New Index Ranks American Express, Wachovia and Bank of America Among the Best Positioned Financial Institutions to Drive Organic
June 20 2005 - 10:01AM
PR Newswire (US)
New Index Ranks American Express, Wachovia and Bank of America
Among the Best Positioned Financial Institutions to Drive Organic
Growth The A.T. Kearney Financial Institutions Organic Growth Index
provides a customer-centric perspective of how well institutions
are growing business from new and existing customer accounts
CHICAGO, June 20 /PRNewswire/ -- As banks and investment management
firms continue to struggle with ways to grow their retail business
beyond M&A activity, a new index created by global management
consulting firm A.T. Kearney reveals six institutions, among the 31
that were ranked, are in a strong position to drive organic growth
in retail banking: American Express, A.G. Edwards, Wachovia,
Charles Schwab, Bank of America and Washington Mutual. A.T.
Kearney's Organic Growth Index, to be created annually, is based on
a survey conducted by Harris Interactive(R) of more than 4,000
adult banking customers in the 20 largest U.S. metro markets. The
index provides unique insight into which financial institutions
have a strong hold on their customers and a significant portion of
their customers' personal balance sheets. It measures "customer
momentum" -- an institution's ability to attract and retain
customers -- and "wallet momentum" -- an institution's ability to
capture, retain and grow its share of customers' assets and
liabilities. "Financial institutions cannot rely on M&A
activity alone. They must grow organically; yet, most have
unrealistic plans of 10 percent annual organic growth," said Andrew
Green, vice president and leader of A.T. Kearney's Financial
Services practice. "It is impossible to achieve strong, sustained
organic growth without a mix of customer momentum and wallet
momentum. Companies with high scores in our Organic Growth Index
are in the best position to sustain above average organic growth
rates and thus above average value growth." The Organic Growth
Index connects customer attitudes and actions with their wallet
allocation decisions and measures eight components that are
critical for achieving organic growth. Results are compiled into
two primary measurements to comprise the index -- customer momentum
and wallet momentum. Customer momentum measures an institution's
ability to forge long-lasting customer relationships and instill
advocacy among their customers. Wallet momentum measures an
institution's ability to expand the number of products and drive
greater penetration per product with its customers. The Organic
Growth Index ranks 31 financial institutions based on their ability
to achieve both customer and wallet momentum. Retail banks and
investment firms both performed well in the study, although no
single type of financial institution -- retail bank, diversified
institution or investment institution -- excelled in all drivers of
organic growth. Retail banks achieved greater customer attraction
and retention, while investment firms controlled a larger share of
customer's wallets. Leading Institutions Each of the top six
institutions were among the leading institutions in at least two of
the index's components. American Express -- which customers
identified as a top performer before the spin-off of its financial
planning unit -- was particularly strong in customer intent to
increase account value and customer advocacy (willingness to
recommend institution). Bank of America, Wachovia and Washington
Mutual were strong in service quality. Charles Schwab, A.G. Edwards
and American Express controlled more than 60 percent of their
customers financial balance sheet. Despite these strengths,
however, each of the top six institutions also showed
vulnerabilities in certain areas. A.G. Edwards and Wachovia, for
example, were below average in customer advocacy. Bank of America
and Washington Mutual both control relatively smaller shares of
their customers' wallet compared to other top performers. American
Express and Charles Schwab had below average scores on error rate.
The study found that customers experiencing two service errors or
account problems within one year were 35 percent more likely than
the industry average to leave that financial institution. That
attrition rate doubled after three errors in one year. The bottom
six institutions ranked in the Organic Growth Index are among the
largest financial institutions in the country: J.P. Morgan Chase,
Citibank, U.S. Bank Corp., Bank One, Fleet and Sovereign Bank. The
study found these firms have challenges with both customer and
wallet momentum. Each of these institutions was among the poorest
performers in at least two of the components according to customers
surveyed. Many were particularly weak in customer momentum, a
dimension along which most banking institutions in the study
performed quite well. "The Organic Growth Index shows it is
possible for any type of institution to grow organically, but in a
dynamic market the strategies and approaches to growth will be
different for each institution," said Rajnish Bharadwaj, a vice
president in A.T. Kearney's Financial Services practice and
co-leader of the study. "No one institution has achieved clear
breakaway performance. A number of regional banks outperformed
competitors in terms of customer momentum and have unexploited
growth opportunity with respect to wallet momentum." Achieving
Organic Growth The study suggests a number of actions financial
institutions should consider to achieve better organic growth: *
Institutions with leading customer momentum scores have
opportunities to cross-sell new products and services, but they
will have to break through their tendency to think in silos of
products and instead look at products through the "lens of the
customer." In the study, when asked to name their primary financial
institution, customers cited a mix of retail banks, investment
firms and diversified financial services firms. * Engaging the
front line -- in the branches and in the contact centers -- remains
one of the toughest challenges for financial institutions. Lessons
can be learned from smaller retail banks, which as a group,
outperformed the larger retail banks and most of the investment
management firms in creating Customer Momentum. * Managing
complexity -- at all levels -- as a means to improve service
quality and the overall customer experience as well as improving
the product cost/price relationship is another underexploited
lever. Because complexity affects both service delivery and
transaction effectiveness, it also increases the potential for
errors. The survey reveals the heavy attrition penalty paid by
institutions when customers experience more than one error or
service problem. "Institutions will use both mergers and
acquisitions and organic growth to grow, but indications are that
those with strong organic growth make more successful acquirers,"
said Green. A copy of the Organic Growth Index is available from
http://www.atkearney.com/main.taf?p=5,3,1,100. A.T. Kearney also
plans to make the findings database available to qualified
financial institutions. About the Study A.T. Kearney's Organic
Growth Index is based on a survey conducted between December 8 and
30, 2004 among 4,817 adults (aged 20+) who hold accounts with
financial institutions in the 20 largest U.S. metro markets. Data
were collected online and weighted by Harris Interactive(R) on
behalf of AT Kearney. Harris Interactive and AT Kearney
collaborated on the survey design and analysis. AT Kearney is
responsible for compiling and reporting the index. Sampling error
for the overall results is plus or minus 1.4 percentage points. The
survey asked financial service consumers a series of questions
regarding their current and future wallet allocation, loyalty to
their primary financial institutions, and criteria to select and
stay with a financial institution. Based on the survey results,
A.T. Kearney developed the Organic Growth Index, a weighted,
composite score based on the following components and supporting
elements: * Customer Momentum: advocacy, primary financial
institution identification, propensity to switch institutions and
lack or errors * Wallet Momentum: intention to add accounts,
intention to increase equity account value, share of financial
wallet with primary financial institution, average products per
customer To determine overall, component, and supporting element
performance, each institution received both an absolute rank and a
performance categorization: one standard deviation above the mean
(green), within one standard deviation of the mean, or one standard
deviation below the mean (red). Results for the 31 institutions
with statistically significant sample size are reported in the
Organic Growth Study and include banks, diversified institutions
and investment management firms. About A.T. Kearney A.T. Kearney
(http://www.atkearney.com/) is one of the world's largest
management consulting firms. With a global presence spanning major
and emerging markets, A.T. Kearney provides strategic, operational,
organizational and technology consulting and executive search
services to the world's leading companies. A.T. Kearney is the
management consulting subsidiary of leading global technology
services company EDS. CONTACT: Douglas MacDonald - A.T. Kearney
(+1) 312-223-6892 DATASOURCE: A.T. Kearney CONTACT: Douglas
MacDonald of A.T. Kearney, +1-312-223-6892, Web site:
http://www.atkearney.com/ http://www.eds.com/
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