CRM bound to see more failures

In the last year or two, many high-profile CRM implementations have failed. Market research firm GartnerGroup did vendors of CRM software no favours by announcing at the start of this year that 2001 would see even more project failures than this market has already seen.

Roy Dunster, a consultant at KPMG, concurs: "A lot of `CRM vendors` won`t survive beyond the end of this or next year. Software doesn`t deliver what is promised, and there have been a lot of failures."

A lot of `CRM vendors` won`t survive beyond the end of this or next year.

Roy Dunster, consultant, KPMG

Few companies, however, dispute the strategic importance of CRM, and many are forging ahead with projects despite the obvious dangers.

"CRM is probably the most important element to e-business," says Eduardo Afonso, group manager of CRM at PQ Africa. "The customer relationship touches so many elements of e-business."

Stuart Russel, MD of FrontRange Solutions, a division of Ixchange, points out that customer choice has never been greater, the cost of switching suppliers has never been lower, and the information to help them make the choice has never been more easily available. "It is a very risky environment out there," he warns, "and every single business should consider their customer relationships."

Dunster believes that the CRM market in SA is still in its infancy. "Call centres have resulted in better communication with customers. Companies are starting, however, to move to CRM in general."

Many of the failures result directly from the view that one can simply install a CRM package, and be done with it. Much of the blame for this perception - that CRM is somehow easier to do than it was before the software packages arrived - must lie squarely on the shoulders of vendors over-eager to ride the latest management buzz to profitability.

Now past experience confirms the common sense notion that CRM projects must be about more than merely software implementation. It is, as it was when it was conceived by a group of academics from Europe, Asia and America at Emory University, Atlanta, in 1985, a strategic concept, of which technical implementation is merely an outflow.

What we try to promote a lot is to go as close to vanilla as possible.

Rodney Douglas, manager: Siebel mid-market, Dimension Data

"Companies need to get the basics right," says Dunster. "Software isn`t a CRM solution. It`s an enabler. You need executive buy-in, a board-level sponsor, business processes that put the customer in the middle, and get employees to subscribe to the idea and use the technology."

This is not to say that some software vendors don`t have excellent products to enable CRM within organisations. Some do. Rodney Douglas, manager of Siebel mid-market at Dimension Data, for example, points to functional richness, ease of configuration, the ability to integrate with existing systems and sound architecture as reasons why the CRM software his company implements at its customers has a successful track record.

Although a reseller of technology, Douglas agrees that technology is the easy part. "The non-technical elements of CRM - changing a company to become customer-centric - are mindset and cultural issues that are the more difficult to get right," he says.

Many companies get bogged down in strategy which is just as bad.

Eduardo Afonso, group manager: CRM, PQ Africa

"What we try to promote a lot - and we had to learn the lesson the hard way - is to go as close to vanilla as possible," Douglas adds. "The rationale is to get something in and working and deriving business benefit from day one. Allow the organisation to absorb the technology. Phase two is to expose new functionality. People can`t absorb big bang implementations."

Says Dunster: "A CRM solution can do a lot of things, but it can do nothing if people don`t use it. You have to develop employee buy-in, train them, and show them the benefits both to the business, and importantly, to themselves. Convincing your top salesperson to use a CRM system is difficult if you can`t prove they will find cold calls easier, or earn more commission from shorter sales cycles and increased repeat business."

The key to CRM`s success is strategic planning, careful execution, and diligent change management. These factors, besides the process engineering and technology implementation, will be the difference between success and adding to the already long list of failures.

However, there is a caveat to this, as Afonso explains: "Development of a clear strategy in a business that changes quickly is difficult. Many companies get bogged down in strategy which is just as bad."

"The term CRM has been abused," says Russel. "Even sellers of switches in call centres claim to sell CRM solutions."

He explains that CRM cannot be viewed as having a start and a finish point. "It is not a once-off thing. People try to go from nothing to a `360 degree view of the customer` - as some proponents of CRM call it - in one step. But CRM is an attitude," he says. "Wrong expectations lead to failures."

CRM is an attitude. Wrong expectations lead to failures.

Stuart Russel, MD, FrontRange Solutions

"A CRM implementation doesn`t mean CRM has been done - only that the tools are there," says Dunster.

"Companies should know the why of CRM. The reason for implementing the processes and technologies collectively known as CRM is to gain or maintain competitive advantage," he says.

He points to the software as a high-cost component, and cautions against implementing software upfront.

The consensus among software vendors and consultants is that strategic direction and intent needs to be clear first. Issues like segmenting customers, identifying the most profitable ones, understanding their buying patterns or "lifecycle needs" and what can be done to improve the organisation`s offering to these customers need to be clear at the outset.

The one thing you don`t want to do is prove to the CRM detractors within the business that it doesn`t work.

Roy Dunster, consultant, KPMG

"A strategy is necessary up front," says Dunster. "Assessing the existing business processes, IT infrastructure and people`s skills in the light of this strategy will also need to happen early on.

"Even with a call centre, which for a lot of companies is a starting point for CRM, it might be possible to roll it out in small areas within the business," he says. "The one thing you don`t want to do is to prove to the CRM detractors in the business that it doesn`t work. You need to iron out the bugs in a small part of the business first, before going on a mass roll-out."

According to Afonso, the current CRM efforts are purely tactical, not strategic. "A lot of people and companies we`re dealing with are talking about being customer-focused or customer-centric, but it`s within departments only. It`s not a corporate strategic initiative. That`s a generalisation, but it`s why we often find it difficult to sell CRM solutions."

Russel believes there are three things any executive should focus on in developing a CRM strategy. These are retaining existing customers, improving "share of wallet", and acquiring new, profitable customers.

He points out that the elements of a CRM solution don`t in themselves suggest what CRM is really about - that is, identifying the company`s most profitable customers.

Supply chain management (SCM) and CRM are two sides of the same loop, according to FrontRange`s Russel. "SCM should empower customers. One can`t focus on customer service delivery without considering one`s relationship with one`s suppliers," he says.

"CRM implementations should focus on the entire front office and not just on customers."

Companies should be aware of the nature of the demand chain, and allow their customers to drive it.

Roy Dunster, consultant, KPMG</P>

Dunster points out that the first thing one should consider is that if you`re going to service customers properly, you`ll need effective processes. "Software can align your processes to customer requirements. KPMG can do diagnostics and recommend process changes in this respect. We believe our customers should be aware of the nature of the demand chain, and allow their customers to drive it."

DiData`s Douglas adds that while the actual architecture sounds irrelevant, it isn`t from a long-term cost of ownership point of view. "Easy upgradability, once-off configuration for all channels, those things translate to big cost savings," he says.

Chris Tokarzewski, CRM solutions manager at SAP Africa, says CRM applications consist of three components.

Operational CRM is the software that enables contact centres, Internet capabilities, self-service applications, and mobile applications. It caters for the three primary channels of communications: face-to-face, mobile and telephonic contact.

Analytical CRM gives one insight into customers. The information used by these kinds of tools lives not only on the CRM systems, but financial information, for example, resides on the core business systems. Analytical CRM extracts information from all these sources, internal and external, analyses it and offers the results to management to make decisions.

Finally, there is what Tokarzewski calls "collaborative CRM", which goes beyond the enterprise to combine the knowledge of suppliers and partners. "An example is collaborative forecasting between retailers and manufacturers to synchronise marketing and demand and supply. This is the level where CRM leverages SCM, and is the reason why it`s important that CRM is a component of the overall e-business strategy.

Tokarzewski believes that the key features for a successful CRM implementation depend on the industry. "There has to be alignment with corporate objectives," he says. "For example, suppliers to industrial companies need real-time visibility of the CRM and SCM processes to determine credit-worthiness, inventory levels, transport availability, and so on. Real-time visibility is a big issue in the business-to-business area, whereas in the business-to-consumer market, this isn`t as much of an issue."

The first thing anyone should do before embarking on technology implementation is to find out from customers what the problems are.

"Listen to customers first," says Russel. "There are too many people sitting in boardrooms talking about what the customer wants, without ever having asked them. Customers will tell you about people problems, as well as process problems. Technology can help solve the process problems."

Simon O`Hagan, divisional GM of National Data Systems` Teradata solutions group, says: "What we seem to have lost sight of is that we`re in business to service the customer`s need or want. The only way to understand it is to understand exactly what the customer needs or wants even before the customer knows. It`s exactly like going back to the corner shop mentality a century ago. They knew their customers, knew the major events in their lives."

He offers an example: "Say you`re a financial institution, your customer is 55, and makes a large deposit. Several things may have happened, all of which have to be acted upon very quickly before that money gets invested elsewhere."

Says Afonso: "There`s a tremendous drive from customers to demand a different and more quality approach to them. They want to be recognised as being different, and they`ll force companies to start really understanding them, and not only by segment."

Hewlett-Packard consultant Leon Erasmus agrees that CRM customers must not exclude their customers from their considerations, and that CRM suppliers face the same issues as their customers. "Our customers have prompted us to consider our global business strategy, and expand - as one key focus - our capacity for consulting and services. Customers no longer buy just products."

The company has entered into a worldwide joint initiative with Oracle to deploy the technology required to improve the management of its relationships with its service customers.

Erasmus adds that much of the highly publicised unhappiness that surrounded some enterprise resource planning (ERP) implementations was unfair, in his opinion. "The unhappiness often resulted from a lack of investment in change management, which is critical in such projects, as well as in CRM implementation."

One`s employees too will tell one what to do. "People, not systems, generate revenue. But there are no guarantees that individuals will stay successful. One should avoid overcomplicating systems. Start with the basics, and expand from there. Too much functionality threatens people," Erasmus says.

As with any IT-related project nowadays, customers are demanding visible return on investments. Too many have been burnt by big, expensive implementations that simply haven`t performed to expectation.

"Do not buy until you know the ROI," is Russel`s mantra - reflecting a new-found maxim among CRM technology vendors to practice what they preach. He admits, however, that the cost of an end-to-end CRM implementation, according to US research, can be as much as $10 000 per employee.

Says SAP`s Tokarzewski: "The GartnerGroup suggests that CRM - depending on how exactly you define it - can be four times more expensive than ERP."

Such cost figures naturally scare off even big companies, but certainly seem to make CRM prohibitive for their smaller counterparts.

HP`s Erasmus says that even for smaller companies, with 10 or more employees, there are a number of initiatives to make CRM technology available.

"Oracle Online, for example, offers automated sales and planning, and that information can, in due course, be ported to their own Oracle system," he explains. "Single licences are also available, so it doesn`t have to be expensive for smaller companies."

DiData`s Douglas says that products such as Siebel Midmarket cater for quick implementations. "Three- to four-week local examples are available," he says. "It`s a different market - management wants to see the short-term benefits of a solution. Long implementations are anathema. This requires a different approach."

Says O`Hagan: "The investment depends on where you want to start. You can start off very small - you have to understand that the most expensive thing is buying stuff without a vision. You have to design from the start to expand, without it looking like a patchwork quilt. Take NCR`s Teradata product, for example. You can start off with a small data mart that can sit alongside an existing data warehouse, doing analysis on a specific type of data. The cost of that is relatively low in the greater scheme of things. You don`t have to spend millions."

Dunster believes, like Russel, that identifying the metrics that can be used to measure the return on the investment of a CRM project must be done up front.

"CRM implementation failures are largely due to a lack of visible business benefits," he says.

"The truth of the matter is that CRM should cost you nothing," says O`Hagan. "It`s an investment, and if you can show a return on that investment, it is no longer seen as a cost."

While each case will be unique, Russel believes that the biggest problem in determining the ROI of CRM is that many companies have never consciously analysed their processes and procedures.

"Especially in the mid-market, most sales directors can`t tell you the financial impact of a 25% reduction in the average sales cycle, or even what this cycle is," he says.

"People aren`t scared to spend R25 million on manufacturing equipment and another few million per year for its maintenance. They believe that their core business is manufacturing widgets, and can`t do it without the investment. But that core business would be pretty worthless without enough customers to purchase the manufactured goods..."

Russel says his company trains its staff to analyse processes and the cost impact associated with them. "Once the people and process issues are separated, one can calculate the cost of not acting," he says.

Tokarzewski points out that CRM is a double-edged sword in that it generates revenue and cuts costs by decreasing wastage on ineffective marketing.

HP`s Erasmus believes that since CRM is very much focused on revenue generation, it is easier to attach an ROI than to other big projects, like ERP implementations.

"It`s critical to minimise the investment to ensure that the expense is effective. Often," Erasmus elaborates, "people invest in technology, when they should first invest in consulting to minimise the cost of technology and implementation."

Dunster, however, says his research indicates that finding a definitive formula for calculating the results of CRM is "incredibly difficult".

"You need to look at the likely returns, or the likely results of extra cost savings, improved up-selling, and what an improvement of 5% in customer satisfaction actually means," he says. "Your starting point is really your customer lifetime value, which is the sum of the current and potential value. The catch is that this is also quite a difficult measure, since customers affect various financial indicators of an organisation. Should their contribution to overheads be considered in the calculation, for example?"

According to Erasmus, while a lot of implementations are ongoing in SA, there are, to date, few ROI case studies available. "CRM is still new, and now has a different focus from a few years ago, when all it entailed was implementing a call centre," he says. "The ROI will come out over time."

He attributes the lack of case studies not only to vendors, but also to customers who view CRM as a business strategy that they`re not keen to share with their competitors.

"The financial services, telecommunications and automotive industries are active. It`s important at this stage that manufacturing and retail companies come on board. It`s early days for CRM."

The National, lead bank for the National Australia Bank (NAB), has acted as the holding company`s test-bed for methodologies and technologies related to customer relationship management (CRM). Since 1988 it has continually refined its CRM vision, and has gone a long way down a road that few traditional banking institutions have even started upon.

NAB is an international financial services holding company that committed to a CRM business strategy over 10 years ago and has witnessed significant growth and expansion in key customer segments as a result. At present, the holding company operates across four continents and 15 countries, including the US, UK, Ireland, Australia and New Zealand.

Globally, NAB has an aggregated asset base of over AUS$250 billion, is ranked as one of the 50 largest banks in the world, and serves nine million customers. The National, NAB`s lead franchise, is a Melbourne-based bank offering a full range of financial services with over 4.5 million customers.

In recent years, the bank has embarked upon a variety of strategic initiatives that have led it to search out software solutions that would support this CRM philosophy.

While the National has not mastered CRM, it has made significant progress along the learning curve. One technology that has had a serious impact on the National`s CRM initiatives is the Relationship Optimizer solution from NCR. [Local rep: National Data Systems]

The bank wrote a mission for customer contact, as follows: "Anytime, anywhere access and navigation to friendly, capable, proactive resources that have organisational memory and can execute a streamlined, personalised, secure process to create a consistent and totally satisfactory customer experience while demonstrating a track record of continuous improvement and superior profitability."

When taken in its constituent parts, this statement defines seven key criteria that had to be met by processes, methodology and technology implemented at the bank.

Software choices

The bank initially used proprietary software to experiment with customer profitability information, but adopted a critical piece in the architecture of its subsequent infrastructure with the implementation of the Teradata data warehouse from NCR in 1993.

In 1996, the bank entered into a joint application development agreement with NCR, with the aim to build an application that would support a high number of concurrent marketing and sales campaigns, tailored to numerous customer segments.

By 1999, this agreement resulted in the release of Relationship Optimizer to the market.

This application was radically different from existing campaign management solutions in that it encouraged financial services institutions (FSIs) to move beyond communication for segments and to focus on individual customers. In classic campaign management solutions, campaigns are built around target segments. FSIs identify groups of customers that they wish to communicate with and build campaigns with targeted messages to those customer groups. Relationship Optimizer enabled FSIs to change that communications paradigm.

Relationship Optimizer has two primary components: Event Detective Manager, which searches for clues and triggers of changed customer behaviour, and Communications Manager, which manages the planning, development, prioritisation, and control of customer communications across delivery channels. Taken together, these two components enable FSIs to react quickly (albeit not in real-time) to changes in customer behaviour and to mount statistically reliable proactive customer communications campaigns.

Evidence that it delivered on its key specification is that the bank initiated close to 100 distinct campaigns during the first six months of 2000.

More recently, the bank contracted with Siebel Systems to implement a global platform for relationship management to be installed in call centres and provide Internet access to all NAB customers. The initial implementation will be for sales force automation. However, other relationship management tools from Siebel are already scheduled for deployment.

While the adoption of CRM technologies began with the analytical and data management capabilities at the National, the execution capabilities that enhance customer interactions are also part of the technology infrastructure.

As the National was busy building and implementing technology applications to support a CRM business strategy, the bank was also refining its understanding of customers` financial needs and desires. Even before the technology pieces were fully implemented, the National was experimenting with sales management methodologies, schemes for segmenting the customer base, and targeted messages.

Measuring results

Unlike most FSIs, the National has been able to quantify many of the benefits of its CRM business strategy. Objective, third-party resources such as Greenwich Industry Report and the Roy Morgan Industry Survey provide assistance to the bank with external measures such as share of wallet, customer satisfaction and customer retention. These external sources augment the internal measurements kept by the bank and provide an enhanced view of how well the bank is performing in its CRM strategy.

Specific results include:

• Business clients: Starting in 1990, the relationship banking system was rolled out for business banking clients in Australia. Market share within this segment increased from 13% to 20% over a five-year span (1990-1995).

• High net-worth customers: In 1998, the relationship management learning from business banking was brought to the high net-worth market. As of June 2000, the National has the highest share of wallet, customer satisfaction and retention rates for high net-worth clients in Australia. Specific statistics for the high net-worth segment show customer retention rates have improved to a market leading 98.4%, 88% of premium customers would recommend the National to friends and family, premium sales of banking products are up 25% on the prior year, and wealth management product sales are up 40%.

• Generating sales leads: In 1999, the National implemented a sales leads program using NCR`s Relationship Optimizer. Through October 2000, the program sent more than one million leads and AUS$4 billion in growth opportunities to the relationship bankers of the National.

• Middle-market: The National is the largest primary agribusiness lender in Australia. The National has the highest customer penetration in the small business sector at 31%. The bank is the market leader in deposits and loans to small businesses and the highest share of wallet at 77%. In the middle-market business segment, the National has been the top-rated bank for the past three years and demonstrated the highest share of wallet at 54%.

Conclusion

NAB clearly understood the value of a relationship management strategy to a banking franchise at a relatively early point.

Adopting a relationship management strategy as far back as 1988 has allowed the National to experiment with and refine its methodologies over time. The bank has served as a testing ground for the holding company - strategies and technologies that are successfully implemented within the National are then transferred to other holdings of NAB around the globe.

Perhaps the most striking aspect of the National`s CRM business strategy is that it does contain a balance between people, processes and technology. While the acquisition and implementation of technology is critical to a CRM business strategy, the bank also clearly understands the need to change reporting structures and business processes.

Unfortunately for most FSIs, the importance of relationship management philosophy, strategy and tools working together is not obvious. All too often banks invest in sophisticated technologies without having considered how the new tools will integrate into existing business processes.

To its credit, the National evolved its understanding of CRM metrics to include external as well as internal measures. When evaluating the success of its relationship management strategies, the bank will look to external measures such as share of wallet, customer satisfaction and customer retention to complement its understanding of customer profitability, marketing efficiency and cross-sell ratios. This diversified group of CRM metrics assures the National that customers are being served and that the bank`s interests are also being addressed.

(This case study was adapted from a research note published by the TowerGroup, www.towergroup.com, and used with permission from NDS, local representative of NCR.)