dchase on CRM

Customer Relationship Management

CRM in Brief

Customer Relationship Management (CRM) is a business practice facilitated by technology. It is the practical implementation of what we once called "closed loop" decision support, though with a decidedly marketing and sales focus. The key factor of a successful CRM implementation is the organization's ability to create a service culture focusing on the needs of the customer. Without a primary focus on business practices and culture, any CRM implementation is doomed to failure. With a collaborative, service-oriented culture in place, CRM technologies can help your organization dramatically improve business performance.

The Practice of CRM

Successful CRM implementations depend upon sharing information about the customer across the organization and training and empowering people to evaluate and act upon that information. The fundamental tenet of CRM is the belief that knowledge is power, and knowledge freely distributed across the enterprise results in a more powerful organization. This means, however, that if your organization's culture relies upon internal competition or a survival of the fittest strategy for its growth, CRM will not provide any benefit. It feels silly to actually say it, but people can make decisions only based on data that they are aware of. If the people in your organization place a premium on hoarding information over sharing information, no technology will disseminate customer information throughout the enterprise because the most valuable data will never enter the system. Technology does not make people do things - it only allows them to do things. If the Major Products sales group does not fully share it's information about customers and prospects with the rest of the organization, you will never know the whole story about your customer, no matter which consultants you hire or what software you buy.

Speaking of software, keep in mind when developing and managing a CRM initiative that there is no such thing as CRM software. There is software that has applications in CRM (such as databases, both relational and multi-dimensional, indexing agents, data mining/scoring, and visualization tools), but there is no software that manages relationships. That is because successful relationships involve people, not software. For example, Siebel does not sell software that will change your business. Rather, Siebel is a sales organization that, with consulting partners, packages existing technology to address a specific CRM issues. That's OK, as long as you realize that they are selling a process, not a solution. You are responsible for turning their process into your solution.

The ROI of CRM

The ROI equation for CRM initiatives is theoretically simple though empirically impossible to resolve with any degree of certainty. While you can study and evaluate scenarios where the discoveries made through a CRM implementation would pay for the implementation several times over, you are still dealing with imagined scenario and anecdotal proof. This is especially true since the technology itself does not provide any direct value. Real returns can only come about from the actions of people reacting to the information the technology provides.

Given the limitations of determining ROI based on future outcomes, is any ROI analysis worthwhile? Of course. It makes no sense to make any investment without some measurable idea of the potential return. Business - especially successful business - is about speculation. But you shouldn't engage in speculation without a feel for the odds and a firm grasp on your own tolerance for risk. While most frame the ROI case for CRM in terms of revenue enhancement, it is more useful when evaluating ROI in terms of speculation on a cost savings basis, where cost is an equivalent measurement of risk. In the case of CRM, cost savings come from minimizing opportunity costs and avoiding what I call misdirection costs.

Opportunity costs have become well known in the dotcom era. Unfortunately, due to over application, they have become quite specious to most. The overuse and misuse of a metric, however, does not negate the validity of the base metric itself. For example, if you do not recognize that customers buying your cars would pay significantly more if standard service were included for the first few years of ownership, failing to bundle service *does* cost the organization a value equal to the lost revenue for every car sold until service is included.

Misdirection costs involve the expense of including a product or feature which the customer has no demonstrable need for or, worse, finds irritating. In these cases, the organization incurs the costs involved in manufacturing the product or integrating the feature. For example, your customers buy from you what they feel they need and you provide well. If you truly understand your customers' needs, you can avoid spending a lot of money on things they don't need (or on customers who don't need what you offer). A significant portion of spending by businesses on product marketing, sales and delivery involves spending on product or features that have no value for the customer. Implementing CRM practices helps you determine what the customer truly needs, thus potentially providing tremendous cost savings.

Note that the CRM ROI equation does not include savings through process automation. If your objective is to ease the pain of sales people or customer service reps, CRM is not the answer. Its raw costs always exceed any savings gained through efficiencies. If you are looking to lower the cost of customer contact by providing low-cost non-human contact points or improving call-center efficiency, CRM is not the answer. If you are looking for ways to focus your spending on efforts that will benefit your customer (and avoid wasting money on efforts that don't), CRM offers a solution.

The Rules

Once you have determined that the people in your organization should be encouraged to and rewarded for sharing and acting upon information about the customer and you have evaluated the potential of CRM for your organization, you can take advantage of technology that facilitates the practices involved in CRM. The following five principals will help you manage the risk inherent in any CRM project and maximize the potential for successes:

  1. Focus on process over technology - because it's easier to swap technologies than processes. Implementing technology does not change they way people think or do things.
  2. Follow a results focused methodology - because you can't create detailed design if you don't control or reliably predict all the inputs and activities that generate results (and you can't control your customers or reliably predict what they'll always do).
  3. Clearly define metrics for determining success - because if you don't measure it, you can't react to it.
  4. Measure results constantly - because markets change.
  5. Explicitly define the customer and who owns the customer - otherewise you'll never know if your managing the right relationship.

It doesn't take a lot of technology to get started in helping people make decisions. But implementing a lot of technology is no guarantee that people will put the information generated to good use. By managing implementations in incremental stages and rigorously measuring the results at every step, you minimize risk while optimizing efficacy.

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