A startling forecast has emerged in telecommunications, financial services,
health care, retail, and other industries where customer interaction is intensive,
and high-volume transactions with large numbers of customers require complex
infrastructures. In these businesses, aggressive enterprises will soon learn
how to use their contact centers and other customer interaction structures not
simply to serve customers, but to generate bold growth. Industries will split
into those competitors that successfully execute their customer relationship
management strategies and those companies that falter on the execution. When
such a split becomes evident, the innovative leaders who are able to leverage
customer relationships to drive profitable growth will stand the best chance
of being rewarded by investors and the financial markets.

If this forecast turns out to be accurate, corporations have a limited window
of opportunity, and their leaders face a dilemma. In the communications and
high-tech (C&HT) industries, where the majority of products and services
have become commoditized, successful management of customer relationships has
a proven correlation to sustained profitability.¹ As the focus for growth in
C&HT steadily shifts to services and solutions, the need to provide effective
CRM across multiple channels cannot be ignored. With globalization, consolidation,
and other market forces steadily raising the competitive bar, and with customers
clamoring for better services across more channels than ever before, executives
know they cannot afford to ignore CRM. Yet CRM is no small investment, and companies
are under incessant pressure from investors to reduce costs, maintain top-line
growth, and show healthy profits.

In the face of these diametrically opposed forces, and in an increasingly difficult
economic climate, many companies are responding in predictable fashion. In a
survey conducted by CIO magazine, nearly one in five respondents had
reduced their CRM spending in 2001, with the typical company cutting its budget
by more than one-third.² But using a butcher’s
blade to make crude cuts in CRM funding could undermine the enterprise-wide
integration needed to realize the full CRM value proposition. More importantly,
it could have an adverse effect on the quality of customer relationships. Is
there a way out of this double bind?

Understanding the Investment

Full-blown CRM solutions require a larger investment than most companies have
ever made, outside of direct capital spending for facilities and equipment.
Just the licenses for effective software solutions run into the thousands of
dollars per user. Add integration costs, which can easily multiply the total
cost by a factor of two or more, and it soon becomes apparent that building
the required capabilities is more resource-intensive than most companies would
like. According to Gartner, at least 80 percent of enterprises underestimate
their CRM costs.³ Forrester reports that the average CRM implementation will
cost between $60 million and $130 million, significantly more than many enterprise
solutions implementations.⁴

One reason for the high cost of CRM is that its goals are ambitious. The discipline
of identifying, attracting, and retaining a company’s most valuable customers
doesn’t just aim to reduce costs, but to spark and sustain profitable growth.
To do so, it has to reach into virtually every corner of the corporation; it
necessitates rethinking and reengineering a company’s customer-related operations
from end to end. Another reason is that CRM systems are complex and discrete,
with numerous software applications and systems that need to be integrated so
that they all work together and mesh with the company’s existing IT infrastructure.

But there are clear rewards for companies that make wise investments in CRM.
In a recent study of more than 250 companies in six industries, Accenture found
that what separated the best companies from the rest could be explained by CRM
effectiveness. A typical $1 billion business unit could add up to $50 million
in profit by making a mere 10 percent improvement in a specific set of CRM capabilities.⁵

Given these considerations, companies need a new approach to planning and implementing
CRM solutions. Simple fine-tuning and fragmented initiatives will yield insignificant
results. What is needed is a holistic but realistic approach that can deliver
a one-two punch — increase revenues as well as reduce costs — within a relatively
short time frame. By correlating initial CRM initiatives with those that have
a high probability of success but require relatively modest resources, executives
can lay the funding foundations for the remainder of CRM implementations, as
well as build internal support for the effort.

Pillars of Holistic Change

In prioritizing CRM investments, a company must think holistically, even as
it uses a phased approach to execute prudently. Three pillars of change emerge
as imperatives.

Companies Must Rethink Obsolete Customer Strategies

For a long time, it was a widely accepted and much strived for standard to
accord each customer the best, most personalized treatment possible. Today,
that practice has been shown to yield little reward. The fact is that more personalized
interactions don’t necessarily generate greater sales. A more sound strategy
begins with a re-engineering of customer interactions so that these are aligned
with any given customer’s value to the company. This means that companies should
focus their high-cost resources on customers with high-value potential, and
shift most other interactions to lower-cost channels.

A More Intelligent Model for Acquiring CRM Capabilities is Required

CRM is not simply about cutting costs, but also about spurring growth. For
this reason, any program premised purely on a savings-based value proposition
should be regarded with caution. But the solution to unraveling the investment
knot is not to cut its cost in half. When executives see a price tag that is
too high, there is an understandable inclination to try implementing the entire
program at lower funding levels. All this does is use a blunt instrument to
indiscriminately slice CRM initiatives, without regard for their relevance to
the organization’s profitability. What’s more, CRM initiatives are more interdependent
than most; reducing spend on all increases the chance that few will survive
or succeed. A flexible, scalable model for developing CRM capabilities is called
for — one that allocates the initial investment to initiatives that will pay
off quickly and provide the platform for additional capabilities later on.

Companies Need to Optimize CRM Operations

While early investments in CRM may have optimized parts of the customer process,
they did not go far enough and thus had limited impact. For example, some companies
built vast data warehouses and call centers but did not enable customer service
representatives at those call centers to access the data in the warehouses.
This lack of integration made it impossible to optimize operations across business
functions. In order to harvest the highest value from their CRM investment,
corporations need to break down such barriers, so that the whole is greater
than the sum of its parts when it comes to managing customer relationships.
Creating linkages between organizational entities and the systems they use —
so that agents can be fully equipped to meet customer requests — will have a
significant impact on business results.

Prioritizing Investments: Focus on Customer Interaction

Clearly there are significant benefits to be realized quickly by improving
CRM operations, but how does a company know which parts of the CRM spectrum
to concentrate on? By understanding which initiatives will likely be successful
within a short period of time, which will be most valued by customers, and which
will enable additional CRM capabilities in the future, you can begin to shape
an intelligent CRM plan.

It makes sense to begin at the nexus of customer relationships: customer interaction.
This is the basic layer of customer relationships, where the customer has meaningful
personal contact with the corporation. Often, a potential customer’s initial
interaction with a company sets the tone for that relationship, establishes
the company’s personality in the customer’s mind, and can strongly influence
future actions. The quality of interactions is key to converting potential customers
as well as to retaining current ones. And as businesses offer more of their
services through interactive channels like the Web, customer interaction will
reach ever deeper into the workplace to handle a greater number of activities.
Consequently, it is occupying a higher place on the strategic agenda. Creating
the ability to manage customer interactions in an intelligent manner, clearly,
is an important CRM concern.

A customer interaction strategy, in order to yield sustainable and profitable
growth, requires not only the ability to gather deep information about customers,
but also the ability to differentiate customer treatment based on that information.
Smart companies adopt a tiered service model that assigns customer treatment
protocols according to the value of a customer to the company. For example,
a well-known fashion retailer consistently routes calls from its best customers
to its best sales agents (see sidebar).

The lack of analysis and customer segmentation has caused organizations to
under-serve some of their customers and over-serve many, adversely affecting
both customer retention and operational costs. Some companies have developed
a strategy based on value analysis but don’t have the capabilities to operationalize
that strategy. Execution requires integrated capabilities for capturing and
analyzing customer data, modeling, and segmenting the customer base, using customer
insights as foundation for proactive programs and customized offers, and, most
importantly, differentiating treatment based on customer value.

Today, customers not only communicate with companies via multiple channels
including telephone, fax, email, wireless, the Internet, and mail correspondence,
but they also communicate more frequently and enter into more complex dialogues
than ever before. Technology tools and their proper application to organization
and processes are increasingly important to manage this deluge of interaction
and turn it into a river of revenue. Tools that manage customer interaction
across all touch points and support the differentiation of customer treatment
are a critical piece of the infrastructure necessary to optimize CRM operations.
Similarly critical is the integration of these tools with related systems and
business processes.

Investment in next-generation contact centers — equipped to manage and
track all customer interactions regardless of channel and to link them to back-office
functions and marketing and sales information — has the potential to produce
significant business value for customers and shareholders and should be a top
CRM priority. Companies that have taken such an approach have seen revenues
climb by as much as 40 percent and costs drop by up to 15 percent.

Figure 1 – Improved Interaction Management Using Avaya’s Business
Advocate

The Return on Contact Center Investment: Driving Revenues and Containing Costs

Imagine a customer calling a company’s toll-free number to check on the status
of her order. At the prompt, she enters her account information and is connected
with a service agent, who has access to comprehensive customer intelligence
on his desktop. After informing the customer of her order’s status, the agent,
armed with relevant sales and marketing data, is alerted to a cross-selling
opportunity and invites the customer to view a product on the company’s Web
site. As they are viewing a product online, the agent sends additional information
via email. The customer decides to purchase the product online. The order form
is automatically populated with her personal information, thus speeding the
transaction.

Integrating people, processes, and technology on the contact center level can
enable this type of rich interaction. Not only does it result in better utilization
of resources and improved responsiveness and efficiency — it can also turn what
has traditionally been a cost center into a revenue generator. A multichannel
contact center whose agents have access to up-to-date customer intelligence
and marketing, sales, and service information from enterprise systems can capitalize
on cross-selling and up-selling opportunities.

Integrating the contact center across all channels and business functions also
drives down costs. Companies that can push low-complexity requests and low-value
customers toward self-service options — like the Web, for example — have seen
that this practice alone yields tremendous benefits. Customers’ aversion to
self-service has proven to be a myth; some retailers have successfully diverted
as much as 80 percent of customer inquiries to self-service solutions, dramatically
reducing their cost to serve and reallocating resources toward serving high-value
customers.

A major automotive financial services provider set out with Accenture’s assistance
to transform its decentralized, branch-based customer service organization,
which administers more than 7 million loan contracts to customers in 40 countries.
After streamlining business processes and raising call center effectiveness
through workflow, imaging, enhanced self-service, and call-routing capabilities,
the company saw a 54 percent increase in accounts outstanding per full-time
equivalent call center employee, with a 34 percent decrease in operations costs
per contract. Today, the company supports a centralized customer care organization
in which its 4,000 agents are cost-efficient. Furthermore, the parent motor
company’s dealers are free to do what they do best, which is sell cars, not
wrestle with customer service inquiries and contract paperwork.

Enabling the contact center with intelligent interaction management capabilities
also gives a company a unified view of each customer, yielding insights into
customer preference. For example, there are high-value customers that are comfortable
using low-cost channels like the Internet. Conversely, there are lower-value
customers who insist on speaking with a live customer service representative
on the telephone. With this knowledge, a company can tailor the options they
present to individual customers, thus improving the customer experience and
contributing to customer retention and loyalty. After all, to some people, how
a message is delivered can be just as important as the message itself. Customers
who feel that a company is responsive to their needs and preferences and is
easy to do business with are much more likely to continue their patronage.

Enabling optimized interactions across all channels at the contact center level
is a far-reaching but very doable proposition. In structuring CRM investments,
it is an all-important first step that delivers results, even as it creates
the platform for more advanced CRM initiatives, such as insight-based marketing
or sales force automation.

Untying the Knot to Unlock Profitable Growth

Once CRM priorities have been clearly defined, all investments and expenditures
must be framed in a realistic approach to change within the organization. Companies
can follow some important steps to ensure the success of their CRM efforts:

Construct a Solid Plan and Business Architecture

A holistic strategy, executed in stages — beginning with those initiatives
that require moderate resources, can yield measurable results quickly and will
serve as the foundation for additional capabilities — is key. Many companies
fail because they lack a high-level map or coordinated plan, and are forced
to rely on incremental and largely ineffectual changes. According to CIO magazine,
two-thirds of companies plan to implement their CRM systems incrementally, with
just one-third opting for a single system implemented all at once.⁶ This piecemeal
trend underscores the need for long-term visions and detailed goals, requirements,
and timing. According to Gartner, only 35 percent of enterprises will adequately
define the benefits and business case before implementing a CRM program, and
less than 20 percent will have tools in place to guide decision-making over
the life of the project.⁷

Build True Management Buy-In at Senior Levels With Inviolable Resource Commitments

Over and above the costs, building an effective capability for managing customer
interaction requires management to be fully committed over the long haul. Your
funding plans must ensure enough early payback to retain management enthusiasm
for later stages. CRM implementation is definitively a long-term proposition,
as companies are beginning to discover. According to a survey from the Data
Warehouse Institute, CRM rollouts are proceeding slowly, with only 8 percent
of companies surveyed having completed their implementation. Some 45 percent
of companies have collected fewer than 100,000 customer records, most of which
represent conventional customer account and sales data.⁸ Because sparking growth
through CRM may not occur until 12 to 18 months down the road, executives need
to drive long-term strategy while aiming for quick hits in order to secure funding
and sustain momentum over a broader time horizon.

Acquire Capabilities Cost-Effectively

While many customer interaction-related functions are too critical to be acquired
or outsourced, other capabilities can be built through co-sourcing strategies
with world-class partners who have the required expertise. Companies can also
reduce costs by leveraging the outsourcer’s scale while gaining access to highly
trained and experienced personnel. Additionally, companies can take advantage
of relationships between technology and service providers to decrease risk and
increase speed to value.

New types of teaming arrangements, such as co-sourcing, can provide value and
a fast path to acquiring capabilities. For example, Accenture and AT&T announced
earlier this year that they had joined forces to transform AT&T Consumer’s
long-distance sales and customer care operation, which serves nearly 60 million
consumers. The firms signed an agreement to creatively enhance sales and care
capability while reducing costs. The co-sourcing agreement combines the strengths
of both companies, each of which will contribute to the management, staffing,
technology, and culture of the operation. AT&T Consumer expects that the
co-sourced operation will enable the company to improve productivity and flexibility
while reducing sales and customer care costs by more than half over the life
of the agreement.⁹

In unraveling the investment knot, which remains undeniably complex, a holistic
approach that is implemented in stages makes the best business sense. Building
the capabilities to intelligently manage customer interactions across all touch
points is a wise first step in the execution of such an approach; it can become
an engine for growth and enable the implementation of additional CRM capabilities.
By optimizing contact center performance, by integrating multiple channels and
business functions, by aligning customer treatment to customer profitability,
and by delivering a consistent customer experience across all channels, CRM
investments have the power to deliver transformational results.

Endnotes

1 Accenture study, “How Much Are Customer Relationship Management Capabilities
Really Worth? What Every CEO Should Know,” 2001.

2 CIO.com, “CRM: Are companies buying it?” January 2002.

3 Walter Janowski, Scott Nelson and Ted Friedman, “Data Cleansing: Detergent
for CRM?” Gartner Group, July 2001.

4 Bob Chatham, “CRM: At What Cost?” Forrester Research, March 2001.

5 Accenture study, “How Much Are Customer Relationship Management Capabilities
Really Worth? What Every CEO Should Know,” 2001.

6 CIO.com, January 2002.

7 Beth Eisenfeld, Dale Hagemeyer, Joe Galvin. “Financial Metrics for Measuring
CRM ROI.” Gartner Group, March 2001.

8 Rich Whiting, “CRM’s Realities Don’t Match Hype.” InformationWeek, March
2001.

9  Accenture and
AT&T Press Release, January 2002