McKinsey Analysis: 5 Ways to Crack the SME Code

Banks need to pay as much attention to the nuts and bolts of process excellence as they do to the other, more strategic elements of the effort.

SMEBROctober 22, 19:19
Five ways to crack the SME code

There are five aspects that banks can focus on to develop compelling, successful SME propositions for themselves and their clients.

1. A hybrid channel end-state improves the viability of servicing this segment. A recent Finalta survey of 50 SME banks showed that few have yet developed a robust and complete digital proposition for clients. Analogs from other industries suggest this will take some time, and the transition will initially involve duplication across channels, customer journeys, risk models, and service concepts. Building and maintaining these in parallel is complex and expensive.

Ultimately, however, banks should be aiming for a hybrid channel end-state in which the most effective channel for a particular product or service becomes the default. The overall channel approach will run the gamut from digital self-service for simple, low-value-adding activity, to highly engaged, expensive, human-led engagements for complex and value-creating services and sales. As a simple example, checking a bank balance will be an online activity, whereas restructuring a set of lending products will likely be a remote advisory session with a product specialist.

Once quality solutions are in place, clients need to be actively steered there. Only by closing off unnecessary, more expensive omnichannel propositions will banks be able to capture the financial and operational benefits of digitization.

2. Double down on frontline cross-selling capabilities. There is a significant value for incumbent banks to capture by tapping into their existing customer base. Four levers can improve frontline effectiveness:

Leads based on advanced analytics. Advanced data analysis can feed a range of tools to equip relationship managers and enable shared teams and product specialists to ensure they are aware of and focused on client needs. Artificial-intelligence tools can scan information about clients and consistently present insights for the bank to act upon. To ensure continued improvement and effectiveness, banks can set up continuous feedback between the front line and the analytics team.

Sales routines and tooling. Setting a “gold standard” by codifying the sales routines of the best relationship managers will help raise the bar for the full sales organization. One European bank achieved a 20 percent increase in the number of prospects after establishing dedicated sales time on a weekly basis. Digital tools such as RM workbenches can bring rigor to processes such as know-your-customer and ensure that access rights to controlled information and leads are always available to everyone working with clients. The right tooling also frees up time that relationship managers typically spend on administrative tasks.

Performance management and capability building. Setting the right cadence of performance dialogues is crucial to ensuring progress. These dialogues help ensure clarity on customer and product priorities, alignment on granular input and output KPIs, and clear performance tracking. A well-designed capability-building program enables the front line to hone commercial skills (such as cold calling, dealing with resistance) and product expertise.

Streamlined journeys. Digitization can enable cost-efficient, more regular and persistent engagement with clients. In retail banking, for example, the number of customer engagements has grown by more than 10 percent year on year for the past six years, driven almost entirely by digital channels, according to McKinsey Finalta.

Overall, shifting the client relationship to the institution and away from the individual can remove the risks and failings of human error such as poor process execution, lost paperwork, return calls forgotten, or suboptimal client focus.

3. Build a compelling proposition through make and/or buy. Few banks have the scale and expertise to be best in class in all the capabilities required to excel in serving SMEs. A more effective approach is to identify the areas of sustainable differentiation, where investment in internal development can pay long-term benefits, such as risk modeling, sector depth, or product expertise or range. In other areas, a bank is better served by sourcing best-in-class products or capabilities to round out a robust, lower-cost, and effective solution for clients.

Balance is important. In our experience, we have often observed banks outsourcing either too much or too little. Ideally, the bank owns and controls the sources of value creation and differentiation and brings in commodity services that benefit from scale greater than banks can create individually. A well-balanced mix of in- and outsourcing has the added benefit of bringing in external insight and best practice, and an openness to challenge and flexibility that can rejuvenate existing ways of thinking.

4. Adapt to new types of talent. Successful SME propositions will be highly dependent on digital and data analytics talent—and via “translators” who harness insights to create client dialogue and impact. These emergent talent needs for SME banks will inevitably affect the internal and operating culture of the business. Decentralized and remote ways of working create challenges around control, organizational culture, and team dynamic as well as opportunities around reach of product and industry specialists, flexibility of capacity, and reach. We believe that these are all solvable.

Frontline client relationship managers will still be an important and valuable part of the market proposition, but their efforts will be concentrated on those areas that depend on their skills and sophistication, with tasks less driven by such skills to be handled by the back office or through automation.

5. Rethink process excellence. Superior processes are, of course, a fundamental requirement for success in banking overall. But for banks seeking to gain a foothold in a new segment, the bar is particularly high: simple payments, account management, or product issues are often the seeds of discontent that germinate into a dissatisfied and ultimately lost customer. (Mobile access in particular is prone to errors, and banks that treat the channel as an extension of the web, as opposed to a distinct experience, do so at their peril.) Write large, issues of this kind can make the difference between a successful move into the SME market and a failure.

To avoid missteps, banks need to pay as much attention to the nuts and bolts of process excellence as they do to the other, more strategic elements of the effort. With this in mind, banks should challenge themselves to reinvent and reimagine where possible, rather than tinker at the margins.

This information was extracted from Mckinsey’s official website.