Most ROI Calculations Are Incomplete
Many businesses are disenchanted with CRM implementations because of failure to completely measure the all factors involved in the implementation, says Michael Smith, Gartner research vice president, who discussed building a business case for CRM at the Gartner Customer Relationship Summit in Chicago.
While 71 percent of companies Gartner surveyed said they measure total cost of ownership of CRM implementations, only 60 percent claim to measure benefits and only 17 percent claim to measure ROI. Only a scant 5 percent measure all three, which is necessary to compute true ROI, according to Smith. By computing all three factors, CRM stakeholders will develop compelling business cases for their projects, Smith adds.
"Building the business case and measuring ROI along with the costs and benefits will lead businesses to make wiser investments in CRM and enable them to enjoy the results, instead of complaining about CRM that fails to meet expectations," Smith says. "CRM programs based on incorrect strategies are likely to fail."
Whoever initiates the CRM project, be it a business executive or someone else within the company, meaningful collaboration depends on establishing the roles of the primary stakeholders right at the beginning, according to Smith. "Regardless of who initiates the projects, any stakeholder can plan an important role in organizing the business case," Smith says. Once the roles and responsibilities are known and agreed to, meaningful collaboration can occur."
Proper metrics will clarify any ambiguities in this communication, Smith adds. "Develop a metrics model that shows the cause and effect relationships between business activities and financial results. From there, generate hard dollar ROI for the project."
CRM projects will tend to focus on one of four strategies: Extending the breadth and depth of relationships; reducing delivery channel costs; reinforcing the brand; and creating customer satisfaction and loyalty. All of these strategies should be considered and developed, according to Smith. For example, if a company's CRM strategy includes extending relationships, the firm should also consider how the CRM solution could improve the identification, development, and offering of new products and services.
Smith acknowledges one strategy will tend to dominate. Which one depends on the specific company and its priorities. Smith also recommends focusing on CRM initiatives that enhance business process that result in business performance measures that in turn drive financial results. Smith recommends selecting a list of business metrics that supports a firm's CRM strategy, a baseline of performance levels and an understanding of how the CRM solution is expected to affect the business processes involved. "Get a list of the targeted improvements," Smith says. "You don't have to get all of the improvements in one year."
To compute the hard dollar metrics of an ROI initiative, Smith recommends that companies look at leading indicators of financial results. This includes items like sales opportunities, customer retention and improved service performance. Calculations should also extend out several years, Smith says. In its survey, Gartner discovered that many firms use cost calculations that only extend out a year or two. "Ensure that a variety of cost and benefit scenarios is taken into consideration when conducting the ROI calculation and that cash flows are always discounted to be comparable in current currency terms," Smith adds.
These calculations should be continued even after the CRM project is approved, installed and running, Smith recommends. "Build a dashboard of the selected metrics; monitor performance before, during and after implementation. Set priorities and manage change based on targeted objectives."
Hosted or Housed?
CRM's 7 Deadly Warning Bells
The Age of Fluff-Free ROI