CRM in banking: can't compare apples with pears

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By: Wise Marketer Staff |

Posted on July 2, 2004

A lack of common benchmarking standards remains a major obstacle to comparing the success of customer relationship management systems within the banking industry, according to new research from financial services consulting firm TowerGroup.

With much attention being focused on the advantages of CRM initiatives, and a number of failed attempts to transform the financial services industry using the technology, TowerGroup says that less attention has been paid to the role of benchmarking standards - or an apparent lack of them - in building and measuring the business case for CRM.

Which benchmark?
According to TowerGroup's latest research report, 'CRM Metrics and the Myth of Benchmarks: How Smart Banks Measure Success', the inability by many financial institutions to define clear objectives and measure results continues to plague their CRM programmes.

"While press headlines trumpeted the failings of CRM, the real challenge for the majority of banks was in knowing if the implementation succeeded," said Kathleen Khirallah, author of the research, and senior analyst in the retail banking practice at TowerGroup. "At issue was the inability to measurably prove either success or failure."

According to Khirallah, in the case of many CRM implementations, the difference between failure and complete uncertainty is significant, and talk of CRM's failures began with the inability of individual banks to understand their success or failure, and a lack of common industry CRM metrics only served to make the situation worse.

Starting point
TowerGroup's research found that, in their eagerness to begin a project, some banks overlooked the setting of clear definitions of success, and lacked adequate metrics regarding their pre-CRM implementation status. Consequently, they did not have a clear starting point from which to set realistic goals.

For the majority of banks, a definition of success against internal and/or external benchmarks was not possible in the late 1990s, simply because too few other banks had started the journey to CRM. But even a decade on, TowerGroup has found that appropriate metrics for a CRM business strategy remain generally ill-defined across the industry, with little agreement by bankers as to which combination of internal and external benchmarks are most appropriate.

Profitability misunderstood
The research also highlights the bank's ability to understand customer profitability as being another stumbling-block in the building of a CRM business case. Not knowing the value of current customers with any degree of accuracy means that any assumptions made about the value of additional customers - and incremental revenue from existing customers - are questionable.

However, Khirallah noted that some institutions do have the ability to measure many different aspects of customer relationships - a fact underscored by the wealth of information that some forward-thinking banks collect, manipulate, analyse, and distribute on a monthly basis.

What to measure
"But what is also clear from reviewing individual banks' CRM metrics is that, although there are many similarities, there are still just as many differences in approach and definition. So even the smartest of the 'smart banks' still lack global common benchmarking standards," concluded Khirallah. "TowerGroup believes that the banking industry needs a brief but solid super-set of customer-oriented metrics with common definitions that will enable competitive benchmarking. These should include areas such as loyalty, satisfaction, profitability, cross-sell ratio, and primary demand deposit account retention rates."

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