Succeeding With Corporate Transformation

8/9/2019 Succeeding With Corporate Transformation

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A Financial Services White Paper b

Deloitte Consulting and Deloitte & Touch

FINANCIAL SERVICES

Reinventing

Succeeding With Corporate Transformatio

Deloitte Research


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Benefits of Transformation

The following six firms are examples of the enormous benefits generated by

implementing successful transformations:

s Bank of America increased the revenue booked by its telephone mortgage

center by 38 percent and reduced the time required to make a decision on

an application by 87 percent through redesigning its telephone mortgage

lending process.

s Allmerica Financial provided a single point of entry for customers and

increased first-call resolution to 80 percent, compared to an industry

benchmark of 50-70 percent, by organizing around customers, rather than

around products.

s Abbey National transferred 10 percent of transactions to online channels

including PCs, mobile phones, and digital TVs within 12 months, despite

having a largely middle-income client base.

s BankOne.coms internet banking initiative generated 230,000 accounts andbecame one of the top 30 brands on the Internet within 18 months.

s MasterCard International gained the ability to provide an online

alternative to a traditional letter of credit a market projected to reach

$100 billion by 2004 through a strategic alliance with TradeCard.

s LendingTree Inc. has become the best-known online lending Web site,

processing more than four million loan requests and consistently exceeding

analyst revenue expectations.


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TABLE OF CONTENTS

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

The Change Imperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Reinvention Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

The Six Types of Transformation . . . . . . . . . . . . . . . . . . . . . .9

Redesign Business Processes . . . . . . . . . . . . . . . . . . . .10

Create a Customer-Centric Organization . . . . . . . . . . . .12

e-Enable the Enterprise . . . . . . . . . . . . . . . . . . . . . . . .16

Build Rapid Deployment Capability . . . . . . . . . . . . . . .18

Develop an Extended Enterprise . . . . . . . . . . . . . . . . . . 20

Recreate the Business Model . . . . . . . . . . . . . . . . . . . .24

Requirements for Success . . . . . . . . . . . . . . . . . . . . . . . . .26

Reinvention Decision Framework . . . . . . . . . . . . . . . . . . . .28

The Financial Institution of the 21st Century . . . . . . . . . . .30

Deloitte Research Reinventing Financial Services


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To survive in todays

hyper-competitive environment,firms need to fundamentally transform

their strategies and operations.


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Executive Summary

In todays hyper-competitive financial services

environment, incremental improvement is no longer

enough.To be successful,firms need to undertake massive

change a fundamental reinvention of their strategies and

operations that will allow them to delight customers,

exceed investor expectations, and attract and retain the best and

the brightest professionals.

Reports on the financial services industry inevitably begin bysaying that competition is tougher than ever before,but this time its

different.A daunting series of challenges from competition across

industry lines to more sophisticated,demanding consumers cloud

the industrys future. Key metrics such as earnings per share

growth,net interest margin,and deposit growth are dropping.The

market is lukewarm on the prospects of the industry, with the

price/earnings (P/E) ratios for most financial services firms

significantly lagging P/E ratios in the broader market.

However, investors have become more discriminating when

valuing financial services firms. An analysis by Morgan Stanley of the

P/E ratios for the 30 largest U.S. banks that comprise the Morgan

Stanley Bank Index shows that the spread between the higher-valued

and the lower-valued banks has widened dramatically since the end

of 1998.The market has spoken,punishing firms more severely when

they perform poorly, while rewarding them richly when they take the

steps necessary to stay ahead of the competition.

During the 1990s, many financial services firms pursued a

strategy of growth through acquisition. With a few notable

exceptions, however, most mergers failed to deliver the cost savings

and earnings growth promised,and their stock prices have declined

significantly. In any case, growth through acquisition is now lessfeasible since many of the attractive acquisition targets are gone.

With investors demanding higher performance and with

acquisition-driven growth less viable, firms need to move from

conventional projects that offer at best incremental improvement

to reinvention a series of planned transformations that create a

fundamental shift in the business. We have examined

transformation in six firms that are presented here as case

histories, as well as discussed the process with many other firms in

the industry. The six case histories describe the successful

transformation projects that each of these firms have undertaken,

the key elements to their success, and the concrete results they

have generated.


Reinventing Financial Services:Succeeding With Corporate Transformation


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2

REDESIGN BUSINESS PROCESSES. Firms can achieve enormous improvements in efficiency andcustomer satisfaction by streamlining business processes to eliminate elements that do not add value.

Bank of America redesigned its process for telephone mortgage lending by eliminating hand-offs, ensuring

lending decisions are made by professionals in direct contact with customers, and creating end-to-end measures

to track progress. (See page 11)

CREATE A CUSTOMER-CENTRIC ORGANIZATION. Firms are integrating customer informationacross products and channels to create a consolidated view of customer relationships to assess profitability

and meet customer needs.

Allmerica Financial allows brokers to access information or resolve problems about a variety of products and

customers by calling just one toll-free number. (See page 15)

e-ENABLE THE ENTERPRISE. Innovative financial services firms are moving more transactionsonline and integrating the Internet throughout their organizations.

Abbey National implemented an online strategy that is device agnostic,allowing customers to interact with the

bank through their choice of PCs, mobile telephones,or digital TVs. (See page 17)

BUILD RAPID DEPLOYMENT CAPABILITY. New approaches to designing and deployingprojects allow firms to execute at Internet speed.

By creating an entrepreneurial environment within Bank One and delegating decision making, Bank One was able

to launch its service offering in just 123 days and then rapidly implement upgrades in response to customerfeedback.(S ee page 19)

DEVELOP AN EXTENDED ENTERPRISE. By turning vendors into strategic partners, financialservices firms are extending their capabilities and penetrating new lines of business.

By forming a strategic alliance with TradeCard, MasterCard International gained a proven technology platform that

has allowed MasterCard members to offer their business customers an a online alternative to a traditional letter of

credit for international transactions at substantially lower costs than traditional financing alternatives.(See page 23)

RECREATE THE BUSINESS MODEL. Rethinking the bedrock assumptions of a firms business modelis often required to place it on a path of renewed growth.

LendingTree pioneered a fundamentally new business model in consumer lending by allowing consumers to receive

multiple offers from over 120 participating lenders through completing one online loan request.(See page 25)

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6

The six types of transformation are the following:

Executive Summary


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How does a firm choose among these six types? Our

Reinvention Decision Framework is a tool that can help firms craft

a strategy. The framework helps firms assess their current

situation, identify their weaknesses, and pinpoint those initiatives

that promise to deliver the greatest impact on performance.

Using this tool, firms can design a portfolio of initiatives tailored

to their unique situation.

The six types of transformation are steps on a longer journey

that financial services firms must travel to truly reinvent their

business. Although firms have implemented individual

transformations in specific aspects of their business, no financial

services firm has yet reinvented itself by executing the six

transformations across the enterprise. A firm that has successfully

reinvented itself will need to continually implement substantial

performance improvements in response to rising industry standards

and investor expectations.

Traveling the path to reinvention is no easy task, requiring a

larger commitment of time and resources than do conventional

improvement projects. But given more rigorous investor standards

and fiercer competition, reinvention is no longer optional. Financial

services firms that can successfully reinvent themselves will exceed

the expectations of everyone they touch customers, employees,

and investors.Firms that dont will not survive.


Executive Summary

Financial services firms that can successfully

reinvent themselves will exceed the expectations of

everyone they touch customers, employees, and

investors. Firms that dont will not survive.


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Financial services firms are facing a more treacherous competitive

landscape than they have for decades. The strategic challenges

include the following:

Increased Competition. Financial services firms today

confront entirely new competitors.Banks, insurance companies,

and securities firms are offering each others products. Global

financial services players are competing across borders, most

notably in securities and asset management.And nontraditional

competitors, such as manufacturing and retail firms, are

providing financial products.

Impact of the Internet. While many start-ups have not

survived, competition over the Internet has made prices

more transparent,increasing the cost of attracting consumer

assets and putting downward pressure on margins.

More Sophisticated, Demanding Consumers. The

wealth of financial information available over the Internet

and through traditional media has made consumers better

informed when shopping for financial products. Consumers

have also come to expect the ability to access their accounts

and conduct transactions 24 hours a day, seven days a week.

Decline of Acquisition-Driven Growth. Although

acquisitions have been central to the growth strategies of

many firms, growth by acquisition is now less feasible since

many of the most attractive targets have already been taken.

In addition, the market has become more skeptical of

mergers and is penalizing merged firms that fail to achieve

their earnings targets. An analysis by Morgan Stanley found

that seven of 10 recent financial services mergers had their

share prices decline an average of 26.8 percent relative to the

share prices of the Morgan Stanley Bank Index between the

merger announcement and the end of 2000.

Each of the main types of financial services firms commercial

banks, securities firms, and insurance companies is feeling the

effects of the more difficult competitive environment.

Commercial Banks. The economic slowdown has caused

problem loans to rise and venture capital profits to decline.

Meanwhile, median deposit growth for the 30 largest U.S. banks

comprising the Morgan Stanley Bank Index was just 2.8 percent in

1999 and 3.3 percent in 2000, compared to a range of 6.2 percent to

6.7 percent in 1996-1998.The median growth in earnings per share

for the banks in the Morgan Stanley Bank Index dropped sharply

from 13.2 percent in 1999 to 5.6 percent in 2000.Although P/E ratios

improved in early 2001, for the past 10 years the average P/E ratio for

U.S. commercial banks has generally ranged between 50 percent

and 80 percent of the average P/E ratio for the market as a whole.

Securities Firms. The securities industrys big revenue

producers to date mergers and acquisitions, and underwriting

bonds and equities face an uncertain future. For example, M&A

volume in the first quarter of 2001 was only about 40 percent of the

$1.1 trillion volume in the first quarter of 2000.Given the uncertain

outlook, valuations of securities and asset management firms lag

valuations in the broader market. An analysis by Goldman Sachs

found that five of the largest securities firms had an average P/E

ratio of 15 in 2000, compared to a P/E ratio of 20.7 for the S&P 500.

The firm predicts that the P/E ratios of the leading securities firms

will lag the market again in 2001.

Insurance Companies. Insurance companies depend on

investment revenue, which has declined along with the stock

market indexes in late 2000 and early 2001. Goldman Sachs

estimates that the statutory surplus of non-life insurance companies

has been reduced by $30 billion since the third quarter of 2000 due


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The Change Imperative


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to the decline in the S&P 500. Insurance companies continue to be

undervalued compared to the broader stock market. Although the

gap in P/E ratios has narrowed over the last year, the P/E ratios of

both life and non-life companies have significantly lagged the P/E

ratio for the S&P 500 for most of the last 10 years, even dipping

below 0.5 at the beginning of 2000.

Although the industry as a whole has not met with investor

favor, the market has become more discriminating in valuing

financial services firms. An analysis by Morgan Stanley measured

variation in the valuation of higher valued and lower valued firms

by calculating the standard deviation of the P/E ratios for the banks

in the Morgan Stanley Bank Index as a percent of the mean P/E ratio

for banks in the index. A higher percentage means that there is a

wider gap between the banks with high P/E ratios and those with

low P/E ratios. Morgan Stanley found that while this percentage

ranged from 10 percent to 20 percent from 1995 to the end of 1998,

since then it has climbed dramatically to exceed 40 percent by the

end of 2000. The view of investors is clear firms that take the

difficult steps required to outperform the competition have been

rewarded with premium valuations, while those that lag behind

have seen their valuations tumble.


The view of investors is clear firms that take the difficult steps required to outperform the competition ha

been rewarded with premium valuations,while those that lag behind have seen their valuations tumb

50

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40

35

30

25

20

15

10

1/1/95

MSBI (2)

12/8/0010/30/9811/29/96

Source: Morgan Stanley

Figure 1

MSBI Standard Deviation of P/Es (as % of Mean)

Morgan Stanley Bank Index


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Financial services firms need to shift their approach. Firms that have

become experts at acquisition now need to learn how to grow

organically through delighting customers with better service and an

improved value proposition. Firms need to rethink their service

offerings, their business processes, and their core competencies.

How can we improve service? How can we achieve deep knowledge

of individual customers and their needs? How can we extend our

capabilities through strategic alliances? How can we streamline our

processes to deliver higher quality service more quickly? While

acquisitions are discrete events, transformation challenges like

these are ongoing.

Conventional, incremental improvements in these areas are

relatively easy to attain.What are far harder to achieve,however,are

the fundamental changes required to survive in today s more

competitive environment. Yet the results can be dramatic

reductions in cycle time of 87 percent, first-call resolution in call

centers of 80 percent,an entirely new business launched in just 123

days,and 10 percent of a banks transactions moved online in a year

and a half.These are some of the actual performance improvements

that have been achieved by the firms described in the case studies

in the following pages.

Reinvention is a series of planned transformations that create a

fundamental shift in the business. Reinvention is not a single event,

but instead a series of changes to the business that need to be

planned and coordinated.

The changes produced by reinvention are not incremental, but

rather transformations that create a fundamental shift in the

enterprise. Reinvention focuses on core business processes that cut

across strategy, people, and information systems (e.g., the customer

acquisition process, resolution of customer inquiries, or claims

processing). Reinvention does not simply address the existing

business, but instead is forward-looking to create a platform for

sustainable growth.

The journey to reinvention is long and difficult, and no financial

services firm has yet completed it by implementing the six

transformations throughout its enterprise. The firm that does

achieve reinvention will reap enormous benefits, but its work will

not be over. A reinvented firm will need to continually reassess its

situation and take the necessary steps to remain competitive with

new technologies, customer expectations, and best practices. The

journey to higher levels of performance is continuous.


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Reinvention Required


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Convention vs. Reinvention

Definition The pursuit of incremental

improvements in cost,

cycle time,quality, or

performance

A series of planned

transformations creating

a fundamental shift in

the business

Investment Low to moderate High

Magnitude

of Change

Moderate; only visible

behind the scenes

Dramatic; visible both

internally and externally

Time Frame One to two years Ongoing

Expected Results Measurable performance

improvement; no

significant impact on

stakeholder value

Radical performance

improvements; increase

in stakeholder value

Risks Significant loss of

competitive position andshareholder value

Difficult to execute

successfully, requiringsubstantial commitments

of resources

Figure 2

Source: Deloitte Research


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Reinvention is a series of planned

transformations that create a fundamental

shift in the business.


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Transformation initiatives can be organized into six

basic types:

Redesign business processes (page 10)

Create a customer-centric organization (page 12)

e-Enable the enterprise (page 16)

Build rapid deployment capability (page 18)

Develop an extended enterprise (page 20)

Recreate the business model (page 24)

Each of these initiatives is described and case histories

are provided of financial services firms that have

successfully implemented them to create substantial

value for their businesses.

RedesignBusinessProcesses

Create aCustomer-CentricOrganization

e-Enable theEnterprise

Build RapidDeploymentCapability

Develop anExtended

Enterprise

Recreatethe BusinessModel

The Six Types of Transformation


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The goal of redesigning business processes is to become best in

class, retaining only those elements that truly add value for the

customer. Financial services institutions redesigning their

business processes must ask themselves if their processes are

streamlined and quality-driven. Is performance continually

monitored? Even more important, are the right things being

measured? Does the firms performance match or exceed that of

leading firms in its industry? Does it have benchmarking studies

that provide the answer?

If a financial services firm cannot answer yes to each of these

questions,then it should seriously consider redesigning its business

processes. Redesign projects entail several basic components:

Establish the Change Imperative This component

provides the business rationale for change. Is financial

performance lagging? Are customer complaints up? Has it

become more difficult to attract and retain skilled

professionals? Firms need to establish a burning platform a

compelling need among customers that redesigning

business processes will satisfy and then focus narrowly the

priorities of the initiative. This phase will also establish a

baseline against which the redesign effort can be measured.

Set Vision and Targets Based on the need for change,

a firm must set a clear vision that aligns with the companys

strategy and then articulate that vision throughout the

organization. How will the customer experience be

different? How will technology be leveraged to drive

change? What revisions to business rules and procedures

will be implemented? Aggressive, stretch targets are then

set to track progress (e.g., reductions in cycle time,

improvements in customer satisfaction, or elimination of

unnecessary hand-offs).

Design Program Firms need to clarify how the

redesign project will be managed and how its components

will fit together. Firms need to decide on the management

structure of the effort, the decision-making process and

levels of required approvals, and whether to centralize or

decentralize the process. Though each situation is unique,

successful projects typically employ piloting and

simulation to create optimized designs. The design also

needs to incorporate a process for ongoing monitoring and

continual improvement.

Build and Implement This phase entails testing,

piloting,and building the necessary infrastructure to support

implementation. Firms will need to create new business

procedures and rules to govern the redesigned process.They

must also think broadly about the impact on operations

(e.g.,the need for physical facilities or for employee training).

Continue to Improve In a sense, the Build and

Implement component is ongoing since a successful project

includes a systematic strategy for continuous learning and

process improvements.


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Redesign Business Processes

Does each element in your business process truly add value for the customer?

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Bank of America is the second largest commercial bank in the United

States, measured by revenues, serving customers in 25 percent of the

nations households and generating 1.5

million telephone banking calls each

day. However, the bank faced a

mortgage banking sector that was mature, with low growth and low

returns.The introduction of competitors on the Internet had intensified

the competitive pressures,leading margins to compress further.

One part of Bank of Americas response to the maturing market

was to redesign its telephone mortgage lending process to match the

best practices in the industry. The goal was not simply to increase

efficiency,but to turn the mortgage process into an event that deepens

the customer relationship and improves the banks value proposition.

In early 1999, the banks mortgage lending process was

needlessly complex. The employees making mortgage decisions

werent in direct contact with customers. There were too many

hand-offs that lengthened the process and increased the number of

errors. Finally, the process lacked end-to-end measures that tracked

what was actually delivered to customers.

Bank of America streamlined its telephone mortgage lending

process. Most important, the number of hand-offs between

departments was reduced from five to two, increasing efficiency and

reducing errors. For example,the loan center associate who makes the

loan decision now notifies the customer directly,rather than passing the

decision back to the sales associate to do so. Measures were developed

to track the entire process and the value delivered to consumers.

Redesigning a business process is not glamorous,like introducing

a new products, and work was needed to generate support and

enthusiasm from staff that were comfortable with the current way of

operating. Senior management leadership and commitment were

essential throughout to lead employees to recognize the importance

of revamping the process.

Bank of America is planning further improvements that will

reduce hand-offs to just one. The ultimate goal is to have the loan

center associate receive the application, make the

decisions on lending and collateral,

prepare the closing documents,and

only hand off the loan to a personal banker to

conduct the closing. Although continued improvements are

planned, at this point Bank of America has improved the mortgage

lending process without any additional technology investments.

The results have been dramatic, especially considering Bank of

Americas enormous size and complexity.The time required to make a

decision on a loan application dropped an astounding 87 percent

from 2.4 days in the first quarter of 1999 to 0.3 days in the third quarter

of 2000. The total cycle time (i.e., the time from loan application to

closing has dropped over the same period from 36 days to 19 days).

With quicker service,customer satisfaction is up.

The process is also generating more revenue, while maintaining

rigorous credit quality standards. By putting decision makers directly

in contact with customers, Bank of America found that its approval

rate increased from 59 percent to 74 percent,while the dollars booked

by the telephone mortgage center increased 39 percent. The bank is

continuing to examine each aspect of its mortgage business to

determine whether it truly adds value or could be eliminated.


Bank of America Streamlined Telephone Mortgage Lending Process

Bank of Americas goal was not simply to increase efficiency,but to

the telephone mortgage process to deepen the customer relationsh

1st Quarter 3rd Quarter

1999 2000Booking Rate 56% 73%

Decision Time 2.4 days 0.3 days

Total Cycle Time(application to booking) 36 days 19 days

Customer Satisfaction with

Process Overall 91.9% 95.3%

Key Results

Figure 3


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In most financial services firms, departments have responsibility for

products, regions, delivery channels (like branches), or functional

areas (like human resources or legal). While all these departments

touch the customer, either directly or indirectly, no one of them is

responsible for the customer s total relationship with the institution.

Although individual departments may seem to function

efficiently, they are usually not properly coordinated across the

enterprise. These uncoordinated efforts create numerous problems

that plague financial services institutions. Customers may receive

inconsistent information across channels. A long-time customer

may contact the institution through the Internet or a call center and

not be recognized. When a firm calls a customer about a product

offering, it may not know the products the customer already has.

Financial services institutions often dont present a consistent

face to the customer,instead inflicting their organizational structure

on customers who simply want information provided and problems

solved. For example, a customer may call their financial services

institution with questions or problems concerning two products.For

many institutions, one call is not enough.Customers have to place a

second call to a different department.

Firms embarking on initiatives to become customer-centric

have three broad goals:

Know Your Customer Financial services firms need to

obtain a comprehensive view of each customer s

relationship with the organization across product lines and

channels. This information can be analyzed to assess the

lifetime profitability of each customer segment, allowing a

firm to target marketing efforts to the most profitable

customers.This deeper customer knowledge will also allow a

firm to personalize interactions with its customers, offering

services and pricing targeted to both current and future

needs and profitability of each customer.

Present a Unified Face Clients should enjoy seamless

interactions with financial services firms,receiving the same

information and a consistent image no matter which delivery

channel they may choose. Then incentives can be used to

migrate customer interactions to the appropriate channels.

Sales of complex products to the most profitable customers

should be migrated to in-person channels, such as branches,

while routine transactions and sales of less complex

products should shift over time to call centers and the

Internet.

Build a Customer-Centric Culture The greatest

challenge and the greatest benefits come from infusing a

customer focus into the culture of the organization so that it

affects everything from training and compensation to

technology and product development.Too often,firms focus

their efforts on new information systems and business

processes, but a firm cannot truly become customer-centric

without cultural change.And the culture of any organization

starts at the top. In customer-centric organizations, senior

management communicates every day that the end goal of

the work of every employee is to serve customers.


12

Create a Customer-Centric Organization

Financial services institutions dont present a consistent face to the customer,instead inflicting their

organizational structure on customers who simply want information provided and problems solved.

2


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PRODUCT MARKET SHARE

Develop/

Manage

Products

Market/

Promote

Products

Establish and

Manage Customer

Relationships

Manage

Delivery Channels

Manage

Market

Activities

Process & Clear

Transactions

Provide Customer

Service

PRODUCT PURCHASE

EXPERIENCE REACTIVE DELIVERY OF A PRODUCT

PROBLEM

RESOLUTION

Outflow

Continually presentnew information to

customers, cross-sellcomplementaryproducts, and up-sellnew generations ofproducts

Processes Deliver Predefined Value

react to orders placed

deliver predefined products or services

maximize delivery speed and lower cost

Mass Marketing

Advertisements and channelspromote product

Retain

Workers solveproduct and process

problems

Segment and Package

New Peer Influence

A trusted advisor shows thecustomer how to use onlineservice to better achievetheir personal goals

Embed and

Empower Exchange InnovateTransactAdviseInform

CUSTOMER LIFE SHARE

CUSTOMERS REAL-LIFE

EXPERIENCE PROACTIVELY REINVENT THE CUSTOMERS REAL-LIFE EXPERIENCE

CUSTOMER-CENTERED

INNOVATION

Processes Continually Create New Value

learn from growing knowledge of the customer s changing goals,results, needs, and wants

proactively design, test, and demonstrate new total solutions thatbetter achieve customers target outcomes

maximize ability to deliver a virtual enterprise designed for one: aunique set of virtual partners that deliver lifetime experience

Inflow

Use interactivemediums to empowercustomers to assesstheir interests andgoals, to monitorprogress againstthose goals, and tocontinually improvetheir outcomes

Grow

Workers sustain life-long relationships bycontinually deliveringbetter customeroutcomes

Figure 4

Traditional Companies:

Market Products to Anonymous Customers

Winning Financial Services Customer Strategy:

Market Trusted Advice to Achieve Personal Goals

Winning Financial Services Companies:

Market Trusted Advice to Achieve Personal Goals



18/40


14

PRODUCT MARKET SHARE

Develop/

Manage

Products

Market/

Promote

Products

Establish and

Manage Customer

Relationships

Manage

Delivery Channels

Manage

Market

Activities

Process & Clear

Transactions

Provide Customer

Service

PRODUCT PURCHASE

EXPERIENCE REACTIVE DELIVERY OF A PRODUCT

PROBLEM

RESOLUTION

Interaction History

Monitor historicalbrowsing andpurchase patterns

Sell and innovate tooffer complementaryproducts or newgenerations ofproducts

Product Quality and Production Efficiencies

Workers focus on quality and continuous process improvement

Workers continually monitor operations benchmarks and best practicesTechnology infrastructure is continually improved to increase speedand lower costs

Product Brands

Branding promotes productsuse or benefits

Company

segments customers bydemo/psycho-graphics

organizes by product line

innovates by product line

Quality or ProcessProblems

Reactive; does notanticipate customerissues

Segment and Package

Experience Brands

Brand promotes whatcustomers can be

Company

segments customers bylife experience and goals

organizes by customersegment

innovates by customersegment

Embed and

EmpowerExchange InnovateTransactAdviseInform

CUSTOMER LIFE SHARE

CUSTOMERS REAL-LIFE

EXPERIENCE PROACTIVELY REINVENT THE CUSTOMERS REAL-LIFE EXPERIENCE

CUSTOMER-CENTERED

INNOVATION

Solution and Service Reinvention

Workers focus on customer outcomes

Workers continually monitor research and breakthroughs in traditionaland nontraditional industries to improve outcomes in new andunexpected ways

Technology infrastructure enables workers to reinvent services throughdigitally partnering as new product s, services, competencies, andinfrastructures emerge

Life Aspirations

Use empowermenttools to understandcustomers goals andresults to date

Innovate andrecommend brandnew solutions toachieve better

outcomes

Emerging Shifts

Innovates to satisfynew customerdemands as soon asthey appear

Figure 5

Traditional Companies:

Profit From Product Innovation and Operational Efficiency

Winning Financial Services Customer Strategy:

Profit From Customer Innovation and Ser vice Reinvention

Winning Financial Services Companies:

Profit From Customer Innovation and Ser vice Reinvention



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With assets of more than $30 billion, Allmerica Financial ranks

among the top 20 providers of variable annuities and life products

and among the top 30 providers of property and casualty insurance.

The firm is growing rapidly, with annual earnings

per share growth of 29 percent since 1994.

Allmerica determined that it was not

providing consistent service to its principal

customers, the brokers who sell its products to

consumers. Brokers with questions about several

products had to make more than one phone call. Information for

different products was maintained by different databases, and

inquiries were handled by separate toll free numbers. Since brokers

with more products and customers encountered more problems, in

effect,Allmericas best customers got the worst service.

Allmerica identified the problem as the organization of their IT

systems and call centers around products, rather than around

customers. But rather than scrap their legacy IT systems, Allmerica

chose a different route. They left their legacy systems in place and

added two new systems between the back-end systems and the

customer: a Universal Channel Integrator which handles

transactions and dispatches them to the appropriate legacy back-

end system and a Siebel Client Activity Database which provides

customer service representatives with consolidated information

when a customer calls. The process for handling calls and

transactions is being upgrading quarterly.

Allmerica found that they initially

underestimated the staff commitment and financial

resources required for these improvements and

then faced the need to justify committing resources

of this magnitude. They solved the problem by

dividing the project into discrete phases, each

requiring more modest funding and generating concrete benefits

that would justify the next phase of funding.

Now brokers can call one toll free number to access information

or resolve problems about all the products and consumers they

handle. The changes have reduced call handle times and increased

first-call resolution to 80 percent, compared to an industry

benchmark of 50-70 percent. The training period for customer

service representatives has been reduced from three to one and

one-half weeks, while service has improved. Over the longer term,

Allmerica believes that these changes will yield an improved

DALBAR rating and create more satisfied,loyal customers.


Allmerica Financial Integrated Customer-Information Systems

Allmerica increased its first-call resolution to 80 perc

compared to an industry benchmark of 50-70 perce


20/40


16

Leveraging the Internets capabilities has become one of the most

common business initiatives over the last several years.Almost every

company is examining how it can use the Internet to add value.

However, too many companies are investing large sums on the

Internet without first clarifying their objectives. Is it to lure new

customers? Retain existing customers? Cut costs? Share information

and analytics across the enterprise?

While most financial services firms have now used the Internet

either for a Basic Presence or Prospecting, most firms will face

difficulties in going beyond these levels.But to remain competitive,

over time financial services firms will need to achieve Level IV:

Business Transformation, where the Internet is integrated fully into

operations and business processes.

Too many companies are investing large sums on the

Internet without first clarifying their objectives.

e-Enable the Enterprise

3

Level I: Basic Presence At this level, companies

simply want a foothold on the Internet to increase their

visibility. Companies seeking a basic presence provide

mainly static brochures and company information.

Level II: Prospecting Firms that achieve the second level of

presence are using the Internet to provide much more extensive and

searchable information to new and existing customers.

Level III: Business Integration At this level,

firms integrate the Internet into their sales,

operations, and customer relationships. Among the

capabilities that firms achieve at this level are

advanced search capabilities, creation of online

communities, EDI, personalization with customer

profiles, and interactive selling that helps to

identify the appropriate product for a customers

specific situation. Firms at Level III also develop

strategies to migrate transactions to the appropriate

channel,depending on the nature of the transaction

and the customers profitability to the institution.

Level IV: Business Transformation The final level iswhere a firm integrates the Internet into all its operations.

Firms at Level IV have implemented such capabilities as the

sales of all products online, the ability for customers to make

bill payments online, and linking employees throughout the

enterprise. The Internet can also provide end-to-end supplychain integration from suppliers to buyers and the

marketplace in between.The Internet ceases to be a delivery

channel or a marketing device and instead becomes an

integral part of every aspect of the organization.

There are four possible levels of e-Enablement:


21/40

Abbey National is one of the leading banks in the United Kingdom,

with assets of $300 billion and 16 million customers. The firm has

generated total shareholder returns of 30 percent annually from

1997 to 2000 and an average profit before tax of 13.5 percent from

1989 to 1999.

In 1999, Abbey National was

an e-commerce laggard. Even

though its customer base was

predominantly middle-income and not comfortable with

technology, the bank decided that it needed to provide electronic

capabilities as another aspect of quality service. Abbey National

created a strategy that was device agnostic, that is, customers

could interact with the bank through PCs,mobile phones,or digital

TVs, which are popular in the United Kingdom.

Realizing the importance of senior leadership, the strategy

was driven by senior management at the board level.They realized

that to be successful they would have to execute at a much faster

pace than was typical for the bank and delegated design and

implementation to a product team. Only top-performing staff

were chosen for the product team, and they were committed to

the effort full-time. Once team members have completed their

tour of duty on the e-commerce project, they have been

reintroduced into the bank to serve as missionaries for

e-commerce and have been given greater responsibility.

To expand the banks capabilities, it quickly established 25

partnerships with firms providing digital TV, mobile phone service,

and technology integration, as well as with portal content providers.

Recognizing that their client base was not technologically

sophisticated, they established a

special help center in Sheffield.

Abbey National faced the

challenge of working with legacy

systems that did not employ Internet protocols. But rather than

build or buy new systems, Abbey National instead built their

Internet service offering on their existing ATM systems together

with middleware.

The Web site was launched in April 2000, providing information

and the ability to purchase products or conduct transactions in 26

product areas. For example,e-banking is available across the Internet,

digital TV,and WAP mobile,all in real time, with consistent look and feel,

and all achieved with just one set of log on credentials.

In the first year,800,000 customers registered to use the online

site and 10 percent of all the banks transactions were conducted

online. Customers who conduct transactions online have twice as

many Abbey National products as the average customer. The new

electronic capabilities have proved to be an important ingredient in

retaining the banks most valuable customers.


Abbey National moved 10 percent of all transactions online wit

12 months,despite its largely middle-income client ba

Abbey National

Banking Services over PCs, Mobile Telephones, and Digital TVs


22/40

Financial services firms are learning that speed provides a

competitive advantage all its own.Today,it is better to implement a

solution within 30 days that meets only the critical requirements,

than it is to take a year to implement a solution that met all the

requirements when designed, but has since become i rrelevant.

To build a rapid deployment capability requires shedding the

traditional approach of progressing through lengthy phases of

analysis, design, and deployment. Firms accelerating their

deployment capability are employing a new model,where the focus

is on quickly introducing products or services to the market,

learning from experience with customers, and then improving and

upgrading the offering.

Learning from customers and partners is essential to

implement this model effectively. Firms must create effective

feedback mechanisms to quickly capture information from

customers and markets and then use it to continually upgrade

their service offerings.

New forms of organization are also required.Firms often create

small, self-directed teams that are drawn from key executives across

many functions.These teams are freed from the reporting structures

and time frames that are common in the organization and create an

entrepreneurial esprit de corps that encourages rapid decision-

making and implementation.


18

Build Rapid Deployment Capability

Today,it is better to implement a solution

within 30 days that meets only the critical requirements,

than it is to take a year to implement a solution

that met all the requirements when designed,

but has since become irrelevant.

4


23/40

Bank One, the fifth largest bank in the United States, launched

WingspanBank.com in June 1999 to provide banking services

over the Internet. Created as a subsidiary of its First USA division,

WingspanBank.com was established as a separate brand. Given

the first-mover advantages to brands on

the Internet, Bank One set a goal of

getting to market as quickly as possible.

Achieving this goal required radical changes in how projects

were normally managed. The bank created an entrepreneurial

environment at WingspanBank.com by forming a small, dedicated

team separate from the corporate organization, relocating them to a

separate location, and delegating decision-making to team leaders.

Rather than managing by detailed work plans, the team was given

milestones and then left to decide how best to accomplish them.

The pace of decision making was also accelerated. Rather than

waiting for weekly meetings, issues needing decisions were

disseminated by phone and

e-mail as they arose and were

resolved no later than the next

business day.

Bank One partnered with

more than 30 vendors

including Sanchez, CheckFree,

e-Profile,and WebLogic to bring

WingspanBank.com to market

quickly. Rather than acquire

proprietary technologies, Bank

One decided to create an open architecture.It selected only plug-and-

play vendors so that it could rapidly add new vendors or productswithout reconfiguring.

The new approach created WingspanBank.com in an extraordinary

time frame just 123 days from developing the strategy to launch.After

the launch, Bank One had to maintain its accelerated pace to

continually upgrade the WingspanBank site in response to customer

feedback. Among the changes were enhanced security features that

reduced security-related inquiries at their call center and also revisions

to the navigation structure that cut down the number of clicks required.

To remain in touch with customer needs, every employee spent one

and one-half hours each month listening to customer calls. Executives

received daily customer e-mails thus providing a mechanism to

experience customer concerns firsthand.

In less than two years after opening its

virtual doors, WingspanBank.com became

one of the major players in Internet banking. It generated more than

600 million media impressions in the last year and was ranked as one of

the top 30 brands on the Internet by Corporate Branding s eBranding

Index in December 2000, just 18 months after it was launched.

Despite these achievements,Bank One also learned some difficult

lessons along the way. Although WingspanBank.com quickly gained

visibility,Bank One underestimated the enormous expense of building

a new brand,even one that operates on the Internet.In addition, while

a few years ago many believed that consumers would flock to online

banking to take advantage of

lower fees and higher interest

rates, it is now clear that

consumers still want full access to

branches, ATMs, and call centers,

as well as to the Internet.

In July 2001, Bank

One decided to fold

WingspanBank.com into a new

Consumer Internet Group, along

with bankone.com, firstusa.com,

and its Internet private banking service. (An analogous group was

created for the banks commercial customers.) Through its experiencein bringing WingspanBank.com to market on an accelerated

timetable, Bank One gained valuable skills in rapid deployment. By

now integrating its consumer Internet efforts, Bank One can take

advantage of increased economies of scale, while enhancing the

experience for its 60 million customers by offering them a full range of

services both online and through branches and ATMs.


Bank One Internet Initiative Launched in 123 Days

Issues needing decisions were resolved by

Bank One team no later than the next business da

Bank Ones WingspanBank.com Initiative

What Worked

Accelerated decision making

Creation of a focused,full-time team to create and launch conceptUse of strategic partners to deliver service offering quickly

Continual upgrades in response to customer feedback after launch

Lessons Learned

Customer desire for full access to branches,ATMs,and call centers

Need to obtain consumer feedback on needs earlier in process

Cross-functional representation required on planning team

Importance of fully integrating effort with back office systems in rest of the bank


24/40

Developing an extended enterprise is about taking control of a firm s

value chain. Large financial services organizations can find themselves

working with 100 vendors for a particular service, creating serious

problems in managing the vendor process and monitoring quality.The

normal response is to create a layer of the organization with ample

staff to manage contracts with vendors and monitor performance.

Seeing the inefficiencies created, many firms have changed to a

preferred vendor model departments can buy from the venders they

want as long as the firm is on the preferred vendor list.

Forward-looking firms are now going further. They have

recognized that they cannot provide by themselves all the capabilities

required to offer world-class products and services to their customers.

According to a recent study by Deloitte Consulting, The Relationship

Portfolio, firms are relying less on the ad hoc process that often serves

in the absence of a more deliberate approach to partnering. Instead,

firms are increasingly treating their strategic partnerships as a

portfolio of relationships based on three principles:

Develop a capability-based strategy. Firms must

unbundle their capabilities, keeping only world-class ones

and finding strategic partners to do the rest. Companies that

follow this approach shift their focus. Instead of focusing on

their products and services (what they make), they focus on

their own world-class capabilities (what they do best).

Build a portfolio of relationships. Firms should use

strategic partnerships to access new capabilities.The result is

a value chain extending far beyond the organizations

traditional boundaries.

Manage the relationship portfolio. Rather than look

at each relationship individually,firms must manage their set

of relationships as a portfolio. They need to weigh

interdependencies among strategic relationships, allocate

their resources strategically, and review performance

regularly. Finally, they must act when necessary, either to

recombine relationships or to eliminate unproductive ones.

In an extended enterprise, a financial services firm and its

partners perform as one interconnected system. Each party suggests

new business developments and shares benchmark findings with the

other. They work cooperatively to generate new revenues and cut

costs, and then share revenue increases and cost savings achieved.

The new approach requires a degree of trust that does not come

naturally to organizations that are more accustomed to seeing their

vendors as simple suppliers of services.Even more important,financial

services firms that have adopted this approach gain the ability to do

things offer new products, introduce new services, enter new

markets, defend against competitors that they couldnt accomplish

on their own with traditional vendor relationships.


20

Develop an Extended Enterprise

5


25/40


Stage 1

DevelopCapability-Based Strategy

Stage 2

BuildPortfolio of Relationships

Stage 3

Managethe Relationship Portfolio

Unbundle capabilities

Create advantage through

capabilities

Transcend corporate boundaries

Meet current/future needs

View relationships as a portfolio

Manage interdependencies

Allocate resources

Monitor performance

Short-term fix Long-term solution

Current value only Current value and option value

Partnerships for end products or services Relationships for capabilities

View of partnerships as zero-sum games View of relationships as value-creating propositions

Independent partnerships Interdependent relationships

Partnerships managed individually Relationships coordinated as a portfolio

Inconsistently defined metrics,milestones, and processes Consistently defined metrics,milestones, and processes

Figure 6

Traditional Approaches Relationship Portfolio Approach

The Relationship Portfolio Approach

Traditional Partnering vs. Intelligent Partnering

Source:Deloitte Consulting, The Relationship Portfolio:Intelligent Partnering in the New Global Economy, 2001.


26/40


22

In an extended enterprise, a firm retains only

its own world-class capabilities and relies on

strategic partnerships to do the rest.

Level of Length Longer Mutual Mutual

Commitment of contract term advantage dependency

Focus Lowest price Total value Significant Improved

value-add shareholder value

Type of Minimal with Price and Exchange Shared cost and

Collaboration multiple parties quality of ideas benefit with

few entities

Preferred StrategicVendor Vendor Alliance Partnership

Figure 7




27/40


By working as one interconnected entity,MasterCard International and TradeCard have been a

to bring to market an innovative offering that neither had the capability to launch on its ow

MasterCard International has developed an innovative online payment

system with TradeCard, the MasterCard Global Trading Program, to

take advantage of a significant opportunity in business-to-business e-

commerce for international transactions. B2B over the Internet is

projected to post annual growth rates of 61 percent until 2004, when it

is expected to total $2.6 trillion in the United States.

While global trade today is $6.7 trillion,

international transactions require a complex

people and paper intensive process. Both buyers

and sellers want assurance that the other party

will honor their part of the transaction. Firms have traditionally

turned to banks to act as intermediaries, providing letters of credit.

However, for mid-market firms executing smaller transactions, the

complexity and cost of securing a letter of credit are major barriers.

Online letters of credit offer the promise of streamlining the

process of international trade.Today,letters of credit-type transactions

through e-marketplaces are estimated to total $200 million, but

projections are that they will grow to $100 billion by 2004.

To provide its members with the ability to offer online letters of

credit to their business customers, MasterCard International decided

that it needed to partner with a firm with specific expertise in this area.

MasterCard International entered into a strategic alliance with

TradeCard, a financial-supply-chain provider that uses the Internet to

streamline domestic and international trade.TradeCard was launched in

2000 by the Association of World Trade Centers to stimulate

international trade by providing an online alternative to the traditional

letter of credit.

From this alliance, MasterCard International gained a proven

technology platform for facilitating complex large ticket, cross-

border transactions.TradeCard received the benefits of MasterCard

Internationals worldwide brand, critical mass of customers, and

relationships with major banks. When TradeCard first approached

banks about the program, they expressed interest, but declined to

participate. Helped by its alliance with MasterCard International,

however, 13 commercial banks have now joined the program.

Through this alliance, MasterCard members can offer their

business customers an online alternative to a traditional letter of credit

for international transactions at substantially lower

costs than traditional financing alternatives. For

example, MasterCards B2B payment method for

cross-border trades for a $100,000 transaction may

cost $150 to $200,compared to $2,000 to $2,500 for

a traditional letter of credit. Customers also have the ability to

negotiate the details of international transaction online, either through

www.mastercard.com/gtp, TradeCards Web site, or their own issuers.

Reporting on international trading transactions is provided along with

the customers card transactions information via MasterCards

Management Information reporting tool, Smart Data OnLine. The

MasterCard Global Trading Program powered by TradeCard was

launched in April 2001.

The two organizations work hand in hand as partners, rather

than as a traditional vendor and purchaser. For example,they market

the program jointly through presentations to MasterCard members,

and work in cooperation with members to explain the program and

resolve any concerns that potential customers may have.

Of course, the creation of The MasterCard Global Trading

Program has not been without the challenges of two very different

organizations learning to work together. As a start-up, TradeCard

operated in a less formal manner than MasterCard International, an

established global corporation. Both firms have learned to find a

middle ground, as well as bringing in a third party to help manage

the program.By working as one interconnected entity,rather than as

separate organizations,MasterCard International and TradeCard have

been able to bring to market an innovative offering that neither had

the capability to launch on its own.

MasterCard International

A Strategic Alliance to Automate Cross-Border Trade


28/40

The projects discussed so far have largely concerned how a firm

executes its strategy. For example, are business processes efficient?

Can the firm execute quickly?

Yet the most fundamental change is when a firm reexamines who

they are serving and what value is being delivered (i.e., the basic

assumptions behind their value proposition). Firms need to consider a

range of strategic options, including targeting specific customer

segments, offering a full suite of financial products, striving for

excellence in select products,and expanding globally,among others.

While firms face a broad range of options, there are two broadstrategic directions that firms must choose between.The first path

that financial services firms can take is to become a solutions

provider. A solutions provider focuses its energies on managing

customer relationships by understanding customer financial needs,

offering disinterested advice, and providing total financial solutions.

Firms that choose this approach will offer customers the highest

quality products wherever they can be found, not just their own

products. These firms will generally offer a broad array of different

types of financial products to capture a larger share of the

customers wallet. Building a strong, trusted brand is essential.

The second strategic path is to become a product specialist,

striving to provide a limited suite of best-of-breed products and

services. Product specialists focus on producing excellent products,

leaving customer relationships to others. Continued innovation is

essential to this strategy.And since financial products are ultimately

commodities, where innovative features are copied quickly by

competitors, having the scale and efficiency to be a low-cost

provider is essential.

Financial services firms can be successful pursuing either of

these strategic directions. But many firms are caught in the middle,

which is a recipe for failure. They strive to be trusted financial

advisers, but are not comfortable in recommending world-class

products from other firms.They manufacture financial products, but

dont distribute them through third parties. Financial services firms

need to think hard about their core competencies and how they

should choose between the solutions provider and product

specialist strategies.


24

Recreate the Business Model

Financial services firms must choose between two strategic paths

being a solutions provider or being a product specialist.

6


29/40

LendingTree is an excellent example of a firm that launched itself

with a fundamentally new business model.LendingTree decided that

instead of underwriting consumer loans, it would specialize in being

a lending exchange and solutions provider, allowing consumers to

use the Internet to receive offers

from multiple lending sources for a

variety of loan types.The market for

consumer lending is massive $1.9

trillion in loan origination in the United States, with a majority in

mortgages and also highly fragmented, with more than 20,000

providers of consumer finance in the United States.

Mortgage lending is complex, with numerous players. There are

mortgage brokers, correspondent banks, and mortgage lenders.

Then there are Fannie Mae,Freddie Mac,and the Wall Street securities

firms that play a role in securitizing the mortgage loans issued.

LendingTree, launched in 1998, provides an online lending

marketplace where consumers can receive multiple loan offers from

the more than 120 participating lenders on the exchange by

completing one online loan request. LendingTree receives fees for

transmitting loan requests to lenders and when loans close as a

result of a match made through the exchange.

Consumers benefit by easily accessing loan offers from multiple

lenders and also from the competition among lenders. In addition,

by streamlining the lending process, LendingTree has significantly

reduced customer acquisition costs for the lender, who is then able

to pass along savings to the consumer.

Lenders benefit by having LendingTree generate loan volume

and reduce their cost of sales. The LendingTree technology, Lend-X,

allows banks to specify the type of customers they are seeking by

location,credit score, or other factors. LendingTree can automatically

send loan requests that meet the

banks criteria to the appropriate

call or service center.

LendingTree has now also branched out into being a product

specialist as well, but not by manufacturing lending products.

Instead, LendingTree recognized that its proprietary consumer

lending software was a premier product that could be licensed. It

now also provides its private-label Lend-X technology to a number of

banking industry leaders and other e-commerce providers to power

their Web sites, for which LendingTree receives licensing fees and a

share of transaction revenue.

LendingTree has now processed more than four million loan

request forms and is the best-known online lending Web site.A survey

conducted by an independent research firm for the company found

that LendingTree was the clear leader in mind share in online lending

compared with its competitors. Although as an Internet start-up

LendingTree continues to face challenges to achieve profitability, to

date its performance has been impressive total revenue grew from

$4.5 million in the first quarter of 2000 to $12.3 million in the first

quarter of 2001, exceeding the expectations of analysts.


LendingTree Inc.


30/40

While the benefits from fundamental change are dramatic, many

firms have been sorely disappointed when the results of their

initiatives did not measure up to their expectations. Why do so

many firms fail to achieve the results that they anticipated?

A Deloitte Research survey asked senior executives what they

had found to be the most important barriers to implementing

significant change. The most interesting finding was what was not

mentioned technology. Although much is made of the importance

of technology in improving performance, technology issues were

not the most significant barriers to success. Instead,the factors cited

most often as important barriers to success concern thepeople in an

organization, which is consistent with our experience. In

organizations, people are comfortable with their current way of

doing business. Its what they were hired to do, what they have

learned to do well,and how they are compensated.Employees may

also not take the effort seriously, thinking it is just another

management fad that will be gone tomorrow.

The active involvement of senior leadership is essential to

success. Senior management needs to support the initiative with

adequate resources, authority, and their personal involvement.

Senior management must also communicate to employees a clear

business case for fundamental change,setting realistic expectations

that everyone is committed to and which will be part of their

compensation. Because transformation efforts are long-term

initiatives, they need to be broken into discrete phases yielding

concrete benefits, each with its own business case developed and

required resources identified.

How can a firm determine if it s ready to engage in fundamental

change? To be ready, senior executives need to be able to answer

yes to the following questions:

Do the most senior executives within the organization

champion the change effort?

Does the organization have a clear, compelling business case

for change that will be communicated throughout the

organization? Will financial, strategic, competitive,

operational, technical, and human resource considerations

support the case for change?

Is the organization prepared to manage the effort, with a

formal program management office, a clear scope, and

realistic milestones?

Is fundamental change required to truly meet current and

future customer needs?

Does the organization understand the risks of not changing?


26

The active involvement of senior leadership is essential to successful transformation.

Requirements for Success

Percentage of Firms

Organizational Resistance to Change: 82%

Inadequate Executive Sponsorship: 72%

Unrealistic Expectations: 65%

Inadequate Program Management: 54%

Unclear Case for Change: 46%

Lack of Qualified Resources: 44%

Scope Expansion/Uncertainty: 44%

Ineffective Change Leadership: 43%

Barriers to Implementing

Significant Change

Source:Deloitte Research

Figure 8


31/40


Even if senior management is ready to change, the firm must

also choose the right time in its development for an initiative to

have the greatest chance for success. Business life cycle models

often divide the organizational development of a firm into four

distinct phases: birth, expansion, leadership,and decline.1 Of course,

the dividing lines between these phases are less clear-cut in reality

than they appear when illustrated.In addition,individual companies

and even individual lines of business can progress through the life

cycle model at different speeds. But the four phases of the life cycle

model provide a useful framework for thinking about when firms

can best engage in transformation:

Birth. Entrepreneurs are inventing themselves for the first

time as they define the value proposition for the new

enterprise and seek to tie up critical customers,key suppliers,

and important channels.

Expansion. In this stage,the challenge is to manage rapid

growth and battle for market share, rather than to

transform the firm.

Leadership. While firms in this phase are profitable,growth

has slowed and at some point they eventually begin to

decline unless radical steps are taken. It is at this inflection

point that transformation is most needed and has the

greatest chance of success.

Decline. Firms that fail to transform themselves will begin

a process of declining revenues, market share, and

shareholder value.

Firms often feel the pressure to move the inflection point

forward (e.g., to attempt transformation while in the expansion

phase). While not impossible, this is extremely difficult to

accomplish. Given the demands of developing the business

infrastructure and managing growth during the expansion phase,

firms usually dont have the senior management focus, or the

required capital, to launch a successful change initiative.

By the time a firm reaches the inflection point, it needs to have

a plan for the series of critical transformations that will move it up

the path to continued growth. But transformation is not a

spontaneous event; it doesnt just happen. Firms must nurture

moments of truth catalysts that can trigger fundamental change.

1 There are a number of models describing the life cycle of a firm.We have used the life cycle model described inPredators and Prey:A New Ecology of Competition,by James F.Moore,

Harvard Business Review,May-June 1993.

TIMING A TRANSFORMATION INITIATIVE

I.

BIRTH

II.

EXPANSION

III.

LEADERSHIP

IV.

REINVENTION

GROWTHRATE

TIMETHE INFLECTION POINT

Extinction

Transformation C

Transformation A

Transformation B

Timing a Transformation Initiative

Figure 9


32/40

How does a firm decide among the six types of projects? Our

Reinvention Decision Framework is a tool that firms can use to

design a portfolio of initiatives that fits their situation. The

framework provides a series of questions that help firms assess their

current situation and identify their weaknesses. It can help firms

focus on the key issues when they are attempting to prioritize

potential projects.

Some firms will find that they need to focus on a single type of

project, such as becoming customer-centric. More often, however,

firms will identify several types of projects that need to be

implemented jointly in a specific area of the business. For example,

a firm may find that for a particular product it needs to execute more

quickly,become more customer-centric, and leverage the Internet.

Of course, a firm may answeryes to a question today, but may

answer noormaybe tomorrow. Firms need to continually reassess

their position. Once a portfolio of transformations has been

implemented successfully in an area (e.g., building a rapid

deployment capability), a firm needs to immediately use the

framework again to design its next portfolio of projects, (e.g.,

e-enabling the enterprise and creating an extended enterprise).

Implementing a transformation project is difficult since it aims

to produce a fundamental change in the business. But the dramatic

results from successful initiatives are worth the effort involved.To be

successful, financial services firms need to make the fundamental

strategic,structural, and cultural changes in their business necessary

to win in the years ahead.


28

Reinvention Decision Framework

The Reinvention Decision Framework is a guide to help firms

identify high priority transformation projects. Firms should

seriously consider implementing a project in a business area when

they cannot answer yes to the associated question.

Redesign Business Processes

Are business processes best in class (i.e., efficient and

high quality)?

Create a Customer-centric Organization

Is customer information integrated across products and

delivery channels to assess needs and lifetime

profitability?

e-Enable the Enterprise

Does the firm fully leverage the Internet to interact with

customers,suppliers,and employees?

Build Rapid Deployment Capability

Is the firm able to execute at Internet speed?


Does the firm only provide services directly in areas where

its capabilities are world-class, relying on a portfolio of

strategic partners to access additional capabilities?

Recreate the Business Model

Is the business model viable in the current competitive

context given the firms core capabilities?



33/40


The Reinvention Decision Framework can help firms desig

portfolio of transformation initiatives that fit their situatio


Redesign BusinessProcesses

Are business processes

best in class (i.e.,efficient

and high quality)?

Create a Customer-centric Organization

Is customer information

integrated across products and

delivery channels to assess

needs and lifetime

profitability?

Does the firm fully leveraging the

Internet to interact with

customers,suppliers,and

employees?

e-Enable theEnterprise

Is the firm able to

execute at Internet

speed?

Does the firm only

provide services directly in areas where its

capabilities are world-class,relying on a portfolio

of strategic partners to access additional

capabilities?

Is the business model viable in the

current competitive context given

the firms core capabilities?

Recreate theBusiness Model

Build RapidDeployment Capability

Reinvention

Develop anExtended Enterprise


34/40

What will the successful financial services firm of the 21st century

look like? Over time, successful financial services organizations will

continually reassess their competitive position and implement a

series of fundamental changes in their operations and strategy. For

the firms that can travel this road successfully, the benefits in

efficient operations, increased revenues, loyal customers, and

satisfied investors will be enormous. How will these firms be

different from most financial services firms today?


30

The Financial Institution of the 21st Century

VS

Lets first start with a typical financial services firm today:

The firm has limited knowledge of the financial needs or

profitability of customer segments, much less individual

customers.For this reason, it reacts to customer problems

and needs,rather than anticipating or preventing them.

The organization is organized around products,channels,

and geography. No one has a consolidated view of a

customers entire relationship with the institution.

When a new capability is needed,the assumption is that

it will be developed in house.

Customers select from a predefined set of proprietary

products and services offered by the firm. No

substitutions or special orders are a llowed.

The firm introduces new products or services on a

traditional timetable: analyze the problem/opportunity,

design a solution, build and test a prototype, revise the

prototype, build the product or service offering, and

then implement it.

Business processes involve unnecessary hand-offs and

other steps that dont add value.

The Internet is used as a channel but is not fully

integrated throughout the organization.

In contrast, the financial services institution of tomorrow that

has successfully reinvented itself will look very different:

The firm will possess deep knowledge of customers by

integrating information across products and channels.

It will then use this knowledge to evaluate the lifetime

profitability of customers, anticipate their needs,

develop customized solutions and pricing, and

prevent problems.

It will act as a trusted financial adviser and offer total

solutions to a customers needs, including world-class

products from other firms.

Customers will be able to access the firm through any

channel they wish, but require only a single point of

contact for whatever questions or problems arise.

The firm will extend its capabilities beyond its

boundaries through strategic alliances, treating these

partners as parts of its organization.

The firm will plan and execute on Internet time.

Today Tomorrow


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The financial services institutions that can achieve this vision

will exceed the expectations of everyone they touch. Customers will

be delighted after every interaction with the firm. Employees will be

energized about their work and inspired about what they are

achieving together in serving customers. Investors will see an

organization with solid earnings growth and strong prospects,

valuing it more highly than other financial services firms and in line

with strong performers from other industries. Business partners and

vendors will have trusted relationships with the institution, and

other firms will pursue strategic relationships with it.

No financial services institution has yet achieved this vision.

Successfully implementing fundamental change places

extraordinary demands on everyone in the organization, especially

senior management. But the financial services firms that can make

transformation a way of life will be the firms that survive and

prosper in the years ahead.



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The successful financial services institutions

of the 21st century will exceed theexpectations of everyone they touch.


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The Financial Services Institution of the 21st Century

Executes quickly

Employs best-in-class business processes

Uses deep customer knowledge to assess lifetimeprofitability and anticipate needs

Leverages the Internet throughout the enterprise

Supplements its capabilities with strategic

partnerships

Reexamines its value proposition periodicallyto ensure it remains relevant


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34 Deloitte Research, a permanent thought leadership organization

established by Deloitte & Touche and Deloitte Consulting, is

dedicated to providing ongoing research and insight into the

critical global and industry-specific issues facing business today.

Comprised of both practitioners and dedicated research

professionals from around the world, Deloitte Research combines

industry experience with academic rigor. Our research identifies

and analyzes market forces and major strategic, organizational, and

technical issues that are changing the dynamics of business. It

focuses on leading-edge industry-specific issues and global trends,

providing insight into new evolving challenges. For more

information about Deloitte Research, please contact the Global

Director,Ann Baxter,at 415.783.4952 or via e-mail:[email protected].

For further information on Deloitte Research Financial Services

Institute,please contact

Arthur A.Grubb

Director of Financial Services Research

Tel: 212.492.4942

E-mail: [email protected]

Delo itte Consul ting is one of the worlds leading e-Business

consulting firms, providing services in all aspects of enterprise

transformation, from strategy and processes to information

technology and human resources.

Deloit te & Touche, one of the nations leading professional services

firms, provides assurance and advisory, tax, and management

consulting services through a network of over 30,000 people.

Deloitte Consulting and Deloitte & Touche are parts of Deloitte

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