To actualize the promise of CRM, organizations must retrofit existing CRM implementations intobest practices models.

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Many organizations are now feeling the pain of their unfettered CRM buying
binges of the late 1990s and early 2000s. Back when enterprises had been buying
CRM technology suites with nary a business case or customer strategy in sight,
it was enough justification to believe “the customer is always right” in order
to apply capital budget to technology projects for “delighting the customer.”

As post dot-bomb reality sinks in, there is disappointment in benefits attained,
usability, and the lack of a promised panoramic customer view, all of which
are contributing to a (perceived or actual) lack of value. Indeed, from some
customers’ perspectives, things are getting worse. Escalating customer annoyance
with the increasing number of unsolicited interactions has resulted in zealously
reactive legislation (e.g., Do Not Call, CAN-SPAM) prescribing new marketing
rules of engagement. As 2004 brings us new insights and new opportunities, organizations
must eliminate their irrational exuberance for technology quick fixes and embrace
time-tested and fairly basic CRM best practices to positively affect customer

CRM Basics

The “mental model” for end-state CRM looks like this: customers are so well
understood that customer life cycle – engage, transact, fulfill service (ETFS)
treatments – can be differentiated based on the customer’s strategic value to
the organization. The organization manages according to customer profitability
indicators in addition to other business metrics. A new role of customer segment
manager is added to work with product and brand management and to holistically
manage the customer segment in terms of the portfolio of segment-specific offers
and ETFS treatments. Through this approach, the panoramic view of the customer
is achieved.

This end-state mental model implies that customer segmentation strategies evolve
beyond the use of demographics and psychographics to include cross-channel interaction
and buying behaviors, interaction preferences, predictive behavior modeling
and the segment’s strategic value. “Value” is not just about financial value;
it is also about how well a particular customer type supports the organization’s
business strategy.

Finally, the notion of a one-to-one customer relationship (especially in business-to-consumer
businesses) has experienced a reality check (as diminishing returns abound)
and has been replaced by a one-to-many (segment-based) relationship. The intimacy
of one-to-one is not lost; it is provided through “mass personalization” techniques,
where the ETFS treatment strategy is determined at the segment level, and the
interaction is personalized on delivery.

CRM value is predicated on a philosophy of continuous and incremental ROI delivery.
This is an important tenet, since the CRM endgame is, in reality, a five- to
seven-year journey, where the goal is not a one-and-done technology solution,
but instead is a philosophical transformation from product- to customer centricity.
Without an iterative methodology and time-boxed approach toward deliverable
creation, maximum CRM value will continue to be elusive.

CRM Design Principles

Achieving the CRM endgame requires creating a three-domain business system
called customer life cycle management (CLCM), in which the customer technology
is the design point rather than a particular line of business, organization,
or product (see Figure 1).

Constructed much like a balanced three-legged stool, the domains are:

  • The customer life cycle – Consisting of the ETFS process steps, the customer
    life cycle represents the process steps through which a customer moves. Over
    time, organizations will differentiate ETFS treatments by segment. ETFS is
    effectively a segment-specific abstraction layer.
  • CRM business processes – The customer life cycle is enabled by customer-facing
    business processes in sales, customer service, marketing, offers (product
    or service) and channels. The ETFS steps abstract the various combinations
    of these processes from the customer, enabling great process flexibility without
    exposing inner process workings.
  • The CRM technology ecosystem – The CRM technology ecosystem is a technology
    environment recognizing that CRM will remain a multivendor, multiproduct and
    multidomain effort for the foreseeable future (see Figure 2). It includes:
    operational CRM; collaborative CRM; analytical CRM; and CRM technology integration
    (front office, back office, inter-enterprise, cross-channel and pan-ecosystem).

Getting Started

The end-state CRM value proposition is about economically optimal ETFS treatments
differentiated based on segment value. In mathematical terms, CRM value equals
segment-specific ETFS treatments (e.g., one treatment plan for gold customers;
another, less expensive plan for bronze customers). It is important to note
that CRM value is not based simply on customer profitability. Instead, it balances
financial and strategic elements to determine the right ETFS treatment via quantitative
elements (e.g., profitability, CLTV) as well as qualitative value elements (e.g.,
fit with the business strategy). Yet a CRM initiative should not start with
differentiated ETFS treatments based on value.

Applying pragmatic CRM design principles (e.g., iteration, timeboxing), CRM
initiatives that need to build credibility (and most of them do) must start
with quick-hit technology projects “linked” to the CRM business plan. This requires
unwavering commitment to metrics and iteration, program coordination, and a
repeatable methodology. To manage this somewhat complex approach of tactical
strategy, organizations must be sensitive to potential pitfalls and apply a
sense-and-respond approach to CRM implementation red flags and early warning

Learning to detect and react to warnings is critical to CRM success. Therefore,
organizations must understand their CRM capabilities to predict program weak
spots and create risk mitigation strategies. Indeed, paying careful attention
to the CRM program environment provides critical predictive information that
must not be ignored. It is important to recognize that the CRM endgame is CLCM,
consisting of the customer life cycle, its underlying business processes, and
the enabling technology ecosystem.

Four Trends That Really Matter

The press is rife with pundits prognosticating on the state of CRM in 2004,
making often outlandish predictions about what the future holds for CRM. Enterprises
must distill the massive amount of CRM opinions and information down to actionable,
pragmatic 2004 priorities, while not “designing out” future capabilities. To
this end, there are only four trends that really matter in 2004.

By the looks of things, 2004 is promising to be a better year CRMwise than
the previous 18 months in terms of both end-user internal activity and technology
spending. IT budgets have increased 3 to 4 percent from those of 2003, and organizations
are once again funding CRM initiatives. Although the CRM acronym now has some
negative connotations associated with it in some industries (e.g., retail banking),
resilience is returning to the CRM technology market, and critics are becoming
less shrill about CRM failures.

Organizations should expect the inevitable resumption of CRM speculation and
soothsaying and therefore must avoid getting caught up in CRM trends du jour
(e.g., real time for technology’s sake) or making technology investments without
sound business cases. There are various interesting CRM approaches, and four
key futures should drive organizational CRM planning.

1. During 2004 and 2005, lack of perceived value resulting from technology
over-investment will drive organizations to realign their CRM initiatives with
their business strategies.

For the past three to four years, enterprises that have been actively working
on CRM have been buying the technology with insufficient business justification
(i.e., no business plan or customer strategy). As a result, many organizations
are not experiencing anticipated value from their CRM investments, which is
often manifest as lack of executive confidence in CRM as a whole. (Yet many
would not recognize success if it came up and greeted them on the street, since
they did not build measurement strategies into their CRM implementations.) Still,
the fact remains that lack of perceived technology value often goes hand-in-hand
with technology over-investment as measured by overly complex new processes,
underused applications, unimplemented seats, and usability complaints.

Organizations in this situation must immediately stop investing in technology
(even if temporarily) and take a step back to rebalance their CRM initiatives
according to CLCM design principles. Specifically, organizations must focus
on re-engineering or at least re-examining business processes associated with
the technology domains and ultimately add the ETFS transformation.

User Action

  • Retrofit a business plan around the technology, highlighting business strategies
    and customer philosophy associated with implementations. Identify key performance
    indicators and a realistic measurement approach. Address organizational issues
    and ownership (e.g., chief customer officer).
  • Create a measurement/metrics program to attain continuous value measurement
    (this means taking measurements before and after CRM improvements are delivered),
    which may be somewhat difficult, since the technology is obviously already
    in place.
  • Sell and market CRM and its business benefit and credibility.

2. During 2004 and 2005, legacy applications nearing their end of life will
motivate organizations to upgrade to next-generation CRM architectures.

CRM technology evolution has kept pace with the IT community at large – therefore,
proprietary vendor architectures have been largely overhauled to accommodate
open standards (e.g., XML, WSDL, SOAP) and service-based component architectures.
The architectures of current releases of CRM suites (e.g., PeopleSoft 8.8, Siebel
7.5.3, mySAP CRM 4.0) represent a major advance in technology, but are not always
accompanied by the functional enhancements necessary to demonstrate business
ROI. As a result, plus very tight IT budgets during the past 12 to 18 months,
many firms have put off making this step-change in technology and postponed
what are very expensive upgrades until the last possible moment. That moment
is here: Virtually all suite vendors are beginning to talk about application
end-of-life scenarios. Indeed, vendors are starting to make it very uncomfortable
for their customers to remain on legacy releases, using tactics such as significantly
increasing maintenance and support costs on all releases prior to X.X or reducing
the number of support staff providing technical support on these older releases.

User Action

Organizations must take note and immediately start planning their upgrades
with the goal of a fully upgraded system no later than the first quarter of
2005, or else face being “de-supported.”

3. By 2006, CRM transformation will become strategic for mainstream organizations,
supported by industry-specific products, service-oriented architectures, integration
frameworks, and articulated value propositions.

Within the next 24 months, CRM will move into the business mainstream, taking
a trajectory similar to that of ERP, moving from being a new, leading-edge technology
idea to a requisite business state of mind. CRM will no longer have the buzzword
connotation associated with it and will be an accepted and quite strategic business
best practice, enabled by:

  • Improved process “fit” – Applications are becoming increasingly verticalized,
    which means out-of-the-box solutions will provide a much better business fit,
    requiring fewer extensions and less customization (lowering implementation
    costs by as much as 25 to 30 percent).
  • Ability to more seamlessly leverage heterogeneous technologies within a
    process – The promises of Web services and component architectures inevitably
    point toward a “Lego” paradigm of application assembly: Fine-grained services
    are written and assembled into coursergrained components (Lego pieces), which
    are stored in a component library for business-oriented users to assemble
    into end-user applications (Lego race cars or castles). The key is the integration
    server (“Lego board”), which ultimately impounds all the requisite integration
    instrumentation and abstracts much of the complexity away from the user.
  • Continuous process measurement and metrics monitoring – CRM’s strategic
    use is enabled by building metrics and the ability to take continuous measurements
    into the DNA of a process.

User Action

Organizations must begin now to position CRM as a business best practice.

4. By 2006, 15 percent of Global 2000 organizations will approach end-state
CRM, having succeeded in imbuing CLCM into their business practices.

End-state CRM brings the CRM state of mind into sharp focus. It is not achievable
in a single project, but will take five to seven years, on average, for a Global
2000 organization to complete the full transformation.

User Action

CRM programs must be structured to be iterative and time-boxed, delivering
something of value every three to six months. Be patient.

Bottom Line

It is important to ignore CRM “noise” in the press and stay focused on four
key planning trends. Technology investments must be balanced with business process
re-engineering and customer life cycle implementation, and organizations must
be aware that upgrading will be critical, CRM will move from being niche to
being mainstream, and there is an end in sight.