Working Paper | HBS Working Paper Series | 2011

The Impact of Forward-Looking Metrics on Employee Decision Making

by Pablo Casas-Arce, F. Asis Martinez-Jerez and V.G. Narayanan

Abstract

This paper analyzes the effects of providing forward-looking metrics on employee decision making. We use data from a southern European bank that, in April 2002, started providing its branch managers with customer lifetime value (CLV) information about mortgage applicants. The data allow us to gauge the effects of enriching the information set of these employees in an environment where incentives and the allocation of decision rights remained unchanged. We find that CLV availability resulted in a significant shift in attention towards the more profitable client segments (the weight of the top segment in the portfolio of customers increases from 26% to 34%), but we do not find evidence of improved cross-selling (except for an increase in the sale of insurance products). Moreover, the use of CLV information did not have a negative impact on pricing, as some of the literature suggests, nor on default risk, indicating that managers increased sales to more profitable customers by providing better customer service.

Keywords: Customer Value and Value Chain; Decision Choices and Conditions; Mortgages; Employees; Information; Knowledge Use and Leverage; Service Delivery; Banking Industry; Europe;

Citation:

Casas-Arce, Pablo, F. Asis Martinez-Jerez, and V.G. Narayanan. "The Impact of Forward-Looking Metrics on Employee Decision Making." Harvard Business School Working Paper, No. 11-106, April 2011.