management - Towers Perrin

We believe that eight distribution
characteristics distinguish best practice competitors
Best Practice
Best Practice
Best Practice
Best Practice
Best Practice
Best Practice
Best Practice
Best Practice
© Copyright 2000 Towers Perrin. All rights reserved.
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Institutionalize strategic intent
Manage distribution as a business
Create the right customer experience for
targeted segments
Excel at a few areas that create competitive
advantage
Make business partnering — internal and
external — a core skill
Use the Internet to force broad change in
distribution effectiveness
Enable people to make a difference
Manage distribution information as a
strategic asset

Best Practice
1
Make the firm’s strategic intent
meaningful at every level of the organization
A well-defined
strategic intent
is consistently
communicated
© Copyright 2000 Towers Perrin. All rights reserved.
Be the premier global
retail financial services
brand
Empower individuals to
become better investors;
the Internet is the future
for our customers
Benefits
Focuses on what is important
Drives resource alignment and
organization
Bridges operational and
management gaps
Best practice firms institutionalize their
strategic intent in their operating models and
processes

Strategic intent is translated
into detailed operating requirements that define
how distribution activities are organized and managed
© Copyright 2000 Towers Perrin. All rights reserved.
Strategy Operating Requirements — Examples
The Internet is the future for
our customers
We will sell directly to customers
Small business is a key business
of the company
Operating Requirements to Implement
■ Define how value created for the
customer/firm
■ Reset role of phone/branches
■ Change pricing structure for new competition
■ Redefine distribution roles/relationships
■ Design new channel
■ Expand functionality of call centers
■ Reset role of the sales force
■ Reset role of the branch sales force
■ How quality will be delivered
■ Design dedicated phone channel

Translating strategy into operating practice requires
attention to the details of sales and service processes
Operational Excellence — One Bank’s Approach
Bank’s Perspective Operating Requirements
We strive for accuracy, we fix mistakes
We manage systematically
We understand quality and how to
improve it it
We are “customer service engineers”
© Copyright 2000 Towers Perrin. All rights reserved.
Highly efficient problem resolution
process
Customer-centered process
management
Customer satisfaction centered on
specific sales/services experiences
“Managing the quality and details of the sales and
service processes will be a much more important job in
the Retail Bank if if we are to deliver consistently on the
value promise.” — CEO of a large U.S.
bank

Sale
Commission,
Net Income
Best Practice 2
Distribution should be managed
as a business with a distribution P&L
180%
Cumulative
Value100
Contribution
Economic Contribution of Individual Branches
© Copyright 2000 Towers Perrin. All rights reserved.
Not all customers create value . . .
40% of customers =
180% of value
Traditional measures may not
align with economic contribution
High performers are
overpaid
New recruits destroy
value
Low producers do not
cover costs
15% = 100% of value
0%
0% 40%
% of Customers
80%
0
+
5% destroy
40%
of value
Value-added analysis is a better metric
Value
New Intermediaries
Value-added
Existing Intermediaries
Expected 100 50
■ Recruitment
■ Productivity
■ Retention
■ Expenses
Actual
(20)
15
15
(5)
105
–
10
5
(10)
55

Key performance indicators
for distribution generally must go
beyond traditional measures of financial performance
Primary Initiative Key Performance Factors
New Store
Manager
Greater
Investment
Product Sales
Vigorous Platform
Sales
Teller
Effectiveness
End-to-End Sales/
Service Process
Systematic Design/
Management
Satisfying
Customer
Experience
© Copyright 2000 Towers Perrin. All rights reserved.
Process/site audit
Branch sales/growth
Sales performance
Sales volumes/revenues
Cycle times
Household penetration
Customer satisfaction
Employee/customer retention
Productivity
Cost to staff
Turnover
Teller retention
Teller error rates
Sales referrals
Customer satisfaction/retention
Sales productivity/efficiency
Problem resolution metrics
Cost of quality
Site quality measures
Site audit measures

A balanced scorecard that captures both
results and the drivers of future performance
strengthens focus and control of strategy implementation
Revenue
■ Growth
from new
business
■ Growth
from
existing
business
Capacity
■ Turnover
ratio
■ Availability
rate
© Copyright 2000 Towers Perrin. All rights reserved.
Example: Retail Banking
Financial Results Operational Excellence
Sales/Service
Efficiency
■ Cost to
sell/
revenue $
■ Cost to
service
Talent Management
Franchise
Growth
■ Net growth in
households
■ Household
penetration
of investment
products
Sales/Service
Productivity Effectiveness
■ Revenue per
sales person
■ Transactions
per service
person
■ % in top two
performance
ratings
■ % meeting
minimum
requirements
Process
Quality
■ Score on sales
process
■ Partner agreement
scores
Profitable
Customers
■ Percent of
profitable
customers
■ Retention
of new
customers
Customer Franchise
Relationship
Quality
■ Product
family crosssell
ratio
Quality
Management
■ Score on problem
resolution
process
■ Cost of poor
quality
Customer
Satisfaction
■ Customer
experience
satisfaction
■ Site rating

Best Practice
A well-designed customer
experience changes the basis
of competition from
product/price to total value
© Copyright 2000 Towers Perrin. All rights reserved.
3
The essence of the distribution challenge is to deliver the right
customer experience for targeted customer groups across all channels
Recenter distribution to the Internet
■ New added value, not self-service
■ Integrated customer experience
■ Reset functionality in other channels
Benefits
■ Complementarity of cross-channel
customer experience
■ Well-designed processes
■ Complementary functionality in all
channels
■ Few master the requirements for distinctive customer experience
■ Process design and vigorous management are first steps
■ Reducing variation* across sales experiences builds customer
confidence, improves efficiency, reduces the cost of poor quality and
improves sales effectiveness
* Frei, F.X., Harker, P.T., and Hunter L. (1999), “Process Performance and Customer Satisfaction: Evidence from Retail Banking
Study,” Working Paper, The Wharton Financial Institutions Center, The Wharton School, University of Pennsylvania (Philadelphia, PA).

Financial services firms increasingly use
the characteristics of individual channels to craft the
dimensions of customer experience specific to their strategy
© Copyright 2000 Towers Perrin. All rights reserved.
■ Highest-skilled financial advisers “in sites” for
high net worth customers
■ Single level of service over the phone
■ Segmented service levels via phone
■ Highly individualized service over the web
■ Homogeneous service in the sites
■ Homogeneous service in traditional sites
■ Streamlined services for in-store sites
■ Specialized services in designated sites (e.g.,
Business Banking)
■ Segment-specific phone channels

American
Express
CapOne
Fidelity
LendingTree
Merrill Lynch
Schwab
Wal-Mart
Wells Fargo
Best Practice
Our research shows best practice firms excel in a few areas that
create competitive advantage specific to the firm and its strategies
Planning Channels Sales Fulfillment CRM Scorecards
■ Brand strategy
■ Resource
allocation
■ Enterprise
goals
■ ROI
X
X
X
X
■ Cross-channel
■ Alignment
■ Operating
models
■ Innovation
■ Partners
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4
X
X
X
X
The Distribution Value Chain
■ Sales
processes
■ Enabled
staff
■ Sales platform
■ Value
proposition
X
X
X
X
X
X
■ Response time
■ Follow-up
■ Partner
standards
■ Relationship
management
■ Share of of wallet
■ Customer
experience
■ Learning
capture
■ Evaluation
■ Business
system
changes
Best practice firms carefully evaluate root causes of of performance gaps
to to realign resources and strengthen execution capabilities
X
X
X
X
X
X
X
X
X
X
X

Best practices firms finely tune
investments in distribution capabilities: disinvest,
continuously improve, or build/restructure to grow
■ Managing to the requirements of each capability ensures
resources are invested efficiently
Organizational
Performance
Superior
Parity
Deficient
© Copyright 2000 Towers Perrin. All rights reserved.
Surplus
Capabilities Assessment
Aligned
Gaps
To play To compete To win
Distribution Importance
Too much
investment
Protect
investment
Restructure
Difficulty to
remedy:
High
Medium
Low

Best Practice
5
Business partnering — internal and
external — is a core skill for the distribution organization
■ External partners can improve the firm’s value proposition
These are not traditional outsourcing
relationships — they are strategic partnerships
© Copyright 2000 Towers Perrin. All rights reserved.
■ Distribution relationships — KeyCorp, First Union
■ FA network
■ Washington Mutual — annuities/insurance products
■ JP Morgan — IPO product
■ Stock trading network — Schwab and others
■ Merrill Lynch/Lehman — research
■ Schwab — mutual funds distribution
■ Internet site — Fingerhut/Books-A-Million
■ Extraordinarily strong vendor relationships to manage
inventory turn and financing costs

Internal partnering agreements are important in
delivering the targeted customer experience profitably
■ Multichannel, multiproduct distribution requires more
disciplined management practices within and across lines of
business
■ Win-win partnerships create value for internal and external
partners
Business Goals
■ Partner’s value added for
distribution
■ How value of partnership is
measured
■ Expected roles ⎯ planning,
execution, evaluation, reporting
© Copyright 2000 Towers Perrin. All rights reserved.
Distribution Internal
Partner Requirements
Financial, brand, strategic contributions
Metrics for assessing value of partnership
for both partners
Specificity regarding roles in creating value
■ Knowledge capture Key areas of distribution value chain where
knowledge will be captured

Best Practice
Firms’ ongoing efforts to remake or improve distribution
must be carried out while adding Internet advantages and options
Internet
© Copyright 2000 Towers Perrin. All rights reserved.
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■ New business models and cross-LOB thinking
■ Economic results are in the future; expenses are
immediate
■ Traditional channels have new roles while
delivering on old roles more efficiently
■ New cross-LOB integration for promotion/cross-sell
■ Redesign customer information systems for cross-LOB
leverage
■ Same quality customer experience on web/phone
■ Remake the operating model for the sites
■ Center differentiated service levels on the phone
■ Manage economic impact of new web-induced trading
pricing

Best Practice 7
Enable people to use distribution investments to
make a difference in performance and competitiveness
■ Align organization, total reward programs, sales and service
processes and the firm’s culture to enhance customer satisfaction and
sales effectiveness
■ Align human resource systems — organization, job design, selection,
training and total rewards — to the distribution strategy
Process
■ The design and efficiency of:
■ Sales and service
■ Customer problem solving
■ Customer referrals and
hand-offs
© Copyright 2000 Towers Perrin. All rights reserved.
Structure
■ Organization of key resources
■ Clear roles
Culture
■ What motivates performance
■ Sales and service values
■ Guiding principles
Technology
■ Knowledge management
system
People
■ Skills
■ Job design
■ Selection
■ Training
■ Rewards and recognition

Best Practice 8
Manage distribution information as a
strategic asset of significant current and future value
■ Using the right information to improve performance and competitiveness
requires careful integration into business and operating models
■ Best practice firms reinforce the key elements of their strategy to enhance
competitive advantage
© Copyright 2000 Towers Perrin. All rights reserved.
Be ready to sell when the customer invites you into his/her space
■ 60% – 70% chance they know why customer is calling
■ Skills-based routing
■ 24 pieces of information on the customer at the point of sale
■ Alternative offers “whispered” to the CSR
CVM tools can help maximize value and opportunity
% change
in deposits
100%
50%
0%
Price Elasticity
0% 40% 80%
% change in rates relative to competition
On On a $10B portfolio, a 5bp 5bp rate rate increase can can add add $5M $5M to to the the bottom line line
Price opportunistically
by identifying pockets
of price indifference