The impact of forward-looking metrics on employee decision-making: The case of customer lifetime value

Pablo Casas Arce, F. Asis Martínez-Jerez, V. G. Narayanan

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

This paper analyzes the effects of forward-looking metrics on employee decision-making. We use data from a bank that started providing branch managers with the customer lifetime value (CLV)-an estimate of the future value of the customer relationship-of mortgage applicants. The data allow us to gauge the effects of enriching the employees' information set in an environment where explicit incentives and decision rights remained unchanged. On average, customer value increased 5 percent after the metric's introduction. The metric's availability resulted in a significant shift in attention toward more profitable client segments and some improvement in cross-selling. However, the use of CLV did not negatively impact pricing or default risk, as the literature predicts. Finally, branch managers with shorter tenure displayed a stronger response, consistent with information substituting for experience.

Original languageEnglish (US)
Pages (from-to)31-56
Number of pages26
JournalAccounting Review
Volume92
Issue number3
DOIs
StatePublished - May 1 2017

Fingerprint

Employees
Customer lifetime value
Decision making
Managers
Default risk
Customer value
Cross-selling
Incentives
Decision rights
Mortgages
Customer relationship
Tenure
Pricing

Keywords

  • Cross-selling
  • Customer lifetime value (CLV)
  • Decision AIDS
  • Employee decision-making
  • Forward-looking metrics

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

The impact of forward-looking metrics on employee decision-making : The case of customer lifetime value. / Casas Arce, Pablo; Martínez-Jerez, F. Asis; Narayanan, V. G.

In: Accounting Review, Vol. 92, No. 3, 01.05.2017, p. 31-56.

Research output: Contribution to journalArticle

@article{e5e874ce2b7349bb97e5d34bd30aef6a,
title = "The impact of forward-looking metrics on employee decision-making: The case of customer lifetime value",
abstract = "This paper analyzes the effects of forward-looking metrics on employee decision-making. We use data from a bank that started providing branch managers with the customer lifetime value (CLV)-an estimate of the future value of the customer relationship-of mortgage applicants. The data allow us to gauge the effects of enriching the employees' information set in an environment where explicit incentives and decision rights remained unchanged. On average, customer value increased 5 percent after the metric's introduction. The metric's availability resulted in a significant shift in attention toward more profitable client segments and some improvement in cross-selling. However, the use of CLV did not negatively impact pricing or default risk, as the literature predicts. Finally, branch managers with shorter tenure displayed a stronger response, consistent with information substituting for experience.",
keywords = "Cross-selling, Customer lifetime value (CLV), Decision AIDS, Employee decision-making, Forward-looking metrics",
author = "{Casas Arce}, Pablo and Mart{\'i}nez-Jerez, {F. Asis} and Narayanan, {V. G.}",
year = "2017",
month = "5",
day = "1",
doi = "10.2308/accr-51554",
language = "English (US)",
volume = "92",
pages = "31--56",
journal = "Accounting Review",
issn = "0001-4826",
publisher = "American Accounting Association",
number = "3",

}

TY - JOUR

T1 - The impact of forward-looking metrics on employee decision-making

T2 - The case of customer lifetime value

AU - Casas Arce, Pablo

AU - Martínez-Jerez, F. Asis

AU - Narayanan, V. G.

PY - 2017/5/1

Y1 - 2017/5/1

N2 - This paper analyzes the effects of forward-looking metrics on employee decision-making. We use data from a bank that started providing branch managers with the customer lifetime value (CLV)-an estimate of the future value of the customer relationship-of mortgage applicants. The data allow us to gauge the effects of enriching the employees' information set in an environment where explicit incentives and decision rights remained unchanged. On average, customer value increased 5 percent after the metric's introduction. The metric's availability resulted in a significant shift in attention toward more profitable client segments and some improvement in cross-selling. However, the use of CLV did not negatively impact pricing or default risk, as the literature predicts. Finally, branch managers with shorter tenure displayed a stronger response, consistent with information substituting for experience.

AB - This paper analyzes the effects of forward-looking metrics on employee decision-making. We use data from a bank that started providing branch managers with the customer lifetime value (CLV)-an estimate of the future value of the customer relationship-of mortgage applicants. The data allow us to gauge the effects of enriching the employees' information set in an environment where explicit incentives and decision rights remained unchanged. On average, customer value increased 5 percent after the metric's introduction. The metric's availability resulted in a significant shift in attention toward more profitable client segments and some improvement in cross-selling. However, the use of CLV did not negatively impact pricing or default risk, as the literature predicts. Finally, branch managers with shorter tenure displayed a stronger response, consistent with information substituting for experience.

KW - Cross-selling

KW - Customer lifetime value (CLV)

KW - Decision AIDS

KW - Employee decision-making

KW - Forward-looking metrics

UR - http://www.scopus.com/inward/record.url?scp=85018188378&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85018188378&partnerID=8YFLogxK

U2 - 10.2308/accr-51554

DO - 10.2308/accr-51554

M3 - Article

AN - SCOPUS:85018188378

VL - 92

SP - 31

EP - 56

JO - Accounting Review

JF - Accounting Review

SN - 0001-4826

IS - 3

ER -