Don't Stop Thinkin' About Tomorrow

Don't Stop Thinkin' About Tomorrow


Bank Abandons Regional Structure to Focus on One-to-One Customer Service.

Was that really the newspaper headline National City IS chief Jon Gorney wanted to see? He wasn't sure. Gorney's no soothsayer, but during the summer of 1996, the executive vice president in charge of operations and IS at the Cleveland-based Bank found himself wishing for a crystal ball as he contemplated deploying a $40 million investment in a customer information system. Unfortunately, that wasn't the only uncertainty he was anticipating.

National City was confronting three challenges common to any business in tough times: It needed new ways to generate earnings, it faced increasing competition for market share, and the Internet was threatening to turn the world upside down. National City saw the customer information system the Bank was developing with IBM as a solution to these problems. The Bank hoped to develop new, high-revenue products, tailor programs for customers and cross-sell products to appropriate customers. But to design it, Gorney had to know what kind of information the system would be aggregating. Would it track information about the products the Bank offered or the people who bought them? If it was product-focused, it would have to include detailed descriptions of each financial service, whether credit cards or mortgages. If the system was customer-focused, it would track whether they used ATMs, branch offices or call centres, and indicate demographics in order to build profiles. Furthermore, Gorney would need to set up business rules to determine customer profitability.

Gorney quickly realised that he simply could not answer these questions because the answers were linked to a larger issue: He didn't have a clear sense of the Bank's strategic direction. The company's newly installed chairman and CEO, David A. Daberko, had determined that National City and its competitors like Wells Fargo and Bank One couldn't rely on mergers and acquisitions as their sole growth strategy. But if not that, then what?

Even though strategy had never been information technology's bailiwick, Gorney felt compelled to step forward. The alternative was to waste $40 million on a system that wasn't aligned with the company's goals. He brought his questions about the Bank's long-term survival to Daberko. "I told him that we had significant choices to make in terms of technology investments, and that we couldn't afford to be wrong," he says. Because Daberko understood what technology could do for a business, he sent Gorney off to find a solution.

To do so, Gorney needed an approach to strategic planning that was different from the issues-based planning the Bank had done in the past. That had left out participants from the IT and operations departments, and was vague on how goals would be achieved. Gorney needed something more focused, more creative and more detailed. He wanted to bring together representatives from every department and line of business within National City. On IBM's recommendation, he contacted Northeast Consulting Resources (NCRI), a Boston-based company offering scenario planning workshops. "Scenario planning made more sense for the Bank because it worked with very specific outcomes [of the Bank's future]," he explains. Though the price tag was just under a half-million dollars for a three-day workshop, Gorney hired NCRI in summer 1996.

Scenario planning can work for any company, provided that company has the time, resources and commitment of its executive team. An exercise in contingency thinking, it was developed during the Cold War to prepare for nuclear annihilation (see Dr. Strangelove) and was pioneered in the corporate world by Royal Dutch Shell during the oil crisis of 1973. Today, organisations like the United States Postal Service and brick-and-mortar retailers use scenario planning to understand the effects of external factors on their businesses, whether they be technology driven (e-mail and e-commerce), political (deregulation) or economic (sudden downturns). With technology driving the pace of change and IT increasingly viewed as the key to staying competitive, the CIO is the logical choice to introduce scenario planning.

Define the Choices

Gorney's first order of business was to select two managers from his IT staff to prepare for the three-day workshop to be facilitated by NCRI. They spent several weeks researching the Banking industry and tracking technology trends (see "Seven Steps Toward Successful Scenario Planning"). Then they interviewed 50 executives from each of National City's departments to find out how they used technology, what they thought the Bank's strategic direction was and how they thought the Bank could best pursue it. Peter Schwartz, chairman and cofounder of the Global Business Network, a company based in Emeryville, Calif., that specialises in scenario planning, says that in order to create a vision for the future that makes sense to the company, you have to get into the minds of the decision-makers.

From these interviews, they developed three of what NCRI calls "end-states," or alternative visions of the future. Among them were National City improves its customer focus and develops a relationship-based strategy. This means that the Bank tailors its services (financial planning, mortgages, mutual funds) to individual customer needs. Though this was the major industry trend, the business model was complex and costly to pursue.

National City specializes solely in products. The Bank would concentrate on streamlining the development and delivery of financial services, whether they be mortgages or credit cards. This would significantly reduce costs but would do so at the risk of losing customers who were looking for a company to serve all their financial needs.

National City launches a separate online Bank under a different brand (similar to what Bank One has done with This cyberBank would offer its customers another delivery channel but would also compete with National City's own brick-and-mortar Bank.

After narrowing the Bank's possible future to those three, the team compiled a list of 150 internal and external events that might influence any of the outcomes. The events could be regulatory issues such as a bill permitting alliances between Banks, securities firms and insurance companies (which actually happened in 1997 with the Financial Services Competition Act) or technology trends such as the widespread use of the Internet for conducting financial transactions. Written as news headlines with accompanying descriptions, such as 'Demand for Real-Time Information Skyrockets: People Visit Banks for Advice, Not Cash,' these events were later used to create the scenarios that would lead to each outcome.

Debate the Visions

Once the core team had completed its research, conducted all interviews and drawn up potential futures, it was time to bring in the participants. On the first day of the three-day workshop, 24 executives from National City's Banks, the IT department and the chairman's office-some excited, some skeptical-gathered in a conference room. They were divided into four groups and told to rank all 150 events based on how likely they thought they were to occur. Among the events deemed highly probable were companies investing in comprehensive security infrastructures and customers using online financial services to get customised information and advice. They regarded as highly unlikely a scenario predicting that by 1999 one-third of US households would be using electronic financial services.

According to NCRI, the purpose of this part of the workshop is to sensitize participants to the assumptions and biases they have about various issues. These assumptions can be about the way a company or industry operates and can lead executives to make critical decisions in a vacuum, without considering, for example, the ramifications of cultural trends or economic shifts.

If participants were split on the likelihood of an event, they attempted to reach a consensus. One dispute was about whether customers would do business with a Bank based on price or service. (The group never resolved this one, so they left it as an unknown and worked it into their scenario as such.) Next, each group was assigned a possible scenario (the three outlined previously) and over two days were charged with analysing how the various events that they ranked might influence it. "This scenario-based planning exercise recognises that an end-state four or five years from today is really not just a single end-state but a journey from today through a lot of events leading up to that endpoint," says Robert Rupp, director of National City's consolidation services and a member of the core team.

The team working on the customer-focused scenario came up with the following events that might lead to it: forming alliances with companies outside the retail Banking industry, integrating financial information for customers to become a one-stop shop for their financial needs, and restructuring National City around customer segments rather than regions (the Bank had 1,300 branches in six states). They also took into account trends that might prevent them from becoming customer focused, such as the Internet conditioning consumers to care less about personal service and more about price.

The groups then presented their scenarios and tried to convince the other participants that their vision was the most plausible. Gorney warns that this part of the exercise can be difficult. "Scenario planning requires role playing, which can be uncomfortable since it forces people to assume a view that may be contrary to what they initially believe," he says. They do, however, have the opportunity to voice their personal opinions after their presentation.

Finally, participants discussed which outcome was best for the Bank. There was significant debate over whether National City could really develop one-to-one relationships with its customers. That would involve intimately knowing which product or service was right for an individual customer by tracking her financial activity. It would also involve highly targeted marketing campaigns. The alternative was to focus on improving all their products and delivering them as efficiently as possible. Each line of business would push its products without regard to whether it was the right thing for a particular customer.

Though the group started to agree on increasing its customer focus rather than becoming product-centreed, it was ultimately up to Daberko, who joined the session on the last day, to make the call. He decided that National City would pursue the customer-centric model because he believes that this is ultimately where the industry is going.

Make It Real

Since National City decided to go down the full service road, it has implemented a data warehouse that allows the Bank to build customer profiles. These profiles are used to identify the products and services appropriate for each individual.

Launched new sales, development and marketing programs that target specific products and services to specific customers.

Developed a technology capability that enables the Bank to deliver those customised products across multiple channels such as ATMs, branch locations, call centres and a Web site.

Introduced data mining procedures to identify and retain the Bank's most profitable customers.

Restructured the Bank along lines of business rather than geography.

Keep It Going

With scenario planning, National City may still not ultimately control its fate, but at least all its business units now share a single strategic vision. "Scenario planning helped [the IT group] understand the issues the business heads handle every day," says Gorney. "Now, we have a better appreciation for the revenue side of the business because we had to get specific. We had to get down to detailed end-states. To just say that we want to be a customer-focused organisation is pretty broad. Scenario planning forced us to ask the business side specific questions about the level of customization they wanted and what they mean when they say 'a market of one.'" Once Gorney had these answers, he knew how to spend that $40 million on a customer information system with the right specifications for determining profitability and cross-selling opportunities, and for developing customised programs.

Participants on the business side also gained valuable perspective. Jim Bell, the Bank's executive vice president, had spent 15 years primarily on the corporate Banking side and three years as CEO of National City's Bank in Kentucky. "I got a crash course in the issues facing our brokerage unit and retail practice," he says, "as well as an understanding of the technology infrastructure needed to support those businesses that I didn't get in my normal activities as CEO."

The exercise "established a short-hand or common nomenclature for some generic strategies that still facilitates communication today," says Bell. Rupp concurs. "It is amazing how after these sessions people would keep referring to the conversations and the terms we used, like CyberBank, as we started to talk about implementing programs."

While Gorney is busy rolling out the technology needed to support new initiatives, he now knows for certain that his IT strategy is aligned with the business. And should the tides turn unexpectedly in his industry, Gorney has the tools to recognise the omens of change and adapt his strategy accordingly. For instance, he's keeping tabs on the rate of network cable installations across the United States to determine the effect it might have on electronic Banking.

Because of the exercise, the company now draws up a yearly set of critical initiatives around its strategy, such as a process to identify a customer ready to leave the Bank. Now National City is able to recognise the signs that a customer is about to leave and can take proactive measures to retain that customer before it's too late.

"Scenarios help companies recognise the future as it unfolds so that they can see the signals of change in a more timely way," says GBN's Schwartz. "It enables you to manage risk differently. Because you understand your risks better, having recognised unpredictabilities, you have more maneuvering room and can act with more confidence toward the future."

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