The customer may be king, but somewhere between rhetoric and reality, most organizations have discovered that courting and keeping customers is a royal pain. Over the last decade, global competition, downward pressure on profit margins, and easy access to product information and pricing for competitors and consumers have made it increasingly difficult for companies to achieve that goal.
As a result, many organizations have turned to customer relationship management (CRM) systems not only to provide a technology foundation and business framework for managing complex tasks and to help them become more efficient and profitable, but also to maintain customer loyalty. Unfortunately, on their road to CRM success, they have often taken a few detours. "Too often, organizations haven't connected data to real-world practices," says Greg Comrie, senior vice president of solutions delivery at AGSI, a consulting firm headquartered in Atlanta.
To avoid that problem, many companies are combining the operational and analytic sides of CRM to create a more sophisticated and holistic view of the enterprise. The two aspects traditionally have been used separately; the operational side relies on call centers and sales force automation (SFA) while analytics taps into existing business data. But together they're ushering in new opportunities and possibilities for predictive modeling, cross-selling, marketing and more.
"Over the last decade, organizations have become so focused on technology and systems that they have lost sight of the customer orientation and how to achieve their goals," says Gareth Herschel, research director in the Atlanta office of IT consulting firm Gartner Inc. "The focus is now moving toward an integrated organizational approach. The goal isn't only to improve efficiency and save money for the enterprise but deliver benefits to the customer."
Today's CRM encompasses the entire enterprise, from the warehouse to the finance department. Challenges abound, such as determining how to extract the right data, how to use it to maximum advantage and how to put concepts into action on the front lines of business. Although there's no simple solution, a growing number of organizations are learning that an integrated and orchestrated approach can pay dividends.
In any era or within any industry, understanding and interacting with customers effectively is necessary for success. The rise of CRM systems has sometimes masked the fact that technology is merely the means to an end -- not an end in itself. "In many instances, failures have occurred not because of the technology, but the way it's used," Herschel explains.
The amount of data that organizations must sort through to help them understand customers and the marketplace also complicates matters. Operational CRM is essential, but "simple querying and reporting will not reveal answers to challenging questions such as: Which customers are likely to respond to a campaign? And given that they do respond, how much are they likely to spend?" points out Anne Milley, director of technology product marketing at SAS Institute Inc. in Cary, N.C.
Many businesses are attempting to remedy the situation. Instead of viewing operational CRM and analytic CRM as two distinct activities, they're trying to meld them together into a single, seamless system. Historical data and demographic information can provide insights that, when properly used, enhance the abilities of sales staff, technical support specialists and others. Companies can also create more targeted and effective marketing campaigns, Web sites and customer-service offerings. And they can identify key performance metrics, such as how long a customer should remain on hold, and adjust staffing levels to match the precise need.
Targeting products and services more exactly is the goal at Dreyfus Service Corp., a New York City-based subsidiary of Mellon Financial Corp. The mutual fund company, which administers more than 200 funds and manages about $170 billion in assets, faces an array of ongoing challenges such as dealing with nervous investors who often shift out of mutual funds when market volatility increases. Dreyfus wanted to find a way to forge closer relationships and boost loyalty, explains Prasanna Dhore, executive vice president at Dreyfus.
That was easier said than done. Although Dreyfus had assembled a 1.2 terabyte, 4-million-household database for all marketing, sales and strategic planning, transforming the data into action presented steep challenges. For one thing, there was no simple way to combine elements in a useful and effective way from such a huge volume of data. For another, the company had to ensure that agents used the information effectively and approached customers appropriately. Finally, getting the departments to work together created political and practical problems.
In 2000, Dhore and a team of statisticians analyzed the data, including demographic information, credit and loan applications, spending habits, and transactional history. Then, using customer relationship management software from SAS, they developed a system that predicts which customers are mostly likely to redeem shares or close their accounts. The system flags warning signs for these behaviors, which include surges or decreases in the amount of contact from customers and increased numbers of transactions between funds.
Using data gathered with the analytics software, Dreyfus revamped its operational CRM processes and the way it uses an Onyx Software Corp. package to manage and track customer relationships. No longer does the company wait for customers to call; it contacts them and pitches products and solutions specifically tailored to their needs. This approach includes phone calls, e-mail and direct mail. "The focus is on discussing products that meet the needs of that customer based on their age, wealth, portfolio and recent investment activity," Dhore explains.
The results have been remarkable. Dreyfus has watched overall customer attrition rates drop by 50 percent. What's more, over the last five years, the shareholder redemption rate has declined from 22 percent to around 7 percent annually. That compares to an industry average that hovers around 25 percent. "We have used the system to create an ongoing dialogue with customers. We're much more in tune with their needs," Dhore says.
Organizations that connect operational and analytical CRM often achieve order-of-magnitude gains, Comrie notes. When they remove much of the guesswork and replace it with solid data, they can embrace customized, real-time decisions at the point of maximum impact. "There's better information for making decisions and better workflow for executing a CRM strategy," Dhore says. The end result is a far better return on investment and happier customers.
CRM is nothing less than a methodology for doing business. Decision-makers often immerse themselves in projects such as purchasing and implementing advanced call-center systems and customer-tracking software and let that truth slip past them. According to various studies, 30 percent to 75 percent of CRM projects fail to produce the desired result and fall short of the projected ROI. Some initiatives lack a clear vision or the unwavering support of senior management. Others lean too heavily on technology without reengineering business processes.
The concept of CRM as a full-fledged business methodology is at the heart of Utility Service Group's successful business strategy. The privately held company of 1,000-plus employees, which handles water-tank and tower maintenance for municipalities and private firms, began to boost its CRM capabilities in 2001. The enterprise turned to an Oracle CRM package tightly integrated with financials so that it could gain a 360-degree customer view. "We needed the ability to view all the touch points across the organization," says IT director David Al-Khazraji.
In 2005, Perry, Ga.-based Utility Service Group upgraded its capabilities further. Now sales reps no longer check each account manually. Instead, analytics software provides a customer profile along with predictive analysis capabilities. Managers use a portal to glance at a customer's account status and to understand how to provide better and more targeted service to customers.
For example, the firm's analytics tool plugs in specific data about environmental factors to determine when the coating inside a tank has reached its limit. Then, tapping into back-end financial data, "we can schedule resources more effectively and make sure our pricing models capture enough money to cover tanks that have a higher risk profile," Al-Khazraji explains.
It's a winning approach. Utility Service Group's service complaints have dropped by 40 percent over the last two years; customer service ratings have climbed to 92 percent; and tight integration of customer service, sales and operations has led to a gain of over 400 qualified sales opportunities from nontraditional sales channels. Yet, Al-Khazraji is quick to point out, success requires more than an excellent CRM application. "It requires the right combination of industry best practices, strong internal business processes and information systems to support the entire infrastructure."
Gartner's Herschel says that one of the most important factors in achieving success with CRM is measuring the right things. Too often, companies wind up examining how many calls they receive per hour and calculating the cost of administering the calls. Or they count how many reps escalate calls to a second-tier representative or manager. "Organizations that focus only on internal metrics and objectives risk alienating customers. The best analysis provides insights that benefit everyone."
A growing number of organizations are finding that the integrated model provides the feedback required for a smarter and more competitive approach to business. At First New England Mortgage, a Newton, Mass., company with $722 million in loans for 2005, a salesforce.com CRM system installed in 2004 has helped the company track the sources and successes of its leads. The firm spends about $20,000 to $30,000 per month advertising at various Web sites. "It's crucial that we target our spending effectively," says IT manager Melissa Caylor.
In addition, using a link to the company's accounting software, it's possible for the 50-plus loan officers to glean far more detailed data about a particular loan's location in the pipeline. "Loan officers can look at the closing queue and see the current status of a loan, when it's getting ready to close. And then, once the loan has closed, they can see how much they're going to get paid that next month," says Caylor.
Since moving from a basic loan origination system to the CRM application, First New England Mortgage has boosted the conversion rate on leads from 3 percent to 12 percent and trimmed lead response time from 6 hours to real-time. Meanwhile, the average fee income (the dollar amount generated from each loan) has increased about 7 percent, and the firm has boosted ROI by approximately 20 percent. "We've improved our performance with customers while operating more efficiently," Caylor says.
According to AGSI's Comrie, tight integration among various enterprise systems is a foundation for success. When CRM is linked to financial data; operations information; and a variety of databases, including sales and servicing information, organizations can trans-form customer relationship management from a one-dimensional process to a three-dimensional activity. Various departments, including finance, must play a role in selecting systems, mapping out workflow and determining which metrics the organization should track. In addition, training is essential. "People must know how to use the systems effectively," he says.
Top management at Lyondell Chemical Co., a Houston-based business with about 10,000 employees and $18.6 billion in 2005 revenues, recognized the value of having everyone on the same page about five years ago. At the time, 12 different business units used separate spreadsheets and a variety of sales-force automation tools to communicate with customers. That system proved time-consuming and highly inefficient. It also resulted in slow and sometimes deficient contact with customers, especially regarding price-change notifications.
So, in 2002, Lyondell migrated to a single-instance CRM solution from SAP. Getting everyone on the same system not only trimmed costs, it turbocharged results. Separate mailing lists became a thing of the past, and centralized data offered more powerful reporting and analytics capabilities. Today, Lyondell administrators know about delinquent customers immediately rather than days later. Letters and notifications -- including price increases -- are in customers' hands promptly. And sales teams drill down into data so that they can understand buying patterns and adjust their strategies accordingly. "We've been able to work on relationship-building and identify new business opportunities" for CRM, says Tom Young, lead business analyst, global accounts and CRM.
Like most enterprise initiatives, CRM is an ongoing journey -- one that requires a solid business foundation. When it's done right, and when finance plays a central role in plugging in financial data and building models, the possibilities and opportunities grow. Says Herschel: "Analytics gives people the insight they need to do their job more effectively, and operational CRM tools allow them to do it. When an enterprise builds processes to support the technology, positive results usually follow."
5 Ways Finance Can Help Build a Better CRM System1. Provide input on buying decisions. Finance should help analyze different solutions and weigh ROI. Dollars and cents are a key part of any buying decision, and finance can help the enterprise make sound choices. 2. Help determine metrics and define success. It's simple: Financial issues should play a key role in determining which factors an organization measures and how it measures them. 3. Help the business understand the financial dimensions of the customer relationship. Senior-level executives who recognize the impact that certain factors have on performance are more likely to support an initiative. And when sales teams and service managers understand why certain criteria are important, they're far more likely to succeed. 4. Plug in finance data when appropriate. Linking data that resides in CRM databases with finance systems helps companies eliminate redundant activities and maximize the value of data through new and powerful measurements. 5. Revamp financial processes to improve CRM delivery. Today, no department operates in a vacuum. Optimized finance processes and workflow ensure that CRM decision-making occurs at the point of maximum impact. |