What is the future of CRM and how do you get ROI?

MyCustomer.com
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At Teradata's Information Economics conference in Edinburgh this week I heard perhaps five or six excellent presentations on the future of CRM, and this editorial is going to try to synthesise the thinking that came out of those presentations and other discussions at the conference.

Let me start by outlining some of Professor Stephen Garelli's (Director, World Competitive Yearbook; professor at IMD and University of Lausanne) thoughts – at the macro-economic level. He gave a far-reaching and witty review of the world economy today and a forecast for the next fifty years. However, I will highlight only a few of the insights he gave us, focusing on the current recession and the likely impact on business.

The world economy is sick. It entered into recession in 2001, and it is by no means certain that it will start to prosper again quickly. There are definite grounds for a pessimistic outlook, in particular, profitability is generally low and debt is very high (e.g. the communications industry). On the plus side, many company's inventories do need to be replenished, and the markets are looking for good news. Perhaps the most likely scenario is a fluctuation between recession and growth over the coming period, as the positive and negative aspects of the economy come into focus. The real wildcard is the price of oil. A significant variation in oil prices has a large impact on the world economy and obviously the Middle East situation needs to be watched carefully.

In this economic climate, and with the high competitiveness of the current environment, companies will find survival difficult. The major opportunity for cost reduction is in the area of transaction productivity. For example processing transactions represents 40% of the total cost for GE, and in the auto industry it takes, on average, 42 days to deliver a car. The breakdown is as follows: 2 days to manufacture; 5 days to deliver; and 35 days administrative processes. The points that Professor Garelli made which I thought of most relevance to us in the CRM industry were the following.

Firstly, a company can only differentiate itself in the marketplace in one of two ways: product innovation through technology, or customer intimacy. Product innovation through technology is a huge gamble and difficult to maintain in the long-term, so we are seeing a move from product competitiveness to customer relationship competitiveness.

Secondly, and perhaps more importantly, companies can only make significant profits when prices are not transparent and customers are locked in. CRM has an obvious role in trying to lock customer in, though it is hard to see how the price transparency that is so helped by the Internet can do anything other than increase.

Sir Brian Pitman, ex-chairman of Lloyds TSB group, currently chairman of Next and a major European business leader, in the main concurred with this analysis though he saw the two opportunities to compete as product differentiation or operational efficiency - perhaps including customer intimacy in this second area, as he saw CRM as a hugely significant development.

In such challenging times, he believes that companies have to set themselves extremely challenging objectives. At Lloyds TSB he followed the example of Coca-Cola by aiming to double the shareholder value every three years, much to the initial surprise or even indignation of his board colleagues.

What I found most interesting was Sir Brian's approach to organisational change. It has become a truism that adopting CRM means changing the organisation. The only problem with this is how do you do it? I believe there are change management consultants who are supposed to be able to help you, but I've never come across a credible one in the projects I've worked on. Sir Brian's recipe is relatively simple. You have to win the hearts and minds of your colleagues. To win their minds, you have to have a concrete, fireproof, logical case for what you are proposing, but this is by no means enough. People not only have to accept your argument, they have to believe in their hearts that the change proposed is required or even inevitable. The only way, Sir Brian believes, that you can get that belief is through many discussions in small groups with the individuals concerned. This makes sense to me, but as a CRM programme director, it means you need the CEO or a powerful board member on your side and committed to devoting significant effort to driving through the changes required. Key to actually then delivering is to ensure that you can report on the impact of the changes you are making, ideally on a weekly basis, so that managers have the information they need to adapt and meet their objectives.

If this sets the general economic and corporate background for the requirement of CRM, Professor Mohan Sawhney, (Kellogg School of Management) explored the changes necessary for an organisation to become customer-centric. Historically, many companies have adopted one of two approaches. Firstly, a marketing-led approach which conducts needs and benefits-based customer segmentation, and develops new customized offerings for specific segments. This often leaves sales organised around products, and technology and operations find it difficult to deliver on the new propositions.

Alternatively, an IT-led approach emphasises on CRM, contact centres, and business intelligence to improve operational and analytical customer-facing capabilities. However, there is often inadequate customer understanding to capitalise on the analytics and the technology frequently cannot be leveraged to create integrated offerings.

I guess we all know CRM programmes which fit into one or other of these categories, or sometimes both! In my own experience there has been a preponderance of IT-led projects.

Professor Sawney tries to resolve this dilemma by borrowing the 'middleware' concept from IT to separate the front-end customer-facing services from the back-end operational processes. Whatever you do, don't break up the functional or product silos. Make them permeable through information technology and information sharing. He envisaged a CRM programme consisting of activity in three major areas:

  • At the customer end, the Chief Marketing Officer leads a programme providing a single face to customers by decoupling customer offerings from individual products.
  • The CIO leads a technology programme which bridges system silos by unlinking customer-facing applications from operational infrastructure – sounds like data warehousing and middleware to me.
  • The COO leads a programme to ensure customer focus with product excellence by decoupling customer expertise from product and functional expertise.

Finally the CEO coordinates all three programmes.

To make these changes demands real commitment, and perhaps because this level of commitment is not often present we don't see the number of successful CRM programmes that we should.

Professor Sawney had much of value to say about all three of these programmes, though we do not have room to cover them here. We are in discussions with Teradata to provide CRM-Forum members with access to his full presentation. More soon I hope.

Let me, however, give one example from the lower-level, particularly dear to my own heart. Sawney suggests you think about what business you are in. This may seem obvious but what he's really asking you to consider is what customer needs you are meeting, rather than what products you are selling. For example, what business is Kodak in? They are not in the photographic industry, but the memories business. A car manufacturer isn't in the car business, but the personal mobility business (interesting that Ford has purchased Kwik-fit the exhaust repair and tyre business); a greeting card manufacturer isn't in the cards market, but in the 'personal expression' business. Finally, a big part of what I was trying to say in last week's editorial, The best bank for CRM, retail banks are not in the business of checking, savings, and loan accounts, but in the business of helping people manage their financial affairs (at least that's what I think they should be doing). If you apply this needs-based approach to your business, and think about it seriously, it provides a way of developing the new customer value propositions that are a key source of ROI from the changes implemented through your CRM programme.

While we're on this more personal dimension, I was most interested in a presentation by John McKean (Executive Director, CIBC) who focused on treating customers as human beings. We hope to publish a presentation from John outlining his approach, in the meantime let me give you a couple of examples of John's thinking that I found illuminating.

In this age of price transparency and similar products customers are highly influenced by how companies treat them. According to McKean, 70% of the customer's buying decision is based on how the business treats them, and yet less than 20% of the business's resources are invested in that process. In a similar vein, as more transactions are undertaken online, McKean believes that a transaction which takes place with another human being (face-face or via a call centre) has seven times more impact on customer relationship than a transaction which uses as self-service electronic transaction (on the Net or via an ATM, for example). This is hard to reconcile with the growing shift to self-service, though perhaps we only expect 'good process' when we interact with a machine, but want the 'human niceties' to be observed when interacting directly. Certainly it highlights the requirement to focus more on the niceties of human-human contact.

Turning to the e-channel, Professor Jim Norton (Executive Chairman, Deutsche Telekom UK) brought us up-to-date with how rapidly e-business is developing. E-business, of course, has gone through an even larger slump in Gartner's technology adoption curve than CRM has. Norton argues this is more to do with market perception than reality. Garelli told us that markets are excessive - they over-react. In Jim's words, they got it wrong on the upside, during the dot.com boom, and now they're getting it wrong on the downside. E-commerce is growing rapidly, but not so much in the B-C area, where the press and perhaps the markets focus, but in the B-B sector. UK E-commerce projections demonstrate this clearly:

UK E-Commerce revenues: B-C B-B
2001 $2.5bn $15bn
2003 $8.8bn $65bn
2005 $28bn $225bn

Where personal consumers are finding it difficult to trust online transactions, businesses are quietly getting on and doing it.

The e-commerce facility furthest along the technology adoption curve is, in Jim's view, customer self-service, and he makes an interesting point which ties in with the customer research we've highlighted recently. The biggest change in the business world that has made the most money in the last fifty years, is not the development of the PC industry, but the introduction of self-service in, for example, supermarkets. People want low time-cost self-service, but if they get conventional service, they expect it to be excellent and to meet the 'human niceties'. There's a funny dichotomy there.

After these high-level strategic concerns, I was pleased to get down to the more practical issues of how you get return on investment from CRM, and how you go about tackling the steep learning and development curve of adopting CRM. One of my objectives in attending the conference was to catch up on where Teradata were. I've had no practical experience of implementing a Teradata-based solution, but had come across them a long time ago when they evaluated porting to their hardware a multi-channel campaign management that I was the architect of. At that time, I'd been impressed by the MPP architecture of the box, and its appropriateness for CRM applications, but hadn't had a chance to catch up with recent developments.

Frankly, my expectations were low – one doesn't expect a hardware manufacturer to have a good focus on providing a real solution to a business problem – usually the tin box looms too large in the equation; I was pleasantly surprised. I had the opportunity to talk with their CTO, their CRM director, and spent some considerable time with Ron Swift – VP Strategic Customer Relationships (thanks Ron), and came away with the view that they seem to have combined the hardware and software expertise with the business knowledge to help companies get value from their offerings. I am sure there are some 'buts', there always are, but I didn't find them in my three days at the conference.

I was most impressed with a 3-hour tour-de-force by Ron Swift on Accelerating Customer Relationships, which focused on strategies for delivering ROI from CRM. I haven't the space to describe in detail Ron's presentation, but if you're interested you can buy his book on the subject in the Teradata storefront. What impressed me was, firstly the recognition that companies are in very different stages of the development of CRM; a well-thought through route map for moving through the those different stages, and a range of products and services which could help you through the transition ranging from industry-specific logical data models, to industry-specific business-impact models which should accelerate the identification of tangible business benefits (and hence ROI) on both the cost side and the revenue side. In addition Ron walked us through the analytics required to support just about every aspect of CRM. It seems here was a supplier who appears to have recognised that to sell their product they need to understand the customers' requirements. Of course, this needs to happen not only in a conference, but also in real-life projects. They're definitely worth a look if you need their sort of expertise.

So how do I summarise what came out of these three days for me? Despite the current disillusionment with CRM (normal at this stage in the technology-adoption curve), and the currently high failure rate of CRM projects reported by Gartner and others, the adoption of CRM is a business imperative that cannot be ignored given the economic environment we're likely to face over the coming years.

The insights from those early projects are available to us all, and the groundwork has been done to increase the success rates of further efforts in this area.

We should not let the high failure rate eclipse the success stories. As always, I'd point at Dell and First Direct, but there are others just as good. Walmart is a case in point, and in the global financial services sector we could point to Royal Bank of Canada or SBC in telecommunications. Other examples of perhaps smaller companies include Blockbuster Video or Hallmark Cards. We hope to be able to bring case studies from some of these organisations over the coming weeks to help you learn from their successes as well as others' failures.

The economic situation demands the adoption of CRM. The technology is there to support it. We need to improve our customer value propositions, and change our organisations so that we can benefit from it.

As always we'd like to hear your comments. Make them below or e-mail me at mailto:[email protected]

For more on this topic, and in particular obtaining ROI, see the following week's editorial, The future of CRM – focused on ROI, at /cgi-bin/item.cgi?id=79931

Regards,

Richard Forsyth

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15th May 2002 18:06

Your point (SEE 'What about the rest?' is well made and one to which i subscribe entirely.

For the record, I heard Michael Porter's views on "Customer Management as a competitive strategy" in London on 16 April and stuck by how little he appreciates both the poor state of customer facing operations (in the UK at least!) and its impact on attempts at customer intimacy.

Always a fascinating thinker, Porter's two hour key note centred around the contention that companies need to do two things:

1. Be operationally effective: i.e., assimilate, attain, and extend "best practice." This, Porter said, has been the focus of CRM and is so easy for you and your competitors to do that it doesn't lead to any
competitive advantage. In fact he contends that it has led to convergent practices as all companies manage to adopt the same best
practice.

2. Put themselves into a strategic position which is unique and sustainable. Strategic positioning is, of course, Porter's area of
traditional expertise and something that he thinks most companies do badly. To ensure that
competitors can't copy your positioning you have to make trade-offs that involve deliberately alienating and refusing to service certain customers. He gave Neutrogena soap as the trade-off example. It's mild,
which cuts out significant cleansing, and has no residue, which cuts our moisturizing. If you want these you go elsewhere.

Here's my take -- and do feel free to comment!

Porter has no idea of just how difficult it is to achieve operational effectiveness in customer-facing areas. We still have some way to go to determine what best practice is let alone to assimilate, attain and extend it. In most companies there is still waste, inefficiency and bad practice right the way through the customer lifecycle -- from targeting to acquistion through to post-sales service. Implementing CRM systems is not, as Porter contends, a quick way to attain best practice.

Best practices for customer management are inextricably linked to and shaped by market positioning. For example, most call centres are
predicted on best practice to minimise the cost and average time per call. A few however are managed entirely differently -- on customer
satisfaction, profit for example. Here is a clear example where the choice of what Porter calls a Strategic Positioning Trade Off will
radically reshape choice of best practice.

Porter finished by explaining why so few companies think strategically about their industry position. He said the biggest barrier to strategic positioning "faulty management thinking" and gave two examples: an
excessive focus on all customer needs and the belief that quality is free.

If you have made it to the end of this extended rant, do let me know your views!!

Wendy Hewson
Hewson Group

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30th Apr 2002 11:00

Ruthanne, Simon,

My apologies - you're right. I spent so much time on the future of CRM that there was not much of substance on the ROI aspect. Ron Swift's presentation provided lots of detail on Teradata's approach to ROI, and of course I have my own thoughts on the subject.

What I propose to do to correct the imbalance is to do two things - first, next week's editorial will be 'Part 2' of the same subject, with much more focus on the ROI side, and I also plan to ask Teradata whether they will allow us to publish a version of Ron's presentation.

Regards,

Ricahrd Forsyth

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avatar
29th Apr 2002 14:53

The future of CRM was discussed. It would be interesting to understand how companies can afford the initial investment and how ROI can be realized during the early stages. The long term benefits can be understood. Trying to get a belief in ROI during the initial stages is the real trick.

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avatar
By admin
07th May 2002 12:00

Very interesting article and further comments.

This debate about product cross sales being the problem is quite clearly 'a' problem. I work for one of the banks on CRM so I have some insight both from my own org and the others we meet at seminars etc from time to time.

Within FS as a whole there are a number of issues that even with best intention generate the wrong behaviour;

o sometimes CRM is seen as the next fad, one with which to pay lip service and further your career whilst waiting for the next
o CRM is incorrectly seen as just the corporate smile rather than a business philosophy for becoming customer centric.
o Many of the senior management within banking have old habits that refuse to die, based on inertia and market dominance.
o There is too much talk of technology which has two negative effects 1 it swtiches off the debate with half the management 2 the other half get excited about the 'toys' and try to find solutions on which to use them.
o Many of the execs within FS are on short term placements which tends to lead to milking the customers rather than sowing for the future.
o Product management is strong which inhibits the organisation making common sense customer decisions.
o measures all lead to product sales rather than customer needs.
o 'e' channels are seen as a separate channels rather than another 'touch point' and a perverse amount of time is spent on 'look & feel' rather than producing things which customers might actually find useful.

Not an exhaustive list but a summary fo what we face within the FS world ..believe me it is a tough slog, I just hope our org gets 'it' before someone else or we will really get punished!

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By admin
15th May 2002 14:36

The first point - differentiation through product innivation or customer intimacy -
Sorry, but this is complete gibberish ! What about customer service? You can be as intimate as you like with someone, with a fantastic product, but if the goods don't arrive on time and / or are wrong / damaged, you can be as nice as pie and the only differentiator you have is that you will not be in business for long.

And that's not CRM, that's just bnusiness...

Thanks (0)
avatar
By admin
15th May 2002 14:36

The first point - differentiation through product innivation or customer intimacy -
Sorry, but this is complete gibberish ! What about customer service? You can be as intimate as you like with someone, with a fantastic product, but if the goods don't arrive on time and / or are wrong / damaged, you can be as nice as pie and the only differentiator you have is that you will not be in business for long.

And that's not CRM, that's just bnusiness...

Thanks (0)
avatar
By admin
07th May 2002 12:00

Very interesting article and further comments.

This debate about product cross sales being the problem is quite clearly 'a' problem. I work for one of the banks on CRM so I have some insight both from my own org and the others we meet at seminars etc from time to time.

Within FS as a whole there are a number of issues that even with best intention generate the wrong behaviour;

o sometimes CRM is seen as the next fad, one with which to pay lip service and further your career whilst waiting for the next
o CRM is incorrectly seen as just the corporate smile rather than a business philosophy for becoming customer centric.
o Many of the senior management within banking have old habits that refuse to die, based on inertia and market dominance.
o There is too much talk of technology which has two negative effects 1 it swtiches off the debate with half the management 2 the other half get excited about the 'toys' and try to find solutions on which to use them.
o Many of the execs within FS are on short term placements which tends to lead to milking the customers rather than sowing for the future.
o Product management is strong which inhibits the organisation making common sense customer decisions.
o measures all lead to product sales rather than customer needs.
o 'e' channels are seen as a separate channels rather than another 'touch point' and a perverse amount of time is spent on 'look & feel' rather than producing things which customers might actually find useful.

Not an exhaustive list but a summary fo what we face within the FS world ..believe me it is a tough slog, I just hope our org gets 'it' before someone else or we will really get punished!

Thanks (0)
avatar
07th May 2002 14:02

Eleven years of research into CRM success has convinced me that business case is a much underutilised tool. ROI evaluations take place in a complex organisational environment. They are multi purpose and can and are used - for better or for worse, intentionally or unplanned - to meet a variety of purposes.

Performance improvement specialists - such as the former Gemini Consulting - have always used the business case to communicate what has to be done, why and how, ring fence the resources required, and drive through the changes. Yet most CRM business cases are focussed on high level numbers. they might yet the funds to start the project but manifestly fail to build senior management appreciation of and support for the necessary changes in organisation, culture, processes and business practices. They also fail to safeguard budgets for tail end costs such as training, re-configuration and so on.

What does this mean in practice? First the upfront recognition that the business case goes beyond numbers and is part of the toolset used to manage the project through to success. Second, an unbundling of the most critical elements required in the business case. The Hewson method uses the following building blocks:

1. Economic - establishes the project will add value
2. Political - obtains funds, wins hearts and minds
3. Prototype - forces early identification of issues re: feasibility, desirability, resource requirements and organisational impact.
4. Control - established project measurement criteria to drive through the realisation of benefits and to plan and control the costs

ROI evaluations take place in a complex organisational environment. They are and can be used to meet a variety of purposes.
By weaving key CRM messages and resource requirements into the ROI, savvy managers ensure their plans can nopt be unravelled!

Wendy Hewson
Hewson Group

Thanks (0)
avatar
29th Apr 2002 14:53

The future of CRM was discussed. It would be interesting to understand how companies can afford the initial investment and how ROI can be realized during the early stages. The long term benefits can be understood. Trying to get a belief in ROI during the initial stages is the real trick.

Thanks (0)
avatar
30th Apr 2002 11:00

Ruthanne, Simon,

My apologies - you're right. I spent so much time on the future of CRM that there was not much of substance on the ROI aspect. Ron Swift's presentation provided lots of detail on Teradata's approach to ROI, and of course I have my own thoughts on the subject.

What I propose to do to correct the imbalance is to do two things - first, next week's editorial will be 'Part 2' of the same subject, with much more focus on the ROI side, and I also plan to ask Teradata whether they will allow us to publish a version of Ron's presentation.

Regards,

Ricahrd Forsyth

Thanks (0)