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Report Slams Executive Ignorance
Elizabeth Glagowski, Inside 1to1 - February 15, '06

More often than not, companies do little more than pay lip service to the idea of understanding customer value, says a scathing new report from Strativity Group. "This Valentine's day, we won't celebrate relationships," says Lior Arussy, president of Strativity Group and author of the 2005 Customer Experience Management Study, released last week.

Arussy had high hopes that this would be the year when executives finally got over their economic woes and invested in understating the value of their customer relationships. Yet in Strativity's third annual report, titled, No Money, No Love, only 46 percent of the 233 executives surveyed said they are "truly committed to the customer," a statistically insignificant change from last year. Even more telling, 59 percent admitted that the role of the customer is not well defined. And less than half of those surveyed -- 46 percent -- say they deserve their customers' loyalty.

"It's a huge wake-up call," Arussy says. "Three years in a row, three different economic times, yet we see the same consistent performance. We're going back to the traditional product-focused model, not customer-centric model."

Economics of relationships
The problem stems from a lack of understanding of what Arussy calls the "economics of relationships" on the part of companies. "I am absolutely amazed that with all the tools out there, like Balanced Scorecard, analytics, and Six Sigma, executives didn't know the basic financial drivers behind effective customer strategy," he says. More than 90 percent of respondents were unaware of the cost of a complaint, the cost of a new customer, or the annual value of a customer. "You've got to get your numbers first," he adds. "If you don't know losses associated with mishandling customers, you can't make good strategic decisions."

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In many cases firms are chasing market share at the expense of profitability. The survey found that 42 percent of companies will take any customer who is willing to pay, even though they might cost the company in the long run. "Some companies are waiting until it hurts," Arussy says. "They'll take their success and run until they hit a wall." Others might not be aware of the costs surrounding customer relationships. "Most organizations are not built to evaluate their strategies unless something earth-shattering happens," he adds.

"[Our findings] play straight into the Return on Customer sm concept -- the vast majority of executives are making decisions without knowing the basic costs of customer relationships," Arussy says. By measuring changes in customer value, firms can be more strategic about their customer investments, how they handle certain customer groups, and can also balance long- and short-term goals.

In the absence of in-depth customer insight, Arussy says, he can see why companies might focus on "lipstick on a pig" initiatives that don't necessarily build value. "You'll never make the true leap to a customer-centric model without financial tools in place," Arussy says. "No company will make a strategic leap to anything unless they understand why [they should]."

Next steps
Arussy hopes executives will go beyond lip service when it comes to customer relationships. His recommendation is to focus on understanding customer actions, not just customer perceptions of service.

But is there one metric that holds the key to all relationship insight? Arussy says that's the million dollar question. He suggests that measuring a customer's share of wallet, or portion of budget, as a good starting point. But, he warns: "Don't rush into another strategy meeting. Look at the numbers, and go from there."

One of the dozens of financial, organizational, and personnel reports delivered to Virgin Mobile U.S. CEO Dan Schulman every week is a "customer incident report." It shows every customer complaint tracked by the company's contact center and sales force. Virgin Mobile's senior mangers all start their day by reviewing a data highlight report prepared by CIO Michael Parks' department.

Schulman is part of what Parks calls a "customer-obsessed culture" that has made Virgin Mobile the fastest growing wireless company in America. He is also an excellent example of a CEO who is truly committed to customers.

History has shown that a CEO's direct involvement in any customer-oriented initiative greatly increases its chances of success, we write in our book. In 2004 IBM conducted in-depth interviews with hundreds of business executives around the world and concluded that "top-down, ongoing support of senior executives and clear links to overall corporate goals" was one of the most critical factors that differentiated successful initiatives.

But, according to the study, nearly three out of four companies implementing such initiatives place ownership for it with sales, marketing, IT, or some other department, while only a quarter of firms assign it to a corporate-level team. IBM's survey showed that when such a program is owned at the corporate level it has a 25 percent to 50 percent greater chance of success. Ironically, the study showed that senior management actually impeded success in more than a third of the firms surveyed, because the customer-oriented initiative at their own firm was viewed as "useful," but not "critical."

Look to the top
C-level executives must play an active role in any customer strategy initiative. They must be personally committed and make sure their direct reports are focused on a program's success, whether it's a new database management initiative or new complaint resolution processes in the contact center.

Take software firm SAS, for example. Dr. Jim Goodnight, the firm's CEO, says customer focus has led it to be the world's largest privately held software company. "As CEO, I am often the face of SAS for senior-level customers and prospects," Goodnight says. "I meet frequently with customers around the globe to better understand their changing needs, to listen to their thoughts and feedback, and to communicate to them our commitment as a company -- and my personal commitment as both CEO and founder of SAS -- to remain squarely on their side."

"Executives must set the tone for their organizations, but customer-focused initiatives cannot be merely top-down exercises."
Dr. Jim Goodnight
Founder and CEO
SAS Institute

That executive commitment is rewarded with strong customer loyalty. "By always keeping the customer at the center of our universe, we have seen remarkable customer loyalty," Goodnight says. "Our customer retention from year-to-year is consistently in the high 90 percent range." He adds that it's not just the CEO's job, but the entire company's job to keep the customer a priority. "Executives must set the tone for their organizations, but customer-focused initiatives cannot be merely top-down exercises," he says. "Executive sponsorship is critical, but so too is a top-to-bottom commitment to providing extraordinary customer service."

Shen Li, VP of worldwide customer operations for Hewlett-Packard and ROC Monthly board member, also notes that constant reinforcement from the top is a necessity. "Extending a customer-based program beyond just customer-facing employees to make it part of the culture is how you get things accomplished," he says. This requires executive communication down through the ranks.

Steering customer focus
In some organizations a strong steering committee helps keep momentum. A good example is at UPS. The company is at the beginning of a five-year customer initiative to improve salesforce automation, decrease sales cycles, increase business from key accounts, and seamlessly integrate new customer acquisition. Sheila Dunn, senior director for CRM at UPS, is responsible for convening a monthly steering committee that includes the senior VP of sales, the CIO, CFO, and other senior executives. Attendance is mandatory; sending lieutenants is unacceptable. The agenda is set out ahead of time and consists of updating the progress of each customer initiative and planning next steps.

"The steering committee enables us to keep momentum behind the plan," says Dunn. "Without some kind of infrastructure to ensure executive commitment, you can't reach your goals. I've been at UPS for 23 years. If you don't have executive commitment for a program, it can't be successful."

BMW Canada also has a customer strategy steering committee that includes the CEO and CFO. According to CRM director Kelly Lam, it meets frequently and the agenda leaves time for brainstorming new ideas. "We all learn a lot from other businesses and by no stretch do we think we've invented the perfect customer experience. So we discuss a lot of different things."

HP's Li says a steering committee is only as good as its sponsor. "Steering committees are valuable, but they can be difficult without strong support," he says. "At the end of the day, there's not just one business unit that runs any customer-based program. They're working across all functions, so strong sponsorship is important."

Regardless of how senior executives choose to manage customer strategy initiatives, remember that any meeting or steering committee should have its roots in accountable, fact-based reporting. "I think accountability is the key to any kind of executive sponsorship," says Mike Emerson, general manager, Siebel Marketing. "Companies we work with have a global accountability system for any customer initiative. As marketing departments get more funding for customer relationship programs, it helps C-level executives track their effectiveness when they see KPIs like ROI, churn rates, and new customer revenue. It's easier for the CMO to step up to the plate and tell the executive team that this program is going to deliver accountable value and not just excitement."

HP's Li agrees, adding that day-to-day measurement and tracking long-term goals should be embedded into everything. "Things need to be tangible," he says. "You want to quantify your progress over time."

Too often, field automation projects are known for their dramatic impact, either positive or negative. But, the process of implementing a customer relationship management (CRM) program often goes wrong because of hurried projects that are implemented simply for technology sake with unrealistic project timelines and poorly documented goals. Adding to the risk of project failure is a lack of understanding of the company’s requirements and needs by the implementers or consultants. What is realistic to expect from adopting a CRM program? And, what is really true about this business buzzword? Read on to dispel CRM myths and learn the keys to success.

Misconception 1: All associated CRM functions – including sales, marketing, customer support and management – simply need to be automated and there is no need to do any analysis.

Pitfall: If an analysis is not performed early in the process, you may be unable to implement an effective CRM automation system.

Truth and Solution: Effective CRM automation at a company starts with a diagnostic analysis. This helps identify the business functions that need to be automated. It may even help uncover the technical features that are required. A suitable approach requires face-to-face interviews with users and management, visits with sales reps in their field environment and questionnaires for those out of reach (geographically). The goal is to create a report for executive management and sponsors with user recommendations for the automation functionality desired.

Misconception 2: Top management’s inclusion in the CRM initiative only takes place when the software has been selected and functionality is being reviewed. After all, it is a software buy and others in the company have far greater knowledge about software than top management.

Pitfall: Not understanding upper management’s strategic direction for the CRM initiative may result in the wrong application being considered. In contrast, companies that successfully automate CRM functions with management support tend to view the software as a business enabler not merely a technological tool.

Truth and Solution: Gain top management support and commitment by demonstrating that automation:

Supports the business strategy (i.e., automation delivers the information required to make the key decisions which, in turn, enables business strategy to be realized).
Automation measurably impacts and improves results (e.g., improved win rates, improved margins, higher sales revenues and higher customer satisfaction ratings).
Automation can reduce costs (e.g., lower general sales costs) and thereby pays for itself over a specified time period. It’s best if you can document your case for automation based on business impact.

Misconception 3: Our CRM solution must meet everyone’s needs throughout the company. As such, we will implement the software when we have 100 percent buy-in. It’s an all-or-nothing proposition.

Pitfall: Common sense dictates that you cannot make everyone happy all the time. Automating an inefficient business process can be a costly mistake.

Truth and Solution: You wouldn’t make other business decisions with this philosophy, so why start with your CRM project? To ensure that you only automate what needs to be automated, the CRM diagnostic should address a "wish list" of how salespeople, marketing personnel, customer support staff and management would like to improve their work processes. Once articulated and reviewed, it is easier to identify those concepts and ideas that need automating and which concepts can be left on the table or provided for in a later phase.

Misconception 4: Pick any of the top selling CRM packages – after all, they are all the same. It’s basic contact management – you can’t go wrong!

Pitfall: Not all applications are the same, nor do they all allow you to change as your business grows.

Truth and Solution: Selecting the right technology does matter. For example, if you conduct business across many regions or between several offices, you need a software application that permits easy data synchronization between information held on field computers (laptops) and information held on regional or headquarter computers (servers and desktops). Further, different software packages offer different customization options as well as the ability to modify or alter in the future. Ensure that the technology you select not only meets your needs today but for years to come.

Misconception 5: It is fine to just roll out software with the standard out-of-the-box functionality. After all, that is how it was designed to be used.

Pitfall: Companies that assume that out-of-the-box software will support their business processes will be disappointed.

Truth and Solution: There is no one-size-fits- all solution. Tailoring and prototyping your CRM automation system to the business needs allows for experimentation on a smaller and less costly scale, tests the system's functionality, highlights required changes in organizational procedures and, most importantly, demonstrates that automation objectives can be met. Users benefit by seeing the application and its ability to meet their needs which encourages acceptance.

Misconception 6: Project ownership should be delegated at implementation time.

Pitfall: Failure to have users sufficiently represented early in the project often results in a revolt against the system implemented by "big brother" as yet another means to watch over them.

Truth and Solution: Secure ownership by your future CRM users early in the project. Not only does this enable acceptance, but it allows you to address their needs in the software development. Large companies sometimes pick a cross-section of users and managers who have a stake in the success of the project to gain input.

Misconception 7: Once implemented, the users will see all the software can do and they will be excited to use it.

Pitfall: After the initial euphoria of a new system rollout, people tend to go back to doing what they have always done. Only now, the new technology gets in the way!

Truth and Solution: Trends come and go within an organization, and it is critical that you determine ways to maintain individual motivation and commitment toward the CRM automation system. Some companies even launch an internal marketing campaign, including an intranet site for their sales and marketing automation effort to keep people involved and excited. CRM automation succeeds when users are motivated by the system's ability to help them obtain their objectives, as well as improve the company’s bottom line.

Misconception 8: We don’t have time to take our salespeople out of the field to train them.

Pitfall: Expecting the users to understand both a new software application, the process that goes along with the software and their responsibilities without training is a recipe for CRM failure.

Truth and Solution: The best way to change work habits and to ensure CRM success is through an ongoing training program. Train your users before, during and after implementation (through refresher courses). Proper training includes a verbalization and definition by management of the expectations of the CRM system as well as a demonstration of how to access and utilize the data. Users should be provided with understandable documentation that is frequently updated or available online.

Misconception 9: CRM systems do not need administration once implemented.

Pitfall: Leaving long- term system administration to the IT department can be disastrous if they are understaffed, removed from the business processes of the company or lack knowledge of sales and marketing initiatives.

Truth and Solution: It is important to not only assign the administrative responsibility and long-term welfare of the CRM system early in the project but also to look beyond merely handing the task to the IT department. The person/department assigned should serve as a gatekeeper and ensure that the data is timely, relevant, easy to access and serves to positively impact users. As such, they must have the knowledge and authority to interact with all areas of the company and affect change.

Misconception 10: Once management has signed off on the CRM project, it is up to somebody else to make sure the software delivers on the promise.

Pitfall: Left alone, CRM initiatives simply fade away.

Truth and Solution: Key to project and long-term success is management involvement beyond cost approvals. Establish a committee that includes senior staff, IT as well as users from the sales, marketing and customer service departments. This committee should be charged with meeting on a quarterly basis and reporting issues to senior management.

Building Success
Truly great CRM projects are not easy and the strongest solutions are usually a result of fighting through a variety of stumbling blocks and challenges. Only with a strong management sponsor to serve as the link between the implementation team, users and management will you develop more than an off-the-shelf software solution. Such a representative or team becomes the voice to develop, articulate and then remind your company about the reasons for embarking on the CRM program in the first place.

Communication
The first step towards a successful CRM plan is to get top management to mandate and support the initiative. This also requires clear, top-down communication throughout the organization on management expectation of the initiative and management's commitment to it.

Aligning departmental goals to higher CRM goals
Each department, and each individual for that matter, has its own goals. It is important to set departmental goals that complement the CRM goal of the organization. One recommended way to do so is to have a central communication contact like a CRM facilitator or coordinator within the organization. This person would have a bigger-picture view across departments, and oversee that one department does not try to mold the CRM initiative toward its goals.

As the organizational strategy changes, departmental goals and even the company mission statement may also have to be rewritten. This is a time to communicate the commitment toward customer orientation by including customer-centric statements in the goals and mission statements. Everything from an individual's performance to the departmental performance, and, finally, organizational performance, should have a factor for customer satisfaction.

Setting up a steering committee
Give importance to the users of the processes. Because each department has its own processes to follow that come under the purview of the overall customer-oriented processes, it is a must to involve the users from the beginning. Get line-staff buy-in to the initiative. The world is full of cases of "successful" CRM "projects," but "failed' CRM 'initiatives"--the reason being lack of staff participation in customer orientation.

To ensure that each user group has a fair representation towards the initiative, set up a steering committee for the CRM plan. Each department, including IT, should have designated personnel participate in the steering committee. The CRM facilitator should lead the committee. It is essential that all representatives participate, as they are a communication channel to each of the departmental staff.

Change management
A common mistake most organizations make is to involve the employees after deciding on the processes and software. On the contrary, all change decisions involving personnel should be given high priority, since this is an area that requires training and coaching, which takes time. It is also one of the most challenging areas of a CRM initiative and crucial in CRM alignment. Change process can be smoothed by positive and clear communication and training, wherein the employees no longer feel insecure in the new organizational environment.

Though the above strategies may look like just a part of an overall CRM initiative, they are actually disciplines unto themselves and need to be used with the CRM processes to optimize the results.