PA Consulting Group survey finds that financial services institutions are eager to adopt organic growth as a strategic priority, but struggle to execute.

Financial services institutions acknowledge the importance of organic growth to attract and retain customers in theory, but are finding it difficult to implement processes and strategies to foster such growth, this according to a report released today by PA Consulting Group at the BAI Retail Delivery Conference in Las Vegas.

"Recognizing the importance of organic growth and the challenges banks have had in achieving it, we surveyed banks in a range of sizes to understand both current practices, best practices and areas for improvement," said David Wagstaff, a senior consultant in PA Consulting Group's Financial Services Practice. "The study seeks to understand both how institutions currently acquire customers including tools used and where banks place emphasis."

In a survey of 42 financial services institutions in the US and Canada with an average size of about $30 billion in assets, PA found that while 98% of respondents stated that organic growth is a top-five strategic priority, 49% claim that they have not been successful or have found moderate success in filling the gaps between setting goals and executing.

The research found that while financial institutions are struggling to develop best practices to foster organic growth, they do recognize that the customer experience is paramount in the development of strong, long-term relationships. Respondents placed a heavy emphasis on service quality (94%) and customer satisfaction (85%) as important growth factors. When asked how they seek to ensure quality and customer satisfaction, 61% cite setting and reaching customer satisfaction targets, 27% have set targets for employee satisfaction, and 55% find surveys as an valuable tool to acquire important information directly from their customers.

Ironically, while a majority claim to value customer surveys as a means to gather intelligence on their client base, more than half of those surveyed do not collect any information from customers when they close their accounts. This may be a key factor in why banks tend to struggle to grow organically as understanding why customers leave will help financial institutions gear strategies to attract and retain more customers, including re-gaining lost consumers.

The report also uncovered a correlation between the size of a financial institution, in assets, and the likelihood that it will adopt analytic tools such as customer segmentation and predictive models to achieve profitable growth. While less that 50% of all of the banks surveyed currently use customer segmentation and predictive modeling, the number of respondents who use predictive modeling jumps from less than 10% for banks with less than $1 billion in assets, to approximately 35% of banks with between $1 billion and $5 billion in assets, to 43% of banks with greater than $5 billion in assets. Furthermore, every bank surveyed that has more than $200 billion in assets reported using both predictive models and customer segmentation as a strategy for achieving profitable growth.

According to Wagstaff, "Over the past years banks have aggressively sought to expand by acquiring other institutions and by growing branches. Increasingly, banks are finding challenges with both of these strategies. Acquisitions, while still popular, often do not produce long term shareholder value. For example, as the number of banks in the U.S. has decreased, the number of branches has increased from 54,000 in 1994 to over 69,000 in 2006. This increase in the number of branches has meant more bankers chasing existing customers and thereby increasing the expense of organic growth."

"Given these challenges, smart strategies such as using technologies like predictive analytics seem to be rising in importance."