Part Four: Long-Term Effectiveness vs. Short-Term Value

(I. Barry Goldberg, principal consulting partner of Matterhorn International, continues his six-part series on integrating customers into strategy to form a truly customer-focused company.
HREF="http://www.destinationcrm.com/ibarrygoldberg.asp">Click here to read last month's article.)

Do you invest in infrastructure and employee training to boost long-term effectiveness, or do you cut staff to make your numbers this quarter? Unfortunately, the CRM community has fallen into this either/or trap. The viewpoint seems to be that you can either sow seeds for long-term benefit, or you can use customer information to pillage your customer base for short-term sales lift.

The transition to a more customer-focused company is not an event- it is a process. In many cases, it requires an enterprise transition of large-scale change that simply cannot happen all at once. Since this evolution should happen in stages, the form and volume of return on investment can be tracked in the same context.

As you will know if you have read my
HREF="http://www.destinationcrm.com/ibarrygoldberg.asp">earlier installments, I view this as a process of evolution that should mature technology, culture, organization and metrics in integrated steps. For most organizations, however, the entire initiative is thought of as a CRM technology project. The evolutionary steps below are adapted to reflect this common view of CRM.

step One--Technology Implementations

The need for better reporting or sales lift, or a reduction in channel expense drives a CEO to approve a CRM initiative. Typically, this step results in one of two outcomes:

1. The technology is a success, garnering a fairly short-term return that is measurable in expense reduction or a short-term sales productivity increase.

2. The IT and organizational infrastructure undermine the attempt and the implementation either does not move into production or provides no measurable return.

step one returns (where the technology is successfully implemented) can be dramatic and are usually measured in terms of expense reduction and cross-selling performance. However, stage one ROI is not sustainable and the long-term impact on customers is generally not known. Often, short term sales lift is followed by increased customer attrition. At this stage, many companies have no way to even measure customer loss making stage one "returns" risky.

The second outcome is actually much healthier for most companies.. Only those companies that run into problems are likely to ask what is needed to reach a successful outcome. In biological terms, those that must adapt have the opportunity to evolve.

step Two--Process Optimization

As time passes, companies working to integrate CRM begin to see more clearly where their processes are at odds with customer outcomes. A phase of work focused on tuning applications and adjusting business processes emerges as managers learn more about the impact of the technology that has been implemented. For companies who took on CRM as a productivity exercise, this is when they see more sustainable efficiency returns. Once again, however, it is the companies that have to struggle a bit and continue to learn that evolve successfully.

step two returns tend to be slower and increase on a steadier basis. The farther the refinement process is pushed, the flatter the returns become, in most cases. While more sustainable than step one returns, step two still does not often generate the impact on customers and therefore on long-term returns.

step Three--Managing to Customer Metrics

In my experience, there is a "moment of truth" in the evolutionary process. It may last for weeks or months or even years--or it can happen in a single meeting. It is invariably in the transition between processes and metrics. This is where the ability of enterprise leadership determines the path of further evolution. My
HREF="http://www.destinationcrm.com/dcrm_ni_article.asp?id=369&art=mag">initial article in this series described such a moment of truth when the CEO of a regional bank made a pricing decision based on customer impact--rather than on the need to find increased operating margins for the current reporting period. This phase of development is marked by changes in how the business is managed and the criteria used to make decisions.

It is in this phase that the beginnings of more sustainable returns--based on customer loyalty--are found. Unfortunately, this is where the returns also become hard to track. Until companies begin to define customer metrics as part of the way to manage the business, they rarely invest in the infrastructure to measure customer outcomes. It is in this stage that companies most get caught in the chicken-and-egg runaround about ROI. Until you invest in infrastructure, ROI for CRM is almost impossible to measure; yet, without the ability to measure returns, it is difficult to approve investments in infrastructure.

step Four--Organizational Alignment

The surest sign that a company is entering this phase is the escalation of the debate over who owns the customer. As process optimization begins to uncover channel or business unit conflicts, the scramble to maintain control of customers within the organization heats up. It is at this phase that the alignment of the organization becomes a detriment to further progress and must be addressed. This is, depending on the leadership skills of the executive team, the most difficult and lengthy phase in the evolution. As alterations are made to optimize the organization for garnering customer outcomes, large leaps in both productivity and effectiveness can be measured. However, the periods in between those leaps can be long and difficult.

step four returns are marked by leaps between long periods of quiet. Realignment of part of an organization around customers eliminates significant barriers, opening a floodgate for increased performance and lowered cost. These returns are highly sustainable and not insulated from impact on customers as in steps one and two.

step Five--Continued Integration and Refinement

A company that makes it this far into the customer-centered curve is now in a continuous period of learning and adjustment. The major hurdles have been overcome and it is up to the enterprise to continually refine to remain competitive. Like all evolutionary processes, it is necessary to remain in sync with the environment. Recently, the business environment has changed radically and we have seen the extinction of companies not well suited for the new ecology.

Jim Collins indirectly addresses this subject in his book Built to Last. In short, he asks, "Are you building a company to be great or just making a living?" The book differentiates good companies from great ones and credits long-term leadership and vision as the primary difference between the two. As a guide to understanding where to put your energy and dollars, simply ask yourself what you are trying to build. If you are trying to build a great company--one where culture and performance will endure varying market conditions and show sustained growth (one that can evolve)--your decisions will tend to span longer time frames.

Of course, this is all easier than it sounds. Maintaining a long-term view is difficult with impatient shareholders and analysts with no operating experience breathing down your neck. I think this is why the most amazing success stories are often found in privately held companies. Every leader must make choices every day that require a balance between extreme poles. The thing to remember is that there are no formulas or absolute answers.