The Gartner view of delivering benefits and ROI from CRM
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].