Meta: Back to basics with CRM

Provided byMany CRM systems are "live," though far fewer are raging successes. User adoption, lack of demonstrable ROI, and escalating maintenance and support costs plague those firms that have effectively over-invested in technology at the expense of solid CRM business strategies.
Written by Elizabeth Roche, Contributor
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Many CRM systems are "live," though far fewer are raging successes.

User adoption, lack of demonstrable ROI, and escalating maintenance and support costs plague those firms that have effectively over-invested in technology at the expense of solid CRM business strategies. Organisations must get back to customer relationship management basics to correct this investment imbalance. They must retrofit existing CRM implementations into a best-practices model to actualise the promise of CRM: improved customer profitability (via reduced costs and enhanced revenue) aligned with IT and business strategies.

Meta trend: During 2004/05, lack of perceived value resulting from technology over-investment will drive organisations to realign their CRM initiatives with their business strategies. Concurrently, legacy applications nearing end-of-life will motivate organisations to upgrade to next-generation CRM architectures.

By 2006, CRM transformation will become strategic for mainstream organisations, supported by industry-specific products, service-oriented architectures, integration frameworks, and articulated value propositions. Concurrently, 15 percent of Global 2000 organisations will approach end-state CRM, having succeeded in imbuing customer life-cycle management into their business practices.

Many organisations are now feeling the pain of their unfettered CRM buying binges of the late 1990s and early 2000s. Back in the day when enterprises had been buying CRM technology suites with nary a business case or customer strategy in sight, it was enough justification to have CRM feel -good in the tummy," to say -we love our customers," and to believe -the customer is always right" in order to apply capital budget to technology projects for -delighting the customer."

As post -dot-bomb" reality sinks in, there is disappointment in benefits attained, usability, and the lack of a promised panoramic customer view, all of which are contributing to a (perceived or actual) lack of value. Indeed, from some customers' perspectives, things are getting worse. Escalating customer annoyance with the increasing number of unsolicited (and unwanted) interactions has resulted in zealously reactive legislation (e.g., Do Not Call, Can-Spam) prescribing new marketing rules of engagement. As 2004 brings us new insights and new opportunities, organisations must finally eliminate their irrational exuberance for technology -quick fixes" and embrace time-tested and fairly basic CRM best practices to positively effect customer profitability.

CRM basics
The -mental model" for end-state CRM looks like this: customers are so well understood that customer life cycle (engage/transact/fulfill/service [ETFS]) treatments can be differentiated based on the customer's strategic value to the organisation. The organisation manages according to customer profitability indicators in addition to other business metrics. Yet the new role of customer segment manager is added to work with product and brand management, but holistically manage the customer segment in terms of the portfolio of segment-specific offers and ETFS treatments. Thus, the panoramic view of the customer is achieved.

This end-state mental model implies that customer segmentation strategies evolve beyond the use of demographics and psychographics to include cross-channel interaction and buying behaviours, interaction preferences, predictive behaviour modelling, and the segment's strategic value. -Value" is not just about financial value; it is also about how well a particular customer type supports the organisation's business strategy.

Finally, the notion of a one-to-one customer relationship (especially in business-to-consumer businesses) has experienced a reality check (as diminishing returns abound) and has been replaced by a one-to-many (segment-based) relationship. The intimacy of one-to-one is not lost; it is provided through -mass personalisation" techniques, where the ETFS treatment strategy is determined at the segment level, but the interaction is personalised on delivery.

CRM value is predicated on a philosophy of continuous and incremental ROI delivery. This is an important tenet, since the CRM -end game" is in a reality a five- to seven-year journey, where the goal is not a -one and done" technology solution, but instead a philosophical transformation from product- to customer-centricity. Without an iterative methodology and time-boxed approach toward deliverable creation, maximum CRM value will continue to be elusive.

CRM design principles
Achieving the CRM end game requires creating a three-domain business system called customer life-cycle management (CLCM), in which the customer technology is the design point rather than a particular line of business, organisation, and product. Constructed much like a balanced three-legged stool, the domains are:

  • The customer life cycle: Consisting of the ETFS process steps, the customer life cycle represents the process steps through which a customer moves. Over time, organisations will differentiate ETFS treatments by segment. ETFS is effectively a segment-specific abstraction layer.
  • CRM business processes: The customer life cycle is enabled by customer-facing business processes in sales, customer service, marketing, offers (product or service), and channels. The ETFS steps abstract the various combinations of these processes from the customer, enabling great process flexibility without exposing inner process workings.
  • The CRM technology ecosystem: The CRM technology ecosystem is a technology environment recognising that CRM will remain a multi-vendor/product/domain effort for the foreseeable future: Operational CRM, collaborative CRM, analytical CRM and CRM technology integration (front/back office, inter-enterprise, cross-channel, and pan-ecosystem).

    Getting started
    As previously discussed, the end-state CRM value proposition is about economically optimal ETFS treatments differentiated based on segment value. In mathematical terms, CRM value equals segment-specific ETFS treatments (e.g., one treatment plan for gold customers, another less-expensive plan for bronze customers). It is important to note that CRM value is not based simply on customer profitability. Instead, it balances financial and strategic elements to determine the right ETFS treatment via quantitative elements (e.g., profitability, CLTV) as well as qualitative value elements (e.g., fit with the business strategy). Yet a CRM initiative should not start with differentiated ETFS treatments based on value.

    Applying pragmatic CRM design principles (e.g., iteration, time-boxing), CRM initiatives that need to build credibility (and most of them do) must start with quick-hit technology projects -linked" to the CRM business plan. This requires unwavering commitment to metrics and iteration, program coordination, and a repeatable methodology. To effectively manage this somewhat complex approach of -tactical strategy," organisations must be sensitive to potential pitfalls and apply a -sense and respond" approach to CRM implementation red flags and early warning signs.

    Learning to detect and react to red-flag warnings is critical to CRM success. Therefore, organisations must understand their CRM capabilities to predict program weak spots and create risk mitigation strategies. Indeed, paying careful attention to the CRM program environment provides critical predictive information that must not be ignored.

    Bottom line: It is important to recognise that the CRM endgame is customer life-cycle management (CLCM), consisting of the customer life cycle, its underlying business processes, and the enabling technology ecosystem. Ultimately (and through multiyear iteration), organisations will transform from product-centricity to customer-centricity and should plan for the journey to take three to seven years.

    Business impact: Businesses will optimise customer lifetime value by applying cost-appropriate CRM treatments to customer segments based on their strategic value.

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