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Making Customer Relationships Work, Part 2
Of all the classes of e-business initiatives, customer relationship management arguably has won the greatest allegiance among corporate management. As noted in last week’s column, surveys show that one-third of American companies either have a customer relationship management (CRM) program of some sort in place or are planning to implement one within the next 12 months-with spending on CRM services and technology projected to grow from about $40 billion last year to more than $90 billion by 2003. Indeed, one study conducted by Rubin Systems, Inc., for Cap Gemini America identified CRM as the top IT spending priority for fully 81% of responding companies.
So great has the interest in the practice of customer relationship management become that Patricia Seybold, one of the field’s leading advocates, could credibly label the CRM movement in a book earlier this year as a “revolution.” “Customers have always been the raison d’etre for businesses,” she wrote. “But now, for the first time in the history of modern business, we have the wherewithal to detect customers’ needs in near real-time and to adapt quickly to their changing desires. Using the Internet, we can now reach out to new customer segments to test new offerings, innovate, and experiment more rapidly than ever before.”
Similarly, writing in “Taking Care of E-Business,” another customer relationship management manifesto, Siebel Systems founder and CEO Thomas M. Siebel noted this past Spring that, because of such factors as “empowered customers, increasing competition, rising customer expectations, globalization, privatization, deregulation, technological innovation, and industry consolidation, [business] organizations face mounting challenges in their ability to acquire and keep customers and to maintain brand value. In every sector of the economy and in every part of the globe, many once-illustrious brands are coming under attack…” There is, however, a solution. “Organizations with well-crafted e-business systems,” Siebel observed, “can dramatically improve their ability to acquire and keep loyal customers…”
I had the privilege a few months ago to conduct an in-depth survey of the “lessons learned” from the early years of implementing customer relationship management initiatives. Based on proclamations like those just cited, I had expected to find a mature management field in which certain key principles were well-established, not just philosophically but also through a compendium of case studies demonstrating just how to make CRM and its allied technologies work in practice. What I learned surprised me. While there was no shortage of theoretical treatises-like many management fields, customer relationship management boasts a large library of “how to” laundry lists-actual, concrete success stories were in far shorter supply.
Although some of Seybold’s and Siebel’s visionary companies could point to documented and quantifiable successes, the CRM successes boasted of by a number of companies lay primarily in the potential for accomplishment, not in actual achievements. In the course of the survey, I uncovered ample evidence to support the assertion by Constance Gustke in Internet World, cited in last week’s column, that, “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.”
The conclusion that this evidence supports, in my view, is neither one of failure nor futility. Rather, it is that customer relationship management-like most other e-business technologies-is no miracle cure for boardroom and marketplace ills. It is potentially an exceedingly powerful tool for promoting both customer loyalty and bottom-line profitability, but only if well-understood, well-implemented, and well-maintained. And it is one that ultimately can generate the quantifiable and concrete successes desired if companies now undertaking CRM programs apply the ten “lessons learned” from the early efforts of their corporate counterparts.
In this column, I will examine the first four of these lessons-the management lessons, if you will. In the succeeding two columns, I will look at the organizational and technical lessons. In the end, I hope, readers will have a much better idea not just of the possibilities for customer relationship management initiatives, but of the often difficult but nonetheless necessary steps that must be undertaken if these initiatives truly are to be a success.
Lesson 1: Think Strategically
Implementing a successful customer relationship program begins with understanding the truly strategic nature of the solution being implemented. As Philippe Jarre, IBM’s eCRM director for Europe, the Middle East, and Africa, wrote a few months ago, “customer relationship management is a strategic and business process issue. The CRM approach encompasses all of the business processes that an organization performs to identify, select, acquire, develop, and retain its customers.”
Unfortunately, most companies that have pursued comprehensive customer relationship programs to date have failed to fully capture this strategic promise. “The lack of a clear strategy,” Tim Angst, Vice President of Siebel Retail Finance, told me earlier this year, has been “the most important obstacle” to an effective CRM implementation. “Pain points generally result in point solutions,” not the kind of enterprise-wide initiatives that successful customer management programs require.
We’ve heard this song before: similar strategic deficiencies previously doomed many companies’ Web development efforts. It used to be that companies wanted to build an Internet Web site, that the “Internet was everything.” Now, they understand that the Internet is just one component of a multi-channel e-business strategy, not the endpoint in itself. Today, we’re witnessing the same learning curve with respect to customer relationship management: companies want to create a customer relationship strategy, but they often don’t see the connections between customer relationship and their other company operations.
This problem of limited strategic understanding appears to be pervasive across industry types. Merlin Stone, IBM Professor of Relationship Marketing at the Bristol Business School in the United Kingdom, who has conducted some of the most thorough research into customer relationship management program implementation, has discovered that “many companies are very disorganized in their approach to CRM, with responsibility being diffused among many competing groups. Tactical rather than integrated solutions are common. Large companies often fail to understand the requirements of scalable, multi-channel strategies, so start with an approach that works in one channel and collapses in another.”
Indeed, the IBM.QCi Customer Management Scorecard, a joint research project of IBM and British management consultancy QCi that was co-directed by Stone, and that surveyed more than 50 large companies in a number of industry sectors throughout the world, revealed that fully 65% of blue-chip firms failed to give any real consideration to the medium and long term when planning CRM initiatives. A compounding problem: even when companies begin with a strategic approach to customer relationship management, that commitment often wanes in the face of demands for short-term financial results. Notes Dr. Stone: “There is a commitment to [customer relationship management] in boardrooms all over the world, but when margin pressures increase, the focus from senior management often can become myopic-leading to a focus on short-term financial measures.”
On the other hand, when strategy is paramount from the outset, the results can be little short of spectacular. Charles Schwab, the world’s leading online brokerage, with more than 3 million individual investors, began its corporate existence with a vision of creating a “rich investing experience,” becoming one of the first brokerages to personalize the information provided to users. Schwab adhered closely to that strategy over the next several years, in good times and bad. In time, reports Ian Gordon, the author of “Relationship Marketing,” customers became “locked into a learning relationship with Schwab, which is becoming better and better at serving each customer uniquely, imposing barriers to switching.”
Lesson 2: Put the Customer First
The practice of customer relationship management begins, literally, with the customer, and so one would assume that customers’ needs and views would play a paramount role in the design of any CRM solution. And there is, in fact, “a largely unspoken assumption among senior managers that a focus on ‘customer relationship management’ is conceptually desired,” says Merlin Stone, and a commitment to satisfying-even delighting-customers is common in corporations, “at least verbally and within ‘mission’ statements.”
All well and good. But you might not know this from observing common business practice. Stone and his colleagues, in carrying out the IBM/QCi study, discovered that:
A mere 20% of companies have a formal contact strategy to welcome new customers-presumably, one of companies’ most sought-after assets.
Fewer than half identify “moments of truth,” those make-or-break instances that can result in the permanent loss of a customer-or the building of a long-term relationship.
Fully 62% of companies do not measure customer retention in any practical form.
Only 6% of businesses use feedback from customer-facing employees to refine their customer management systems.
If so many companies are committed, as they profess, to implementing customer relationship management initiatives, why would there be so little follow-through on such fundamentals of customer attention as these? A key reason, says IBM’s Harvey Thompson told me last year, is that CRM initiatives “are almost always approached from the inside out. Management usually thinks that they know what customers want, but they don’t.” Hence, rather than asking customers what they want, rather than exploring the customers’ needs in any detailed fashion, management often just assumes-and, too often, assumes wrongly. This is precisely what the IBM/QCi survey discovered: “Many companies have focused so strongly on what they are trying to do TO customers that they have forgotten what’s in it for the customer: what does your customer value from you?”
Indeed, Corporate America’s supposedly customer-oriented practices often ignore the customer altogether. Charles Fishman of Fast Company cites an example from the airline industry. “Airlines don’t think of themselves as service organizations. Airlines think of themselves as factories that manufacture revenue-seat miles. Airlines have been tuned in to the efficiency of their manufacturing operations, not to the quality of the journey that they provide.” More generally, the removal of the customer from the business decision-making process is evident across industry sectors in cost-cutting tactics like automated customer service phone systems, where callers have to wade through seemingly endless push-button menus before reaching a live customer service agent. “Time saved for them is not time saved for us,” bluntly notes Claes Fornell, the University of Michigan professor who created the American Consumer Satisfaction Index, one of the key statistical measures of declining customer satisfaction.
Even companies that care about their customers often do not know their customers well enough to implement a successful CRM program. In the IBM/QCi survey, only one of 51 companies had implemented “anything like a global approach to customer knowledge.” In fully 75% of companies, top managers had no direct contact with customers. Yet understanding customers-what motivates them, how they like to interact with the institution, what contact channels they prefer-is of overwhelming importance, not just to a successful customer relationship management implementation, but to business success overall.
“Organizations should focus on 100% customer satisfaction,” Siebel Systems’ Thomas M. Siebel insisted in a recent speech, “because total customer satisfaction is a leading indicator of customer retention. Though organizations must carefully track financial performance,… these metrics are lagging indicators of the quality of customer relationships. By the time an organization sees its profits or sales growth drop,… dissatisfied customers may already have defected to the competition.”
The payoff from a strong customer focus, on the other hand, can be significant. When E*Trade entered the online stock-trading market, it faced an army of powerful, well-funded competitors. But by working assiduously to understand its customers needs and behaviors, E*Trade managed to not only become a market leader in online stock-trading, but to dramatically increase its customers’ satisfaction, a key reason why it now secures more than 60% of its revenues from repeat customers. Similarly, Amazon’s financial success is due in large part to its customer-satisfaction and retention efforts, which have generated one of the highest rates of repeat customer business in the online world.
Lesson 3. Build Internal Support
Developing the right perspective is only the first step in launching a successful CRM initiative. Equally important is implementing the program in an effective way. And the cornerstone of implementation is strong and focused executive leadership. “To implement anything other than tactical approaches,” asserts Merlin Stone, “the [customer relationship] program sponsor must be senior, visible, and totally supportive.”
The importance of strong executive leadership is hard to overstate. Notes Paul DeVriendt, Senior Director of Institutional Finance Products for Siebel Systems, “An executive champion can be a critical advantage in raising the profile of the project, advertising early successes, and resolving issues and obstacles. Ongoing management support throughout all stages of the project is critical.” On the other hand, without strong and consistent executive support, a customer relationship management initiative can easily flounder. The result, says Neil Woodcock of QCi, the British management consultancy, is “a loss of focus on key customer management measures,… a squeeze on costs, and a shift in focus to [short-term] productivity,” which “often results in the demotivation of the people who deal with customers.”
This is what transpired at a number of major U.S. investment banking firms reviewed for this study, firms in which senior management did not view the CRM deployment as a critical business initiative and so failed to become involved in the daily operations of their programs, and were barely involved at the committee level. This lack of executive involvement has been observed in other industry sectors as well. The IBM/QCi study determined that, in general, “senior management are out of touch with how customers are actually managed within their organization,” and that “67% do not give clear, visible leadership in achieving customer management excellence.”
Just as important as executive support is support on the front lines-particularly among middle managers and customer-facing employees. Indeed, the IBM/QCi study discovered that the capabilities and commitment of such front-line employees was one of the most important determinants of the success of customer relationship management initiatives. Admits Gary Burnette, Director of CRM Architecture for IBM, “You don’t get any points if you roll this whole [program] out and nobody uses it.”
More than that, without front-line support, many CRM programs are doomed to failure from the start. “Failure is more likely,” says Merlin Stone, “when team workers have hidden issues or worries concerning the project that go unlistened to and unresolved. This will affect the quality of their output, and mutterings within the organization may grow into significant barriers to change.” In this regard, it should be considered worrisome that, according to the IBM/QCi survey, only 25% of companies could be characterized as having a “real receptiveness culture” to front-line feedback (particularly negative feedback) and, as noted earlier, that only 6% of companies actually solicit suggestions for CRM system improvements from the front lines.
Perhaps the most important requirement for securing front-line support, explains Dr. Stone, is ensuring that there are “real benefits for all users that save them time, really help them achieve their targets, and add some other value to what they do.” After all, notes IBM’s Burnette, “by deploying our customer relationship management system, we are changing the way people do their jobs. We are changing the tools they use, and for some people this is not necessarily a happy experience.”
Fleet Boston Financial, the eighth-largest bank holding company in the United States, is one financial services company that has strengthened its customer management initiatives with a strong focus on the benefits to the front lines. Its customer service agents “have adapted quickly and like the ease with which they can respond to customer inquiries,” says Mary-Jude Dean, Fleet’s Senior Vice President and Director of Specialty Services. “Agents are able to meet customers’ needs faster as a result of instant caller identification, access to a complete customer profile, and improved response from integrated legacy systems.”
Quick & Reilly, one of the United States’ leading discount brokerages, has had similar success in focusing on its front lines. After the firm deployed a Siebel eFinance system, Quick & Reilly brokers especially liked the sales profiling tool, which helped them speedily find critical information on potential investors, such as their income tax bracket and recent bank transactions. Because brokers could now identify customers in a way never before possible, they proved much more successful in presenting an investment strategy that matched potential investors’ needs-a major factor in their enthusiasm for the new system.
Lesson 4: Manage the Implementation Effectively
Once sufficient support is secured for a CRM initiative, the next step is to manage the program’s implementation. This can be a complex and demanding task, one whose scope and requirements are likely to vary widely depending upon the size and culture of the company and the specific objectives of the implementation. However, there are enough commonalities among CRM initiatives to suggest some general guidelines.
The first is perhaps the most obvious: plan ahead. As Eric Krell writes in Business Finance Magazine, “although software plays a vital role in CRM, companies that realize the greatest benefits spend a lot of time in low-tech planning activities before they activate high-tech solutions…” Unfortunately, such companies appear to be in the minority. Bryan Foss, IBM’s Financial Service Sector Customer Loyalty Solutions executive, told me that, while “the analytical side of customer management has emerged as the starting point for building solid customer loyalty, the analysis, planning, and measurement processes have emerged as sticking points for many of our customers.” In fact, the IBM/QCi study found that a majority of surveyed companies were “very weak in this area,” and that 60% had not even formally identified the processes that affected the way that customers were managed in their organizations.
Principle two: Once appropriate implementation plans have been made, they have to be executed. In its own customer relationship management initiatives, IBM has discovered that the centralized management model offers the surest route to a successful implementation. “Creating a very tight, centralized management team upfront has been a critical success factor,” explains Gary Burnette, the IBM CRM Architecture Director. An important reason for this centralized management, Steve Mankoff, Senior Vice President of Technical Services for Siebel Systems, told me this past Spring, is that “very few financial services firms can do a single CRM installation. Therefore, companies have to figure out a way to do multiple installations that map different systems to one another.” The best way to achieve this result, he explained, is through a core management group with responsibility across multiple implementations.
A third key principle is to pursue a gradual rollout of a CRM program rather than a “big bang” implementation where everything is put in place at once. Such “big bang” installations can be successful, of course. Canadian Imperial Bank of Commerce (CIBC) successfully implemented an enterprise-wide CRM program in just four months in late 2000. But CIBC’s success is the exception. The more likely result is that a “big bang” installation will get bogged down, the management team will become overwhelmed, or the inevitable rough spots in the installation will not be smoothed over before the full rollout.
Far better, says 1-to-1 marketing guru Don Peppers of the Peppers and Rogers Group, a Stamford, Conn., based CRM consultancy, is to implement a customer management initiative in a rapid succession of 60- to 90-day waves that allow for proper testing and validation at each step of the way. Northwestern Mutual, the largest provider of individual life insurance in the United States, followed this approach in late 2000. The company initially launched a pre-pilot version of its new CRM system on only a handful of desktops, and now is in the process of rolling out the program to some 10,000 users. Because of this gradual rollout plan, accordingly to Field Technology IT Manager Nancy Bentley, user feedback has been overwhelmingly positive.
A fourth key implementation principle is to avoid unnecessary customization. IBM itself has found that the use of “vanilla software”-that is, software installed as-is-has been a significant contributor to the success of customer relationship management installations. Rather than assuming that every unique aspect of an installation requires a custom solution, IBM undertakes a sophisticated gap analysis that identifies areas where customization is essential and those where standard solutions will suffice. While it may sacrifice some short-term functionality through this process, IBM has been able to deploy its CRM solutions quickly and simplify future upgrades-a tradeoff that typically results in much greater long-term benefits.
A final-and, unfortunately, often overlooked-implementation principle is to provide adequate training to end users. “Historically, particularly in the early years of CRM, a lot of companies spent a great deal of money implementing these solutions, but then skimped on end-user training” Rick Burley, Vice President for Institutional Finance in Siebel Systems’ Customer Solutions Group, explained in an interview earlier this year. The result was a failed implementation.” What is necessary, he went on, is a rich course of user training-not just pre-implementation training, but “one-on-one training walking around the company, showing users how to derive value from the system.” The most immediate result of such training is enhanced customer relationships and better customer service, but there is another payoff as well: increasing employee satisfaction. And research shows that happier employees serve customers better.
Thomas Cook, one of the world’s oldest international travel and financial services groups, with a customer base exceeding 20 million, has witnessed the beneficial effects of training firsthand. When the company implemented a CRM application suite within its Corporate Foreign Exchange operations, “we put a lot of effort into explaining how the… applications fit into our overall strategy,” recalls John Telford, Senior Vice President and General Manager of Corporate Foreign Exchange, North Americas. “We also focused on educating people on the behaviors, attitudes, and capabilities required to deliver a superior customer experience. These educational efforts,” he says, “have helped generate enthusiasm for the new system.”
Moving On
Establishing an effective strategic and managerial approach to CRM is the first-but only the first-step in a successful CRM initiative. Organizational and technical sophistication are just as vital. I’ll explore those issues in the next two columns.
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