PDF File: 

CRM5_wp_freeland.pdf

Accenture

How taking advantage of innovations in customer relationship managementcan help achieve high performance.

Innovation has always played an important role in the success of all types of organizations. Today, however, with intense competition and demanding customers, innovation has become absolutely critical to a company’s ability to generate consistently superior levels of operational and financial performance.

Accenture’s continuing research into the characteristics of high performance businesses indicates that they are obsessed with winning the battle for the customer. But what advantages do innovations bring? Do organizations that excel in innovation see the world – and therefore act – differently from companies that aren’t particularly innovative? What can organizations learn from innovative companies that can help them become more successful?

Accenture sought to answer these questions through a comprehensive research study by Accenture Policy & Corporate Affairs called “The Innovator’s Advantage: Using innovation and technology to improve business performance” (“The Innovator’s Advantage”). The results of this study clearly show that innovators do behave differently and value certain capabilities and technologies more highly. One area in which this is especially true is customer relationship management. In fact, our research combined with insights gleaned from our work with clients around the world identified several key emerging innovations in customer relationship management that leading companies are embracing to dramatically boost their performance.

The CRM-Innovation Connection

It's difficult to deny the value of innovation in business. The findings of several recent studies alone provide ample evidence that innovation is the cornerstone of successful companies.

One such study, for instance, confirms that innovation plays an important role in stimulating customer demand. In this study, based on a survey of 3,500 people in five countries, Accenture found that a majority of consumers would spend more money on their purchases if companies offered better products and services – especially consumer goods, automobiles, household appliances, electronics and entertainment.¹ In fact, consumers who don’t buy said they typically hold back because they believe few companies have given them a compelling reason to purchase their products or services.

Two other studies, also conducted by Accenture, illustrate the strong link between innovation and competitive advantage. These studies explore how companies such as Nokia, Samsung, Southwest Airlines, Wal-Mart, Dell and IKEA, which continued to innovate through downturns in the 1990s, were best positioned for success in the upturns that followed.²

Furthermore, research shows that innovation can have a positive effect on the bottom line. Studies such as “From Knowledge Management to Strategic Competence” by Joe Tidd and Ciaran Driver suggest that innovation enables companies to generate greater economic value and greater shareholder return.³

Building on these efforts, Accenture’s “The Innovator’s Advantage” further explores the impact of innovation on companies. Specifically, this study, based on interviews with 581 senior executives in 18 countries, sought to identify how innovative companies differ from non-innovative companies in various ways – from their view of strategically important issues and use of technology to their willingness to embrace collaborative relationships with other companies to improve their operations.

As part of “The Innovator’s Advantage,” Accenture studied different types of innovation that companies are fostering to help them improve their business. The most common type of innovation, of course, is that used in the context of developing products and services, such as bringing new offerings to market that stimulate demand.

However, there also are innovative companies that excel in developing and implementing new ways of working. One area in which process innovation has accelerated dramatically in recent years is the management of a company’s customer relationships. Among the findings of “The Innovator’s Advantage” are several that highlight the ways innovative companies differ from less innovative companies in dealing with their customers:

• Innovative companies are more likely to view customer acquisition and retention as a key concern. A full 87 percent of very innovative companies, versus 77 percent of non-innovative organizations, said customer acquisition and retention is either important or very important to the organization’s overall strategy. In fact, very innovative companies are more likely than non-innovative companies to consider customer acquisition and retention one of their top three strategic issues (55 percent versus 44 percent).
• Innovative companies have responded to the difficult economy by rethinking how they interact with their customers. Fifty-four percent of very innovative companies, compared with 29 percent of non-innovative companies, have significantly re-evaluated and changed their marketing and sales strategies in the past year in response to economic and market conditions.
• Innovative companies are more apt to use technology to help improve customer relationships. Very innovative companies are more than three times as likely as non-innovative companies to have installed a customer relationship management system (54 percent versus 15 percent), and more than twice as likely as non-innovative companies to have installed a sales system (47 percent to 21 percent).
• In addition to implementing such technology, innovative companies appear to value these systems more highly. Very innovative companies are nearly four times as likely as non-innovative companies to consider their customer relationship management system one of the three most strategically important to their organization (43 percent versus 12 percent) and more likely to consider their sales system as such (28 percent versus 17 percent).

CRM Innovations That Improve Business Performance

Accenture’s own consulting experience backs up “The Innovator’s Advantage” findings and illustrates how innovation in customer relationship management can result in superior business performance. Through our client work, Accenture has identified three broad innovations in the CRM arena that a number of leading companies are using to improve their financial performance, generate competitive advantage and dramatically increase demand for their products and services.

• Turning customer data into profit;
• Reinventing the economics of customer interaction; and
• Transforming marketing into management science.

Turning customer data into profit

With customers growing ever more demanding and less loyal, every company must understand its customers extremely well. That includes knowing how they behave, what they buy, and what channels they prefer. Technology makes it possible to amass the data containing these insights, but much of this data is rarely, if ever, used to its full potential. This is evident in the fact that many organizations still lack one integrated view of their customers.

One critical CRM innovation in particular is helping companies address this challenge. This innovation – which Accenture calls “turning customer data into profit” – is made possible by a number of sophisticated capabilities:

• Rigorous data management that delivers a single, integrated view of the customer – consistent across the entire organization and refreshed with dynamic updates as customer relationships evolve;
• Dynamic, behavioral and value segmentation – the foundation for targeted offerings and differentiated service;
• Powerful analytical tools that yield meaningful insights and accurate predictions of customer response – essential for improving conversion and retention rates and cross-selling and upselling effectiveness;
• Adaptive campaign management processes – to speed the creation and execution of highly effective marketing campaigns that adapt through the test and feedback of customer responses in real time; and
• Insight-driven interactions – to link marketing campaigns with customers at the point of contact to enable intelligent, real-time offerings and the provision of differentiated, value-based service.

One company that has successfully turned customer data into profit is Bouygues Telecom, a Paris-based provider of mobile telephony services. In an industry notorious for customer churn, Bouygues has improved both the length and profitability of customer relationships by using customer data to make more accurate predictions of customer behavior and, thus, personalize its marketing campaigns and messages.

Bouygues teamed with Accenture to help transform its business to new levels of high performance using Accenture’s extensive experience in information technology to create and immediately act upon customer and business insights within the telecommunications industry.

The retention program was the first of its kind for a mobile telephony business in France. With new processes and technology, Bouygues can more narrowly define its customer clusters, conduct more granular analyses of customer data, make more accurate predictions of customer behavior, and personalize its marketing campaigns and messages. Furthermore, the company can now more accurately identify the return on investment and cost/response ratios for each marketing campaign.

These new capabilities have translated into a number of high performance business results for Bouygues. The number of customer contacts is up 450 percent, the accuracy of segmentation has tripled and the time needed to create and execute a marketing campaign has been reduced by 75 percent.

Reinventing The Economics Of Customer Interaction

For most companies, all customers are not created equal. Some are more profitable than others, and some even cost companies money. A second major CRM innovation that leaders are embracing is the ability to align sales and service resources according to customers’ specific value and profit contribution to the company. Making customer interactions more profitable may sound simple, but seldom is. Simply getting started requires in-depth information and insightful analysis of many aspects of customer interaction. For example:

• Do you know enough about your customers to change how you interact with them?
• Are your most loyal customers also your most profitable ones?
• Could you spend less to manage your most valuable relationships without damaging them?
• If you did know your customers better, would you have the resources to change the way you do business with them?
• Would you strengthen customer relationships by selling your customers solutions rather than products?
• Would you enhance profits by focusing more on selling add-on services and less on generating new leads?

Few companies possess this level of intelligence about their customers. Despite having implemented costly data warehouses, many organizations still struggle to identify their most profitable customers, much less predict which will remain profitable. Many companies underestimate their cost-to-serve by measuring only direct costs, while indirect costs, such as technical support or vendor management, chip away at customer margins. Some businesses fear that moving more interactions to lower-cost channels will alienate customers.

Acquiring the rich customer data, sophisticated segmentation models and powerful analytical tools mentioned earlier enables organizations to build a clear, complete picture of relationship costs and revenue potential – and to evaluate this information against their business objectives and financial targets. As a result, companies also will be able to build, deliver and manage customer acquisition programs and customer treatment protocols that deliver the experience each customer wants across multiple touch points, while maximizing profit.

As just one example, some innovative companies have been able to migrate specific customers to self-service channels successfully by predicting customer needs based on past transactions, rather than simply guessing if and when customers would value self-service options. In the process, these companies have been able to reduce the costs of serving those customers who don’t need, want or merit high-touch service while avoiding alienating those who do.

In some cases, organizations have been able to dramatically improve the economics of customer contact through outsourcing. In addition to improving the ratio of their fixed costs to variable costs, outsourcing can enable quick and less costly access to advanced capabilities for marketing, sales and customer service.

This form of strategic outsourcing, which Accenture calls transformational outsourcing, is increasingly common. In more challenging business climates, many companies simply don’t have the time or resources to build the capabilities necessary to improve the cost, efficiency and revenue impact of sales and service operations. Others may have the resources to transform these operations, but wish to minimize the cost and risk of making complex change.

In such cases, companies should seek an outsourcing provider that offers business arrangements designed to minimize capital outlay and mitigate risk. The right outsourcing arrangement will enable a company to maintain predictable operating costs while having access to additional capacity if needed.

Transforming Marketing Into Management Science

Marketing executives will agree that today’s customers are more diverse and more demanding than ever. Yet many marketing departments still follow the practices of a bygone era to reach and influence their target audiences. In fact, the typical marketing organization remains untouched by the technology-powered changes that are optimizing other business functions, such as manufacturing, sales, customer service and human resources.

The third CRM innovation is bringing a rigorous, scientific approach to marketing. Contrary to popular opinion, marketing is neither guesswork nor a purely creative exercise. It can be quantified and optimized – and must be if a company wants to enhance its ability to reach new and existing customers and stimulate demand.

New methods and tools, such as econometrics, return on investment measurement and budget allocation software, now make possible a more scientific approach to marketing. Leading companies are already using these data-driven techniques to measure and subsequently improve the return on their marketing investment. And they are improving operating effectiveness by eliminating the historic shortcomings – poor data integration and a lack of meaningful data, to name just two – in their marketing processes, systems and organizational structures.

Seoul-based Samsung, one of the world’s most successful consumer electronics companies, is among the first companies to adopt this type of scientific approach to marketing. For decades, Samsung has been locked in a struggle with its larger, more successful Japanese competitor, Sony. Samsung executives believed that the company’s sales lagged behind those of Sony because Sony’s brand was much stronger than Samsung’s – a situation that Samsung thought could be rectified with more effective marketing.

Working with Accenture, the company decided to take a more scientific approach to the problem, looking closely at how it invested its marketing resources in 14 major product categories across more than 30 countries. It determined which combinations of categories and countries offered the greatest growth potential and reallocated its marketing investments accordingly.

As a result of its analysis effort, Samsung made three critical discoveries:

• It was spending significantly more money than necessary in one of its biggest geographic markets;
• It was significantly under-investing in two countries that offered the highest growth potential; and
• One of its established core categories was siphoning precious marketing funds from several growth categories that were of vital importance to future growth.

The bottom line: These funding imbalances were threatening tens of millions of dollars in future profit growth for Samsung globally, seriously impairing the company’s ability to effectively compete against Sony.

Samsung acted on its findings to rectify the allocation imbalances. Since reallocating its marketing resources, the company has realized continued growth in market share in key countries and categories. For instance, in the all-important mobile phone category, Samsung moved into fourth place for global market share of mobile phone handset sales, trailing only the big three of Nokia, Motorola and Ericsson.⁴ It also has experienced sharp increases in its global brand equity. According to BusinessWeek and Interbrand, Samsung now has the fastest-growing global brand.⁵ Between 2001 and 2002, the company’s brand value increased 30 percent to $8.31 billion, moving from a 42 ranking to 34th worldwide.⁶

Conclusion

To be sure, innovation is not a cure-all for a company’s ills. Creativity and invention alone seldom, if ever, generate sustainable growth or competitive advantage.

As research from Accenture and others demonstrates, innovation plays a critical role in a company’s quest to achieve high performance. Importantly, such innovation must not be limited to product and service development. Process innovation, as well, can have a dramatic impact on the competitiveness and operational prowess of any company.

The ability to devise and implement bold new ways of interacting with and managing one’s customers is clearly separating highly successful companies from the rest of the pack. Accenture believes that innovative ways to strengthen the connection with one’s customers will become even more important to business success in the years to come.

About the Complete Study

“The Innovator’s Advantage: Using innovation and technology to improve business performance,” by Accenture Policy & Corporate Affairs, draws on the results of a survey of senior executives in 18 countries focusing on innovation, technology and the business climate. The survey consisted of 581 telephone interviews conducted in the respondents’ native languages. It is available at www.accenture.com/innovators.

Endnotes

1 “Stimulating Consumer Demand through Meaningful Innovation,” Paul F. Nunes and Brian Johnson, Accenture Institute for High Performance Business, 2003.

2 “Innovating for the Upturn,” Accenture Policy & Corporate Affairs, 2003, and “Creating Sustainable Value from an Economic Downturn,” Accenture, 2002.

3 “Technological and Market Competencies and Financial Performance” by Joe Tidd and Ciaran Driver, in From Knowledge Management to Strategic Competence, edited by Joe Tidd, Imperial College Press, 2000.

4 “2001-2002 Market Share Reports By Category,” TWICE (This Week in Consumer Electronics), Jan. 9, 2003.

5 “Samsung Has Fastest Growing Global Brand,” Jonathan Angel, Brandweek, July 30, 2002.

6 “The Top 100 Brands,” BusinessWeek, Aug. 5, 2002.

This paper was originally published as “The Innovator’s Advantage: A customer relationship perspective” © 2004 Accenture. All rights reserved. Reprinted by permission.