Knowledge Area Review - Customer_Centricity.pptx

Slides on Customer Centricty

1. Knowledge Area Review (KAR 016) Global Best Practices in Building Customer-Centric Organizations November 2014

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3. Foreword 3 “Amazon aspires to be ‘Earth’s most customer-centric company’. Customer focus abounds in mission statements. Yet the brands we most admire are much more than customer-led. People never wanted to use finger gestures on black glass sheets before Apple suggested it, or to do so sitting among strangers until the green siren invited them into the coffee-shop. Being customer-centric once meant doing things for the sake of customers, rather than for the convenience of the provider. A bank opening extra teller positions at lunchtime to meet demand, instead of closing them so tellers could eat lunch. But by that measure, any successful company is already customer-centric. The goal posts have clearly moved. The natural response has been for brands to try to raise their game, to be more agile and responsive. But that has been a recipe for repeating cycles of increasing investment and complexity. Keeping up with the pack in this way is essential, but getting ahead is extremely difficult. Brands need a way of working smarter, not harder .” Simon Glynn, Author of The New Customer Centric So, what is customer centricity, how has it evolved, what are the best practices, and how do you build a customer-centric organization? This document provides a synthesis of available public domain information to help answer those four questions. It is intended to provide a comprehensive overview of the current state and issues across the globe . The authors have summarized the information selected in a manner to provide the reader with a logical flow, and have referenced source material in each case .

4. Global Best Practices in Building Customer-Centric Organizations The Story of the Evolution & Future of Customer Centricity 4 Building a Customer-Centric Organization 1 2 4 Source: ICG analysis Customer Centricity The Model & Its Component Parts History & Current State Roadmap What it is? What it i sn’t Why is it important? Broad footprint a cross geographies and industries Governance Culture Structure Process and system(s) Where? geography, industry, etc. Conduct regulation Financial ramifications Challenges and perceived g aps Success, failures and w hy? Leadership and governance Design principles Customer experience Customer experience Changing d ynamics (transparency, channels, behaviours, etc ). Stakeholders (regulators, customers, shareholders) and t heir n eeds Metrics and e valuation f ramework Trade-offs Processes 3 What is ‘Customer Centricity’ and why is it important? What is the existing state of customer centricity, what success have organizations had in implementing it, and how has it evolved? What are the key dimensions to be considered to make an organization customer-centric ? What should organizations do to execute a customer-centric strategy and ensure its long term sustainability?

5. Table of Contents 5 Section Component Description 1 Executive Summary Overview of our research and findings 2 Building a Customer-Centric Organization Overview of the key components for customer-centric organizations 2a Definition & Context : What is Customer Centricity? For each different dimension: The key thinking from consulting firms, journals and academia as to what constitutes best practice Examples of this best practice across different firms and industries 2b History : How has Customer Centricity evolved? 2c The Model & Its C omponent Parts : What are the key dimensions to be considered to make an organization customer-centric? 2d The Roadmap for the Future : What should organizations do to execute a customer-centric strategy and ensure its long term sustainability? 3 Additional Knowledge Sources Relevant published materials for further reading

6. Executive Summary 6 What are the best practices that make an organization truly customer-centric and how do you build one? Research suggests that there are many paradigms of customer centricity, some simple and some comprehensive, some come with a ‘silver bullet’ – e.g. technology and CRM systems – and some do not. Our review found a variety of points of view on the most important components and how to achieve true customer centricity. However, all were aligned in a common view of the importance of choosing a core customer set, knowing and responding to their needs, building connections, and generating valuable outcomes for these customers over a relevant timeframe (e.g. working in years), while enabling a mutually profitable relationship. Notably, as thinking has evolved, the importance of long-term value seems to have taken hold more broadly – that is, it is about relationships that are good for both the organization and the customer over the long run, and not about any specific transaction or technical solution, nor about satisfying customers whatever the implication. So, how to build a customer-centric organization? To support dialogue on that question, we set out to answer the following key questions: What is customer centricity and why is it important? What is the existing state of customer centricity, what success have organizations had in implementing it, and how has it evolved? What are the key dimensions of a customer-centric model? What should organizations do to execute a customer-centric strategy and ensure its long term sustainability ? Throughout the document, we have provided examples of the leading thinking on customer centricity and how they address the issues faced by organizations in building a customer-centric approach. We also provide our view on a synthesis of frameworks and a number of structured knowledge references on the subject of brands in our bibliography. Source: ICG analysis Executive Summary

7. 7 Taxonomy of Customer Centricity Underlying structure, key stakeholders and pressures from each in a customer-centric environment Source: ICG analysis, Adapted from Lancaster University, Is Customer Centricity Movement or Myth ? ; KPMG international, January 2014 Strategy & Brand Offering Metrics & Rewards Structure & Governance Business Model Employees Culture Executive Summary/Taxonomy Become genuinely customer-centric; r eplace product push with a culture of serving customer interest Drive ROE above the cost of capital; facilitate issuance of new capital through delivering on strategy, business model , and cost reduction Meet capital, liquidity and r esolvability requirements to mitigate “too big to fail”; r ebuild trust, not least through cultural challenges INVESTORS: Will not put up more capital without adequate returns Prepared to accept lower returns if risk is correspondingly lower Debt coupons will need to reflect the threat of bail in. REGULATORS: Regulatory demands increase the cost of capital Mistrust of banks, capital markets and shadow banking Emphasis on personal responsibility and improved risk governance. CUSTOMERS: Fewer, more expensive products More transparency but less flexibility Offered what the regulators allow, not necessarily what they want or need. EMPLOYEES: Expect to be rewarded in line with value created – often only short-term Incentives vary and are migrating to customer needs- and team-based.

8. How to Build a Customer-Centric Organization?– Table of Contents 8 Definition & Context Section Component Description 1 Executive Summary Overview of our research and findings 2 Building a Customer-Centric Organization Overview of the key components for Customer-Centric Organizations 2a Definition & Context : What is Customer Centricity? For each different dimension The key thinking from consulting firms, journals and academia as to what constitutes best practice Examples of this best practice across different firms and industries 2b History : How has Customer Centricity evolved? 2c The Model & its C omponent Parts : What are the key dimensions to be considered to make an organization customer-centric? 2d The Roadmap for the Future : What should organizations do to execute a customer-centric strategy and ensure its long term sustainability? 3 Additional Knowledge Sources Relevant published materials for further reading

9. Introduction What is customer centricity and why is it important ? What is customer centricity ? While there are many points of view, there is a common theme around aligning resources to respond to the ever-changing needs of customers, while building mutually profitable relationships Being customer-centric means using the customer’s position as the central focal point for all activities within the organization . Customer-centric organizations develop long term profitable customers and genuine centricity A key challenge to becoming customer-centric is overcoming two of the most common misconceptions, i.e., that customer centricity is only about customer service, and secondly that it requires organizations to respond to all customer needs Why is it important ? Customer-Centric organizations: Make informed choices between high volume/low costs and strong differentiation strategies in an increasingly competitive business world where customers have instant access to information Reinforce the classical differentiation strategy by enabling a consistent personal experience at any place and any time. Help to increase profitability by increasing the revenues while decreasing the costs. 9 Source : ICG Research Definition & Context/Summary

10. Many Points of View But a Common Theme While there are many points of view, most are aligned around the need to respond to the ever-changing needs of customers, while building mutually profitable relationships 10 Source: (1) Attivio : A Maturity Model for Customer Centricity; (2) McKinsey & Company : Banking on Customer Centricity; (3) Patricia Seybold Group http://www.customers.com/media/uploads/images-2013/putting-customers-at-core_large.jpg Proactive identification of customer interests, likes/dislikes by listening to sentiment noted in communications Internal (e.g., email, chat, surveys) External (e.g., social media, web) Major improvements in customer service, loyalty, successful targeted upselling/cross-selling Reduced customer churn, higher revenue per customer and wallet share Customer databases and unstructured content freely integrated, correlated 1 It is about translating deep customer insights into tailor-made products and services . A superior research approach is required to achieve this goal, yielding deep insights on customers and their needs 2 In a customer-centric organization , the customer is at the core of everything as they traverse the customer lifecycle . All processes and company activity are done in support of what the customer is trying to accomplish . At the core , of course, is the customer and his relationship with your organization . Customers will trust your company and stay loyal to your brand when you offer a consistent customer experience , through all your touchpoints , that meets the customer’s requirements for doing business with your organization and that helps him achieve his goals 3 Definition & Context

11. Customer Centricity A definition Customer-centric organizations build their operating model around a deep understanding of their target customers , what those customers value and the contribution each makes to the profitability of the company This requires the organization to: Organize to ensure focus and appropriate accountability alignment Design business processes that recognize different customer segment needs Deliver a positive and seamless customer experience at every touch point across the customer life cycle Maintain an active dialogue with customers (and acting on feedback) Foster a culture that places the customer at the heart of the decision-making process 11 Source : adapted from The Journey Toward Greater Customer Centricity , E&Y, 2013 Definition & Context

12. Illustrative Definitions (1 of 3) Our research uncovered a number of views on customer centricity 12 Source Description Reference Accenture Achieving customer-centricity requires rethinking the way business is done. And this, in turn, requires a holistic approach that encompasses everything from analytics and insights to strategy and customer experience, from operating model design and execution to governance and transformation management. How to make your company think like a customer, 2012 Bain Customer-centric organizations identify a specific set of customers they serve better than anyone else—with better products, better service, lower cost, or some combination of all three. Gottfredson & Focus on the Customer, 2014 Booz & Co. A clear vision, backed by strong leadership and a clearly defined goal to grow shareholder value; an operating model that breaks down functional boundaries, allowing information to move freely and decisions to be made quickly in response to customer feedback; and significant changes to what we call “business enablers”—the people, processes, and technology that keep the business running from day to day. Making Customer Centricity Pay in Good Times and Bad, Deloitte A more flexible (service-differentiated) model that tailors service and delivery to customer segments, retaining enough value add to retain the most valuable customers or charge a premium Building Customer Centric Business Models, 2011 Definition & Context Source : ICG Research

13. Illustrative Definitions (2 of 3) Our research has uncovered a number of views on customer centricity 13 Source Description Reference E&Y A customer-centric organization builds an operating model around a deep understanding of its customers, what they value and the contribution each makes to the profitability of the company. This requires: Designing business processes that recognize different customer segment needs Delivering a positive and seamless customer experience at every touch point across the customer life cycle Maintaining an active dialogue with customers (and acting on feedback) Fostering a culture that places the customer at the heart of the decision-making process The Journey Toward Greater Customer Centricity, 2013 Infosys Organizations that consistently deliver, and improve upon, positive experiences, with three things in common: customer delight, a customer-oriented culture, and a “designed” customer experience The Journey to a Customer Business, 2012 Arthur D. Little Customer-centered organizations create a corporate level responsibility and make customer experience a powerful function. Managing the Customer Experience , 2012 Definition & Context Source : ICG Research

14. Definitions (3 of 3) Our research has uncovered a number of views on customer centricity 14 Source Description Reference McKinsey Customer Centric organizations: Translate deep customer insights into tailor-made products and services Require a superior research approach to achieve this goal, yielding deep insights on customers and their needs. Derive segment-specific differentiation strategies, and to allow decisions to be made along the entire value chain faster, more safely, and more efficiently. Generate sustainable increases in growth and profit through customer-centric organizational structures that implement customer centricity at all levels. Banking on customer centricity, 2012 PWC Dimensions to customer centricity for organizations: Mine the wealth of available data about their customers to gain insights into their needs and behaviors so they can deliver the experiences and products customers want. Consistent and streamlined interactions with the customer that match each customer’s needs and preferences during “moments of truth.” Structures, systems, and processes designed with one goal in mind—delivering quality customer experiences efficiently and at a reasonable cost. Playing for keeps: How insurers can win customers, one at a time 2014 Definition & Context Source : ICG Research

15. The Customer is The Focal Point Being customer-centric means using the customer’s position as the central focal point for all activities within the organization . Suppose that, instead of trying to serve everybody, you were to identify a specific set of customers you can serve better than anyone else—with better products, better service, lower cost, or some combination of all three This is your design target Companies that take this route set out to learn all they can about these target customers, starting with who is buying , why they are buying and where the potential buyers are They seek both qualitative and quantitative insights , and not just from one-off research projects but from a constant stream of feedback They investigate the customers’ needs, their spending habits, their passions , their unmet wants. They figure out where competitors are missing the boat, and they determine which customer needs best match their own capabilities All of these steps lay the foundation for loyalty and enthusiasm among those customers 15 Source : Gottfredson & Focus on the Customer, Bain Definition & Context

16. Pursuing the Design Target The truly customer-centric organization will discriminate between the customers to serve and the ones to politely ignore and then focus on profitably serving their needs by establishing a clear design target. 16 Source: Bain & Company, Focus on the customer, 2014 Definition & Context

17. Case Study: Ritz-Carlton Setting in place the elements of a “Gold-Standard” The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed, yet refined ambience The Ritz-Carlton experience enlivens the senses, instils well-being, and fulfils even the unexpressed wishes and needs of our guests 17 Source: www. r itzcarlton.com; The Customer Experience Journey, Forester , Sept 2008 The credo Service values: I am proud to be Ritz-carlton I build strong relationships and create Ritz-Carlton guests for life I am always responsive to the expressed and unexpressed wishes and needs of our guests I am empowered to create unique, memorable, and personal experiences for our guests I understand my role in achieving the Key Success Factors, embracing Community Footprints, and creating The Ritz-Carlton Mystique I continuously seek opportunities to innovate and improve The Ritz-Carlton experience I own and immediately resolve guest problems I create a work environment of teamwork and lateral service so that the needs of our guests and each other are met I have an opportunity to continuously learn and grow I am involved in the planning of the work that affects me I am proud of my professional appearance, language and behaviour I protect the privacy and security of our guests, my fellow employees, and the company’s confidential information and assets I am responsible for uncompromising levels of cleanliness and creating a safe and accident-free environment A warm and sincere greeting. Use the guest’s name Anticipation and fulfilment of each guest’s needs Fond farewell. Give a warm goodbye and use the guest’s name Three Steps of Service At Ritz-Carlton, our Ladies and Gentlemen are the most important resource in our service commitment to our guests By applying principles of trust, honesty, respect, integrity, and commitment, we nurture and maximize talent to the benefit of each individual and the company The Ritz-Carlton fosters a work environment where diversity is valued, quality of life is enhanced, individual aspirations are fulfilled and The Ritz-Carlton Mystique is strengthened The employee promise Definition & Context

18. 18 And Building a Deep Understanding and Appropriate Responses Profitable customers and genuine centricity … Source: ICG Research ; The Convergence of Brand, Customer Experience and Marketing, Forrester Research Inc. Centricity puts profitable customers at the center of the organization agenda all along the value chain. But, it doesn’t mean complying with all customer requests nor only for some functions For the next generation of CMOs, marketing will not be a prerequisite for the job. The convergence of brand, customer experience, and marketing will have a ripple effect on other disciplines within the company. It will be up to the CMO to manage competing interests, learn new skills, and orchestrate a seamless brand experience for the customers It builds a profitable solution that matches very closely the similar needs and expectations of specific customer segments. It secures a positive personal experience at all stages of interaction with the organization from the initial contact to the repeat purchase. This positive experience reinforces the appetite of the customer to come back for additional solutions from the customer-centric organization. Being customer-centric means using the customer position as the central focal point for all activities within the organization. It starts with a very deep understanding of the customer situation, frustrations, needs, expectations and constraints. A truly customer-centric organization is able to say ‘NO’ to unreasonable customer requests. It will discriminate between the customer segments to serve and the ones to politely ignore. A genuine customer-centric organization will not limit its customer-centric vision to some marketing or sales processes, or after sales activities. Definition & Context

19. Case Study: Best Buy Responding to the challenges of doing business in today’s marketplace Most major enterprises have departments devoted to surveying their customers. But the truth behind “garbage in, garbage out” still applies Best Buy looked at its enterprise from the outside-in rather than the inside-out to understand the problems that customers face in their lives and then provided mutually advantageous solutions They took time to understand who their customers are and what they need, and then started selling solutions instead of products. As part of the research, they discovered that 55 percent of customers were women and that for the most part they loathed their shopping experience at the retailer (e.g., men look for a specific product at a discount price; women want not just a digital camera, but a printer, cable and other accessories – and they care far more about these things than price. Equally important, they want help with installation while most men prefer to try to put things together themselves. 19 Source: Ranjay Gulati, HBR Blog Becoming customer-centric means looking at the enterprise through the lens of the customer The common-sense solution Related products were bundled together Kids now have special play areas while their Mothers browse To help with installation, they acquired Geek Squad The key challenge was getting from awareness to action (e.g., need to overcome organizational silos) This required more than a divisional shuffling, but enterprise-wide reorganization Definition & Context

20. Being Customer-Centric Requires an Explicit Architecture In this age of the customer, companies are becoming customer-obsessed. In Forrester’s view, being ‘customer-centric’ requires companies to commit strategy, energy, and budget to processes that enhance knowledge of, and engagement with, customers. 20 Outline: Explicit architecture for the way brand, customer experience and marketing work together to express the company’s promise Source: The Convergence of Brand, Customer Experience and Marketing, Forrester Research Inc. Brand Strategy Customer Experience Strategy Operations, Marketing, Sales and Services Feedback to maintain alignment Definition & Context

21. 21 What Customer Centricity is? Ensuring a consistent experience Source: ICG Research; The Convergence of Brand, Customer Experience and Marketing, Forrester Research Inc. Centricity enables differentiation through a genuine customer intimacy strategy. The Goal: Enable a consistent personal experience at any place and any time. Only 18% of companies say that customer experience derives from the brand strategy . But the lines between the two disciplines are increasingly blurry, with people gaining access to companies and products on their own terms. Customer centricity is one of the classical differentiation strategies an organization can choose : customer intimacy, product leadership or operational excellence. Customer centricity helps to increase the customer intimacy approach and reach unrivaled levels of differentiation. It offers a systematic and structured approach that can be rolled out in any organization. Customer centricity is gaining ground across geographies and industries, favored by new technologies As an advanced generic differentiation strategy customer centricity can be found in many different industries across the globe. New IT platforms enabled to develop genuine customer-centric strategies in industries faced with very large numbers of customers. Typical success stories can be found in Telecommunications, Financial services, Transport, Utilities, Retail and Entertainment. Definition & Context

22. Supporting a Differentiated Strategic Approach Customer Centricity reinforces the classical differentiation strategy by enabling a consistent personal experience at any place and any time . 22 Source : Deloitte Customer centricity, Embedding it into your organization’s DNA, 2012 Definition & Context

23. Being Profitable Helps to increase profitability by increasing the revenues while decreasing costs Source : Peppers & Rogers Group, 2011 23 Definition & Context

24. W hat Customer Centricity I sn’t? A key challenge to becoming customer-centric is overcoming two of the most common misconceptions The first misconception is that becoming customer-centric is a customer service issue. While customer service is an important aspect of the initiative this is where many of the problems of not being customer-centric manifest themselves In order to become customer-centric, you must understand and respond to customer needs, addressing the root cause of problems – ensuring alignment with the overarching business strategy. The second misconception is that becoming customer-centric requires you to submit to every request and demand of every customer This could not be further from the truth. Becoming customer-centric actually requires that you select a target customer or customer group, understand and deliver to their needs, but say no when it is appropriate to say no, offering alternative approaches to meet the customer’s need Source: ICG analysis 24 Definition & Context Being customer-centric means aligning the resources of your organization to respond to the ever changing needs of customers effectively, while building mutually profitable relationships. It encompasses every aspect of an organization and must start at the top.

25. How to Build a Customer-Centric Organization?– Table of Contents 25 Section Component Description 1 Executive Summary Overview of our research and findings 2 Building a Customer-Centric Organization Overview of the key components for Customer-Centric Organizations 2a Definition & Context : What is Customer Centricity? For each different dimension The key thinking from consulting firms, journals and academia as to what constitutes best practice Examples of this best practice across different firms and industries 2b History : How has Customer Centricity evolved? 2c The Model & its C omponent Parts : What are the key dimensions to be considered to make an organization customer-centric? 2d The Roadmap for the Future : What should organizations do to execute a customer-centric strategy and ensure its long term sustainability? 3 Additional Knowledge Sources Relevant published materials for further reading

26. History of Customer Centricity How has Customer Centricity evolved? Perhaps surprisingly, even with early discussion by Drucker and others, Customer Centricity has only evolved (and slowly) as a concept since the mid 80’s I n the view of one researcher, customer centricity is a three-step journey beginning with brand-tactical ; moving to an innovation focused structure; then evolving to customer centricity Recently the Financial Services industry has become a spotlight for customer conduct regulation which will ultimately drive from right product to right usage and right outcomes A key issue and focus of regulators is ensuring that customers do what is in their best interest To address these issues, firms use behavioural economics and impact most aspects of retail banking Today , leaders adopt three principles: obsess about customer needs, not product features reinforce brands with every interaction, not just communications treat customer experience as a competence, not a function . Although not the only important concept, customer experience is central to customer centricity. Companies are heading towards experience-based differentiation 26 Source : ICG Research History/Summary

27. Timeline & Evolution Perhaps surprisingly, even with early discussion by Drucker and others, Customer Centricity has only evolved (and slowly) as a concept since the mid 80’s 27 Source: Is Customer Experience a Movement or a Myth?; Ruci , Kim and Quinn, The employee customer profit chain at Sears, Harvard Business Review; Peppers and Rogers, The one to one future: Building relationships one at a time; Sheth , Sisodia , and Sharma, The antecedents and consequences of customer-centric marketing; The Path to Customer Centricity, Shah et al, Journal of Science Research, Nov 2006; The Customer Experience Journey, Forrester, Sept 2008 1986 1993 2000 Sears introduces a ‘change in the logic and culture of the business’ by rebuilding the company around its customers and develops the employee-customer-profit model that changed the way managers, and employees think and behave Peppers and Rogers publish their concept of ‘one-to-one marketing’ the idea that companies should analyse the precise needs of every customer and deliver a product or service personally to tailor to those needs (early stages of ‘mass customization’ Sheth and his colleagues defined ‘customer-centric marketing’ as understanding and satisfying the needs, wants, and resources of individual consumers or customers rather than those of mass markets or market segments History 1954 Drucker writes in The Practice of Management that “it is the customer who determines what the business is, what it produces, and whether it will prosper” 1960 Levitt proposes that firms should not focus on selling products but rather on filling customer needs 2003 Gartner: “by 2007, fewer than 30% of marketing organizations among Global 1000 enterprises will have evolved enough to successfully leverage customer-centric, value added processes and capabilities Forrester: 37 % of firms surveyed were not yet on the path to EBD maturity . Of the firms that were, nearly two-thirds were in the first two stages of maturity 2007

28. Three Step Journey to Customer Centricity 28 In the view of one researcher, customer centricity is a three-step journey beginning with brand-tactical, moving to an innovation focused structure, then evolving to customer centricity Brand-Tactical Innovation Customer-Centric Source: Mahr , DTC Perspectives, Summer 2013, pp14-17 Brand team held the promotional budget – i.e., 1 Worked directly with the marketing tactic suppliers – i.e., 2 Who partnered with internal marketing science teams for measurement Customers often received uncoordinated messages, poor experience – i.e., 3 A B C D 10 or 15 years ago, the marketing function resided within the brand team. 2 1 3 Brands A B C D Brands New Innovation Group Organizations recognized the inefficiencies and changed structures Two main changes – a focus on creating a centralized group that owned marketing Secondly, improvements in roles and responsibilities to improve clarity But, this model is still limited in that marketers are focused on channel partners and not a focus on customers With marketing centralized, the next evolution is changing the go to market Brand teams own P&L, product lifecycle management, positioning and message development But no longer own the go-to-market which moves to a customer-centric team which owns customer experience, analytics, etc. All brand teams use the customer team to develop, deliver and optimize promotion Customer Team Customer Strategy Grou p Customer Analytics Group Customer Promotions Group Customer Technology Group History

29. Case Study: Customer Conduct Recently the FS industry has become a spotlight for customer conduct regulation which will ultimately drive from right product to right usage and right outcomes 29 Market timeframe (approx.) Product era Lead with product features and benefits Engage when customer assesses options Product revenue key performance metric Reliant on product quality and pricing Product centric organization. 1 ~1990s Solution era Lead with solutions to pre-defined customer need sets Engage when customer understands needs Customer revenue key performance metric Reliant on packaging capability. Product centric with life stage overlay 2 ~2000s Advice era Lead with questions to discover true customer needs and match products Engage when customer is researching options Share of wallet key performance metric Reliant on the best qualified RMs. Channel centric with tiered need analysis tool 3 Present Insight era Lead with insights to help customers manage their finances Engage before customer realises need to shape demand Customer life time economic profit key performance metric Reliant on smart analytic/big data capability/Markov analysis 4 ~2015 Eras in Customer Centricity Outcome era Lead with usage coaching to generate better outcomes Optimal product usage as important as correct product Customer's performance the key metric Reliant on consultative advisors and device driven advice 5 ~2020 Add Right Usage to Right Outcomes Right Product Source: ICG History

30. Inexperience Short-terminism Confusion Lack of financial competence We can’t rely on consumers to do what is good for them so must help Inertia Insight : Customers do not always have the competence nor the commitment to use the financial products we supply them as intended Lack of self control Source: Adapted from ARC CEPAR Submission to the Financial System Inquiry, Laibson Ensuring Customers Make the Right Choices A key issue and focus of regulators is ensuring that customers do what is in their best interest Insight : If we don’t help our customers deal with complexity and ‘irrational’ behaviour then the regulator will do it for us – with “blunter” instruments Insight : We are damned if we don’t but could create an opportunity if we do Bounded Rationality (can’t deal with the complexity) Hyperbolic Preferences (select small short term payoffs over bigger long term ones) Biases (irrational excuses) Implications for manufacturers Expressed consumer finance behaviour Behavioural economics phenomena History 30

31. Case Study: Regulators Have Other Concerns The UK FCA has published a list of indicators 31 Source: PWC “Behavioural economics: Driving better customer outcomes” History

32. Risk Mitigation Techniques To address these issues, firms use behavioural economics … 32 Source: PWC “Behavioural economics: Driving better customer outcomes” Key insights The implications and practical uses of behavioural economics analysis are wide ranging. It can be used solely from a compliance perspective, however the greater the extent firms use it to build a customer-centric culture, the greater the opportunity. History

33. Behavioural Economics … and impact most business aspects 33 Source: adapted from Porters and Kramer’s CSR value chain and PWC “Behavioural economics: Driving better customer outcomes” Develop product and servicing offering to counter poor customer decisions Building pricing strategies which are transparent and reflect value Improving transparency and clarity of information in marketing and product information, overcoming information asymmetries and aiding decision making processes Positive use of behavioural economics as a tool to build trust and reputation into brand Developing advice and service models, reflecting the impact of behavioural economics Developing greater customer understanding through customer segmentation based on behavioural economic concepts Product Marketing Distribution Channel Customer Team Strategy Human Resources Compliance and Risk Using behavioural economic testing to help assess potential candidates customer-centricity Build performance management and compensation systems, reinforcing and rewarding customer focused behaviour Provide ongoing training on behavioural economics Developing behavioural economic led strategies will help evidence customer-centricity in strategic approach and leadership culture Become an early adopter of behavioural economic led strategies, which deliver better customer outcomes Identify early instances of potential customer detriment, enabling proactive management of product and services suitability for customers Providing evidence of behavioural economics in action across a firm’s products and services, supporting better customer outcomes, will become increasingly important History

34. The Changing View of Customer Centricity Today, leaders adopt three principles 34 Source: The Customer Experience Journey, Forrester, Sept 2008 Experience-Based Differentiation Obsess about customer needs Reinforce brands with every interaction Treat customer experience as a competence Principle No. 1: Obsess about customer needs, not product features. Rather than racing to bring new product features to market, companies need to focus on the needs of their customers – who might want fewer features Principle No. 2: Reinforce brands with every interaction, not just communications Traditional brand messaging is losing its power to influence consumers – that’s why branding efforts need to expand beyond marketing communications to help define how customers should be treated 1 2 3 Principle No. 3: Treat customer experience as a competence, not a function. Delivering great customer experiences isn’t something that a small group of people can do on their own – everyone in the company needs to be fully engaged in the effort History

35. 35 Obsess About C ustomer N eeds A distinctly different strategic approach Source: JR Galbraith (2005); CPHR, Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth? Open the Debate for HR, Dec 2010 Description: Product-Centric Description: Customer-Centric Strategy Goal Best produ ct for customer Best solution for customer Main Offering New products Personalised packages of product, services, support, education, consulting Value creation route Cutting edge products, useful features, new applications Customising for best total solution Most important customer Most advanced customer Most profitable , loyal customer Priority setting basis Portfolio of products Portfolio of customers – customer profitability Pricing Price to market Price for value Structure Organisational concept Product profit centers, product reviews, product teams Customer segments, customer teams, customer P&L Processes Most important processes New product development Customer relationship management and solutions development History/Customer Needs

36. 36 Obsess About C ustomer N eeds A distinctly different strategic approach Source: JR Galbraith (2005); CPHR, Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth? Open the Debate for HR, Dec 2010 Description: Product-Centric Description: Customer -Centric Rewards Measures Number of new products Market share Lifetime value of customer Market share of most valuable customers Customer retention People Approach to personnel Power to people who develop products Power to people who know customer Transaction oriented Relationship oriented Mental processes Divergent thinking , how many uses for our product? Convergent thinking, what combination is best for this customer? Sales bias On the side of the seller On the side of the buyer Culture Product experimentation Searching for customer needs to satisfy History/Customer Needs

37. 37 Reinforce Brands with Every Interaction Gaining market share is an uphill battle – particularly the saturated auto insurance marketplace. In the life sector, the market is shrinking as fewer customers purchase policies. Over the last decade, insurance companies have struggled to meet customers’ rising expectations – influenced by their experiences with retail and other industries – for greater price transparency, top-notch customer ratings and reviews, real-time response to service requests 24/7 and more. Why are carriers struggling to improve the customer experience? Three obstacles are making it difficult for insurance companies to implement customer experience initiatives: Lack of Customer Insight: Insurers know little about their end customers because historically they viewed producers as their customers Barriers to Self-Service Experience: A growing number of customers want to self-serve, but product and process complexity (i.e., unfamiliar language and too many product options) makes this difficult Fragmented Operating Models: Insurance carriers’ operating models lead to inconsistent customer experiences. And, they make it difficult for carriers to gain the complete view of customers that is needed to design tailored solutions Source: PWC FS viewpoint As a result, carriers struggle to meet customers’ evolving needs, and they face declining customer retention rates, as well as loss of market share History/Reinforce Brands Insurance Industry Example

38. Lack of Customer I nsight Carriers don’t know much about their end customers, largely because intermediated distribution has kept them at arm’s length 38 The producer is no longer the only source of interactions with customers. Producers have traditionally owned the entire customer experience – from understanding customer needs to navigating product complexities and selecting the right product mix to dealing with carriers’ systems Source: PWC FS viewpoint Offline Media Paid Search Social Media Website Agent/ Broker Call Center Online Portal Awareness Consideration Purchase Service Ongoing Relationship Today’s Operating Model Traditionally, the customer relationship and single source of information has been with the producer History/Reinforce Brands

39. Barriers to Self-Service E xperience Complex products are difficult for self-service customers to understand 39 But an increasing number of customers – particularly Gen X and Millennial customers – are relying on self-service channels to perform complex insurance tasks . With the rise of self-service, insurance shoppers are using multiple information channels – 11.7 sources, on average, before making a purchase decision. Although self service tools are valuable, they haven’t replaced the wealth of insights that producers gain by developing personal relationships with customers . Personal interactions let producers understand customers deeply . As a result, producers are able to solidify relationships and find opportunities to further serve customers . Personal interactions let producers understand customers deeply. As a result, producers are able to solidify relationships and find opportunities to further serve customers. Leading carriers give customers the tools to serve themselves, while offering seamless integration with producers when assistance is required. Carriers face the challenge of ‘knowing’ customers and serving their needs directly through a wide variety of channels, without either displacing the agent, damaging the brand, or reducing loyalty Source: PWC FS viewpoint Leading carriers provide their customers what they value most throughout the selection and purchase journey . Self service resources are intuitive to use, and transitions happen seamlessly across and between digital channels and the producer when assistance is needed. History/Reinforce Brands

40. Key Pain Points Customers continue to feel frustrated throughout the consumer lifecycle. They are overwhelmed by the number of options, hesitant about whom to trust, and how to make a decision, and annoyed by the lack of speed and convenience across channels 40 Source: PWC FS viewpoint Consumer lifecycle Awareness “ What do I need?” Consideration/education/advice “Whom to I trust?” Purchase “ Where do I go?” Service “Is this right for me?” Ongoing relationship “Was that worth it” Development of the carrier-consumer relationship Key Pain Points Difficulty in understanding when and why to look into products, types of products available and the long-term benefits offered by each product Lack of initiative to take action, even when consumers are aware they are under-insured Difficulty in understanding the products, making the shopping experience overwhelming and time-consuming Limited personal/customized content Lack of trust in financial services providers, creating uncertainty about how to make a decision Overall lack of ease, convenience and timeliness Difficulty in justifying cost because products don’t provided instant gratification, benefits are intangible, and features are difficult to understand Lack of speed, convenience and ease Uncertainty about which service channel is the best Lack of confidence in online capabilities Carrier failure to address complaints and bad experiences, leading customers to feel a loss of empowerment Lack of proactive relationship and account maintenance Lack of clarity about degree of financial fit of various products across a portfolio History/Reinforce Brands

41. Your Brand I dea The “brand idea” describes the essence of what you provide to the marketplace in simple terms Attributes and Features: Separate your product or service features into categories, then focus on those attributes that are most desirable and/or that provide differentiation. Functional Benefits: Identify the tangible benefits that consumers will experience by using your product or service, i.e., ROI, cost savings, time savings, enhanced productivity, whiter teeth, etc. Emotional Benefits: Identify the intangible benefits that consumers will experience, ie: Happiness, confidence, more time, peace of mind, more attention, etc… Brand Personality: Identify the human characteristics of your brand. Your brand personality will dictate how consumers respond to your brand on an emotional level, for example sincerity, competence, or irreverence, just to name a few. Brand Idea: The essence of your brand, distilled down as succinctly as your product or service will allow, this is the idea that you want your customers to think of every time they hear or see your brand. Starting with the foundation of your attributes and features , roll each level into the next creating a synergistic relationship between each level of the pyramid until it ends with the true essence of your brand. 41 Source: http://www.noesismarketing.com History/Reinforce Brands

42. Case Study: Great West L ifeco GWL is an example of a number of brands acquired over time, which are operated as distinct brands, with differentiation in their brand idea and target customers Example: core house/House of brands Insurance- centered financial holding company that operates in USA, Canada, EU and Asia It has 5 wholly owned, regionally focused subsidiaries The company grew internationally through acquisitions over the years Decided to maintain local brands to preserve the inherited awareness and customer base Similar to SunCorp, it uses its holding name in his home market (Great West brand) Has completely disconnected brands gained through acquisitions of different companies Great West Life and Annuity Insurance Company: provides life insurance in the USA, together with retirement benefits and annuities Great West Life Assurance Company : operates in Canada and owns Canada Life Canada Life : provides Life Insurance in Canada, Ireland, UK, Germany, Isle of Man London Life : provides Life Insurance in Canada Putnam Investment : money manager for mutual funds and institutional assets in the US Irish Life : Ireland’s leading life and pensions company KEY ATTRIBUTES & INSIGHTS 42 Source: ICG research History/Reinforce Brands

43. Fragmented Operating Models Operating models, as well as legacy systems and processes, limit insurers’ ability to develop integrated customer-centric products and services 43 Most carriers are still managing their business units and technology independently – giving customers a very disjointed and inconsistent experience Traditionally, carriers have organized their operating models and technology as product-centric business units. This means that customer experience initiatives are often implemented independently within divisions or product lines. Further, legacy systems and processes make it difficult for insurers to develop integrated, customer-centric products and services. Many insurance carriers have grown by M&A, and they now have to deal with a variety of legacy systems and processes that have not been integrated. Because of this, their data is often inconsistent. These carriers often find it difficult to gain a single view of the customer. Such piecemeal solutions lead to conflicting priorities and overinvestment without significant long-term results – and they don’t add up to a positive customer experience Source: PWC FS viewpoint Individual insurance Grou p insurance Group Retirement Affinity insurance Commercial Products Direct Agent/broker Call Center Channels Product, function and channel silos limit the ability to identify and address all of the customer’s needs History/Reinforce Brands

44. Case: Operating-model issues in retail banking: Duplication and silos 44 History/Reinforce Brands

45. The Customer Experience Journey 45 Although not the only important concept, customer experience is central to customer centricity. Companies are heading towards experience-based differentiation Important Complex Broken Source: The Customer Experience Journey, Forrester, Sept 2008 Executives tell us that customer experience is critical to their business This perspective makes sense and Forrester analysis shows that good customer experience is highly correlated to customer loyalty Only 12% of firms attack this high-priority area with a very disciplined approach In the void, most companies suffer the lack of a clear strategy and less than idea cooperation across organizations When we asked consumers how satisfied they were with a variety of interactions, the results weren’t great. Only one of the interactions, in-person buying, crossed the 70% satisfaction mark. Only 10% of firms received an excellent rating in Forrester’s 2007 Customer Experience Index, while 21% were poor to very poor Degree of correlation: Lo Med High Correlation between high Customer Experience Index and willingness to buy another purchase from provider Which of the following are significant obstacles to improving the customer experience that your company delivers?” Satisfaction with each channel for three different activities (customer who elected a 4 or 5 on a scale from 1 (dissatisfied) t0 5 (completely satisfied) History/Customer Experience

46. 46 The Blueprint to Customer Experience Excellence Experience-Based Differentiation requires a different approach to customer experience Source: The Customer Experience Journey, Forrester, Sept 2008 Status quo Experience -Based Differentiation Key customer insights How the company interacts with customers How the customers accomplish their goals Go-to -market offerings Product features Solutions that combine products, services and digital interfaces Use of brand attributes Limited; drives marketing communications Extensive; translated into requirements for all interactions Employee involvement Mandated Cultivated Structural changes Organizational Cultural Senior executive commitment Execs support customer experience efforts Execs are actively involved in customer experience efforts Organizations are challenged to know where they are in the journey towards customer experience excellence History/Customer Experience

47. 47 Case: Customer Experience Secure a positive personal experience at all stages of interaction with the organization from the initial contact to the repeat purchase E.G., lifecycle/ touchpoints Customer Experience Overall customer experience is influenced by all interactions with the organization Requires a customer-centric organization to manage all touch points, both digital and physical History/Customer Experience

48. 48 DIGITAL Business CONTEXT 2020 DIGITAL personal CONTEXT 2020 Source: ICG Source: PWC, curated by ICG Virtual Cloud platforms Digital Authentication Algorithmic people, time and place coordination Multiple currency and real time bartering and clearance Social Internal and external business social media platform Physical Delivery and security drones Nano sensors Self healing systems Ubiquitous robotics Remoteless manufacturing (3D printing) Adaptive business coaching identification of relevant and curated best practices and improvement levers dynamic global advisory board Internet of things real time performance monitoring of physical infrastructure real time geo-location inventory monitoring Business ecosystem fail safe redundancy of business suppliers electronic Integration into customer business models Applied b usiness a cumen (IA) self-correcting and optimising operating processes physical and virtual resource optimisation heuristic guided semi-automated problem recovery Business telematics real time big data monitoring of actual business performance signalling and contingent decision making to relevant business partners (Suppliers, Banks, Insurers) syncs with all operating systems Smart glasses capture image, video and audio scans coded markers enables multimedia chat updates social networks syncs with other mobile devices Wellness monitor processes exercise data (steps, reps etc.) analyses nutrition/ calories of grocery and restaurant foods analyses perspiration for chemical markers syncs with wearable exercise shoes/clothes syncs with personal health portal Mobile device primary mobile information hub wallet and credential hub application management hub media and communications input hub interface between user and core service portfolio Networked wearable devices records physical activity for upload to wellness monitor records physical activity to a time log analyses physical performance against goals displays progress/regress against goals syncs with opt-in social networks Health monitor captures resting/active pulse, BP, temperature analyses cholesterol, insulin and similar markers syncs with wellness monitor for building health profile communicates with healthcare provider offers suggestions for health improvement Illustration : Customer Experience Focus is Driving C hange In Retail and Commercial Banking “ omni ” channels will be replaced with context sensitive “ Uni ” channels driven by input from the virtual, physical and social worlds History/Customer Experience

49. Case Study: Arthur D Little CEX Maturity Model For each CEX (Customer EXperience ) dimension, ADL has identified companies that outperform representing level 5 49 Source: AD Little, Strategy and Organization Viewpoint History/Customer Experience

50. How to Build a Customer-Centric Organization?– Table of Contents 50 Section Component Description 1 Executive Summary Overview of our research and findings 2 Building a Customer-Centric Organization Overview of the key components for Customer-Centric Organizations 2a Definition & Context : What is Customer Centricity? For each different dimension The key thinking from consulting firms, journals and academia as to what constitutes best practice Examples of this best practice across different firms and industries 2b History : How has Customer Centricity evolved? 2c The Model & its C omponent Parts : What are the key dimensions to be considered to make an organization customer-centric? 2d The Roadmap for the Future : What should organizations do to execute a customer-centric strategy and ensure its long term sustainability? 3 Additional Knowledge Sources Relevant published materials for further reading

51. The Model What are the key dimensions of a customer-centric model? What are the key components of a customer centric organization? ICG found many different frameworks describing a customer-centric organization We chose to dig into the 6 building blocks model presented by Marsh, Sparrow and Hird as it covers in a coherent approach most of the elements ICG found ICG found also several references to the Voice of the Customer ( VoC ) practice as a way to reinforce the understanding of the customer perception while designing customer centered solutions Is there a structured way to evaluate the maturity of customer-centric organization? ICG found several customer centricity maturity models. Most of them position organizations into 5 levels looking at specific criteria spanning several dimensions We chose to detail the experience based maturity model described by Forrester as it focuses on the organization experience on 3 dimensions : Voice of the Customer, centralized customer experience, and perspective or senior executives An interesting alternative is proposed by Infosys : a customer centered maturity model rather than a company centered one 51 Source : ICG Research Customer-Centric Model/Summary

52. Customer Centricity Frameworks We found a number of frameworks describing a customer-centric organization 52 Source : ICG based on the mentioned sources. Source Date Summary of Main C omponents Bain & Co 2014 Target design : Which customers , what needs & expectations? Emotional affinity : How to best connect with target design? Rational value & product : Features and benefits , differentiation from competition ? Customer Experience : What should it be and how to deliver it ? Competitively advantaged economics : How will it influence customer economics ? Booz & Co 2010 Customer listening Decision rights Customer understanding Metrics and incentives Organization structure Lancaster U niversity 2010 Mass customization : finding the best possible proposition for a given customer Involvement of the consumer in the design process Structuring around the customer , and not the product Enablement of frontline staff The democratization of customer relationships and knowledge The capability to filter massive datasets to add value to product and service offers Customer-Centric Model The following table summarizes seven frameworks from different sources (page one of two):

53. Customer Centricity Frameworks We found a number of frameworks describing a customer-centric organization Each of the models shared some common ground: Choose customers Understand them Manage their experience Review the organization to support their experience Empower front line people 53 Source : ICG based on the mentioned sources. Source Date Summary of Main C omponents Marsh, Sparrow and Hird 2010 The six core and distinguishing features are m ass customization, customer engagement, s tructuring around the customer, e mpowerment of front line staff, democratization of customer relationships and knowledge and t he capability to filter massive data sets to add value to products and service offers McKinsey 2012 Vision and positioning Customer engagement model Development agenda Organization , capabilities and insights Peppers & Rogers Group 2011 Generate customer insight by leveraging analytics Understand the different needs and characteristics of customers , and manage them accordingly Manage the customer relationship in the most appropriate channels PWC 2014 Customer insight Customer experience Customer centric operating model The following pages outline the “6 Building Blocks” model presented by Marsh, Sparrow and Hird as it represents a good representative framework for customer centricity Customer-Centric Model

54. 54 Six Building B locks of Customer C entricity “The term – like much management jargon – has become used as a cover-all for all types of customer service oriented discourse and to that extent, the term has been devalued; probably less of a myth, therefore, and more an empty shell devoid of meaning … but we have found six recurring elements in the idea of customer centricity” The six core and distinguishing features are: Mass customization: finding the best possible proposition for a given customer Customer engagement: involvement of the consumer in the design process Structuring around the customer, and not the product Empowerment of front line staff The democratization of customer relationships and knowledge The capability to filter massive data sets to add value to products and service offers Source: CPHR, Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth? Open the Debate for HR, Dec 2010 Not all elements are found in every case, and not all are new ideas – but in combination represent new thinking and implications for organizations Customer-Centric Model

55. Mass C ustomization Finding the best possible proposition for a given customer The move toward a customer-centric organization places mass customization at the heart of its strategy (Tseng and Pillar, 2003). It has the potential to fulfil one of humanity’s basis needs for creativity by placing the demands of each customer at the center of value creation. This must be achieved in a way that is cost efficient – hence the idea of ‘mass customization’ – i.e., technologies and systems to delivery goods and services that meet customers’ needs at near mass production efficiency. One of the most straightforward ways of distinguishing the customer-centric organization therefore is to contrast it with its opposite, the product-centered organization. The strategy of a product centered organization is to find as many uses and outlets as possible for its product. It strives to deliver the best product with the most leading edge technology or set of features which opens the market to new opportunities for future product placement. Its pricing is driven by market competition. For customer-centric organizations, the strategy is to find as many products as possible for its customer, and to find ways of integrating those products. Pricing is more by the value to the customer rather than on the sum of products and services that constitute the offering. 55 Source : CPHR , Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth ? Open the Debate for HR, Dec 2010 “No organization is entirely product centric or customer-centric in the way it structures itself; there will always be a group developing leading edge products in the most customer-centric organization. However, from the perspective of culture, measurement, and mindset the entire company needs to think in a customer-centric way” Customer-Centric Model/Mass Customization

56. Product to Customer The journey to customer centricity involves improvements across the value chain Source : Peppers & Rogers Group, 2011 Illustration 56 Customer-Centric Model/Mass Customization

57. Customer Engagement in Design Involvement of the consumer in the design process Customer needs and requirements are usually subjective and difficult to define precisely, even by the customers themselves and therefore difficult to transfer into a concrete design specification for a customised product or service By integrating the customer directly into the design of the product or service, especially by using technology to simplify this, companies are enabling the implicit specification of that product or service by the customer. Technology enables the company to gain access to this implicit knowledge and make it explicit, by transferring it into production processes or market research/ future product development and specifications. Costs are reduced, through lower investment into traditional market research, and the more efficient use of consumer information (by having direct access to implicit knowledge). Direct benefits should flow from increased customer satisfaction, loyalty, and emotional engagement with the organization which has allowed their creativity to be unleashed. 57 Source : CPHR , Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth ? Open the Debate for HR, Dec 2010 Co-creation represents “a collaborative value chain that engages the customer in the activities of the business sufficiently to provide each (the company and the customer) with what they need from the other to derive individual and mutually beneficial value” Customer-Centric Model/Customer Engagement

58. 58 Case Study : Understanding the real needs of the customer Source: Harvard Business Review; March 2006 Customer-Centric Model/Customer Engagement

59. Case Study: Single Customer View Source : Building Customer centric business models in Retail Banking, Deloitte, 2011 Customer-Centric Model/Customer Engagement 59

60. Structure Structuring around the customer, and not the product For the centric company, the central unit of organising is the customer segment profit center, which reorients the company’s plans, reviews and processes to the customer and away from the product Culture plays a considerable part of the underpinning of the customer-centric organization. In particular the key tension (or contrast) in the transaction with the customer Contrasting strategies and ‘cultures’ may exist in the same company; banks for example may have a division dedicated to providing credit cards (product-centric) and a division oriented toward providing financial and investment advice (customer-centric) Empowerment of front line staff is important and can be nullified if the rest of the organization is not brought into line to support them (e.g., product group crowding on service design). The location of authority in the organizational structure, as well as the structure itself, are also critical success factors in implementing customer-centric strategy Customer centric structure may entail moving away from traditional ‘value’ chain thinking toward a ‘customer critical’ path. A typical and traditional utility company delivers a product – power or water – using a value chain that has remained essentially unchanged for decades. A shift towards customer centricity is likely to be a tough ask for some – e.g., the customer service representative is suddenly on par with the highly qualified engineer in terms of value to the organization – but organizations need to follow this customer critical path rather than remain focused on product. 60 Source : CPHR , Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth ? Open the Debate for HR, Dec 2010 Customer-Centric Model/Structure

61. Structuring A round the Customer , and Not the P roduct Each management layer has a role to play in deploying a customer-centric organization Source: Deloitte Customer centricity, Embedding it into your organization’s DNA, 2012 61 Customer-Centric Model/Structure

62. Empowerment “We can easily empower people, but whilst doing this we are not actually enabling them to provide that level of service … We do not enable people to do what we are asking of them at this point in time, because systems and process get in the way … Attitudinally, we are now closer, but in terms of our fundamental infrastructure, we are not” This philosophy underpins one of the most common aspects of a move to customer centricity, the empowerment of front line service providers, those in day to day contact with the customer. The corporate ‘hero’ might become the customer service representative vs the highly specialised engineer, technologist or other specialist representing the ‘core knowledge’ of the organization In a recent article, HERO – ‘Highly Empowered and Resourced Operative’ was coined. It proposed allowing tech-savvy employees to experiment with and use social network technology in close collaboration with managers and IT to provide instant decisions to customers (e.g., a Best Buy employee who replaced a customer’s iPhone during the weekend after reading the customer’s dissatisfaction with the product on a microblog. Of course, there are shades of grey between customer-centric and product centric structures, and even evangelists for employee empowerment recognise that the employee must operate within defined and agreed boundaries and policies Willman offers a model which allows us to distinguish between different levels of flexibility of front line employees according to their customer strategy and characteristics of their customer base. For example two dimensions of complexity or variability(task, and customer need) 62 Source : CPHR , Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth ? Open the Debate for HR, Dec 2010 Customer-Centric Model/Empowerment

63. When to Empower? The relationship between customer needs, task complexity and discretion Source : CPHR , Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth ? Open the Debate for HR, Dec 2010 Customer Needs, Complexity/ Variability Low Low High High Task Complexity/ Variability Little or no routine discretion No creative discretion e.g., Checkout Assistant High routine discretion Low creative discretion e.g., Salesperson Moderate to high routine discretion Little creative discretion e.g., Service Engineer High routine discretion High creative discretion e.g., Doctor Lawyer The Flexibility Matrix is a tool for decision makers on the degree of empowerment appropriate for their organizations. This can be used to organise the degree of empowerment given to service employees The following are the major characteristics of customer needs complexity: Complexity Characteristic The greater the: Impact Service Produc t Complexity Product Complexity The greater the ne ed empowerment Customer Needs Complexity / variability of customer needs The greater the need for empowerment Importance of Service Speed Speed of service The less important is empowerment Customization Requirement for customization The greater the need for empowerment Need for Empowerment 63 Customer-Centric Model/Empowerment

64. 64 Democratization of Customer Relationships “If we accept that the ‘movement’ of customer centricity is one found mainly among consumers, whose expectations of organizations are rising dramatically, then ‘information democracy’ becomes substantive” Source: CPHR, Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth? Open the Debate for HR, Dec 2010 A move from ‘information asymmetry’ to ‘ information democracy’. Social CRM is therefore the means by which companies transform content into conversations, and then into collaborative experiences In order for customers to make intelligent decisions about how they are going to interact with a company, and about their specification of value they want to receive, this requires companies to increase transparency, visibility and honesty From information asymmetry … … to information democracy Information was scarce Customers were ill-informed Exchanges were monologues Marketing was ‘command-and-control’ Information was ubiquitous Customers are well-informed Exchanges are conversations Marketing is connect and collaborate Customer-Centric Model/Democratization

65. Data Capability The capability to filter massive data sets to add value to products and service offers 65 Source: CPHR , Marsh, Sparrow and Hird : Is Customer Centricity a Movement or Myth ? Open the Debate for HR, Dec 2010 Pros Cons One author ( Giannetto 2008) conducted a survey of the take up of social CRM, and concluded that the main factors holding back most companies are: The inability to link web activity to a specific individual customer The lack of integration between different databases Data limitations and lack of relevant information/ actionable data from web analytics packages Lack of time and resources to understand and analyse the data Lack of skills and knowledge to understand the data He found that only a fifth of companies surveyed were able to link the online channel to their internal back office systems There are structural and organizational challenges to the management of massive amounts of data How do organizations ensure that people are both willing and able to assimilate, analyse and distribute information to the right places? This challenge can be described in five main areas of attention Monitoring (listening capabilities to filter out noise from the social sphere Mapping (linking social profiles to customer records to provide a holistic picture Management (tying data back to existing processes) Middleware (tying the social world to the enterprise) Measurement (benchmark on business objectives) Customer-Centric Model/Data

66. Customer Maturity Models We identified several customer centricity maturity models with similar structures and content – we outline 6 different ones here 66 Source : ICG research derived from the different sources as outlined above Customer-Centric Model/Maturity Models The dimensions may vary somewhat in the different models but a number of common elements emerge including the need for I n-depth understanding of targeted customers A differentiated experience Customized delivery capabilities Culture change Although all have similarities, we have outlined Forrester’s maturity model over the next few pages as it provides a number of quantitative and brand references, and looks at the organizational experience from 3 vantage points: voice of the customer , centralized customer experience, and the perspective of senior executives Observations Maturity Model Levels by Source Undeveloped Emerging Developing Advancing Leading Fragmentary Basic Established Excellent State of the Art Product Centric Agent-Centric Consumer Centric Connected Consumer Centric n.a . Interested Invested Committed Engaged Embedded Product Heritage Customer Enthusiast Customer Activist Experiential Champion Experiential Master The customer is ignored The customer is heard The customer is understood The customer is engaged The customer is passionate E&Y Arthur D. Little PWC Forrester Infosys Koert Breebaart Level 1 Level 2 Level 3 Level 4 Level 5 Source:

67. Experience-Based Differentiation Maturity Model While EBD represents a blueprint for excellence, most firms are still in the early stages of their customer experience journeys 67 To understand how large organizations can make their way toward EBD, Forrester interviewed nearly 50 organizations – a combination of companies that are on customer experience journeys and vendors that help with these efforts . This identified the following five levels of customer experience (CE) maturity that companies progress through: Source: The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more 37% of firms surveyed were not yet on the path to EBD maturity. Of the firms that were, nearly two-thirds were in the first two stages of maturity Stage 1: Interested CE is important, but receives little investment from the executive team Stage 2: Invested CE is considered very important, and formalized programs emerge Stage 3: Committed CE is critical, and execs are actively involved in an effort to transform the company Stage 4: Engaged CE is a core piece of the firm’s strategy Stage 5: Embedded CE is ingrained in the fabric of the company Have not started a customer experience journey 37% 19% 22% 11% 8% 4% Percentage of firms in each stage of Experience-Based Differentiation maturity Customer-Centric Model/EBD Model

68. Stage 1: Interested In the first level of EBD maturity, organizations begin to believe that customer experience is an important part of their business . They start undertaking a number of different efforts without making any major investments, attempting to get a handle on the current situation In these organizations, you will often find: Customer experience task forces. After recognizing that customer experience is important, the executive team initiates a task force to improve customer experience. Without clear leadership or sufficient funding, these groups often struggle to agree on a concise road map. One company identified more than 100 cross-functional processes that were broken and created 50 teams to go after quick hits. Sometimes companies create a position like chief customer officer in this phase. But at this early maturity level, these executives often don’t get the cooperation they need to succeed Examination of existing customer insights. One of the first things that companies recognize is the lack of a consistent approach to monitoring and measuring customer feedback. While there are many places the company gets customer feedback, it hasn’t yet developed a cohesive voice of the customer program. So it often starts to inventory the existing customer listening posts and measurements. A flurry of uncoordinated events. Since customer experience is important to the executive team, but there aren’t too many corporate guidelines, individual organizations attempt to showcase their customer experience “leadership”. In this heightened political environment, different groups either start their own new initiatives or try to convince others that their current approach is the best way to go 68 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

69. Stage 2: Invested Companies enter into the second level of EBD maturity after they recognize that customer experience is worthy of a significant investment; in both capital and key personnel. So the approach to customer experience becomes more organized with an intensified focus on fixing problems In this phase, you can see: Senior executive anxiety. In this stage of maturity, the executive team is willing to make investments to improve customer experience, but it wants results soon. Without a clear road map, these executives can add pressure to the organization, which does not yet have the discipline to make significant improvements Centralized customer experience groups. At this point in time, a part-time task force is no longer able to keep up with the customer experience mandate. So companies appoint or hire an executive to lead a centralized customer experience organization. A large insurer showcases a typical scope for this type of organization; its centralized group is responsible for four key activities: understanding the voice of the customer, driving customer advocacy and culture change, establishing a maintaining a measurement framework, and providing solutions delivery consulting services. The rise of these groups often creates a political battle as individual operating units push to retain their autonomy Enterprise-wide programs. Companies kick off initiatives that touch many employees . When the food service company Delaware North realized that it needed to improve customer experience, the firm developed its “ Guestpath ” program across all of its business units setting standards for experience delivery across all frontline employees . To stop confusing customers with technical jargon, CIGNA developed a “naughty word list” and has employees donate five cents to a charity pool whenever they use one of those words . 69 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

70. Stage 2: Invested (2) In this phase, you can see (continued): Concrete customer experience metrics. One of the first tasks that happen in this stage is the development of a common set of customer experience metrics. Many companies end up developing a program that centers on a single metric like Net Promoter. Walgreens , for instance, measures stores based on three customer experience metrics: satisfaction survey scores, mystery shopper feedback, and supervisor checks. Alaska Airlines gives employees monthly bonuses if the company hits a set of customer experience metrics. Each of the brands at IAC has an action plan based on its own target segments and competitive landscape but uses common metrics in a standard dashboard for tracking results Formalized voice of the customer processes. At this stage in the evolution, firms are not only collecting feedback from customers, but they are also developing processes for fixing problems that they find. California State Automotive Association holds “Accountability Forums” with 30 top executives to regularly examine feedback across the life cycle of customer experiences. The group identifies the top five issues, and the individuals in the room take ownership for fixing them. 70 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

71. Stage 3: Committed In the third level of EBD, firms are embracing customer experience because they understand the specific impact it has on business results like growth and profitability. The effort is no longer isolated to a few groups as customer experience becomes a major transformational effort across the organization. Instead of trying to fix problems, the focus turns to redesigning processes. Here is what to expect in this environment: Active executive involvement. During this stage, customer experience is a major component of the firm’s transformational efforts, so the executive team gets actively involved in the process. Customer experience programs can take up half of the agenda during senior executive team meetings – and they each have significant customer experience goals in their bonus plans. Howard Janzen, CEO of One Communications , holds “Ask Howard” sessions once per month to listen to what employees across the company have to say, and he encourages his direct reports t have these “ask sessions” as well. Royal Bank of Canada created a Client Experience Council of 10 top leaders to monitor customer experience programs and make sure that there’s alignment in efforts across the organizations. Customer life cycle analysis. To focus on key opportunities, companies map out the interactions that customers have with their firms – across the life cycle from initial interest through renewal or abandonment. This insight helps companies focus on moments of truth, identified more than 150 different things that customers do and H&R Block categorizes its feedback into more than 200 categories of customer interactions. To understand the needs of disabled customers, members of Credit Suisse’s customer experience team spend an entire day in a wheelchair. Disney Parks and Resorts “Customer Relationship Magic” strategy reaches prospects in pre-visit research, delivers personalized information while on property and sends relevant product and event offers post-visit. 71 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

72. Stage 3: Committed (2) Here is what to expect in this environment (continued): Attempts to motivate employees. Transformation requires people to make changes. But change isn’t easy. So companies explore ways to motivate their employees to change. One large firm established a monthly award to recognize employees who delivered great customer experiences and celebrates this at the same level as top sales performers. Wachovia shares customer satisfaction scores with employees across its financial centers and provides them with a potential to earn more than $100 per month based on the results. IBM has started to celebrate when value is created at its customers not just when it closes a deal in an attempt to shift the focus from selling to customer experience. Tailored customer insights. Companies find that one size does not fit all with customer insights; every organization looks at the data through a different lens. In this phase, customer experience groups help other organizations understand how they can use customer insights and then provide the data in a form that meets their needs. If a customer provides feedback on a drill he bought at Home Depot , the information gets routed to the appropriate category manager. The customer insights group at a large bank realized that verbatim organized by product-specific topics could be very useful to a bank’s product management organization. At Walgreen’s , all store employees get access to a monthly report that lists the satisfaction scores for their stores (compared with others) with a list of dissatisfaction drivers that each store should be working on 72 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

73. Stage 3: Committed (2) Here is what to expect in this environment (continued): Proactive customer feedback. After reacting to the voice of the customer insights, some firms get more proactive – seeking out insights from key customer groups . Many companies will also create processes for reaching out to customers who give negative feedback on surveys . Alaska Airlines ’ top 20 or so senior executives call its top customers after they’ve had a service issue. These ‘surprise and delight’ calls make the airline’s best customers feel special and also make sure that executives are regularly hearing what they like and dislike. Lego selects 40 people every year to be Lego Ambassadors: a community of adults who provide feedback on items like new product ideas and marketing concepts . The 400 members in Del Monte’s ‘I Love My Dog’ online community provide feedback on new product ideas, which included uncovering demand for pet breakfast foods. 73 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

74. Stage 4: Engaged When companies enter into the fourth level of EBD maturity, customer experience is a key component of everything they do. Instead of re-engineering processes, the focus turns to designing break-through experiences and solidifying the culture. When companies reach this stage, you find: Customer needs embedded within processes. At this stage, customer experience steps are defined across most key processes – from innovations through requirements definition. It is a normal operating procedure to get customer insights, and employees don’t need to ‘make the case’ for it. One company requires its project teams to collect ‘critical to quality’ statements from customers before the groups are allowed to submit requirements documents. Discover Financial requires that funding requests for new products attach a copy of the specific persona that’s being addressed by the effort. Monster created a user experience War Room where product managers, software engineers, interactive designers, visual designers, usability specialists, systems analysts and business analysts could brainstorm ideas. Significant attention to employee engagement. With the major transformation well under way, the key remaining element is to refine the culture. So companies heavily focus on training and enabling employees to deliver great customer experience. Walgreens , for instance, moved some activities for store managers to off-hours so they could spend more time coaching employees. Wachovia Bank codified the best practices for customer interaction across its branches in something it calls BASICS, which stands for behaviours, assessment, statement of commitment, inspections, common courtesies and summary of services . The bank trains all branch personnel on the BASICS . Companies can also start tracking employee engagement using employee survey questions like ‘how likely are you to recommend our company to a friend or family member as a good place to work?” 74 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

75. Stage 4: Engaged (2) When companies reach this stage, you find (continued): Decentralization of customer experience management. As individual organizations become more customer-centric, they end up needing less help from the centralized customer experience organization. So the centralized group now acts as a facilitator to the network of customer experience advocates across the company. Its key activity is sharing best practices across the organization. At this stage in the evolution, there’s no longer a strong need for a chief customer officer. According to CEO Tony Hsieh, all managers at Zappos are expected to inspire the firm’s 10 core values, the first one on the list is ‘Deliver Wow Through Service’. Alaska Airlines calls employees who understand the culture ‘legacy keepers’, and Allstate is building a network of customer experience advocates across the company. 75 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

76. Stage 5: Embedded At the highest level of EBD maturity, which can take companies several years to achieve, customer experience is deeply ingrained throughout the organization. Just about every employee feels ownership for maintaining the culture. The executive team no longer focuses on change but views itself as the keeper of the customer-centric culture, which is viewed as a critical asset. Companies in this final stage of EBD maturity: Obsess about customer needs. Every decision that happens within these companies takes into consideration the needs of customers. Activities like marketing campaigns, product development, or new fee structures are always done in the context of how they’ll affect key customer groups. But this effort is not always driven by formal processes; employees (including executives) constantly strive to better understand their customers. Jim Cabela, co-founder and vice chairman of Cabela’s , reads every note that call center reps write about the top two or three most important issues that they’ve heard. USAA’s front-line staff regularly identifies enhancements like changing its insurance billing cycles to synchronize with the military’s biweekly pay cycles, making cash flow easier on members Reinforce the brand with every interaction. Employees at this stage are fully aware of what the company’s brand stands for. How do they know? It’s part of the hiring process, the new employee training processes, and is reinforced by every other employee they run into. These employees don’t just understand the firm’s brand; they are brand advocates. Ritz-Carleton holds meetings on Monday mornings to share a story of how one individual exemplified the firm’s service ‘Gold Standards’ by creating a ‘wow’ guest experience. Just about very employee at Umpqua Bank, for instance, understands the bank’s mission ‘to be the world’s greatest bank’. And the employees constantly try to provide the products, services and experiences that will get customers to believe that it is. 76 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

77. Stage 5: Embedded (2) Companies in this final stage of EBD maturity: Treat customer experience as a competency. Customer experience is a core element of what the CEO thinks about, and he holds the entire executive team accountable for maintaining the customer-centric culture. As a result, customer experience is continuously viewed as the responsibility of everyone in the company. Edward Jones , for instance, is establishing a program called ‘Profiles of Caring’ that displays stories about how employees have helped customers – reinforcing the firm’s customer-centric culture. To make sure that new employees buy in to Zappos ’ customer-centric culture, the HR department does an explicit interview on cultural fit. The company goes even further to ensure employee alignment; if offers $1,000 to new employees to quit during their initial training period. Pret -A-Manger requires manager recruits to work a day in a store, and employees vote on whether to hire the candidate. 77 Source : The Customer Experience Journey, Forrester, Sept 2008, n = 287 decision makers from US firms with annual revenues of $500MM or more Customer-Centric Model/EBD Model

78. Alternative Approaches Other models are centered on customer rather than company- centered 78 Business is inward-looking. Has only a basic understanding of (and interest in) who customers are or what they want. Customers often believe the business doesn’t understand or care about them. Customer experience is inconsistent and often unpleasant. Ignored Source : Infosys, The journey to a customer centric Business, 2012 Business has a good understanding of who customers are and how they feel, and uses this insight to make adjustments to the customer experience. Customers may believe the business is interested in learning from them, but they don’t have much attachment to the brand. Heard Business has programs that drive deep insight, track customer preferences, and ensure a consistent experience. Customers believe their needs are mostly addressed by the products and services offered. There is a clear linkage between customer insight and products. Understood Business has a comprehen- sive, actionable picture of customers, and a culture of accountability. This gives it differentiation in the market and generates loyalty. Customers believe the business cares about them, and they trust the company. Customers demand increased value, and they are rewarded for their loyalty. They are willing to spend more for the assurance of a consistently positive experience. Engaged Business has such strong relationships with custom- ers, it has become the undisputed industry leader in Net Promoter Score and customer retention. Customers are passionate evangelists. They feel privileged to associate with the company and share stories of their positive experiences with others. Passionate Customer-Centric Model/Customer Centered Infosys has defined a Maturity Model based on the way the customer is treated.

79. How to Build a Customer-Centric Organization?– Table of Contents 79 Section Component Description 1 Executive Summary Overview of our research and findings 2 Building a Customer-Centric Organization Overview of the key components for Customer-Centric Organizations 2a Definition & Context : What is Customer Centricity? For each different dimension The key thinking from consulting firms, journals and academia as to what constitutes best practice Examples of this best practice across different firms and industries 2b History : How has Customer Centricity evolved? 2c The Model & its C omponent Parts : What are the key dimensions to be considered to make an organization customer-centric? 2d The Roadmap for the Future : What should organizations do to execute a customer-centric strategy and ensure its long term sustainability? 3 Additional Knowledge Sources Relevant published materials for further reading

80. The Roadmap What should organizations do to execute their customer-centric strategy and ensure its long term sustainability ? Leadership and Governance While there are a number of views and specific approaches around best practices in implementing customer-centric strategies, four strategic leadership and governance topics need to be addressed to enable true customer-centric transformation Customer Experience The past decade has seen consumer expectation exceed the conventional capacity of traditional customer service functions – in 7 critical areas Execution Leading organizations draw upon these governance and business strategies to align and deploy their strategies for customer centricity Key to successful deployment is understanding of your customer, working together as one organization and delivering a consistently high quality experience There are a number of high level business implications of customer centricity that Management may well wish to take note of including data, rewards, customer experience, voice of the customer, and business models 80 Source : ICG Research The Roadmap Truly customer-centric organizations demonstrate a high level of EBD maturity, are well along in their business model to execute it impeccably, and exude a strong, aligned culture to support it.

81. Thoughts on Leadership & Governance While there are a number of views and specific approaches around best practices in implementing customer-centric strategies, four strategic leadership and governance topics need to be addressed to enable true customer-centric transformation Depending on their background and positioning the different consulting organizations propose apparently quite different approaches to implementing a customer-centric strategy within the organization of their customer. McKinsey, Bain, Booz and Arthur D. Little will first focus on the need for a clear strategy from the top that will be enforced throughout the organization by committed senior executives. E&Y, PWC and Accenture put much more emphasis on large program implementation supporting the introduction of new IT systems while reviewing the organizational structures. Introducing customer centricity within an organization combines elements from both: starting with a clear customer-centric strategy sponsored by senior executives one will have to deploy some technological parts to support the single view of the customer, and organizational changes will be needed in order to focus on the customer rather than on the product organization. 81 Source : ICG research In the following pages, we outline an assessment across four topics/tests, with 10 critical questions The Roadmap/Leadership & Governance

82. Framework: Leadership and Governance Four strategic leadership and governance topics need to be addressed to enable true customer-centric transformation – each can be tested with a few critical questions 82 Source: McKinsey & Company – Banking on Customer Centricity Customer Engagement Model Visioning and positioning Organization, capabilities and insights Development agenda “Create an institution that customers want to bank with and employees feel proud of” “Design a bank that delivers exceptional customer service where customers accept it, and excites them when they do not” “Define an integrated development agenda to drive short-term gains and long-term growth” “Build the insights engine, organizational capabilities and governance needed to sustain momentum” 1 2 3 4 The Roadmap/Leadership & Governance

83. Visioning & Positioning “Create an institution that customers want to bank with and employees feel proud of” 83 Source: McKinsey & Company – Banking on Customer Centricity The starting point of every transformation towards a customer-centric company is a clear-cut vision. It provides the strategic direction and shapes the image of the bank to third parties. However, a vision can easily become mere lip service. Staff soon forget it when submerged in day-to-day business. To counter this risk, management should install measures to ensure the vision guides employee mindset – for example, by implementing a code of behavior. Ideally, this code will be translated into a balanced scorecard and a go-to-market model. Bonus payments should be tied to the level of customer loyalty. This ensures that the vision is not just a promise to the external world, but provides a framework for activities within the organization and gives employees a purpose they can identify with. Staff may even develop a sense of being proud to work for their employer. Such positive energy leads to better performance. Only a strong vision can motivate employees to move with the inevitable periods of change that organizations will need to navigate, and to really live the idea of customer centricity. In the US, the bank Wells Fargo is a good example of customer centricity. Its vision statement is: “We want to satisfy all our customers’ financial needs and help them succeed financially,” signaling to both internal as much as external stakeholders how serious Wells Fargo is about customer centricity. This is also reflected in the hierarchy of stakeholders, where the customer comes first: “Our first job is to understand our customers’ financial objectives, and then offer them products and solutions to help satisfy those needs so they can be financially successful. If we do that right, then all sorts of good things happen for all our stakeholders including our shareholders” (from “Our vision” by Wells Fargo). The company’s strategy statement reflects the same approach. To ensure that the change within the organization also has impact outside the company, the brand needs to be repositioned via external communication. The Royal Bank of Scotland has demonstrated its dedication to customer centricity by publishing a customer charter. The charter contains specific commitments and goals towards its customers, promising (for example) to keep processes simple and to listen to its customers. In a similar way, Commerzbank started a quality campaign for its private customers aimed at underpinning the promise to deliver “performance and partnership.” To do this, Commerzbank introduced multiple initiatives, such as a Customer Charter, and the new position of customer advocate. Case Examples Living and Breathing the Customer The Roadmap/Leadership & Governance

84. Visioning & Positioning Questions organizations should ask themselves to check their status in the transformation process – Test No. 1 84 Source: McKinsey & Company – Banking on Customer Centricity The Roadmap/Leadership & Governance

85. Customer Engagement Model “Design a bank that delivers exceptional customer service where customers expect it , and excites them when they do not” 85 Source: McKinsey & Company – Banking on Customer Centricity New communication strategies are vital to establish customer focus internally and surface it externally. However, communication alone will hardly convince consumers that the bank really means it. Customers will believe in the change only once the brand promise becomes tangible for them through real-life experience. Once they realize the bank thinks and acts from a customer perspective, they are likely to acknowledge it by purchasing more banking products and recommending them to others. How can banks successfully establish a customer-centric business model? A well-proven approach is to apply a systematic process aimed at shaping customer touch points – customer service or product offerings, particularly – to ensure the brand can be experienced at each of them. Banks can apply the “Customer Journey” tool, which traces the touch points a customer has with the bank throughout the entire purchasing process. The tool leverages several methods to gather data: qualitative and quantitative customer interviews, assessment of blogs (both internal and user forums), or employee interviews. This data allows banks to identify customer archetypes and determine specific elements of the purchasing process for each archetype. This means offers can be tailored much more precisely to different target groups. The “Customer Journey” approach reverses the way many banks design their products today. All too often, margin considerations are their main driver: they tend to neglect customer needs. Tools like this enable banks to tailor their products and services to customer behavior and preferences, as well as designing the marketing mix efficiently, ultimately resulting in a higher return on investment. Customer value propositions can be very different by company or target group profile. In the US, for example, TD Bank (formerly Commerce Bank) strongly focuses on creating an outstanding customer experience. The bank continuously bolsters their customer promise “America’s Most Convenient Bank” with evidence that customers can perceive day in, day out. Branches in highly frequented locations such as the Broadway are open seven days a week, sometimes until midnight. TD Bank motivates and enables its staff to solve its customers’ problems and improve customer experience (“$50 to kill a stupid bank rule”). The bank uses mystery shopping to monitor branch status and staff service attitudes on a regular basis. To acknowledge outstanding performance, TD Bank honors great employees with its “WOW Awards.” The success of all these initiatives has been considerable. TD Bank was nominated “America’s Most Convenient Bank,” and was ranked “Highest in Customer Satisfaction with Retail Banking in the Mid-Atlantic Region” for the fourth time in a row in 2009 . Case Examples Exciting customers yet still curbing costs The Roadmap/Leadership & Governance

86. Customer Engagement Model “Design a bank that delivers exceptional customer service where customers expect it , and excites them when they do not” 86 Source: McKinsey & Company – Banking on Customer Centricity American Express was the first to tailor cards and rewards to customers’ lifestyles rather than classical customer segments. Their reputation for superior customer service allows American Express to attract a disproportionate share of affluent consumers, especially in the US. American Express then uses its strength with affluent consumers to charge a higher merchant discount rate. This business model creates a self-reinforcing loop. A number of European financial service firms are emerging that focus on the congruence of brand promise and business model. British Metro Bank , a new branch bank launched in July 2010, is a fascinating case study in what customers really want. With its slogan “Love the bank,” Metro Bank brought a cultural revolution to the UK banking market via extended opening hours, convenient banking service, and fancy branch design and features. Royal Bank of Canada created a Client Experience Council of 10 top leaders to monitor customer experience progress and ensure alignment of efforts across organizations. Test No. 2 Case Examples (continued) The Roadmap/Leadership & Governance

87. Development Agenda “Define an integrated development agenda to drive short-term gains and long-term growth” 87 Source: McKinsey & Company – Banking on Customer Centricity Becoming customer-centric should be a means, not an end. A customer-centric transformation needs an agenda to further develop existing customers and acquire new ones. Better serving customer needs enables a bank to increase the satisfaction and loyalty of its customers as well as strengthen the bank’s economics, both in terms of growth and profitability. It is therefore essential that banks translate all their customer activities into clear actions that boost revenues. When resources are limited, banks need to give priority to customer segments with the greatest profit potential. Interestingly, it is not the case that there are just a few large segments that are attractive. The largest profit potential often resides in smaller niche segments. McKinsey’s Granularity of Growth research has shown that there are many niche segments that may be financially attractive but cannot currently be served due to their small size. McKinsey has developed an approach to tap the potential of these segments despite their small size. The approach is not about enlarging the segments or merging them, but accepting their size and creating boundary conditions to serve them profitably. This requires market segment specialists who continuously seek out new niche segments in the market, as well as modular systems that can rapidly tailor products to the needs of segments (and without additional IT capacity). Brand management is a further element that is vital for developing concepts on how to address individual customer segments at low cost. Agile sales staff are also needed who can swiftly identify and adapt to the needs of niche segments. Clear-cut attitudinal segmentation represents the basis for identifying attractive segments. Quantitative market research derives this kind of segmentation. Banks can use this to decide which segments are particularly financially attractive or strategically relevant for the future. Detailed knowledge about the segments allows you to determine segment profitability, and which marketing and sales concepts are most suitable for each segment . Royal Bank of Canada (RBC) pursues this kind of a niche strategy with great success. After identifying attractive customer groups via micro-segmentation, RBC tailors products for each group. Their approach comprises three layers of segmentation. First, “basic segmentation” defines five customer groups using demographic criteria. Next, “strategic segmentation” cuts the customer base into a multitude of sub-segments by factors such as profitability, risk profile, or customer life time value. Finally, “tactical segmentation” focuses primarily on product sales, drawing on parameters such as probability of purchase, risk of cancellation, or frequency with which products are used. Case Examples Increasing sales and profit by focusing on customer needs The Roadmap/Leadership & Governance

88. Development Agenda “Define an integrated development agenda to drive short-term gains and long-term growth” 88 Source: McKinsey & Company – Banking on Customer Centricity This micro-segmentation helped RBC detect a previously neglected customer segment: senior citizens spending the winter in Florida. The bank developed a “VIP Banking” account for this segment that includes a senior rebate for eligible customers above 60, travel discounts, easy access to Canadian funds, a consolidated account review online, ability to leverage a Canadian credit history for mortgages in the US, and a toll-free number for cross-border banking questions. As a result, over the last five years sales per customer have more than doubled, the attrition rate has dropped by nearly 50 percent, and net income has grown by 75 percent. Other examples are the Swiss Bank Coop’s financial advice for women, the Dutch Rabobank’ s package for the divorced, or Wells Fargo ’s offer for soldiers. Managing all these opportunities systematically will create a sustainable development agenda. Test No. 3 Case Examples (continued) The Roadmap/Leadership & Governance

89. Organization, Capabilities and Insights “Build the insights engine, organizational capabilities and governance needed to sustain momentum” 89 Source: McKinsey & Company – Banking on Customer Centricity Customer centricity needs anchoring within the organization to last. This is vital for the paradigm shift to unfold its full impact. To achieve this, banks need to install customer-centric core functions, align their governance and adapt their incentive systems accordingly to initiate real change. Key to a higher degree of customer centricity within a bank is having an excellent customer insights unit. Profound knowledge of customer needs and preferences is an essential input for decisions. The core functions need to be designed to represent customer focus within the organization. It is important that they have the power to implement solutions to the customer’s benefit. If this is not the case, there is a danger they will become just an appendage, which could quickly weaken the newly won trust of the customer. Besides such powerful core functions, banks also need overarching customer and product management. Only interface functions of this kind can ensure that the voice of the customer will be integrated in all core business processes. Last but not least, anchoring customer centricity in employees’ hearts and minds is crucial. A transformation can only be successful if staff live and breathe this dedication to the customer. To support this, the balanced scorecard and incentive systems for each employee need to be targeted towards customer centricity. Anchoring customer centricity deep within the company implements the transformation consistently, from the vision and operational processes through to individual targets for every employee. One best-practice example is the National Australia Bank (NAB Europe), which has pursued a CRM strategy for over 10 years, and has won numerous awards for its efforts. One of the main takeaways from this long-term project has been the importance of educating the front line to drive employee buy-in. NAB considers a partnership approach crucial for driving adoption via a staged approach. This includes gaining executive buy-in by embedding the concept within the group strategy, introducing rigorous measurement and coaching/mentoring, and pursuing a carefully planned process of cultural change. NAB also understands that this cannot be a “one-off” effort: it requires continual focus and development. To drive and support this task, NAB developed a central Customer Knowledge and Analytical Marketing team that worked closely with all parts of the organization to develop and implement its strategy. This customer perspective is applied right up to senior executive level, with a scorecard that includes customer and community as well as employees and culture metrics. A Customer Council (chaired by the Group Chief Executive Officer) also meets on a monthly basis to ensure an ongoing focus on customer relations and service. Case Examples Anchoring customer centricity deep within the company The Roadmap/Leadership & Governance

90. Organization, Capabilities and Insights “Build the insights engine, organizational capabilities and governance needed to sustain momentum” 90 Source: McKinsey & Company – Banking on Customer Centricity The Roadmap/Leadership & Governance

91. “Ten Timeless Questions” How customer-centric is our organization? 91 Source: adapted from McKinsey & Company – Banking on Customer Centricity The brand and the vision are built around a specific customer promise Brand and vision are visible for everyone and fundamentally guide behaviour 1 2 The organization has a clear understanding of customer insights across lines of business The organization invests intelligently in superior customer experience in a systemic and economically viable manner The customer experience is centered around a few key touch points of superior customer experience 3 4 5 The organization has an organizational structure in place that enables customer centricity in business decisions Employees have developed the mindsets and capabilities behind the customer-centric agenda 9 10 All customer-oriented activities are rooted in economic goals, not just satisfaction The organization targets ‘hearts and minds’ to drive attitudinal loyalty, as well as wallet to drive share The organization coordinates revenue initiatives across functions and leverages the full marketing and sales toolkit 6 7 8 Test No.1 Test No.2 Test No.3 Test No.4 Diagnosis of the Status Quo The Roadmap/Leadership & Governance

92. Customer Experience The past decade has seen consumer expectation exceed the conventional capacity of traditional customer service functions – in 7 critical areas 92 Source: Deloitte, Customer Centricity: Embedding it into your organization’s DNA Put customer-centricity at the core of your business Ensure visible customer-focused leadership Understand your customer Design the experience Empower the frontline Drive continuous improvement through feedback Engage the back office Use m etrics that matter Strategies for embedding customer-centricity into your organization The Roadmap/Customer Experience

93. Tips for Effective Execution The past decade has seen consumer expectation exceed the conventional capacity of traditional customer service functions 93 Source : Deloitte , Customer Centricity : Embedding it into your organization’s DNA Strategies Discussion Examples Visible , customer focused leadership You cannot be customer-centric if the customer experience is not an executive priority A number of organizations such as Oracle have developed Chief Customer Office roles to help facilitate and drive changes in customer centricity Understand your customer Understand who your customers are and their likely behaviours to tailor the experience based on what you know about them Sending a tailored travel plan for travellers to UK, different for London vs rural Scotland Design the experience The perception of he experience is what matters Zappos is renowned for customer loyalty – they have 10 values embedded in induction and regular training. Each month a value is celebrated across the business Empower the front line Empower the frontline to make decisions when it counts Look for opportunities for Magic Moments The Roadmap/Customer Experience

94. Tips for Effective Execution (2) The past decade has seen consumer expectation exceed the conventional capacity of traditional customer service functions 94 Source : Deloitte , Customer Centricity : Embedding it into your organization’s DNA Strategies Discussion Examples Engage the back office Customer-centricity is about every team and individual in the organization, not just customer service Creat e flexibility for back office colleagues to bank time they spend working past normal hours to support customer needs Metrics that matter Customer centric measurement and reward are key enablers to understand if you have succeeded or failed Give employees the ability to recognize each other on an internal Facebook/Twitter page that senior management can respond to, both online and, where appropriate, to ‘surprise’ employees with face to face recognition (‘great job’) Feedback drives continuous improvement New social channels allow customer s to feedback in real-time; operational changes can, and should be, made in hours, not days, weeks or months A well known Australian telco has a target of 48 hours to identify a customer who has made a comment via their Twitter feed and incorporate this contact history into their CRM system. Objective: establish contact over a secure channel to resolve their issue The Roadmap/Customer Experience

95. Case: Typical three year customer strategies (UK Banks) Source : Building Customer centric business models in Retail Banking, Deloitte, 2011 95 The Roadmap/Customer Experience

96. Prepare for your Customer Experience Journey (1 of 2) Whether you recognize it or not, your company has likely started its customer experience journey. Here is how to accelerate the path 96 Source: The Customer Experience Journey, Forrester, Sept 2008 Action Items Description Recognize that it’s a journey not a project We estimate that it can take two to four years to fully progress through the first three stages of EBD maturity. So the executive team needs to look at customer experience improvement as a multiyear initiative not as a short-term set of projects. Take the EBD self test The maturity model is not an exact description of how all companies will evolve. But it does provide a good sense of the activities that companies need to think about and the obstacles they’ll want to avoid. To gauge where your firm is at in the journey, have multiple people in your company take the EBD self-test, and then discuss the implications of the results. Take the test annually to chart your progress. Invest in centralized resources Even the most decentralized organizations will need centralized resources to facilitate enterprise-wide customer experience transformation. This requires some people to be fully dedicated to the effort. While centralized groups should never grow too large, they can help develop common processes and metrics. These groups can also provide capabilities like process mapping, customer insight analysis, and internal communications that might not exist across all of the organizations. The Roadmap/Customer Experience

97. Prepare for your Customer Experience Journey (2 of 2) Whether you recognize it or not, your company has likely started its customer experience journey. Here is how to accelerate the path 97 Source: The Customer Experience Journey, Forrester, Sept 2008 Action Items Description Get HR involved As companies move beyond the second stage of maturity, they must address changes in their corporate culture. That’s why it’s critical to get the human resources organization involved in the effort. They can help permeate the changes needed to goals, incentives, training, and hiring practices. Don’t overhype your experience Instead of telling customers how you are going to improve their experiences, do it first. There’s no reason to raise expectations until you can deliver on them. Customers and employees will lose faith in anything that your company has to say. A good rule of thumb: Don’t market your commitment to customer experience until you can convince employees that these proclamations are true. Keep asking three questions Develop a customer-centric focus by constantly asking — and answering — three questions: Who are your target users? What are their goals? And how can you help them accomplish those goals? The Roadmap/Customer Experience

98. In Summary: Pulling It Together for Effective Execution Leading organizations draw on governance and business strategies to deploy their customer strategies 98 Source: (1) McKinsey & Company – Banking on Customer Centricity; (2) Deloitte, Customer Centricity : Embedding it into your organization’s DNA; (3) PWC Getting to Know You The Roadmap/Execution Finally deploy your strategy 3 Then develop strategies for embedding customer-centricity into your organization 2 Four strategic leadership and governance tests need set the stage for a true customer-centric transformation 1 2 1 3

99. Deploying the Strategy the keys to successful deployment are understanding of your customer, working together as one organization and delivering a consistently high quality experience 99 Source: adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks The Roadmap/Execution Respond to customer needs, behavioral drivers and profitability Deliver a consistently high-quality customer experience Break down organizational silos and structure incentives to promote a customer-centric culture Each of these elements requires sound customer analytics and an approach to process improvement that focuses on the customer Understand the Customer Break Down the Silos Enhance the Customer Experience

100. Execution – Break Down S ilos Each strategy will comprise short, medium and long term actions 100 Strategy Key Goals Short term (0-6 months) Medium term (1-2 years) Long term (> 2 years) Break down the silos: Identify and begin to address the barriers to implementing a customer-centric strategy, including organizational and compensation structures Transitioning from an organizational/product to a customer view of the portfolio. Aligning incentives with enterprise-wide value maximization rather than rewarding individual business units for volume generated. Sharing of best practices across channels and customer-entry points. Analyze the existing barriers to effective retention and cross-selling efforts. Analyze changes required to make the compensation structure customer-centric. Implement robust retention and cross-selling metrics. Make necessary changes to the organizational structure Implement a shared-services model for activities such as online and mobile banking, customer retention, and customer analytics. Implement customer-centric employee incentives enterprise-wide. The Roadmap/Execution/Break Down Silos Source: adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks High Level Roadmap Activities

101. Implications for Customer Data The process of integrating customer data can catalyze organizational change because it brings various functions together to create a common lexicon of customer definitions and common goals for data gathering 101 Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks ; (1) Tower Group. Retail Banking & Delivery Channels: Top 10 Technology Initiatives for 2011 Define data keys Implement universal customer identifier Integrate data across channels Gather data continuously A basic but frequently difficult step in integration is creating data keys—standardized data points that are gathered consistently across all customer touch points. For example: Demographics—income , age, location Customer-service patterns—inquiries, complaints, praise, suggestions Online behaviors—frequently visited sites, social media activity, posted links Transactions—number of products with the organization, payment patterns, number of transactions Sophisticated customer analytics requires a universal customer identifier to track the activities of individual customers across the enterprise. This unique customer identification number is assigned to every account that a customer has across the organization. The number can be used to extract customer information from disconnected systems across the enterprise, creating an enterprise-wide view of the customer from data that resides in product or business-unit silos. In most retail banks, traditional channels (branches, ATMs, online banking, contact centers ) are not yet fully integrated. Looking forward, the underlying technology must support the customer-centric strategy and integrate across distribution channels. For instance, a call-center employee might not have access to the online application a customer is trying to complete. To enhance the customer experience, banks must integrate data across channels—including emerging channels such as mobile banking, social networking, and tablet technology.¹ To meet customers’ expectations for 24/7, personalized service, deploy systems that continuously gather customer information from across product lines, distribution channels, and internal business divisions to create an up-to-date, integrated customer record. Employees throughout the bank then will have access to the same enterprise view of the customer, enabling them to meet the customer’s needs quickly and effectively. The Roadmap/Execution/Break Down Silos

102. Implications for Customer Data Moving from a disjointed set of data repositories to an integrated system that can provide an enterprise-wide view of the customer will not happen overnight While having a reliable customer data set is challenging, especially for institutions that rely on legacy systems that were developed many years ago, it is always better to do analysis with a limited amount of data than to do nothing until a robust customer-data warehouse or CRM application is fully implemented. Be prepared to spend months building the required data architecture. Developing an enterprise–wide view of the customer is challenging because customer data may be housed in multiple systems, divisions, departments, regions, and countries. Be prepared to spend a considerable amount of time (possibly years, depending on the size of the bank and the amount of data) building the architecture required to consolidate customer data, and to set overall goals for customer strategies. Expect data integration to be a long-term project. Data integration is a challenging, time-consuming project. It is a long-term project that requires a thorough evaluation of integration objectives, existing IT systems and security requirements, and an ever-changing software market Building a single view of the customer is an iterative process —it won’t be perfect right out of the gate, but it should be reasonably sound and can be refined over time. Be careful to avoid a common pitfall of segmentation —spending too much time in the analysis stage in an attempt to obtain perfect data. The quest for perfection usually prevents companies from moving forward to develop products, services, and pricing because they become stuck in a perpetual cycle of analysis. Instead, target relative accuracy when creating segments and determining their lifetime value. Keep in mind that the most successful segmentation programs are agile and include the capability to monitor and adapt to inevitable changes in the business environment. 102 Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks The Roadmap/Execution/Break Down Silos

103. Implications for HR/Employee Rewards Incentives and performance metrics will need to be reshaped to reward customer-focused behaviours Data integration alone cannot successfully bring about bank-wide collaboration and customer focus. Many banks’ organizational structures, reporting lines, and incentive systems have been constructed over time around products, channels, and business units. In order to truly promote customer centricity, bank leaders will need to realign employee behaviors by modifying the organization, incentives, and reporting systems . Talent Acquisition and Development Establish hiring, onboarding, and training processes that support a customer-first mindset . When hiring, focus on specific skill sets that the bank needs to be successful in deepening customer relationships (e.g. sales, communication skills). Use training to coach employees on how to recognize customer life-cycle triggers and suggest products that are relevant . Communication and Reporting Develop a communications and reporting strategy that reinforces the customer culture. Leadership’s messaging about customer focus should be consistent, straight-forward, and frequently heard by both front-line and back-office employees. Performance metrics should include measures of customer satisfaction and profitability. Rewards and Incentives Make employees accountable for achieving customer-related goals by linking compensation and rewards with realization of those goals. For example, relationship managers may be responsible for achieving a certain rate of cross-selling for their customers. Loan-operations staff may be rewarded for decreasing the error rate in the loan-boarding process. 103 Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks The Roadmap/Execution/Break Down Silos

104. Execution – Understand the Customer Each strategy will comprise short, medium and long term actions 104 Strategy Key Goals Short term (0-6 months) Medium term (1-2 years) Long term (> 2 years) Understand the customer: Organizations must understand and respond to their customers and their activities throughout the organization. Clearly define your organizational goals as well as the customers you are prepared to serve now and those you would like to serve in the future. Identify which customers and households generate the greatest current and/or long-term value to the org. Use robust customer analytics to support strategic decision making in areas such as pricing, new products and services, and markets. Achieve clear visibility into the drivers of loyalty or attrition and cross-selling. Evaluate the effectiveness of customer data being gathered across the organization. If specific customer segments have not yet been defined, then at a minimum, group customers according to the stages of the financial life cycle. Define the business rules to calculate customer and household profitability, and identify data sources. Define and implement enterprise-wide rules for calculating customer profitability. Map each customer to an individual household. Begin to estimate customer lifetime value for each customer and household Implement a system to capture and analyze customer data across channels (such as phone, branch, or social media). Base pricing and product-development decisions on maximizing customer value, not sales volume. The Roadmap/Execution/Understand Customer Source: adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks High Level Roadmap Activities

105. Implications for Customer Experience Customer Centricity means understanding the lifetime value of our customers, and will require an understanding of household as well as individual customer dynamics Calculating an estimated customer-and household-lifetime value is a useful tool for performing comparisons across segments and identifying segments where targeting efforts may yield more revenues. It also helps to justify investments in segments that might not be profitable in the short term but have potential to be significant revenue drivers in the future (such as mobile banking investments to accommodate the needs of millennial-generation customers). When calculating lifetime value, consider the value of not only the expected immediate gain that current loan products will generate, but also the potential value of future business opportunities that could arise from the existing relationship . Calculating customer lifetime value involves making educated assumptions about a customer’s behavior based on historical data and likely future needs using the customer’s place in the financial planning life cycle. Key considerations : Assumptions should be based on historical customer data (e.g. likelihood that a customer will adopt a product, average duration they will hold the product) and external market data (e.g. probability that interest rates will rise or fall in the next 10 years). Start with one year of historical data and refine the model each year as more data is collected. During the first few periods, it may only be possible to use the data on a relative (rather than absolute) basis. Over time, the assumptions that were used initially can be replaced with actual historical information, creating a more accurate and refined model. 105 Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks Initiate banking relationship (savings/checking accounts) Enter college, work force (payment vehicles –credit/ debit, auto loans) Marriage (joint checking accounts, 401K plans, CDs, money market) Birth of a child (IRA plans, new home mortgage, loans, insurance, 529 education plans) School-aged children (home equity loans, 529 education plans, insurance) College bound children (investments, education loans, second mortgages) Retirement (investments, reverse mortgage, estate planning, retirement plan distribution) Teenagers / students Single adults Childless couples Young families Established families Empty nesters Mature adults Investable assets Debt Consumer financial planning life cycle The Roadmap/Execution/Understand Customer

106. Case: Some Challenging D ecisions By avoiding ‘blunt instruments’ financial Institutions can influence customer lifecycles to improve outcomes (FI and customer) while reducing detriment Charitable institution Sustainable institution Irrational institution Exploitative institution Institution Worse for the institution Better for the institution Worse for the customer Better for the customer Customer Customer ‘upgrade path’ incentives to maximise life time value and customer outcomes “Customer never weans themselves off revolving debt so doesn't mature to mortgage lending” “Encourage or facilitate revolve with increasing limit and minimum payment” “No customer will pay revolving interest on any single CC purchase for more than two years” Improving conduct while managing cannibalisation requires granularity of customer lifecycle profitability and careful migration of product and channel incentives Source: ICG, adapted from Oliver Wyman State of Financial Services Report 15-24 25-34 35-44 45-54 55-64 65-74 75 and over Banking (smoothed) $ Illustrative Customer Conduct Matrix Customer Lifecycle Profitability Assessment Life time credit card revolver/renter Modest Transaction and Retirement Holdings 15-24 25-34 35-44 45-54 55-64 65-74 75 and over Banking (smoothed) $ Banking – loans Wealth products Banking – deposits Illustrative Credit card revolver matured to a mortgage product 106 The Roadmap/Execution/Understand Customer

107. Implications: Product Design 107 Need to target the right customers with the right products at the right price using the right delivery channels – then begin to make targeted offers Customize Products Differentiate Pricing Enhance Cross-Channel Delivery Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks The Roadmap/Execution/Understand Customer Understand the drivers of loyalty and attrition for each customer segment. Break down products into a set of shared elements that can be easily combined to create customized product bundles. Bundle products based on demands of the customer segment, the type of product/feature growth desired, and how well the products complement each other. Provide simple messaging to enable front-line employees to articulate the value of bank products to customers in a language that is easy to understand. Unify the system architecture such that product bundles can be easily customized and operated across traditional product lines. Understand each customer segment’s willingness to pay for a given product. Explore where customers may be more flexible about rates and set prices accordingly. Assign clear ownership and responsibility for pricing decisions to coordinate across marketing, sales, and product groups. Develop customized delivery channel strategies for each customer segment. Strive to provide a consistent experience across all channels while directing customers to their channels of choice. Develop channel-specific strategies that capitalize on the distinct and complementary role of each channel; e.g. low-cost mobile and internet for routine transactions and higher-cost branch and call center for developing new relationships.

108. Execution – Enhance Customer Experience Each strategy will comprise short, medium and long term actions 108 Strategy Key Goals Short term (0-6 months) Medium term (1-2 years) Long term (> 2 years) Enhance the customer experience: Customers are increasingly looking for a customized experience. They can now quickly communicate their dissatisfaction to their network. Ensuring a consistent high-quality experience regardless of the channel Having a formal process to solicit and respond positively to customer feedback Being proactive in responding to customer needs and wants Create journey maps for critical processes /moments of truth. Design a basic (but formal) voice of the customer (VOC) program and pilot it in a business unit. Create an initial customer satisfaction scorecard and begin to define key customer KPIs. Implement a formal VOC program across the organization. Make customer satisfaction scorecards available to different levels of the organization. Involve senior executives in the VOC process by asking them to listen to calls, visit branches, and review customer complaints on a periodic basis. Use VOC results to drive process improvements across the organization and to provide a consistent, high quality customer experience. Make customer retention, satisfaction, and profitability KPIs for all business units and supporting groups. The Roadmap/Execution/Customer Experience Source: adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks High Level Roadmap Activities

109. Translated into a new organization managed as one bank From 7 divisions to 3 businesses each serving specific segments of customers with similar needs Rebalancing 70% of the employees in back-office support and control roles to a majority in customer facing roles with remuneration of all staff linked to customer service 109 The Bank defined 5 key priorities: Customer is the focal organization point Empowering the employees allows to better support the customers while reducing the cost structure and smartly deploying technology Case: Five Key Priorities A new organization managed as one bank “We have a long way to go to be the bank that our customers deserve. We get too many of the basics wrong. We are still too complicated to deal with. And we still have to spend too much time dealing with the legacy of past failures. ” CEO RBS Sources : RBS web site; Building a customer centric bank, Strategy outline, Feb 2014 ; Wikipedia ; CEO Ross McEwan presentation Organize around customers Fundamental overhaul of cost base Intelligent deployment of technology Unquestioned capital strength Empower the people Personal & Business Banking Commercial & Private Banking Corporate & Institutional Banking IT & Ops Support & Control The Roadmap/Execution/Customer Experience

110. Implications: Voice-of-the-Customer 110 An effective voice-of-the-customer (VOC) program can help you to gain an accurate, real-time understanding of customers; enhance customer segmentation efforts; improve positioning and messaging to customers; provide insight into the most profitable sources of revenue from current customers and their likely future needs; improve customer relationships; and strengthen loyalty. Create Gather/Assess Implement, Measure, Respond Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks The Roadmap/Execution/Customer Experience Build a core competency around VOC Identify a dedicated, experienced team to manage the customer experience process Develop the objectives of the customer experience program Develop an analytic competency for analysis, insight generation, and reporting Link VOC and customer-facing activities Socialize VOC program to key internal and external stakeholders Solicit feedback from customers via:–Website–Social media–Email–Phone–Focus groups–Interviews Collect available data within the organization (e.g., collect trends through the normal course of work) Assemble available benchmarking information from within and outside industry Consolidate data into a single dataset and interpret data to identify trends or anomalies Compare data to available benchmarks Develop actionable improvements Prioritize action plans according to objectives Assign resources to implement and measure action plans Review success and implement continual improvement mechanisms Empower employees to collect and share customer feedback with those who can implement change Dedicate employees to monitor and respond to social media comments Involve customers in piloting and testing of new processes or products –listen to and respond to their feedback

111. Implications: Customer Satisfaction 111 Customer centric organizations have a solid understanding of the drivers of satisfaction and potential sources of dissatisfaction . Source : adapted from PWC Getting to Know You, Building a Customer-Centric Business Model for Retail Banks The Roadmap/Execution/Customer Experience Pre-Application Application Underwriting Closing Customer receives an unsolicited offer to refinance mortgage It is easy to find refinance information when accessing the account online All refinance steps are clearly explained, including what information must be submitted Forms can be completed online and are user-friendly Customer receives frequent status updates and can access the real-time status of the refinance online E-signature is available, so borrower can complete the process online or via a mobile device Refinance is completed in the time frame promised It is difficult to find refinance information on the company’s website, or it takes a long time to get the information via the toll-free number Documents must be submitted several times , as instructions were not clear. The application must be filled out manually and requires information that the bank already has Due to capacity issues, certain documents “expire” and must be resubmitted Customer does not receive status updates unless he or she calls to request them. Updates provided are not clear Closing takes place in four months ( rather than one month, as the loan officer had promised) due to capacity issues and processing errors. Sample: Mortgage Refinance Process Satisfaction Drivers Dissatisfaction Drivers

112. Implications for Business Model There are a number of high level business model implications of customer centricity that Management may well wish to take note of: 112 Source : Gottfredson & Focus on the Customer, Bain Many companies favor a broad product line with something for everybody, so that no potential customer goes away disappointed. That leads to: Product proliferation with the resulting complexity almost always raising costs, compromising quality and leading to stockouts . Salespeople find it hard to be knowledgeable about all the different SKUs. Customers are often baffled . Focusing on the target customer enables a company to cut through product complexity. If you know exactly what your primary customers most want—if you know what their sweet spot is—you can concentrate on giving them exactly that. By focusing on core customers, you need to make a conscious decision to “Delight the few to attract the many” with the following implications: Offerings that are exactly what your core customers want are likely to appeal to large numbers of other customers. However , any company that follows this route has to make some hard decisions. Since nobody can be all things to all people , a company that invests in delighting its core customers will necessarily disappoint others . Need to focus on the “Killer ABCs”—the three most important attributes that define a product in the eyes of the customer (e.g., performance, design and price; capacity , convenience and value). merely competitive, not exceptional. The Roadmap/Execution

113. Implications for Business Model (2) There are a number of high level business model implications of customer centricity that Management may well wish to take note of: Management teams tend to overestimate the degree to which they are really better than the competition . In a well-known Bain study of 362 companies , 80 % of management teams felt they delivered a better customer experience than rivals—but only 8% of customers agreed. Companies need to make sure they aren’t exaggerating what makes them special in the eyes of their customers When a customer makes a purchase, he or she can’t use that money for anything else. So a product has to rise above the competition and above whatever other options the customer might have . Customers themselves are always making trade-offs , and understanding those trade-offs allows you to offer exceptional performance in some areas while ignoring others. Established companies often need to refocus themselves by re-identifying their design target and rediscovering the trade-offs those customers are willing to make. Armed with that knowledge , a company can design offerings that become a priority for its core customers . It can test, learn and adapt as necessary, and then it can scale up. 113 Source : Gottfredson & Focus on the Customer, Bain The Roadmap/Execution

114. Implications for Business Model (3) There are a number of high level business model implications of customer centricity that Management may well wish to take note of: A focus on the customer also gives you a knife for slicing through the organizational complexity that tends to build up over time in any large company Does a given activity, function or business unit add value to what you are offering your core customers? If the answer is “no” or “we’re not sure,” that part of your organization is a good candidate for trimming or even elimination . Do you know which decisions and capabilities are central to delighting your target customer? If not, you are probably not making those decisions or cultivating those capabilities as well as you should. Do you have a truly customer-centric culture? If not, people who make product or service decisions may slight the customer in favor of other priorities. And they may not hear feedback from the frontline employees who are actually dealing with customers. 114 Source : Gottfredson & Focus on the Customer, Bain The Roadmap/Execution

115. Converging to one model Transforming ING Direct into a full bank Moving from “your other bank” in emerging markets To “your full bank” in all markets, but the historical Benelux home base 115 Customer centricity as first innovation driver Translated into visible elements : Offer fair pricing Propose transparent products Increase easy accessibility Deliver excellent service Supported by operational excellence… Streamline processes Improve efficiency And customer intelligence In-depth knowledge of 40 million retail customers Case: ING Retail Key takeaways : Converging to one model : “Easy and Fair with low cost”. Sources : ING web site; ING Investor Day, Jan 2012 ; Wikipedia The Roadmap/Execution

116. Where Do Y ou S tand? Truly customer-centric organizations demonstrate a high level of EBD maturity, are well along in their business model to execute it impeccably, and exude a strong, aligned culture to support it. 116 Source: Adapted from The Customer Experience Journey, Forrester, Sept 2008 Level of customer-centric culture Level of EBD Maturity Evolution of Customer-Centric DNA Almost every employee is fully aligned with the company’s clear mission to deliver world-class customer experience Most employees are deeply committed to helping the company better serve its customers Many employees feel personal responsibility for delivering good customer experience Employees being to think that customer experience is an important component of their day-to-day efforts No strong customer-centric culture Interested Invested Committed Engaged Embedded Customer Experience (CE) is important, but receives little investment from the executive team CE is considered very important, and formalized programs emerge CE is critical, and execs are actively involved in an effort to transform the company CE is a core piece of the firm’s strategy CE is ingrained in the fabric of the company Commitment to employees Compelling stories Collective celebrations Constant communications Clear beliefs Consistent trade-offs Employees on-board and company helping them to better serve with investments in training and enabling tools Stories play a powerful role in the shaping of the culture of any firm As with sales growth or profitability, organizations need to celebrate and customer experience is as important I t is important for employees and all stakeholders to continuously hear what is going on The only way for an organization to operate consistently is if everyone understands what’s important True commitment to customer experience takes place with trade-offs are made and observed by staff (e.g., service vs call time) DNA Description EBD Description The Roadmap/Execution Culture:

117. How to Build a Customer-Centric Organization?– Table of Contents 117 Section Component Description 1 Executive Summary Overview of our research and findings 2 Building a Customer-Centric Organization Overview of the key components for Customer-Centric Organizations 2a Definition & Context : What is Customer Centricity? For each different dimension The key thinking from consulting firms, journals and academia as to what constitutes best practice Examples of this best practice across different firms and industries 2b History : How has Customer Centricity evolved? 2c The Model & its C omponent Parts : What are the key dimensions to be considered to make an organization customer-centric? 2d The Roadmap for the Future : What should organizations do to execute a customer-centric strategy and ensure its long term sustainability? 3 Additional Knowledge Sources Relevant published materials for further reading

118. What are the most relevant information sources for further reading ? 118 Source : ICG Research Title Organization Authors Date Type Content Focus on the customer Bain & Co Mark Gottfredson, Rob Markey 2014 White Paper Companies that seek to be the best at something may have to be only average at everything else. Pursuing the design target : FOCUS Simplify Products lines to core essentials Cut across organization complexity Making Customer Centricity Pay in Good Times and Bad Booz & Co Vanessa Wallace, Peter Burns, Fiona Smith, Therese Fritzson 2010 White Paper Booz & Company study has found that companies that truly have a customer-centric business model have been able to reduce product development costs and increase customer retention and revenues. - Clear vision and defined goals. - Breaking down functional boundaries - Changing the organization from day to day The Customer-Centric Organization From Pushing Products To Winning Customers Booz & Co   2004   Customer-Centricity Defined Model in 6 components Becoming Customer- Centric : Finding the Voice of the Customer Customer Centricity Craig Bailey, Kurt Jensen 2006 White Paper Customer- Centric : - Building mutually profitable relationships - Aligning the resources of the organization - Effectively responding to the needs of the customer Voice of the customer : Different ways to obtain information from and communicate it back to customers Knowledge Sources

119. What are the most relevant information sources for further reading ? 119 Source : ICG Research Title Organization Authors Date Type Content Getting to Know You: Building a Customer-Centric Business Model for Retail Banks PWC PWC 2011 White Paper Banks should adopt a new, customer-centric model integrated around customer needs. Leading institutions are implementing customer-centric strategies by focusing on three critical elements: - breaking down product silos, - understanding their customers, - and enhancing the customer’s experience. Proposed Roadmap on 3 terms : Example : Breaking down silo's... - Short : 0-6 M : Analyse barriers and required changes - Medium : 1-2 Y : Implement retention and change organization - Long : > 2 Y : implement shared service model and CC employee incentives FS Viewpoint PWC PWC 2014 White Paper Insight on insurance industry and customer centricity The Customer Experience Journey Forrester Bruce Temkin 2008 Research Experience-based Differentiation : 5 levels Principle1: Obsess about customer needs, not product features. Principle2: Reinforce brands with every interaction, not just communications. Is Customer Centricity A Movement Or Myth? Opening The Debate For HR Lancaster University Craig Marsh, Paul Sparrow and Martin Hird 2010 White Paper Definitions and origins of Customer Centricity Six Building Blocks Knowledge Sources

120. 120 Reference Source 10 Characteristics of Customer-Centric Execs Customers.com / Patricia Seybold Group How to make your company think like a customer Accenture - Outlook - How to make your company think like CRM Managing the Customer Experience Arthur D. Little S O 2012 Managing Customer Experience final The Maturity Model for Customer Centricity: 360 Degree View of the Customer Attivio White Paper, 2012 A maturity model for customer experience management Custvox , Federico Cesconi Finance’s Human Face Nicola Davison, Nov 2013 Building customer-centric business models in retail banking Deloitte, White Paper, 2011 Customer-centricity: Embedding it into your organisation’s DNA Deloitte, White Paper, 2012 Organizatio n Structure and Customer Centricity DTC Perspectives, Summer 2013 The journey toward greater customer centricity E&Y, White Paper, 2013 The Convergence of Brand, Customer Experience and Marketing Forrester, Research, 2014 The Journey to a Customer Centric Business Infosys, Art and Science, 2012 Other Articles and References Knowledge Sources

121. 121 Reference Source The new customer-centric: Why delighting customers is more about brand-led innovation than following customer demands Lippincott, 2012 Banking on customer centricity McKinsey, White Paper, 2012 Retail banking: A Transformational Model for Growth Using a Customer-Centric Approach Peppers & Rogers Group, 2011 Playing for keeps : How insurers can win customers, one at a time PWC, White Paper, 2014 Building the customer-centric organization The build network & GE Capital , Web, 2013 Customer centricity: The path to well informed customer experience decisions 5 Steps to Customer Centricity - Koert Breebaart - Google Books, 2013 Highlights The Customer-Centric Retail Strategy Amazon CEO Jeff Bezos Customer centricity Peter Fader, 2011 Designing the Customer- Centric Organization Jay Galbraith, Presentation, 2006 Building organizations around the global customer Jay Galbraith, Presentation, 2001 Other Articles and References (2) Knowledge Sources

122. This document was prepared by Gerry Purcell ( gerry.purcell @ internalconsulting.com ) a Practice Leader in our Toronto Office and Vincent Lion ( [email protected] ), a Practice Leader in Belgium They were assisted by ICG’s Financial Services Practice Leader, David Moloney , and an ICG expert panel, Ed Debenham , Suzy Pyke , Moti Shahani , all drawn from ICG’s affiliate pool.