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CRM in investment banking and financial markets

Genevieve Findlay, Peter Mathias, Paris de LEtraz and Merlin Stone

In this chapter, we discuss just a few of the considerations involved in implementing CRM in investment banking or financial markets. Although nearly all of the rest of this book focuses on retail financial services, we thought it appropriate to cover briefly some aspects of a research programme focusing on investment banking and financial markets CRM that was being undertaken at IBM at the time of writing this book. In the past few years, insurers and retail banks have made most of the running in CRM. Increased competition and shrinking margins have forced them to deploy CRM strategies and technologies in order to respond to the needs of shareholders and clients. More recently, investment banks have begun to realize the intrinsic value of CRM. The principles of CRM hold true for this sector. Just because investment banking is a business-to-business application does not take away the fact that recognition of the client is still key for CRM success. However, most of CRM in investment banking is still work in progress. It is a missed opportunity since it offers banks a chance to rethink their fundamental approach to client management, to redesign their coverage strategies and to use technology to bring this about.

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Better client management is no longer optional. In nearly all business-to-business markets in which clients are as large as, or as in this case, often much larger than their suppliers, the latter must respond quickly to pressures from their clients to improve client management processes and systems. Banks can no longer rely on an information advantage over clients. Clients are better informed than ever and are hence more discriminating. Awareness of the full spectrum of what can be offered (and at what price) leads to increased needs and more stringent demands but lower brand loyalty. To keep their clients, banks need to manage relationships with them better, for mutual advantage. Even if banks themselves are not working hard to manage clients better, through analysis, segmentation, design and delivery of the proposition, and tracking performance, clients themselves are often focusing on how to manage their suppliers to their own advantage. In particular, leading-edge clients are concentrating their business with fewer stronger suppliers that seem likely to provide them with a cost, capital and competitive advantage for their own marketplace.


Corporate investment banks differ from retail banks in that a few large clients have a big impact on the banks business performance. This means that CRM techniques will only help investment banks if they improve the banks ability to: 1. 2. 3. select and then manage the right client set (coverage); determine which products and services should be sold to which client, profitably, and then help the bank implement this sales plan (profit planning and implementation); reduce the cost of coverage, in particular by improving the productivity of sales professionals covering those with small wallets, while maintaining quality of coverage (one day the wallets may be big!); coordinate the multi-product, multi-country relationship in real time.


Coverage is an area of great weakness for many investment banks. They rely on the instinct and energy of their sales and research people to determine which clients to focus upon and then to win business from them. This approach which has worked for many years is now unsustainable. The marketplace is changing. Margins are constantly being squeezed. Consolidation of the sector and better information have increased transparency of internal operations. Clients expectations about levels of service and cost-effectiveness are rising all the time. Investment banking is characterized by two very different types of relationships with clients, as follows:

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Share of mind relationships focus the bank on doing a few large high-impact transactions for the client. While these deals are often opportunistic, they require intense investment of time by key people in the bank so as to build strong and differentiated relationships with key decision makers. The aim is to build access and influence with the right clients within the client organization before the deal. Share of wallet relationships involve very large-scale coordination of many people, each of whom is operating separately from the others. As banks have merged and clients have become larger (also because of mergers on their side of the market) the scope and complexity of these relationships have increased. The challenge for banks is to transform individual relationships into a broader institutional relationship. There are many variations on these two types of relationship, and each of the businesses debt, equity, asset management and banking have a different view of this. A central need for client management is to align objectives across products and functions. This is hard to do. Most firms find it hard to agree a process to make trade-offs between differing product, functional and geographic objectives. Of course, CRM is not the only requirement. Two of the main determinants of business success in investment banking are client satisfaction and product quality. We believe that these two variables account for well over 90 per cent of the differences in financial results over time. CRM plays a key role but by itself only makes a marginal difference. When used to increase client satisfaction its effect is much greater. When used to make sure clients have access to the right products at the right time, its effect is greater still. However, the quality of people and the discipline with which they are managed and measured, the quality of products, the infrastructure of the bank all these have much larger impact on financial performance.


For CRM to work, banks must have a very clear view of what their clients want from them. Four of the most important needs of clients are: 1. 2. 3. 4. cost reductions and efficiencies in services delivered; better control and transparency resulting in accountability for delivering results; greater convenience in having to deal with fewer banks; banks knowing the needs of clients intimately, so that the latter are offered the right products, at the right time and the right price, with appropriate associated service.

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As clients have merged and consolidated, they have come under increasing pressure from their shareholders to deliver higher returns. As a result, clients seek greater efficiencies from banks they regard as their core providers of services. Clients want fewer banks that will help them achieve these new levels of performance while reducing their costs and risks. By concentrating their business with fewer banks, clients hope to achieve higher degrees of control over their banks, greater accountability for results and improved transparency in financial terms. They want to see new levels of bank commitment associated with this privileged core relationship position. Clients require a tight linkage between all the following variables: long-term commitment and leading market position; geographic and product spread; ability to provide global coverage and delivery. Most clients classify banks on the basis of ability to deliver on certain criteria, in particular: 1) long-term ability to deliver results; 2) impact on the clients performance. Clients are concerned that many banks may not survive todays mergers and consolidations. Developing and sustaining solid working relationships requires an investment on the part of the client. Increasingly, clients are looking to make a strategic choice of core providers, rather than just making opportunistic and tactical decisions. They want to be supplied by banks for whom they are core clients and for whom their business is a core business. They expect a consistent, long-term commitment to market leadership. For example, clients involved in mergers or acquisitions need to extract value from these mergers or acquisitions by breaking down product and geographic boundaries, and this requires coordinated coverage from their core service providers. Global clients require consistent product delivery across geographies. The ability of the bank to execute a meaningful role in terms of geographic presence and product footprint is critical to being a core provider. Finally, in order for this to be effective the bank must provide the level of coverage and delivery infrastructure so as to make the whole process efficient, accountable and transparent to the client. More demanding expectations of core providers are forcing clients to take coverage issues more seriously. They are beginning to evaluate banks more critically, on the basis of their ability to provide them with this necessary increased level of commitment and coverage. Just as banks cover many of their strategic clients using client service teams as part of key account management programmes, many clients are creating team coverage models for relating to their banks more efficiently. Large clients are increasingly reorganizing themselves so as to achieve performance enhancements and lower costs. There is a direct correlation between their ability to achieve these performance benefits and their success in managing and integrating with their banks more efficiently.

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At many clients today, all team members within the buying organization, regardless of location, require and expect the same high standard of service from internal resources as well as from their external providers. The new internal structures of many global clients involve matrix organizations with a number of people having more than one reporting line and a number of functions having global and local activities. If the 10 people at the bank covering a particular client are not organized and aligned so that they work jointly on the coverage of that client, then it will be apparent to the client. Clients want to know: how client coverage officers are assigned to them; how many clients they cover; how often they are reassigned; who will assure them of consistency of service.

Client coverage discipline at banks has moved from being an internal efficiency consideration to being driven by their top-tier clients. As a result, many banks are entering a phase of change, in which their understanding, shared knowledge and focused communication will be significant factors in the share of wallet they win. Banks that can deliver these efficiencies will command relationship premiums that will differentiate them from their peers in terms of status as well as profitability. The relationship premium is based on the banks ability to provide connectivity, communication and client focus. A core providers primary objective is to help its client achieve its strategic goals. Once a bank becomes a core provider, it must define a strategy for maintaining its position as well as for gradually increasing its share of the strategic clients wallet over time. As a core provider, a bank is permissioned by the client to present its case for adding value across a range of products, geographies and needs. Clients are optimizers and they know what a bank is good at. Banks must build a role for themselves that maximizes exploitation of their capabilities. The banks objective is to increase the level of permissioning to the point where it has influence over the buying behaviour. As a core provider the client feels that the bank is adding value. It has been permissioned to provide a service or product of which it is perceived to be an excellent provider. So, it is the banks challenge to position itself strategically in the mind of the client and maximize its share of the clients wallet. As it increases its level of permissioning its relationship becomes more important to the client and its edge against its competitors grows. To maximize this benefit a bank must: align product and coverage functions; define overall objectives for the client; measure performance against objectives; continuously validate strategy with the client.

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Clients want core providers that will help them achieve their strategic goals. They need to be convinced of that. The clients perception of the deliverables and their benefits/value must be very clear. They want to be involved in shaping the deliverables. They want the provider to have formalized and definable objectives that will translate into mutually agreed deliverables. Below is an example request for information (RFI) from a global client. The information is intended to help the communication between the two parties to be more efficient as well as to convince the client of the banks degree of commitment. It would typically be sent with an organization chart describing client roles and responsibilities by product and location so that the bank knows the key decision makers as well as those that may require their services or products.

Sample checklist of an RFI from a global client to a bank

Overview Do you categorize your clients into tiers? Explain. Is there a process by which you assign the importance of a clients relationship? Do you have any proprietary information that you can share with us periodically that could benefit our relationship? How do you rate yourself versus your competitors? Strengths? Weaknesses? Coverage Who is the main contact person on the relationship? List each member of the client service team by role and responsibility. What access will we have to senior management? What do you expect to achieve from a core relationship with our firm? What business do you do with us by product, location (aggregates)? Are you prepared to work with us on a research project on a success basis? What is your rationale for assigning each member of the coverage team? How often are members reassigned? How do you compensate them? Commitment What are your product or service areas of greatest commitment? List the individuals and relevant expertise. Do you know our strategic goals? How can you demonstrate your commitment to our strategic goals?

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Objectives What are your critical account objectives for this year with us? What is your estimated present share of wallet with us by product or service? What would you like it to be by product or service?

Being a core provider is increasingly imposing levels of client commitment that may make the economic feasibility of the relationship less attractive. Increasingly, clients will be willing to remove providers from their top-tier lists if they are unable to meet these challenges with more than the traditional lip-service. For those left out, this will mean that their relationships and role will increasingly come under pressure from top-tier providers who can provide a similar product or service. Clients expect from their non-core providers: 1) focus and excellence in a narrow product set; 2) superior execution, pricing and value. In order to remain competitive, non-core providers need to achieve the following: lower cost of coverage than their competition; very competitive pricing; high share of wallet in a narrow product set; opportunistic cross-selling from areas of product strength.


To support core-provider status, IT systems must support a client-centric approach to information. They need to allow the bank to create virtual client service teams providing their members with access to all relevant client information across products and geographies. To do this, they need to: connect existing CRM systems and legacy systems efficiently so that all information around the client can be shared securely between client service team members; allow client service team members to engage in CRM without leaving their e-mail systems; be very cost-effective; achieving relationship premiums in current market conditions must be done without spending millions on CRM.

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Many investment banks have already attempted to implement CRM. This usually involves either the IT division anticipating a requirement for a system and supplying what it thinks will be the answer, or the request to implement CRM being made by the business with a broad idea as to what should be delivered but with little idea as to how to make it work once implemented. We regard both of these approaches as poor practice and likely to lead to failure as has indeed been the case with most CRM initiatives in financial services markets of any kind. Putting the technology at the heart of CRM strategy is problematic for a number of reasons, listed below.

Trying to solve CRM issues with technology

CRM technology is complex to build. It requires different systems to work in harmony to deliver the right information at the right time to the right people. In addition to this, it needs to be user-friendly to people in a range of different roles with different levels of technical literacy. In the highly complex world of investment banking this requires a major change to IT architecture, which would take many person-years to complete. As a consequence, most organizations have chosen to buy an off-the-shelf CRM package and build the interfaces into it. There are a number of problems with this approach: The package is not bespoke. The depth and breadth of the technology dazzles, but users real needs are often forgotten, because of obsession with the capabilities of the whole system. Users are expected to work with the technology provided rather than specify what they really need. The package is not seen as an enabler but as a basis for reorganizing the business. There has been a tension in the implementation of CRM systems between helping individual bankers/sales people versus helping the bank become productive in crossselling. In one case, the system was designed to make sales people more productive with little focus on the coverage team. It is quite unlikely that sales people would enter data on their own accounts they already know them well. This kind of data might only be of value to others on the coverage team. This trade-off between individual and institution goes all the way through the design process. Many packaged systems have no direct link to driving client satisfaction, share of mind or any other strategic sales variable. In addition to this, there are a number of other operational problems for individual sales people, eg failure of the system to integrate with their e-mail and diary/scheduling package (eg Lotus Notes or Microsoft Outlook), lack of protection of confidentiality (simplistic approaches are common, in which fields can be viewed either just by the owner or by all), although these deficiencies are now being remedied.

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As Chapter 31 shows, CRM system implementation is most likely to be successful when the organizational capacity for change is taken into account. Too much too soon causes confusion and distrust of the system, leading to problems with uptake. Many CRM solutions require a complete implementation for the system to be effective. This is generally too much for the organization to take and the expensive package ends up being a glorified contact management system, with few of the management information, client planning or client intelligence benefits.

The politics of CRM

There are several organizational issues associated with putting technology at the heart of a CRM solution. These issues arise partly from the unique nature of the sales environment of an investment bank, where primarily individuals rather than the company are responsible for delivery: There is internal resistance to the solution because sales are bonus-driven and individuals believe they own the relationship, so are reluctant to put (as they see it) their bonuses (which they see as derived from ownership of the relationship) at risk. The CRM system is perceived to threaten this relationship ownership. Client-facing users suspect that the value of the system is mainly its ability to create management information rather than to increase efficiency and profitability. CRM installations have not been selective enough in dissemination of information. So much data is pushed towards users that much valuable time is spent sifting through it in order to be able to use it. So, the ultimate challenge is to deliver a CRM solution that supports sales and account management, for example by providing the right information at the right time, so that it is seen as an essential business tool both for the client-facing staff and their management. The technology should be seen as an enabler, not the starting point for an organizational redesign.


Technology is clearly not the whole answer. There are several other requirements for success in managing clients, and these must be present before the CRM system is implemented (and ideally before it is specified). These include: developing a global account management strategy;

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streamlining the bank to meet the needs of the client; aligning a set of measures and related incentives to respond to client needs; institutionalizing the breadth of client knowledge; closing the loop: incorporating client feedback.

Developing a global account management strategy

The main activities of investment banks include arranging major loans for corporate clients, organizing rights issues, performing financial engineering, advising on or carrying out mergers and acquisitions and setting up initial public offerings. The rewards and prestige to the banks of executing such assignments are very great, as are the costs and salaries of the individuals doing such business. Knowing ones clients and the markets that they operate in is absolutely essential. Revenue growth can be achieved if relationships with core clients are strengthened through innovative service models that deliver the optimal mix of products to each segment. This involves assessing the overall profitability of each client to determine the appropriate service and delivery model. This requires a bank-wide understanding of each clients situation, to anticipate future trading and banking needs (with an understanding of inherent profitability and future value). A needs-based analysis must be pursued, to understand the optimal product mix for each client segment, and the outcome of the analysis should be used to create tailored offerings for specific segments. Getting the right coverage model with the right client set is fundamental to the future profitability of the business. Questions the global account teams must ask themselves during planning include: Is this a strategic relationship? Has this client historically made us money, or is it a prestige client that we want to see on our books? Will this client make the bank money? What is the potential worth of this client? How can cross-subsidization work? The ability to anticipate demand from specific clients increases loyalty, facilitates successful cross-selling and reduces the length and cost of the sales cycle. However, to reap such benefits, the bank must ensure that its client management objectives are understood and observed right through the bank, in terms of the structure through which it manages its clients and in the setting of objectives, incentives and measurements.

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Streamlining the bank to meet the needs of the client

The banks structure must respond to the needs set by account management strategy, taking into account both geographic and business needs. This is both cost-effective and logical, as this allows the bank to jettison or restructure unprofitable and non-strategic client relationships, whilst focusing on those that are most important strategically. Once the bank is organized around what clients need and want, it becomes clearer which units of the bank are adding substantially to the value proposition and to the banks profitability, and lines of business can be rationalized accordingly. However, it is important to determine where key cross-business interdependencies exist before finalizing decisions to remove or absorb particular parts of the bank. Providing sophisticated added value such as risk analysis and mitigation advice/products to the same client is not only a way of generating loyalty and retaining the client but also allows for transparency of cross-subsidization across the bank. The ultimate aim is that the bank acts as a homogenized whole across product lines and between geographies. The current and future value of the account must be recognized so that business opportunity is maximized. For example, a bank may offer a corporate client a large loan at favourable rates in anticipation of helping it with future bond issues or foreign exchange transactions. Most investment banks are (and may always be) organized mainly by product rather than by market. Delivering specialized information and product advice or creating new and more sophisticated financial instruments requires product focus from dedicated specialists. However, this requirement must be balanced by the need to serve the client as an institution. CRM technology alone is not enough to ensure sharing of information, account planning and account servicing. Historically, relationship managers have acted as the coordinators between the different parts of the bank and the client. Owing to the organizational structure and measurement systems, this has tended to be a reactive role an attempt to reduce sub-optimization and wasted opportunity, rather than a high profile business management position. However, best practice suggests that the benefits of client management can only be maximized if this role becomes critical to the business. One of the leading investment banks has been developing and implementing its global relationship bank operation over many years. Its strategy is detailed in the case study at the end of this chapter. Its experience shows how important it is to get organizational design right. Client-focus is maintained through a global account team that leverages the different sources of client value available across the global network to meet client needs.

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Aligning a set of measures and related incentives to respond to client needs

Measurement of people, processes, profitability, channels and clients attitudes must underpin vision and objectives as well as enable assessment of success and failure. Feeding back success and failure enables refinement and redefinition of future plans and activity. A balanced business scorecard biased towards client-based measures of relationship strength, momentum and innovation is the ideal tool to ensure that CRM is being effectively monitored. It should focus on relationship returns over time, not just on revenue. It also needs to measure and manage return on effort. Carefully weighted incentives need to be developed to ensure that the business responds properly to client-management initiatives. These incentives need to be cascaded down through the bank, covering not only the global account team, but product specialist areas too. This is fundamentally important if a bank is to see continued superb execution in each of the product areas. Moreover, there needs to be alignment of action and objectives across products and a process to coordinate and allocate resources to the clients.

Institutionalizing the breadth of client knowledge

Client knowledge must include quantitative as well as qualitative information that must be shared across the organization. Although different parts of the business are likely to rely on different CRM legacy systems, there must exist a connectivity layer above these initiatives that provides all relevant parts of the organization with a common client identifier and knowledge taxonomy so as to provide everyone with a common language for developing institutional client knowledge. Any knowledge-gathering exercise must include seamless e-mail integration. The capture of knowledge about clients must be an extremely simple exercise and preferably a natural by-product of the daily workflow. Existing CRM investments must be protected in individual units. Client-management processes vary across different business units and hence may require different CRM solutions.

Closing the loop: incorporating client feedback

For CRM initiatives to succeed, efforts must be rewarded (see Chapters 31 and 32 for more on this). Clearly, balance sheets and broker lists will show at one level whether relationships are growing in the right direction, but these are rather blunt and indirect instruments. A bank seeking to understand whether it is achieving client management objectives must work proactively with the client to gain feedback. Best practice shows that regular relationship reviews with clients allows the bank to:

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understand first hand client attitude and satisfaction (and the relationship between satisfaction, loyalty and profitability); understand client commitment; experience what clients experience; develop benchmarks and understand the competitive environment better.


Several years ago, an investment bank realized the value of CRM and undertook a radical reorganization that would allow it to serve global clients at a worldwide level, whilst still developing and strengthening local relationships. This initiative marked a new twist to the focus on relationship management. The client was made the organizing principle. Table 13.1 describes the change.

Organizational design
Recognizing the dangers of the diseconomies of complexity, the bank adopted a matrix structure for serving its global clients, as follows.
Table 13.1 Moving to a global focus
Prior to initiative The bank was organized outside-in: first by geography, then by product and finally by client. There was a myopic focus on revenue measured from product silos in individual geographies little emphasis on crosssubsidization across products and intra-country. Revenue was the key business driver. Businesses was defined by broad geographical areas (little integration). As a consequence of initiative The bank reorganized on an inside-out basis: around client first, then by product and finally by geography. Focus became broader the bank aimed for higher growth and higher return. It looked to maximize cross-border opportunities via global clients. A balanced business scorecard was deployed to measure performance. Business became truly global: New organizational hierarchy was adopted throughout the bank. Processes were standardized and well communicated. Re-education programme was undertaken as part of change management. Products were rationalized on the basis of what was important to global clients.

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Key account managers

Highly experienced relationship managers were appointed to the role of key account manager. These individuals now act as the focal point of the account, being the chief link to the clients head office with a focus on the Chief Financial Officer (CFO)/treasury buying centre. Unlike the original role of relationship manager, a key element of the job is to be proactive to create and identify opportunities, rather than to react to suggestions from the client. In addition to this, they must watch out for and manage alliance referral opportunities. The key account manager has prime responsibility for the coverage model for that client.

The virtual account teams

The key account manager is responsible for orchestrating virtual global account teams who serve the global client locally. Skills within the teams include industry analysis, risk management, market management, product and service delivery teams. The teams are responsible for delivering to subsidiaries of the client. Their intimate knowledge of the local client requirements, specific market conditions, laws and regulations allows them to deliver to the individual client needs. These teams are flexible enough to reform in order to be able to create bespoke solutions quickly.

Account planning
The bank has recognized the need for a disciplined approach to relationship development. It has developed an understanding of the relationship between level of effort/time expended and the share of wallet achieved. Their clients are plotted on a relationship development curve and segmented accordingly, and potential revenue can be assessed (eg they may rate as a high priority prospect or a strategic partner delivering over $1m with much more to come). This model provides the basis for further analysis, industry planning, relationship planning, activity and scarce resource tracking, and finally for deal tracking and a single integrated pipeline.

Support processes measures, feedback and technology

The bank follows many of the best practices suggested in this chapter. It runs a balanced business scorecard that is directly linked to incentives and regularly reviewed. Clients are frequently approached for a relationship review and the output of this is fed back directly and efficiently into the client management processes. A single CRM system was developed to support the entire CRM process globally.

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Lessons learnt
The bank learnt some simple yet powerful lessons: 1. Have a knowledge of the client at the micro-level. Understand not only the company and the industry that it is a player within (macro level), but endeavour to understand the individuals within the company, the competitive pressures they are under, their strategies and direction, their strengths and weaknesses (micro level). The bank aims to have a better conscious awareness of this than the client does. Anticipate requirement at the micro-level. Through an understanding of the client, issues can be addressed before they become needs. The bank always attempts to allocate employees time according to these anticipated requirements. Consistently deliver as promised. Aim to deliver to need and ensure delivery of what the client values, eg intellectual property, speed of response, value for money, etc. Aim to be a top-three provider. The bank believes that points 13 above give them competitive advantage. It aims to ensure that it is deemed to be one of the top three providers, since this is where clients spend most of their money.


3. 4.