Deloitte Research

Reinventing
FINANCIAL SERVICES
Succeeding With Corporate Transformation

A Financial Services White Paper by

Deloitte Consulting and Deloitte & Touche
Benefits of Transformation
The following six firms are examples of the enormous benefits generated by
implementing successful transformations:

■ 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.

■ 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.

■ 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.

■ BankOne.com’s internet banking initiative generated 230,000 accounts and

became one of the top 30 brands on the Internet within 18 months.

■ 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.

■ LendingTree Inc. has become the best-known online lending Web site,
processing more than four million loan requests and consistently exceeding
analyst revenue expectations.
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

 “To survive in today’s
hyper-competitive environment,
firms need to fundamentally transform
their strategies and operations.”
Reinventing Financial Services:Succeeding With Corporate Transformation
Executive Summary
of 1998.The market has spoken, punishing firms more severely when

I
n today’s hyper-competitive financial services

environment, incremental improvement is no longer they perform poorly, while rewarding them richly when they take the

enough. To be successful, firms need to undertake massive steps necessary to stay ahead of the competition.

change – a fundamental reinvention of their strategies and

During the 1990s, many financial services firms pursued a
operations that will allow them to delight customers,
strategy of growth through acquisition. With a few notable
exceed investor expectations, and attract and retain the best and
exceptions, however, most mergers failed to deliver the cost savings
the brightest professionals.
and earnings growth promised, and their stock prices have declined

Reports on the financial services industry inevitably begin by significantly. In any case, growth through acquisition is now less

saying that competition is tougher than ever before, but this time it’s feasible since many of the attractive acquisition targets are gone.

different. A daunting series of challenges – from competition across

With investors demanding higher performance and with
industry lines to more sophisticated, demanding consumers – cloud
acquisition-driven growth less viable, firms need to move from
the industry’s future. Key metrics – such as earnings per share
conventional projects that offer at best incremental improvement
growth, net interest margin, and deposit growth – are dropping.The
to reinvention – a series of planned transformations that create a
market is lukewarm on the prospects of the industry, with the
fundamental shift in the business. We have examined
price/earnings (P/E) ratios for most financial services firms
transformation in six firms that are presented here as case
significantly lagging P/E ratios in the broader market.
histories, as well as discussed the process with many other firms in

However, investors have become more discriminating when the industry. The six case histories describe the successful

valuing financial services firms. An analysis by Morgan Stanley of the transformation projects that each of these firms have undertaken,

P/E ratios for the 30 largest U.S. banks that comprise the Morgan the key elements to their success, and the concrete results they

Stanley Bank Index shows that the spread between the higher-valued have generated.

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

Deloitte Research – Reinventing Financial Services 1

 Executive Summary
The six types of transformation are the following:

REDESIGN BUSINESS PROCESSES. Firms can achieve enormous improvements in efficiency and

1 customer 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)

2
CREATE A CUSTOMER-CENTRIC ORGANIZATION. Firms are integrating customer information
across 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)

3
e-ENABLE THE ENTERPRISE. Innovative financial services firms are moving more transactions
online 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 deploying

2
4 projects 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 customer
feedback. (See page 19)

5
DEVELOP AN EXTENDED ENTERPRISE. By turning vendors into strategic partners, financial
services 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)

6
RECREATE THE BUSINESS MODEL. Rethinking the bedrock assumptions of a firm’s business model
is 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)

Deloitte Research – Reinventing Financial Services

Executive Summary
How does a firm choose among these six types? Our Traveling the path to reinvention is no easy task, requiring a

Reinvention Decision Framework is a tool that can help firms craft larger commitment of time and resources than do conventional

a strategy. The framework helps firms assess their current improvement projects. But given more rigorous investor standards

situation, identify their weaknesses, and pinpoint those initiatives and fiercer competition, reinvention is no longer optional. Financial

that promise to deliver the greatest impact on performance. services firms that can successfully reinvent themselves will exceed

Using this tool, firms can design a portfolio of initiatives tailored the expectations of everyone they touch – customers, employees,

to their unique situation. and investors. Firms that don’t will not survive.

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.

“Financial services firms that can successfully

reinvent themselves will exceed the expectations of
everyone they touch – customers,employees,and
investors.Firms that don’t will not survive.”

Deloitte Research – Reinventing Financial Services 3

 The Change Imperative
Financial services firms are facing a more treacherous competitive Each of the main types of financial services firms – commercial

landscape than they have for decades. The strategic challenges banks, securities firms, and insurance companies – is feeling the

include the following: effects of the more difficult competitive environment.

• Increased Competition. Financial services firms today Commercial Banks. The economic slowdown has caused
confront entirely new competitors.Banks,insurance companies, problem loans to rise and venture capital profits to decline.

and securities firms are offering each other’s products. Global Meanwhile, median deposit growth for the 30 largest U.S. banks

financial services players are competing across borders, most comprising the Morgan Stanley Bank Index was just 2.8 percent in

notably in securities and asset management.And nontraditional 1999 and 3.3 percent in 2000, compared to a range of 6.2 percent to

competitors, such as manufacturing and retail firms, are 6.7 percent in 1996-1998. The median growth in earnings per share

providing financial products. 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
• Impact of the Internet. While many start-ups have not
improved in early 2001, for the past 10 years the average P/E ratio for
survived, competition over the Internet has made prices
U.S. commercial banks has generally ranged between 50 percent
more transparent, increasing the cost of attracting consumer
and 80 percent of the average P/E ratio for the market as a whole.
assets and putting downward pressure on margins.

Securities Firms. The securities industry’s big revenue

• More Sophisticated, Demanding Consumers. The
producers to date – mergers and acquisitions, and underwriting
wealth of financial information available over the Internet
bonds and equities – face an uncertain future. For example, M&A
and through traditional media has made consumers better
volume in the first quarter of 2001 was only about 40 percent of the
informed when shopping for financial products. Consumers
4
$1.1 trillion volume in the first quarter of 2000. Given the uncertain
have also come to expect the ability to access their accounts
outlook, valuations of securities and asset management firms lag
and conduct transactions 24 hours a day, seven days a week.
valuations in the broader market. An analysis by Goldman Sachs
• Decline of Acquisition-Driven Growth. Although found that five of the largest securities firms had an average P/E
acquisitions have been central to the growth strategies of ratio of 15 in 2000, compared to a P/E ratio of 20.7 for the S&P 500.
many firms, growth by acquisition is now less feasible since The firm predicts that the P/E ratios of the leading securities firms
many of the most attractive targets have already been taken. will lag the market again in 2001.
In addition, the market has become more skeptical of
Insurance Companies. Insurance companies depend on
mergers and is penalizing merged firms that fail to achieve
investment revenue, which has declined along with the stock
their earnings targets. An analysis by Morgan Stanley found
market indexes in late 2000 and early 2001. Goldman Sachs
that seven of 10 recent financial services mergers had their
estimates that the statutory surplus of non-life insurance companies
share prices decline an average of 26.8 percent relative to the
has been reduced by $30 billion since the third quarter of 2000 due
share prices of the Morgan Stanley Bank Index between the

merger announcement and the end of 2000.

Deloitte Research – Reinventing Financial Services

 “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.”

to the decline in the S&P 500. Insurance companies continue to be Figure 1

undervalued compared to the broader stock market. Although the

MSBI Standard Deviation of P/Es (as % of Mean)
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 50

ratio for the S&P 500 for most of the last 10 years, even dipping
45
below 0.5 at the beginning of 2000.

Although the industry as a whole has not met with investor 40

favor, the market has become more discriminating in valuing

financial services firms. An analysis by Morgan Stanley measured 35

variation in the valuation of higher valued and lower valued firms

30
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
25
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 20
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, 15

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 10
1/1/95 11/29/96 10/30/98 12/8/00
difficult steps required to outperform the competition have been Morgan(2)Stanley Bank Index
MSBI
rewarded with premium valuations, while those that lag behind
Source: Morgan Stanley
have seen their valuations tumble.

Deloitte Research – Reinventing Financial Services 5

 Reinvention Required
Financial services firms need to shift their approach. Firms that have Reinvention is a series of planned transformations that create a

become experts at acquisition now need to learn how to grow fundamental shift in the business. Reinvention is not a single event,

organically through delighting customers with better service and an but instead a series of changes to the business that need to be

improved value proposition. Firms need to rethink their service planned and coordinated.

offerings, their business processes, and their core competencies.

The changes produced by reinvention are not incremental, but
How can we improve service? How can we achieve deep knowledge
rather transformations that create a fundamental shift in the
of individual customers and their needs? How can we extend our
enterprise. Reinvention focuses on core business processes that cut
capabilities through strategic alliances? How can we streamline our
across strategy, people, and information systems (e.g., the customer
processes to deliver higher quality service more quickly? While
acquisition process, resolution of customer inquiries, or claims
acquisitions are discrete events, transformation challenges like
processing). Reinvention does not simply address the existing
these are ongoing.
business, but instead is forward-looking to create a platform for

Conventional, incremental improvements in these areas are sustainable growth.

relatively easy to attain. What are far harder to achieve, however, are
The journey to reinvention is long and difficult, and no financial
the fundamental changes required to survive in today’s more
services firm has yet completed it by implementing the six
competitive environment. Yet the results can be dramatic –
transformations throughout its enterprise. The firm that does
reductions in cycle time of 87 percent, first-call resolution in call
achieve reinvention will reap enormous benefits, but its work will
centers of 80 percent, an entirely new business launched in just 123
not be over. A reinvented firm will need to continually reassess its
days, and 10 percent of a bank’s transactions moved online in a year
situation and take the necessary steps to remain competitive with
6 and a half.These are some of the actual performance improvements
new technologies, customer expectations, and best practices. The
that have been achieved by the firms described in the case studies
journey to higher levels of performance is continuous.
in the following pages.

Deloitte Research – Reinventing Financial Services

Figure 2

Convention vs. Reinvention

Definition The pursuit of incremental A series of planned
improvements in cost, transformations creating
cycle time, quality, or a fundamental shift in
performance the business

Investment Low to moderate High

Magnitude Moderate; only visible Dramatic; visible both

of Change behind the scenes internally and externally

Time Frame One to two years Ongoing

Risks Significant loss of Difficult to execute

competitive position and successfully, requiring
shareholder value substantial commitments
of resources

Expected Results Measurable performance Radical performance

improvement; no improvements; increase
significant impact on in stakeholder value
stakeholder value

Source: Deloitte Research

Deloitte Research – Reinventing Financial Services 7

 “Reinvention is a series of planned
transformations that create a fundamental
shift in the business.”
The Six Types of Transformation
Transformation initiatives can be organized into six
basic types:
Redesign
Business
Processes • Redesign business processes (page 10)

• Create a customer-centric organization (page 12)

• e-Enable the enterprise (page 16)

• Build rapid deployment capability (page 18)

Create a
Customer-Centric • Develop an extended enterprise (page 20)
Organization
• Recreate the business model (page 24)

Each of these initiatives is described and case histories

e-Enable the are provided of financial services firms that have
Enterprise
successfully implemented them to create substantial
value for their businesses.

Build Rapid
Deployment
Capability

Develop an
Extended
Enterprise

Recreate
the Business
Model

Deloitte Research – Reinventing Financial Services 9

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

Redesign Business Processes

1
The goal of redesigning business processes is to become best in change? What revisions to business rules and procedures

class, retaining only those elements that truly add value for the will be implemented? Aggressive, stretch targets are then

customer. Financial services institutions redesigning their set to track progress (e.g., reductions in cycle time,

business processes must ask themselves if their processes are improvements in customer satisfaction, or elimination of

streamlined and quality-driven. Is performance continually unnecessary hand-offs).

monitored? Even more important, are the right things being

• Design Program — Firms need to clarify how the
measured? Does the firm’s performance match or exceed that of
redesign project will be managed and how its components
leading firms in its industry? Does it have benchmarking studies
will fit together. Firms need to decide on the management
that provide the answer?
structure of the effort, the decision-making process and

If a financial services firm cannot answer “yes” to each of these levels of required approvals, and whether to centralize or

questions, then it should seriously consider redesigning its business decentralize the process. Though each situation is unique,

processes. Redesign projects entail several basic components: successful projects typically employ piloting and

simulation to create optimized designs. The design also

• Establish the Change Imperative — This component
needs to incorporate a process for ongoing monitoring and
provides the business rationale for change. Is financial
continual improvement.
performance lagging? Are customer complaints up? Has it

become more difficult to attract and retain skilled • Build and Implement — This phase entails testing,
professionals? Firms need to establish a burning platform – a piloting,and building the necessary infrastructure to support

compelling need among customers that redesigning implementation. Firms will need to create new business
10
business processes will satisfy – and then focus narrowly the procedures and rules to govern the redesigned process.They

priorities of the initiative. This phase will also establish a must also think broadly about the impact on operations

baseline against which the redesign effort can be measured. (e.g., the need for physical facilities or for employee training).

• Set Vision and Targets — Based on the need for change, • Continue to Improve — In a sense, the Build and
a firm must set a clear vision that aligns with the company’s Implement component is ongoing since a successful project

strategy and then articulate that vision throughout the includes a systematic strategy for continuous learning and

organization. How will the customer experience be process improvements.

different? How will technology be leveraged to drive

Deloitte Research – Reinventing Financial Services


Bank of America — Streamlined Telephone Mortgage Lending Process
Bank of America is the second largest commercial bank in the United
States, measured by revenues, serving customers in 25 percent of the
nation’s 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 America’s 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 bank’s value proposition.
In early 1999, the bank’s mortgage lending process was
needlessly complex. The employees making mortgage decisions
weren’t 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.
Deloitte Research – Reinventing Financial Services
“Bank of America’s goal was not simply to increase efficiency,but to use
the telephone mortgage process to deepen the customer relationship.”
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
America’s 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.
Figure 3
Key Results
1st Quarter 3rd Quarter
1999 2000
Booking 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%
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.
11
 “Financial services institutions don’t present a consistent face to the customer,instead inflicting their
organizational structure on customers who simply want information provided and problems solved.”
Create a Customer-Centric Organization
2
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 don’t 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
12
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
Deloitte Research – Reinventing Financial Services
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.
Figure 4

Winning Financial Services Customer Strategy:

Market Trusted Advice to Achieve Personal Goals
Traditional Companies:
Market Products to Anonymous Customers
PRODUCT PURCHASE PROBLEM
PRODUCT MARKET SHARE EXPERIENCE REACTIVE DELIVERY OF A PRODUCT RESOLUTION
Develop/ Market/ Establish and Manage
Manage Process & Clear Provide Customer
Manage Promote Manage Customer Market
Delivery Channels Transactions Service
Products Products Relationships Activities
Mass Marketing Outflow Processes Deliver Predefined Value Retain
Advertisements and channels Continually present … react to orders placed Workers solve
promote product new information to … deliver predefined products or services product and process
customers, cross-sell … maximize delivery speed and lower cost problems
complementary
products, and up-sell
new generations of
products

Winning Financial Services Companies:

Market Trusted Advice to Achieve Personal Goals

CUSTOMER’S REAL-LIFE CUSTOMER-CENTERED

CUSTOMER LIFE SHARE EXPERIENCE PROACTIVELY REINVENT THE CUSTOMER’S REAL-LIFE EXPERIENCE INNOVATION

Embed and Innovate

Segment and Package Inform Advise Transact Exchange
Empower

New Peer Influence
A trusted advisor shows the
customer how to use online
service to better achieve
their personal goals
Inflow Processes Continually Create New Value Grow
Use interactive … learn from growing knowledge of the customer’s changing goals, Workers sustain life-
mediums to empower results, needs, and wants long relationships by
customers to assess … proactively design, test, and demonstrate new total solutions that continually delivering
their interests and better achieve customer’s target outcomes better customer
goals, to monitor … maximize ability to deliver a virtual enterprise designed for one: a outcomes
progress against unique set of virtual partners that deliver lifetime experience
those goals, and to
continually improve
their outcomes

Source: Deloitte Research

Deloitte Research – Reinventing Financial Services 13

 Figure 5

Winning Financial Services Customer Strategy:

Profit From Customer Innovation and Service Reinvention
Traditional Companies:
Profit From Product Innovation and Operational Efficiency

PRODUCT PURCHASE PROBLEM

PRODUCT MARKET SHARE EXPERIENCE REACTIVE DELIVERY OF A PRODUCT RESOLUTION
Develop/ Market/ Establish and Manage
Manage Process & Clear Provide Customer
Manage Promote Manage Customer Market
Delivery Channels Transactions Service
Products Products Relationships Activities
Product Brands Interaction History Product Quality and Production Efficiencies Quality or Process
Branding promotes products’ Monitor historical Workers focus on quality and continuous process improvement Problems
use or benefits browsing and Workers continually monitor operations benchmarks and best practices Reactive; does not
Company purchase patterns Technology infrastructure is continually improved to increase speed anticipate customer
… segments customers by Sell and innovate to and lower costs issues
demo/psycho-graphics offer complementary
… organizes by product line products or new
generations of
… innovates by product line products

Winning Financial Services Companies:

Profit From Customer Innovation and Service Reinvention

CUSTOMER’S REAL-LIFE CUSTOMER-CENTERED

14 CUSTOMER LIFE SHARE EXPERIENCE PROACTIVELY REINVENT THE CUSTOMER’S REAL-LIFE EXPERIENCE INNOVATION

Embed and Innovate

Segment and Package Inform Advise Transact Exchange
Empower

Experience Brands
Brand promotes what
customers can be
Company
… segments customers by
life experience and goals
… organizes by customer
segment
… innovates by customer
segment
Life Aspirations Solution and Service Reinvention Emerging Shifts
Use empowerment Workers focus on customer outcomes Innovates to satisfy
tools to understand Workers continually monitor research and breakthroughs – in traditional new customer
customers’ goals and and nontraditional industries – to improve outcomes in new and demands as soon as
results to date unexpected ways they appear
Innovate and Technology infrastructure enables workers to reinvent services – through
recommend brand digitally partnering – as new products, services, competencies, and
new solutions to infrastructures emerge
achieve better
outcomes

Source: Deloitte Research

Deloitte Research – Reinventing Financial Services

 “Allmerica increased its first-call resolution to 80 percent,
compared to an industry benchmark of 50-70 percent.”

Allmerica Financial — Integrated Customer-Information Systems

With assets of more than $30 billion, Allmerica Financial ranks customer service representatives with consolidated information

among the top 20 providers of variable annuities and life products when a customer calls. The process for handling calls and

and among the top 30 providers of property and casualty insurance. transactions is being upgrading quarterly.

The firm is growing rapidly, with annual earnings

Allmerica found that they initially
per share growth of 29 percent since 1994.
underestimated the staff commitment and financial

Allmerica determined that it was not resources required for these improvements and

providing consistent service to its principal then faced the need to justify committing resources

customers, the brokers who sell its products to of this magnitude. They solved the problem by

consumers. Brokers with questions about several dividing the project into discrete phases, each

products had to make more than one phone call. Information for requiring more modest funding and generating concrete benefits

different products was maintained by different databases, and that would justify the next phase of funding.

inquiries were handled by separate toll free numbers. Since brokers

Now brokers can call one toll free number to access information
with more products and customers encountered more problems, in
or resolve problems about all the products and consumers they
effect, Allmerica’s best customers got the worst service.
handle. The changes have reduced call handle times and increased

Allmerica identified the problem as the organization of their IT first-call resolution to 80 percent, compared to an industry

systems and call centers around products, rather than around benchmark of 50-70 percent. The training period for customer

customers. But rather than scrap their legacy IT systems, Allmerica service representatives has been reduced from three to one and

chose a different route. They left their legacy systems in place and one-half weeks, while service has improved. Over the longer term,

added two new systems between the back-end systems and the Allmerica believes that these changes will yield an improved

customer: a Universal Channel Integrator – which handles DALBAR rating and create more satisfied, loyal customers.

transactions and dispatches them to the appropriate legacy back-

end system – and a Siebel Client Activity Database – which provides

Deloitte Research – Reinventing Financial Services 15

 “Too many companies are investing large sums on the
Internet without first clarifying their objectives.”

e-Enable the Enterprise

3
Leveraging the Internet’s capabilities has become one of the most While most financial services firms have now used the Internet

common business initiatives over the last several years.Almost every either for a Basic Presence or Prospecting, most firms will face

company is examining how it can use the Internet to add value. difficulties in going beyond these levels. But to remain competitive,

over time financial services firms will need to achieve Level IV:
However, too many companies are investing large sums on the
Business Transformation, where the Internet is integrated fully into
Internet without first clarifying their objectives. Is it to lure new
operations and business processes.
customers? Retain existing customers? Cut costs? Share information

and analytics across the enterprise?

There are four possible levels of e-Enablement:

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.

16

Level III: Business Integration — At this level, profiles, and interactive selling that helps to

firms integrate the Internet into their sales, identify the appropriate product for a customer’s

operations, and customer relationships. Among the specific situation. Firms at Level III also develop

capabilities that firms achieve at this level are strategies to migrate transactions to the appropriate

advanced search capabilities, creation of online channel,depending on the nature of the transaction

communities, EDI, personalization with customer and the customer’s profitability to the institution.

Level IV: Business Transformation — The final level is enterprise. The Internet can also provide end-to-end supply

where a firm integrates the Internet into all its operations. chain integration – from suppliers to buyers and the

Firms at Level IV have implemented such capabilities as the marketplace in between. The Internet ceases to be a delivery

sales of all products online, the ability for customers to make channel or a marketing device and instead becomes an

bill payments online, and linking employees throughout the integral part of every aspect of the organization.

Deloitte Research – Reinventing Financial Services

 “Abbey National moved 10 percent of all transactions online within
12 months,despite its largely middle-income client base.”

Abbey National —
Banking Services over PCs, Mobile Telephones, and Digital TVs
Abbey National is one of the leading banks in the United Kingdom, To expand the bank’s capabilities, it quickly established 25

with assets of $300 billion and 16 million customers. The firm has partnerships with firms providing digital TV, mobile phone service,

generated total shareholder returns of 30 percent annually from and technology integration, as well as with portal content providers.

1997 to 2000 and an average profit before tax of 13.5 percent from Recognizing that their client base was not technologically

1989 to 1999. sophisticated, they established a

special help center in Sheffield.

In 1999, Abbey National was

an e-commerce laggard. Even Abbey National faced the

though its customer base was challenge of working with legacy

predominantly middle-income and not comfortable with systems that did not employ Internet protocols. But rather than

technology, the bank decided that it needed to provide electronic build or buy new systems, Abbey National instead built their

capabilities as another aspect of quality service. Abbey National Internet service offering on their existing ATM systems together

created a strategy that was device agnostic, that is, customers with middleware.

could interact with the bank through PCs, mobile phones, or digital
The Web site was launched in April 2000, providing information
TVs, which are popular in the United Kingdom.
and the ability to purchase products or conduct transactions in 26

Realizing the importance of senior leadership, the strategy product areas. For example, e-banking is available across the Internet,

was driven by senior management at the board level.They realized digital TV,and WAP mobile,all in real time,with consistent look and feel,

that to be successful they would have to execute at a much faster and all achieved with just one set of log on credentials.

pace than was typical for the bank and delegated design and
In the first year, 800,000 customers registered to use the online
implementation to a product team. Only top-performing staff
site and 10 percent of all the bank’s transactions were conducted
were chosen for the product team, and they were committed to
online. Customers who conduct transactions online have twice as
the effort full-time. Once team members have completed their
many Abbey National products as the average customer. The new
tour of duty on the e-commerce project, they have been
electronic capabilities have proved to be an important ingredient in
reintroduced into the bank to serve as missionaries for
retaining the bank’s most valuable customers.
e-commerce and have been given greater responsibility.

Deloitte Research – Reinventing Financial Services 17

 Build Rapid Deployment Capability

4
Financial services firms are learning that speed provides a Learning from customers and partners is essential to

competitive advantage all its own. Today, it is better to implement a implement this model effectively. Firms must create effective

solution within 30 days that meets only the critical requirements, feedback mechanisms to quickly capture information from

than it is to take a year to implement a solution that met all the customers and markets and then use it to continually upgrade

requirements when designed, but has since become irrelevant. their service offerings.

To build a rapid deployment capability requires shedding the New forms of organization are also required. Firms often create

traditional approach of progressing through lengthy phases of small, self-directed teams that are drawn from key executives across

analysis, design, and deployment. Firms accelerating their many functions.These teams are freed from the reporting structures

deployment capability are employing a new model, where the focus and time frames that are common in the organization and create an

is on quickly introducing products or services to the market, entrepreneurial esprit de corps that encourages rapid decision-

learning from experience with customers, and then improving and making and implementation.

upgrading the offering.

18

“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.”

Deloitte Research – Reinventing Financial Services

 “Issues needing decisions were resolved by the
Bank One team no later than the next business day.”

Bank One — Internet Initiative Launched in 123 Days

Bank One, the fifth largest bank in the United States, launched to the navigation structure that cut down the number of clicks required.
WingspanBank.com in June 1999 to provide banking services To remain in touch with customer needs, every employee spent one
over the Internet. Created as a subsidiary of its First USA division, and one-half hours each month listening to customer calls. Executives
WingspanBank.com was established as a separate brand. Given received daily customer e-mails – thus providing a mechanism to
the first-mover advantages to brands on experience customer concerns firsthand.
the Internet, Bank One set a goal of
In less than two years after opening its
getting to market as quickly as possible.
virtual doors, WingspanBank.com became
Achieving this goal required radical changes in how projects one of the major players in Internet banking. It generated more than
were normally managed. The bank created an entrepreneurial 600 million media impressions in the last year and was ranked as one of
environment at WingspanBank.com by forming a small, dedicated the top 30 brands on the Internet by Corporate Branding’s eBranding
team separate from the corporate organization, relocating them to a Index in December 2000, just 18 months after it was launched.
separate location, and delegating decision-making to team leaders.
Despite these achievements, Bank One also learned some difficult
Rather than managing by detailed work plans, the team was given
lessons along the way. Although WingspanBank.com quickly gained
milestones and then left to decide how best to accomplish them.
visibility, Bank One underestimated the enormous expense of building
The pace of decision making was also accelerated. Rather than a new brand, even one that operates on the Internet. In addition, while
waiting for weekly meetings, issues needing decisions were a few years ago many believed that consumers would flock to online
disseminated by phone and banking to take advantage of
Bank One’s WingspanBank.com Initiative
e-mail as they arose and were lower fees and higher interest
What Worked
resolved no later than the next Accelerated decision making rates, it is now clear that
business day. Creation of a focused,full-time team to create and launch concept consumers still want full access to
Use of strategic partners to deliver service offering quickly branches, ATMs, and call centers,
Bank One partnered with
Continual upgrades in response to customer feedback after launch as well as to the Internet.
more than 30 vendors –
Lessons Learned
including Sanchez, CheckFree, In July 2001, Bank
Customer desire for full access to branches,ATMs,and call centers
e-Profile,and WebLogic – to bring One decided to fold
Need to obtain consumer feedback on needs earlier in process
WingspanBank.com to market Cross-functional representation required on planning team WingspanBank.com into a new
quickly. Rather than acquire Importance of fully integrating effort with back office systems in rest of the bank Consumer Internet Group, along
proprietary technologies, Bank with bankone.com, firstusa.com,
One decided to create an open architecture.It selected only plug-and- and its Internet private banking service. (An analogous group was
play vendors so that it could rapidly add new vendors or products created for the bank’s commercial customers.) Through its experience
without reconfiguring. in bringing WingspanBank.com to market on an accelerated
timetable, Bank One gained valuable skills in rapid deployment. By
The new approach created WingspanBank.com in an extraordinary
now integrating its consumer Internet efforts, Bank One can take
time frame – just 123 days from developing the strategy to launch.After
advantage of increased economies of scale, while enhancing the
the launch, Bank One had to maintain its accelerated pace to
experience for its 60 million customers by offering them a full range of
continually upgrade the WingspanBank site in response to customer
services both online and through branches and ATMs.
feedback. Among the changes were enhanced security features that
reduced security-related inquiries at their call center and also revisions

Deloitte Research – Reinventing Financial Services 19

 Develop an Extended Enterprise

5
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:
• 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 couldn’t accomplish

• Develop a capability-based strategy. Firms must
20 on their own with traditional vendor relationships.
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 organization’s

traditional boundaries.

Deloitte Research – Reinventing Financial Services

Figure 6

The Relationship Portfolio Approach

Stage 1 Stage 2 Stage 3

Develop Build Manage

Capability-Based Strategy Portfolio of Relationships the Relationship Portfolio

• Unbundle capabilities • Transcend corporate boundaries • Manage interdependencies

• Create advantage through • Meet current/future needs • Allocate resources
capabilities • View relationships as a portfolio • Monitor performance

Traditional Partnering vs. Intelligent Partnering

Traditional Approaches Relationship Portfolio Approach

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

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

Deloitte Research – Reinventing Financial Services 21

 Develop an Extended Enterprise
Figure 7

Preferred Strategic
Vendor Vendor Alliance Partnership

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
Source: Deloitte Research

22

“In an extended enterprise,a firm retains only

its own world-class capabilities and relies on
strategic partnerships to do the rest.”

Deloitte Research – Reinventing Financial Services


MasterCard International —
A Strategic Alliance to Automate Cross-Border Trade
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
International’s worldwide brand, critical mass of customers, and
relationships with major banks. When TradeCard first approached
Deloitte Research – Reinventing Financial Services
“By working as one interconnected entity,MasterCard International and TradeCard have been able
to bring to market an innovative offering that neither had the capability to launch on its own.”
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, MasterCard’s 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, TradeCard’s Web site, or their own issuers.
Reporting on international trading transactions is provided along with
the customer’s card transactions information via MasterCard’s
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.
23
 “Financial services firms must choose between two strategic paths –
being a solutions provider or being a product specialist.”

Recreate the Business Model

6
The projects discussed so far have largely concerned how a firm The second strategic path is to become a product specialist,

executes its strategy. For example, are business processes efficient? striving to provide a limited suite of best-of-breed products and

Can the firm execute quickly? services. Product specialists focus on producing excellent products,

leaving customer relationships to others. Continued innovation is

Yet the most fundamental change is when a firm reexamines who
essential to this strategy. And since financial products are ultimately
they are serving and what value is being delivered (i.e., the basic
commodities, where innovative features are copied quickly by
assumptions behind their value proposition). Firms need to consider a
competitors, having the scale and efficiency to be a low-cost
range of strategic options, including targeting specific customer
provider is essential.
segments, offering a full suite of financial products, striving for

excellence in select products, and expanding globally, among others. Financial services firms can be successful pursuing either of

these strategic directions. But many firms are caught in the middle,
While firms face a broad range of options, there are two broad
which is a recipe for failure. They strive to be trusted financial
strategic directions that firms must choose between. The first path
advisers, but are not comfortable in recommending world-class
that financial services firms can take is to become a solutions
products from other firms.They manufacture financial products, but
provider. A solutions provider focuses its energies on managing
don’t distribute them through third parties. Financial services firms
customer relationships by understanding customer financial needs,
need to think hard about their core competencies and how they
offering disinterested advice, and providing total financial solutions.
should choose between the solutions provider and product
Firms that choose this approach will offer customers the highest
specialist strategies.
quality products wherever they can be found, not just their own

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

24
types of financial products to capture a larger share of the

customer’s wallet. Building a strong, trusted brand is essential.

Deloitte Research – Reinventing Financial Services

LendingTree Inc.
LendingTree is an excellent example of a firm that launched itself Lenders benefit by having LendingTree generate loan volume

with a fundamentally new business model.LendingTree decided that and reduce their cost of sales. The LendingTree technology, Lend-X,

instead of underwriting consumer loans, it would specialize in being allows banks to specify the type of customers they are seeking by

a lending exchange and solutions provider, allowing consumers to location, credit score, or other factors. LendingTree can automatically

use the Internet to receive offers send loan requests that meet the

from multiple lending sources for a bank’s criteria to the appropriate

variety of loan types.The market for call or service center.

consumer lending is massive – $1.9

LendingTree has now also branched out into being a product
trillion in loan origination in the United States, with a majority in
specialist as well, but not by manufacturing lending products.
mortgages – and also highly fragmented, with more than 20,000
Instead, LendingTree recognized that its proprietary consumer
providers of consumer finance in the United States.
lending software was a premier product that could be licensed. It

Mortgage lending is complex, with numerous players. There are now also provides its private-label Lend-X technology to a number of

mortgage brokers, correspondent banks, and mortgage lenders. banking industry leaders and other e-commerce providers to power

Then there are Fannie Mae,Freddie Mac,and the Wall Street securities their Web sites, for which LendingTree receives licensing fees and a
firms that play a role in securitizing the mortgage loans issued. share of transaction revenue.

LendingTree, launched in 1998, provides an online lending LendingTree has now processed more than four million loan

marketplace where consumers can receive multiple loan offers from request forms and is the best-known online lending Web site.A survey

the more than 120 participating lenders on the exchange by conducted by an independent research firm for the company found

completing one online loan request. LendingTree receives fees for that LendingTree was the clear leader in mind share in online lending

transmitting loan requests to lenders and when loans close as a compared with its competitors. Although as an Internet start-up

result of a match made through the exchange. LendingTree continues to face challenges to achieve profitability, to

date its performance has been impressive – total revenue grew from
Consumers benefit by easily accessing loan offers from multiple
$4.5 million in the first quarter of 2000 to $12.3 million in the first
lenders and also from the competition among lenders. In addition,
quarter of 2001, exceeding the expectations of analysts.
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.

Deloitte Research – Reinventing Financial Services 25

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

Requirements for Success

While the benefits from fundamental change are dramatic, many The active involvement of senior leadership is essential to

firms have been sorely disappointed when the results of their success. Senior management needs to support the initiative with

initiatives did not measure up to their expectations. Why do so adequate resources, authority, and their personal involvement.

many firms fail to achieve the results that they anticipated? Senior management must also communicate to employees a clear

business case for fundamental change, setting realistic expectations

A Deloitte Research survey asked senior executives what they
that everyone is committed to and which will be part of their
had found to be the most important barriers to implementing
compensation. Because transformation efforts are long-term
significant change. The most interesting finding was what was not
initiatives, they need to be broken into discrete phases yielding
mentioned – technology. Although much is made of the importance
concrete benefits, each with its own business case developed and
of technology in improving performance, technology issues were
required resources identified.
not the most significant barriers to success. Instead, the factors cited

most often as important barriers to success concern the people in an How can a firm determine if it’s ready to engage in fundamental

organization, which is consistent with our experience. In change? To be ready, senior executives need to be able to answer

organizations, people are comfortable with their current way of “yes” to the following questions:

doing business. It’s what they were hired to do, what they have
• Do the most senior executives within the organization
learned to do well, and how they are compensated. Employees may
champion the change effort?
also not take the effort seriously, thinking it is just another

management fad that will be gone tomorrow. • Does the organization have a clear, compelling business case

for change that will be communicated throughout the

Figure 8 organization? Will financial, strategic, competitive,
26
operational, technical, and human resource considerations
Barriers to Implementing
support the case for change?
Significant Change
• Is the organization prepared to manage the effort, with a
Percentage of Firms
formal program management office, a clear scope, and
• Organizational Resistance to Change: 82%
realistic milestones?
• Inadequate Executive Sponsorship: 72%
• Is fundamental change required to truly meet current and
• Unrealistic Expectations: 65%
future customer needs?
• Inadequate Program Management: 54%

• Unclear Case for Change: 46% • Does the organization understand the risks of not changing?

• Lack of Qualified Resources: 44%

• Scope Expansion/Uncertainty: 44%

• Ineffective Change Leadership: 43%

Source: Deloitte Research

Deloitte Research – Reinventing Financial Services

 Even if senior management is ready to change, the firm must Firms often feel the pressure to move the inflection point

also choose the right time in its development for an initiative to forward (e.g., to attempt transformation while in the expansion

have the greatest chance for success. Business life cycle models phase). While not impossible, this is extremely difficult to

often divide the organizational development of a firm into four accomplish. Given the demands of developing the business

distinct phases: birth, expansion, leadership, and decline.1 Of course, infrastructure and managing growth during the expansion phase,

the dividing lines between these phases are less clear-cut in reality firms usually don’t have the senior management focus, or the

than they appear when illustrated. In addition, individual companies required capital, to launch a successful change initiative.

and even individual lines of business can progress through the life
By the time a firm reaches the inflection point, it needs to have
cycle model at different speeds. But the four phases of the life cycle
a plan for the series of critical transformations that will move it up
model provide a useful framework for thinking about when firms
the path to continued growth. But transformation is not a
can best engage in transformation:
spontaneous event; it doesn’t just happen. Firms must nurture

• Birth. Entrepreneurs are inventing themselves for the first moments of truth – catalysts that can trigger fundamental change.

time as they define the value proposition for the new

Figure 9
enterprise and seek to tie up critical customers, key suppliers,

and important channels. Timing a Transformation Initiative

TIMING A TRANSFORMATION INITIATIVE

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

BIRTH
II.
EXPANSION
III.
LEADERSHIP
IV.
REINVENTION
growth and battle for market share, rather than to
Transformation C
transform the firm.
Transformation B
GROWTH RATE

• Leadership. While firms in this phase are profitable, growth Transformation A

has slowed and at some point they eventually begin to

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

Extinction
point that transformation is most needed and has the

greatest chance of success. TIME

THE INFLECTION POINT

• Decline. Firms that fail to transform themselves will begin

a process of declining revenues, market share, and

shareholder value.

1
There are a number of models describing the life cycle of a firm.We have used the life cycle model described in “Predators and Prey: A New Ecology of Competition,”by James F. Moore,
Harvard Business Review, May-June 1993.

Deloitte Research – Reinventing Financial Services 27

 Reinvention Decision Framework
How does a firm decide among the six types of projects? Our Of course, a firm may answer “yes” to a question today, but may

Reinvention Decision Framework is a tool that firms can use to answer “no”or “maybe”tomorrow. Firms need to continually reassess

design a portfolio of initiatives that fits their situation. The their position. Once a portfolio of transformations has been

framework provides a series of questions that help firms assess their implemented successfully in an area (e.g., building a rapid

current situation and identify their weaknesses. It can help firms deployment capability), a firm needs to immediately use the

focus on the key issues when they are attempting to prioritize framework again to design its next portfolio of projects, (e.g.,

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

Some firms will find that they need to focus on a single type of Implementing a transformation project is difficult since it aims

project, such as becoming customer-centric. More often, however, to produce a fundamental change in the business. But the dramatic

firms will identify several types of projects that need to be results from successful initiatives are worth the effort involved.To be

implemented jointly in a specific area of the business. For example, successful, financial services firms need to make the fundamental

a firm may find that for a particular product it needs to execute more strategic, structural, and cultural changes in their business necessary

quickly, become more customer-centric, and leverage the Internet. to win in the years ahead.

Reinvention Decision Framework

• e-Enable the Enterprise
The Reinvention Decision Framework is a guide to help firms
• Does the firm fully leverage the Internet to interact with
28 identify high priority transformation projects. Firms should
customers, suppliers, and employees?
seriously consider implementing a project in a business area when
• Build Rapid Deployment Capability
they cannot answer “yes” to the associated question.
• Is the firm able to execute at Internet speed?
• Redesign Business Processes
• Develop an Extended Enterprise
• Are business processes best in class (i.e., efficient and
• Does the firm only provide services directly in areas where
high quality)?
its capabilities are world-class, relying on a portfolio of
• Create a Customer-centric Organization strategic partners to access additional capabilities?
• Is customer information integrated across products and
• Recreate the Business Model
delivery channels to assess needs and lifetime
• Is the business model viable in the current competitive
profitability?
context given the firm’s core capabilities?

Deloitte Research – Reinventing Financial Services

 “The Reinvention Decision Framework can help firms design a
portfolio of transformation initiatives that fit their situation.”

Reinvention Decision Framework

Redesign Business Create a Customer-

Processes centric Organization

Is customer information
integrated across products and
Are business processes delivery channels to assess
best in class (i.e., efficient needs and lifetime
and high quality)? profitability?

e-Enable the
Recreate the Enterprise
Business Model

Reinvention
Is the business model viable in the Does the firm fully leveraging the
current competitive context given Internet to interact with
the firm’s core capabilities? customers, suppliers, and
employees?

Build Rapid
Develop an Deployment Capability
Extended Enterprise

Is the firm able to

Does the firm only
execute at Internet
provide services directly in areas where its
speed?
capabilities are world-class, relying on a portfolio
of strategic partners to access additional
capabilities?

Deloitte Research – Reinventing Financial Services 29

 The Financial Institution of the 21st Century
What will the successful financial services firm of the 21st century the firms that can travel this road successfully, the benefits in

look like? Over time, successful financial services organizations will efficient operations, increased revenues, loyal customers, and

continually reassess their competitive position and implement a satisfied investors will be enormous. How will these firms be

series of fundamental changes in their operations and strategy. For different from most financial services firms today?

Today Tomorrow
Let’s first start with a typical financial services firm today: In contrast, the financial services institution of tomorrow that

has successfully reinvented itself will look very different:

• The firm has limited knowledge of the financial needs or
profitability of customer segments, much less individual • The firm will possess deep knowledge of customers by
customers. For this reason, it reacts to customer problems integrating information across products and channels.
and needs, rather than anticipating or preventing them. It will then use this knowledge to evaluate the lifetime

• The organization is organized around products, channels, profitability of customers, anticipate their needs,

and geography. No one has a consolidated view of a develop customized solutions and pricing, and

customer’s entire relationship with the institution. prevent problems.

• When a new capability is needed, the assumption is that • It will act as a trusted financial adviser and offer total

30
it will be developed in house.

• Customers select from a predefined set of proprietary

VS solutions to a customer’s needs, including world-class

products from other firms.

products and services offered by the firm. No • Customers will be able to access the firm through any
substitutions or special orders are allowed.
channel they wish, but require only a single point of

• The firm introduces new products or services on a contact for whatever questions or problems arise.

traditional timetable: analyze the problem/opportunity,

• The firm will extend its capabilities beyond its
design a solution, build and test a prototype, revise the
boundaries through strategic alliances, treating these
prototype, build the product or service offering, and
partners as parts of its organization.
then implement it.
• The firm will plan and execute on Internet time.
• Business processes involve unnecessary hand-offs and
other steps that don’t add value.

• The Internet is used as a channel but is not fully

integrated throughout the organization.

Deloitte Research – Reinventing Financial Services

 The financial services institutions that can achieve this vision No financial services institution has yet achieved this vision.

will exceed the expectations of everyone they touch. Customers will Successfully implementing fundamental change places

be delighted after every interaction with the firm. Employees will be extraordinary demands on everyone in the organization, especially

energized about their work and inspired about what they are senior management. But the financial services firms that can make

achieving together in serving customers. Investors will see an transformation a way of life will be the firms that survive and

organization with solid earnings growth and strong prospects, prosper in the years ahead.

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.

Deloitte Research – Reinventing Financial Services 31

“The successful financial services institutions
of the 21st century will exceed the
expectations of everyone they touch.”
The Financial Services Institution of the 21st Century
• Executes quickly
• Employs best-in-class business processes
• Uses deep customer knowledge to assess lifetime
profitability and anticipate needs
• Leverages the Internet throughout the enterprise
• Supplements its capabilities with strategic
partnerships
• Reexamines its value proposition periodically
to ensure it remains relevant

Deloitte Research – Reinventing Financial Services 33

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For More Information Please Contact:
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KEY CONTRIBUTORS:
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