Battered by changing customer needs, shrinking margins and increasingly sophisticated buying behaviour, top investment banks are turning to CRM applications for better efficiency, market share and positioning in a competitive market, according to a new study by management consulting firm Booz Allen Hamilton.
The study reveals that institutional sales organisations are embracing customer relationship management (CRM), and examines the obstacles they face in doing so.
Booz Allen conducted over 100 interviews in the US and Europe with senior equities and fixed income representatives of leading banks (including Merrill Lynch, Citicorp/Salomon Smith Barney, JP Morgan Chase, Bear Stearns, UBS Warburg, HSBC, Barclays Capital, Deutsche Bank, Goldman Sachs and Lehman Brothers).
The study examined the banks' client strategies, underlying capabilities and enablers (such as organisation, process and technology). It also assessed how banks are trying to measure the effectiveness of their client management programmes and link the outcomes to business objectives and compensation.
Enthusiasm for CRM
The study found broad and enthusiastic interest in building stronger client relationship management capabilities, as 75% have established a client management function, with senior managers overseeing both the programme and support resources. Half of those programmes employ senior managers dedicated to enhancing client relationships.
Most of these client management efforts have been fairly recently established, although 30% of the firms have had programmes in place for 3 or more years. While some of the programmes have been implemented globally, most are focusing their efforts regionally within a line of business (such as US Fixed Income), with plans to use these regional programmes as stepping stones to wider programmes.
"The relationship game on the street is being stepped up, and doing nothing is not an option for most players," said Booz Allen's principal, David Owen. "With their economics under pressure, firms are working to renew client relationships, focus senior management attention on key accounts, and increase cross-product coordination and accountability."
Developing and implementing an effective client management strategy is a very big challenge for most firms. Sales and trading organisations have deeply rooted product structures, incentives, cultures and decision rights that need to be realigned to support this new customer orientation.
According to the study, 60% of Wall Street firms are currently focused on account management, which employs a disciplined approach to account planning and management to cross-sell products. Account management programmes are internally focused with a 'share of wallet' orientation.
A smaller (but growing) number of firms (40%) have instituted or are building more advanced relationship management capabilities. These programmes focus on building a larger 'share of mind' with clients, by systematically targeting senior client relationships and broadening, deepening and extending the bond with the client. The most advanced programmes are working to integrate account management and relationship management into a single, mutually reinforcing strategy.
However, the biggest challenge faced by these programmes is usually fundamentally re-orienting the attitudes of the sales force toward a full view of the client's needs, rather than a single product or individual relationship.
Booz Allen's vice president, Mike McKeon, explained, "Firms need to rethink their client relationships, renew their value proposition and realign their resources to serve their clients better. This renewal will take time, imagination and discipline."
Will they succeed?
The key question, according to Booz Allen, is whether or not these firms will succeed in the change to CRM, and will they profit from it?
The answer is likely to be different for each firm. A full and successful implementation is complex and does not happen overnight. Each firm must transform its organisation and culture to strike the right balance between the narrow focus on products, and the broader view of client needs.
According to the study, the potential pay-off for firms that successfully change over to CRM is likely to be both large and sustaining.