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Leadership Leadership Document Transcript

  • V-1 Leadership, Change Management and Corporate Culture Angus Jenkinson is Professor of Integrated Marketing at Luton Business School and Chairman of Stepping Stones Consultancy Ltd. He has been noted as a leader in developing marketing strategy and organisation change for many years. 1 What you will learn In this session you will find out about a crucial part of direct marketing or CRM – how to ensure that the company fulfils the customers needs as well as its own. Key points to make:  Loyalty needs Leadership  What win-win-win means and why important  Employee attitudes and behaviours are especially vital  The need to involve employees so that they understand the strategy, plans etc. and are aligned. You will therefore learn about: • The triple standard for quality: good for the customer, employee and company • The role of leadership in creating loyalty and CRM • How leadership can help or hinder the implementation of CRM • How CRM can help leadership achieve their goals • Supply chain logistics and fulfilment systems • Overview of a B2E intelligent e-business. 2 CRM is intended to create value. Implementing CRM requires much more than buying technology. Indeed requires more than defining a strategy and requirements for technology and buying it. It requires a holistic approach to implementing and delivering solutions for people. Certificate in CRM Module V-1, Version 1 January 2001 Page 1 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • The purpose of implementing CRM systems is to enable the brand to do a better job of creating value for customers, by involving employees in more efficient, meaningful and fulfilling ways, while creating financial, knowledge and brand equity for the organisation. The St Bartholomew’s and London NHS Trust (BARTS) demonstrates that in a project designed to improve its effectiveness. Centrica integrates the value and learning across some key brands. British Gas, AA, OneTel and Goldfish together serve millions of customers. Centrica is their parent and has been investing heavily in quality of service improvements using CRM philosophy and tools as the driver, integrating data across the group and creating massive service improvements. The results are members of the companies who are much happier, often delighted with the improvements, and customers who feel the same. For example, the ability to provide a total service at a single point of contact makes the job more interesting and meaningful, and the customer happier. The ability to anticipate needs, such as to be able to volunteer to book a convenient time for a meter/system check while the customer is phoning up about the account payment is seen as a huge improvement. And the result of these improvements is significantly higher sales conversion rates, higher retention, cross-buying, employee efficiencies and other powerful ROI benefits for the company. This meets what has been described as the only genuine quality standard: good for the customer, good for the employee, good for the company. The evidence that these three factors are correlated with each other, and also with shareholder loyalty and value, reinforces the importance of this. For example, Sears Canada found therefore every five-point increase in associate loyalty there was a 1% increase in customer loyalty, which in turn is associated with a 3.4% increase in earnings before interest and taxes.1 1 A Great Place to Shop, Work & Invest: Measuring and Managing the Service Profit Chain at Sears Canada, by Roy Keane, Melanie Gilbert, Jim Graham and Rick Brown, September 2000, Organizational Studies, Inc. 2000. Certificate in CRM Module V-1, Version 1 January 2001 Page 2 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • 3 Loyalty is therefore a leadership issue Loyalty is therefore a leadership issue, because the performance and attitudes of the team is the central leadership challenge. The evidence from Professor Jenkinson is that leadership creates loyalty2. The more involved that practitioners, consultants and researchers are with the business of creating loyalty, the more probable it is that they recognise the centrality of leadership3. This point of view was further confirmed in July 2001 in an article by Frederick Reichheld published in Harvard Business Review, entitled ‘Lead for Loyalty’. Both Reichheld and Jenkinson describe how profitable loyalty is achieved by managing the lifetime relationship of the right customers, focusing on their critical moments of truth, but that this depends on leadership and employee performance. Loyalty is a leadership issue because it is leadership that provides the imagination, purpose, teamwork, values, organisation, commitment and consistency of purpose that transforms companies, brands and business units in ways that customers value. However, the ability to imagine, design, co-ordinate, develop, deliver, operate, measure value and improve these moments of truth, customised to different customer communities and then individuals, demands considerable personal and organisational leadership. Buying a database, call centre or even the services of an agency do not by themselves achieve this. As Frederick Reichheld puts it: “Outstanding loyalty is the direct result of the words and deeds ~ the decisions and practices ~ of committed top executives who have personal integrity. The companies I studied don’t skimp on talent, technology, or strategy. But it is their top management that separates them from the pack”. 2 Leadership Creates Loyalty, Professor Angus Jenkinson, Journal of Database Marketing, Vol. 7, number 4, June 2000, Henry Stewart 3 Reichheld, 1999 and Loyalty Rules!, 2001 Certificate in CRM Module V-1, Version 1 January 2001 Page 3 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • Thus, the leadership challenge is: 1. To frame and live and ensure a coherent, value and values vision and a set of actions that enables the company to develop a sustainable future based on the creation of worth for all stakeholders… 2. To develop consistency in this 3. To encourage synergy and sympathy between the culture of the company and its brand image, bringing out the best of each 4. And enabling ideas, youth, inspiration, initiative around the company to have a chance to make an effective difference in building that future While Jeff Bezos of Amazon was researching his idea of creating an Internet bookstore, he went to a four-day booksellers course during which he heard a story which he described as influential in his thinking. It described the manager of a bookstore who was called downstairs to deal with an irate customer. The customer's car had been parked outside and dirt from some potted plants on the balcony had dirtied the car, which her husband had just washed. The manager asked if he could wash it and she agreed. They went to a nearby service station car wash but it was out of order. So then he asked if they could go to his house where he got a bucket and detergent and water and washed the car. It was actually a very crummy car with peeling paint. But he washed it is if it was the most special car in the world. By the time they got back the customer was not just thanking but apologising to the manager. The next day, the woman was overheard by an employee telling friends about the extraordinary service. In the early days Bezos interviewed every salaried employee and decided whether a person should be hired -- and this was after an exhausting process involving other team members. He did this because he was convinced that he needed to hire absolutely the best people he could find in order to create a brilliant service culture. "Competitors can never copy a culture," he said. During the process of quizzing applicants he asked them about their values and personal interests. He also set challenges such as "how would you design a car for a deaf person?" The answer of course is to plug your ears and drive around in cars to experience what it feels like to be a deaf driver. That's why Customer Certificate in CRM Module V-1, Version 1 January 2001 Page 4 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • Loyalty places such a premium on good research and why the process of developing it requires the brand's management to take every opportunity to immerse themselves in the world of the customers. According to Bezos, one of the Amazon.com mantra is that "we're going to obsess over our customers and not our competitors". 3.1Great communications will not make up for poor strategy and bad morale. We are accustomed to thinking of the prime and root cause of failure. Here we want to consider the prime and root causes of success. The key link between leadership quality and the prime causes of loyalty are in connection to the organisation’s ability to fulfil its brand promise through the effective commitment to four principles that shape the organisation in action. These are profound purpose, people principles, perfect processes and passionate performance. They are hard to achieve, but progress towards them already creates powerful results. They can only be cultivated by the right kind of leadership. Leaders themselves need to be passionate about these principles and need to be committed to them. They and their companies also need the right competencies to bring them about. These may be called the root causes of success. Customer Loyalty Customer Loyalty Moments of truth Moments of truth - experiences - experiences Passionate Passionate Profound Purpose Profound Purpose People Principles People Principles Perfect Processes Perfect Processes Performance Performance Imaginative Imaginative Social Social Organisational Organisational Values Values Domain competence Domain competence competence competence competence competence competence competence competence competence Certificate in CRM Module V-1, Version 1 January 2001 Page 5 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • No organisation can long exist unless there is a strong alignment or common purpose amongst its people. The classic analogy is a rowing boat. It's pretty hard to go anywhere if people are rowing in different directions. Alignment is therefore the process by which a people connect and add their energies to each other in bringing about a goal. It is one of the fundamental tasks of leadership to bring this about. Leaders need to communicate purpose in ways that everyone can connect to and fully understand. And employees need to believe that this purpose somehow ‘improves the world’ or at least some bit of it. Passionate commitment comes about when people are dissatisfied with the current situation and believe in a better future. Hence the success of missionary companies, like Virgin, Microsoft, FedEx, Apple, Netscape and the Body Shop and, in their day, the Quaker banks like Barclays. It also explains the passion and quality of start-ups (e.g. agencies). CRM as technology cannot be successful unless it is installed and taken up in the right way. That means that it must be chosen because it contributes to the purpose of the organisation, a purpose that people can believe in (such as creating great solutions for people) and it must be implemented with commitment to that purpose. This will not happen unless there is sympathy for the needs of individual people who will work with the technology, so that it adds to their sense of fulfilment and joy in work. CRM is clearly designed to improve the quality of processes within the organisation (and therefore to contribute perfect processes), but it is important to remember that perfect processes are not those that de-skill people. De-skilling people makes them apathetic. CRM is also intended to improve the performance of the organisation. Since at each moment of truth the brand is effectively on stage and witnessed by its customers, its passionate commitment to creating a relevant, quality experience is what will make the difference. CRM should help this, but what matters is that CRM becomes a tool to add to the creative performance of the brand and not simply to the ability to generate thousands or millions of unwanted messages. Again this requires creative and principled leadership. What really generates people-friendly culture is not being soft on people but genuinely respecting the potential of human beings in general and these human beings Certificate in CRM Module V-1, Version 1 January 2001 Page 6 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • in particular. It is therefore a culture that in many ways will be demanding of the best, demanding of growth and demanding of commitment. But it will be a culture that will always treat people as people, full of potential, whose spirit is vital to success. It will never be a culture that treats people as chattels, intelligent machines or disposable units of production. To do so would be a failure not only in values but in imagination and its consequence would impoverish the corporate future. The result of such a culture is that customers experience the striving spirit of the people and their organisation. Employees, valued and respected for the excellence that is expected of them, pass this on in valued service to the customer4. Vanguard Insurance costs are 25% of the industry average while they succeed in paying their staff 30% more than the average! It is very hard to create great database marketing, relationship or telemarketing in a culture of passivity, of fear, of disempowerment… This will also manifest in the way the brand works with its agency(ies) and/or bureau(x). The customer wants is to experience again and again and again that the service they have asked for is totally and reliably delivered, with all the expected quality, at the right price and at the right time. Motivated staff can’t altogether replace good systems and processes (and without these, they will soon become demotivated). Brands and organisations need to implement quality integrated technology (call centres, database, fulfilment etc.) and integrated, streamlined, value streams that deliver value. It means that the design of scripts and call centres become a human experience for tele-agent and customer alike while creating value for shareholders. The most successful companies take a lesson from the theatre. As we have seen, the best marketers work on the whole relationship, including every actual and potential moment of truth, to create an holistic, dramatic and aesthetic experience. They recognise that each and every time that a customer encounters them through their goods and services, they are engaged in a performance, and like all 4 e.g. Schneider, 1980; Reichheld, 1996 Certificate in CRM Module V-1, Version 1 January 2001 Page 7 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • performances it will be evaluated. The brand is “on the line” each and every time. What creates the excitement, attention and respect of customers and consequently their loyalty is the passion, theatre and drama that transforms everything about the way that goods and services are communicated, designed, made, and delivered. It is of course for this kind of theatre that marketers go in search of the hot agencies, the great creatives. It is for this reason that Nike creates Nike World for a total brand experience. Putting the above competencies in place ensures the brand will involve the right customers in an appropriate set of communication and other experiences (moments of truth) that earn their profitable loyalty. The CRM creative discipline requires, as has been said before, a customer, not media biased, planning approach. One advantage of CRM is that as knowledge of and accessibility to the customer increases, it becomes easier to apply media neutral planning taking into account the preferences of different kinds of customer, their relative value and therefore the worth of investment, the campaign objectives and so on. When combined with a passionate and creative commitment to service and communication excellence, this creates loyalty-winning customer interactions. Leadership Organisation Evaluation qualities in Delivered the organisation system performance capabilities People competencies Organisational Customer experience competencies 4 Bernard Matthews: a classic example In 1984, Bernard Matthews, the UK's No1 supplier of turkeys installed one of the first CRM systems in the UK. At the heart of the integrated business management system was a telemarketing and order processing system to be operated by their call centre to enable tele-agents to contact supermarket operators across the country. Each Certificate in CRM Module V-1, Version 1 January 2001 Page 8 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • morning, every agent received a call list generated by a diary system. The agent would call the supermarket manager at a preferred time and the system would provide summary purchase history. In effect, there was an electronic order form with purchase history reference guides. The system also recommended new and promotional products. The tele-agent could speak to the supermarket operator or designated buyer and check whether they wished to take the same order as usual or a different one. This service maintained the flow of orders, facilitated a regular and continuous contact, and provided a high level of service. Although there was a standard set of products, the service was based on a pure one to one relationship, down to the individual store wherever appropriate. Now of course this was before the heyday of call centres, database marketing and telemarketing systems. While such ideas existed, they were distinctly leading edge ideas. That means that the technical challenge was enormous. But what was not lacking was the imagination and commitment of the leadership team. The project was successfully implemented notwithstanding a number of technical problems, indeed several technology firsts had to be accomplished. Other later companies have had better technology options but have not been able to implement them so successfully. Bernard Matthews was pioneering with relational database technology and needed bespoke call centre software developed, but leadership made the project successful. As a result: 1. There was a very clear purpose that was consistently articulated and developed throughout the project life. 2. People were fully taken into account. For example there was careful consultation with the call centre staff about how the system needed to work in order to be effective from the customer point of view while providing a good operational experience for the staff. 3. There was a total focus on a streamlined set of value adding processes which integrated every value step from customer contact to delivery including manufacturing and warehouse operations. These were designed to reduce costs and hassle as well as improve serviceability to the customer. Certificate in CRM Module V-1, Version 1 January 2001 Page 9 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • 4. Behind the concept was the recognition that each phone call represented a key moment of truth in the relationship, that the mere act of making a regular phone call in this way was value generating for the relationship as well as for Bernard Matthews and the relevant supermarket. One of the reasons for focusing on the quality of experience for the call centre staff was to ensure that each phone conversation could become an effective performance, an effective delivery of a brand message tailored precisely and individually. The database including key data about the contact existed to improve the quality of the social interaction. The project itself reflected this. Everyone was aligned to an inspiring purpose, the requirements and needs of the project team work taken into account, good project management and quality development processes focused on delivering a quality solution. 5 How lack of leadership forms a barrier, and what to do By contrast, leading banks have cancelled major multi-million pound CRM projects due to lack of co-ordination, political distrust between rival sub-brands and an inability to get marketers to focus effectively on what would generate real value for the future. Such projects are also typically undertaken in an adversarial, win-lose manner, and imposed on staff. It is very hard to create any kind of great CRM project or practice in a culture of passivity, fear, disempowerment, or poor partner relationships. No organisation can exist unless there is a strong alignment or common, positive purpose amongst its people. The classic analogy is a rowing boat. It's pretty hard to go anywhere if people are rowing in different directions. Alignment is therefore the process by which a people connect and add their energies to each other in bringing about a goal. Leaders need to communicate purpose beyond shareholder value in ways that everyone can understand and value. Hence the success of missionary companies, like Virgin, Microsoft, Harley Davidson, Intuit, FedEx, Apple, Netscape and the Body Shop. Certificate in CRM Module V-1, Version 1 January 2001 Page 10 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • The evidence is very strong that there is a powerful correlation between employee loyalty and customer loyalty. Leadership that does not respect the individual employee and the workforce as a whole is destructive of effective CRM implementation. Projects that treat people as chattels, intelligent machines or disposable units of production our failures in leadership that impoverish the corporate future. Examples might include installing factory style call centres or imposing awkward systems on the sales force. The most successful cultures respect people, while demanding of the best, including continuous improvement and commitment. They treat people as people, full of potential, whose spirit is vital to success. Employees pass this on in valued service to the customer5. Vanguard Insurance costs are 25% of the industry average while they succeed in paying their staff 30% more than the average! Leaders that demand results without paying attention to the way of achieving them are little more than tyrants. People who say, don't bother me with problems I want solutions, may sometimes be part of the problem. While delegation is fine, avoiding detail is not a CRM approach. Successful CRM is focused on empowering people by providing them with handy knowledge and processes that enable them to work more effectively and streamline the organisation. That means paying attention to what works. Successful CRM implements integrated technology (call centres, database, fulfilment etc.) and integrated, streamlined, value streams that do deliver value. That means bringing people together and working on what will work. Finally, leaders who are not excited about creating high-value customer experience are leaders who gradually degrade the value of the brand and impact the ability of CRM to deliver. The most successful companies take a lesson from the theatre. They recognise that each and every time that a customer encounters them through their goods and services, they are engaged in a performance, and like all performances it will be evaluated. The brand is “on the line” each and every time. What creates the excitement, attention and respect of customers and consequently their loyalty is the 5 e.g. Schneider, 1980; Reichheld, 1996 Certificate in CRM Module V-1, Version 1 January 2001 Page 11 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • passion, theatre and drama that transforms everything about the way that goods and services are communicated, designed, made, and delivered. Frederick Reichheld argues that companies with faithful employees, customers, and investors show one key attribute: leaders who stick to the six bedrock principles: 1. Preach what you practice. Keep communicating the vital messages. 2. Play to win-win. 3. Be picky, focus on the customers whose needs you can satisfy best. 4. Keep it simple: clear empowering rules for decision-making, simple, human structures and consistency. 5. Reward the right results. For example, reward the best customers, not the prospects. Make sure you can recognise the best employees and help them grow. 6. Listen hard, talk straight. Long-term relationships require honest, two-way communication and learning that promotes trust. 6 Implementing CRM requires internal marketing. It is reasonably easy to employ low-cost hourly paid workers to work in a call centre giving routine answers to customers. Such staff might not need a lot of communication and involvement other them being told what script to read. That is probably not going to create fantastic customer loyalty. However, if you want real success, practitioners of CRM, whether they are focused on the implementing the technology or on implementing the practice (or both), seem to be agreed on the importance of involving staff and communicating to and with them. It is important that the process of CRM recognises their needs, communicate effectively what is being proposed and persuasively suggests what actions you would like to see taken. There is a need to build enthusiasm and commitment alongside understanding. Certificate in CRM Module V-1, Version 1 January 2001 Page 12 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • All of this adds up to what is variously called internal marketing or employee marketing. However, in addition it has long been recognised by practitioners of organisation development (OD) that when staff participate in designing the solution by helping to identify the problems and opportunities and suggesting ways of dealing with them, there is much greater buy in. Good training and education is also vital. The evidence is, as in Sears Canada as mentioned above all the research quoted in session 3.8, that this makes a significant difference to success. These six points are particularly important when dealing with so-called "volunteer" employees, i.e. people who do things if they want to, not because they are told to (i.e. the very people who are mostly likely to make a difference): 1. Involve representatives from the various user departments as early as you can in the project. 2. Commit resources. If you cannot commit user resources for the life of the project, then you may want to consider bringing them in at key times. 3. If you are going to ask users to enter in information about their customers, be prepared to justify why you need the data. 4. Maybe reconsider the purpose of a pilot, which too many companies view as a substitute for QA for ensuring that the software works. 5. Gathered metrics of how business was doing pre-CRM implementation and then tracked how processes improved because of system usage. 6. Show the rest of the user community during full roll out, specific examples of how their jobs would be better if they adopted the new CRM applications, a key to converting their users. Other recommendations include: 1. Provide information about the organisation's performance, goals and policies. 2. Overhaul the policies and rewards. Ensure that there is personal recognition and shared reward, both financial and other, based on the performance of the organisation and team in meeting customer needs. Avoid performance Certificate in CRM Module V-1, Version 1 January 2001 Page 13 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • measures that conflict with customer and employee loyalty. It is old win-lose, habits enshrined as policies that focus on divisive and short-term measures, that most conflict with good CRM practice. 3. Ensure that employees have a total process overview, and that they understand how they fit into the big picture and contribute to organisational performance. 4. Ensure that employees have the power to make decisions that influence organisational direction and performance, especially when they are dealing with customers. Provide them with guidelines that left their aspirations rather than deflate their commitment. 5. Ensure that they have the necessary resources. 7 CRM technology can be a leadership tool. Having described how leadership makes a difference to the effectiveness of CRM, both in the installation of the technology and its use, it is equally important to note that CRM technology at its best can be an enormous help in implementing great leadership strategy and practice. The mere fact that you're going to implement a major new system provides an opportunity to overhaul all practices, renew the vision and focus on priorities. As long as leaders engage with the human dimension of the task as suggested above, then implementing CRM has great potential to focus the company. Consider the following ways in which CRM can help the leader, whether it is the chief executive, marketing director, or the leader of a business unit, create powerful value creating change. 1. Leaders need to build aligned and co-operative relationships. CRM is a way of building relationships and co-operation between different parts of the business. Successful CRM solutions connect information, functions and people from around the whole organisation in the processes of customer service and value creation. For example, in one financial services company it enabled previously divided in competitive functional units to co-operate in collecting and using information as well as servicing the customer. Certificate in CRM Module V-1, Version 1 January 2001 Page 14 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • 2. Leaders need to instil high-value added practices that embody the values of the brand into every part of the organisation. CRM can help this, for example by building in an automated prompt to give every new customer a welcome check-up call. It can be used to create problem solving and complaint handling processes that guide and empower staff in dealing with customers. 3. Leaders need to build strategic alliances with partners. With the help of CRM systems it becomes easier to create structural bonds between companies that make it easy to do business together. 4. Leaders need to develop knowledge equity and skill within the business. It is the know-how of businesses that is today most powerful in giving them strategic advantage. CRM knowledge management systems are ideally designed to collect knowledge and then distribute it to point of need. 5. Leaders need to focus the organisation on priorities and ensure that those priorities of value creating. CRM can help the organisation become more aware of its most important customers, and can instil practices that improve personalised services to them, even as employees come and go. 6. Leaders need to be engaged in keeping the organisation focused on continuous improvement. By making knowledge, skills and practices more explicit, and environment for better learning is created. Is that CRM systems help with measurement of performance, and can enable long-term and strategic measurement criteria, rather than simply ad hoc and tactical evaluation. 8 Loyalty needs loyalty values Tom Watson Jr., the architect of IBM in its heyday wrote a book about business beliefs and in it he said: Certificate in CRM Module V-1, Version 1 January 2001 Page 15 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions. Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs. And finally, I believe that if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life.i Values-free business sets business community and customer base in competition and the chasm has to be crossed by the marketing message. Loyalty marketing seeks to establish a set of values which are mutual, based on a principle of fair sharing, and gain-gain. What wins real loyalty of customers is their free choice to do business with you, when they appreciate and share the organization’s values, and trust the organization’s dedication to quality and service. Consider terms like ‘brand promise’, ‘honest or fair value’, ‘goods’, ‘trustworthy’, ‘trust’, ‘goodwill’, ‘loyalty’, ‘reliable’, 'guarantee’ ‘partnership’. They all denote moral values. Shell lost ground during their two crises of 1995 (oil platform/Nigeria). The strength of both Body Shop and Marks & Spencer are related to customer trust. Just as the moral power of Ghandi or Mandela overthrew physical power, so moral or values power in marketing has the motivating force to overcome the conservative forces of inertia and parity of the marketplace. (This, of course, does not mean a moralistic attitude. That would simply be talking down to customers). Companies which carve a great reputation for themselves, for their quality and dependability, are always associated with moral worth: with integrity, honest value and a guarantee of value. Certificate in CRM Module V-1, Version 1 January 2001 Page 16 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • The Generations of Loyalty The Ma g m nt to k Va sa n na e e o lue s hisw a kne he ife nd w r. Ma g m nt a Va sb g t na e e nd lue e a Culturea Cultureb g t nd ea Lis ning a Lis ningb g t te , nd te ea P c e a P c e bgt ra tic s nd ra tic s e a Se ea Se eb g t Trus rvic nd rvic e a t and Trustbegat Loyalty. 85% of customer dissatisfaction may derive from disappointment after marketing hype. ‘Brand morality’, or ‘Brand truth’ tests whether the projected brand messages are delivered. Does what is done match image? If so, image and action are mutually reinforcing for loyalty. Certificate in CRM Module V-1, Version 1 January 2001 Page 17 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • Brand Image Service experience Figure 1: Brand Morality is the test of how for the promise or guarantee is actually delivered in the moments of truth One more suggestion: think of marketing as a marriage, not a war. We can only concentrate on one thing at a time. So should we focus on the war with the competitor or the marriage with the customer? Focus on the rival can divert focus from the relationship. (Recently I played a game of croquet with my two sons and daughter. While the 3 males were hitting each other all over the turf, my daughter got on with quietly winning the game). Happy marriages aren’t threatened. 9 Manage all stakeholders as a system When employees stay longer and feel good, so do customers and when customers stay longer and feel good, so do employees. There is a golden circle, or a vicious circle, for the reverse hold true too. When shareholders feel good that also talks up the company and its reputation. The British Gas and Sainsbury debacles of 1995/96 indicate how customer and shareholder attitudes affect a company’s standing. Poor supplier relationships have cost Shell, Ford, GM, The Channel Tunnel and others in customer service and lost affection. Suppliers also like to work for Certificate in CRM Module V-1, Version 1 January 2001 Page 18 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • companies with good customer relationships. Other stakeholder groups include key influencers (McKenna 1991) and management itself. This suggests that managing all the stakeholders as a system is important. They all influence each other. Smart marketers research suppliers, employees and intermediaries, not just customers. Interrelationships of Loyalty The right new customers Surplus cash Customer reinvested Loyalty Growth Superior Investor customer Loyalty value The right new employees Compensation The right new advantage investors Employee Loyalty Profits Cost advantage Superior productivity Loyalty guru, Frederick Reichheld, showed how Investor, Employee and Stakeholder Loyalties were interrelated as shown in this diagram from his book, The Loyalty Factor. CRM strategy is therefore fundamentally not a strategy for technology but a strategy for customer relationship management. Technology is the means for achieving that in some instances. The alpha and omega of this strategy are the needs and wants of customers and the mutual attractiveness between them and the brand. Certificate in CRM Module V-1, Version 1 January 2001 Page 19 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • The aim of the CRM strategy is to be able to find ways to deliver greater value to customers in more cost efficient ways that employees find satisfying. A CRM strategy has to be good for the customer, the employee and the organisation. If it is not good for the customer, then customer sales and loyalty will not be generated and there will be no future for the brand. It has to be good for the employee because unless it is they will not be motivated to do a good job and that will damage both the organisation and customers. It has to be good for the organisation because otherwise there is no motivation for continued investment in employees and customers. The competitive global market place creates an imperative for improved service, especially in an environment that tends to produce winner gets all results. The aim of the CRM strategy is therefore to add maximum value to customer, employees and organisation as a win-win-win set of outcomes. Any strategy that does not address these three-fold objectives will under-perform as has been amply demonstrated by widespread research. 9.1Employee retention and loyalty effects In the technological age in which we live, it is often easy to forget how much loyalty is still generated by person-to-person contact. In a recent NOP opinion survey of 1,000 adults, when asked which aspects of customer service were important to them, the most striking result was: “The paramount importance of knowledgeable and courteous staff.” When employees who have a powerful bond of trust and expectation with customers leave, the brand bond is also disturbed. Toyota remained the dominant player in Japan because of its strong dealer salesforce. Because their sales people stayed over 10 years on average they got to know customers well. This enduring bond gave them leadership over Honda. But in the USA, where car sales- people turn over quickly (60% to 100% Certificate in CRM Module V-1, Version 1 January 2001 Page 20 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • annually) and customers have no relationship with the sales force, Honda’s product advantage was enough to give it driving leadership, the relationship factor in the service product. (While the first step must be to retain employees, a database can at least help to retain information.) Yet there is a problem. For example, research by Bain found that while 87 percent of senior executives in average US companies agreed that their companies deserved their loyalty, only 51 percent of front-line employees agreed. In contrast, at loyalty leader companies, 79 percent of executives, and 75 percent of front-line employees agreed about company loyalty. Responses to another survey question indicated that 72 percent of loyalty leaders' employees felt their companies would not profit at the expense of partners or customers, while 48 percent of employees at nonloyalty leaders believed their companies would take advantage of partners or customers. The survey also found that only 49 percent of employees at typical firms agree that customer loyalty is valued and rewarded at their firm. About 93 percent of customers of loyalty leaders companies said they were satisfied, while less than 70 percent of customers at average firms expressed satisfaction. Nearly 83 percent of the customers of loyalty leaders said they provide "enthusiastic referrals" and 92 percent of customers plan to continue buying products from loyalty leaders. When employees who interact with customers lose their loyalty and motivation, the brand bond is also disturbed. For example, Roy Keane et al studying Sears Canada, found that for every 5% increase in associate loyalty there was a 1% increase in customer loyalty, which in turn is associated with a 3.4% increase in earnings before interest and taxes. A Great Place to Shop, Work & Invest, Roy King, Melanie Gilbert, Jim Graham and Rick Brown, Published Employee Marketing/Organizational Studies, Inc., A Division of Carlson Marketing Group, 2000 Considerable evidence exists demonstrating that customer loyalty is a leading predictor of financial results, and that employee engagement is predictive of customer loyalty. Research conducted by Organizational Studies, Inc. (1999, 1998, and 1997) Certificate in CRM Module V-1, Version 1 January 2001 Page 21 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • has demonstrated a strong and consistent relationship between employee engagement and profitability in a number of industries. While there are several strategies an organization might employ in order to raise customer loyalty, perhaps the most powerful is to engage and inspire employees to better serve the customer. Research by Schneider and Bowen (1985 and 1993) demonstrated that employee motivation was related to customer satisfaction. They concluded that “the degree to which employees believe their work is facilitated [an expression of satisfaction] yields the most consistent information about customer satisfaction.” Facing rising competitive pressures as well as corporate losses for the first time in its forty-year history Sears Canada Inc. radically altered its corporate strategy in 1993. Recognizing that the ability to create value for customers resides with its associates, Sears adopted what Heskett, Sasser, & Schlesinger (1997) refer to as the Service Profit Chain, a business process model that links corporate profit and growth to ‘soft’ aspects of employee and customer loyalty. As Paul Walters, CEO, Sears Canada, puts it “You can’t have cranky employees and happy customers.” The new Associate-Customer- Shareholder model at Sears Canada is reflected in their values: A Great Place to Shop, Work and Invest, and the belief that engaged associates create loyal customers, who in turn, create satisfied shareholders. Accordingly, since 1997, Sears Canada has measured associate satisfaction and customer loyalty along with its quarterly financial indicators using an integrated “balanced scorecard”. Like other such companies, Sears Canada has significantly outperformed those that relied solely on traditional measurement of financial results (Lingle and Schiemann, 1996). For example, in July 2000, Sears Canada announced its twelfth straight quarter of record earnings, an accomplishment coinciding with a steady, quarter by quarter increase in associate satisfaction and customer loyalty. Certificate in CRM Module V-1, Version 1 January 2001 Page 22 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • Take a look at Reichheld’s loyalty survey at www.loyaltyrules.com. 9.2Criteria for success The 21st century paradox is that whilst there is over capacity in physical capital there is under capacity in human capital. An increasingly important discriminator between companies will be the people in them. Sir Martin Sorrell In 1999, Carlson Marketing Group examined the determinants of customer preferred stores across four industries: department stores, supermarkets, financial institutions, and gas stations. In all industries except gas stations, customers identified friendly and helpful staff as a more important determinant of their choice of store than product, price or quality (Figure 1). The research also demonstrated that the customer’s impression of the quality of the staff affects their perception of the company in other important ways. Customers who have a positive interaction with staff are more likely to rate the company as trustworthy, as having a positive image, as able to recognize their needs and as going the extra mile to meet those needs. This is because good staff have an important influence on customers’ impressions, creating a significant opportunity for organizations to differentiate themselves. In light of the primary importance of the ‘human capital’ in differentiating brands, products and services, it makes sense that every organisation should be asking themselves some very basic questions about their staff/employees. The following might compose a partial list: 1. How are staff and managers rewarded? 2. How long do they stay? How do they feel? Are the carers cared for? 3. Why should anyone in your company want to service customers? Certificate in CRM Module V-1, Version 1 January 2001 Page 23 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • 4. Are you employees treated as well as you would like your customers to be treated? 5. How much discretion are employees/managers given to take decisions that help people? 6. What are the real priorities? However all these questions are aimed at finding out the degree to which employees are empowered, aligned and motivated. 9.3Empowerment, alignment and motivation It is a commonplace of current marketing thinking to recognise the value of brands and by implication the importance of acting in ways that nurture the brand. According to this principle, each and every touchpoint between each and every customer and the brand should be brand true. Therefore, not only should high profile advertising campaigns be based on brand true and brand building ideas and execution, but so should each and every communication involving all the customer facing staff. One consequence of this is that brand managers develop Brand Signature statements that articulate the essential values and personality of the brand. These are then used in internal marketing to communicate to the whole organisation. Employees are then asked to live the brand – to conform in their attitudes and behaviour with the values of the brand, values such as Harley Davidson leaders describe how in the early days of their crisis (1981-86) it was important to have a command and control management style and structure. However, once the crisis was over something new was needed that liberated the human spirit. The issue is, what enables employees to want to make customer service vital? What really matters in the employees’ experience of worth. The customer Certificate in CRM Module V-1, Version 1 January 2001 Page 24 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • cannot be more important than the employee, or the employee becomes a slave- servant. Their subsequent de-motivation will damage customer relationships. The employee cannot become more important then the customer, or the reason and livelihood of the service marketer will be lost. They should be equally but differently important. Economic Go for excellence in peripheral Transfer to other problems services to give customers a companies or service perfect overall experience media Cutting Bad social Appreciation down on climate from peripherals customers Excellence Excellence in core service in core service retained Good retained Irritated customers results Staff experience Customers Good feeling of experience deterioration achievement of quality spirit and appreciation Marginal savings Positive and Negative Service Cycles. Source: R Normann Normann’s diagram above from his book Service Management (remember, he was the author of the moment of truth concept) beautifully illustrates the vicious or virtuous cycles that affect service quality and also show up the importance of associate attitudes in the process. Employee attitudes clearly matter. At their best, great companies create conditions in which heroes flourish, but as part of a team. Apple teams in their heyday selected their own colleagues. IBM have “consultant salespeople”, individuals of senior manager status who still sell but with legendary skill. Part of their job is to help less experienced people. In the West, our cultivation of heroes often sets them against others, promoting him or you as winner. This can be self-defeating. In Japan, by contrast, it is hard for a ‘salaryman’ to become a hero, only the team. Certificate in CRM Module V-1, Version 1 January 2001 Page 25 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • The challenge is to cultivate teams of heroes. For this, orders must become shared, worthwhile, inspiring goals, in the setting of which the heroes have participated. These goals become a ‘leading image’ that draws people together in vision. Shared policies that value standards of care, excellence and quality become deeply motivating - customers buy and co-workers enjoy selling and service. A culture which values, respects, pays attention to and supports the individual within a team context enables individuals and team to flourish. The individual comes to the aid of the group through carrying inward awareness and responsibility for it. The group supports the individual by recognising the qualities he or she brings.6 This has implications for pay and performance measurement. Bain's research has found that organizational structure has a direct impact on loyalty. Teams of more than 12 members diminish the potential for responsive, accountable, loyal relationships. While only 16 percent of management teams exceed 12 members, 51 percent of front-line teams exceed this threshold. Bain concluded that large teams are inflexible, expensive, detract from employee motivation, and result in lower customer loyalty. Bain also found mixed results for investments in CRM technologies that were supposed to improve customer loyalty. As a result of research into senior executives' experiences with 25 popular management tools and techniques, Bain concluded that CRM ranks in the bottom three for satisfaction, and that one in five CRM users have completely abandoned their initiatives. Empowerment requires sharing with front-line people five organisational ingredients: 1. Information about the organisation’s performance, goals, policies. Mastercare shares its strategic goals and customer outreach plans with employees who responded enthusiastically, retaining 25% more customers. 6 Idea based on The Motto of the Social Ethic by Rudolf Steiner, in Verses and Meditations, P117, 1979. Certificate in CRM Module V-1, Version 1 January 2001 Page 26 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • 2. Personal recognition, and shared reward (financial and other) based on organisational performance and customer feedback, not individual commission. In research by the Forum Corporation, they identified that rewarding employees financially for being customer focused and having specific goals for improving quality do not have a strong correlation with favourable customer outcomes. Many retailers have found that commission packages designed to improve productivity and customer service have led to lower productivity, job dissatisfaction and a sales-by-intimidation erosion of customer loyalty and retention7. Corning’s suggestion programme for its people, rewarding them not with cash but with awards, special dinners, local publicity etc. generated about forty times as many suggestions. Metropolitan Life discovered that its people preferred personal recognition to cash awards. The wrong carrot takes away motivation, often transferring allegiance from pride in work to beating the rules. Of course, it only works if the base pay is felt to be fair and easing employees over the (Maslow) survival and comfort levels. An increasing awareness of the destructive effects of commission systems based on numerical sales levels is also arising, but beyond the scope of this module to detail. 3. Total process overview and system knowledge that enables employees to understand and contribute to organisational performance. Rover, as a second phase in their experiment took white-collar workers on a rota basis and gave them an experience on the product line. Information on results lets people learn and adjust. 4. The power to make decisions that influence organisational direction and performance. If you don’t give people important decisions to make, they start to think that the decisions they do make are important, and then everything gets stuck. 7 Gilman, Alan L., , Smart Compensation and Smart Selling, (Chain Store Age Executive (CSA) ISSN: 0193-1199, Sep 1992 Vol: 68 Iss: 9 p: 134). Certificate in CRM Module V-1, Version 1 January 2001 Page 27 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • 5. The resources necessary. It makes no sense to ask people to do a job without the means to be really successful. If you really can’t afford it, then try to talk about the problem and find out how to make the resources affordable together. 9.4Process vs. Procedure A key leadership challenge in CRM is to create process excellence. In the same way that goals need to be transformed into inspiring images, procedures must become processes on which people work in continuous improvement, based on shared policies and values. A procedure is a rigid set of rules. A process is a living, dynamic movement. A plant grows in processes and is dissected in procedures. Processes are carried out with skill, procedures with blind ignorance. Knowledge is an enabler of skill, and the marketing database a source of the information that leads to it. Policies and values guide processes and enable individuals to act out of initiative in the situation. Procedures define action and kill creativity. A policy of customer satisfaction frees the individual team member to become an empowered creative hero resolving the situation, the problem of the moment, thereby transforming the service product in the moment of truth. ServiceMaster, a fast growing maintenance and food service firm in the US treats its uneducated workforce with exceptional respect. Many employees cannot read or write. However the CEO’s attitude is “before asking someone to do something, you have to help them to be something”8 The result is that ServiceMaster has been one of the most consistently profitable companies in the United States. The powerful correlation between customer satisfaction and employee morale9 means that a procedure driven company kills employee motivation, making them unfree and 8 Heskett, J.L., Lessons in the Service Sector, Harvard Business Review, (March-April 1988, page 118). 9 Buchanan (1990); Reichheld and Kenny (1990), Normann (1984), Schneider (1980). Certificate in CRM Module V-1, Version 1 January 2001 Page 28 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
  • uncreative, and thereby kills customer satisfaction: service by machine procedure is not fun. Enthusiastic people sell their product by infection. Rover tested putting 120 production line employees to work selling cars over the phone. During the course of six weeks they spoke to 120,000 prospects and sold an additional 3,000 cars. The original intention had been to give shop floor workers a concrete experience of the importance of customer service, quality and reliability by talking direct to customers. The experiment proved so successful Rover has continued. Potential customers experience the real enthusiasm, commitment and knowledge of those who make the cars and this shines through. This is one of the problems of telemarketing bureaux divorced from the product or service. To be really effective, clients should ensure that tele–workers experience first hand the product that they are trying to sell. 10Conclusion The enormous advances in understanding and technique that direct and other relational marketing methods have developed have great potential. Potential, however, is how it remains without the right leadership attitudes and qualities translated into employee motivation, commitment and alignment. The pursuit of customer loyalty demands and deserves good leadership. Ultimately, it is leadership that creates loyalty and effective CRM implementation. Certificate in CRM Module V-1, Version 1 January 2001 Page 29 of 30 ©The Institute of Direct Marketing, 2001 and Stepping Stones Consultancy Ltd.
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