CRM: A Lifecycle Perspective
In the quest to implement a successful CRM initiative, executives can learn a lesson from the cradle-to-grave product development philosophy. But it requires a change in thinking and a willingness to take a lifecycle view of CRM-one that incorporates the following five stages:
Putting the customer at the center of the universe
The key to implementing a successful CRM initiative is to first understand exactly what CRM is. Often, businesses begin with an initial understanding, right or wrong, that motivates them to pursue a CRM initiative. Several misconceptions emerge once they attempt to apply CRM to their business. The most common is believing that CRM is the new cure-all for customer management evils that, if implemented, will result in almost immediate benefit. Unfortunately, CRM by itself is no guarantee of customer retention.
Companies at the forefront of CRM think of it as an integrated business strategy that places the customer at the center of a business's consciousness. CRM provides a holistic view of the customer across all of an organization's products and channels.
At its best, CRM should address the following business goals:
- Increased customer acquisition and retention, as well as greater loyalty
- Expansion of profitable, long-lasting customer relationships
- Delivery of a consistent, relevant, high quality customer experience
- Continuous learning about customers (both business and consumer) and communication of that knowledge across the organization
- Delivery of the right products and services tailored to meet customers' needs
- Increased customer equity
- Improved cost management
To properly implement CRM, executives must first uncover the root cause of the business problem (or problems) hampering success, and then determine how customer management or integrated treatment of customers can help solve the problem.
starting with a strategy
The next stage of the lifecycle is to develop a strategy for implementing CRM. Traditionally, software suppliers have been a major source of information about CRM and most CRM initiatives have been born in IT departments. So it is little wonder that executives think that all good CRM initiatives begin with the installation of a tool. Yet tools do not create lasting customer relationships-at least not by themselves.
Companies must begin with a clear understanding of the requirements for winning customers and then determine the best strategies to help them reach their goals. The scope of a CRM strategy must be broad, consider a wide range of variables and have a business impact that affects a company's revenue performance. Successful CRM efforts are integrated enterprisewide and span all business units. This is not to say that it is all or nothing. In fact, specific initiatives should be started to build momentum and can then serve as pilots of success once the overall strategy is developed. This way, the company avoids a simultaneous global implementation.
Building a case on revenues, not cost cutting
The third stage of a CRM lifecycle is building the case for CRM. Some organizations focus on cost savings as the sole justification for pursuing a CRM initiative. They have a logical reason: Cost savings are easier to measure than potential revenues and executives are leery of investments without incontrovertible returns. In the case of CRM, however, focusing on cost cutting rather than revenues can result in several problems, not the least of which is a pursuit of the wrong initiatives.
The most successful CRM initiatives are those that spell out how CRM will improve the quantity and quality of a company's revenue. The key is to not only use performance measurement to track important revenue metrics, but also to look closely at what is measured and how it is measured. In other words, before beginning an initiative to track CRM performance, it is a good idea to fully understand the drivers that produce customer satisfaction and those that deliver customer value.
Contrary to popular belief, customer satisfaction is not the key measure to gauge whether a company has delivered customer value; customer loyalty is. In fact, companies with loyal customers can have profits up to 60 percent higher than competitors. Yet less than 10 percent of companies have a single, integrated view of the customer-which is a prerequisite for winning customer loyalty. With this in mind, performance metrics should include:
- Customer profitability
- Customer loyalty
- Customer lifetime value
- Return on CRM investment
Also, when a company implements a performance-metric program, the goal should be to measure the value of each customer and each customer contact in real time or near real time. The organization must be able to see a multi-period income statement by customer, showing acquisition costs, types of transactions, profitability of transactions and retention costs-ultimately building up to what is called a "total customer lifetime value view."
Clearly, it is difficult to build a case on increased revenue because it is difficult to quantify increased revenue. So many other factors affect it-competitors that go out of business, price elasticity and quality problems, to name a few. Yet isolating the effects of a CRM program to show a return on the investment is often the only way to get such a project funded.
Creating a customer-focused organization
The fourth stage of a CRM lifecycle is to embed change throughout the organization-convincing everyone to share a single focus on the customer. In my experience, the top companies-those that boast the most successful, cost-effective CRM initiatives-embed change by building an integrated CRM architecture. In other words, they align and incorporate all relevant aspects of organizational change. The following are three fundamental rules of a CRM architecture:
Align channels and business processes. By aligning all channels and business processes against target customers based on their value to the business, a company establishes an enterprisewide means for capturing, analyzing and shaping customer behavior. The goal is to create a consistent customer experience that is relevant to a specific customer or customer group.
Align the organization to provide ongoing value to the customer. Because the business process drives the organizational structure, a key ingredient of a CRM architecture is defining and establishing roles and responsibilities to better meet customers' needs. It is critical that the employees have a horizontal rather than a vertical view of the customer. The vertical, or silo, view of a customer has natural walls that inhibit the company's view of what a customer wants, needs and expects. Leading organizations foster this new approach through customer-focused business metrics and incentives.
Integrate technology. When technology and business processes are integrated, companies gain a better understanding of their customers throughout their lifecycle and how they interact with the business. General Motors, for example, combines technology and CRM to offer customers one-on-one service levels-the kind of service normally attributed to good salespeople who really know their customers. With an integrated customer database, GM employees-regardless of business unit or division-are able to recognize all GM customers regardless of their entry point.
What happens to companies that fail to integrate customer-related functions and channels? For one thing, they miss opportunities for building greater enthusiasm and customer loyalty, which often translates into lost revenues. Generally speaking, the more solid the CRM architecture, the better a company can meet its customer expectations and gain customer loyalty to improve sales and revenue.
Tailoring service levels to tweak profitability
The final stage of a CRM lifecycle is reaping CRM's benefits. Today, the concept of delighting the customer has created a perception that businesses should exceed customer expectations at every point of contact and then just sit back and watch the rewards flow in. In most cases, however, this is neither necessary nor economical.
In a good CRM implementation, every customer receives the appropriate level of service. After all, not all customers are created equal. They have different needs, expectations and behaviors, and offer different value to a business. Treating them as equals by providing all customers with top-tier service may delight them all, but in many cases, it is not profitable.
Likewise, not all customer interactions are created equal. Some require "high-touch" experiences, while for others, self-service may be more appropriate. The challenge for businesses is achieving the right balance between the needs and value of each customer interaction and the cost to service that transaction. Remember, consistency often defines and sets the tone for customer interaction for the future-especially loyalty.
As markets continue to mature, the pace of technological change accelerates and
customers become increasingly demanding (and confused), customer relationship management must evolve as well. CRM is a conceptual product and must move along a similar lifecycle. And, like any other product, it must be considered an organizational responsibility. How fast and how far an individual company moves along the continuum toward becoming truly customer-centric will be determined by that company's own strategy, its competitive environment and its capacity to change.
[Michael Gorsage is a vice president in A.T. Kearney's Technology Practice, where he leads the Customer Relationship Management (CRM) group.]