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The Metric System

Banks seeking to measure their CRM investments track the satisfaction of investors and customers alike.

It can be difficult to measure the financial impact of a particular technology. But given the time and expense involved in implementing customer relationship management systems, it's not surprising that business executives expect a positive return on their investments. Nevertheless, calculating an ROI on CRM is easier said than done.

The cross-sell ratio is a popular indicator of CRM success. Richard Kovacevich, chairman and CEO of Wells Fargo & Co. (San Francisco, $388 billion in assets), even uses it as a corporate goal: His bank hopes to double the number of Wells Fargo products per consumer household from four to eight. But it's hard to compare Wells Fargo to its competitors on that yardstick.

"[Banks] all define a cross-sell ratio differently," says Kathleen Khirallah, senior research analyst, retail banking, TowerGroup (Needham, Mass.). "Do I count the fact that the customer uses automatic payroll deposit? Is that a service? Does that count? Some banks will say 'yes,' and some banks will say 'no,'" she adds. "There probably needs to be some common definitions, and if there were, there could be a sense of benchmarking."

Even given such metrics, the quality of a bank's relationships is more important than their quantity. Investors "should also look at some metrics around customer satisfaction," Khirallah asserts.

Financial accounting standards do an acceptable job of measuring the stock and flow of funds, but that's not enough when trying to assess the underlying strength of an organization, Khirallah notes. "The shareholder metrics that are used today are always looking into the past, and they're very much at a high level," she explains. "It's indicative of the overall health of the organization, but not necessarily indicative of how good the bank is at satisfying its customers."

In fact, organizational growth in most industries is driven by customer loyalty, insists Frederick F. Reichheld, director emeritus of Bain & Company (New York), a Bain Fellow, founder of the firm's Loyalty Practice and an author on the subject. Fundamentally, a customer-for-life is worth a lot more than one who's enticed by low price, satisfactory service or just inertia, he stresses.

Reichheld suggests that companies measure loyalty by asking customers a simple question: "Would you recommend us to a friend or colleague?" Those customers who respond with a nine or higher on a 10-point scale are called "promoters," while anyone with a six or below is a "detractor." Subtract the percentage of your customers who are detractors from the percentage of promoters, and you have your "net-promoter score."

"If I were an investor and you were going to tell me that you're going to increase your growth rate versus your competitors', you'd have to convince me that you're going to find a way to increase the percentage of promoters in your customer base," said Reichheld, speaking at the recent Forrester Finance Forum 2004. "I suspect that over the next year or two, there will be more investors and analysts who are going to say, 'I insist on seeing the percentage of your customers who are promoters.'"

To be sure, building a loyalty-driven organization takes more than a CRM installation. But properly implemented, CRM systems can bolster customer loyalty by smoothing over customer service issues, while providing employees with the tools they need to exceed customer expectations and feel satisfied about their jobs.

Bank Systems & Technology interviewed six banks about the ways in which they are putting customers at the center of their businesses, what they hope to achieve and how they intend to measure the success of these initiatives. Featured in the following pages:

Wescom Credit Union (Pasadena) - Collecting and disseminating customer satisfaction data across the firm, for benchmarking and immediate follow-up.

Scotiabank (Toronto) - Driving compensation and sales approaches using an integrated view of its business customers.

Security National Bank (Laurel, Neb.) - Setting pricing strategy and service levels using customer profitability metrics.

Pacific Capital Bancorp (Santa Barbara) - Making data available anywhere it's needed in the firm with minimal effort, using a data virtualization layer.

First Fidelity Bank (Oklahoma City) - Improving customer service in a multi-branch network using cross-channel, integrated CRM.

Northstar Financial (Bad Axe, Mich.) - Building a de novo bank network from the ground up, based on customer-centricity.

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