Lessons of CRM

Despite its popularity, CRM implementation has seen a high failure rate. Werner Reinartz and Pankaj Chugh uncover some of the important reasons for this, by identifying the key challenges that companies encounter.

Surveys have shown that the failure rate for companies adopting CRM has been as high has 70 to 90 per cent. Why is this, and how can companies avoid these mistakes?

This article is based on a study derived from in-depth interviews with senior managers of 15 large corporations involved in strategic CRM projects.

All have at least $1 billion in world wide revenues.

One interesting finding is that outright failures are very few (only one company). While many companies agreed that they encountered problems in CRM implementation, they were no more than those for other strategic projects.

1. Set CRM objectives and measure them

The most common CRM aims were to increase customer loyalty and acquire new customers. Next came reducing customer interaction costs. Some interviewees felt it difficult to build a business case for CRM on numbers, as many benefits are intangible. Some companies tried converting everything into monetary terms, while others preferred maintaining a set of metrics to monitor the business benefits. It is also difficult to quantify and monitor benefits because of the inherent time-lag between the start of the initiative and any evidence of results. In many cases it may take more than a year before benefits start flowing in.

2. Beware the hidden costs

The hidden costs are associated with business change, project management, training, interfaces, documentation, data conversion, testing, technology infrastructure and knowledge transfer. Often, the benefits of providing great service to customers may not justify the costs. A utility company bought 1,000 CRM software licences only to realise that its investment offered few incremental benefits. It has now embarked on a segmentation strategy whereby CRM investment is based on the profitability of each of the segments.

3. Create the organisational structure

Implementation of CRM tools are of little value to companies structured along product rather than customer lines. But many interviewees felt that it is unrealistic to expect organisations to change their structure before they put technology in place. They needed quick-wins to sustain the interest of the employees through the whole process. One strategy consultant thought that prioritisation was a key factor: "The more successful companies identify areas where a small change could have a major impact." Remember that the weakest link in customer service may not lie within the organisation - dealers, distributors and other channel partners may be poor at handling customer relationships.

4. Data access and availability

Some companies had problems accessing information, especially when customer interaction is through third parties, such as car dealerships. One of the main objectives of their CRM initiative was to get greater access to customer information so they could better identify and service the most profitable customers. Another issue is how much to gather. CRM data collection rests largely on sales and service people, who risk being turned into data entry clerks, or expensive contact managers. A respondent from an energy company believed that the benefits from its CRM effort would have been far more effective had there been more effort to segment customers based on the information it already had. It had gone for a full technology implementation with inadequate customer analysis.

5. Manage the human dimension

In general, interviewees agreed that handling human resources effectively was the most important yet neglected element of CRM projects. For example, an incentive system that rewards sales people for closing deals would tend to encourage them not to share information with colleagues. One strategy is to give employees adequate control over customer service. Too much centralised control slows down decision-making and is likely to result in dissatisfied customers. A customer service executive of a financial institution cited Carlson hotels, where each employee is given a budget to satisfy customers as they see fit.

6. Don't over-engineer the solution

"Most CRM tools are too rich in functionality," said one interviewee. "What's the point of paying for a report someone will use once in 20 years?" For the majority the most important criteria were user-friendliness and flexibility, not cost. According to one system integrator: "It is much better not to provide an additional channel if it cannot share intelligence with other channels. Once a company provides a web-based channel, customers implicitly expect this to be connected to the call centre."

Outsourcing can be another hurdle. A supplier interacts with the internal IT function of the company, which in turn, interacts with the business people. This leads to multiple omissions and misunderstandings. Successful companies form multi-disciplinary teams to translate business needs into specifications.

The effort required to consolidate customer data from legacy systems into new CRM systems is often underestimated. Cleaning up duplicate or obsolete data can be very painful.

Also, a CRM product that is good for data mining may not provide functional support, and vice versa. Assess analytical and functional needs first - and you may have to select a separate vendor for each. Regional offices or divisions often embark on individual CRM initiatives.

Decide standardisation and localisation issues up front to ensure that consolidation is possible at a later stage, while retaining some local flavour.

7. Manage change

Inertia is one of the commonest causes of CRM failure. Many companies, for example, set a deadline for access to old IT systems. But sales reps, pressed for time, do not like disruption in their regular routine, especially if they can see no personal benefits. An executive from a chemical company believed that the sales force did not like entering information into the new sales force automation system because they feared that they would become dispensable. And since they were awarded on the basis of closed sales, they did not see any incentive in sharing their secrets with others. Allaying such fears is extremely important for successful CRM.

Werner Reinartz is assistant professor of marketing at INSEAD in France.

Pankaj Chugh is product manager at System Access, a banking software supplier.

This feature is a version of an article that first appeared in the 'International Journal of Customer Relationship Management', published by Winthrop Publications.

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