, havetended to do so by establishing an independententity, at least in areas outside of financial services(Christensen, 1997). The Prudentials Egg InternetBank, Bank Ones WingspanBank, and Deutsche Banks Bank24 are examples of organisations thathave taken this route; only time will tell if it has beena successful strategy. The alternative to starting anew company is growing a reborn company withina traditional business (Ernst & Young, 1999).

Channel Integration

Channel integration is concerned with providing acommon, consolidated and real time view of the customeracross all channels. From a customer perspectivethe channel they choose at any point in timeshould be the one of most convenience. Ideally, thereshould be no differentiation between the call centre,


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the Internet or the high-street branch. Indeed, thecustomer should be able to initiate a transaction in acall centre and perhaps complete it in a branch ina seamless fashion. All the information required tocomplete the transaction should be available at thepoint of customer interaction. The customershouldnt have to deal with the consequences oforganisational complexity (see Box 4).A channel strategy of the future will also see channelsbacking up each other. For example, the use of thecall centre to back up the Internet or Digital TV. Anumber of experiments are currently taking place.Enabling customers to quickly and easily access salesrepresentatives when they are browsing Internetoffers. British Telecom has being working with bothEagle Star and Abbey National to introduce a call me button on their web sites. The customer enterstheir telephone number next to the product they areinterested in. They press a button on the screen and

the number is sent directly to the call centres automaticcell distributor (ADC) which dials the number.The call centre computer telephony integration systemdisplays the appropriate script on the agentsscreen and they connect to the customers number.

BOX 4 BANK ONE

Bank One Retail Group has a strategy ofubiquitous distribution but in 1997 recognisedthat the Internet was going to become animportant channel but they had no presence.They believed that their brand could not beubiquitous if they were not a major player onthe Internet. Already, Citibank, Wells Fargo

and BankAmerica were early leaders. Thecompany quickly launched an on-line bank.Along the way they were the first bank toannounce a pilot to fully integrate billpresentment into their online services. InNovember 1998, they announced a uniquerelationship with Excite, a leading Internetportal with 17 million users to create a fullserviceonline financial centre. In early 1999they became the first company to providehome equity loan decisions online within50 secs. after an application was submitted inall 50 US states. Indeed, the day theyannounced the Loan-By-Phone, they receivedmore online home equity applications thanthey typically receive in one month; that isfrom a bank with footprints in only 14 states.All the evidence would suggest that the branch is notdead; it is changing into just another channel. Technologythat enables customers to use different channelsenables innovative banks to create new face-tofaceexperiences in old and new settings. The prescriptionis for banks to focus less on reducing branch


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numbers as to determining what their role should bein the new ecology. The Woolwich, for example, isEuropean Management Journal Vol 18 No 3 June 2000 321

attempting to weave the branch into an integratedoffering. It is rolling out a multi-channel personalbanking service, Open Plan, which allows customersto use the Internet, telephone, branches and interactivedigital TV to manage all accounts (Walling,2000).One of the more interesting developments in virtualbanking is that some banks are establishing a physicalpresence.6 Ebank of Atlanta plans to open 24branches, acknowledging that the lack of a branchnetwork could impede account growth among smallbusiness owners, its target market. Intuit recentlyannounced its intention to purchase Rock Financial.This deal will enable the company to fund mortgagesfrom its web site rather than merely offer advice onthird parties.

Relationship ManagementThe origional focus of CRM was to forge closer anddeeperrelationships with customers, being willingand able to change your behaviour toward an individualcustomer based on what the customer tellsyou and what else you know about the customer(Peppers et al., 1999). The premise being that existingcustomers are more profitable than new customers;that it is less expensive to sell an incremental productto an existing customers; customer retention wouldbe maximised by matching products and levels ofservice more closely to customer expectations; andattracting new customers is expensive. The centralobjective of CRM is thus to maximise the lifetime

value of a customer to the organisation.The evidence of having superior customer relationshipsis overwhelming (see Heskett et al., 1994;Reichheld, 1996; Schwaiger and Locarek-Junge, 1998):v relationship marketing increases retention.Research highlights that high levels of customersatisfaction are associated with increased retentionof customers.v relationships builds more easily when there istwo-way communicationand where organisationsset up feed back loops, there is their potentialto learn from customers.v relationship behaviour anticipates customer

demands. By engaging in an interactive dialoguecustomer preferences can be determined.v retained customers are inevitably more profitable.The research is clear that it costs much more toattract a new customer as it does to retain an existingcustomer; and that existing customers aremore profitable. A knock-on effect is that thelonger customers are retained, the greater is theopportunity for cross selling.In essence, traditional CRM is about making it easier


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for the customer to deal with you; customers should

The challenge for an

organisation is to move to asituation where the customer

starts buying from you rather

than being sold toCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

not have to deal with your complexity, complexitywhich is often brought about by outdated structuresand legacy systems and technologies. The customershould decide how they want to transact businessand their preferred channel and not vice versa. Equally,it is about analysing customer information forbusiness decisions: the aim being to help organisationsunderstand customer needs; differentiatebetween customers via market segmentation; predictlikelihood of customer churn; perform analysis of

customer loyalty, customer profitability, channeleffectiveness and profitability and sales campaignperformance. The challenge for an organisation is tomove to a situation where the customer starts buyingfrom you rather than being sold to.Most financial institutions know implicitly that somecustomers are more profitable than others yet manygo on treating all customers in the same way. Manybanks have thought that the 80/20 rule applied: i.e.that 80 per cent of profits come from 20 per cent ofcustomers. In fact, some banks have found that highprofithouseholds may in fact represent in excess of100 per cent of profits because unprofitable ones subtractso much. Through customer profitability analysis,

others have found that loyal customers are notnecessarily profitable if they were also high users ofthe companies services.There is a need to understand the value that presentcustomerspotential long-term valueand potentialcustomers can bring to a financial institution.Failure to take note of customerneeds and the understandingthat all customers cannot betreated in the same way canonly lead to costly investmentmistakes. Lenders such as Halifaxand Abbey National in the

UK have introduced schemeswhere borrowers can get betterrates on their other products ifthey already have a mortgage.In an expression of its mutuality,Britannia Building Society gives customers ashare of its profits each year, based on the size oftheir borrowing and how long they have been customers.Fidelity Investments implements a strategy


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of differentiated customer relationships, even prioritisingand routing telephone calls at call centres onthe basis of customer scoring.E*Trade and other online financial services sites haveturned the relationship between banks and customerson its head by empowering the consumer throughthe provision of real-time information, comparisontools and portfolio-tracking capabilities. GermanysNet.B@nk offer customers the ability to tailor-maketheir own web homepage; customers can retrieveinformation on about 250,000 stock prices and getnews on political affairs, business, sport or culturalevents. Banco Santander in Spain informs major cre-322 European Management Journal Vol 18 No 3 June 2000

dit card users of the status of their accounts as soonas they log-on to its web site. Banks will increasinglyuse push technology, such as on screen ticker tapes,to inform the customer of new products or relevantaccount information such as excess cash in a noninterestbearing account.

Viable customer relationships are based on data thathave been transformed into actionable informationthat in turn becomes customer insight (knowledge)to be used to create predictive models for active customerinteraction and actual dialogue if desired.Many financial organisations now use sophisticatedprofitability, potential and propensity models todetermine how best to invest scarce marketingresources.As marketing moves to a one-to-one environment,the need for large amounts of detailed informationabout customers is becoming essential. Without customer-level information and data on their transaction

behaviour and their likelihood to repurchase andpurchase additional products, one-to-one marketingprogrammes are not possible. Furthermore, as financialinstitutions begin to understand the profitabilityof their customers and need to focus resources onretraining, acquiring high profit customers, informationon these customers is crucial in the deliveryof a successful marketing strategy.How can a retail bank truly understand and predictits customers needs to the point where it can designproducts and services that suittheir needs? One way of lookingat customers can be fromthe standpoint of channelusage. In the UKs LloydsBank/TSB merger, data weresourced from both their datawarehouses, then used to segmentthe customer base by servicechannel usage. Customerswere allocated to segments ontheir usage of the followingchannels: ATMs, automated (direct debits/standing


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orders), cards (credit and debit) and telephone.Australias St George Bank believed it could raise itsconversion ratei.e. the proportion of initial mortgageinquiries resulting in mortgagesso it tailoredits services to match each customers level of purchasingsophistication. Using a datawarehouse, it categorisesprospects as novices, enthusiasts, judiciousbuyers, investors and the indifferent. This allowedbank staff to respond in a way tailored to the customer,offering the most appropriate level of care andattention. A pilot study showed the conversion raterising from 33 to 51 per cent, increasing profit whileat the same time improving service to customers.Theme-based marketing is being increasingly practicedby financial institutions (Baldock and LangliCUSTOMERRELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

nais, 1998). The belief is that consumers will nolonger shop only for discrete products but for outcomeslike a vacation or comfortable retirement.Theme-based marketing can be centered upon general

lifestyles such as marriage or buying a home orlife goals such as a comfortable retirement. BritishAirways, offers loans to help people fund theirvacations; the Woolwich are offering cars for sale thatmeet the needs and lifestyles of their customers. It isargued that financial services organisations are ideallypositioned for theme-based marketing as theyare seen as having the advantage of brand as the trustthat derives from the traditional role as the familyfiduciary (Ernst & Young, 1999).Insurers (such as those in life assurance, personalnon-life and health insurance) have tended to hoardextremely detailed records on their customers, claims

and costs as islands of data held apart by a productdrivenculture, accident, tradition and job protection.Having collected all this data about their customersand potential customers, they have all tended to disregardit as a source of competitive advantage or asa means of reducing cost.Ironically, the actuarial staffs have built sophisticatedmodels for pricing products and finance teams havespent time building clever costing systems. The marketingteams, however, are only finding their feet butthe most advanced are starting to establish marketingdatabases with campaign management tools, somemodeling and ad hoc query capability.Union Bank of Norway had the vision to move from being one bank into a million banksone for eachcustomer. As soon as a customer walks into a branchof UBN he or she is treated like an individual. Customersswipe their bank card through a terminal andare issued with a rather special numbered queuingticket. This ticket links directly to the banks datawarehouse,which instantly identifies the customer andsends a message back to say just who is waiting.From this point on the customer is more than just a


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number. A video screen above the teller boothsshows advertisements tailored to that customerifthe transaction stored in the datawarehouse showthat the customer has applied for a mortgage, thevideo screen might run an advert for home insurance.In a similar vein, Wells Fargo has put in place its firststeps toward offering individualised ATM advertisingto its customers. It is in effect leasing screen spaceto third parties. Advertisements appear on the welcome,wait and thank you screens during all ATMtransactions. The ads can be changed daily and differentads can be sent to different machines, thus permittinglocalised advertising. Wells eventualambition is to target advertisement messages to customersbased on the demographic and financial informationthe bank maintains in its customer databases.An increasing number of companies are using inte-European Management Journal Vol 18 No 3 June 2000 323

grated voiced recognition (IVR) and voice recognitionsystems (VRS) at the customer interface. While

this may seem efficient on paper, it often means thatcallers to a call centre have to endure 3 minutes ofmusic before getting through to a human voice.Many of the calls are purchasers-in-waiting.Brand loyaltythat emotional connection with customersis built on the front lineface-to-face, onthe phone and over the Internet. For Bank One, theapproach is to deliver the right experience whenfocused on the five customer touchpoints, servingthe customer with the values of what they call ICARE. I CARE is an Acronym forInquireask questions to identify needs or concernsCommunicateassure customers that we are

eager to meet their needsAffirmconfirm abilities and desires to get thejob doneRecommendsuggest a range of optionsExpresslet the customer know we are personallycommitted.In short, financial services organisations will want toknow who their best customers are, how to keepthem and how to increase their share of wallet by knowing what other service or product they can sellto them. They will want to have a customer-centric orone-to-one relationship and to increase shareholdervalue. But this all boils down to managing customersand potential customers more effectively. To do thisyou require information that can help make the bestdecisions to create and manage the right relationships,risks, costs and markets. If financial organisationsunderstand how customers behave and howthey prefer to interact, they can redesign core productofferings and devise appropriate channel strategies.

Management of the Total EnterpriseThe experience with early CRM forays is that it isimperative to have total front-office/back-office integration.


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Customer-facing functions such as sales,marketing, call centres and other on-line supportmust become organisationally integrated with backofficeprocesses.Unfortunately, many banks operate as a string ofcarefully shielded fiefdoms, using individual departmentssetting up software and systems to handle corefunction that may or may not interact with otherfunctional areas. For example, account inquiries orautomated clearinghouse (ACH) transfers may beprocesses on one system, stock trades on another,and international transactions on a third. These systemsmay run on separate mainframes and must beaccessed through widely varying interfaces.CUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

Consequently, solutions which have beenimplemented have been point solutions, aiming atautomating only a specific piece of the overall process,disconnected from actions which precede or followtheir one specific focus. Each step in the process

requires information to be effective, and these systems,built as silos, do not have the ability to leverageshared information. The result is duplicated information,conflicting information, out-of-date information,and in general the inability to get all informationneeded to all relevant parties when needed.Organisations are increasingly moving from datacentricpoint solutions to customer-centricenterprise solutions.The securities industry, for example, is engaged in amassive effort to automate and speed up the processof clearing and settling tradesa concept referredto asstraight through processing(STP). The objective is

to squeeze the settlement period down from three ormore days after trading (T 1 3) to one (T 1 1). Inmany institutions back-office staff often have to dealwith 15 per cent or more exceptionstrades thatfail to settle smoothly. Usually these trades failbecause data is missing or inconsistent, or confirmationsdo not arrive or match, or the trades contravenesome rules or other.Many institutions have increasingly looked to outsourcetheir back-office operations yet the back-officecan be considered as a rich source of information thatcould be packaged in to a wide variety of high-valueservices for customers. Equally, it is an informationrichmirror of the entire industry value-chain that thebank could be uniquely positioned to help streamline.

ConclusionsThe oft made statement that all economies need abanking system but not necessarily banks is begin-Figure 3 An Integrated Perspective of ECRM

324 European Management Journal Vol 18 No 3 June 2000

ning to come to fruition. Many players in todays financial services industry are non-banks and nonfinancialservice organisations; just look at players


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like Marks & Spencer, AT&T, Intuit, General Motors,Virgin and British Gas. Consumer electronics giantSony have recently announced their intention to provideonline financial services through their Dreamcastelectronic games consoles (Kunii, 1999; Nakamaeand Abrahams, 1999).Today, banks are no longergatekeepersbutgatewaysto financial products (Kalakota and Whinston, 1997).In the old gatekeeper model, the bank functioned asan inhibiting intermediary that restricted a customers set of product choices. In the new gatewaymodel, the bank functions as a flexible intermediarythat provides access to an entire spectrum of productsand delivery channels. Some of the productsinsurance, entertainment, travel, investment managementmay not even originate from within the bankbut instead be provided by third parties. It is possiblethat banks will be one type of trusted portal, partof peoples personal connection to e-commerce. Andinstitutions that fail to keep up with the online revolution

are likely to find themselves regulated to supplyingfinancial commodities to intermediaries.While IT plays a vital role in CRM happenings, aswith all IT investments it should be driven by a strategicmanagement perspective. Too often, companiesseek to build CRM capabilities by designing a powerfulIT system without considering wider businessissues. In this paper we have developed a frameworkwhich can help in providing guidance for this processwhich is summarised in Figure 3.This figure illustrates the interdependent nature of ebusiness,channel management, relationship managementand enterprise integration in becoming customer

focused. It highlights that before embarking onany initiative, the scope must be broadened from justfocusing on relationship management. In the ebusinessworld, success is about owning the customersCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

total experience (Seybold, 1998) and this is premisedon understanding the customer and customer behaviour(Butler and Peppard, 1998). Customers expectto interact with an institution through any channel,whatever is convenient for them, and receive instant,high-quality personalised service. The customersexperience in transacting business is important andthe channel should be aware of the history. Technologyshould be used to create value for customers.Integrated information is paramount for successfulmanagement of customer relationships. Informationis the essential enabler when based on scaleable technologyas the platformthat is, information is centrallymanaged, enterprise-wide and registers as theone version of the truth and provides a consolidatedview of the customer across all channels and products.To manage the transition to a customer centric organisation,organisations must develop the capabilities


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to acquire the key resources, knowledge, and toolsthat can help them match customers with appropriateproducts and services. Unfortunately, many bankshave a culture that may be inconsistent with thedesire to organise around the customer, and a set ofprocesses that are siloed along product lines insteadof customer lines. Furthermore, they have a legacy ofcustomersmany of whom are unprofitableandan inability to properly develop strategies that willgive all segments of the customer base the servicethat suits them.Traditional financial service companies also strugglewith the cultural, organisational and technologicalchallenges associated with becoming customerfocused enterprises. The sheer size and historical baggageof traditional financial institutions can have anegative implication in the new ecology. In manybanks, the branch is the central point of reference:accounts are held there.It is very likely, that in the future banks will need to

use their distribution networks to sell non-financialproducts if they are to remain competitive. In the UKthere have already been examples of successful collaborationsbetween financial and non-financialorganisations. Barclaycard and Cellnet, for example,offered customers cellular telephones linked to Barclaysloyalty scheme. Barclaycard has also partneredgas utility Eastern and the Ford Motor Company.Speed is of the essence when competing in the newecology and this has implications for the IT function.WingspanBank was established by Bank One in avery short timescale. In January 1999, a small teamwas charged with building a full-service online bank.

By February, the group was ready to build the bank.They met with vendors to finalise hardware andsoftware choices and simultaneously put the companytogether. The team started developmentEuropean Management Journal Vol 18 No 3 June 2000 325

immediately, testing was completed in April andwent live in June (Melymuka, 1999).Technology and the new economy offer tremendousopportunities for existing bricks-and-mortar organisations.There are lots of opportunities; and the ecosystemis being continually defined and refined. Thereis, however, the danger that the organisation neglectsthe basics. Competing in the marketspace does notmean that the past is irrelevant. Many of the attributesthat made organisations successful in the pastare still crucial. Organisations still require strongleadership; the right structures and processes mustbe put in place; the right people with the right skills,attitudes and competencies hired and deployedappropriately; technology must become part of managementtheory of business. All must be incorporated within a sound strategic business perspective.The case of Bank One is worth recounting. Despite


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being an Internet pioneer with its online bank WingspanBank.com the institution has had some problemsrecently. In an interview in early 1999, the CEOstated someone asked me what causes me to wakeup in the middle of the night. It used to be bad loans.I dont work about bad loans any more. He confessedthat he worries about the Internet (Useem,1999). In October later that year he lost out in a bankshakeout brought about by the poor performance ofits credit card division due to bad loans! He eventuallyresigned in December (Bowe, 1999).

Web Addresses of Sites/Companies

Mentioned in PaperAbbey National www.abbeynational.co.ukAmerican Express www.americanexpress.comBanco Santanderwww.bancosantander.esBank of Scotland www.bankofscotland.comBank One www.bankone.comBank 24 www.bank24.de

BankAmerica www.bankamerica.comBritannia Building Society www.britannia.co.ukCharles Schwab www.schwab-europe.com orwww.schwab.com

Citibankwww.citibank.comDatekwww.datek.comDeutsche Bankwww.deutschebank.deDLJ Direct www.dljdirect.co.ukE*Trade www.etrade.co.ukEbankwww.ebank.comEgg www.egg.comE-loan www.eloan.comFidelity Investments www.fidelity.comFirst Direct www.firstdirect.co.ukCUSTOMER RELATIONSHIP MANAGEMENT (CRM) IN FINANCIAL SERVICES

First USA www.firstusa.comFirst-e www.firste.comHalifax www.halifax.co.ukHomesharkwww.homeshark.comInsWeb www.insweb.comIntuit www.intuit.comLloyds TSB www.lloydstsb.co.ukLoan-By-Phone www.loanbyphone.comMeritaNordbanken www.meritanordbanken.comMidland Bankwww.midlandbank.co.ukMortgage.com [email protected]

Prudential www.prudential.co.ukQuickenMortgage www.quickenmortgage.comSecurity First Network Bankwww.sfnb.comBarclaycard www.barclaycard.comTD Waterhouse www.tdwaterhouse.co.ukTesco www.tesco.co.ukVirgin www.virgin.comWells Fargo www.wellsfargo.comWingspanbankwww.wingspanbank.com


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Woolwich www.woolwich.co.uk

Notes1. Management Consultants McKinsey & Company refer toCRM as continuous relationship marketing, which theydefine as information-based marketing that is integratedwith customer acquisition and management processes; seeChild et al. (1997).

2. See, for example, Jackson (1985, ); Christopher et al. (1991)3. Established financial institutions also face significant disadvantagesin the new ecosystem. See Eric Clemons (1999).4. This paper uses the terms e-business and e-commerce interchangeably.Other similar terms include virtual commerceand me-commerce (mobile e-commerce).5. Figures vary, although the trends are similar. For example,Booz, Allen and Hamilton have estimated costs of a transaction,excluding cash handling, development, installationand capital costs as: branch1.0 euro, telephone0.5euros, ATM0.26 euros, and Internet0.12 euros.6. Many e-tailers argue that they need bricks and mortar outletstoo. See Hoff (1999); Business Week (1999f); Computerworld(1999a, b).

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JOE PEPPARD,Information

Systems Research

Centre, Cranfield University

School of Management,

Cranfield,

Bedford MK43 0AL, UK.

E-mail: j.peppard@

cranfield.ac.uk

Joe Peppard is Senior

Research Fellow at the

Information Systems

Research Centre at Cranfield School of Management,

and also on the faculty of Trinity College, Dublin.

His current research and consulting focuses on how

organisations can leverage value and benefits from

information technology. He is also Non-Executive

Director of Managed Solutions Corporation, a leading

solutions provider to the financial sector.

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