Businesses investing in Customer Relationship Management (CRM) are unlikely to reap their desired return on investment if they focus too much on the overhyped software.

A new report argues that until businesses are physically and culturally built for a customer focus, their growing investments in front-office CRM software will achieve very little.

Equally, just as every IT vendor is clambering on the CRM bandwagon, the focus on front-office technologies from companies like Siebel is misguided, particularly if organisations are aiming for enterprise-wide views of the customer and business processes.

"Despite vendor claims, no one vendor offers end-to-end high quality enterprise systems that encompass the numerous and diverse business processes. Some offer the basic components of end-to-end systems but they do not work equally well at all points across the enterprise: the shift to ecommerce will exacerbate the key problem of creating closed loops of information," said report author Janice McGinn.

Ian Wilson, head of database marketing at the Royal Bank of Scotland, concurs with the report's conclusions. He said, "There is so much hype in the field of CRM. Every supplier claims to be doing it, but it's simply not true. CRM is not about technology: it's a business philosophy ... and the things that really differentiate it are organisational issues."

The report, Increasing Customer Loyalty and Profitability in the Retail Financial Sector, argues that retail financial businesses desperately need to develop a customer focus, particularly as the sector feels the effect of mergers and acquisitions, disintermediation and the emergence of new Internet players that don't have the same history and high overheads.

The financial sector and others, telecoms for example, are built around products, each carrying its own legacy of business processes, people and IT systems. There is little or no integration.

The upshot, the report states, is that the sector has no idea of customer profitability, and the marketing campaigns send out mixed messages to customers already casting around for better, packaged deals.

The rate of customer defection is high and growing, with customers embracing Internet players that are built for customer focus from day one. Their low overheads are reflected in highly competitive pricing that the traditional sector cannot match, particularly if it aims to maintain high, if controversial, levels of profitability, the report concludes.

"There were a whole range of systems in place that vary by country and by business. The standalone systems have no linkages in terms of customers, products and administration, and the business lack an overall view of the sales processes," said David Reed, relationship programme manager at Flemings Fund Management.

The report is available from Informa Publishing for £695. More details are available from Eleanor Slade on 0171 553 1515. Janice McGinn is a freelance journalist and industry analyst. She is a regular contributor to vnunet.com.