Assessing the CRM State of the Company

The value (both current and proposed) of customer relationship management (CRM) initiatives must be measured through an assessment model correlating qualitative domains (i.e.
Written by Elizabeth Roche, Contributor

The value (both current and proposed) of customer relationship management (CRM) initiatives must be measured through an assessment model correlating qualitative domains (i.e., people, process, and technology) with quantitative measures (i.e., financials and ROI). This CRM "state of the company" approach enables organizations to understand the status of CRM initiatives and identify opportunities to maximize CRM value.

META Trend: Through 2003/04, Global 2000 organizations will increase IT investments to facilitate business process externalization by electronically enabling data interchange with the totality of their supply partners. By 2005/06, organizations will begin to control process anomalies tactically by integrating event management and optimization techniques. By 2006/07, they will strategically share planning, management, and performance measurement systems (e.g., order management systems, inventory management data/systems, production scheduling) electronically with suppliers, partners, and customers.

CRM business initiatives are still largely (and often inappropriately) driven by technology implementations. This technology-centric approach, which is often implemented at the expense of business and cultural transformation, must be tempered by understanding the breadth and value of enterprise CRM capabilities across people, process, and technology. However, CRM software implementations are still complex and expensive operations, mandating organizations to apply cautious scrutiny (around people, process, technology, and ROI).

Current assessment models typically come from either technology vendors (which are used to demonstrating ROI as part of the sales process) or systems integrators (which are often skewed toward the services they can deliver). Our research indicates that these assessment models and methodologies expose a technology or service bias and often miss delivering the key point: an estimate of the associated value in terms of quantitative financial returns (i.e., revenue increase, cost reduction, economic profit) “recalibrated” by qualitative enterprise returns (i.e., readiness, maturity, and ecosystem appropriateness). Indeed, the lack of a predictable and consistent means of correlating value to strategic business objectives often has the effect of confining enterprise CRM decision making to the more accessible realm of technology (since, in these cases, CRM is usually driven by IT), and the selection of software solutions, often inappropriately based only on a feature and function checklist. In fact, it is not only new CRM initiatives that could benefit from a repeatable and consistent CRM state-of-the-company assessment model: existing CRM programs could also benefit from an introspective checkpoint across the domains of value and ROI, to assess whether these initiatives are still on track for delivery of stated objectives or if potentially new goals, “scope creep,” or other factors have affected the execution of the project or program.

By 2004/05, we believe Global 2000 (G2000) organizations will demand unbiased support to accomplish an extended and exhaustive review of their (existing or future) CRM strategy. This support, executed in eight weeks or less, must:

  • Provide sound financial analysis (in the form of ROI, among other metrics)
  • Deliver a message to business executives on the value achieved through CRM technology
Beginning in 2005, and through 2007, key vertically focused assessment indicators will emerge as standard gauges that will help normalize the CRM assessment process, enabling a more consistent, comparable, repeatable, and predictive methodology.

META Group believes that CRM strategy rests on the principle that, to get CRM “right,” companies must execute on, and measure performance of, the following key management imperatives:

  • Make the customer the CRM design point via customer patterns
  • Integrate across lines of business versus automating individual lines of business
  • Create a balanced CRM technology ecosystem
  • Execute CRM iteratively, using a repeatable and customer-centered methodology
Thus, organizations require a means to assess their performance against these imperatives, make midcourse corrections as necessary, and gauge financial returns. Consequently, we have defined a “CRM state of the company” model, which builds the CRM business impact “journey” along the following path: capabilities assessment, value audit, and economic impact assessment.

Capabilities Assessment
The capabilities assessment focuses on two areas of the CRM value profile. The first area is to investigate the readiness (people) of the organization. For a new CRM initiative, the readiness component of the capabilities assessment will determine how ready the organization will be for the impending changes that a focused CRM initiative will create. For existing CRM initiatives, the focus will be on how/if the organization has adapted and transformed itself to align with the new customer-focused cultures.

The second area, maturity, does not measure CRM business process maturity. Rather, it measures maturity and efficacy of the CRM program method and how well it has been institutionalized (e.g., how “organic” it is to the organization). To actualize the benefits of an iterative approach, organizations must have fully repeatable and measurable program processes, free from individual “just do it” heroics.

Value Audit: Capabilities + Technology
The value audit covers all the areas defined in the capabilities assessment, and brings in the additional dimension of technology. The technology assessment will map the current or proposed technology environment to a best-practice CRM technology map, called a CRM technology ecosystem, and will clearly highlight whether total CRM commitment exists.

The technology assessment, requiring input from customer pattern analysis (e.g., CRM treatment and segment value), specifies a “conversion factor,” which gauges the capability of the organization to acquire new customers, and a "retention factor,” which measures the ability to retain existing customers. First-level strategic indicators (e.g., brand awareness and perception, speed to market, precision on targets, reaction to customer demand, wallet share), which impact the conversion and retention factors, are assigned a weight to reflect the indicator’s importance to the organization, as well as provide insight to where CRM efforts will be concentrated. Second-level tactical indicators (e.g., pricing, discount offers, sales force bonus/compensation plan, pipeline reports, channel preferences) are applied to further refine the model. The values selected by the user enable the organization to derive the most likely CRM machine (see Figure 1) that will enable the company’s CRM strategy. The machine expresses in qualitative terms the percent utilization rate attributable to each of the operational, analytical, collaborative CRM ecosystem components, enabling the user to evaluate and prioritize investment in the necessary “building blocks” for its CRM solution.

Economic Impact Assessment
The economic impact assessment (see Figures 2 and 3) is composed of an assessment of the financial and investment priorities associated with each category above. The implementation of the CRM machine factors two additional dimensions into the model:

  • Investment dollars for the IT building blocks: These are categorized as one-off and recurring (over a five-year life-cycle) project costs.
  • Benefits derived by executing the machine functionalities: These are expressed in terms of increased revenues and increased asset utilization as a consequence of the larger number of newly acquired and retained customers through the engage/transact/fulfill/service cycle powered by the machine.
Business Impact: By adopting a model that assesses capabilities, value, and economic impact of a CRM investment, the positive result to the business will be a quantitative numerical return recalibrated by qualitative business evaluations.

Bottom Line: To create a CRM investment portfolio view with constituent life-cycle patterns, associated business processes, and enabling technology components, users must follow a three-step business impact model.

META Group originally published this article on 20 May 2003.

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