Making the Business Case

Arthur O'Connor

Updated · Mar 28, 2001

Photo Arthur O'ConnorFrom all the news and commentary about CRM — a recent Gartner Group study suggests that up to 60 percent of such implementations fail — one would conclude that we in the CRM community still haven't been able to articulate a sound business case and solid approach for effectively implementing customer relationship management.

In our defense, it's not been from lack of trying. Despite repeated pleading to treat customer relationship management as a strategy instead of a tactical integration project, the preponderance of evidence suggests that CRM packages are still being promoted as the fast, new and easy way to increase sales and lower service costs — through the magic of digital technology.

There's a valuable lesson here. After all, the current organizational structures and tactics have been designed to fulfill basic needs and are not necessarily scalable, customizable solutions. Just as we did with enterprise resource planning (ERP), sales force automation (SFA) and other enterprise solution implementations before, we've once again underestimated the difficulty of making such radical changes.

To this end, I offer my own three favorite handcrafted offerings to help you make the CRM and eCRM business case to your management team:

1. With customer acquisitions costs increasing, the only way to ensure profitability is through repeat sales — and that means creating customer loyalty.

It is estimated that U.S. companies lose half of their customers every five years, and it costs them five-to-10 times more to acquire a new customer than it does to keep a current one.

Because of these economics, client-focused organizations are more successful than product-focused organizations. While their competitors waste time spending advertising and marketing dollars on a product that doesn't quite fit market need, customer-focused organizations invest the time and energy up front to refine and develop a solid value proposition. This investment tends to pay for itself in rapid adoption, repeat sales and word-of-mouth referrals.

But, perhaps most importantly, customer-focused organizations are better designed to implement processes and systems that identify and nurture relationships with their most valuable customers. This is because the customer is the focal point of its demand/supply/value chain, as opposed to the company's product or service (as with most businesses) or (in the very worst cases) the ego of the CEO. Client-focused organizations are characterized by organizational structures, enabling infrastructures and incentive compensation systems designed for identifying and fulfilling the needs of their business's best customers.

2. In order to create customer loyalty, we need to make changes to our organization, our people and our process (as well as technology).

Most businesses already realize that the balance of power has shifted to the demand-side of the value chain, at the expense of the supply-side. Any company that is one step behind primary customer relationship on the supply chain is at risk of being “commoditized” (if they haven't been already).

But to meet the skyrocketing expectations of the customer in the hyper-competitive global marketplace, you need to re-think your business. What business should you be in? Well, it's the same business that everyone else is getting into: the customer fulfillment business.

Customer fulfillment means not just selling a product or service, but delivering a quality product or service through the customer lifecycle. Having a first class product offers no competitive advantage if customer service or support isn't first class as well.

This means that you're responsible for customer “experience,” and all that this entails: every touch point, at any location, with any channel. Sales is just the first of many customer touch points — and it may not even be the most important in terms of total client lifecycle value.

But customer experience not only resides within the confines of your organization, it lives and breathes at your distributors, at your suppliers, and in the marketplace. So you need to develop the strategies, attract the talent, and design the operational infrastructures to orchestrate demand and supply chains to better serve your customers' needs at all touch points, across all channels.

How do you do this? By understanding customers and developing the ability to offer superior value profitability.

The process begins with attracting and retaining the right people, and rewarding the right behaviors. It is the individual and team efforts of your employees' behavior and performance that will ultimately determine how effectively your company attracts and (more importantly) retains and grows relationships with its best customers and most attractive prospects.

You also need to take a hard look at all the breakdowns and process disruptions that occur not only within your organization but across your entire demand and supply chains as well. This means creating the right tools, processes and incentives to foster collaboration and efficiency for all parties — the win/win proposition.

Both are critical, but the first one — people — tends to get overlooked. One of the great inhibitors to collaboration is not process or technology — it's people. Companies don't want to release proprietary information over the Web or work with competitors. Why? There is a belief that the risk does not justify the rewards. And the sad truth is that, in most cases, they're absolutely right.

3. If we don't make these changes and adopt to this new environment, we're dead.

Your competition is inevitably and inexorably moving a demand chain model, in which the rigors of back-end supply chain automation will be applied to front-office customer-facing processes.

The fight for market share using these new tools is already underway. A joint IDC and Cap Gemini survey of U.S. and European companies implementing CRM indicate that 44 percent expect to increase sales by 10-to-20 percent — one-fourth of them anticipate increases of 20-to-50 percent.

Forrester Research projects that by next year (2002), integrated eCRM solutions will force the channel-specific model into obsolescence. Given the relatively slow rate of adoption, the high failure rate of CRM implementations, the rudimentary state-of-the-art of personalization and customization technologies, and the nightmarish integration challenges, it's hard to believe this prediction will come to fruition that quickly (maybe I'm spending too much time on the implementation side, and not enough in the blue-sky theory and research world).

But the fact remains that organizations who adapt to this new environment will have a considerable competitive advantage over those who don't.

Hope these three do it for you. Got other good reasons? Or better ideas to inspire more carefully and well-thought out implementations? Please write and let me know.

Arthur O'Connor is a senior manager in the financial services practice of KPMG Consulting specializing in customer-facing strategy as well as related architectural and organizational issues. An accomplished author, speaker and consultant, Arthur is one the country's leading experts in customer relationship management (CRM) and eCRM.

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