How can KBC securities and KBC markets stay relevant in the future?

Abstract

In chapter 1, an introduction to KBC Securities and KBC Markets is provided. It is mentioned that KBC Securities plays a significant role in the Benelux capital markets and has been rewarded with the title of Equity Finance House of the Year and Cash Market Brokerage House of the Year in 2017. Nevertheless, KBC Securities and KBC Markets operate in a changing environment and are facing a series of challenges: new regulation, advances in innovative technology, strong competitors, new entrants and higher demanding clients. As a result, the following research question was formulated: "How can KBC Securities and KBC Markets stay relevant in the future?". Additionally, we researched several subquestions such as: "What are the reasons clients (do not) choose for KBC Securities? What activities do clients expect and want, now and in the future? Are KBC Securities clients satisfied with the service level they receive? How does KBC Securities' client experience compare to competitors?". In chapter 2, an overview of the selected methodologies is given in order to tackle the research question. This study is exploratory and has an inductive approach using qualitative research in order to fulfil the purpose of the paper. Semi-structured interviews with clients, non-clients, industry experts, academics and employees were chosen as a way to gather empirical data for research. An overview of the interview questions can be found in this chapter. Additionally, we supplemented our findings using secondary research: journals, books, articles and working papers conducted by academics and global professional management firms. In chapter 3, several conceptual strategy frameworks are presented which are used to tackle the research question in a structured way. First, a strategic framework of Bain & Company is given which involves making deliberate choices in three areas: ambition, where-to-play and how-to-win. The main focus of this paper will be on the "how-to-win" question. Second, the three value disciplines of Treacy & Wiersema are used to answer the "how-to-win" question and it is concluded that "customer intimacy" is the appropriate strategy for KBC Securities. This strategy focuses on offering unique customer services that allow tailored solutions to meet different customer demand. Companies who pursue this strategy bundle services and products into a solution designed specifically for the customer's problem. As a result of this strategy, KBC Securities will face a new key challenge: switch from being product-centric (the so called 'product-factory) to being client-centric. Thirdly, a framework of prof. dr. Kurt Verweire is used to implement customer intimacy based on seven building blocks: (1) strategic positioning, (2) customer relationship management (CRM), (3) client segmentation, (4) client profitability, (5) key account management, (6) tracking client satisfaction and (7) a dynamic and proactive approach. In chapter 4, the paper elaborates on the seven building blocks that are needed to achieve customer intimacy: (1) Strategic positioning: KBC Securities should position itself as a local specialist. A local specialist is an investment bank with deep capabilities in individual markets or regions, and strong local knowledge, networks and connectivity. (2) Customer relationship management: In context of achieving customer intimacy, CRM systems are indispensable. Two elements are essential to successfully implement CRM, namely CRM data collection and CRM data usage. The benefits of a good CRM system are listed and several recommendations for KBC Securities are given. (3) Client segmentation: We suggest implementing a value-driven segmentation system based on the client's current value, potential value and behaviour. This results in three client segments: priority, specialised and self service. For each segment, a distinct differentiation approach and clear rules for coverage structure, content access and execution and platform capabilities should be developed. (4) Client profitability: Client relationships should be managed in terms of profitability, not revenues. KBC Securities should consider both client revenues as well the cost-to-serve these clients. (5) Key Account Management (KAM): KAM is an approach to act as a real business partner for clients. This enables to build loyalty, customer commitment and give the client a single point of contact. We believe an appropriate person to fulfil the key account manager's position is the senior corporate banker. Another option would be to develop the function of a key account manager in-house at KBC Securities. This person could then join client meetings with the corporate banker and proactively approach clients of KBC Securities to identify business opportunities. (6) Tracking client satisfaction: We believe it is essential for KBC Securities to track client satisfaction more rigorously. This happens in three simple stages: gather input data, analyse the input data and adjust the services based on the outcome of this analysis. Internally, senior management's involvement and the documenting of outputs are important. (7) Dynamic and proactive approach: Based on client interviews, it seems that KBC Securities sometimes lacks dynamism and proactivity in its business approach when compared to competitors. We elaborate on this concept and emphasise the importance of staying sharp in every business interaction. In chapter 5, we elaborate on some additional findings which are relevant for KBC Securities, but not directly related to implementing customer intimacy. More specifically, it covers the following topics: innovation & technology and some suggestions for starting activities. Concerning innovation and technology, we identify some critical areas where IT investments should be focused on: dealing with legacy IT and customer-centric solutions. We also elaborate on the implementation of a 'Technology Plan' which is based on three elements: a budget, a time-period and an 'IT Innovation Officer'. The IT Innovation Officer should be responsible for developing a cohesive innovation and technology strategy for KBC Securities. Related to the suggestions for starting activities, we elaborate on (1) starting in-house private equity activities, (2) cross-selling in KBC Securities, (3) the organisational set-up of the corporate finance team and (4) convertible bonds. (1) Starting of in-house private equity activities: Having in-house private equity activities might be beneficial for KBC Securities, as well as for KBC bank. Potential advantages could be the realisation of informational synergies, cross-selling opportunities, better serving of the upper wealth management clients, reducing agency problems and a better brand image. Additionally, it would be in line with KBC Securities' vision of serving companies in every stage of their lifecycle. (2) Cross-selling in KBC Securities: We focus on how private, corporate and investment bankers should work together to generate more revenues as a whole. We elaborate on the importance of knowledge training, good incentive systems, alignment of every party involved, proper internal communication systems and the support of senior management to effectively realise cross-selling opportunities within the bank. (3) Organisational set-up of the corporate finance team: For the reason that ECM activities and M&A activities serve different type of clients, require different skills and networks to grow, we believe (after performing research and conducting interviews with industry experts) that it would be better to split up the corporate finance team into two separate teams: an ECM team and a M&A team. (4) Convertible bonds: As KBC Securities currently has no in-house expertise regarding convertible bonds, we want to encourage KBC Securities' management to consider if it is worth starting this activity. Chapter 6 is the conclusion of the In-Company Project. Moreover, the research question which was presented in chapter 1, is answered. KBC Securities should implement customer intimacy as a strategy in order to stay relevant. Furthermore, the following limitations of this project were discussed in this chapter, namely: the limited number of conducted interviews, the limited amount of available academic research regarding the research question and the time constraint. We emphasised that this project is a purely strategic exercise (formulation), with limited focus on strategy execution. As a result, compliance, risk, regulation and operation-related matters are out of the scope of this project. This chapter finishes with some actions for KBC Securities going forward. The formulation of a sound strategy, as presented in this report, was only a first step in becoming a customer intimate bank that puts the client at the centre of everything it does. However, there still is a long way to go. Next steps for KBC Securities should focus on the actual execution and implementation of this strategy across the investment bank, with impact on its day-to-day operations. In chapter 7, additional research is conducted on the sell-side research function. MiFID II will have a major impact on sell-side research firms. Buy-side firms will become much more selective in deciding which research reports to buy and the budgets for research will likely decline, which means quality becomes the key differentiator. Additionally, competition is expected to increase. We conclude that KBC Securities should position itself as a regional champion where they should leverage their home field advantage in the Benelux to compete with other sell-side firms covering the same stocks. Lastly, we conclude that artificial intelligence and technology will be important in the future and that research analysts should focus more on client-facing activities instead of performing basic written research. KBC Securities should take actions to make sure analysts' time is spent on activities that are valued by the client and activities that the client wants to pay for, instead of spending most of their time on less-valued activities.