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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.
Deloitte Research Reinventing Financial Services
Reinventing Financial Services:Succeeding With Corporate Transformation
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Deloitte Research Reinventing Financial Services
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)
1
2
3
45
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.
Deloitte Research Reinventing Financial Services
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
Deloitte Research Reinventing Financial Services
4
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.
Deloitte Research Reinventing Financial Services
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
45
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.
Deloitte Research Reinventing Financial Services
6
Reinvention Required
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Deloitte Research Reinventing Financial Services
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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Deloitte Research Reinventing Financial Services
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.
Deloitte Research Reinventing Financial Services
10
Redesign Business Processes
Does each element in your business process truly add value for the customer?
1
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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.
Deloitte Research Reinventing Financial Services
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.
Deloitte Research Reinventing Financial Services
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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Deloitte Research Reinventing Financial Services
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
Source: Deloitte Research
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Deloitte Research Reinventing Financial Services
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
Source: Deloitte Research
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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.
Deloitte Research Reinventing Financial Services
Allmerica Financial Integrated Customer-Information Systems
Allmerica increased its first-call resolution to 80 perc
compared to an industry benchmark of 50-70 perce
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Deloitte Research Reinventing Financial Services
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:
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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.
Deloitte Research Reinventing Financial Services
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
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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.
Deloitte Research Reinventing Financial Services
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
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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.
Deloitte Research Reinventing Financial Services
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
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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.
Deloitte Research Reinventing Financial Services
20
Develop an Extended Enterprise
5
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Deloitte Research Reinventing Financial Services
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.
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Deloitte Research Reinventing Financial Services
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
Develop an Extended Enterprise
Source: Deloitte Research
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Deloitte Research Reinventing Financial Services
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
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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.
Deloitte Research Reinventing Financial Services
24
Recreate the Business Model
Financial services firms must choose between two strategic paths
being a solutions provider or being a product specialist.
6
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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.
Deloitte Research Reinventing Financial Services
LendingTree Inc.
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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?
Deloitte Research Reinventing Financial Services
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
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Deloitte Research Reinventing Financial Services
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
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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.
Deloitte Research Reinventing Financial Services
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?
Develop an Extended Enterprise
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?
Reinvention Decision Framework
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Deloitte Research Reinventing Financial Services
The Reinvention Decision Framework can help firms desig
portfolio of transformation initiatives that fit their situatio
Reinvention Decision Framework
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
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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?
Deloitte Research Reinventing Financial Services
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.
Deloitte Research Reinventing Financial Services
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The successful financial services institutions
of the 21st century will exceed theexpectations of everyone they touch.
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Deloitte Research Reinventing Financial Services
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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Deloitte Research Reinventing Financial Services
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.
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Deloitte Consulting and Deloitte & Touche are parts of Deloitte
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