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Few high-profile IT labels have retained their glitz as long as CRM—customer relationship management, an umbrella title for almost every useful thing that can be done with enterprise IT systems.
From our vantage point overlooking the universe of IT products and services, eWeek Labs finds it useful to define CRM as the effort to track, attract, manage, interact with and support both current and potential customers—where the label of “customer” is expanding dramatically beyond its familiar meaning to include formerly captive relationships within a single enterprise.
Note, moreover, that this label thus defined describes a task—not a technology. The actual products involved may range from foundation database and Web servers to more specialized call center management systems, logistics and other fulfillment tools, and massive turnkey projects involving extensive customization of off-the-shelf modules.
When a buzzword-driven head office orders enterprise IT staff to build a state-of-the-art CRM system, everyone involved should recall the Moliére play about the newly wealthy man who aspired to join high society. When Moliéres social climber sought the aid of a master of philosophy to help him refine his language, he was startled to discover that he had already been speaking prose all his life; when he asked for instruction in how he could write a more gallant love letter, the master was unable to offer him anything better than his own sincere words. Even so, the title character in Moliéres “The Bourgeois Gentleman” paid richly for the advice he received—despite its minimal value.
So might managers be surprised to discover that CRM is something they have to do, not something they can buy, and that their own knowledge of their business is still likely to be the most important ingredient—now more than ever. No one should pay for overpriced assistance that purports to refine the process of improving customer relationships, while actually impeding that process with expensive complications.
When it comes to developing relationships, or to any other strategic business mission, the goal of IT is to stay out of the way of what works—not to prove the importance of technology by wrongly redefining success.
“Culture first, technology second,” said CRM veteran Steve Horne, president of the New York-based Analytici CRM consultancy division of marketing group Foote, Cone & Belding, also based in New York. “If a company isnt ready or capable of changing its business processes and culture to focus on the customer, CRM will fail. The label of CRM is tarnished because companies have built huge infrastructures in the technology arena, but technology cant drive the process.”
A Time to Relate
A Time to Relate
In a global marketplace defined by mobility of both capital and information resources, high-value customer relationships are arguably the most crucial and hard-to-copy ingredient in enterprise success.
Before the Internets acceleration of business interactions, inertia favored stable supply chain relationships; it used to be expensive to identify a potential new supplier, to verify its good reputation with customers, and to set up the logistic and financial arrangements involved in creating a new link in that cumbersome chain.
Internal “customers”—that is to say, business units within the enterprise itself—had even fewer options. Many companies, trying to minimize interaction costs across the enterprise boundary, built vertically integrated operations in which each stage of the production process was a monopoly supplier to the next, and even generic business services were performed by internal centers rather than being bought in the open market. Absent the pressures of competition, efficiencies suffered; whatever a company saved by internalizing operations, it may well have lost to the resulting internal (and usually invisible) subsidies.
Despite widely publicized dot-com disappointments, a network-based economy has largely canceled both the advantages of the incumbent supplier and the arguments in favor of vertical integration. For even the satisfied customer of either internal or external suppliers, its cheap and easy to find out whos ready to fight for your business tomorrow—and what theyll do to get it.
Numerous Web sites, both paid and free, make it possible for individual and corporate customers to find out almost anything about a prospective supplier—whether from an established research company or from anecdotal sources or government agencies. The resulting network economy, therefore, puts every supplier into the high-cost, high-risk state of needing to make every transaction a persuasive argument in favor of the next one.
There is also another crucial market: the one for good employees. The employment relationship has begun to approach an almost theoretical level of pure competition. Employees with e-mail and Internet access need not leave their desks to research opportunities in other organizations—or even to engage in part-time employment as consultants (or, for that matter, as industrial spies), while continuing to draw full-time paychecks.
Employers shouldnt fool themselves by looking at only the one-way flow of salaries and benefits from company to worker, with labor coming back in return. An employee is not merely a supplier of services and knowledge but is also investing in a career and making a daily purchase of life experience—paying for both with the invaluable coin of time. Every employer must therefore re-recruit its workers on an almost continuous basis, making the work environment not merely tolerable but clearly superior to readily discoverable alternatives.
Even when the short-term situation seems to favor employers, an “I hate my company” Web page may remain accessible for months or years—potentially scaring away qualified candidates when an economic upturn makes hiring a priority. Figuring out why good employees stay, or leave, and tilting the balance in favor of retaining ones top workers is therefore a mission that should be high on the agenda of once-complacent managers.
This is the huge playing field that faces CRM system builders, whose definition of “customer” seems to be expanding without visible limits. No monolithic technology package can hope to cover this ground with a single umbrella solution.
What IT must do is identify the opportunities to be found in information resources that the enterprise has already bought and paid for and integrate existing knowledge sources and flows across the organization—not create costly parallel systems that merely duplicate existing data or (very likely and even worse) attempt to mirror reality while actually providing a badly distorted picture.
“Companies never seem to solve their business problems because they never get the truth,” said Analyticis Horne. “Once you have the truth, its amazing how simple it becomes.”
Focus on the Essentials
Focus on the Essentials
Rather than thinking of CRM as a product, enterprise IT builders will do better to think of CRM as the following set of process goals that should be pursued by every piece of IT infrastructure. When every link in the IT chain achieves those goals, improved knowledge and management of crucial relationships will have a chance to emerge, rather than being somehow imposed on a system built with other criteria in mind.
1.) End-to-end integration
Nothing kills a relationship more quickly than the feeling that the enterprise isnt really dealing with the customer, the employee or the supply chain partner as a whole—that every interaction takes place in a separate space, without awareness of the interlocking opportunities and needs reflected in other interactions at other times and among other activities.
Conversely, the enterprise that identifies and addresses such needs will give its customers a compelling case to favor that enterprise with profitable one-stop shopping, instead of needing to fight for every separate piece of the business of even the frequent buyer.
The process of integration has its own compelling logic. “Supply chain management started with optimization of inventories,” said Nazhin Zarghamee, chief marketing officer at business performance measurement company Hyperion Solutions Corp., in Sunnyvale, Calif. “When that was tackled, though, people found they couldnt really address it without addressing shipment and other elements. There was also the issue of relationships being more than just moving the pieces but of integrating suppliers into the strategic side of the organization.”
Massive integration is among the key reasons that Wal-Mart Stores Inc. has moved to the top of the Fortune 500. “Wal-Mart probably has the best single integrated database in the world,” said Analyticis Horne. “Wal-Mart will penalize you, as a supplier, if your integration with their systems doesnt meet their standards.”
Learning from Wal-Marts example, the enterprise with CRM ambitions should look beyond its own boundaries: Working proactively with supply chain partners will prepare the way for timely and reliable flows of useful and accurate data, instead of creating a CRM brain that is blind and deaf to everything outside its own little world.
Eliminating the speed bumps that impede the flow of data is crucial to CRM in the same way that proper design of data structures is the crux of any internal IT application. “What people want to know is simple,” said Horne. “Business unit managers ask, Who is my customer, what do they buy, why do they buy from me, what else might they like? But most companies have these things in 42 different warehouses. Its the core knowledge base that needs to be fixed.”
2.) Think in both directions
Almost exactly echoing Hornes words were the comments of the judges in eWeeks annual eXcellence Awards program when they evaluated a comprehensive field of entries representing CRM innovations of last year. In their final choice of E.piphany Inc. as CRM category winner, the team, led by eWeek Labs Director John Taschek, cited the need to “utilize customer-driven data in all its forms to improve services provided to those customers.” (The complete results of the eXcellence Awards can be found at /article/0,3658,s=702&a=23530,00.asp.)
The eXcellence Awards judging team, including an industry participant from the supply-chain-intensive health care delivery business, honored both winner E.piphany Service and finalist Applix iCRM, from Applix Inc., for “excellent capabilities for integrating into existing enterprise infrastructures” and the ability to “measure customer input from all sources, including e-mail and Web.”
Analyticis Horne emphasized the need to aggregate across the many different channels by which an enterprise interacts with any given entity. “Every transaction has to be correlated to an entity if youre going to do CRM,” he said. “Accounts are not entities.”
When a single entity, with many points of contact, appears to an enterprise information system as merely the sum of many separate accounts, valuable opportunities to identify related and interacting needs may never be able to surface.
At the same time, the enterprise needs to appreciate that the customer is also integrating an image of the enterprise across many separate channels. “It takes multiple impressions,” said Horne, to establish trust, “and you have to build trust before people will interact with you.” The enterprise must both build its own integrated image of the entities with which it deals and maintain a consistent image of itself thats constructively reinforced by every interaction.
3.) Measure what matters
Theres a built-in tension between the need to integrate existing data sources and the need to avoid being too tightly focused on what the infrastructure already does well. If the existing IT apparatus is entirely focused on meeting internal and operational needs, it may be difficult to find a mother lode of relationship-building insights under the resulting mountain.
“Most companies are data-rich and information-poor,” said Horne. “Building a CRM system on an existing information infrastructure that is inwardly focused on company operations defeats the purpose.”
It takes customer-oriented thinking to recognize the data that has value—and to improve data capture capabilities that enhance understanding of customer needs and preferences—instead of technology-oriented thinking that tries to squeeze value out of the data that falls most readily to hand.
Its almost frighteningly easy to build a massive CRM system that measures many things but not the right things. Zarghamee, at Hyperion Solutions, said, “Where were seeing people hitting a roadblock is on two fronts: not being able to align against strategic objectives and not being able to see what decisions will have the greatest impact.”
The would-be CRM builder must therefore avoid the trap of being too successful at integrating across the existing infrastructure: One may win a whole series of integration skirmishes, while failing even to find the more important battlefront.
4.) Pick the right relationships
Suppose that a CRM builder is successful in unifying enterprise IT assets into a single, consistent view of diverse interactions, both internal and external. Suppose that business unit managers are completely aware of the factors that drive customer behavior.
Is the CRM foundation now properly laid? Not until the final connection has been made—the one that goes to the bottom line.
Unless customer profiles are examined in terms of what it costs to serve a particular customer, compared with what that customers business is worth, a CRM system can turn into a misguided automatic pilot—the kind that drives a company over a cliff.
Metrics may accurately determine that the lack of certain services is a major reason for losing customers, but it doesnt automatically follow that introducing those services is the right thing to do. There has to be realistic analysis of the companys core competencies and of the return-on-investment proposition. Failing this, the company may find itself chasing niche-market customers whose business it cant profitably retain.
5.) Track the moving target
To be sure, the ROI analysis has to be dynamic: The company must consider the steady growth of customer expectations, as overall levels of service in many industries are dramatically on the rise. In the long run, in any industry, customer service will rise to the point where a well-run business makes a competitive risk-adjusted rate of return. Any industry with prevailing profit margins substantially greater than market rates will surely attract new entrants, until the resulting competition restores the balance.
Whenever technology reduces the cost of the current mode of doing business, the windfall profit may be short-lived. No company should be too quick to say, “We dont need to do that, because no one else does.” Tomorrow, or the next day, someone may.
What CRM can do is give enterprise managers early warning that a prospective service might be valued by customers who havent yet thought to request it; it can give those managers a head start on analyzing how new amenities can be offered in a cost-effective way that gives the most perceived value for the least cost.
This maximizes the advantage of existing customer relationships, rather than losing that advantage to the first-mover initiative of a new entrant into a market.
6.) Dont sneer at “soft” numbers
To make CRM an on-ramp to new business opportunities, IT must think on multiple levels about both internal and external data sources and about both hard numbers and soft estimates or research studies.
If IT staff members are congenitally unable to mix both hard and soft numbers, business unit managers will be severely handicapped in their ability to go beyond navel-contemplating analysis of current customers behaviors. Mutual respect must exist between the hard and soft disciplines involved in this collaboration: “There are a lot of technologists who think theyre marketers,” said Analyticis Horne, “and a lot of marketers who cant describe what they want—they dont know what they dont know.”
When CRM connections go all the way to the bottom line, they can help the enterprise avoid the trap of building revenue while destroying profitability. “What kind of promotions, what kind of loyalty programs, will most increase or diminish profitability? If you move up a product launch, what will that do to price pressures?” said Hyperions Zarghamee. These are the kinds of questions that CRM systems should be built to answer.
7.) Invite new opportunities
It wasnt a detailed study of cats, or even cat owners, that turned bags of cat litter into winter driving aids. Providing both added weight for traction and added friction for getting out of slippery situations, those bags of sand and clay found a whole new market when sellers started to promote this use.
Many other enterprises can take a valuable cue from the cat litter example: Dont turn CRM into a microscope that only tells you everything there is to know about the customers you already have, especially those youve kept for a long time with little effort. Ideally, CRM is at least as much an over-the-horizon radar thats always examining the edges of the operation—looking at the one that got away, studying the one that never quite got within reach.
Its relatively cheap to analyze data about the customers that the enterprise already has, but it should also be part of the charter of CRM to incorporate research into the characteristics of the customers who have not yet been acquired. CRM should not merely dig a deeper and smoother rut for the enterprise to follow in doing what its always done.
Do Something Today
Do Something Today
By studying customer behavior in a larger context, and not just tabulating data on its own sales, the enterprise can identify important opportunities for partnership.
Zarghamee offers the example of a casino, which should not be satisfied merely knowing what games people play within its own walls; casinos track all places where their customers spend money. “They can offer frequent-flyer promotions,” said Zarghamee, “and tie in where people stay and offer hotel discounts.”
Revenues from casino gaming may look like a zero-sum game, in which no casino can increase its profits except at the expense of its competitors. But strategic packaging can combine the interests of complementary businesses to create a more attractive overall package—once the product has been properly defined, not as gaming, but as a form of travel and entertainment. The more complete the package, the more its value to the customer exceeds the sum of the costs of the parts—and the more profit flows from that difference.
CRM success also depends on a re-alistic timeline. “Theres a direct cor-relation between project failure and senior management turnover,” said Horne. Horne added that, in his expe-rience, projects that take several years to deploy fail for two reasons: “The person who signs off on the project isnt there for its completion, and the rules for evaluation change in midstream.”
Its better, Horne advised, to “eat the elephant in small bites. Implement a series of projects that demonstrate how CRM will work within the company after analyzing the data to learn where you will get the biggest bang for the buck.”
Most modern enterprises already have more data about internal and external interactions than they effectively use. Whats missing are the connections between that data and top-line strategies and bottom-line results.
It takes managers, not monolithic CRM suite vendors, to define the enterprise mission and identify useful measures of success and value-adding strategies. When management performs that function, IT can do its job.
Technology Editor Peter Coffee can be reached at peter_coffee@ziffdavis.com.
Links to other stories in this package:
- CRM: Spreadsheet of the New Millennium?
- CRM: Best Practices
- CRM: Heads Up
- CRM: Web Resources
- CRM: The Next Generation