Clear business planning is key to making sure you get back what you spend on customer relationship management projects, says Ron Condon.
Two years ago, a survey by the Economist Intelligence Unit of 370 businesses of all sizes revealed that only 15 per cent of them had derived any real value from their customer relationship management implementations.
The study, which was funded by IBM, concluded: "To the chagrin of many companies – from those with double-digit billion dollar annual revenues and up to $100bn in assets, to small businesses with less than $50m in annual revenue – CRM has yet to achieve the promised return on investment goals that made it so appealing in the first place. Furthermore, in many cases, customers have yet to notice a decisive difference."
Rod Street, partner with IBM Consulting Services, thinks he know why. "People were not clear about what they were trying to achieve. They didn’t identify the levers of business they wanted to improve and focus on them," he says. "The most successful ones were those who managed their budget and tracked the benefits against business goals."
One notable early success story he encountered was at beer maker Heineken where the company set out with a specific set of goals – to prioritise more important customers, achieve better penetration for the Heineken brand and improve service standards. He says: "They used Siebel but they would always describe it as ‘improving service’ or ‘altering the way we handle different customer groups’." The better focus yielded a 14 per cent growth in market share.
The aim of any CRM project should be to cut the cost of handling customers, while delivering better service. CRM should allow you to identify your most profitable customers, and should streamline business processes to deliver them a smoother and more efficient service. In short, it should increase profits.
But how does one measure the benefits?
Some examples should help illustrate. The Newcastle Building Society, a mutual company employing 850 people, built an IP-based call centre tied into a CRM system. Using skills-based routing, it channelled customer calls to the people with the right skills who immediately had the customer’s full history in front of them. It found that it could answer 50 per cent more calls without increasing staff numbers, and 83 per cent of calls were dealt with at the first point of contact. This in turn resulted in a higher level of calls converting to sales.
Stockbroker TD Waterhouse equipped its call centre with a voice recognition system to handle enquiries from clients wanting to check stock prices. If clients then wanted to make a trade, they were put through to a live operator who had their details up on screen and ready. According to Paul Brewer of BT’s CRM practice, which installed the system, first-year savings totalled Â£200,000.
Brewer says: "The key in any project is to have clear measurement and saving money will always be part of the equation. I’ve seen very few business cases signed off in the last 18 months that would mean an increase in costs to a business."
He says that even apparently intangible factors such as customer satisfaction can be measured. "You can measure how many enquiries are resolved at the first point of contact, for example. If you’re dealing with most people at their first touch-point, then that is a real business benefit that can be measured," he says.
Although larger organisations such as Tesco and the mobile phone companies may be among the most advanced users of CRM technology, smaller companies can still reap benefits, while stealing some tricks from their bigger cousins at the same time.
Jason Nash, CRM manager for Microsoft UK, says: "In small businesses, CRM can have a big impact. For instance, if you don’t need an office administrator because you’ve got workflow rules set up, that could be a saving of one person, which can make a big difference in a small firm."
A quarter of all sales of Microsoft’s CRM 3.0 product are now going into small companies, he says, where the mere fact of having all your customer data organised into one system – rather than being locked away in different contact databases and spreadsheets – can transform the business.
Nash says: "For some people, my advice is to think small. Think about having a clean database with all your contacts in there, and the ability to track meetings and emails against them. For a first phase, that might give them huge benefits from where they are today."
The next stage might be to create more targeted mailshots based on customers’ previous buying habits. The low cost of postage, plus the higher return rate on direct mail should be a measurable benefit.
It is also worth taking a leaf from the leaders in the field to try some more sophisticated tricks. For instance, Amazon keeps a track of the books and music you buy and will suggest other similar products that might appeal to you. Or try buying home insurance from Tesco, and the company will also ask to quote you premiums on other types of insurance.
These examples of up-selling and cross-selling can be as easily applied to smaller companies with a range of products and services as to large corporations. And the good news is that CRM is no longer a big-ticket item.
Microsoft’s entry into the fray signals a lower price threshold, and other systems, such as Siebel (now owned by Oracle) and Salesforce.com rent out use of their software on a monthly, per-user basis.
But as everyone says, technology is just part of the picture. Unless the whole organisation is committed to customer service, and uses the system, then the return will be minimal.
John Appleby, chairman of Enterprise CRM, a consultancy working with Salesforce.com, says user adoption is key to achieving ROI. Staff need to be trained properly and the systems must be attractive to use.
He says: "A key critical success factor is making the system really useful to the individual ‘front-line’ user – not just to their management. We work with customers to try and encourage them to design features in to the system which actually help the user to do their job – when the temptation is always just to measure them. So giving a user individual dashboards showing their own personal key objectives or other success criteria can really help.
"The idea is to make the CRM system as fundamental a tool to them as the telephone is. We call this the ‘adoption to addiction’ cycle."
The ultimate return on investment is to stay in business, of course. With increasing competition, and increasingly demanding customers, good customer service is likely to be one of the main differentiators between those companies that thrive, and those that fall by the wayside.
By Ron Condon