Measuring Return on Service Investment
by. Dave Kerstein
Many financial institutions have differentiated themselves by providing exceptional customer service. In a service business, service quality is extremely important. It’s understood that great customer service is important in attracting and retaining customers. However, quantitatively measuring the payoff of customer service has been a more abstract process. Actually measuring how our investment in customer service impacts the bottom line proves to be difficult, but it is this number that is important to branches.
One issue that branches face is the way in which service quality is described. Descriptive adjectives provide good contextual information, however, fail to describe customer service’s numeric impact. This stems from the lack of disciplined metrics and financial models that link these investments in customer service to financial return. How can management measure the return on investment (ROI) from the human, information technology (IT), and capital resources required to attain higher levels of service?
As with any other investment, management needs tools to quantify impact and prioritize investments in a disciplined way. Without them, we are forced to navigate by touch and feel, responding by instinct and emotion to determine what customers want and value, rather than managing with facts and metrics.
First of all, it is important to recognize that there is a strong, measurable relationship between service quality and financial return. As part of our analysis, we tabulated correlations between J.D. Power and Associates service quality scores and metrics of financial performance. For example, our analysis of Home Mortgage Disclosure Act (HMDA) data from 2010 and 2011 revealed that financial institutions with best-in-class J.D. Power scores also posted superior results when measured by loan closure rates, or the “book-to-look” ratio.continue reading »