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CRM Done Right

Supplier: Enabling
25 January, 2008

This article gives a valuable perspective into harnessing the power of CRM, while avoiding the pitfalls. This summary traces the diverse experiences of different companies.

Outline of Article

Authors: DK Rigby, GD Ledingham, Harvard Business Review, November 2004

Where CRM Was Implemented. One Minute Summary

  • Sales staff organisation/automation, order entry, linked to order and credit history
  • Quotations, ordering, forecasting
  • Help Desk Product Call Centre with knowledge base, campaign management
  • Detailed forecasting, managing prospect pipeline, lead management

In the 1990s, millions of dollars were spent to track and strengthen customer relationships. Many companies failed to reap the expected benefits, and enthusiasm waned. Since 2003, however, research shows CRM spending has been growing again. Why the change? A variety of companies with recent successful implementations were studied, to discover any potential common elements. They can be summarised as:

  • Disciplined,
  • Pragmatic and
  • Narrowly focused.

Start Small and Focused
Rather than trying to transform the business, the companies studied solved problems in their customer relationship cycle which were clearly defined. The customer relationship cycle begins from market segmentation ending with the sale, and wooing customers back for more. The companies showed a healthy scepticism, discounting overblown claims that the real benefit of CRM is a "real-time enterprise." Understanding that highly accurate and timely data are not required everywhere in their businesses, they tailored their CRM to those parts of their relationships that truly depended on "perfect" information.  After succeeding with a smaller project, this was often used as a springboard for resolving other problems.

The authors suggest four questions to ask when launching CRM initiatives:

  • Is it strategic?
  • Where does it hurt?
  • Do we need perfect data?
  • Where do we go from here?

CRM needs to be deployed to best advantage. In previous research, many companies' CRM was less effective due to the absence of organisational structures to support them, making them mistrustful of CRM generally. Aiming to clarify which CRM projects are likely to show the most value, the companies studied included an aircraft parts distributor, Aviall, equipment manufacturer, Ingersoll-Rand, office equipment distributor, Brother International and Molex, a manufacturer of electronic connectors.

Is it strategic?
CRM involves business and technology issues and significant investment. It is not a tool for fine tuning. It should be applied to processes vital to a company's competitiveness: for competitive advantage, or to avoid falling behind the industry. If it is not strategic, it will be difficult to overcome inertia and make the organisation changes required to achieve the expected returns.

Aviall appointed a new CEO who wanted to transform them into the premier supply chain vendor for aviation. By partnering both manufacturers and the aeroplane fleet owners, they wanted to consolidate demand and strengthen sales and margins.  The huge problem was poor information and cumbersome processes in sales and service. Sales people were often trapped in the office helping enter orders instead of making calls. Time and territory management were also poor, causing inefficiency and haphazard service. Customer calls were often directed to distant offices which lacked up to date data on orders and products.

Weak customer service left accounts vulnerable, undermining the ability to charge premium prices for what should have been flawless service. A better trained sales force was critical. So in conjunction with sales and IT, this was the CEO's priority rather than a full scale implementation of CRM across the company. Aviall installed CRM for the salesforce, order entry and for the call centre. The goal was to coordinate customer information from outside sales people, and to inside sales support, then to customer service people in call centres. The narrow focus allowed sales staff to become familiar with the system without being overwhelmed, and allowed quick victories to win broader support.

The gains were striking.  Previously sales staff relied on an outmoded database: it was hard to obtain even basic information on customers' order history and credit status. "Credit problems didn't get flagged till you placed the order…and you either had to have the customer on hold for 15 minutes or call them back. If you don't have the right product, the right information and the right price…together… you lose the call,…90% of the time you lose the sale." With the new system the customer's history and credit status instantly popped up on the order entry screen.

The rich information flipped a switch: it helped sales staff become more organised, spurred them to make more calls, knowing they could deliver firm quotes on tailored products and services. Placing an order once required 11 screens and 50 steps; now it took one screen and 10 steps. After four months, sales calls tripled, customer numbers grew by 33%, productivity in sales and service skyrocketed. This helped recapture market share and win large orders. Order numbers jumped from 1,000 per day to 2,500, with lower error rates and no extra staff.

This allowed Aviall to reshape as a full service provider of aviation logistics. Sales and profits grew rapidly as market share increased. Rolls Royce awarded them a 10 year contract - the largest deal ever struck in the industry. "We showed Rolls Royce the level of visibility we had into our customer base (which) we could share with them to give a deeper understanding of buying trends…A simple analysis showed (they) had several years' worth of supply in some products while being understocked in others because it was not matching manufacturing with customer demand. That was pivotal in winning the contract."

Where does it hurt?
CRM can manage the entire sales cycle at once - purchase, after sales service, subsequent purchases and recommendations. But it is usually a bad idea. It creates unused technology, disrupts a business unnecessarily, and fails the payback test. When examining their customer relationships, there are usually deep seated, pernicious problems in a few areas which undermine performance. These pain points should be the focus.

Focusing on pain is not only an effective way to build a successful CRM, it can also revive a failing one.

At Ingersoll-Rand's Club Car division, which makes motorised golf carts, sales were drifting down as a downturn hit. Management lacked the information to diagnose the reasons. Managers and reps had their own ideas. Forecasts were informal, using guesswork. Management realised more information was needed, so rolled out a large CRM implementation, from lead evaluation, proposals and order entry. It was too much to achieve all at once. After more than $2m spent, management were not convinced about benefits, and the productivity gains were not apparent. In fact the reps now had more to do. The project was stopped and focused on two pain areas: forecasting sales and taking orders. After two years on CRM MkII, customer service and decisions making were "significantly improved." By involving the sales staff in redesigning the system, keeping it lean and simple, many of the original CRM system's drawbacks were eliminated. Reps were able to configure and place orders at the customer’s premises, and for the first time, see the financial implications of different configurations. The company's own order information was combined with economic data to generate reliable forecasts, leading to better manufacturing schedules.

Do We Need Perfect Data?
An early promise of CRM used to be real time information. But the cost is high, to collect, disseminate and fine tune. Why collect real time data for processes which customers don't value, or managers cannot rapidly adjust? A hotel manager needs real time data on room availability, but not customer feedback on the curtains. A cable TV company may need real time data on service failure but not the profitability of a program.

The approach of office equipment distributor, Brother illustrates this. They had a high rate of product returns. A primary cause, they believed, was poor service from the call centre. With products becoming more sophisticated, customers needed more help. But the call centre was only answering 46% of queries from purchasers, and the quality of help varied widely.  Operators were unable to answer questions about problems. To find answers, staff had to search folders for information. Disgruntled customers were therefore returning their products to the retailer.

Management saw that here they needed "perfect" information. A CRM system was rolled out in stages, starting with one product, with others at 2 to 4 week intervals. This allowed the system and training to be refined as they went.  It was impressive. When customers call, they are identified, showing the purchase records and giving standard responses to common questions. Call times were reduced substantially, saving up to $600,000. With call centres subsequently handling 140,000 calls per month, customers were left on hold on average for less than 5 minutes. Training time was also cut, while product returns were reduced by one third, from 5% to 3.4% the next year.

Benefits flowed wider however. By capturing data on the nature of calls, the company gained new insights into customers' needs and behaviour. This improved their ability to tailor marketing programs, including surveys and newsletters to market segments. Knowing the most common questions allowed answers to be disseminated in advance. This reduced the number of calls. This data is also used in product and customer satisfaction planning to improve product satisfaction.

Real time information helps companies cope with high levels of complexity in their operation, helping prioritise.  Global electronics manufacturer, Molex had many customers and a huge pipeline of potential orders. For years, emails and spreadsheets were used to try to keep track of the pipeline worldwide. Data were often weeks out of date. It was hard to assess those with the highest potential. With a worldwide operation, different locations could all be working on similar deals for the same customer without knowing it. 

A CRM system was installed to manage the order pipeline. For the first time, staff up to the CEO could see opportunities in real time, not just a few times per year.  Gains were immediate. Better order management, more precise sales targets, better coordination of inventory and pricing between regions. Since CRM, the number and value of potential sales have climbed significantly. Opportunities have been shared earlier. The goal was a 5% increase in revenue, which the company met.

Afterwards, Molex management realised the data could be used for budgeting. The pipeline is now the basis of the revenue part of the budget and for supply chain management also.

A narrow focus CRM system reveals additional opportunities, often resulting in a broad ranging CRM system. What makes it different from earlier unsuccessful implementations is that each step is a carefully planned, well defined strategic step.

Smart CRM users don't keep still. They analyse their data to identify new opportunities to extend the technology's power.  This may mean extending to other divisions, or to suppliers and customers. 

Business Before Technology
The technology is dependable, but is the means not the end. The need is to focus on business needs, and on what CRM can do, not what it should do. By setting priorities, making sure they are guided by customer strategy, highly disciplined CRM efforts will have greater impact, with lower investment and less risk. Like any valuable management tool. The keys to success are strong leadership, careful strategic planning, clear performance measures and a coordinated program combining organisation and process changes. No longer a black box, CRM is becoming a basic building block of corporate success.