An enterprise implementing a customer relationship management (CRM) system can expect to spend hundreds of thousands, or even millions, of pounds, dollars or euros. With those kinds of sums at stake, businesses surely have the right to expect a clear and rapid return on investment. Yet all too often CRM implementations are deemed to have failed. What is going wrong, and how can businesses make sure they see an improvement to the bottom line?
According to David Bradshaw, a principal analyst at consultancy Ovum, this is the wrong question: “CRM is such a wide-embracing system that it’s very difficult to say what the benefit has been.”
He points out that during the usually lengthy period of CRM implementation, the business is trying out other strategies to increase profit, and its competitors are doing the same: “The market doesn’t stand still. While you implement a CRM system, other things happen. Doing a level comparison between before and after is not going to work.”
Mr Bradshaw, therefore, takes vendors’ claims to show positive proof of a return on investment (ROI) from implementing CRM with a pinch of salt. Equally, he says, businesses should not judge the success of a CRM implementation by the amount of money it saves. While cost-saving has the advantage of being easily measurable, it is a poor reason for introducing a system that is designed to improve relationships with customers: “A lot of people know intuitively that their customer relationships are sub-optimal, and they know they have to improve the way they manage those relationships, but what they then do is build a business case based on reducing costs in those customer relationships.” By focusing on cost reduction, he argues, businesses run the risk of alienating customers.
So, instead of looking at a single indicator, businesses need to take a more sophisticated approach to measuring success. CRM systems are often introduced because of a perceived problem in the business’s relationship with its customers. For example, customer retention may be low or the business may be spending a lot of money on servicing customers who are not profitable. A CRM system, provided it is accompanied by the necessary organisational changes, can help the business to target its customer spend more effectively. A more useful indicator of success than profitability or cost savings, Mr Bradshaw suggests, is the increase in lifetime revenue from individual customers: “The more sophisticated measure is actually measuring that customer’s profitability.”
The need to have key performance indicators (KPIs) in place from the outset is paramount, says Clive Longbottom, service director at the analysts Quocirca. “You need to figure out what the corporate indicators of success are going to be,” he explains. “You need to have some pre-measurement saying: ‘We have 30 per cent customer churn. Let’s do a bit of research, find out what the perceptions are and put in place the system and the processes.’ And then you have to keep measuring against these KPIs.” At the same time, adds Mr Longbottom, the CRM implementation needs to be flexible enough to cope with changing goals and changing KPIs.
By improving the relationship with customers, businesses can both reduce customer churn and increase the value of each customer through targeting its marketing spend more effectively. The great advantage of CRM is that any employee who deals with the customer, whether in technical support, marketing or sales, can see all the customer’s recent transactions with the company and, thus, provide a better service.
And yet, Lisa Sweeney, a management consultant for PA Consulting, argues that many businesses lose out on this significant benefit by rolling CRM out only to its sales team. “You will only truly deliver the benefits of CRM when it goes across all the customer touchpoints,” she says. “That’s why so many implementations fail – because if you only implement it in your sales arena you only improve the effectiveness of sales process but not the customer interaction with your company.”
For the Totaljobs Group, a recruitment company, the decision to implement CRM throughout its workforce has proved a major benefit. The company originally introduced a hosted CRM system from Salesforce.com to its sales staff five years ago. Two years later, it rolled the system out to the rest of the organisation, and Salesforce.com is now used by 268 of its 285 employees. The system gives each employee a single view of the customer, explains Andy Weight, client service director at Totaljobs. “Because we have the information in a single place,” he says, “anyone before a call is able to appraise the state of the customer. So, that stops a salesperson calling a customer and finding out that the customer has a customer support issue. It stops our finance team saying ‘You haven’t paid your bill,’ and the customer saying, ‘I’m having problems logging in.’ People make the call with a lot more information.”
Mr Weight accepts that it is impossible to pinpoint the role that CRM has played in the rapid growth of Totaljobs, but one useful indicator is the customer satisfaction survey that Totaljobs carries out. “In the last three years,” he explains, “since we’ve taken a more integrated approach, our customer satisfaction rate has grown continually .”
The ability of CRM systems to segment customers also enables businesses to identify those customers who are providing most value. “The high spending customers are not necessarily your most profitable customers,” says Mr Bradshaw, citing one mobile phone company that discovered that high-spending customers were also high-maintenance. “They found that people who just had standard contracts, didn’t call the help desk and didn’t get a replacement phone every year or two years were actually much the most profitable.”
Equally, CRM can help a business target those customers it may be in danger of losing, says Mr Bradshaw: “If you’re spending an awful lot of resources on customers who are costing you money, then stop spending that money or find more effective ways of doing the same. If you have a bunch of customers who are profitable but you are neglecting them and they are gradually drifting away, you have to spend some money on them to retain them.”
A successful implementation will not look at a single measure like profit. “The core of any CRM system, that you have to measure,” he argues, “is what’s happening to those different customer groups. Are you improving the retention ratio of your profitable customers, and are you reducing the cost or bringing to profit the customers who are not profitable? Those are the key measures.”
