In this article, we discuss how banks need to evolve away from product focus and towards service alignment, with some key considerations about the evolution. While we focus on banking transformation, the same considerations apply to large, traditional organisations across many industries, struggling to evolve in rapidly changing competitive environments.
Only 30% of customers believe they are receiving a personalised customer experience, while 45% of bankers indicate they think they are delivering on that promise
48% of banks think they are doing a good job encouraging strong customer loyalty while only 35% of customers agree ( IBM)
But aren’t we service aligned already?
Every bank we’ve ever worked for (and we’ve worked for twelve of the big ones) cites customer service as their top priority. Banks have become less complacent with the shifts in market, and recognise both the strength and value associated with their customer base. Like any other service provider, it’s important for banks to provide a positive customer experience.
Banks suffer from a challenge common to utility providers: their product set is pretty undifferentiated. A loan is a loan; a bank account is a bank account. Banks may dress up the product offering by adding incentives and keeping the unit cost as low as possible to ensure pricing is competitive, but fundamentally there’s not much in it. That’s why banks need a strong reputation to maintain their customer base; but reputation is no longer something banks can control through actively curating customer perception.
There’s been a fundamental shift in customer expectations, as we explore elsewhere. People of all ages expect a more tailored customer experience, as their experience of life teaches them to expect it. Brand loyalty is being diluted and the Fintechs, alternative Finance providers and Challenger Banks are at the gate.
Of course, for the big banks, traditional considerations such as security and tight regulation still go a long way towards the maintenance of a customer base; customers will always put the security of their money at a high priority. But as the challengers learn to work within these paradigms that edge will be lost. And in the absence of differentiated products, brand loyalty or even traditional stickiness caused by inertia, customer experience is becoming the key differentiator in financial services. Customers today want and expect a service that suits them, supports their needs and feels personalised. We can attract them via short-term incentives such as financial rewards, but today’s customer is not the inertia-bound customer of old; as we’ve seen, the promiscuous customer is the new normal, and we need to provide a differentiated service which will make that customer want to come back.
This is tough for traditional banks to achieve; their organisations are built to support standardised activities, to drive down cost and guarantee low risk and regulatory compliance. The customer facing staff are in a difficult position too: trying their hardest to support the customers with the experience they expect, customer support teams are hampered by the very standardised processes designed to protect those customers. The customers don’t understand why things take so long; support staff can’t explain and can’t help them. Both customers and support staff are frustrated. We usually (staff and customers) blame antiquated technology, and of course, older or less flexible technology can look like the root cause of the problem. So we invest in fixing our technology but fixing the technology won’t make the problem go away.
We also know how important the people element is – service culture is something you need to grow and nurture, role model from the top down, etc. We create training, put motivational posters on the walls and build friendly scripts for our staff to use. Service culture is pushed hard down to the customer facing staff – although it often seems to skip a few layers of management on the way – and again, our staff are left to slug it out with the inflexible processes and frustrated customers, but with a smile on their face. This undoubtedly has a positive impact on the individual customer encounter with that staff member; it’s much better to be told that you’ll have to pass another security check if the person telling you is being nice and friendly. But fixing the culture won’t make the problem go away either, if the service still isn’t meeting the customer’s needs. And fixing culture is difficult where the culture you’re trying to impose is not supported by people’s day to day experiences. I once had a micromanaging boss who kept saying to her team “be empowered! Why aren’t you empowered?” We see a lot of that sort of behaviour when traditional banks impose top-down culture change.
So we fix the processes. We Lean/Six Sigma everything in the operations area, eliminating waste and standardising the end to end process. That takes cost and resources out of the organisation, and eliminates a lot of risk. Clearly that’s critical. a good Lean effort will usually improve service delivery times, but it also forces customer facing staff into increasingly prescriptive standard processes, which make them even less able to support the customer with any kind of flexibility. They lack empowerment and share the customers’ frustration. And the problem is still there, although costs are down.
The problem is built into our organisations.
Service alignment isn’t created by imposing culture and it isn’t delivered by process optimisation, although both of these are important elements. The key to building a service aligned organisation is the very shape of the organisation itself, together with governance structures, rules, decision rights, metrics and accountabilities. Sounds familiar? It should by now! Before we explore the details though, let’s first consider what we mean by a Service.
What do we mean by Service?
Service is a much-used word and can mean a lot of things to a lot of people. Many organisations equate Service with Product, or with Process. As we’ll show, Service may encapsulate Products and will always have an element of Process, but it’s not a one-to-one relationship. At some level, Service may also equate to Capability but once you drill down, any Service will reach into a number of Capabilities. A definition of Service we find useful and one that we haven’t yet been able to break is:
A Service is a configuration of Capabilities that delivers value to the customer.
I also like to think of a service as a set of activities with a customer at each end – note the use of “set of activities” rather than “process” here. Your customer may be a traditional customer, the sort that experiences your services and puts money in your balance sheet. Or it may be an internal customer, drawing on an internal service. Alternatively your customer may be an external stakeholder of another sort, such as a regulator, a central bank, a payments scheme, a media entity, or your shareholders. Fundamentally, services are our way of delivering value from the capabilities provided by our organisation.
Customers consume the results of our services – those may manifest themselves as a combination of products, experiences, rewards and other elements. The whole package will influence how happy the customer is with our organisation and their perception of our products, our staff and our brand. An unhappy customer won’t be sweetened by the smiling face, or even the slick delivery of the product, if other elements aren’t in place. So in delivering a positive customer experience we need to design the service holistically, and deliver it in a controlled way. Like the best restaurants, every element of the service must be tuned to create the experience we want the customer to have.
What makes a service work?
Services, like capabilities, are made up of all the same elements of any other operating model – human, process, technology and so forth, all of which need conscious design in order to integrate successfully. See our article on Service Architecture for further details.
Within each of these elements, further design is required, and these are explored below and in the relevant articles. For now, let’s consider the elements that make up a service. On the left we have all the things you normally associate with delivering products and services to customers – the tangibles, things you can draw on a wall. The things on the right are those things that are usually handled separately, by line management, HR and compliance (is Compliance a department or a behaviour?) and rarely consciously designed in conjunction with the hard delivery on the left. And then the things in the middle – the structures that make up our organisation, and directly shape how the teams behave and interact – is usually left completely up to chance; teams are organised by function, with people with the same skillsets working for someone who is even better at that skillset. Little thought is usually given to putting people with the same GOAL in the same room. Organisational structure is one of the biggest inhibitors to the delivery of excellent service, closely followed by governance and decision rights. While our teams are arranged in silos, not only do they have to engage each other (usually with the help of technology), to perform tasks which lose context as they are passed around the organisation. Every time information is passed from one team/system/process to another, not only does that cause work for the team passing the information and that receiving it, but it injects risk and degradation of quality. Your support teams are trying their best to provide what’s needed by Sales, but without any visibility of the customer and with their own drivers (which are different to those of Sales), it’s not only difficult to support a seamless customer experience, in many cases it’s nearly impossible. Your organisational structure designs poor customer experience into itself.
What is Service Alignment?
Simply put, Service Alignment means aligning your organisation to the service, not the other way round. It sounds simple, and obvious. So why isn’t everyone doing it? You could argue that nobody’s thought of it before, but this is not only naïve; all the evidence is against it, after all Apple, hotel chains and other retail/service organisations have been doing this for years. We think there are other reasons it hasn’t taken hold in banking yet, despite the massively pressing need:
No more empires
Service alignment requires your organisation to run on principles of governance, rather than hierarchies. This is a reasonably easy concept for small teams to absorb, but extrapolate to an organisational level and it becomes less easy. The people at the top of your organisation have risen through talent, political manipulation, hard work, and massive personal sacrifices. They have built their status in the way they were taught to build it – through the creation of ever larger teams, reporting to them. Once conferred, this status becomes self-enforcing as leaders strive to increase their importance to the organisation by building ever larger teams. They centralise decision making into themselves, to avoid the risk of losing control. This results in them also being ridiculously busy and difficult to access – in the modern business world, a packed diary has become a status symbol in itself. They are usually making decisions with partial information, which has been filtered and massaged multiple times and passed various other decision making bodies, before being presented to them in digestible form. Often the wrong decisions are made because the information is partial, or they don’t have access to the facts due to their distance from the people who work for them. And then the execution of their decisions can be partial, misinterpreted and happening too late to have the desired effect, because of assumptions they make about their subordinates, the competing priorities of their subordinates, their partial communication skills and networks, and the time it takes to transmit information up and down the hierarchy. Empires were very effective in establishing autocracy and control in the old world, but when your organisation becomes too complex to manage top down, they create problems and delays. Unfortunately, we’ve created a leadership hierarchy that regards empires as a critical status symbol and enabler, so this will take some breaking down.
Service alignment means blurring the old association between leadership and management of large numbers of people, and putting decisions in the hands of the people best qualified to make them. There are roles associated with leadership, of course, but the service aligned organisation is flatter, modular and composed of self-organising teams, managed by governance rather than hierarchies. See the chapter on Holocracy and Governance for how this works, but the most fundamental barrier to implementing service alignment in your organisation is the leadership team you have today.
No more heroes
Closely related to empires is the hero leader culture we have developed – we all know the one guy/girl who can cut through the spaghetti and get things done. We’ve both made careers of this, so this one’s pretty personal to us. However, in the Service Aligned organisation there is no role for hero leaders. Partly because service alignment makes heroes of everyone, but also because there’s less spaghetti to cut through, and things get done without the heroes being needed. This is a very hard thing for your key talent to absorb and adapt to. After all, what’s the point of me if I’m not in there, fixing the crap? You will need to re-educate your key talent to become leaders in devising and developing the governance structures that shape the organisation, as well as applying their Subject Matter Expert skills to key advisory roles. Putting them into the change teams delivering service alignment is a pretty good start.
We’re doing fine – why change?
Despite all evidence to the contrary, there’s a strong perception in banking culture that everything’s going to continue as it has for the last 200 years or so, and everything’s going to be fine. For organisations that are still pulling in a healthy amount of cash and maintaining strong liquidity, this seems like a rational argument. But look at the statistics! 20% of millennials changing their account every year, and enemies at the gates. If we don’t do something to hedge against the emerging future now, we’ll be the guys sitting on the ground, asking “where did everybody go?” Unfortunately this isn’t so obvious to your troops – after all, you’re continually reassuring them about how strong your balance sheet is, and how well they’re doing. Why would they think otherwise? Unless you create a burning platform, people will continue to be complacent until it’s too late. Of course, the benefit of service alignment is that it presents a solution to current as well as possible future challenges, which makes it an easier sell, but it is really important that the people, and especially the leaders, in your organisation, understand that the status quo is not sustainable. The competitive environment has already changed.
So what does a service aligned organisation look like?
As the major subject of this section, we’re not going to go into all the details in this article. Please see articles on Service Architecture, and Case Managed and Core Standardised, for the details of how to structure the organisation at a macro and micro level. We’ll outline the fundamentals here.
A Service Aligned organisation doesn’t look like a triangle. There is no fixed hierarchical structure with more junior people at the bottom and more senior people towards the top. As mentioned above, this doesn’t mean no leadership and it doesn’t mean anarchy – if anything, you need more governance in this model than you do in the traditional hierarchical shape. But the service aligned model brings everyone and everything closer to the customer. It does this by literally flattening the organisation, and putting teams of people with different skills together in support of servicing a common goal. Capabilities are still differentiated, but the slant is towards providing services, rather than functions. Nobody should be more than two functions away from the customer, and most people will be closer than that.
Customer Service teams are made up from the people who understand every part of what’s required by that service. For example, in a typical Retail banking customer service team, you would have both your traditional sales/customer relationship management resources, together with roles that specialise in compliance, operational processes and technology. They are then able to draw down on the back-end capabilities, to provide the support needed by the customer. Front end teams are largely case managed, able to configure the customer experience at the point of delivery, while back end capabilities are largely core standardised, pre-loading components as much as possible so that delivery is instant or very fast. See the article on Case Managed and Core Standardised Capabilities for further details.
In this model, nobody is very far from the customer. You’ve shortened the value chain by changing the organisation. You’ve also maximised both the flexibility in your customer facing teams, AND your opportunity to standardise and reduce cost in the back end capabilities. The model also enables you to embed customer experience metrics into every part of the value chain, so that everyone participating has visibility of what good looks like, and can work independently to prioritise their work within their teams, confident that value is being delivered, without having to check. Let’s look at an example of a single instance of service alignment we delivered into a major universal bank a few years ago – an employee onboarding experience.
Case Study BFB-BF-SA-Onboarding
Employee onboarding is a support service, i.e. your customer is internal, however it’s also an important differentiator in your service offering, as employees’ experience of joining your organisation will permanently shape their view of it. If you get it right, it’s also an important selling point, as your new recruits will call all their friends and tell them what a great place you are to work for – we’ve seen this in action. It’s a good example to use, because in most organisations the responsibilities are distributed and the service doesn’t work very well. We explain the mechanics of designing and delivering the service elsewhere, but the resulting model looks like this:
No service is more than one team away from the end customer (the new employee)
- All capabilities have visibility of the key information (employee start date)
- Core standardised teams are able to prioritise their own workload, instead of being governed by tickets and meaningless KPIs
- Customer facing teams able to adjust/configure the customer experience by applying their knowledge to each case – e.g. if employee is from overseas, background checks might be prioritised before confirming employee setup and HR processes, to avoid late rejection after the employee has invested in moving
- While some technology investment was involved, technical changes were minimal compared to organisational and role changes, which made the change cheap to implement
- All teams share the same metric to measure success – “Can the employee do their job on Day 1?”
In this real life example, the simple metric moved from 6% success prior to rollout, to 98% success, within two weeks of operation, saving the organisation significant amounts on wasted employee time and, more significantly, making a tangible difference to employees’ perception of the organisation as a “great place to work”.
And of course it’s obvious how the same model can apply to analogous services, such as customer onboarding, but an important principle to understand is that it can apply to any service in your organisation, founded on the capability model described in Capabilities and Service Model/Service Architecture.
But achieving this in a traditional organisation, as we’ve observed, isn’t straightforward; there are multiple barriers to entry, such as:
- Your leadership team: as described above, this is a significant shift from Leadership by Numbers, to Leadership by Results. Your leadership team will need to be brought along this journey, receive encouragement, coaching and education. Not all of them will want to stay and you may not want all of them to stay. Be prepared for this journey. One of the benefits of this model is a reduced management overhead, and this does equate to fewer managers.
- Existing Financial and HR setups: to make this effective, you need to create new organisational units and move people from existing ones. My experience of having done this, is that much time can be invested in agreeing where to put the new team – purely because it doesn’t fit into the existing organisation. It’s not Sales, it’s not IT, it’s not Operations … for this reason, it’s prudent to start with at least a high level target model, which can be aligned to administrative details such as cost centres. Investing in this upfront is very important if you want to avoid delays.
- Cultural and behavioural changes needed in the teams involved: not everyone will be comfortable working in self-organised teams, and not everyone will be comfortable making decisions. However, we have found that, with well-designed roles and co-created accountabilities, nearly everyone beyond the leadership team finds the change refreshing and empowering – people like to learn, and they really like being able to support the customer!
- It sounds too good to be true! This is another very real barrier to even starting. If you’re building service aligned teams within an existing organisation without an overall target model, it’s a good idea to start small with a proof of concept – there’s nothing like the evidence of people’s own eyes to build confidence, and the usual mantra of “we can’t do that here because we’re different/special” also gets rapidly broken down
How to start building Service Alignment
As we’ve observed and as demonstrated by the Case Study, the results of implementing Service Alignment are dramatic. But getting started and convincing your leadership team that this will work or be beneficial to them is challenging at first. There’s no single right way of going about it, but these are our recommendations for starting out:
- Build yourself a high level Target Operating Model. But be prepared for it to change as you learn along the journey
- Build at least one interim Target Operating Model, based on a state that looks different enough to make a difference to your organisation, but similar enough to the As-Is not to “scare the horses”. This is a really critical activity for any success, as no modern organisation can afford to change the whole organisation at once, and nobody nowadays can predict how markets and customer behaviour will look after the time it would take to execute a complete model.
Figure BFB-BF-SA-4: interim target states
- Don’t wait for perfect conditions before you start – you can start building service alignment even without all the supporting functions you should have in place to tackle the big changes. But you can start to deliver it with fairly small teams and as a learning exercise, building conviction and skills on the way. If you haven’t got a central CX lab, but one of your functions wants to build one, fine – you may have to do some adjustment on the way as you broaden the scope, but started is better than not started!
- Fail fast and learn – every organisation is different, and you can’t design meticulous detail at the outset. Be prepared to make mistakes, implement rapid learning loops, and feed the experiences back in.
- Design it for your organisation. While people who have done this before can inject vital experience and their learnings, nobody knows more about your organisation than your people. So it’s really important to appoint some of your best people to build this, who are eager to learn and experiment
- Build a dedicated team and bring in some help! Equally, don’t assume you can do things to your organisation that you’ve never done before, without having people dedicated to doing it and willing to learn the skills and techniques. Asking an existing Change team or line managers to implement it is likely to hit all sorts of barriers of politics and accepted practice. Make a fuss about the fact this is something new and different!
- Focus the culture change on the teams building the change. They will have to role model new behaviours – and so will you.
- Start with the pain points. Employee onboarding is usually a good place to start, but you know where your pain points are – something that impacts most of the organisation, has very visible impact and if you’re cautious, doesn’t directly impact external customers at first. Use the capability model and service model to define which services you want to impact first, and build these into your interim Target Operating Model.
- Wherever you get the opportunity, centralise delivery functions and build out teams supporting the delivery of service alignment. But don’t wait for the conditions to be perfect.
- Engage your stakeholders and recognise where they are already making inroads in this direction. It’s a rare organisation where someone or someones haven’t thought of this before, and you may be surprised by how far some of your teams are progressing on these lines. Get those people involved in building the future.
- Set conservative targets for benefits. Our experience shows that even setting conservative targets, it’s very easy to prove a business case for this activity, and those targets are always exceeded. But if it’s not necessary to set yourself stretch targets, which people will doubt anyway, go for the lower target and wait for the full impact to be understood – it will help your case considerably.
- Make some noise! But don’t declare victory too early. A design isn’t the same as “done”. Wait for your service teams to be in place, then very publicly explain how and why these changes have happened. The main danger of getting this right, is that the teams think they’ve done it to themselves, and without credit to the change machine, your funding might be cut as the organisation assumes it doesn’t need to do this in an orchestrated and professional way.
A typical plan might be:
This approach allows you to build iteratively, realising value and building confidence on the way. It’s not as fast as a blanket change, but because the cultural modifications and in particular changes in your leadership team both involve a learning curve, it’s not realistic for any organisation to assume it can implement this sort of change globally overnight. In our experience, this is both the most expedient and least painful way of starting to move from the old, hierarchical silos, to the new, service aligned state. Of course, this does mean your new teams will be working with capabilities still embedded in the old silos, but you are creating the new governance all the time and easing the way for these teams to evolve towards the new model at the same time.
Note that we haven’t included the technology change agenda on this roadmap – this is quite deliberate. While technology can enhance, and is essential for delivery of, your customer experiences, the differentiated customer experience is not reliant on technology. Building a service aligned organisation will require optimised technology, but that shouldn’t be your priority, while you focus on delivering enhanced customer experiences.
The best place to start implementing your new Way of Working is in the change teams themselves, and our experience demonstrates that this both creates a strong delivery team and a positive role model for the organisational units they’re working with. When your receiving organisation is already asking why they can’t work in the way the Change teams do, you’ve already won the battle.
In this article we’ve outlined the core rationale for building service aligned organisations, and why it’s important to banks and other financial service providers to focus on service to retain and enhance their customer share. We’ve described what a Service is and the building blocks for implementing one, as well as the roadmap for building Service Alignment in a typical major organisation. Key points are:
- Service Alignment isn’t an optional extra if you want your business to survive; customers demand personalised services and you need to respond
- Building service alignment is a science as well as an art; you will need a roadmap and tools to achieve it
- Starting small and failing fast are important in building both skills and conviction in the organisation
- Your leaders won’t like it. Your people probably will. You should aim to develop your leaders’ skillsets to embrace the change, but be prepared to change your leadership team
- Don’t assume this will happen by accident – you need dedicated, professional teams to deliver the change, and your organisation may not have these skills today. Don’t wait for them to be mature before you start, though!
Please also read the other articles in this series to understand the details of how to do this. Your investment will be rewarded.