Upfront: Book Review: Releasing CRM's Strategic Value

New book shows CFOs how to manage and measure CRM efforts.

Companies spent more than $2.3 billion on customer relationship management (CRM) software last year, and that number is expected to reach $2.9 billion by 2007. This striking level of investment reflects corporations' belief that CRM is key to profitability and long-term success for businesses in every industry. But more than half of all CRM projects are viewed as failures due to faulty execution.

The new book "CRM Unplugged: Releasing CRM's Strategic Value" (John Wiley & Sons, 2004), by Philip Bligh and Doug Turk, sets out to increase readers' odds of CRM success by demonstrating how companies should define, approach and apply customer relationship management initiatives. The book offers real-world examples showing what went wrong in companies that invested heavily in CRM applications only to be disappointed by results.

The authors demonstrate that companies are doomed to fail in CRM if they lack adequate business strategy, process change, executive support or cross-functional coordination. Poor business representation on the CRM team and inappropriate IT investments can also undermine an initiative.

A stellar example of customer relationship management gone awry played out at Cigna HealthCare a couple of years ago. The company migrated 3.5 million of its members to new claims-processing and customer service systems. The $1 billion initiative included CRM and an overhaul of the organization's legacy technology infrastructure, according to Bligh and Turk. The huge project's benefits didn't live up to expectations, and Cigna's health-care membership fell by 6 percent in 2002 as a result. The book dissects the reasons for the system's failure and describes how the company dug itself out from under the debacle, which caused substantial damage to its reputation and financial performance.

The book includes sections of particular interest to finance managers, such as a section on the science of revenue management that analyzes the rationale behind promotions and incentives for the sales force. "These activities are often not well-planned or statistically based, and no consistent methodology or understanding of expected outcomes is in place," the authors say. "Marketing and sales will tend to exaggerate the effect of these activities and, instead of accessing historical success rates, companies will rely on the judgment of campaign or sales managers, leading to unrealistic expectations." The solutions that the book lays out include tracking a company's promotional and discounting activities, then using this data to realistically predict the outcome of new revenue-management initiatives so that businesses can set their budgets appropriately.

Bligh and Turk emphasize the importance of developing customer performance management metrics, taking what they describe as a formal approach to meeting customer objectives. They describe one anonymous Fortune 500 company in which executives thought they were doing a good job of monitoring customer-related goals, even though not one customer-related metric (outside of overall revenue) was presented in the quarterly management review of each business unit. This disconnect, the authors say, is not uncommon. But it is preventable. To properly track performance, they say, management reviews should prominently feature the following metrics:

• Customer acquisition versus goals per segment.
• New product/service adoption versus goals per segment.
• Percentage change in revenue per period per segment or customer.
• Percentage change in profits per period per segment or customer.
• Service-level performance (turn-around time, delivery time, defects, service calls on time, etc.) per segment or customer versus goals.

Beyond high-profile CRM debacles such as Cigna's, the authors recognize that leading companies in a variety of fields have realized substantial accomplishments through CRM. Harvard Business School professor Michael Porter says that those companies are the ones that view CRM as "a strategy tool uniquely tailored to each company's approach to competing," rather than as a generic means of achieving best practices.