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CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 1 of 26 CRM 2.0 CeTIF TECHNOLOGY OUTLOOK Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 2 of 26 AUTHORS: Manfredi Caleca Paolo Gatelli Norberto Patrignani Published in January 2008 Copyright CeTIF. All rights reserved. This document may not be used or reproduced, even partially, without the prior authorization of the authors. We thank Oracle for the cooperation provided during the planning phase of the contents, and for having made its expertise concerning CRM and loyalty available DISCLAIMER: CeTIF warrantees that this document has been prepared with the maximum care and all of the professional skills acquired during the course of its long period of operation. However, given the multiple sources of information used, and despite the meticulous commitment on CeTIF's part to ensure that the information is precise at the time of publication, neither CeTIF nor those who have collaborated with CeTIF can explicitly or implicitly promise or guarantee the reliability and completeness of that information (including with respect to third parties). Therefore, CeTIF declines any liability for any potential damages of any kind which may be caused by the use of the information in this report. Moreover, we note that this report may contain projections and other statements indicating a perspective for the future, which by their nature involve risk and uncertainty. We therefore warn the readers that those statements are only predictions, and thus could deviate considerably from the actual facts and future events. CeTIF hereby declines any liability or guarantees in connection with those projections. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 3 of 26 INDICE Introduction...............................................................................................................................4 1. The new perspective of the bank-customer relationship, from acquisition to loyalty..........5 2. The evolution of demand: the customer 2.0........................................................................10 3. Evolution of tools supporting CRM processes and loyalty ................................................13 4. CRM 2.0 Technology Outlook Model................................................................................18 4.1 Method of analysis.............................................................................................18 4.2 CRM 2.0 Technology Outlook Map..................................................................21 4.3 CRM 2.0 Technology Outlook Roadmap (TOR) ..............................................23 5. Conclusions.........................................................................................................................25 Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 4 of 26 Introduction Information and communication technologies (ICT) contribute the development of businesses by favoring innovation. To innovate means to create new products or services or new processes, with the goal of achieving competitive differentiation, but also to intervene in existing processes to improve their efficiency. In addition to the introduction of new technologies, it also involves a transformation of a business from an organizational standpoint, which impacts both processes and persons, as regards roles, responsibilities and areas of authority. The process of technological innovation is influenced by factors from both inside and outside the company, which affect the company's results both in terms of the relationship between potential and real benefits, and the time necessary for their realization. Thus, the company is required to adopt specific practices to govern the process, and attentive policies for the management of the resulting organizational change. This is the context in which the CeTIF Innovation Center operates. CeTIF is a permanent research laboratory promoted by the Center for Research on Technologies, Innovation and Financial Services of the Catholic University of the Sacred Heart, to focus attention on innovative technologies and their application in the financial sector, analyzing them from a dual perspective: an academic one, in which the technological evolution of the banking sector is investigated through contributions from university professors and researchers, and an operational one, through interventions of experts from the banking sector and technological companies. The results of the research activities carried out by CeTIF in the context of the laboratory are summarized in the Technology Outlook, an independent analysis document which allows for positioning the innovative technology examined in a standardized framework of reference, oriented towards highlighting its intrinsic characteristics, emphasizing the factors external to the bank, which can accelerate or slow down the adoption of the technology, determining the positioning within the context of the so-called cycle of technology innovation, estimating its potential impact based on criteria of efficiency, efficacy and risk, evaluating the breadth and intensity of that impact on banking processes, and lastly, to identify scenarios and criteria for its adoption related to the banking environment and the characteristics of the offer. In the context of the Technology Outlook, the term "innovative technology" is intended both as a specific component (or category of components) of the ICT technological or applicative infrastructure, and a method of conceiving the architecture of the computer system as a whole (or part of it), which represents an enabling factor for the bank's process of innovation. In other words, a technology is defined as innovative not so much based on a criteria of "identification," but rather in relation to its ability to "enable" the innovation in the banking sector, and only in that sense is it the subject of investigation by the CeTIF Innovation Center. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 5 of 26 1. The new perspective of the bank-customer relationship, from acquisition to loyalty The evolution of competition on the markets and the financial crisis we are currently experiencing, make the importance of keeping customers satisfied over time increasingly clear for companies. A customer who is satisfied by a particular offer with respect to potential alternatives present on the market, is disposed to repeat his/her purchase, leading to an increase in the profits of the chosen company. Thus, a need arises to determine and define the needs of customers, and offer products and services which satisfy the customers and are consistent with their expectations. It is also increasingly clear that the true wealth of a company lies in its ability to keep its customers loyal. From the nineteen seventies to today, the awareness of the importance of a customer who has already been acquired has been exponential, leading to a shift in how companies are considered, from an "entity which produces a service," to an "entity whose ultimate purpose is to understand that which its customers really need." These assumptions have considerably changed the function of marketing, which is charged with managing the relationship with the customer base, and also planning the "value" to be offered. Indeed, until the end of the nineties, all marketing management activities were oriented towards acquiring new customers, while underestimating, or in certain cases not even taking into consideration, the importance of customers who had already been acquired. To the contrary, recent studies have shown that, in a market where competition tends to increase while the number of consumers remains constant, maintaining customer loyalty means denying those customers to the competition. Moreover, it has been demonstrated that acquired customers allow for obtaining higher profit margins than occasional customers do, given that: occasional customers cost more than habitual customers (human resources required to convince them to purchase, illustration of the product with repeated visits&); loyal customers can allow themselves to pay a slightly higher price, inasmuch as they have tested the product and are familiar with its potential; loyal customers generally purchase more; loyal customers trigger positive word-of-mouth communication regarding the company, at zero cost, thus consolidating its image over time (an unsatisfied customer communicates his/her negative experience to at least 10 potential interested persons, but to only eight in the event of a positive experience).1 As of today, thanks to the use of new technologies and the countless studies which have been carried out, a strong need has arisen to increasingly focus attention on long-term relationships with customers, no longer considering them in generic terms, but rather as "persons," with the aim of coming to know their entire range of needs and expectations. 1 Study conducted by U.S. Office of Consumer Affairs Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 6 of 26 Figure 1: Differences between relationship and transactional marketing The traditional manner of carrying out marketing activities, defined as "transactional marketing," focused all of its attention on the act of sale, and not on establishing a lasting relationship with the customer. It is precisely the associate who solves problems for people, who now represents the most important aspect for the customer in a lasting customer-supplier relationship, where the act of sale represents only the first step of a long relationship of mutual interest. Transactional Marketing Relationship marketing Goals Making a sale (the sale is the measure of success); the customer requires satisfaction Create a "customer" (the sale is the beginning of the relationship); the customer requires integrationCustomer analysis Anonymous customers: suppliers and independent customers Customers are well known; interdependency between suppliers and customers Evaluation of marketing performance Focus on acquiring new customers Focus on preserving customers acquired Decisive aspect of the exchange Focus on the product; sale as a goal; monologue with customers Focus on the service: sale as an agreement; continuous dialogue with customers Source: Reworking of Juttner and Wehrli, 2008 The sentence which can summarize the evolution of the management of business marketing today, is "we produce that which the individual customer creates." In fact, relationship marketing is in a phase of continuous evolution which depends on a sudden change in the ability to interact and inform offered by increasingly evolved computer and information tools. The principal intention of the individuals responsible for marketing today, is that of providing the information contained in the CRM systems to all of the company's operations, thus taking an interest in all of those immaterial resources related to the customer which have an impact on the organization's operating result. In addition, the ability which organizations have today to be able to know their customers, should not be underestimated. The most recent step forward has been taken in recent years with the evolutionary process, stimulated by all of those "cooperative" instruments used on the Internet, which have been given the name Web 2.0: this approach "makes the Web a single platform of services shared by a plurality of users, it generates value through the use of technologies which are distributed and integrated with each other, used in a creative and cooperative perspective, and allows for the provision of new services and the improvement of existing ones from the standpoint of efficiency and efficacy. For companies that are able to seize upon this potential, scenarios emerge which offer new business opportunities, both inside and outside of the company2 . 2 CeTIF, Web 2.0 report of the CeTIF study, 2008, Milan. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 7 of 26 Figure 2: Types of loyalty Unfortunately though, it is not sufficient for a company to know, satisfy and surprise its customers; it must also foster loyalty in them. A study conducted by Reicheld shows that 85% of people satisfied by a specific brand eventually abandon it and move on to another one. The evidence thus shows that customer satisfaction is not a synonym of absolute loyalty. When we speak of loyalty, though, it is necessary to distinguish between two different dimensions: the cognitive dimension, and the behavioral dimension. We speak of behavioral loyalty when, in order to satisfy a particular need, the customer turns to the same brand or company in an exclusive and repeated manner. We speak of cognitive loyalty, on the other hand, when, despite competition, the customer's loyalty is oriented towards a single supplier. It is possible to devise a grid which shows different types of loyalty: Low cognitive loyalty High cognitive loyalty High behavioral loyalty Induced loyalty Absolute loyalty Low behavioral loyalty Disloyalty Desired loyalty Fonte: Iasevoli, 2002 Induced loyalty. This is when a customer shows a purchasing behavior which is repeated over time and refers to a specific product or service. On the one hand, there is total loyalty; on the other though, the low level of cognitive loyalty represents a high risk for the company, because the customer assumes a negative manner of behavior with respect to the offering. In this case, the customer makes repeat purchases due to a series of limiting factors which prevent him/her from turning to the competition. Disloyalty. In this case, the customer is not satisfied with what the company offers, and therefore does not repeat the purchase over time. The customer goes to the competition because the perception he/she has of the latter is considerably better. Desired loyalty. This appears when the customer, despite showing strong interest as regards the company's offering, turns to the competition. The situation analyzed shows the customer's intention to make the purchase, but attention must be paid to the question of the company's profits and verifying that the purchase is actually made. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 8 of 26 Figure 3: Relationship between loyalty and profits Figure 4: Segments of customer base and profitability Absolute loyalty. This is achieved when extremely positive attitudes exist regarding the company's offering, linked to purchasing behavior that is exclusively oriented towards the range of products/services offered. Satisfaction regarding a purchase makes the customer likely to repeat the same purchase over time, generating an increase in the company's Customer Loyalty level. The result will be an increase in Customer Retention, which will ultimately lead to a continuous increase in profits. Thus, a company must be able to make its customers "loyal." Only by doing say may it constantly increase its profits. Source: CeTIF, 2009 It is clear that a detailed analysis of the customer base allows organizations to identify both the customers' possible requests, and the different types of customers that are more or less profitable. Such an analysis allows for highlighting the distribution of the customer base by segment, based on customer profitability, thus allowing organizations to "customize" their offering of products/services and sharply reduce the percentage of non-profitable customers. The latter must not be considered "bad customers," but rather sources of profit which have not yet been used. Profitability ( )Customers deciles(segments of 10% of customer base)AverageCustomerProfitability = 100 "Green" Customers"Red" Customers1150250100500-20-50-80-100-300-400-2000200400600800100012001400 Source: Adapted from McKean, 2006 CUSTOMER SATISFACTION CUSTOMER LOYALTY CUSTOMER RETENTION PROFITS Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 9 of 26 John McKean's research has in fact highlighted the "typical" distribution of the customer base in financial institutes: the distribution of "deciles" (10% of the customer base) based on their profitability shows that only a minority (and in some cases even lower than the 20% of the famous "Pareto Law," i.e. just two "deciles") contribute to bringing profitability to breakeven or into positive territory. In the example above, there are five deciles which are non-profitable (total 550), four deciles which make positive contributions (+400), and only one decile which leads to overall positive profitability (+1150). Obviously, all of the financial institutes' marketing strategies will attempt to "push" all of the deciles towards the left, towards the positive contributions. In this sense, the CRM can provide a significant contribution, by spreading and proposing less expensive channels and points of interaction with the customer base, with appropriate strategies. Given that organizations must create loyal customers with the goal of producing profits, it is therefore important to evaluate which tools can be used to succeed. The four pillars on which this approach is founded are the so-called "four Cs." [they start with "C" in Italian, capire, conoscere, curare, condurre ed.] " Understand " Know " Care for " Lead Understand: for each customer, to precisely understand the cause-effect relationships which are at the base of the customer's reaction of satisfaction in the different phases of the process of purchase, use and abandonment. Know: to possess the information regarding the types of products used, their method of use, and the probability that the customer will remain loyal to the company. Care for: to help the customer solve all of the problems or difficulties caused to him/her by the use of the company's product. Lead: to educate the customer on the use of the different functions provided for by the product/service. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 10 of 26 2. The evolution of demand: the customer 2.0 The new attitude determined by the evolution of the Web has had repercussions not only on the figure of the user, but also on that of the consumer, such that today we can speak of the "New power of the consumer." The consumer is less and less a target to be reached, a passive object who receives a sales offer; the consumer is becoming an actor able to discriminate more easily between the alternatives present on the market, and decide which offer is best to satisfy his/her unexpressed or latent needs. This role is generated by a mix of intolerance for traditional communication, greater awareness regarding consumption, complete control of information, and the ability and desire to share. The term "Internet 2.0" or "Web 2.0" is thus the expression of the debate currently underway regarding the new possibilities to use the knowledge and information offered by the Web. The subjects and topics treated cover all of the fields of knowledge, making all types of information immediately visible and reworkable for any media. An article which appears in an online newspaper may be commented on in a Blog, and then be enriched with the addition of audio and video contents, and then shared within a community. At each step, it acquires more substance and becomes more "popular." A study conducted by Millward Brown on the behavior of customers and the role of innovative tools in the key phases of the decision-making process for the purchase of financial products/services, shows that out of twenty-five million Italians who purchase financial products, 76% use the Internet (blogs, wiki, social networks) to obtain information on the products. It is also clear that Web 2.0 customers are young and well-educated. The importance of the on-line channel is increasing, and precisely for this reason, the financial sector saw an increase in investments in the on-line channel of 94% in the two-year period from 2005 to 2007. In addition, the figure for "use of Media" by consumers is very interesting. It has been calculated that if we set the time of use of media (TV, Press, Internet, Radio) by customers at 100, they spend 34% watching TV, 20% surfing the Internet, 22.9% listening to the Radio, and 19.5% reading specialized magazines. This figure allows us to recognize that by now, the direct channel has reached and almost exceeded the audience for traditional information channels, despite the fact that marketing costs for the latter are significantly higher, and the return on those investments can not always be measured. We must stress, however, that in Italy, the direct channel is currently used by most institutes only to offer basic functions. There are very few intermediaries who are able to offer a complete availability of services and products. In Europe as a whole, on the other hand, 50% of intermediaries succeed in offering their complete range of products and services through this channel. The objective for the future is thus the integration of the direct channel branch from a perspective of improvement of commercial service. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 11 of 26 The applications of the Web 2.0 emphasize precisely the importance assumed by the users, and thus by consumers, in accordance with the famous maxim which states that "before the product, there is a person, and before the purchase, there is a need to be met." On the basis of the above proposition, and after having set out the four Cs used by intermediaries to foster loyalty in their customers, the research activity also highlighted the new opportunities regarding the Web 2.0 customer in the relationship between the customer and the bank3: Knowledge: The proliferation of sources of information, amplified by the Internet, has allowed the consumer to be able to access, at almost zero-cost and in real time, a substantial quantity of up-to-date information, with different levels of depth. In addition to the common search function, we note that the consumer also has other means to easily find the type of information desired (for example, comparison of results between the various traditional search engines, dictionaries of the most commonly-used languages, product search motors, free encyclopedias, web addresses and resources indicated by other users, Social Networks of professionals, etc.). Control: greater knowledge of the information available leads to greater control over that information. Thanks to the countless sources of information, the consumer is able to employ selective retention of the information, to avoid cognitive overload, to which he/she is subject due to the myriad of messages created to publicize and promote products or services. Consumers have evolved and learned how to filter messages which are important in order to satisfy their needs, coming from certain and trusted sources. Thus, advertising blindness, or the loss of effectiveness of an advertising message, is only part of the new behavior of consumers; the other part is in the control of the source of the message. Consumers find what interests them, express their preferences, preserve information until the time they wish to investigate further, and interpret it in their own way, in turn creating new information. Creation: consumers are thus aware that they are not passive recipients of the message. They become active, and able to distinguish between different types of information, the alternatives offered on the market, and to elaborate them according to their own vision. In this sense, a Consumer 2.0 interprets the communication of a brand and transforms it by enriching it with new contents and messages. It is possible to affirm that the model of creation of information has passed from the media to the users-consumers. The general paradigm of information in the hands of a few is confirmed, however, with respect to the figure of the user-consumer: we suggest that a limited number of actual influence-holders exists, who have the ability and authority to direct the behavior of consumers. Sharing: on this point, we reference one of the principal characteristics of the Web 2.0, i.e. networking, the network of interconnections which is weaved between users, and which implies free exchange, comparison, relation, leading to the birth of virtual communities, social networks and virtual worlds. Inside those social worlds, consumers produce information and share it with other consumers, thus becoming an effective vehicle for 3 G. Arnesano, Viral Marketing, and other innovative communication strategies, Franco Angeli, Milan, 2007. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 12 of 26 transmitting that information, considering the viral effects that networking brings. The consumer does not interact with the company when sharing information concerning the product; the consumer interacts with other consumers. It is therefore possible to state that by using the same tools as customers, financial institutes can earn the respect and attention of customers regarding information about the offer. Success in earning customers' trust and loyalty towards an institute are fundamental goals, the reaching of which correspond to the possibility of more effectively orienting the customers' choices. For this reason, an institute must establish a high level of reliability and credibility in order to be able to count on two sectors of customers: traditional customers, and potential customers, who can be influenced by the former. Customer trust towards a brand is a very important lever in the context of the Web 2.0, because, if the relationship is the fulcrum of this web revolution, it follows that it is possible to exploit the effect of the word-of-mouth communication generated by the user-consumer towards all of the contacts who are part of his/her network, in a sort of viral contagion which tends to propagate in an increasingly broad manner. The consumer has greater trust in his/her peers, another consumer who has established a shared wealth of experiences and emotions, rather than in the brand or a source which is outside of his/her network of acquaintances. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 13 of 26 Figure 6: Customer lifecycle e touchpoints 3. Evolution of tools supporting CRM processes and loyalty As we have already mentioned above, the customer base requires an increasing level of autonomy in the execution of banking transactions, and the possibility to access services without any spatial or temporal constraints, including in "non-conventional" situations. The elimination of the physical barriers between banks and customers, which has been made possible thanks to information and communication technologies, has allowed banks to develop innovative offers, reducing transaction and coordination costs with outside information resources, and above all accelerating the collection of data and information on the behavior of the same. ENGAGETRANSACTFULFILLSERVICEWebSocial NetworkeMail BusinessPartner MediaF2F(meeting)BranchBusinessPartnerWebInternet BankingBusinessPartnersWebInternet BankingBusinessPartnereMail Voice(CIC)WebInternet BankingVoice(CIC)BranchBranchVoice(CIC) Source: CeTIF 2009 The life cycle of the customer (engage, transact, fulfill, service) sees a new approach in the choice by the most advanced financial institutes to let the customer make his/her own choice regarding the specific channel or point of interaction ("touchpoint") with the bank in the various phases of the life cycle. In recent years, this collection of touchpoints has been extended beyond the confines of the financial institute, incorporating points of interaction with external entities and business partners. On the one hand, this has allowed banks to extend their range of action, by presenting themselves to customers in situations which are not traditionally associated with banking (in a supermarket, for example); on the other, it has allowed for the implementation of sophisticated Loyalty strategies (for example, by offering products/services of hotel chains, airlines, to the most loyal customers). However, this approach has also generated new problems, forcing the banking sector to come up with a prompt response. One such problem is the need for consistent integration at the level of information and specifications on the customer and transactions which the customer performs, independent of the channel used, especially as regards the retail sector, which counts the highest number of customers and transactions, with the goal of achieving Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 14 of 26 a so-called single customer view. In fact, in the evolution towards a new model, there is a continuous evolution towards: " sales activities based on the segmentation of the customer base, even if it is not always supported by proactive behavior; " transaction activities performed through the continuous development of automation and virtual channels; " skills and roles based on the segmentation of the customer (able to interpret matching in an effective manner according to a homogenous method with respect to the sources of information used) starting with the time of contact, up to the post-sales activity. The evolutionary scenario is therefore characterized by the orientation of the bank towards an improvement of the relationship with the customer, a greater ability to understand and satisfy the customer's needs, and at the same time, towards the rationalization of operations and the shifting of those operations to locations other than the counter. To support that evolution, it is necessary to rethink the CRM and loyalty processes, supported by adequate technologies able to collect and exploit data regarding customer behavior, including in relation to the active role with the customer plays with respect to the bank. In particular, a difference emerges between the first generation of CRM tools (centralized and insufficiently transparent, not open to outside contributions), and the second generation, which by convention we shall call CRM 2.0. In the past, information was "captured" (and at times purchased from third parties) in a non-explicit manner; it was accessible only by the Marketing Department through imposing datawarehoues. The new paradigm provides for not only a greater distribution of information at the different levels of the organization, but also for the users to be able to access the information which regards them, verifying that information and potentially correcting it, in a sort of two-way relationship. Thus, in CRM 2.0, the user profiles will be even more precise, thanks to the contribution of the users themselves regarding the information to be provided. From this standpoint, compared to the past, the functional characteristics of CRM 2.0 are enriched with a significant component of integration not only at the level of data, but also of the bank's applicative systems with its business partners, and marketing automation tools (for example, with in-depth feedback on campaigns, etc.). In relation to the evaluations listed above, the impact of evolved CRM and Loyalty systems takes shape, which can be principally classified in the following categories: " Operational Area recovery of operational efficiency of the sales process (lower costs and/or better performance on the part of the user); " Informational Area production and management of strategic information data (summary data), oriented towards guaranteeing greater knowledge of the customer base and more effective control of the sales process through greater availability, quality and integration of the information; Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 15 of 26 Figure 7: The role of the LoMaS " Infrastructure/technology Area improvement of the level of automation and optimization of the infrastructure enabling the process (integration, flexibility, standardization, reduction of IT costs, etc.): " Strategic Area support for projects of a strategic nature, although they represent a minority of the projects, directly oriented towards the generation of competitive advantage (definition and provision of a new product/service). Social NetworksWikisBlogsFace-to-FaceWebInternet BankingVoceCustomer Interaction CenterSportelloe-MailResponseManagementPoints of interactionAnalisysStrategic MarketingData IntegrationDatawarehouseCustomer ProfilesCategory ManagementLegacy Systems InterfaceTransaction ProcessingMarketing AutomationSales AutomationService AutomationMobile SalesProduct ConfigurationFinancial ProcessesManagementOperationsMktk & Communication, SupportoBusiness PartnerLoMAS Source: CeTIF 2009 A more detailed analysis of the ecosystem of the CRM in a financial institute allows us to outline three large macro-components: the area of financial processes (Management, Operations, Marketing & Communication, Customer Services, Support) where the actual transactions take place. These represent the bank's core business and are often hosted in a datacenter where we find the interfaces towards the legacy system (mainframe, etc.), the Transaction Processing area, the area for automation of the Marketing, Sales and Service functions, the management of the distributed sales force (Mobile Sales), the configuration of products, etc.; the area of analysis of the data where Data Integration tools allow for having in-depth and overall knowledge of customer profiles, thus enabling so-called Strategic Marketing, through sophisticated Datawarehouse and Data Mining techniques; the area of the point of contact with customers, where all of the potential touchpoints are made available to the customer base (the traditional counter, face-to-face meetings, Customer Interaction Center, communications with business partners, Mail, Web or Internet Banking, Social Networks, etc.) to carry out the most varied diverse transactions during the life cycle (engage, transact, fulfill, service). Branch Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 16 of 26 Thus we see how a Loyalty Management System (LoMaS) can offer precisely the link between these areas (financial processes, analysis processes, points of interaction with customers), offering the possibility to integrate them with the applicative systems, the integration between multiple channels and different products, the integration with the customer life cycle (each touchpoint is recognized by the LoMaS), greater flexibility and precision in the segmentation of the customer base (allowing for personalized offers, towards so-called one-to-one marketing), the identification of red (less profitable) and green (more profitable) customers, integration with Business Partners. LoMaS systems also allow for real time exchanges with business partners, and thus the updating of customer status (accumulated "points" converted into the Business Partner's products/services), also facilitating the passage from one level or category to another (for example, bronze, silver and gold customers, etc.). The most important service provided by a LoMaS, however, consists in providing real time feedback information and appropriate metrics to evaluate the results of marketing campaigns, offering the opportunity to fine tune the campaigns to make them more effective and less costly. The characteristics of evolved CRM and Loyalty systems, in relation to what has already been described, thus have the goal of meeting the need for information in three principal areas: " General Information o business goals to meet; o operational processes/activities to support; o "business" performance indicators (business KPI); o expected values for the principal indicators; o other potential business characteristics; " Customer Behavior o products and services used: o preferences and habits; o links with partners; o other potential data concerning the customer; " Support for Evaluation of Projects and Campaigns o project management (real time monitoring); o decision-making/strategic support; o management of priorities; o analysis of costs and budget; o other potential classification criteria; Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 17 of 26 Lastly, a LoMaS must have the characteristics of modularity, integration, easy use and flexibility sufficient to make lines-of-business (typically the marketing department or CRM directors) potentially independent from IT: Modularity i.e. the possibility to implement precise functions depending on the bank's needs, limiting the necessary investments to the single modules of the systems which support CRM and loyalty processes; Integration We refer not only to the possibility of integrating data originating from different sources and thus avoiding duplication, redundancy and the loss of quality, but also providing a tool able to interface external applications (web and social networks, partners, suppliers, customers, etc.); Easy use In addition to the concepts of usability and utility, i.e. the possibility of using the interface in a simple, effective manner, and with a relevant and valid objective, those systems also set the goal of assisting the user in pursuing his/her own tasks, guiding him/her in the operational process; Flexibility We refer to the possibility of modifying and adapting the CRM and loyalty applications to the continuous evolution of the bank's own organizational context and business model, in response to the dynamism of the market. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 18 of 26 Figure 8: Technology Outlook Map 4. CRM 2.0 Technology Outlook Model 4.1 Method of analysis To analyze the impact of a technology or innovation on a financial institute, CeTIF has developed the method named Technology Outlook Map (TOM). The TOM positions the innovation in a two-dimensional space with respect to the stimulus exercised by internal and external factors. External FactorsInternal Factors0100100RegulationsMarket Socio-cultural factorsInfrastructureProcessesInnovation / Technology XInternal factors: significant impactExternal factors: "medium" pressureContentsServicesTechnological Evolution50,00 Source: CeTIF 2009 In the first dimension (internal factors), the positive impact (improvement) of an innovation/technology is measured on the four internal elements of the financial institutes: ICT Infrastructure Financial Processes; Content (Data / Information / Knowledge); Services (to internal/external final Users). The measurement of the impact of a given innovation/technology on the four Internal Factors is performed by CeTIF based on its own multi-year experience and knowledge of the financial system, through indicators which refer to the following variables: ICT Infrastructure: Processing systems, Communications systems, Data management systems, Security systems, Applicative systems; Financial Processes: Management, Operation, Marketing and Communication, Customer services, Support; Contents: Creation, Management, Provision, Use; Services: Services, Availability, Flexibility, Efficiency, Efficacy. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 19 of 26 The second dimension, on the other hand, highlights the pressure towards adopting an innovation/technology coming from the four External Factors to financial institutes, which characterize the situation in the sector: Regulations; Market; Technological Evolution; Socio-cultural Factors. The pressure exercised by the four External Factors is estimated through the evaluation of specific indicators which refer to the following variables: Regulations: Mandatory obligations (within 24 months), Mandatory obligations (beyond 24 months), Institutional practice and standards; Market: Financial competitors, Non-financial competitors, Existing customer base, Prospect customers; Technological Evolution: State of evolution (Technology still in experimentation phase, or in development and consolidation phase), Technology based on open or proprietary standards, "killer applications"4; Socio-cultural factors: Global mindshare5, Community mindshare6, National mindshare7, entry barriers, ethical aspects. The pressure exercised by the internal and external factors allows for the positioning of a certain technology or innovation within a quadrant with four areas, as depicted in the following figure. 4 In computer jargon, this means a successful application, which permanently changes the scenario. For example, text messages for mobile phones, mail for Internet in the 80s, the browser for the Web in the 90s. 5 Mindshare at the global level, on a worldwide scale. "Mindshare" means the general presence of the relevant innovation/technology in all media. For example, twitter is gaining a significant "global mindshare." 6 Mindshare within specific communities. For example, "green IT" is gaining a high "community mindshare" among bank CIOs. 7 Mindshare at the national level, in Italy. For example, social networks (e.g. Facebook) are gaining a very high "national mindshare" in Italy. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 20 of 26 Figure 9: The quadrants of the TOM 0100100External FactorsInternal FactorsTechnology 1Internal factors:limited impactExternal factors:low pressureTechnology 2Internal factors:limited impactExternal factors:high pressureTechnology 4Internal factors:significant impactExternal factors:low pressure50,00Forerunners OrgsWait & seeMandatoryInnovative OrgsTechnology 3Internal factors:significant impactExternal factors:high pressure50,0055,0045,00 Fonte: CeTIF 2009 "Wait & See": in this quadrant, the technology has a low impact on the Internal Factors. Furthermore, the External Factors exercise limited pressure towards its adoption. There are no evident reasons which urge the adoption of a technology positioned in that area; "Forerunners Organizations": in this quadrant, the technology produces a positive effect on the Internal Factors, despite receiving little pressure coming from the External Factors. Adopting a technology positioned in this quadrant shows a marked disposition to strategic planning for innovation in the medium to long-term, which leads to assuming the role of first mover, with the goal of attaining a sustainable competitive advantage; "Mandatory": a technology positioned within this quadrant generates a limited effect on the Internal Factors, but is strongly conditioned by External Factors: the organization must adopt the technology even if it does not perceive a positive impact internally, because there is a strong impulse coming from the outside (for example, a regulation); "Innovative Organizations": a technology positioned in this quadrant receives a high level of pressure from the External Factors, and is able to significantly improve the Internal Factors. Having reached a good level of maturity, the positive contribution made by the technology is clear, and for this reason, its adoption does not entail the assumption of excessive risks. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 21 of 26 Figure 10: CRM 2.0 Technology Outlook Map 4.2 CRM 2.0 Technology Outlook Map In the first quarter of 2009, CeTIF positioned the CRM 2.0 (as defined above) for the Italian banking sector. 100100CRM 2.0Forerunners OrgsWait & seeMandatoryInnovative OrgsExternal FactorsInternal FactorsRegulationsMarket Socio-cultural factorsInfrastructureProcessesContentsServicesTechnological Evolution Source: CeTIF 2009 The analysis performed through the series of indicators described above, stresses an anticipated positive effect of CRM 2.0 as regards Internal Factors: strong positive impact on contents (in all phases of creation, management, provision and use, especially by virtue of the contribution of the various external information sources); strong positive impact on services (in particular on availability, flexibility, efficiency and efficacy, thanks to the use of tools with characteristics of modularity, flexibility and usability); positive impact on infrastructure (in particular on the data management systems and applicative systems, by virtue of the pursuit of a greater level of integration); positive impact on financial processes (in particular on the marketing and communication processes, customer services and support processes, i.e. the processes where the use of CRM systems is more frequent). Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 22 of 26 On the front of the External Factors, significant pressure is apparent, although on the whole it is lower than the symbolic threshold of 50%. The analysis carried out through the series of indicators described, stresses pressure for the adoption of CRM 2.0 coming from External Factors: strong pressure coming from the market (in particular from the existing customer base, prospect customers, non-financial competitors and then also financial competitors); significant pressure coming from technological evolution (in particular from "open"-type standards, which have a positive impact on levels of integration); significant pressure from socio-cultural factors (in particular from global mindshare and community mindshare); the pressure exercised by socio-cultural factors (from the customer base and employees) affects the need to develop a more cooperative, interactive and personalized environment in support of the relationship with the bank. That environment is destined to become increasingly important with the development of social networks; still limited or no pressure coming from regulations, which do not require the adoption of these technologies. In conclusion, in the first quarter of 2009, CeTIF positions CRM 2.0 in the "Forerunners" quadrant: this innovation is adopted principally by financial institutes which place themselves at the forefront of experimentation in new technologies. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 23 of 26 Figura 11: CRM 2.0 Technology Outlook Roadmap 4.3 CRM 2.0 Technology Outlook Roadmap (TOR) The analysis of the evolutionary scenarios for technologies and innovations in Financial Institutes allows for drawing the Technology Outlook Roadmap (TOR) or "CeTIF Trajectory." With this tool, CeTIF projects into the coming years both the evolution of the impact on Internal Factors, as well as the change in External Factors and the pressure exercised by the latter towards the adoption of a given technology. External factorsInternal Factors0100100RegulationsMarket SocioCultural FactorsInfrastructureProcessesContentsServicesTechnological Evolution50,00CRM 2.0Forerunners OrgsWait & seeMandatoryInnovative OrgsDecember 2009 (forecast)December 2012(forecast) Fonte: CeTIF 2009 In the coming three-year period, we anticipate an additional, although limited, positive effect of CRM 2.0 tools on internal bank management. In fact, the technologies are fairly developed, and the effects involving potential improvements on the processes, technologies and contents are clear. Additional margins of improvement can be sought in the sales area, for the development of value-added services towards the customer base. As regards the impulse from the outside, on the other hand, CRM 2.0 will see an increase of the pressure for its adoption, in particular from non-banking operators, who are finding ever-increasing success in offering financial products to their communities, and from the growth of demand on the part of a new pool of customers, namely individuals with high familiarity in the use of new tools and the related dynamics (national mindshare). The external pressure may also increase with respect to technological evolution, which will move towards a consolidation, and from the relative perception of the decrease of entry barriers. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 24 of 26 In conclusion, CeTIF anticipates that, by 2012, CRM 2.0 will follow a trajectory (TOR) that will bring CRM 2.0 from the "Forerunners Orgs" quadrant towards the "Innovative Orgs" quadrant. We thus expect an increase in the adoption of those tools and approaches within the Italian banking system. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 25 of 26 5. Conclusions The evolution of the participatory tools which characterize the Web 2.0, and in particular Social Networks, are radically changing the scenario of interaction between companies and users. In financial institutes, awareness is increasing of the need to include these network environments in "customer interaction" strategies, to achieve a "CRM 2.0," as defined above, which is open to external contributions. As the present analysis attests, this offers an important source of opportunity for the financial system, which has always been involved in the search for greater knowledge concerning customers and new forms of fostering loyalty. Moreover, precisely these network environments are leading to the emergence of true examples of experimentation and innovation in the offering of new financial services. In this regard, we can mention initiatives such as "online peer-to-peer lending," which bring together borrowers and lenders (in many cases this is defined as "social lending"). Thus, we see that if on the one hand, banks move towards social networks in order to open themselves up to new forms of interaction with customers, customers are in turn offering themselves as potential competitors to the banks. This phenomenon should certainly be evaluated carefully by financial institutes, not so much as regards the strictly financial aspects (margins on loans), but above all due to the transparency of the relationship which exists between many of these mechanisms and their users (an issue on which the financial sectors has been investing material and immaterial resources for some time). For a bank, the "universe" of contributions generated by users certainly represents a new and immense mine of information, but the activities of profiling and advanced forms of interaction from the standpoint of CRM 2.0 require transparency and respect for ethics and the economy of "giving," which are characteristics of the web. This becomes essential at a time in which banks are raising questions about the financial crisis, their social role, and the importance of recovering the trust of customers, based largely on transparency, the fostering of loyalty, and opening up to the needs of users. Untitled Document CRM 2.0 Technology Outlook CeTIF, 2009. All rights reserved. Page 26 of 26 CeTIF Universit Cattolica del Sacro Cuore Largo Gemelli, 1 - 20123 Milano Tel. + 39 02 72342590 Fax. + 39 02 43980770 E-mail: cetif@unicatt.it www.cetif.it
