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The Next Hot Topic in CRM

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17th May 2004
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It’s easy to get so wrapped up in our customer focused view of corporate life that we forget to look up and see what’s around us. But look up we should, for a ‘view’ is emerging from the mist which needs our attention, as in essence it’s the future of CRM. If we don’t give it attention then organisations are going to waste money and resources, lose out on contracts and forgo desirable investors and customers. The view I speak of is the one angled on Corporate Social Responsibility (CSR).

Now anyone who thinks CSR is about saving the whale, giving to charity and not exploiting cocoa farmers in South America, really should rub their eyes and look again. As should companies who think they have covered their CSR obligations with a glossy year end report full of happy, smiling people. (See Implementing CSR Communications for Business Results – CSR Data Networks – free)

CSR is about building valuable, long lasting companies through collaborative relationships and the careful use of resources – land, labour and capital. It may have emerged from an ‘activists’ agenda but its collision with trends in financial management and operational risk has turned it into much more. It is as much to do with building trust with stakeholders through good governance, as it is to do with giving to charity – probably more so. It is no longer acceptable for companies to report profits to shareholders whilst depleting natural and intangible assets and under utilizing human talent. (See www.csrevaluator.com/evaluator/)

CRM needs to gatecrash the CSR party. For the objectives of CSR managers have a strong similarity with those of CRM managers. However, the focus on different stakeholder groups is leading to a disconnect in corporate relationship building activity. Few have a broad enough vision to see the resulting waste of resource and inconsistencies in reputation.

CSR needs the business case which CRM now has and CRM needs the financial clout and emotional empathy which CSR has. So why should we who are focused on CRM look up and see what is looming in front of us.

1. Market Capitilisation
We need to ensure that customer value and risk is important in the assessments financial analysts are making for socially responsible investments (SRI), and the new sustainable asset management (SAM) indexes. Both will increasingly affect investor decisions and the equity risk premium inherent in market capitilisation. (See www.sam-group.com)

2. Brand Alignment
CSR is being used for market differentiation, and built into brand image. It plays well to the emotional needs of customers; investor’s needs for companies who build value rather than just avoiding the unethical; and the recruitment of skilled employees. (see Emerging Employee Concerns – Future Foundation – free - one slide and Emerging Employee Concerns – Future Foundation – chargeable - FULL REPORT.)

Brand promises though, need delivering and that means marketing and relationship strategies and capabilities. (See Why IT Are The New Brand Managers). Glossy CSR reports are already outstripping delivery and capabilities. CRM projects have the wherewithal to fill the gap between promise and delivery, whilst CRM and CSR capability assessments need amalgamating.

3. Risk Management
SAM and SRI requirements dictate that CSR principals (social, economic and environmental) are built into processes in order to manage non-financial risk. Basle II in financial markets also puts emphasis in this area. Processes therefore need redesigning for both customer experience and CSR. However, to avoid confusion and the danger that new processes don’t meet all relevant key performance indicators, CSR and CRM teams should join forces.

4. Cultural Change Programmes
The same goes for cultural redesign. Both CSR and CRM need employee cultural change programmes – no organisation should be running two, but some are!

5. Information Culture
To rate highly as socially responsible, companies need an information culture to encourage innovation and minimises costs and risk. Just as CRM starts with customer and employee needs and includes feedback, CSR encompasses the same information for all stakeholder groups – customers, employees, investors, influencers, partners, community. The wider CSR requirements enhance customer information and turn it outwards on market trends issues, so increasing market adaptiveness.

6. Collaborative Relationships
Like CRM, CSR needs collaborative relationships with all stakeholders to work, yet is in danger of turning inwards on itself in a frenzy of control. Together CRM and CSR initiatives could build effective value based communities and networks that enhance corporate and social assets. (See Advertising to the herd – Mark Earls – free)

The human race has survived this far because of altruism, not through self interest. If organisations are to do the same then they need to learn the same lesson. For those of us in CRM that means lifting our heads from the daily grind of customer propensity models and call centre performance and look at the wider view that CSR provides. For like CRM, CSR is all about the fundamentals of running a value based business - but we don't want to do it twice.

As always we’d like to hear your comments. Make them below or email me at [email protected]

Jennifer Kirkby
[email protected]

RELATED RESOURCES

Excellent Customer Service – a BP Case Study – Harrison Assessments (free)

Beyond CRM: a Holistic View on Serving the Customer - free

Knowledge Management for CRM success - IDM - chargeable

Leadership, change management and corporate culture - IDM - chargeable

State of the Nation 111: 2003. A global study of how companies manage their customers - Neil Woodcock and Merlin Stone - free

Bond Your Customers Into An Asset - Jennifer Kirkby - free

Forget How the Crow Flies – John Kay FT.com - Free

Replies (13)

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By vdimitroff
18th May 2004 13:12


Rarely does an editorial piece strike with such intellectual challenge and emotional appeal.

CSR shares with CRM the inadequacy of three-letter acronyms to describe fundamental and complex concepts, models and processes. Both suffer from multiple definitions and (mis)interpretations, and have been the target for replacement efforts by gurus seeking to copyright the 'next big thing'. They are also both to remain around for a while...

The observation that these focus on different stakeholder groups is spot-on, but it also reveals the opportunity in linking all stakeholder entities: customers, suppliers, employees, distribution partners and, not least, shareholders into a holistic relationship management environment.

Another key point is the idea of value as the fundamental category binding stakeholder entities and driving business approaches. (The optimisation of value flows between the above entities has been, and remains the essence of business management). Since value is ceated by satisfying needs, addressing the multiple and diverse needs of all stakeholder entities becomes an imperative business objective.

From the 'cold-blooded' analytical view of shareholder value, through linking it to customer value (watch for the Return on Customer concept in Peppers & Rogers' upcoming new book)- to the emotional resonance of Tim Sanders' inspiring book Love Is The Killer App, there is mounting evidence that CSR is no longer a 'fringe' area. Its overlap with CRM (or ERM, SRM, PRM, IRM comes close to synonymity. I am glad to see an emerging movement among thought leaders and practitioners alike, driving change in contemporary business approaches towards mutual value and sustainability.

Vladimir Dimitroff
Director, PRISM Consulting (UK) Ltd
Consulting Partner, Round (UK) Ltd

Thanks (0)
avatar
By admin
24th May 2004 11:41

Prof Francis Buttle talks about SCOPE = Suppliers,Customers, Owners,Partners and Employees, all being key stakeholders in a well rounded CRM strategy. I don't think we need new mnemonics so much as a more rigorous analysis of what constitutes value to the customer and how that can be delivered profitably. This may imply significant changes both in employee behaviours as well as organisation design. In B2B markets in particular, value is often created and delivered in combination with other companies. Graham mentions networks of partners. Looking at CRM through this wider angled lens, including the legitimate interests of stakeholders, will yield compatitive advantage. A point solutions approach on the other hand, will only provide marginal benefits at best.

Thanks (0)
avatar
By AnonymousUser
21st May 2004 12:47

Jennifer

Everyone in the CRM business, (indeed today, probably everybody in business) knows about the excellent Reicheld work at Bain & Co in the early 90s. Some may even have read his original Harvard Business Review article or the books he wrote. Not so many have seen the more recent work by Reinartz & Kumar (also published in the Harvard Business Review) that throws considerable doubt on the veracity of some of Reicheld's findings. Yesterday's facts are today's question marks are tomorrow's fiction.

That networks of interrelated factors drive business success (and failure) should come as no suprise. This has been the underlying principle of Kaplan & Norton's work on the Balanced Scorecard and Strategy Maps that predates Reicheld, and of Jay Forrester's work on Systems Dynamics that predates us all!

The world is very much a networked one, much of it completely out of our control and by implication, of management's control too. Organisations are so-called 'complex adaptive systems' of individuals interacting in many different ways and that create or destroy value in the process. Value often emerges from these interactions in unexpected ways, in spite of management's best eforts to control how things get done. Too much control slows the innovation that drives growth. Just think of 3M Post it Notes or the Sony Walkman. The trick, if indeed it is one, is to know which of the interactions really drive value creation and more difficultly, to know how to nudge the system in the right direction without stifling it through too much control.

Yesterday's command and control heroes were Jack Welsh and Al Dunlap, today's emergent value heroes are Stuart Kauffman and Warren Buffett.

The same applies to the discussions about economic sustainability. Here the first and easier challenge is to try and understand for each individual business - with its collections of resources, at its stage of maturity, in its industry - what factors drive economic value growth. The second and much bigger challenge is to understand how these factors interact dynamically over time to actually create value growth and what management can realistically do about it.

This is what business is really all about. It is much more difficult than just scoring yourself against the Sam Group's Sustainability Index factors. This whole area is still work in progress. We must be very careful about saying glibly that this is the next big thing.

The danger's are obvious; that we all go about parroting new business slogans without really understanding what we are really talking about. Just like we have been doing about customer loyalty in CRM for the past 10 years!

Graham Hill
Independent Management Consultant

Thanks (0)
avatar
By vdimitroff
18th May 2004 13:12


Rarely does an editorial piece strike with such intellectual challenge and emotional appeal.

CSR shares with CRM the inadequacy of three-letter acronyms to describe fundamental and complex concepts, models and processes. Both suffer from multiple definitions and (mis)interpretations, and have been the target for replacement efforts by gurus seeking to copyright the 'next big thing'. They are also both to remain around for a while...

The observation that these focus on different stakeholder groups is spot-on, but it also reveals the opportunity in linking all stakeholder entities: customers, suppliers, employees, distribution partners and, not least, shareholders into a holistic relationship management environment.

Another key point is the idea of value as the fundamental category binding stakeholder entities and driving business approaches. (The optimisation of value flows between the above entities has been, and remains the essence of business management). Since value is ceated by satisfying needs, addressing the multiple and diverse needs of all stakeholder entities becomes an imperative business objective.

From the 'cold-blooded' analytical view of shareholder value, through linking it to customer value (watch for the Return on Customer concept in Peppers & Rogers' upcoming new book)- to the emotional resonance of Tim Sanders' inspiring book Love Is The Killer App, there is mounting evidence that CSR is no longer a 'fringe' area. Its overlap with CRM (or ERM, SRM, PRM, IRM comes close to synonymity. I am glad to see an emerging movement among thought leaders and practitioners alike, driving change in contemporary business approaches towards mutual value and sustainability.

Vladimir Dimitroff
Director, PRISM Consulting (UK) Ltd
Consulting Partner, Round (UK) Ltd

Thanks (0)
avatar
By AnonymousUser
24th May 2004 08:54

Jennifer

Ah but I did read the Reinartz & Kumar work a bit deeper. I also read their original peer-reviewed work in the Journal of Marketing in 2000 that lead to their HBR article, and their follow-up work published in the Journal of Marketing in 2003 and their Insead Working paper also published in 2003.

The 2000 work showed that although high-value longer-term customers did have the highest profitability (20% of the total), that was very closely followed by higher-value shorter-term customers (19%). They also found that longer-term customers didn't have lower costs, didn't pay higher prices and didn't recommend the companies more to others. Hardly a ringing endorsement of the original Bain work. And hardly a suprise that some CRM 'luminaries' kicked up such a fuss when one of the foundations of their industry was shown not to be as solid as touted.

Their 2003 work provided broad support for their 2000 work and also showed that the most profitable customers are those that either purchase a great deal quickly and then depart, or who purchase at regular but not too frequent intervals over the longer-term. This suggests tha knowing the probability of the customer still being a customer is every bit as important as knowing their longer-term value.

I fully agree with you that the Bain research did raise interest in the whole area of loyalty, but as was to be expected, it quickly led to the type of over-simplification and over-application that often leads management to unthinkingly overinvest in doing the wrong thing. Often when only a wee bit of analysis would have led to much smarter investments.

That's why the Corporate Sustainability issue you quite rightly raised has all the hallmarks of another management fad. Inevitably, in the rush to be a good corporate citizen, many companies are going to just score themselves against the Sustainability Index factors without really understanding whether they are the right ones for the company itself. Or how they factors systemically interact with each other to drive value growth. Or the leverage inherent in individual factors.

As you quite rightly point out, most companies don't have a culture of challenge. Challenge is difficult. It requires analysis, insight and the willingness to take a risk. But without continuous challenge, things just stay the same. And in these hyper-competitive times, staying the same is tantamount to going backwards.

Graham Hill
Independent Management Consultant

Thanks (0)
avatar
By Jennifer Kirkby
21st May 2004 18:32

Ah but if you read the Reinartz and Kumar work carefully, it actually corroborates the work of Bain. In addition, Harvard took a lot of 'stick' about publishing that work in the form it did, because it was confusing.

Secondly, it is important to raise issues so that people are aware of them. Only then can they be explored and understood. The original Bain theories brought the issue of customer loyalty to people's attention, then that idea has been developed. So that we now see it as an issue of network loyalty.

You are right, command and control does seem to discourage innovation. Which is why there is a lot of exploration going on of networks and pattern recognition in markets. If we can see patterns then we can act.

It is a good scientific principle to try and disprove a theory to understand it, rather than repeat what is already known. However, the first step is to bring it to attention and then encourage challenge. The problem for many organizations is that they do not have a culture of challenge. They do not take patterns and analysis and ask what does this mean. Instead they look for information that proves what they already know. That is when you get build up of 'myth'.

Thanks (0)
avatar
By Jennifer Kirkby
19th May 2004 11:23

Graham
Thank you for your comments. Your summing up is absolutly why I am raising this subject. I feel strongly that we need to put solid 'business' reasons around sustainability to stop it being hijacked and losing its way. I also feel it opens our eyes to a wider perspective of business than CRM on its own does.

In their ongoing research on loyalty, Bain found that customer loyalty was not the be all and end all of profit. Customer loyalty depended on employee 'loyalty' which depended on good leadership. Good leaders go where there is investor stability or loyalty. In other words the ethos of customer loyalty is a network of relationships not a single point to point link.

Thanks (0)
avatar
By AnonymousUser
21st May 2004 12:47

Jennifer

Everyone in the CRM business, (indeed today, probably everybody in business) knows about the excellent Reicheld work at Bain & Co in the early 90s. Some may even have read his original Harvard Business Review article or the books he wrote. Not so many have seen the more recent work by Reinartz & Kumar (also published in the Harvard Business Review) that throws considerable doubt on the veracity of some of Reicheld's findings. Yesterday's facts are today's question marks are tomorrow's fiction.

That networks of interrelated factors drive business success (and failure) should come as no suprise. This has been the underlying principle of Kaplan & Norton's work on the Balanced Scorecard and Strategy Maps that predates Reicheld, and of Jay Forrester's work on Systems Dynamics that predates us all!

The world is very much a networked one, much of it completely out of our control and by implication, of management's control too. Organisations are so-called 'complex adaptive systems' of individuals interacting in many different ways and that create or destroy value in the process. Value often emerges from these interactions in unexpected ways, in spite of management's best eforts to control how things get done. Too much control slows the innovation that drives growth. Just think of 3M Post it Notes or the Sony Walkman. The trick, if indeed it is one, is to know which of the interactions really drive value creation and more difficultly, to know how to nudge the system in the right direction without stifling it through too much control.

Yesterday's command and control heroes were Jack Welsh and Al Dunlap, today's emergent value heroes are Stuart Kauffman and Warren Buffett.

The same applies to the discussions about economic sustainability. Here the first and easier challenge is to try and understand for each individual business - with its collections of resources, at its stage of maturity, in its industry - what factors drive economic value growth. The second and much bigger challenge is to understand how these factors interact dynamically over time to actually create value growth and what management can realistically do about it.

This is what business is really all about. It is much more difficult than just scoring yourself against the Sam Group's Sustainability Index factors. This whole area is still work in progress. We must be very careful about saying glibly that this is the next big thing.

The danger's are obvious; that we all go about parroting new business slogans without really understanding what we are really talking about. Just like we have been doing about customer loyalty in CRM for the past 10 years!

Graham Hill
Independent Management Consultant

Thanks (0)
avatar
By admin
24th May 2004 11:41

Prof Francis Buttle talks about SCOPE = Suppliers,Customers, Owners,Partners and Employees, all being key stakeholders in a well rounded CRM strategy. I don't think we need new mnemonics so much as a more rigorous analysis of what constitutes value to the customer and how that can be delivered profitably. This may imply significant changes both in employee behaviours as well as organisation design. In B2B markets in particular, value is often created and delivered in combination with other companies. Graham mentions networks of partners. Looking at CRM through this wider angled lens, including the legitimate interests of stakeholders, will yield compatitive advantage. A point solutions approach on the other hand, will only provide marginal benefits at best.

Thanks (0)
avatar
By AnonymousUser
19th May 2004 10:04

This IS a different type of editorial, as Vladimir points out. It is not so much about Customer Relationship Management per se, as about the Theory of the Firm and the role of business in society. Heady stuff indeed for a CRM Portal.

The whole area of Corporate Sustainability - or CSR if you prefer - has been put into the limelight by recent scandals in the Anglo-American shareholder-focused model of business. Witness the shenanigans at Enron, Tyco, Worldcom, etc.

The popular argument goes that a stakeholder model of business is a morally better one that creates value for a wider range of society's members and helps curb the excesses of the shareholder model. Not that stakeholder companies are immune to these problems, witness Metallgesellschaft, Philip Holzmann, etc.

Whilst this is intellectually appealing, it is not backed up by the hard economic facts. They suggest overwhelmingly that a focus on creating value for shareholders (with all that entails) is a superior economic model than the stakeholder model. And it is better for those same stakeholders too, but through the well understood side-effects of economic growth.

And the stakeholder model is not quite the same as Corporate Sustainability either, which clearly focusses on how economic, environmental and social value drivers interact together with industry and general business factors to create economic value. And please note, the focus is still squarely on the creation of economic value, in this case through influencing a broader range of factors that drive the larger business (eco)system.

A recent revisiting of Sustainability Indeces by Panmore WestLB showed that companies in the DJ STOXX Sustainability Index did outperform those that were not, but only by a small amount. And many of these companies are arguably already in the in the top 10% of companies in their markets.

As the British economist John Kay has long argued, the best way to get to where you want to get to is not always to go their directly. If your business objective is profit maximisation, then the best way to get there is to understand as much as you can about the factors that drive value creation and to try to influence those that have the biggest impact. Whether they are related to shareholders, to customers, to employees, to partners, or to the local communiities. That is what really underlies Corporate Sustainability, not sharing value with stakeholders because it is morally right to do so.

The Sustainability agenda has been hijacked by the anti-capitalists who attack economic progress in all its forms. Robust Corporate Sustainability thinking is a good way to bring it back into the larger business domain where it truly belongs. And if it helps us understand a broader range of factors that drive business success, then that can only be good for shareholders and for other stakeholders too.

Perhaps you can have your cake and eat it!

Graham Hill
Independent Management Consultant

Thanks (0)
avatar
By Jennifer Kirkby
19th May 2004 11:23

Graham
Thank you for your comments. Your summing up is absolutly why I am raising this subject. I feel strongly that we need to put solid 'business' reasons around sustainability to stop it being hijacked and losing its way. I also feel it opens our eyes to a wider perspective of business than CRM on its own does.

In their ongoing research on loyalty, Bain found that customer loyalty was not the be all and end all of profit. Customer loyalty depended on employee 'loyalty' which depended on good leadership. Good leaders go where there is investor stability or loyalty. In other words the ethos of customer loyalty is a network of relationships not a single point to point link.

Thanks (0)
avatar
By Jennifer Kirkby
21st May 2004 18:32

Ah but if you read the Reinartz and Kumar work carefully, it actually corroborates the work of Bain. In addition, Harvard took a lot of 'stick' about publishing that work in the form it did, because it was confusing.

Secondly, it is important to raise issues so that people are aware of them. Only then can they be explored and understood. The original Bain theories brought the issue of customer loyalty to people's attention, then that idea has been developed. So that we now see it as an issue of network loyalty.

You are right, command and control does seem to discourage innovation. Which is why there is a lot of exploration going on of networks and pattern recognition in markets. If we can see patterns then we can act.

It is a good scientific principle to try and disprove a theory to understand it, rather than repeat what is already known. However, the first step is to bring it to attention and then encourage challenge. The problem for many organizations is that they do not have a culture of challenge. They do not take patterns and analysis and ask what does this mean. Instead they look for information that proves what they already know. That is when you get build up of 'myth'.

Thanks (0)
avatar
By AnonymousUser
24th May 2004 08:54

Jennifer

Ah but I did read the Reinartz & Kumar work a bit deeper. I also read their original peer-reviewed work in the Journal of Marketing in 2000 that lead to their HBR article, and their follow-up work published in the Journal of Marketing in 2003 and their Insead Working paper also published in 2003.

The 2000 work showed that although high-value longer-term customers did have the highest profitability (20% of the total), that was very closely followed by higher-value shorter-term customers (19%). They also found that longer-term customers didn't have lower costs, didn't pay higher prices and didn't recommend the companies more to others. Hardly a ringing endorsement of the original Bain work. And hardly a suprise that some CRM 'luminaries' kicked up such a fuss when one of the foundations of their industry was shown not to be as solid as touted.

Their 2003 work provided broad support for their 2000 work and also showed that the most profitable customers are those that either purchase a great deal quickly and then depart, or who purchase at regular but not too frequent intervals over the longer-term. This suggests tha knowing the probability of the customer still being a customer is every bit as important as knowing their longer-term value.

I fully agree with you that the Bain research did raise interest in the whole area of loyalty, but as was to be expected, it quickly led to the type of over-simplification and over-application that often leads management to unthinkingly overinvest in doing the wrong thing. Often when only a wee bit of analysis would have led to much smarter investments.

That's why the Corporate Sustainability issue you quite rightly raised has all the hallmarks of another management fad. Inevitably, in the rush to be a good corporate citizen, many companies are going to just score themselves against the Sustainability Index factors without really understanding whether they are the right ones for the company itself. Or how they factors systemically interact with each other to drive value growth. Or the leverage inherent in individual factors.

As you quite rightly point out, most companies don't have a culture of challenge. Challenge is difficult. It requires analysis, insight and the willingness to take a risk. But without continuous challenge, things just stay the same. And in these hyper-competitive times, staying the same is tantamount to going backwards.

Graham Hill
Independent Management Consultant

Thanks (0)