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Part One: Integrating Customers into Enterprise Strategy
In this first installment of my six-part series on integrating customers into enterprise strategy, I will set a context for the role of strategy and a framework for what it means to integrate customers. Future articles will discuss the role of leadership and the core disciplines needed to engineer a truly customer-centric enterprise. As a place to start, let's look at how companies keep score--and the unfortunate way that most respond to a bad report card.
Posted Apr 9, 2001
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There is no shortage of counsel from CRM practitioners about devising a strategy before spending millions on a CRM initiative. Solid questions like "What are we trying to accomplish here?" and "How will we measure the impact of this initiative?" are critical. However, if the answers to those questions are not self evident--and supported by integration with a broader enterprise strategy--you may want to consider a different project.

In this first installment of my six-part series on integrating customers into enterprise strategy, I will set a context for the role of strategy and a framework for what it means to integrate customers. Future articles will discuss the role of leadership and the core disciplines needed to engineer a truly customer-centric enterprise. As a place to start, let's look at how companies keep score--and the unfortunate way that most respond to a bad report card.

In the past six to nine months, it has become common to read news releases like this in the business press: "Shares of ABC Widget fell sharply today when ABC issued a warning to analysts that the company anticipates missing earnings expectations by $.05 per share. In a related announcement, ABC Widget's CEO said that in order to cut costs and increase earnings, ABC will restructure, cutting 1,000 jobs over the next 30 days."

If you were to ask ABC's CEO, he would probably tell you that the customer is everything to ABC. He would tell you that he is doing the fiscally responsible thing in order to return maximum shareholder value. This may be true, for this quarter--but, at what cost? In order to serve the short-term return, the company's ability to acquire and retain profitable customers gets mortgaged. Follow those job cuts and you will see critical projects delayed, service levels deteriorate and customer attrition rise--often all unnoticed in the executive suite. If customers are critical, why do companies continue to strip service levels to a minimum to meet short-term financial goals?

The reason is that, for most companies, customers are simply not integrated into enterprise strategy. It is easy enough to find rhetoric in corporate vision statements about the importance of customers. There seems to be an almost bottomless appetite for CRM technologies to use as a tool for increasing share of wallet and loyalty. Yet, we still see failure rates for CRM projects quoted in the 70 percent range by some analysts. At a tactical level, CRM projects fail because they are poorly chartered, conceived as IT initiatives or under-funded. However, even successful implementations are often disappointing for reasons rooted deeply in the organization's enterprise strategy.

Often, I hear CRM project managers talk about needing a CRM strategy before beginning a project. I do not disagree. It is often exceedingly difficult to get a marketing and sales organization to clearly delineate that strategy. Therein lies the problem. A CRM strategy is important in the absence of an articulated enterprise strategy that clearly puts customer experience in parity with financial metrics in determining where and how the company plans to compete. Sadly, what passes for strategy in many organizations is either a dated view of competition based on product and cost reduction, or a financially driven set of metrics that are better described as goals. Michael Porter, probably the father of business strategy, was quoted in Fast Company recently saying, "The company without a strategy is willing to try anything."

In the last decade, strategy went out of style. The focus has been so biased toward implementation that the idea of making hard decisions to abdicate certain segments or capabilities in order to concentrate on others became anachronistic. It could be argued that because setting strategy meant selecting where and how to make investments (and thereby saying "no" to opportunities not within the strategy), we became a "try anything" business culture. Add a dash of dot-com frenzy and the phrase "Internet- time" and we saw entire enterprises struggling to find direction.

Interestingly, the recent bloodletting in the financial markets may be somewhat encouraging for strategy. If the markets are behaving based on fundamental value, we will start seeing analysts and shareholders allowing CEO's to plan more than three months out. Shareholders have all become so caught up in our desire for short-term run-up that we are asking managers to kill our geese rather than being patient enough to harvest golden eggs. (This debate about long-term vs. short-term performance metrics is older than the first business school case and I do not pretend to find an answer here. It is clear, however, that short-term financial gain to drive stock value has long-term impact on customers.)

So, what does this have to do with CRM? As long as CRM remains something that we do "to" customers to force feed a short-term set of financial metrics, we will continue to see project failure rates remain high. Only when an organization is willing to integrate customers into enterprise strategy, embracing a fundamentally different business model and measuring their success by their ability to do so will we see the full promise of CRM come to fruition.

An enterprise with customers integrated into strategy behaves in different ways than one centered on efficiency, product or channel. While all may be aggressive about cross selling, a customer-centered enterprise does not allow those with product or channel goals to determine what to promote and to whom. A truly customer-centric organization designs projects from the customer interaction backward and makes the customer experience inviolate in investment decisions. Lifetime profitability is a critical measure in a customer-centered model, meaning that how an enterprise budgets for sales and service expense is completely different from those whose primary measurement is about product out the door or near term margins.

A few years ago, I worked with a regional bank whose newly appointed CEO was fiercely dedicated to the idea of a real customer-focused institution. The bank's infrastructure was dated and originally engineered for rapid transaction processing. The bank had no means to aggregate customer information in any meaningful way. It seems that the institution had made a poor decision in the purchase of a pool of loans and needed to find some additional profits to make their quarterly numbers. The Pricing Committee determined to lower interest rates on passbook savings.

Then a radical thing happened. The head of marketing went to the Pricing Committee (a first for this institution) and said, "Look, the money in those accounts is owned by little, old, blue-haired ladies. We have no relationship with their families or kids. We cannot measure well enough to even hazard a guess at what the risk is but if we lower interest rates some of those funds will go elsewhere before we get the chance to even understand if we can save any of them. Those are high balance deposits that represent are cheap money for us. But we are flying blind about the impact of a rate decrease on those customers."

Then the CEO looked at me and said, "Now I understand what you have been telling me. We have to make this decision based on customer impact--not on our current quarter profit and loss statement. And we do not have the infrastructure to understand or predict the impact of our actions in terms of customers"

The CEO now understands the impact of integrating customers into strategy. His investment decisions are made against a different criteria from those of his predecessor (and those that his direct reports had in mind). The bank is now investing in changes and systems that will create a customer centered infrastructure- even at the cost of some operational efficiencies.

Not all organizations really have the stomach (or the need) to migrate to a fully customer-centered model--at least not immediately. However, those that insist on trying to bolt CRM onto an organization, culture and set of metrics that are efficiency or product-centered will continue to flounder. So the first step in integrating customers into strategy is to truly understand:

•How critical doing so is to your competitive position in a two-to-five year window?

•How much stomach does your organization have for defending a transition with analysts, the board, key managers and shareholders?

•How much capability does the company have in the fundamental disciplines needed to create and guide a customer-centered organization?

In the coming months, I will examine how to approach this assessment and explore a framework for thinking carefully about investment staging and measurement. Customer centricity in a marketplace that emphasizes near term gain should not be undertaken lightly. In example, one piece of counsel that I always give to CEOs embarking on the path is to select a senior officer to oversee the program office who is secure enough to engage in a toe-to-toe shouting match with the chairman on a regular basis and survive the experience. If he or she cannot make hamburger out of a whole herd of sacred cows that person is the wrong executive for the job.

The good news is that for organizations that really engage in this transition, the return on CRM dollars is way beyond what can be gained by simple productivity lift. It is reflected in an ability to manage for effective and profitable relationships with customers--a much more sustainable competitive advantage.

Someday, if I am lucky, I will read a press release like this one:

"Shares of ABC Widget fell sharply today on news that customer attrition in Q1 is likely to be 1.5 percent higher than analysts expectations. ABC's CEO announced that in response, the marketing organization would be restructured to be more facile at engineering customer experience and that additional investments in customer intelligence, customer service staff and multi-channel process integration and personalization would be immediately authorized in order to reverse the trend."

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