Companies are focusing on their relationships with customers for one simple reason: customer satisfaction pays.
A one-percent increase in customer satisfaction, reports Claes Fornell, director of the University of Michigan's National Quality Research Center, relates to a three-percent increase in market capitalization.
Except for mom-and-pop shops, these days customer relationship management (CRM) is pretty hard to accomplish without information technology. But technology merely implements customer-focused strategies and processes. If your company's CRM strategy is flawed, or if your customer-facing processes are dysfunctional, CRM technologies won't help your business.
Eyes on the prize
So what's a CIO to do? Begin with business goals.
"The key is to start with goals that relate to the customer," says Scott Nelson, vice president of Gartner's CRM practice. "Such areas as market share, customer satisfaction or cross-sales ratios are all good places to start. Which of these are represented in your organization's strategic plan? Which ones already have in place tactics that your firm is pursuing?
"Once that's done, you add in the customer's perspective. What does a day in the life of a customer look like right now? What should it look like? Ideally, you'll align your goals with the customer's, and that's where CRM should yield real benefits," Nelson adds.
Specifically, these benefits include:
Understanding your customers' needs more completely than ever before
An ability to persuade your customers to initiate more profitable transactions
Reducing customer defections
Identifying those customer relationships that generate the most profits and are therefore worth investment of the most corporate resources
Knowing which new customers are worth attracting
Hewlett-Packard used to spend $300 million marketing to Asian Pacific prospects through resellers, but couldn't track results. When the company decided to sell directly, it turned to Kana for help managing marketing campaigns and analyzing the data generated. In the first six months, HP boosted direct marketing campaign revenues by more than 250 percent, cut channel switching by 100 percent and cemented customer loyalty.
When it saw satisfaction levels decline, Union Bank of Norway, one of that nation's largest financial institutions, discovered how little it really knew about its customers. After investing in NCR's CRM solution to manage marketing campaigns and analyze results, the bank is upgrading services for 2,000 customers a month and reports revenue increases greater than costs: its CRM efforts are generating profits.
By using analytic software from the SAS Institute, retailer The Limited has achieved a 400 percent return on investment (ROI) by segmenting its customer database to optimally target for marketing campaigns and help influence customers' channel choices.
No wonder the Rubin Report ranks CRM spending as the top priority in dynamic industries！such as financial services and high tech！where customer "stickiness"matters because customers tend to be fickle. Indeed, the Meta Group reports that every year, on average, the financial services industry loses between 10 percent and 20 percent of its customers; replacing them costs $200 to $300 each. Done right, CRM solutions can put a dent in those numbers.
"In essence, CRM makes each customer contact more effective," says Carlos Galarce, senior vice president, Information Office, APAC Customer Services, Inc. "Those customers who feel that the company understands their needs and see the company as a good fit because it offers them personalized services and products historically spend at least 30 percent more on average than customers who do not have the same loyalty."
CRM strategy: how much is enough?
When it comes to customer relationships, does your company need to undertake comprehensive change or target particular issues? Your answers to these questions will help you figure it out:
Who are our customers? Who else should be our customers?
What kind of feedback do we get from our customers?
In what ways do we communicate with our customers?
What do our customers expect of us, now and in the future?
Are we living up to our customers' expectations in terms of quality, service and responsiveness?
Which of our processes contribute to gaps between customer expectations and what we actually deliver?
How can we change our processes to close these gaps? To increase organizational efficiency?
Do we have the information we need about our customers? Are we sharing it across departments in a timely way?
Be sure to talk with the folks in the trenches！not just high-level executives！and customers, too, about how interactions with customers happen and how information about these interactions is gathered and handled. Once you've pinpointed the processes that need improvement, prioritize what to work on and only then seek out software and services that can address the needs you've identified. Beginning with the bottom line
The trick comes in maneuvering CRM strategies and tools into position while also reducing risks in IT spending. During these lean times, the emphasis remains on ROI rather than transformation; growth at any cost is not acceptable.
Yet CRM differs from other enterprise software investments. Unlike enterprise resource planning (ERP), which cuts costs and improves efficiencies to help the bottom line, CRM is also about increasing top-line revenues. So CIOs charged with CRM implementation need to be especially business-savvy, since the effort requires understanding how technologies can add revenues by improving customer interaction.
"Many areas of revenue enhancement are hard to quantify up front, before the CRM investment is made. So for example, CRM may produce more satisfied customers, and that may mean more revenue！but how much? That's hard to say," observes Gartner's Nelson. "Gartner recommends that you justify the project around cost saves, but look to revenue enhancement as the real long-term value. Once you have some objective data to work with, it becomes easier to build a revenue enhancement case in the future."
Honing long-term plans
Then there's the technical complexity of CRM. It becomes apparent rather quickly that what's involved is a process of successive integrations that lead, finally, to a customer interaction capability supported by all of your enterprise's business and technology infrastructure. This kind of robust integration is essential if the many applications that handle the complex interconnections associated with customer interactions are to exchange data rapidly.
Several technologies！including data warehousing and data marts, an assortment of analytic capabilities, marketing automation, various front-office applications like sales-force and call-center automation, and links to back-end enterprise functions like ERP and supply chain management (SCM)！need to work together synergistically. When it's all fully engaged, a repeating CRM cycle can begin:
Detailed customer interaction data gets analyzed (eventually in real-time) and the results drive applications that generate and manage targeted marketing campaigns which will, in turn, drive sales and support interactions.
The resulting orders and other interactions are processed by sales applications and integrated into ERP and SCM suites; they also spawn customer interaction histories that feed into service and support applications.
The data derived from these new interactions then feeds successive rounds of even better analysis, campaign planning and further interactions.
The journey can get underway from several base camps:
"Traditional" CRM, in which analysts rely on data warehouses and decision support applications to create models and plans that optimize customer service, sales and support processes
Front-office, customer-facing operations！including sales automation, marketing automation, websites and the call center (quickly evolving into the Web-enabled customer interaction center)！that many companies have automated piecemeal with best-of-breed applications
ERP and SCM initiatives to which CRM functionality is added
Outsourcing all or part of a CRM initiative to an expanding range of professional services providers, application service providers (ASPs) and managed service providers (MSPs)
"Planned short-term CRM integrations should be part of an evolution to a long-term plan," notes APAC's Galarce. "This is the only way that companies can maintain short-term revenue and competitive goals."
Why CRM projects fail
Lack of executive attention and leadership
Stovepiped functional or business unit CRM initiatives that lack coordination
Weak reengineering and change management to support customer-centric business processes
Insufficient funding for CRM training and implementation
Source: Gartner Meeting the challenges
Obviously, pitfalls abound, and there have been plenty of reports of CRM implementation failures. A recent Alexander Group survey cites CRM failure rates of 50 percent to 90 percent among the 50 large, mostly business-to-business companies queried.
Analysts point out several reasons. One is the assumption that technology alone will solve customer problems！automating bad business practices and processes only makes things worse.
"Companies that do not consider business process assessment either before or in conjunction with a CRM technology implementation are limiting the total benefits of CRM," says Mary Wardley, director of CRM applications at International Data Corp. (IDC).
Another concerns lack of metrics！if you don't measure before and after performance, it can be tough to tell whether a project has been a success or a failure.
"If an organization starts with a strategy that is measurable and achievable in smaller steps," says Wardley, "the likelihood that it will be successful long term are increased. By having built-in measurements and checkpoints, any problems or missteps can be identified and corrected."
Additional challenges come in picking the right vendors out of the several hundred occupying a much-fragmented CRM marketplace. Most are highly specialized, fielding just one or two offerings. A few vendors offer CRM suites, but each has its limitations. Meeting an enterprise's CRM needs can require products and services from dozens of suppliers and creates customization issues that, analysts estimate, can cost two to five times the price of CRM software outlays.
"The ROI of a specific function can be calculated more clearly than for a suite of products," notes Ed Thompson, vice president of Gartner Research's CRM practice. "Therefore, the key when buying is to understand which functionality is critical, which is important and which is nice to have！then buy a suite for 70 to 80 percent of the functionality required and fill in the remaining 20 to 30 percent with point products which exceed the capabilities of the suite."
Beatriz Infante, CEO of Aspect Communications, sees it a bit differently.
"It may not be right for your business to immediately integrate everything but it may be right at some point in the future," she says. "So you certainly don't want to select solutions that will lead to 'stove-piping' and will be difficult to integrate when the time comes. The thing to do is create a long-term vision with several phases. But you don't want any one phase to make the next one difficult or impossible to add！if you do, you'll constantly be ripping out and rebuilding every time you want to change, and that is not feasible without the business suffering."
Damn the torpedoes
Certainly tough times have not kept CRM from topping most CIOs' wish lists. A recent survey by Forrester Research shows that 45 percent of the companies polled are considering CRM projects and that more than a third have launched or completed implementations. Forrester analysts report that the large companies they queried spend between $15 million and $30 million a year on CRM-related software and services.
The good news is that plenty of firms are achieving the ROI goals they set for CRM. Recent research by AMR reveals that two-thirds of the companies examined indicate that ROI expectations！mostly related to reducing the costs of customer support！have been met or are on track.
Even the Alexander Group's survey indicates that those firms implementing CRM "correctly" saw average improvements of 13 percent in revenues, 17 percent in sales rep productivity, 22 percent in customer satisfaction and 28 percent in selling time. Moreover, failed CRM implementations can be turned around, report Alexander Group analysts, with renewed pilot programs based on three elements:
Analyze customer needs and design CRM solutions to address these needs
Improve sales processes and translate these into incremental revenue targets for sales people
Configure CRM functionality to the new sales processes
Research by Accenture indicates that a $1billion organization can add $40 million to $50 million in profits by pushing through 10 percent improvements in 21 key CRM capabilities！including customer service, turning customer information into insight, partner and alliance management, e-CRM, sales planning and customer retention and acquisition. And technology, reports Accenture, can speed up the impact of CRM by as much as two-thirds.
Case Studies
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