Pursuing a Fully Integrated CRM Strategy: Brother International Corporation
Company Profile
Brother International Corporation USA was established in 1954 and is the fully-owned U.S. subsidiary of Brother Industries Ltd. of Nagoya, Japan. Brother Industries started in 1928 by manufacturing sewing machines and is a world leader in sewing machines for home and industry. Brother Industries is now concentrated in four major areas consisting of the information and document business, the personal and home business, the machinery and solution business, and the retail and real estate business.
The Business Machine Group operates in a hypercompetitive market with relatively fragile margins. It is extremely sensitive to fickle customer loyalty, and is therefore a major focus for CRM and this ROI study. Brother sells its product line through various dealers, resellers, retailers, office superstores, and distributors.
Business Context, Mission and Driver, Strategy, Business Case
The National Service Division of Brother USA was formed in 1980 and has more than 200 employees, most of whom are customer service agents working at customer contact centers. The charter of the division can be summarized as Customer Satisfaction. The National Service Division is organized into four groups. These groups are King (customer service,) Queen (technical support,) parts distribution, and returns. The King is the ultimate end user and is extremely demanding and must be serviced at all times. The Queen is the dealer/reseller who sells Brother products to the ultimate end user and also needs to be supported.
Having a Queen sell the end user meant that Brother had to consistently produce value-oriented product with high functionality. Brother was committed to serving the right features to the right customers by providing the richest set of features when compared against competitors at every critical price point. Brother had always been known for being the best value provider in the information and document sector.
As the economy recovered after 1991, Brother recognized it was time to hold on to and to develop its customers. It would be necessary to somehow view the lifetime value rather than just one-time transaction value of a customer. Everybody knew that it was far less costly to keep an existing customer and sell them something else, but it wasnt clear who these customers actually were, or how they would continue to be Brother customers. The first step is to collect all the important information about the customers in one place.
At the time it was very difficult and expensive to do the required type of data collection and database management. Brother struggled for several years with the traditional warranty cards in the box approach, which yielded only marginal results. It was apparent that the customer information was in the hands of the Queen, the dealers, so Brother opted for a strategy strongly supporting the Queen. Brother assumed most of the burden from the retailers by taking responsibility for after-sales related activities and calls. This worked well enough but still did not close the loop and answer the burning question for Brother: Who was the King and what did the King think?
In addition to the long-standing strategic marketing requirements above, additional factors conspired to make CRM a burning need for Brother in the new millennium. Information technology had become ubiquitous among nontechnical users such as those in the small-office and home-office market. Information and document products increasingly had to interoperate with a great variety of personal computers, operating systems, and application programs. Brothers products had become highly interdependent with, and indeed vulnerable to weaknesses in, complementary products such as PCs and applications.
Users were becoming frustrated with products that wouldnt operate with their PCs without significant configuring and troubleshooting effort on their part, even when Brother was not really at fault. In addition to heavy usage of automatic fax-back and email systems, calls were avalanching into Brothers five customer contact centers. Brother was spending millions annually on customer service and was not able to keep up with all the calls. The vulnerability was manifesting itself very painfully in a high percentage of product returns, typically in excess of 12 percent throughout the information and document products industry.
Business Transformation
The immediately identified need was to reduce the product returns. Brother had determined as far back as 1996, that simply answering more calls from the approximately 1.8 million distinct callers would address a significant portion of the product returns. Of the calls, only 46 percent were being answered, and those were not being serviced using anything other than a rudimentary database. The database application was unable to keep up with the growing customer base, unable to refer to the service history of a caller, unable to place customer orders, and unable to provide essential information about inventory availability or the status of an order.
The number of phone calls answered was increased by 131 percent from 1996 to 2000, resulting in a steady decline that more than halved the total dollar value of returned items. In addition, some information and an FAQ system were made available on the Web. The apparent calls per unit sold went up from 0.28 in 1996 and stabilized at 0.48 from 1998 onward even though call volume grew continuously throughout this time period. In other words, almost half of all units sold intrinsically result in a customer service call.
It was recognized that while reducing returns by answering more calls was crucial, and progress was being made, it was not necessarily the same as providing customer satisfaction. Brother started from the premise that a customer relationship supported by specifically associated core processes would be the foundation for customer satisfaction.
CRM was defined as having one face to the customer regardless of the contact medium, and providing a complete customer history at the push of a button to everyone facing the customer. Total customer satisfaction was then formulated as a continuous information process starting with who purchased what and when, continuing with how the product was being used, whether the customer had contacted Brother and if so, what the issues or service requests were. Only after coming full circle as many times as necessary would there be complete knowledge of the customer and total customer satisfaction with any hope of keeping and growing a customer with Brother forever.
Supporting the total customer satisfaction information loop would require a business warehouse. This could be partially populated by converting some of the existing data; however, the final content requirements would not be known until at least some of the CRM processes were in place and generating data.
Five process areas were identified as critical for generating data as well as providing service. These were: answering of a call through CRM; logging the call and retrieving the customer information; accessing and populating the solution database on an ongoing basis for consistent answers; emailing or faxing solutions; and maximizing customer experience to sell accessories. The last of these was a distinct opportunity as Brothers products had a wide variety of optional accessories and supplies that were not stocked by retailers, and business could be expanded without competing with the retailers.
Executing the identified processes well would result in: shortened call times and efficiencies reducing call center costs; customer base accumulation in the business information warehouse saving call time used for rekeying basic information; and building a one-to-one relationship with the customer using the collected information together with email, fax, surveys, and demographic or other differentiating information. Based on an average three-year product lifetime, it would be possible to identify customers when they came close to needing a new product. In the words of Dean Shulman, Sr. Vice President, There would be an opportunity to retain the Brother customer forever.
Proceeding with SAP CRM
Brother had chosen SAP in 1994 as its ERP system to replace all other legacy systems for all its mission critical processes. Brother was committed to a single integrated system philosophy having implemented 16 SAP bubbles to support the business.
From 1998 to 2001 the core Brother MIS team was able to expand SAP to cover the consumer sales and parts operations, perform a new SAP implementation in Mexico, as well as upgrade the versions of R/3 being used at subsidiaries in the United States and Canada. All of these projects were achieved on time and under budget. By 2001 the Brother MIS team was confident it could take on any other SAP expansions, including CRM, without difficulty. Shulman sums it up by saying, Despite challenges, conceptually mySAP is a fully integrated solution to help you build a house with a solid foundation from brick and mortar and not of cards. R/3 is a solid foundation.
Having made some progress even if painful in reducing product returns without using integrated CRM, Brother did not proceed with mySAP CRM until management was completely clear about the business mandate and required process transformations for doing so. Shulman warns, Horror stories about CRM exist because people do not honestly ask the question, So what? Companies tend to implement existing processes rather than questioning their value. Its critical to have an end game for implementing CRM. Are we implementing CRM because it integrates the customer information well? Capturing more of the same unusable information would be worthless. Is it because we want to answer more customer calls? You can do that with just adding phone lines. How will we know that we provided better customer satisfaction with CRM?
CRM Strategy: Defining Key Performance Indicators
It was clear to Brothers management that the new measure of business success going forward would be the return on relationship requiring the ability to turn customer data into business strategies and thereby customer relationships into equity. Further reduction in returns and increased sales would be the end games.
Eliminating multiple systems and using a common software solution to support the growth of the business and its processes was a prerequisite. It would be possible to improve customer satisfaction by improving the procedures, processes, and the information quality. Productivity would benefit not only from streamlined processes but also by using best business practices. Process measurements would then be among the lead indicators for total customer satisfaction.
The process improvements would feed into lowered transaction costs, in terms of individual transactions with customers, as well as back-end transactions within internal processes. The business warehouse would be instrumental by being the definitive repository of all the data collected and generated by all the processes. The business warehouse would also provide powerful reporting tools. National Service was organized to directly target the King, Queen, parts department, and consumer sales with dedicated customer service agent groups. The Queen, being the dealers, had two groups supporting them for administrative and technical support, respectively. This grouping allowed for further development of expertise by the customer service representatives in each particular field.
Fortunately the overall quality of customer service was high because Brothers National Sales Group enjoyed an unheard of turnover rate in the industry, approaching virtually zero. Therefore over time all of the customer service reps had become very knowledgeable. Yet the rapid introduction of new products and models meant that a knowledge gap would be created whenever a new product was released, which by definition would also be the time when more callers needed information about that particular product. The Solution Database was therefore seen as very valuable. Call measures and targets were developed for each customer service group separately. The in-house customer contact centers were located in California, New Jersey, and Tennessee, with outsourced call center operations located in Tennessee and Montreal.
Implementation
Based on the business requirements for King service, Queen service, the parts department, and consumer sales, flow charts and scope documents were developed for each. A critical success factor was the use of activities to document the whole relationship with the customer. The system and hardware were sized, and the SAP/MIS and ongoing resources were planned. Data migration from legacy systems was among the first tasks. R/3 contained customer master data plus material and pricing master data. Several levels of data were to be captured and stored in CRM and the business warehouse for company reporting requirements. A custom screen for data gathering was designed. Custom enhancements consisting of ABAP programs, Ztables, and user exits within CRM were written. SAP consultants were used on a part-time basis over a period of six months. The technical team consisted of veterans from previous R/3 projects. Brother was able to implement all of the planned CRM functions on time, within budget.
Benefits
Brother can be expected to benefit from CRM in tangible financial terms, as well as in longer-term operational and strategic ways. Operational changes are what drive financial results in the short term. Consolidation of nine separate legacy databases into one integrated database is the enabler for almost everything else. The benefits of lower database maintenance costs, by business users as well as by MIS, accrue immediately and are compounded as the customer base grows over time. Over a million customer records have been created thus far, and some 6,000 are being added daily.
One of the most visible new processes enabled by CRM is campaign management. The old campaign process required consolidation of several downloaded files followed by data scrubbing to eliminate duplicate or bad records. The process required several days to a week of effort for every campaign but can now be accomplished within hours. The new campaign process can generate tightly focused target groups for campaigning and identify the effectiveness of a campaign processed from CRM. Ad hoc scenarios can be performed for estimating campaign size. Data integrity is assured thanks to the CRM data entry points where inputs are validated during entry. Duplicate records are eliminated using the search logic within CRM. Reports are generated with information on quantities of products sold as a result of a particular campaign. The simplified CRM campaign tools provided allow super users to create and execute campaigns without any MIS intervention. Multiple sales campaigns have been conducted and sales increased soon after implementation.
On the service center operations side some 30,000 calls are being logged weekly into CRM. Approximately three months of call data was transferred into CRM from the legacy systems. In the beginning, less than 2 percent of all calls were from customers in the system. Over a six-week period, this was increased to more than 20 percent as more customer records existed in the system. This measure alone is an indicator of improving customer service levels. Some 170,000 products have been registered and some 23,000 inbound mails have been received for processing into CRM thus far.
On average, the customer service agents achieved pre-implementation talk times in less than three weeks. A significant reduction of 40 percent in work order cycle time for servicing the King (end users) is expected. This translates to approximately a $1.80 reduction in cost per customer call processed. Likewise a 50 percent reduction in work order cycle times for servicing the Queen (dealers) is expected. This translates to approximately $3.50 cost savings per work order, and up to $10 per call in the case of swaps. Additional call center related benefits include the ability to report on performance of distinct call handling groups down to the level of individuals requiring additional coaching. This can also be used to identify and disseminate best practices.
Even the most modest reduction in returns attributable to CRM is sufficient to justify Brothers decision to invest in CRM. Each 0.25 percent reduction in returns results in savings of more than $1.6 million for the first year and every year thereafter. Brother achieved a 7 percent reduction continuously over the five-year period from 1996 to 2000, and it is clear that there is still room at the bottom.
ROI
The ROI Report has projected the internal rate of return on the investment of $1,727,000 by Brother International Corp. USA into CRM to generate an ROI of at least 129 percent in the most conservative scenario. Sensitivity analysis shows that the time to break even in all scenarios is about 2 years. The largest portion of the CRM benefits is obtainable from reductions in returns, which are easily measurable and impact cash flow directly. Benefits attributable to R/3 and initiatives other than CRM were excluded in this exercise. Contributions due to transaction efficiencies were ignored for this exercise because they are highly sensitive to multiple assumptions and some of them are already included in the reduction of returns. In reality these benefits could be an order of magnitude larger, and have even greater strategic value for the business. Also significantly, sales growth in general as well as sales growth directly attributable to CRM was assumed to be zero, because of the hyper-competitive nature of the business.
