technology to improve customer profitability, though a majority say they do not know whether their efforts are paying off, according to a new study.

Ernst & Young LLP's eighth annual report on technology in financial services said that companies increased, by 31% this year, their spending on software and services to build more profitable relationships with customers -- the practice known as "customer relationship management."

But 63% of the more than 125 respondents in the banking, insurance, mutual fund, and brokerage businesses said they did not know whether the profitability of their customers had improved as a result.

The inability to measure payback stems from organizational and data hurdles, said Philip J. Lawrence, a partner at Ernst & Young. Most banks don't know what to measure or how to measure it, he said.

Forty-seven percent of the companies surveyed said data are missing, inconsistent, or unavailable to customer service representatives.

Thirty-six percent said they face difficulty in making the mental shift from managing product lines to managing customers.

"Banks need a living, breathing system that filters information to the front-line staff," Mr. Lawrence said.

Ernst & Young said that Wachovia Bank has achieved change in its internal culture by devising a compensation structure that rewards the branches that have the most satisfied customers. To even participate, branches must achieve 90% satisfaction or better. Between 95% and 97% of Wachovia branches meet that minimum.

From January 1997 to May 1999, Wachovia retained virtually 100% of its most valuable customers. During that time, the bank also increased sales of additional products to customers by 11%.

Royal Bank of Canada also has changed its incentive programs to reward behavior that builds relationships with customers, said Shauneen E. Bruder, senior vice president of marketing and planning at the Toronto bank. Front-line employees get sales and marketing instructions on their desktops, a list of possible product offerings, and past offers with customers' responses.

Some banking companies, like Fleet Financial Group and Canadian Imperial Bank of Commerce, have installed software that measures the cost of serving a customer and calculates product and organizational profitability.

But most banks cannot consistently determine the overall effectiveness of their efforts, Mr. Lawrence said. "Some have done business cases, and some have done snapshot tests, but they don't know if it works every day."

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