Customer Relationship Management: The Profitablity Challenge

Article excerpt

In the world of finance and accounting, most analytical thinkers deliberate until issues fit neatly into terms of "black" and "white." However, while schooled in these disciplines, thinkers within the industry can still explore the gray area around the issue of customer relationship profitability and arrive at a satisfactory solution.

For example, the executive management of Marshall & 11sley (M&I) Corporation, a $24.4-billion holding company based in Milwaukee, Wisconsin, needed better profitability analysis information within their 28 affiliates and their affiliate's 243 offices. Monthly statements alone did not help them understand their customers' profitability. This lack of information hampered the corporation's ability to maximize their customer's profit potential while, at the same time, staying focused on their needs.

However, reaching this level of information required more than a purchase of profitability software. It required a commitment from senior management and the development of multiple project initiatives.

STRATEGIC SUPPORT

Executive support is critical to an institution's success with customer profitability. Customer relationship profitability is a philosophy foremost and a software solution second. Executives must commit to the concept before adding the technology.

However, often understanding the concept and strategic commitment are key obstacles executives encounter in implementing customer relationship profitability Fortunately, with M&I Corporation, the lack of understanding was not an issue. Instead, senior management ensured the development and communication of strategic project goals. These objectives were:

*To provide a consistent and financially vigorous measurement system for identifying the core components of profitability from a managerial, rather than a legal entity, perspective.

*To identify trends in profitability over time, to allow the effective employment of capital and resources, and to enhance the management of risk.

*To provide a financially sound framework for pricing decisions across product lines and to ensure a vigorous competitive position while maximizing the long-term rate of return for shareholders.

* To influence the perspective of operating managers to focus on longterm profitability and renewed growth.

*To identify strengths and weaknesses through development of benchmarks and analysis of peer group comparisons.

With a set of objectives firmly in place, our team focused our efforts first on retail, with plans to expand into commercial banking. This is important because financial institution managers who do not plan enough for data integration on the front end will complete a portion of the project and realize that they need to go back and redo other systems.

DATA WAREHOUSE FOUNDATION

The foundation for the Relationship Profitability System (RLP) needed to begin with a data warehouse. A data warehouse captures a majority of the information needed by a financial institution to analyze customer profitability. This data can translate into customized reports that employees at all levels - senior management to tellers - can use. By storing information in a central location, the data warehouse allows users to collect and analyze data from across business lines. Prior to this solution, employees relied on a clumsy mainframe system. Before that, people searched for information among piles of monthly reports filled with stale data.

Today, M&I Corporation considers their data warehouse to be essential to its operation, as it is the only place where all system information can be accessed. While PC-based tools are relied upon for additional insight, they all feed from the data warehouse.

Although it remains a primary source for data, the data warehouse does not include all customer relationship profitability information. For example, users must develop activity-based product costs or rely on industry standard costs from other sources. …