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Published: 12/22/06
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Innovating Customer Service: Retail Banking’s New Frontier

Clearer organizational processes can help make it possible for innovations to develop on a regular schedule. Often, notes Mr. Hagegard, banks don’t have a clear process for gaining approvals of new product innovations. Without a process, innovations occur more slowly and painfully. RBC Royal Bank has come up with an effective approach. The Canadian bank uses a stage-gate system that helps it determine whether to move forward with an idea, as well as a portfolio review process, which helps it prioritize which projects should move ahead first. RBC’s stage-gate group focuses on determining the business case for an idea, while the portfolio review board determines its relative importance in the context of the bank’s overall portfolio. One challenge in a two-step process is deciding which approval board takes precedence. At RBC, it’s the portfolio group. “This means that the portfolio look is the first step to get funded,” says Mr. Hagegard. “However, you would not be guaranteed funding until you also passed the stage-gate process.”

Drawing clearer distinctions between those parts of the offering in which line managers are allowed to experiment and those areas they must not touch can also contribute to higher quality innovation. Such controlled, modular architecture can make it easier for experimentation to occur in lower risk areas while keeping core offerings stable, according to Mr. Hagegard.

Finally, banks should look for new insights from the existing customer data. Most financial-services companies either don’t mine their data enough or don’t do it in a way that allows the information to reach product development, says Professor Wind. One tool that is often used in consumer products but frequently overlooked in financial services is conjoint analysis. Conjoint analysis measures consumer response to different bundles of products, a technique that allows marketers to uncover preferences, better gauge the strength of certain kinds of product features, and understand which customer problems will be most advantageous to solve. Measurement is critical. “Just doing something and praying that it will work and not measuring it is a waste of money and time, because at the end of the year you are no smarter than at the beginning of the year,” says Professor Wind.

There are other, more intuitive ways of generating ideas, as well. In a time of dramatic change, Professor Wind says, the key to success is often changing one’s mental model of the company’s business. Such insights seldom grow out of one’s own industry, he notes. “The best rule is, don’t look at your own industry.” Banking’s poster child for such an approach is Commerce Bancorp. Vernon Hill II, the chairman and president, came to banking after achieving success as a Burger King franchisee. By thinking of his bank as a kind of retail store that happens to sell financial services, Mr. Hill has turned his bank, based in Cherry Hill, N.J., into one of the fastest-growing banking companies in the country.

Even product innovations, for example, sometimes need not be financial. Professor Clemons notes that some credit cards marketed to NASCAR fans — featuring a picture of their favorite driver — have performed better than other cards, although the card itself has the same benefits as plainer versions. But the key is that the NASCAR card looks beyond what is thought of as a traditionally desirable market. In the past, such blinders have caused banks to overlook huge pockets of opportunity. Professor Clemons tells the story of two bank consultants who tried to sell the largest banks on their idea to target low-risk yet technically subprime clients for credit cards. Despite the potential market size, no bank was interested in their proposal. Frustrated, the two founded their own company instead — now Capital One, one of the country’s largest credit card companies.

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