The E-Business Software Weekly is a series profiling trends and developments in software and applications that support e-business, the Internet, and other electronic communication channels. Look for a new story each week in this space.
Making Customer Relationships Work, Part 1
Why are customers so angry?
You can sense the frustration everywhere. From the scowls in the molasses-paced lines at teller stations to the angry glares at uninformed sales clerks, from the plagues of unanswered consumer emails to the endless telephonic maze of automated customer service systems.
The problem has become so pervasive that its recounting has become a common theme in the mainstream business press. In a cover story last October on the decline in customer service, BusinessWeek reported that, "as time goes on, [the] service gap is only growing wider. Studies... vividly detail what consumers already know: Good service is increasingly rare. From passengers languishing in airport queues to bank clients caught in voice-mail hell, most consumers feel they're squeezed by Corporate America's push for profits and productivity."
In March, Charles Fishman, senior editor of Fast Company, was compelled to reach the same conclusion. Customer service in the new economy, he wrote in a Fast Company cover story, "has become a slow, dissatisfying tangle of telephones, computers, Web sites, email, and people that wastes time at a prodigious rate, produces far more aggravation than service, and, most often, leaves you feeling impotent." He noted that most statistical indicators show that customer service ratings have fallen in recent years, with airlines, department stores, and banks among the worst offenders.
And it's not just the technologically unsophisticated among these companies that are failing their customers. In studies conducted a couple of years ago, New York based Internet researchers Jupiter Communications (now Jupiter Media Metrix) discovered that fewer than 40% of online commerce sites answered their customer emails within three days-and more than 20% never answered them. Likewise, in a survey last year of 150 financial services firms that carry out at least some of their business online, Celent Communications, an e-business consultancy, found that 56% of surveyed companies either did not accept or did not respond to Web-based customer inquiries. All told, only 23% of surveyed financial services firms provided acceptable email responses, and just 5% contacted dissatisfied customers by telephone.
Searching for Answers
Such poor attention to customer relationships is more than a mere annoyance. Patricia Seybold, a leader of the customer relationship movement and author of "Customers.com" and "The Customer Revolution," notes that customer-facing firms at last "are beginning to realize that we're very angry at them. Companies that don't wake up and pay attention to this," she plainly predicts, "are going to be out of business."
Economic research lends credence to her prediction. According to the University of Michigan Business School's American Customer Satisfaction Index (ACSI), companies with the top 50% of ACSI scores generated an average of about $42 billion in shareholder wealth over the past five years, while companies with the bottom 50% of scores created just $23 billion. Overall, a mere 1% increase in customer satisfaction produced a 3% increase in market capitalization, with the converse also being true: a 1% decline in customer satisfaction sliced 3% off a company's market value.
Why? The explanation is distressingly simple: customers leave and go elsewhere. This "customer churn" has been especially prevalent on the Internet, where price comparison sites abound and where competitors are always the proverbial "click away," but it hardly confined to dot-com companies. Even before the proliferation of Web-based technologies, for instance, the American Bankers Association could report that poor customer service was the single most important reason that customers cited for changing banks.
Regardless of the particular sector in which these customer losses take place, though, the cost can be huge-an amount equal to five times the customer's annual revenue. Put another way, according to an analysis by Bear Stearns & Co., each lost customer costs an average of 12 times as much to replace as it would have cost to retain the customer in the first place.
Perhaps it's time to join with Fast Company's Charles Fishman in searching for answers. "I come here at the beginning of a long journey...," he writes, "during which I will cross the continent several times and seek out both oracles and common folk. I am determined to unravel a central mystery of life in modern America: why is customer service so terrible?"
The Unexpected Effect of Technology
Whatever the explanation, whatever the reasons for the downward spiral in customer service, technology was supposed to be the answer. Technology-email, the Internet, advanced computer software-was supposed to rescue Corporate America from its enduring customer service challenge. Instead, in many ways, it has made matters worse.
You can start by blaming Jeff Bezos, the CEO of Amazon.com. "Amazon.com has changed the rules of the game for everyone," Brian Lawe, at the time IBM's Director of Worldwide Marketing for Customer Relationship Management Solutions, told me last year. "Amazon.com has set the standard not just for the Internet, but for the brick-and-mortar world as well."
What the Internet retailer has done is not all that extraordinary-unless you place yourself in the customer's shoes. Amazon's customer service staff actually answer customers' email inquires, usually within an hour or two. The company ships the products that customers have ordered, when it says it will. Its customer service agents know in real-time the status of each individual order-and so does the firm's Web site. And, perhaps most importantly, notes Charles Fishman, when customers point to a deficiency in the way Amazon is managing its customer relationships, the company actually fixes the problem.
But while Amazon has set new customer expectation hurdles for other firms, Internet upstarts like Amazon are not alone in this regard. The rise in customer expectations has also been fueled by the efforts of more established companies to use advanced computer technologies to better server their customers. For example, "financial services customers are demanding a lot more from their financial institutions precisely because they have been trained over the last two years to expect such conveniences as online banking, round-the-clock availability, and immediate access to their full history of transactions with the institution," Eric Ranta, Senior Product Manager for Siebel Financial Services Group, told me earlier this year.
The Customer Management Challenge
Corporate America's challenge, however, goes beyond the rising level of customer expectations. In a very real sense, technology has actually institutionalized dissatisfaction by placing new and, often, impossible demands on companies' customer-facing employees. As a result of technological advances, Charles Fishman explains, "I can plunge through the details of my online bank statement more thoroughly in 50 seconds than any automated voice-mail system could permit in 50 minutes, or than even the most patient phone operator would tolerate. This means that when we talk to someone in person, things are really screwed up, or we are really angry and want to share that anger with a person. Or both."
Enter CRM. Customer relationship management tools, particularly those intended to manage customer relationships online (a subset of tools often referred to as e-customer relationship management software, or eCRM), were designed to strengthen customer relationships both by avoiding destructive customer relationship problems like those described and, more importantly, by enabling companies to address predictable customer-specific concerns ahead of time and so provide their customers with such a delightful, personalized experience that customer problems rarely, if ever, arose.
Patricia Seybold states this proposition succinctly. The customer relationship management process, she explains, "starts by focusing on your existing customers, figuring out what they want and need and how you can make life easier for them. Then you can expand your efforts to reel in prospective customers." At that point, "closing the sale and cementing a profitable, long-term relationship becomes a snap, because you've already made it easy for customers to do business with you."
It's a proposition to which many in Corporate America have devoted increasing attention in recent years. According to a Harte-Hanks survey conducted early in 2001, one-third of American companies either have a customer relationship management program of some sort in place or are planning to implement one within the next 12 months. Among those firms that have not yet launched such an initiative, 47% expect to do so within the next year.
As a result of such activity, International Data Corporation, a Framingham, Mass., based technology research firm, projects that the market for CRM and e-customer relationship services will grow from about $40 billion last year to more than $90 billion in 2003. Indeed, a study by Rubin Systems, Inc. conducted for Cap Gemini America identified CRM as the top IT spending priority for fully 81% of responding companies.
Success and Failure
That's the good news. The bad news is that CRM and e-customer relationship management technologies are just that: technologies. And translating technological promise into business success has not always been an easy task. As Constance Gustke writes in Internet World, "While electronic customer relationship management (eCRM) is attracting increased attention from business leaders, the technology is not always well understood by the very companies that use it. It combines so many important elements that it's easy for a company to do one or two things right and a slew of other things wrong or not at all.
Taking this established business process online has multiplied this complexity..." The IBM/QCi Customer Management Scorecard, a joint project of IBM and a British industrial research firm, perhaps the most detailed look at e-customer relationship management practices ever undertaken, found earlier this year that, while "there are plenty of examples of exciting and stunningly effective practices in customer management,... the way in that companies manage the customer management system... is not so impressive. Only one company [out of the 51 blue-chip companies surveyed] scored really well..."
Not fully understanding the intricacies of customer management solutions and not implementing them well can make a customer relationship management project less than optimally successful, as the IBM/QCi team learned, but that is only one possible outcome of a CRM initiative, and not necessarily the worst. Another possibility, says Merlin Stone, IBM Professor of Relationship Marketing at the Bristol Business School in the UK and a leader of the IBM/QCi survey, "is complete project failure."
Consider the results of the classic 1999 study "Migrate Headaches" by the Standish Group, a technology research firm. In examining a wide range of firms across several industries, Standish found that only 17% of e-business initiatives requiring corporate systems integration (as customer relationship management initiatives do) were wholly successful. Some 49% were completed but overran their budgets, and a full 34% failed to achieve even their baseline objectives at whatever cost, meaning that CRM and related projects were twice as likely to fail as succeed. Similarly, a 1999 study by The Meta Group, a IT research firm, confirmed that customer relationship management initiatives in many of the world's largest companies were at "serious risk of failure."
The Quandary
Hence, the quandary. As reports from the customer service front reveal, customer-focused companies urgently need to do a much better job of managing their customer relationships, especially relationships that originate online. CRM and e-customer relationship management technologies in theory can be an ideal answer to that need. And yet planning and implementing these customer relationship solutions is not a simple matter. Doing so requires foresight, skill, and integration. And, mostly, the experience of knowing how to do things right.
Over the next three columns, I will look at some of the key lessons learned in the early years of implementing customer relationship management technologies and the corresponding keys to succeeding in this most crucial endeavor. A warning: there are no cookbook answers, and the challenge of using technology to improve customer relationships is not mastered overnight. But the prize, says Harvey Thompson, IBM's Global Executive for Customer Value Management Consulting, is one worth any amount of effort: becoming, and remaining, "number one in the eyes of your customers."
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