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What goes up must sooner or later come crashing down. In the past few years, trade publications have trumpeted with great fanfare the failure rates for customer relationship management implementations in financial institutions. In some cases the Schadenfreude was so thick it could be cut with a knife. Although CRM had been considered the great salvation of the financial services industry in the late 1990s, by the middle of 2001, the concept was being dismissed by many as overblown hype that could not and did not have the ability to transform the way business was conducted. In retrospect, the inflation and subsequent deflation of CRM as a business strategy wasn't terribly surprising - overly simplistic perhaps, but not terribly surprising. As the talk of CRM failures accelerated into 2002, it quickly became apparent that the "problem" with CRM implementations was one of poor planning and lack of metrics. There's an aphorism in business that states, "Failing to plan is planning to fail." CRM implementations at many financial institutions derailed when it came to defining and measuring success. In their eagerness to begin a project, banks often overlooked a definition of success.
Actually, the problem was even more basic. Most retail banks did not have adequate metrics regarding their pre-CRM implementation status. Consequently, the banks did not have a stake in the ground to start from and they failed to put a stake in the ground where they wanted to be. With an ill-defined starting point and no defined end point, success was understandably elusive. For many banks, a definition of success against internal and/or external benchmarks was not possible. Thus, the appropriate metrics for a CRM business strategy are generally ill defined in the banking industry. Bankers have not yet reached a consensus as to whether the metrics should be based on internal or external benchmarks. And there is great variation among institutions when it comes to the degree of importance assigned to individual metrics. It wasn't until fairly recently that banks began to understand the multidimensional nature of CRM projects and thus the associated metrics.
This Research Note investigates the current state of CRM metrics in leading commercial banks around the globe, including the use of balanced scorecards and the challenges inherent in competitive benchmarking. Additionally, the Research Note reviews the difficulties that banks have had in building a CRM business case and the appropriate role of return on investment (ROI) measurements in the business case. The purpose of the research is to discuss some of the metrics currently in use for measuring CRM by forward-thinking institutions and to determine if there is a common set of metrics being used across regions - a superset of metrics that can be standardized for the banking industry. For more information on CRM metrics, refer to TowerGroup Research Note V23:04RC, "Customer Relationship Management (CRM): What Are the Right Metrics to Measure Success?"
Addressing the ROI Issue
When organizations across all industries started talking about CRM failures in 2000 and 2001, the headlines revolved almost exclusively around the failure to generate sufficient ROI. It quickly became clear that the disappointing ROI was due to two primary factors: a failure to create expected metrics for the organizations' desired end state and a failure to gather benchmark data on current status prior to the implementation. Thus, while the headlines trumpeted the failures of CRM, the real challenge was in knowing if the implementation succeeded. It wasn't an issue of failure; rather, it was a failure to prove either success or failure. And the difference between failure and complete uncertainty is fairly large.
Building the Business Case for CRM
The validity of business cases was always suspect if the bank couldn't explain what it was capable of and what it wanted to accomplish. The nature of the business cases for CRM projects was such that assumptions regarding additional sales and the associated fee revenue were the foundation. To some extent, there was also a measure of expense reduction included, but that was not believed to be the key driver. Thus, the justification for CRM projects depended on the bank's ability to sell more products and services to existing customers and to acquire new customers more cost effectively.
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