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The Gartner view of delivering benefits and ROI from CRM

20th May 2002
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This week we're very pleased to be publishing a presentation from Gartner on CRM Economics: Figuring out the ROI and Benefits of CRM Initiatives. I've taken a detailed look at that presentation and want to share my thoughts on it in this week's editorial.

Before I get into the detail, I'd like to set a context for that review, by revisiting some thoughts of Professor Sawney I documented in a recent editorial. 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, and by developing new customer value propositions.
  • The CIO leads a technology programme which bridges system silos by unlinking customer-facing applications from operational infrastructure.
  • The COO leads a programme to ensure customer focus with product excellence by decoupling customer expertise from product and functional expertise.

Within this framework, the Gartner paper focuses primarily on IT with some good stuff on operational processes, but there's not so much about the new customer value propositions. However, I've been going on about that in the last two editorials (What is the future of CRM and how do you get ROI? and The future of CRM - focused on ROI) so maybe a change in focus is appropriate, though do make sure you cover all three areas.

So let's get into the Gartner presentation. First of all, does Gartner still feel that there's a problem delivering the benefits from CRM? Some of the strategic planning assumptions up to 2006 in the presentation make the point:

  • The ability to deliver on projected financial returns from CRM programmes benefits will increase by 25% provided the enterprise creates an enterprise wide CRM strategic plan, and fit individual initiatives within that plan.
  • Enterprises that focus on delivering functionality that increases effectiveness rather than efficiency will be more successful in business transformation and delivering long-term ROI. [This fits with our own take outlined in: The future of CRM - focused on ROI.]
  • 70% of CRM projects will have to be re-evaluated due to project managers overlooking personnel and process issues in favour of solely technological implementations.
  • Only 25% of enterprises will define the benefits, develop a business case, and measure the benefits of their CRM initiatives.
  • Only 35% of companies will define the Total Cost of ownership of their CRM initiatives.
  • 45% of enterprises will attempt CRM through technology initiatives alone and will fail to achieve measurable ROI (by failing to address metrics, behaviours, and processes).
  • 55% of CRM initiatives will fail to meet measurable benefit objectives or positively affect ROI, due to a lack of business processes for conducting ongoing measurements.

This is a fairly mixed bag with some pretty depressing reading, though not perhaps quite so bad as the view last year. What is encouraging is that there are some pretty clear indicators as to how to ensure you are in the group that succeeds. Perhaps the overall picture is best summed up by the title of Gartner's forthcoming conference in Paris: CRM Summit 2002: moving from disillusionment to real value.

So what do Gartner see as the major opportunities for benefits from a CRM programme? They highlight five major categories of benefit:

  • Meeting legal requirements: if the law says you've got to do it, most senior executives will agree it has to be done, so this is the easiest justification of all.
  • Revenue enhancement is probably the second most attractive option, though there can be difficulties in getting buy-in from senior management to the benefits projected, as we outlined last week.
  • Next comes cost avoidance, followed by
  • Risk Management, and finally
  • First Mover advantage.

Now the key point I'd like to make is that you can't measure all of these through ROI. For example, meeting legal requirements is a cost of doing business, and may well have a negative impact on ROI, but you just can't avoid doing it.

This means we need wider measures of the success of a CRM programme than just ROI, and that begins to point towards the balanced scorecard approach advocated by Professor Buttle in his recent paper on ROI. Professor Buttle's recommend categories of objectives are: financial, customer-related, internal processes, and learning and growth. We need to develop a scorecard that allows us to measure our success in meeting our CRM objectives and benefits (perhaps derived from both Buttle and Gartner's lists) and it is likely that only our financial objectives/benefits are going to be measured by ROI.

There's another important point here that Gartner also make: what gets measured gets managed. If you don't put in place the metrics to measure your success in meeting all these objectives, and as Sir Brian Pitman highlighted recently at the Teradata Edinburgh conference, you must provide managers with regular reports, preferably weekly, on those metrics so they can see how well they're meeting those objectives, and take corrective action, if you are to have any chance of meeting those objectives.

So we now have a process for developing a set of objectives, and associated metrics, for our CRM programmes. How do we evaluate which specific CRM initiatives meet those CRM success criteria?

Gartner propose a methodology that evaluates each proposal along five dimensions: firstly, does the project fit with the realisation's business goals and objectives - is it strategically aligned? Next, what impact will it have on business processes? Which business processes internal or involving the supply chain or customers need to be redesigned? Thirdly does the technical architecture of the proposed technical solution meet corporate guidelines? Here Professor Sawney adds value again, with his concept of a business architecture that supports the de-coupling of the front-end from back-end product stovepipes (see What is the future of CRM and how do you get ROI?), and Gartner go further outlining a number of technical features required of the related technical architecture - integration, scalability, resilience, etc.

Fourthly, we need to understand the conventional financial benefits the project can deliver on both the cost and revenue sides, and finally, a risk assessment identifying the exposure of the proposed investment to failure or underachievement.

It is also key to understand who is responsible for what, with a clear division between IT and the business responsibilities. Broadly speaking, IT management are responsible for the effective and secure operation of the applications and infrastructure, while business managers are responsible for achieving the benefits. On the benefits side, there needs to be a management mind-set change. The full business benefit realization process needs to be thought through. Within CRM (and other projects involving enabling technology) there's a particular issue that seems to escape many enterprises. Conventional project management focuses on system delivery to time and budget, but CRM programmes need to be focused on benefits realisation. Benefits delivery can only take place once the technology components have been delivered. The CRM programme doesn't end when the technology is in place - that's when it starts!

So project success is not delivering within budgeted time-scales and costs, but by delivery of the benefits. That requires a different mind-set. It requires structured ongoing scrutiny of the project from a benefits realisation perspective from initial feasibility through, and particularly post-implementation. Resources should only be assigned when the phased assessments justify the assignment. This implies an iterative incremental implementation process, where each individual initiative is relatively small.

So having digested this Gartner presentation (you can read it yourself at: CRM Economics: Figuring out the ROI and Benefits of CRM Initiatives) what recommendations would I take from it, including some of our own thoughts?

  • Adopt an iterative incremental approach to CRM programmes, with a number of initiatives. Try and keep individual initiatives small.
  • Do not over-focus on direct ROI - use a balanced scorecard to define your CRM programme objectives, evaluate each proposal against that scorecard, and measure each initiative against that objective.
  • Put in place the metrics to measure how well you are meeting those objectives, and provide managers with reports regularly on those metrics.
  • Undertake regular assessments, against those metrics, and drive investment based on the results of those assessments.
  • Develop an ongoing value realisation programme post implementation, which puts business managers on the line for the delivery of benefits, measuring against your CRM metrics.
  • Involve the customer - no CRM programme is going to work if the customer doesn't buy in to it. (See The future of CRM - focused on ROI, Where is the Customer in CRM?, Deliver the benefits from CRM by putting the C into CRM - Part 1, and Deliver the benefits from CRM by putting the C into CRM - Part 2).

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

Regards,
Richard Forsyth

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Replies (12)

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avatar
By r.forsyth
29th May 2002 10:50

I continue to be concerned that ROI is being approached as a "gate" that
must be opened to start implementation as opposed to the basis for a "road
map" that defines where you are going and how to map progress. ROI is a
number that is based on a forecast; it is really not all that difficult to
calculate an acceptable number but there is virtually no accountability
without associated relevant metrics and assigned responsibility.

The issue of strategic and regulatory implications is also terribly
misleading. If an organization has chosen a strategic direction without a
well defined implementation plan, then it is a "dream" not a strategy. CRM
can very nicely be integrated within the framework of a well defined
strategy and tied to the achievement of specific results. If it is a dream,
then there is nothing to link with and the probability of any benefits is
virtually zero. Regulatory compliance typically defines a reporting and
behavior capability that can be accomplished anywhere on the scale of
no-tech to high tech. Options need to be compared. If CRM provides a
solution to a regulatory issue then it must have a superior cost and
investment profile versus alternatives. A case in point in the US is the
requirement to have doctors sign for drug samples they receive. This
accountability can be done with forms (paper) or some electronic signature
capability. Each solution has a different cost and investment requirement
that must be evaluated on a ROI basis.

CRM, just like other management initiatives, too often takes on "silver
bullet" status with the belief that it will cure any organizational malady.
It is easy to blame the industry, consultants, or misled project teams but
the real problem is the senior management in the end user organizations.
This is a leadership issue. Senior management must be active in the
leadership of their initiatives and be active in the interface with the
vendor and services community. Without a clear definition of direction and
requirements, the industry will continue to swoon around technology as
opposed to business results. If organizations do not define results
(destination), then they are unlikely to wake up on the beach of competitive
advantage.

Thanks (0)
avatar
By r.forsyth
13th May 2002 16:49

Here's a metaphor for understanding CRM failure stories.

Imaging a bicycle race with 100 cyclists all at the starting line waiting for the gun to go off. As you wait for the gun to go off, the person next to you whispers: "This is going to be interesting. No one knows how to ride a bike."

The gun goes off. What happens? As you would expect, lots of scraped knees, bruised elbows and cyclists falling into each other. In time, we would expect one or two of the cyclists to figure it out and get a lead on all the others. At the point in time when more than 50% of the cyclists have learned to ride, macro-economists and analysts notice a trend: "CRM Works!"

Vince Kellen
President/CRM Strategy
Blue Wolf
[email protected]

Thanks (0)
avatar
By r.forsyth
30th May 2002 10:17

Thanks for sharing these observations. One of my fundamental issues is that the concerns about ROI reflect symptoms as opposed to cause. In other words, the lack of an ability to creeate an ROI suggests other organizaitonal or project oriented problems. I have never had a problem creating an ROI, the issue is demonstrating that a return was achieved after the fact. The second concern is that ROI is approached as a necessary hurdle as opposed to an integral definiton of the project.

Thanks (0)
avatar
By r.forsyth
29th May 2002 10:58

Dear Richard,

I have read several of your articles on CRM and reviewed you PP
Presentation. Several things;

1) We have found that ROI is not the way to sell the product. In most cases it should not even be used as a benefit! It is a way to provide the tangible value to spend the money for the clearly stated benefits. It only really
satisfies the bean counters in the decision making process.

2) Speaking as a reseller, CRM is currently only focused on the upper middle and large enterprise markets because of cost, length of sales cycle and complexity. These resellers represent those that are looking for sales
revenue per system on the order of $100k plus ($US). Probably more on the order of $250k plus (w/o hardware). This eliminates the bulk of businesses in both the US and GB. That leaves a very large sucking sound in the market. No wonder Microsoft is getting so interested. Microsoft, like nature, abhors
a vacuum.

3) Although the value of customer relationships cannot always be measured in
finite $s, it can be measured and then trended over time to revenue or profit which includes savings. Your measurements section of your Balanced Score Card does not cover that. However, we feel it is probably the most
important part of the benefit. Savings or revenue from CRM does not always happen all at once. You may see some measurable results at installation but improved customer relationships are measured over time. This includes churn, follow-on purchases, customer service/support results, etc. Loyalty is not
an event but a process. A balanced scorecard is important, just ask my name sake Bill Durr. However, the measurements must be relevant to the needs of the specific business.

Thanks (0)
avatar
By r.forsyth
29th May 2002 10:57

We have some experience with these issues because I have incorporated some CRM, 1-to-1 marketing and contact management into a product designed for the small and very small business markets. It is a semi shrink wrapped product specifically aimed at Healthcare in the US as well as other professional
offices such as legal, financial, Real Estate, etc. In some ways these small businesses are microcosms of an enterprise because all the decision making is in one or two people who represent the entire table of decision makers in an enterprise.

Somewhat to our surprise we have found that ROI will not work as a sales tool, alone. As a matter of fact it will not even open the door. The value is in better customer service, getting more advantage out of existing
(expensive) systems/software and making the employees of the small business (who represent agents) 'happy' (less churn, lowered training needs, reduce redundant work [fewer keystrokes]). We accomplish this by having the SYSTEM (not the customer or agent) perform some of the mundane work like deciding
why the customer is calling; getting the customer to the right place in the first place; and providing the all the necessary information specific to this call before the call is answered. This also makes the customer at the other end happy since they are not passed off time and again until (if) they
get to the correct person.

After all that has been discussed with the buyer, and they are satisfied with the benefits, only then does the question of cost come up. The big question is; "what will it cost for all these wonderful benefits". In equal parts between small business and enterprise, the sticker shock is pretty
big. The difference between the larger enterprise companies and the small businesses we deal with is simply decimal points due to scale. However, a good ROI at this point is essential to closing the sale. We save 50 days of labor per Doctor in the office (good, but not good enough because it is not tangible - time fills up with other things so it is not really measurable).

ROI Point #2 for the doctor's office, your cash flow improves the day you turn the system on because it is cheaper to use our system then send mail (@ 10k postcards per Dr. @ $.50)! At the end of the month you will be spending less as a direct result of the system, we even give them reports on those
savings as well as the other things we do.

I hope you find this information helpful. We are working with Intel on distribution in the UK through Crane Telecommunications.

Bob Duerr
President
Integrated e-com

Thanks (0)
avatar
By Twisted_Ether
02nd Sep 2002 18:50

A lot has been said in abstract tones and experiential wisdom about ROI and balanced score card. I either failed to notice enough specific talk on what exactly to measure for roi and score card or I may be over simplifying the problem. Keeping this in mind, please bear with me for the next few minutes.

I firmly believe that there are very specific steps that can be formulated into a framework rather than just reading anecdotal stories in hundreds of books published on balanced score card and strategic metrics.

I developed this specific approach a few years back in the business process reengineering realm and now am extending it to my CRM and enterprise integration clients.

What it simply means is that no matter how abstract and vague your initial strategy is you can always tie it to tactical level planning and execution. And this is what could yield success in terms of transparency and taking actions rather than registering reactions.

I will now explain in a simple paragraph the premise behind this whole framework. Start with an abstract corporate level strategic objective. Find out what is a direct performance measure at a really high level that can give you some idea about this objective. Next make this measure as your objective, go down a level and find out the performance measure at a lower level that can give you an idea about this new objective. Keep going down until you have been able to tie tactical level performance measures that can be measured by CRM and other business systems. What you have got in the place is an actual working real time balanced score card type of a framework that keeps regularly sending reports to management at all levels about the metrics they are interested in. The beauty behind this approach is no matter what level you are at the metrics will always be tied to the final corporate strategic objectives..in other words..you will never lose the sight of the bigger picture even if consciously you are just taking care of your own business unit.

I wouldn't know if I can claim I have come up with something new since some of these principles have been expounded by likes of Robert Kaplan and Hronek. However I have figured out means and developed tools that have formalized and made tangible many of the principles our gurus have mentioned. It has been working for my clients so far.

The bottom line is true measure of implementation success lies in the fact when your business system can tell you how well you are doing by the click of a button at all levels of management.

If you are interested to know more about this approach, feel free to write me at my email [email protected]

Krishna Rathi
Founder
Inalyze

Thanks (0)
avatar
By r.forsyth
30th May 2002 10:17

Thanks for sharing these observations. One of my fundamental issues is that the concerns about ROI reflect symptoms as opposed to cause. In other words, the lack of an ability to creeate an ROI suggests other organizaitonal or project oriented problems. I have never had a problem creating an ROI, the issue is demonstrating that a return was achieved after the fact. The second concern is that ROI is approached as a necessary hurdle as opposed to an integral definiton of the project.

Thanks (0)
avatar
By r.forsyth
29th May 2002 10:50

I continue to be concerned that ROI is being approached as a "gate" that
must be opened to start implementation as opposed to the basis for a "road
map" that defines where you are going and how to map progress. ROI is a
number that is based on a forecast; it is really not all that difficult to
calculate an acceptable number but there is virtually no accountability
without associated relevant metrics and assigned responsibility.

The issue of strategic and regulatory implications is also terribly
misleading. If an organization has chosen a strategic direction without a
well defined implementation plan, then it is a "dream" not a strategy. CRM
can very nicely be integrated within the framework of a well defined
strategy and tied to the achievement of specific results. If it is a dream,
then there is nothing to link with and the probability of any benefits is
virtually zero. Regulatory compliance typically defines a reporting and
behavior capability that can be accomplished anywhere on the scale of
no-tech to high tech. Options need to be compared. If CRM provides a
solution to a regulatory issue then it must have a superior cost and
investment profile versus alternatives. A case in point in the US is the
requirement to have doctors sign for drug samples they receive. This
accountability can be done with forms (paper) or some electronic signature
capability. Each solution has a different cost and investment requirement
that must be evaluated on a ROI basis.

CRM, just like other management initiatives, too often takes on "silver
bullet" status with the belief that it will cure any organizational malady.
It is easy to blame the industry, consultants, or misled project teams but
the real problem is the senior management in the end user organizations.
This is a leadership issue. Senior management must be active in the
leadership of their initiatives and be active in the interface with the
vendor and services community. Without a clear definition of direction and
requirements, the industry will continue to swoon around technology as
opposed to business results. If organizations do not define results
(destination), then they are unlikely to wake up on the beach of competitive
advantage.

Thanks (0)
avatar
By r.forsyth
29th May 2002 10:57

We have some experience with these issues because I have incorporated some CRM, 1-to-1 marketing and contact management into a product designed for the small and very small business markets. It is a semi shrink wrapped product specifically aimed at Healthcare in the US as well as other professional
offices such as legal, financial, Real Estate, etc. In some ways these small businesses are microcosms of an enterprise because all the decision making is in one or two people who represent the entire table of decision makers in an enterprise.

Somewhat to our surprise we have found that ROI will not work as a sales tool, alone. As a matter of fact it will not even open the door. The value is in better customer service, getting more advantage out of existing
(expensive) systems/software and making the employees of the small business (who represent agents) 'happy' (less churn, lowered training needs, reduce redundant work [fewer keystrokes]). We accomplish this by having the SYSTEM (not the customer or agent) perform some of the mundane work like deciding
why the customer is calling; getting the customer to the right place in the first place; and providing the all the necessary information specific to this call before the call is answered. This also makes the customer at the other end happy since they are not passed off time and again until (if) they
get to the correct person.

After all that has been discussed with the buyer, and they are satisfied with the benefits, only then does the question of cost come up. The big question is; "what will it cost for all these wonderful benefits". In equal parts between small business and enterprise, the sticker shock is pretty
big. The difference between the larger enterprise companies and the small businesses we deal with is simply decimal points due to scale. However, a good ROI at this point is essential to closing the sale. We save 50 days of labor per Doctor in the office (good, but not good enough because it is not tangible - time fills up with other things so it is not really measurable).

ROI Point #2 for the doctor's office, your cash flow improves the day you turn the system on because it is cheaper to use our system then send mail (@ 10k postcards per Dr. @ $.50)! At the end of the month you will be spending less as a direct result of the system, we even give them reports on those
savings as well as the other things we do.

I hope you find this information helpful. We are working with Intel on distribution in the UK through Crane Telecommunications.

Bob Duerr
President
Integrated e-com

Thanks (0)
avatar
By r.forsyth
29th May 2002 10:58

Dear Richard,

I have read several of your articles on CRM and reviewed you PP
Presentation. Several things;

1) We have found that ROI is not the way to sell the product. In most cases it should not even be used as a benefit! It is a way to provide the tangible value to spend the money for the clearly stated benefits. It only really
satisfies the bean counters in the decision making process.

2) Speaking as a reseller, CRM is currently only focused on the upper middle and large enterprise markets because of cost, length of sales cycle and complexity. These resellers represent those that are looking for sales
revenue per system on the order of $100k plus ($US). Probably more on the order of $250k plus (w/o hardware). This eliminates the bulk of businesses in both the US and GB. That leaves a very large sucking sound in the market. No wonder Microsoft is getting so interested. Microsoft, like nature, abhors
a vacuum.

3) Although the value of customer relationships cannot always be measured in
finite $s, it can be measured and then trended over time to revenue or profit which includes savings. Your measurements section of your Balanced Score Card does not cover that. However, we feel it is probably the most
important part of the benefit. Savings or revenue from CRM does not always happen all at once. You may see some measurable results at installation but improved customer relationships are measured over time. This includes churn, follow-on purchases, customer service/support results, etc. Loyalty is not
an event but a process. A balanced scorecard is important, just ask my name sake Bill Durr. However, the measurements must be relevant to the needs of the specific business.

Thanks (0)
avatar
By r.forsyth
13th May 2002 16:49

Here's a metaphor for understanding CRM failure stories.

Imaging a bicycle race with 100 cyclists all at the starting line waiting for the gun to go off. As you wait for the gun to go off, the person next to you whispers: "This is going to be interesting. No one knows how to ride a bike."

The gun goes off. What happens? As you would expect, lots of scraped knees, bruised elbows and cyclists falling into each other. In time, we would expect one or two of the cyclists to figure it out and get a lead on all the others. At the point in time when more than 50% of the cyclists have learned to ride, macro-economists and analysts notice a trend: "CRM Works!"

Vince Kellen
President/CRM Strategy
Blue Wolf
[email protected]

Thanks (0)
avatar
By r.forsyth
13th May 2002 16:28

Engaging series on the ROI debate. A couple of comments:

CRM measurement. Measurement is much more complex than people realize and the inability to measure correctly is causing companies to miss the real opportunity in getting ROI from CRM: improvement through adaptation and knowledge retention.

Learning from customers. Aside from operational efficiencies gained from CRM, most of the payback is in finding ways to interact with customers that customers perceive as better than the competition. If you want CRM ROI, you must deploy solutions that are well designed to influence and/or take full advantage of customer behavior. Many CRM initiatives are not ruthlessly evaluated from the customers' perspective. Since this is the lion's share of the ROI, why isn't there more discussion of how to discover what customers want and then how to prove what they want will make money? This aspect, combined with the notion of adaptability leads to a powerful combination: by learning from customers better and faster than any competitor, companies can build a proprietary competitive advantage. Since the relationship is between the company's brand and its customers and has to do with the idiosyncrasies of that relationship, what is learned in that relationship is not easily duplicated in another competitive setting. This relationship building should bring increased exit barriers, profitability, revenue enhancement, but requires that the company have strong, measurable theories about what works for all of its customers. The challenge here is to link customer knowledge management metrics to customer loyalty and share of requirements. Of course, there is more complex measurement here, but this kind of measurement is crucial for delivering real ROI.

Vince Kellen
President/CRM Strategy
Blue Wolf
[email protected]

Thanks (0)