Cost of CRM

CRM, or customer relationship management, has been called the Feng Shui of
modern business. A panacea that delivers results in direct proportion to
the strength of your faith in it. Rearrange your processes; reorganise your
systems; position everything so that it faces the customer and, hey presto, you are ready to feel the positive energy flows that permeate an organisation when it has been CRM-ed. Well, that's the theory. The practice is less clear-cut, partly because the business world is awash with definitions of what CRM is (or isn't).
According to Derek Fairhurst, distance selling director for media markets at the
Royal Mail: "To anyone reading the promotional literature of assorted bureaux,
agencies and systems providers, CRM would appear to consist of whatever
that organisation happens to be doing at the time. Depending on whose figures
you believe, the UK market for CRM will be worth between UKPd2bn and UKPd15bn
within the next three years." In addition, too many CRM projects seem to
require a great deal of effort for very little real return. It has been estimated that the likelihood of failure for large CRM projects is as high as 92 per cent. The Gartner Group forecasts that 55 per cent of CRM initiatives will fail. What is CRM? So let's deal with definitions first. My own company normally makes use of an assessment tool – CMATTM – to diagnose CRM issues in a company. We believe customer management is about a number of things: finding the right customers (that is, those with an acceptable current and future net
value); getting to know those customers; increasing the value of the business they do with you (if appropriate); and retaining their business in the most
efficient and effective way. Note the shortening of the phrase. Not CRM, but CM. For while definitions may come and go, the underlying principles remain the same. According to QCi chairman Neil Woodcock: "For CRM to work in an organisation, the emphasis must be both on the management of selected groups of customers and on allowing customers to manage you as an organisation. "In reality, that may mean managing poor customers away from your company, or
at least not actively managing them. "The mistake often made in CRM is
that companies think that it is solely about how they manage customers, and so they focus on the outward relationship part of CRM. They need firstly to define those customer types that they want to delight, and then focus on the experience that those customers have with the company, from the branding and design of the product, to the marketing, ordering and logistics, the sales channel and the after-sales service. The company needs to make itself available to those customers, and contact them when appropriate. "A CRM programme that is not considered a significant element of the business strategy is likely to be merely an expensive overhead." So, does CRM work?
Over the past three years, QCi has conducted more than 150 assessments on
blue chip companies worldwide. The output from each assessment can be expressed
as an overall score, made up of a range of scores for individual business
processes, including analysis and planning, people, organisation and
measurement. These assessments allow comparisons to be made between
businesses, sectors and countries. A glance at the output reveals that the assessments do reflect the commercial success of companies within their sectors. Validation The evidence is not merely subjective. To validate the tool we use, a number of independent expert panels were set up. These panels then rated companies on a range of recognised business success factors. The panels were, naturally, kept in ignorance of the assessment scores achieved by the companies.
Similar results have come from the US government, under the guise of the
Commerce Department's National Institute of Standards and Technology
(NIST).
The NIST sponsors the Baldrige National Quality Award, which evaluates
company performance across a range of criteria, and is designed to help
organisations enhance their competitiveness by focusing on two goals: delivering better value to customers, and improving overall organisational performance. As with other CRM models, the Baldrige Award has a strong customer focus.
Again, companies that perform highly in the Baldrige model also appear to
perform better in the real world. Or, to put it another way: companies
that do not have a customer focus consistently underperform relative to those that do. One organisation that has been assessed is the Daily Telegraph. Director of direct marketing Anne Gowan says: "We scored quite highly, which is always good for internal morale. But it wasn't all plain sailing. "We pride
ourselves on our high operational standards. So when, in one or two
areas, it was suggested that we 'could do better', we had to stop and
think. "Apart from rating our performance, the assessment process generated
almost 100 recommendations. Some were minor, but others significantly affected
the way we do business. In a couple of areas – systems and telephony – we
looked again at matters we had considered closed. We had made good decisions at
the time, but technology had now moved on." The inside view Similar sentiments
are expressed by John Mullaly, a consultant for travel and transport sector with IBM. As someone who has assessed a number of global organisations' customer
management competence, however, Mullaly sees things from the other side.
He is concerned with what he sees as inherent weaknesses in the way many
companies conduct business. "Most companies have no CRM structure, so they have no method of diagnosing customer issues. Meanwhile, the shift towards a marketing- led culture has caused too many companies to rely on gut feeling to the detriment of steady implementation and good practice." A structured approach to customer management is therefore a very powerful and
necessary tool for identifying areas of weakness. QCi recently produced a
"State of the Nation" report, which draws on the CMATTM database to highlight problem areas for organisations. Disregard for CRM does not seem to be peculiar to any sector or type of industry. Some sectors, such as insurance, do perform notably worse across all countries than others, in terms of CRM performance. Some countries – Switzerland, for instance – perform significantly better than others, such as South Korea. Financial services companies are beginning to emerge as those most likely to implement effective CM, although their application of this thinking needs to improve. The roots of poor CRM seem to lie in a one-size-fits-all attitude toward customer management. There is still uncertainty among senior management about what CRM really is. The research on the relationship between CRM and overall performance reveals an interesting fact: what really makes the difference in CRM is not technology, nor is it infrastructure, although both of these are necessary enablers. What appears to count more than anything else is people: having the right leadership, having clear objectives throughout the organisation, having good competent customer management within the organisation and having well-motivated staff. Being in touch with customers matters, yet two quotations taken from the QCi report show just how little attention is paid to this: "In an astonishing 75 per cent of companies, senior management do not have regular direct contact with customers." "Only 13 per cent of companies regularly send mystery shoppers to their main
customer interface points to understand how they appear to the customer."
This neglect is compounded by the fact that only just over half of the
companies surveyed have a senior manager responsible for customer
management. As Mullaly comments: "One of the easiest tactics for many
companies in CRM is simply to appoint someone with responsibility for pulling together customer issues. Providing that individual is at a sufficiently senior level, they will quickly start to make a real difference to the way a company operates."
Ivory towers The reason why senior management is often so out of touch has
little to do with esoteric technical issues. Quite simply, far too many senior managers just don't see the "coal face" as being an appropriate place for them to exercise their talents. The message, from sources as disparate as
top-level government programmes and John Harvey-Jones' "Troubleshooter"
documentaries, is that senior managers don't manage customers. They are disconnected. In some cases, that disconnection may prove fatal to their business, since new entrants do provide customers with what they want. It is argued that, as many companies are as bad as one another, CRM makes little difference. That attitude ignores the massive business advantages that accrue to the successful ones, and overlooks the challenge posed by new entrants. Does anyone remember that, before the arrival of Direct Line, direct-selling insurance was regarded as impossible? If existing businesses do not take on board the lessons of CRM, sooner or later new ones will come along that do. In sectors from banking to supermarkets, customer service has evolved extensively over the past ten years, and there is no doubt that it will continue to do so in the next ten.
If you want to know what happens to companies that fail to adapt, the
answer is simple: they disappear. Take any household name – any service, any
product – and imagine where it would be today if it was still treating its
customers in the same way as it was ten years ago. CRM does matter. But it must not be unfocused. It must not be based on the
idea that a few technological fixes will do the job. Or, as the
Telegraph's Gowan says: "It was not just the fact that the
assessment process identified some of our strengths and weaknesses that
was important. It was the fact that it applied a framework to the whole
organisation – and that within that framework, it was possible, for the
first time, to evaluate what we were doing objectively." John Ozimek is a
consultant at specialist CRM consultants QCi @RT MW200105170113 ISSN
0141-9285; Page 55 Copyright 2001 Centaur Communications Ltd
(c) 2001 Resp. DB Svcs. All rts. reserv.
$$MARKETING WEEK, 17th May 2001