PracticeConsultingCRM: payback expectations

CRM: payback expectations

In the good old days of back office, core transaction processing implementations, everyone knew what payback meant. If you were automating a business process, you could set a target of achieving 20% cost savings, say, on the old way of doing things. Once the investment was made and the implementation done, the bean counters could tap their calculators and tell you that the investment would pay for itself in 2.4 years and you could form a view as to whether that was good or bad.

With front office, customer relationship management (CRM) implementations things generally don’t quite work that way. For a start, as Don Galles, senior manager for industry analysts in Europe at Siebel notes, CRM implementations don’t really end unless you happen to be in a completely static market.

As markets change, the front office systems have to flex with them. This means that they keep going in phased project waves, like the incoming tide. This, of course, is a wonderful thing for Siebel and other CRM vendors.

Every company on Earth dreams of stumbling across a high-ticket product that its customers always need more of. It also leads the cynics to wonder if CRM would actually stand up to any rigorous ROI test, however conceived.

Galles is confident that it would and does. He argues that much of the confusion over CRM comes from people not really grasping how fundamentally different back office and front office systems really are. CRM is not about automating a process. In Siebel’s view of the world, it is about transforming an entire enterprise from a process oriented company into a customer centric one.

“If you simply implement a CRM solution as a software project without understanding that CRM is about making your whole organisation customer centric and customer facing, then yes, you could end up with a very disappointing result,” he says. CRM is a massive change management exercise, and a second very good reason why CRM projects tend to roll on in bite sized chunks, for years, is that trying to leap with one bound, in a Big Bang approach, into full blown CRM across every facet of an organisation would blow most companies out the water. The strain engendered by trying to transform everything would be too much.

Galles offers two interesting instances that speak for CRM’s profitability on the one hand, and for the difficulty the market in general has in coming to terms with the difference between front office and back office systems, on the other. First, he points out that around half Siebel’s revenue each quarter comes from existing customers. This speaks to the need for CRM systems to be constantly updated as well as to the incremental roll out strategy.

But it is also eloquent testimony, he suggests, to the fact that CRM is perceived as extremely valuable by companies actively engaged in long standing CRM roll outs. If it wasn’t earning its keep, he observes, the company would simply close its cheque book and boot Siebel out the door.

The fact that so many clients keep investing shows that being customer facing and having the systems to support a customer facing enterprise, generates real returns.

As to the market’s deep state of confusion between back and front office systems, all one has to do is to look at how expert ERP applications developers like Oracle and SAP have struggled to produce CRM modules to add to their huge ERP portfolios. “Both SAP and Oracle have been quite late to market with their CRM offerings and both are recognised by industry analysts as being functionally behind us. They obviously want to get a slice of the CRM revenue stream, and to get a large enough share of it, they have clearly decided that they need to be selling their own software – which is why they are not partnering with us,” he says.

Since both these companies have formidable development resources one might expect that if CRM modules were easy to write for ERP vendors, both companies would have been far faster to market, and would have perhaps been able to leapfrog existing vendors like Siebel with richer functionality – a normal expectation from next generation software.

What both companies have had to come to terms with, though, Galles suggests, is that the front office space has a completely different set of requirements and that one has to serve one’s apprenticeship before being able to write applications in this area. “How you track information is fundamentally different, your user bases are different. Accountants tend to follow a very specific set of processes which gives back office systems a definite shape. Ask sales people if they follow a steadfast set of processes and they’ll laugh at you. Sales is still a black art and in a sales person’s eyes, every call is different,” he says.

Today, in competitive pitches Galles claims Siebel sees a lot of Oracle and SAP at the initial stages of a pitch, but they tend to get eliminated early. “We generally end up with our traditional competitors, Vantive and Clarify, the former now being owned by PeopleSoft and the latter by Nortel. Longer term though, I’m sure SAP and Oracle will end up being formidable competitors,” he notes.

What all this comes down to, is that before measuring the return on a CRM implementation a client company has to ask itself how far along the “change management” cycle it has come. “As CRM systems developed, people realised that they needed a product used by all the customer facing people in a company and that the organisation’s internal processes needed to be aligned with a strategy that said how the company was going to treat its customers in a more holistic way,” Galles says. In other words, implementing CRM is a bit like undergoing a religious conversion. You become a different company. The question of whether one preferred things the way they were is not particularly meaningful.

Shareholders, of course, prefer to measure these sorts of things in terms of their impact on shareholder value. Galles points out that global measures, such as aiming for a specific improvement in share price and a perceived reputation in the market for customer service, such as a pre-defined increase in share price, are ultimately good ways of judging the success or failure of a CRM project over time. However, he points out that the most obvious measure available to any company looking to make itself more customer centric, is customer satisfaction. Polling customers before and after a major CRM implementation provides a pretty good indication of success, he suggests.

Andrew Munday, head of solutions marketing at SAP UK, agrees with Galles that measuring the extent to which an organisation has managed to achieve a customer centric focus to its activities is key to any analysis of CRM payback. “At bottom, CRM is not an IT solution, it is a business concept.

Everything an organisation does, from its strategic goal setting right through to its partner relationships, needs to be focused on CRM,” he suggests.

However, Munday says that just because CRM assumes an over-arching strategic dimension does not mean that it cannot also deliver short-term tactical rapid returns on specific projects. “If you are looking for rapid payback, the starting point has to be to analyse the current ways you interact with the customer as an organisation. Is it primarily through the telephone?

Face to Face? Via the Internet? Then look to see what your spend is on a per customer basis? Is the return that you get from particular customers in balance with what you spend on them?”

This kind of analysis can very rapidly show companies where immediate gains can be made. Companies also need to ask themselves questions such as: Do we have a single view of the customer’s requirements? Do we know how particular customer bases segment? Do we know how to allocate effort to get the maximum return from a segmented customer base? Answers to all these questions can lead to rapid payback through enhanced business efficiencies.

“Until the last three to four years, when user organisations talked about fulfilment, they were talking about inwardly focused business processes such as manufacturing and supply. Now, with e-business, fulfilment is becoming an externally focused set of operations concerned with fulfilling the company’s promises about service and delivery to customers. This means that managers concerned with fulfilment need the same customer view that everyone else in the organisation has. They need to be aware of what the marketing guys are doing, so that they don’t get blitzed by a sudden surge in demand on the back of a marketing campaign that they knew nothing about,” says Munday. He points out that SAP’s CRM solution (a blend of Clarify, together with elements from SAP’s own in-house solution) is integrated with its business warehouse and with its strategic management concepts.

Bill Marjot, head of consultancy and delivery operations at Intrinsic, which specialises in providing marketing automation solutions to blue chip companies, says that many CRM projects that have run into difficulty have done so because they neglected key issues. “There are obvious do’s and don’ts in the CRM market. For example, you must make sure the business case for CRM is clearly documented and described, and that all the stakeholders have bought into the benefits. If you do this you start to build a sensible picture with a high chance of success,” he comments.

According to Marjot, finding tactical areas where the company can secure a quick “win” on payback is not just good common sense, it is an excellent way of securing long-term board level approval in the organisation for long-running CRM implementations. “Many of these projects are long-term affairs, involving phased roll outs to a number of departments. If you focus on delivering the enabling technology to provide some definite, clearly measurable business benefits in the short term, it helps the viability of the whole project. Projects that try to eat the whole elephant at one feast, as it were, have a poor success ratio. Bite sized nibbles with real returns generate tremendous internal buy-in so that the more long term features can have the time to work through the system,” he counsels.

In his view, one of the fastest ways of identifying rapid payback projects is to look for areas where you can cut back on human intervention, or where you can increase the success ratio from say, a salesperson’s visits.

If the CRM analysis shows that if the customer does A, then B is normally the best response, with C the next most likely, you can start to demonstrate old style efficiency savings, even as you move the whole organisation towards a more customer focused strategy.

Alan Timothy, chief executive of the Middlesborough based CRM company Targetbase Business Solutions, warns that the UK still tends to think of CRM as a software solution aimed at front end contact management – a view that mistakes a part for the whole.

“When people take this route, thinking of it as a software solution rather than a massive change management exercise, they tend to put CRM in place with the aim of enhancing customer services. There are usually far cheaper ways of doing things if that is all you want to do,” he advises. In the US, he points out, CRM tends to be a market-driven initiative owned by the marketing department. In the UK it is all too often an IT-driven initiative, owned by the IT department. “One of the biggest drivers when IT has control are cost issues, such as, will this drive down call centre costs?” Often, he points out, the issue is not one of how better to handle the call centre, but rather to shape the process so the customer is driven to a website instead of the call centre.

Chris Trott, Hyperion Solutions’ business development manager, agrees. “Unless a company is in a position to change the way it does things as a result of implementing CRM, there is little chance of a project succeeding,” he notes. Real CRM is much more about giving the customer a better experience, hence enhancing the company’s chances of retaining the lifetime value of that customer. This is not about quick payback, but it is about long-term success, he notes.

CRM looks set to play an increasingly important role in the years ahead, as industry analysts move to valuing companies more on their ability to retain customers with predictable levels of spend. As the share price of blue chips starts to depend upon their demonstrable relationships with customers, the CRM space will inevitably become one of the most profitable, and most highly fought over arenas in IT.

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