Successful Customer Relationship Management and CRM Measures
by
Luciene Gomes Manoel
October 2004
1
Table of Contents
1 Introduction.............................................................................................
1 Introduction
CRM projects are usually known for failing to achieve their objectives, much money
often having been spent ...
It is also necessary to categorise the different CRM types and modules. Gartner Group
(2002) categorises CRM solutions int...
serve, less price-sensitive or effective at bringing in new business. This research
shows no strong correlation between lo...
In the view of Pedraza (2000), there are twelve principles of CRM success. First of all
the company must become flexible, ...
state that managing customer information; having system integration; and tracking
customer contacts all require IT.
Goldbe...
Successful implementations start by having a customer-focused strategy and the CRM
solution project must be co-ordinated w...
company should manage profit and loyalty at the same time, but the quality of the
profit and the perspective of future pro...
they have received will keep them loyal, because between 65 and 85 % of customers
who defect say they were satisfied with ...
Higher Sales 17 6 12
Increased profitability - 19 30
More effective marketing 6 3 10
Table 3 - Goals for CRM projects, CRM...
Sandra Vandermerwe, 2002, Customer-focused Strategy teacher, Imperial College,
MBA Programme.
Timothy Braxal, 2002, Senior...
Hamel & Prahalad, 1994, Competing for the future, Harvard Business School Press,
pp. 109.
Huczynsky & Buchanan, 2001, Orga...
Eclipse Computing, 2000,Consistency key to CRM success, Works Management,
June, vol. 3.
Fernandes, J., 2000, What is CRM, ...
Peppers and Rogers, 2000, Getting started with CRM, James Pound, White Whale,
www.crmforum.com.
Peppers and Rogers, 2001, ...
Seybold, P., 2001, How to survive the Customer Services revolution in Financial
services, www.psgroup.com.
Stone (2001), A...
5 Appendices
5.1 Appendix 1 - Venkatraman Five Levels IT Induced Business Configuration,
Morton, 1991
17
Degreeoftransform...
novidades
18
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  1. 1. Successful Customer Relationship Management and CRM Measures by Luciene Gomes Manoel October 2004 1
  2. 2. Table of Contents 1 Introduction.............................................................................................................................................3 1.1 Background......................................................................................................................................3 2 Overview of Customer Relationship Management Solution..................................................................3 2.1 CRM Definitions, Concepts and Modules.......................................................................................3 2.2 The Main Reasons to Use Customer Relationship Management.....................................................4 3 Success Factors and Measures for Customer Relationship Management...............................................5 3.1 Successful Customer Relationship Management Projects...............................................................5 3.1.1 Successful Strategies.................................................................................................................7 3.1.2 Successful CRM Implementation ............................................................................................7 3.1.3 Successful Organisational Changes..........................................................................................8 3.2 Customer Relationship Management Measures...............................................................................8 4 References.............................................................................................................................................11 4.1 Interviews.......................................................................................................................................11 4.2 Company Internal Information.......................................................................................................12 4.3 Lecture and Tutorial Notes............................................................................................................12 4.4 Books.............................................................................................................................................12 4.5 Papers and Articles.........................................................................................................................13 4.6 Bibliography...................................................................................................................................16 5 Appendices............................................................................................................................................17 5.1 Appendix 1 - Venkatraman Five Levels IT Induced Business Configuration, Morton, 1991.......17 2
  3. 3. 1 Introduction CRM projects are usually known for failing to achieve their objectives, much money often having been spent on consulting, software and hardware. These factors motivated me to develop guidance for successful CRM implementations. 1.1 Background Successful CRM implementations should be based on a customer-focused strategy followed by transformation of processes, organisational changes and selection of the right solution to support them. The main challenge in achieving success is managing the processes to link the strategy with the technology and organising the company to lead this change because only through a co-ordinated transformation will the company succeed implementing CRM. 2 Overview of Customer Relationship Management Solution CRM is still a new concept and even the main consulting companies and software houses have different opinions about what are its key elements and boundaries. I will use in my analyses the definitions bellow. 2.1 CRM Definitions, Concepts and Modules In the view of Peppers and Rogers (1999) CRM means Customer Relationship Management or Customer Relationship Marketing and is also equivalent to one-to- one marketing. Most consultants, like IBM consultants, consider one-to-one marketing equivalent to personalisation and therefore only one of the modules of a complete CRM solution. 3
  4. 4. It is also necessary to categorise the different CRM types and modules. Gartner Group (2002) categorises CRM solutions into eight different types: technology enabled marketing and sales, customer service and support, e-commerce, telephony and infrastructure, back office integration middleware, external service provision and application service. Peppers and Rogers (2001) states that CRM is composed of Analytical CRM and Operational CRM. The Analitical CRM is also called Business Intelligence and consists of online analytical processing, real time processing, datamart, datawarehouse, executive information systems, datamining and decision support systems and partner relationship management solutions. The Operational CRM consists of callcenter, telemarketing, sales and support solutions, direct mail and direct sales features, enterprise marketing automation, e-business, complain handling, client satisfaction management, knowledge management, database marketing and loyalty programs. 2.2 The Main Reasons to Use Customer Relationship Management The level of transformation CRM brings to the company can be explained using Morton’s (1991) Venkatraman Five Levels IT Induced Business Configuration model – Localised Exploitation, Internal Integration, Business Process Redesign, Business Network Redesign, and Business Scope Re-definition (see Appendix 1). Using this model, it can be concluded that CRM systems operate in the Level 3 - Business Process Redesign - and level four – Business Network Redesign. Supported by a customer-focused strategy CRM can offer a more revolutionary level – Business Scope Re-definition – by proactively identifying new business and potential threats, supporting the enlargement of the business mission and scope and the identification of a new scope of business. Despite the fact that the reasons that loyal clients are more profitable have been previously accepted as unquestionable, controversial new research is questioning some of the findings. Reinarts and Kumar (2002) find that there is little evidence that customers who purchase steadily from a company over time are necessarily cheaper to 4
  5. 5. serve, less price-sensitive or effective at bringing in new business. This research shows no strong correlation between longevity and costs. The authors state that loyal customers are more price sensitive and that customer longevity is not strongly associated with propensity to market the company. They add that loyal clients ask for personalisation and customisations, which increase operational costs. All authors agree that the main reasons for using CRM are to optimise customer profitability and loyalty by becoming customer-centric. People Soft & Vantive also believe that CRM can help to reduce costs. Reichheld adds that increased profitability is achieved by having long-term relationships. Boston Consulting and Mckinsey asserts that benefits come from the fact that CRM helps to retain customers and that acquiring new customers is very expensive. Although there is some disagreement as to whether loyal clients are more profitable, this thesis is based on the assumption that they are, given that – with the exception of Reinarts and Kumar – this is the widely accepted view. 3 Success Factors and Measures for Customer Relationship Management In this chapter I identify successful characteristics of CRM projects and I introduce some customer-focused measures. The analysis of successful characteristics is based on assessing companies’ documents, researching academic papers and forum documents, and interviewing clients, project managers and consultants. The first step to successful CRM methodologies is to examine what success is because it has different meanings for different authors and companies. Having established the meaning of success I will point out some common characteristics that usually lead to it and to failure in CRM strategy, organisational change and systems implementation. Finally, I will show the main measures that truly indicate that the company is customer-centric and that it has a customer-focused strategy implemented successfully with IS. 3.1 Successful Customer Relationship Management Projects 5
  6. 6. In the view of Pedraza (2000), there are twelve principles of CRM success. First of all the company must become flexible, adaptable and sustainable. It must focus on creating customer value and investing in customer experience. Supporting this, the company must design an economic model that is completely customer-centric, focusing on retaining the best customers – valuable ones – and acquiring more good ones. The company must create what the client wants by developing analytical skills and emphasising customer interaction and dialogue. Stone (2001) identifies the following elements to CRM success and recommends some actions to address these elements (see Table 1, below). Element Criteria Clear CRM strategy and business model Draft and publish a CRM strategy statement, document and publish the CRM business model and determine who owns the customer. Enterprise wide CRM mandate Mandate a single platform for all divisions, calculate Return on Investment (ROI) on an enterprise-wide level and create cross- functional committee. Business approach Identify high impact cross-functional pilot project. Communication to create culture Planing of the organisational culture to support CRM – build cross- functional teams support and metrics. Table 1 - Elements to Success, Stone, 2001 . Reichheld (2002) also states four reasons why CRM fails: implementing the software before creating a customer strategy, rolling out CRM before changing the organisation, assuming CRM is technology intensive and building relationships with the wrong customers in the wrong way. Based on Peppers and Rogers and on IBM findings, I believe, however, that companies are correct in assuming that CRM is also technology intensive because the capabilities CRM brings are impossible to achieve without CRM software. Peppers and Rogers (1999) also support this point when they 6
  7. 7. state that managing customer information; having system integration; and tracking customer contacts all require IT. Goldberg (2002) asserts that companies pursuing a CRM initiative often make the mistake of trying to correct their own customer-facing process by purchasing software that contains pre-built business processes and forcing them upon system users. He concludes that CRM software will not replace an effective process, create or maintain customer relationship, make decisions nor produce products and services. All authors agree that successful CRM projects require a customer-focused strategy and focus on people and organisational change. Stone adds the need to change the company’s measures to client-focused ones. However, there is disagreement about the use of pre-built process. To identify in more detail what constitutes successful CRM, it is important to analyse successful strategy, solution implementation and organisational changes. This is done in the next three sections. 3.1.1 Successful Strategies Successful strategies put the client in the centre and model the business to attend client needs by managing the customer experience and focusing on his lifecycle. Stone (2001) writes that the Boston Consulting Group (BCC) estimates that the chances of a successful implementation double if a clear strategy is formulated. Eclipse Computing (2000) states that successful CRM strategies rely on a consistent and composite view of customer activity across the entire organisation. They have developed a ten-point guide and they assert that following this guide will lead to success. They advise a company to: have a complete view of customer activity; perform one-to-one marketing; manage communication channel; consolidate knowledge about the client; retain and reward the customer; and have feedback loops. 3.1.2 Successful CRM Implementation 7
  8. 8. Successful implementations start by having a customer-focused strategy and the CRM solution project must be co-ordinated with the strategy implementation. The technology should be understood and always add value to customers. It is key to have clear, relevant, accurate and timely data and to use all the information to run the business in real time, adapting products and services to customer demand. To create a single view it is necessary to integrate all touch points – web channel, callcenter and others. Additionally it is essential to integrate data and systems and to have active management of it. A modular implementation is also a key point to allow a training process where the solutions evolve and transform to adapt to the company and client’s needs and characteristics. 3.1.3 Successful Organisational Changes CRM changes radically the way people work, as it requires the transformation of the company. It is important to have the commitment of all involved areas as well as of the Chief Executive Officer (CEO) and board of directors. To transform a company the sales force, marketing and customer service personnel must participate and it is vital to integrate marketing into the entire business, redefining its role. Additionally, the organisation should foster employee creativity and innovation to allow a client- focused culture. The transformation should start with the core organisational and people changes and should be scaled up. Vandermerwe (1999) states that the main organisation transformation will be to stop working as silos by geography, product or function and instead start working to provide a single view to the customer. In the new economy the relationship with partners is another element to allow a full range of solutions with a unified view. 3.2 Customer Relationship Management Measures A successful CRM project should lead a company to achieve the objectives established by its strategy. Reinartz (2002) suggests analysing customers based on profitability not revenue as an improvement of traditional models. He adds that the 8
  9. 9. company should manage profit and loyalty at the same time, but the quality of the profit and the perspective of future profits should be considered. Some consulting companies, like Andersen, have adapted Kaplan and Norton’s (1996) balance scorecard and use it to measure progress and value of CRM projects because it contains a customer perspective to ensure market segmentation, customer profitability and retention management. They have updated the traditional customer core measurement group – market share, customer retention, acquisition and satisfaction, and customer profitability. According to Vandermerwe (1999), market share, customer satisfaction and retention and brand loyalty are old measures. Market share is also a lagged indicator because it does not lead to long-term competitiveness and may measure a share of a decreasing market. She created the new concept of market spaces (the outcome the customer wants in his/her lifetime) and uses it as a measure of client share in an expanded view. She accepts the use of market space, customer lock on, customer value, return from innovation, customer profitability and share of customer wallet as leading ways of measuring retention and satisfaction (see Table 2, below). Table 2 - Customer Focused Measures, Vandermerwe, 1999 Reishheld (2001,1996 and 1993) states the importance of repurchase rates, like customers repurchase loyalty, instead of customer satisfaction because he considers it to be the only meaningful measure of satisfaction. In this view, what matters is not what the customers say about their level of satisfaction but whether the value they feel 9 From To Market share Lifetime value and share of spend Products / services profitability Customer profitability Cost of sales and services Cost of losing a customer Cut costs Add value in and take non value out Cost of activities Opportunity cost of activities Unit cost of products / services Integrated costs of products and services to customers
  10. 10. they have received will keep them loyal, because between 65 and 85 % of customers who defect say they were satisfied with their former supplier. Phatx (2000) recommends as a main measure the Return on Relationship (ROR) which considers all potential costs and profits associated with the customer. Peppers and Rogers (1999) identify the main CRM measures as share of customer and lifetime value. They add that although there are formulas to calculate lifetime value they are highly complicated. They suggest alternative measures for projecting the lifetime value of a customer: average revenue per customer; percentage of higher margin products/services used; and trends in sales or orders. Russell (2001), however, suggests the use of Lifetime Customer Value (LCV) and explains it as the current and future profitability. He suggests that past profit should be calculated as the sum of the margins of all products purchased over time less the cost of reaching the customer. He also asserts that some financial and market indicators such as profitability, market share and profit margins continue to be important but there has been increased emphasis on customer-centric measures such as customer acquisition costs, conversion rates, retention/churn rates, some customer sales rates, loyalty measures and customer share. He goes on to explain that considering these new measures there are four ways to increase profit: • Increase the number of products purchased – by cross selling. • Increase price paid – by up selling. • Reduce product marginal cost. • Reduce customer acquisition cost. All these measures are in line with client’s goals for CRM projects as identified in research carried out by CRM Magazine (2002), according to which the most important goal for CRM projects has changed radically from customer retention and service to profit (see Table 3, below). CRM goals 2000 2001 2002 Better Customer Service 23 15 15 Higher Customer Loyalty 14 16 5 Higher Customer Retention 33 31 28 10
  11. 11. Higher Sales 17 6 12 Increased profitability - 19 30 More effective marketing 6 3 10 Table 3 - Goals for CRM projects, CRM Magazine, 2002 Some authors agree on the use of the balance scorecard and customer satisfaction measures. Others like Peppers and Rogers, Vandermerwe, and Russel support the use of customer lifetime measures. Reishheld advocates using a meaningful measure of satisfaction and repurchase rates. 4 References 4.1 Interviews 11
  12. 12. Sandra Vandermerwe, 2002, Customer-focused Strategy teacher, Imperial College, MBA Programme. Timothy Braxal, 2002, Senior Consultant, Customer Centricity, IBM services, IBM UK. 4.2 Company Internal Information Carpenter, F., 2000, The convergence of CRM and e-Commerce Information Management, Microsoft, Information Management, May. IBM UK, 2002, Strategy methodology, Barry Jerome, IBM Global Services. IBM USA, 1999, CRM Blueprint, Seminar, Rhode Island. McKinsey, 2001, Customer Satisfaction: The Fundamental Basis of Business Survival, White Paper. Siebel, 2001, Customer Satisfaction: The Fundamental Basis of Business Survival, white paper, Siebel Brazil. Unisys Brazil, 2000, CRM methodology, Luciene Manoel, Financial Services. 4.3 Lecture and Tutorial Notes Vandermerwe S., 2002, Customer-focused Strategy Lecture Notes, Imperial College MBA Programme. 4.4 Books Daft, 2001, Organization, theory and Design, South-Western College Publishing, pp. 96, 354 and 373. Goldberg, 2002, CRM automation, Prentice Hall, pp. 13, 15, 16 and 18. 12
  13. 13. Hamel & Prahalad, 1994, Competing for the future, Harvard Business School Press, pp. 109. Huczynsky & Buchanan, 2001, Organizational Behaviour, Pearson Education Limited, pp. 564. Hunt, D., 1996, Process Mapping. How to reengineer your Business Processes, John Wiley & Sons, pp. 5. Johnson & Scholes, 2002, Exploring Corporate Strategy, Pearson Education Limited, pp. 305, 362 and 484. Kalan and Norton, 1994, Balance Scorecard, pp. 67. Vandermerwe, S., 1996, The eleventh commandment, John Wiley & Sons Ltd, pp. 41, 68, 114, 123, 135, 161 and 206. Vandermerwe, S., 1999, Customer Capitalism, Nicholas Brealey Publishing Ltd, pp. 13, 144, 151, 188 and 220. 4.5 Papers and Articles Adhanda and Maehre, 2002, European banks look to profit from CRM, Datamonitor, www.crmcommunity.com . Aufreiter, N., 2001, Marketing Rules, HBR. Boston Consulting Group, 1999, CW Focus, Computer World. Brown, A., 1993, MIT Research study, Journal of Information Technology, 8, 58-61. CRM Magazine, 2002, CRM research, www.crmmagazine.com. 13
  14. 14. Eclipse Computing, 2000,Consistency key to CRM success, Works Management, June, vol. 3. Fernandes, J., 2000, What is CRM, IT Communications Ltd. Hall, N. and Robinson, P., 2001, CBR Research - Significant Others, Computer Business Review. Harrington, T., 2001, A sales pitch invasion, IT consultant. Henley Centre, 2001, Customers still crave the personal touch, Financial Technology Bulletin, vol. 18. Khirallah, 2000, Mutual Funds Cos & Brokers are behind Banks in CRM, Wall Street and Technology. Lederer, C. and Hill, S., 2001, See your brands through your customer eyes, HBR. Maehre, A., 2002, The Banker, Datamonitor research, April. Maehre, Rose, B., Malden, M., Siebel, Nesbelt, S., Nortel, Nimer, F., Price Waterhouse Coopers, 2002, Helping agents and customers to see the light, Callcenter Magazine, www.crm-forum.com. Meta Group, 2000, The CRM Lifecycle, Elizabeth Shahnam, Meta Group and Hyperion Solutions, www.metagroup.com. Pedraza, M., 2000, 12 principles of CRM success, B to B, vol. 85. Peoplesoft & Vantive, 2000, CRM presentation, Information Management, May. Peppers and Rogers, 1999, Is your company ready for one-to-one marketing?, HBR, January. 14
  15. 15. Peppers and Rogers, 2000, Getting started with CRM, James Pound, White Whale, www.crmforum.com. Peppers and Rogers, 2001, Analytical CRM, White paper, www.Peppers&Rogers.com. Phatx, C., 2000, At your service, B to B, July, vol. 85. Pound, J., 2000, Getting started with CRM, White Whale, www.crmforum.com. Reichheld, 1993, Loyalty based management, HBR, March / April. Reichheld, 1996, Learning from customer defections, HBR, March / April. Reichheld, 1999, Zero defections: Quality comes to services, HBR, September / October. Reichheld, 2000, The loyalty effect, European Business Journal. Reichheld, Righby and Schefter, 2002, Avoid the four perils of CRM, HBR, February. Reinartz and Kuman, 2002, The mismanagement of Customer Loyalty, HBR, July. Robinson, P and Kirby, J., 2001, New ways to win over fickle clients, Financial Times, October. Russel, 2001, A framework for customer in Relationship Management, California Management Review, summer, vol. 43 issue 4. Sawhney, 2001, Do not homogenize, synchronize, HBR, July / August. Seybold, P., 2001, How to survive the customer Services evolution in Financial Services, www.psgroup.com 15
  16. 16. Seybold, P., 2001, How to survive the Customer Services revolution in Financial services, www.psgroup.com. Stone (2001), Action items for CRM success, Countrywide home loans, www.countrywide.com. 4.6 Bibliography Drucker, P., 1999, Management Challenges for the 21st Century, HarperCollins Publishers. Pine,B.J., 1993, Mass Customization. The new frontier in Business Competition, Harvard Business School Press. Seybold, P. B., 1999, Customers.com, Random House. Siebel, T. M., 1999, Cyber Rules, Pat House. 16
  17. 17. 5 Appendices 5.1 Appendix 1 - Venkatraman Five Levels IT Induced Business Configuration, Morton, 1991 17 Degreeoftransformation Range of potential benefits Localised Exploitation Internal Integration Business Process Redesign Business Network Redesign Business Scope Re-definition RevolutionaryEvolutionary
  18. 18. novidades 18

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