Customer Relationship Success: Latest Thinking and Practical Advice on the Way Forward

Customer฀Relationship฀Success฀Report฀2004 Customer฀ Relationship฀ Success Latest thinking and practical advice on the way forward Centre for Corporate Change, Australian Graduate School of Management 1 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀ Customer฀Relationship฀Success฀Report฀2004 > Contents About฀the฀Authors฀ ฀ iii ฀ ฀ ฀ iii iii iii ฀ iii ฀ ฀ ฀ iii iv iv Executive฀Summary฀ ฀ 1 1.฀฀Introduction฀ 1.1฀฀Customer฀Relationship฀Management:฀A฀Defi฀nition฀ 1.2฀฀What฀Was฀Done?฀ 1.3฀฀Who฀Was฀Studied?฀ 1.4฀฀Degree฀of฀CRM฀Adoption฀ 1.5฀฀Report฀Outline฀ 2.฀฀Does฀it฀Pay฀to฀be฀Customer฀Focused?฀ 2.1฀฀Service฀Profi฀t฀Chain฀ 2.2฀฀The฀Service฀Profi฀t฀Chain฀Under฀Attack฀฀ 2.3฀฀CRM฀Strategic฀Orientation฀ 3.฀฀What฀Capabilities฀are฀Required฀for฀Success?฀ 3.1฀฀Customer฀Information฀Infrastructure฀ 3.2฀฀Skills฀and฀Experience:฀Converting฀Data฀to฀Knowledge฀ 3.3฀฀Supporting฀Organisational฀Structures฀ 3.4฀฀CRM฀Program฀as฀a฀Combination฀of฀Capabilities฀ 4.฀Environmental฀Pressures฀Driving฀Investment฀in฀CRM฀ 4.1฀฀Customer฀Willingness฀to฀Participate฀in฀a฀Relationship฀ 4.2฀฀Competitive฀Pressures฀ 4.3฀฀Market฀Turbulence฀ 4.4฀฀Technological฀Pressures฀ 5.฀฀The฀Implementation฀of฀Complex฀Organisational฀Change฀ 5.1฀฀Direct฀System฀Costs฀of฀Implementation฀ 5.2฀฀Indirect฀Costs฀of฀Implementation฀ 5.3฀฀Beliefs฀Held฀by฀Managers฀ 5.4฀฀Cultural฀Change฀ 6.฀฀Positioning฀for฀Competitive฀Success฀฀ 6.1฀฀Reactive฀Customer฀Orientation฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ 2 3 4 4 5 6 8 8 10 11 15 15 18 21 23 25 25 27 28 29 32 32 33 34 36 38 38 6.2฀฀Proactive฀Customer฀Orientation฀ 6.3฀฀Additional฀Measures฀of฀Customer฀Orientation฀ 7.฀฀A฀Final฀Wrap฀ Further฀Readings฀For฀Those฀Who฀Want฀More฀ ฀ ฀ ฀ ฀ 39 40 43 46 ฀ ฀ 2 Tim฀Coltman฀ Professor฀Timothy฀Devinney฀ Research฀Partners฀ ฀About฀The฀Centre฀for฀Corporate฀Change,฀Australian฀ Graduate฀School฀of฀Management฀ ฀About฀The฀Decision฀Systems฀Laboratory,฀ University฀of฀Wollongong฀ About฀SAP฀ About฀MIS฀Australia฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 About฀the฀authors About฀the฀Authors฀ Tim฀Coltman฀ Senior฀Lecturer,฀University฀of฀Wollongong฀&฀PhD฀Candidate,฀Australian฀ Graduate฀School฀of฀Management Tim’s฀current฀area฀of฀interest฀is฀the฀design฀and฀implementation฀ of฀e-business฀systems฀(CRM,฀ERP฀and฀SCM)฀to฀support฀improved฀ organisational฀performance.฀He฀has฀spent฀the฀last฀five฀years฀ investigating฀both฀the฀drivers฀and฀constraints฀to฀success.฀Before฀his฀ academic฀career,฀Tim฀spent฀10฀years฀in฀business฀as฀an฀IT฀project฀ manager฀working฀in฀management฀consultancy,฀government฀and฀ higher฀education฀sectors. Tim฀has฀published฀articles฀in฀leading฀journals฀such฀as฀Advances฀ in฀Strategy,฀California฀Management฀Review฀and฀Communications฀of฀ the฀ACM.฀He฀has฀presented฀papers฀and฀addresses฀at฀internationally฀ recognised฀conferences฀in฀the฀US,฀France,฀Singapore,฀Australia฀and฀ New฀Zealand. Professor฀Timothy฀Devinney฀ Director฀of฀the฀Centre฀for฀Corporate฀Change,฀Australian฀Graduate฀ School฀of฀Management฀ Timothy฀is฀one฀of฀Australia’s฀leading฀experts฀on฀strategic฀ management.฀He฀has฀previously฀held฀positions฀on฀the฀faculties฀ of฀Vanderbilt฀University฀and฀the฀University฀of฀California,฀Los฀ Angeles.฀He฀has฀published฀five฀books฀and฀more฀than฀50฀articles฀ in฀leading฀journals฀including฀Management฀Science,฀Journal฀ of฀Business,฀Academy฀of฀Management฀Review,฀Organization฀ Science฀and฀Strategic฀Management฀Journal.฀He฀is฀a฀visiting฀ professor฀at฀both฀Copenhagen฀Business฀School฀and฀London฀ Business฀School฀and฀a฀member฀of฀the฀Academy฀of฀Management. Research฀partners About฀The฀Centre฀for฀Corporate฀Change,฀Australian฀Graduate฀ School฀of฀Management฀ www.ccc.agsm.edu.au The฀strategic฀purpose฀of฀the฀Centre฀for฀Corporate฀Change฀(CCC)฀ is฀to฀challenge฀the฀leadership฀status฀quo฀in฀Australia฀by฀providing฀ a฀forum฀for฀radical฀new฀thinking฀based฀on฀substantive฀experience฀ and฀world-class฀research.฀The฀CCC฀exists฀to฀promote฀the฀merger฀ of฀experienced฀corporate฀leadership฀with฀academic฀intellectual฀ rigour,฀recognising฀that฀one฀is฀not฀antithetical฀to฀the฀other.฀ The฀CCC’s฀operational฀goal฀is฀to฀foster฀and฀disseminate฀worldclass฀thinking฀in฀the฀area฀of฀strategic฀change,฀which฀requires฀a฀ multi-disciplinary฀approach฀to฀problem฀solving฀that,฀while฀broad฀ in฀scope,฀also฀has฀the฀intellectual฀depth฀in฀the฀application฀of฀ disciplinary฀know-how.฀Hence,฀the฀CCC’s฀operational฀imperative฀ is฀to฀bring฀disciplinary฀excellence฀to฀the฀requirements฀of฀studying฀ multifunctional฀organisational฀change,฀no฀matter฀where฀in฀the฀ world฀that฀expertise฀resides.฀ About฀The฀Decision฀Systems฀Laboratory,฀University฀of฀฀ Wollongong฀ www.dsl.uow.edu.au฀ The฀Decision฀Systems฀Laboratory฀(DSL)฀is฀an฀interdisciplinary฀ group฀of฀experienced฀academics฀drawn฀from฀the฀Faculty฀of฀ Informatics,฀and฀the฀Faculty฀of฀Commerce฀at฀the฀University฀ of฀Wollongong.฀฀Members฀of฀DSL฀share฀a฀common฀interest฀in฀ providing฀practical฀solutions฀to฀the฀challenge฀of฀information฀ systems฀design฀and฀implementation.฀Operationally,฀the฀aim฀ of฀DSL฀is฀to฀provide฀companies฀with฀the฀know-how฀required฀ to฀effectively฀deploy฀enterprise฀systems฀that฀include,฀but฀are฀ not฀limited฀to,฀supply฀chain฀management,฀enterprise฀resource฀ planning฀and฀customer฀relationship฀management.฀ 3 About฀SAP฀ www.sap.com SAP฀is฀the฀world’s฀leading฀provider฀of฀business฀software฀solutions*.฀ Today฀more฀than฀24,450฀customers฀in฀over฀120฀countries฀run฀ more฀than฀84,000฀installations฀of฀SAP®฀software฀–฀from฀distinct฀ solutions฀addressing฀the฀needs฀of฀small฀and฀midsize฀businesses฀ to฀enterprise-scale฀suite฀solutions฀for฀global฀organisations.฀These฀ solutions฀are฀powered฀by฀SAP฀NetWeaver™฀platform฀to฀drive฀ innovation฀and฀enable฀partner฀collaboration฀and฀create฀efficiencies฀ across฀their฀supply฀chains฀and฀business฀operations.฀SAP฀industry฀ solutions฀support฀the฀unique฀business฀processes฀of฀more฀than฀25฀ industry฀segments,฀including฀high฀tech,฀retail,฀public฀sector฀and฀ financial฀services.฀With฀subsidiaries฀in฀more฀than฀50฀countries,฀the฀ company฀is฀listed฀on฀several฀exchanges,฀including฀the฀Frankfurt฀ stock฀exchange฀and฀NYSE฀under฀the฀symbol฀“SAP”.฀ (*)฀SAP฀defines฀business฀software฀solutions฀as฀consisting฀ of฀enterprise฀resource฀planning฀and฀related฀software฀solutions฀ such฀as฀supply฀chain฀management,฀customer฀relationship฀ management,฀product฀lifecycle฀management฀and฀supplier฀ relationship฀management. About฀MIS฀Australia฀ www.misweb.com/australia Founded฀in฀1992,฀MIS฀Australia฀was฀the฀first฀title฀in฀Australia฀ to฀understand฀and฀devote฀its฀content฀to฀the฀most฀senior฀IT฀ executives฀and฀their฀particular฀information฀needs.฀These฀readers฀ are฀known฀by฀many฀titles฀–฀CIOs,฀IT฀directors,฀VPs฀of฀IT฀–฀but฀ have฀one฀responsibility:฀managing฀the฀entire฀IT฀operation฀to฀drive฀ the฀business฀through฀savvy฀IT฀strategy฀and฀management. MIS฀Australia’s฀quality,฀reputation฀and฀loyalty฀are฀founded฀in฀ the฀magazine’s฀ability฀to฀tap฀into฀peer-to฀peer฀advice,฀opinion,฀ news฀and฀features฀specific฀to฀today’s฀CIOs Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀ Customer฀Relationship฀Success฀Report฀2004 Executive฀Summary What฀makes฀companies฀such฀as฀National฀Australia฀Bank฀in฀ Australia,฀Otto฀Versand฀in฀Germany,฀Tesco฀in฀the฀United฀Kingdom฀ and฀Capital฀One฀in฀the฀US฀so฀much฀better฀at฀managing฀customer฀ relationships฀than฀their฀competitors?฀This฀question฀was฀the฀ basis฀of฀a฀large฀survey฀of฀senior฀managers฀in฀medium฀to฀large฀ Australian฀companies.฀The฀fi฀ndings฀demonstrate฀that฀relationship฀ leaders฀outperform฀their฀rivals฀by฀proactively฀identifying฀new฀ market฀developments฀and฀seeking฀to฀meet฀latent฀or฀unarticulated฀ needs฀of฀their฀customers.฀ To฀punch฀above฀their฀weight฀in฀today’s฀competitive฀ environment,฀companies฀need฀databases฀and฀software฀to฀gain฀ a฀deep฀understanding฀of฀customer฀needs฀and฀behaviours.฀ Yet,฀technology฀alone฀is฀insuffi฀cient฀for฀success.฀What฀sets฀ relationship฀leaders฀apart฀from฀the฀rest฀is฀an฀ability฀to฀create฀the฀ deeply-seeded฀organisational฀change฀required฀to฀support฀the฀ open฀sharing฀of฀customer฀information.฀ Eight฀lessons฀follow฀from฀our฀study: ■ Lesson฀1:฀CRM฀programs฀are฀deployed฀for฀different฀reasons.฀ The฀optimal฀combination฀was฀50%฀customer฀intimacy,฀30%฀ operational฀excellence,฀10%฀data฀analytics฀and฀10%฀tactical฀ response.฀ ■ Lesson฀2:฀Sophisticated฀IT฀infrastructures฀are฀necessary฀but฀ not฀suffi฀cient฀for฀customer฀relationship฀success.฀ ■ Lesson฀3:฀The฀ability฀to฀ask฀penetrating฀questions,฀glean฀ useful฀insights,฀and฀act฀decisively฀comes฀from฀skills฀that฀are฀not฀ evenly฀distributed฀between฀organisations.฀ ■ Lesson฀4:฀CRM฀systems฀are฀a฀combination฀of฀activities฀that฀ require฀managers฀to฀align฀and฀orchestrate฀the฀disparate฀parts฀of฀ the฀organisation. ■ Lesson฀5:฀The฀depth฀of฀relationship฀a฀customer฀wants฀with฀a฀ supplier฀can,฀in฀itself,฀be฀an฀effective฀way฀of฀segmenting฀markets฀ around฀fundamental฀customer฀needs.฀ ■ Lesson฀6:฀In฀the฀rush฀to฀fi฀x฀the฀technology฀and฀business฀ alignment฀issues,฀managers฀tend฀to฀overlook฀what฀is฀feasible฀and฀ focus฀instead฀on฀what฀is฀desirable. ■ Lesson฀7:฀Being฀responsive฀to฀customer฀needs฀is฀no฀longer฀ suffi฀cient.฀Positioning฀for฀success฀requires฀a฀proactive฀approach฀ that฀is฀capable฀of฀identifying฀latent฀customer฀needs฀and฀ competitive฀strategies. ■ Lesson฀8:฀Different฀stages฀of฀relationship฀development฀ represent฀different฀revenue฀and฀cost฀profi฀les.฀This฀implies฀that฀ different฀customers฀must฀be฀managed฀in฀different฀ways.฀ 4 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀ Customer฀Relationship฀Success฀Report฀2004 01฀Introduction “There is a consistency and predictability to the quality of behaviour in the very best organisations.” – Margaret J. Wheatley, Leadership and the New Science: Learning about Organisation from an Orderly Universe (1994) In฀most฀markets฀one฀sees฀leaders฀who฀outperform฀their฀ rivals฀through฀their฀close฀and฀connected฀relationship฀to฀their฀ customers.฀A฀number฀of฀these฀‘relationship฀leaders’฀come฀ to฀mind:฀National฀Australia฀Bank฀in฀Australia,฀Otto฀Versand฀ in฀Germany,฀Tesco฀in฀the฀UK,฀Capital฀One฀and฀Harrah’s฀ Entertainment฀in฀the฀US.฀For฀organisations฀such฀as฀these,฀ customer฀relationship฀management฀(CRM)฀is฀more฀than฀a฀tool,฀ and฀is฀part฀of฀a฀deeply฀embedded฀strategic฀disposition฀that฀ enables฀them฀to฀outperform฀their฀rivals฀in฀what฀are฀otherwise฀ fi฀ercely฀competitive฀markets.฀ For฀those฀wanting฀to฀learn฀from฀these฀role฀models฀a฀number฀ of฀questions฀come฀to฀mind.฀Why฀are฀they฀so฀successful?฀What฀ market฀conditions฀exist฀that฀make฀investment฀in฀these฀programs฀ worthwhile?฀What฀deeply฀embedded฀capabilities฀and฀customeroriented฀cultures฀do฀they฀possess?฀How฀much฀time฀and฀effort฀ have฀they฀invested฀in฀CRM?฀Is฀the฀answer฀to฀simply฀invest฀in฀the฀ latest฀CRM฀software฀to฀leapfrog฀the฀competition?฀ The฀optimism฀generated฀from฀concentration฀on฀‘relationship฀ winners’฀is฀in฀stark฀contrast฀to฀the฀nay฀saying฀of฀many฀business฀ commentators.฀For฀example,฀research฀and฀advisory฀fi฀rm฀the฀ Gartner฀Group฀claimed฀that฀close฀to฀50฀per฀cent฀of฀all฀CRM฀ projects฀failed฀to฀meet฀expectations.฀Additionally,฀an฀InfoWorld฀ survey฀found฀that฀close฀to฀30฀per฀cent฀of฀chief฀technology฀offi฀cers฀ said฀that฀CRM฀was฀one฀of฀the฀most฀‘over฀hyped’฀technologies฀ they฀had฀seen.฀These฀commentaries฀highlight฀the฀frustration฀ many฀executives฀experience฀as฀software฀glitches,฀poorly฀trained฀ staff฀and฀disparate฀legacy฀systems฀continue฀to฀hinder฀effective฀ deployment฀of฀CRM฀programs.฀Far฀from฀improving฀profi฀ts฀and฀ cementing฀relationships,฀some฀companies฀fi฀nd฀themselves฀in฀the฀ worst-case฀scenario฀where฀their฀CRM฀systems฀wind฀up฀alienating฀ long-term฀customers฀and฀employees.฀Yet฀despite฀these฀issues,฀ the฀tide฀of฀CRM฀growth฀and฀development฀continues฀to฀swell฀ and฀rise฀–฀the฀A$426฀million฀spent฀on฀such฀systems฀in฀2003฀ is฀expected฀to฀increase฀to฀over฀A$560฀million฀by฀2008฀(The฀ Australian,฀29฀June฀2004).฀ So฀what,฀if฀anything,฀is฀wrong฀with฀CRM?฀Given฀the฀huge฀ investment฀required฀to฀develop฀a฀CRM฀system฀it฀is฀hardly฀the฀ case฀that฀such฀expenditures฀are฀made฀without฀a฀robust฀business฀ case.฀Nor฀can฀the฀‘relationship฀failures’฀simply฀be฀laid฀at฀the฀ doorstep฀of฀an฀‘over฀hyped’฀technology.฀Indeed,฀most฀postmortems฀of฀CRM฀failure฀trace฀the฀problems฀back฀to฀factors฀other฀ than฀software฀and฀technology.฀Nor฀are฀over฀optimistic฀‘big฀bang’฀ approaches฀to฀implementation฀solely฀to฀blame.฀Project฀teams฀ today฀are฀astutely฀aware฀that฀the฀larger฀and฀more฀radical฀an฀IT฀ project฀is,฀the฀more฀likely฀it฀is฀to฀fail.฀ In฀our฀mind,฀the฀problem฀rests฀fair฀and฀square฀with฀fl฀awed฀ managerial฀decision-making.฀Put฀bluntly,฀senior฀managers฀ 5 underestimate฀the฀CRM฀implementation฀challenges฀and฀ operational฀managers฀are฀not฀tactically฀allocating฀CRM฀programs฀ in฀ways฀that฀are฀responsible฀and฀appropriate฀for฀the฀environments฀ in฀which฀they฀operate.฀ In฀what฀follows฀we฀attempt฀to฀provide฀managers฀with฀much฀ needed฀perspective.฀We฀integrate฀current฀thinking฀and฀best฀ practice฀with฀new฀insights฀derived฀from฀a฀study฀conducted฀by฀the฀ Centre฀for฀Corporate฀Change฀at฀the฀Australian฀Graduate฀School฀ of฀Management.฀The฀report฀is฀not฀intended฀to฀be฀exhaustive฀but฀ to฀provide฀a฀snapshot฀of฀the฀capabilities฀required฀and฀problems฀ encountered฀when฀deploying฀CRM.฀Most฀importantly,฀it฀draws฀ together฀complementary฀strands฀of฀thought,฀experience฀and฀ data฀in฀a฀summary฀fashion,฀to฀present฀a฀picture฀of฀how฀decisionmaking฀can฀be฀improved.฀It฀is฀hoped฀that฀this฀document฀ will฀provide฀a฀springboard฀for฀more฀informed฀debate฀within฀ organisations,฀whether฀they฀are฀delivering฀a฀new฀CRM฀program,฀ terminating฀a฀fl฀oundering฀program฀or฀tweaking฀a฀well฀functioning฀ program.฀ 1.1฀Customer฀Relationship฀Management:฀ A฀Defi฀nition฀ From฀a฀technical฀perspective฀CRM฀is฀grounded฀on฀the฀ interrelationship฀between฀high-quality฀customer฀data฀enabled฀by฀ information฀technology฀(IT).฀However,฀from฀a฀strategic฀perspective฀ its฀aims฀and฀scope฀are฀considerably฀broader.฀According฀to฀ the฀Gartner฀Group,฀CRM฀is฀defi฀ned฀as฀a฀business฀strategy฀ whose฀outcomes฀optimise฀profi฀tability,฀revenue฀and฀customer฀ satisfaction฀(the฀why?)฀by฀organising฀around฀customer฀segments,฀ fostering฀customer-satisfying฀behaviours฀and฀implementing฀ customer-centric฀processes฀(the฀how?).฀Although฀this฀is฀a฀ reasonably฀complete฀defi฀nition฀it฀lacks฀the฀operational฀detail฀that฀ most฀managers฀value.฀For฀example,฀there฀are฀environmental฀ pressures฀that฀determine฀what฀the฀market฀will฀allow฀and฀whether฀ it฀makes฀sense฀to฀invest฀in฀CRM฀programs.฀Organisations฀possess฀ many฀resources฀and฀capabilities,฀but฀only฀a฀few฀will฀lead฀to฀ positions฀of฀sustained฀advantage฀and฀these฀need฀to฀be฀spelt฀ out฀in฀detail.฀Last,฀organising฀around฀the฀customer฀is฀costly฀and฀ may฀not฀be฀feasible฀for฀everyone.฀Therefore,฀we฀seek฀a฀defi฀nition฀ of฀CRM฀that฀is฀deeper฀and฀more฀inclusive฀of฀the฀drivers฀and฀ impediments฀to฀CRM฀success.฀These฀aspects฀are฀all฀illustrated฀in฀ Exhibit฀1฀below฀and฀explored฀in฀detail฀throughout฀this฀report.฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀ Customer฀Relationship฀Success฀Report฀2004 CUSTOMER฀RELATIONSHIP฀MANAGEMENT:฀A฀DEFINITION Exhibit฀1฀–฀CRM฀operational฀components 1.2฀What฀Was฀Done? This฀report฀was฀prepared฀under฀the฀auspices฀of฀the฀AGSM’s฀Centre฀ for฀Corporate฀Change฀(CCC),฀with฀fi฀nancial฀support฀from฀the฀CCC,฀ Fairfax฀Business฀Research฀and฀SAP.฀It฀is฀one฀of฀the฀most฀detailed฀ analyses฀of฀the฀way฀Australian฀companies฀are฀gaining฀competitive฀ advantage฀from฀investment฀in฀CRM฀programs.฀The฀research฀ entailed฀extensive฀fi฀eldwork฀that฀included฀over฀50฀interviews฀ of฀senior฀managers฀and฀executives฀in฀Australian฀companies.฀ Additionally,฀the฀detailed฀survey฀data฀collected฀required฀the฀ assistance฀of฀more฀than฀400฀Australian฀companies.฀ The฀targeted฀industries฀are฀characterised฀primarily฀by฀large฀ consumer฀markets฀that฀cover฀a฀diverse฀range฀of฀customer฀ contact฀points.฀They฀comprise฀a฀mixture฀of฀mature฀and฀emerging฀ CRM฀programs,฀and฀the฀companies฀involved฀in฀the฀study฀ are฀characterised฀by฀strong฀market฀pressures฀to฀differentiate฀ themselves฀from฀their฀competition.฀ The฀results฀presented฀in฀this฀report฀are฀unlike฀any฀other฀research฀ in฀fi฀ve฀ways.฀Specifi฀cally฀we: ■฀ Measure฀the฀business฀unit฀rather฀than฀the฀fi฀rm.฀What฀one฀ unit฀such฀as฀Corporate฀and฀Institutional฀Banking฀does฀at฀NAB฀ to฀compete฀for฀customer฀relationships฀is฀very฀different฀from฀the฀ actions฀of฀another฀unit฀such฀as฀Business฀Financial฀Services.฀ ■฀ Compare฀each฀business฀unit฀to฀their฀direct฀competitors.฀This฀ is฀important฀because฀although฀a฀business฀can฀be฀ranked฀highly฀ on฀certain฀capabilities,฀it฀must฀be฀superior฀to฀its฀rivals฀in฀order฀to฀ generate฀competitive฀advantages.฀ ■฀ Target฀a฀wide฀cross฀section฀of฀people฀in฀these฀organisations฀ charged฀with฀developing฀and฀implementing฀CRM฀programs฀to฀ ensure฀that฀responses฀are฀not฀subject฀to฀bias฀associated฀with฀the฀ perceptions฀of฀a฀particular฀functional฀area. ■฀ Provide฀insight฀into฀the฀range฀and฀depth฀of฀customer-relating฀ capabilities฀being฀developed฀by฀companies฀within฀seven฀broad฀ industry฀sectors฀–฀fi฀nancial฀services,฀insurance,฀airlines,฀utilities,฀ telecommunications,฀hotels฀and฀large฀retailers. ■฀ Gain฀a฀clearer฀understanding฀of฀the฀nature฀and฀evolution฀of฀ CRM฀programs฀by฀separating฀organisational฀capabilities฀from฀ 6 environmental฀pressures฀and฀examine฀how฀ managers฀react฀to฀new฀strategic฀demands฀and฀their฀own฀ organisational฀impediments.฀ 1.3฀Who฀Was฀Studied? The฀targets฀of฀this฀study฀were฀senior฀managers฀in฀general฀ management,฀marketing,฀fi฀nance฀and฀information฀technology.฀ The฀industries฀represented฀included฀Finance฀(40%฀of฀those฀ involved),฀Insurance฀(9%),฀Telecommunications฀(12%),฀Airlines฀ (7%),฀Hotels/Tourism฀(6%),฀Utilities฀(6%),฀Retail฀(10%)฀and฀ Other฀(9%).฀ The฀median฀company฀studied฀had฀approximately฀300฀ employees,฀with฀the฀smallest฀fi฀rm฀having฀50฀employees฀and฀ the฀largest฀12,000.฀The฀managers฀involved฀worked฀in฀fi฀ve฀ areas:฀(1)฀corporate฀or฀general฀management,฀(2)฀fi฀nancial/ operations฀management,฀(3)฀marketing฀and฀sales,฀(4)฀technology฀ management,฀and฀(5)฀customer฀support.฀All฀were฀very฀senior฀ managers฀as฀attested฀by฀their฀titles.฀The฀wide฀distribution฀of฀ respondents฀by฀job฀title฀provides฀rigour฀to฀the฀study฀as฀it฀ensures฀ that฀selection฀bias฀in฀the฀results฀is฀kept฀to฀a฀minimum. 1.4฀Degree฀of฀CRM฀Adoption฀ We฀see฀in฀the฀companies฀studied฀a฀maturing฀of฀CRM฀experience฀ and฀activity.฀Only฀19฀per฀cent฀of฀the฀respondents฀have฀no฀CRM฀ programs฀in฀place,฀while฀53฀per฀cent฀have฀CRM฀operations฀ in฀exploratory฀or฀pilot฀stages฀of฀development.฀In฀28฀per฀cent฀ of฀cases,฀CRM฀programs฀have฀been฀deployed฀for฀advanced฀ usage.฀This฀means฀that฀the฀CRM฀program฀has฀been฀successfully฀ integrated฀into฀the฀core฀systems฀of฀the฀business.฀Not฀surprisingly,฀ 75฀per฀cent฀of฀fi฀rms฀believe฀that฀they฀will฀have฀in฀place฀mature/ fully฀integrated฀CRM฀programs฀in฀the฀next฀two฀to฀three฀years.฀ Furthermore,฀this฀study฀indicates฀that฀we฀did฀not฀just฀look฀at฀ those฀companies฀that฀intend฀to฀implement฀advanced฀CRM฀ programs.฀Several฀insurance฀and฀utility฀companies฀in฀our฀sample฀ have฀no฀plans฀to฀deploy฀advanced฀CRM฀programs฀at฀all.฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀ Customer฀Relationship฀Success฀Report฀2004 A฀BROAD฀SECTION฀OF฀AUSTRALIAN฀INDUSTRY VERY฀SENIOR฀MANAGERS Exhibit฀2฀–฀Breakdown฀of฀survey฀respondents฀by฀industry Exhibit฀3฀–฀Survey฀respondents฀by฀job฀title CRM฀SYSTEMS฀ARE฀MATURING Exhibit฀4฀–฀State฀of฀CRM฀program฀today฀and฀in฀2-3฀years’฀time 1.5฀Report฀Outline฀ A฀primary฀aim฀of฀this฀report฀is฀to฀show฀how฀relationship฀leaders฀ are฀using฀CRM฀programs฀to฀outperform฀their฀rivals.฀However,฀ we฀also฀note฀that฀what฀has฀been฀shown฀to฀work฀for฀leading฀CRM฀ implementers฀may฀present฀a฀desirable฀model฀for฀other฀fi฀rms฀but฀ is฀rarely฀suffi฀cient฀to฀account฀for฀the฀unique฀customer฀demands,฀ organisational฀capabilities฀and฀environmental฀constraints฀that฀ face฀a฀company.฀There฀are฀many฀reasons฀why฀this฀is฀the฀case,฀ such฀as฀historically฀developed฀capabilities,฀customer฀bases,฀ managerial฀beliefs฀and฀regulatory฀environments฀etc.฀In฀this฀report฀ we฀seek฀to฀explain฀both฀the฀drivers฀and฀impediments฀to฀customer฀ relationship฀success.฀ ■ Chapter฀4฀–฀we฀illustrate฀the฀effect฀of฀personalisation฀and฀ competitive,฀market฀and฀technological฀pressures฀on฀CRM฀ success.฀These฀market฀pressures฀help฀us฀to฀understand฀the฀ extent฀to฀which฀economic฀value฀can฀be฀created฀and฀managed฀ through฀a฀more฀tailored฀customer฀relationship฀system.฀ ■ Chapter฀5฀–฀the฀ability฀of฀the฀organisation฀to฀weather฀the฀ implementation฀problems฀inherent฀in฀instituting฀a฀long-term฀ strategic฀change฀program฀is฀critical฀to฀CRM฀success.฀We฀illustrate฀ the฀diffi฀culty฀that฀many฀companies฀experience฀implementing฀ CRM฀programs฀that฀alter฀the฀balance฀of฀power฀within฀their฀ company฀and฀require฀both฀economic฀and฀behavioural฀changes฀ amongst฀its฀employees฀and฀managers. ■ Chapter฀6฀–฀we฀examine฀the฀performance฀implications฀of฀ positioning฀for฀competitive฀advantage.฀Several฀measures฀of฀ positional฀advantage฀are฀used฀to฀examine฀performance฀relative฀to฀ competitors.฀ ■ Chapter฀7฀–฀we฀conclude฀with฀a฀section฀that฀wraps฀up฀the฀key฀ fi฀ndings฀in฀this฀report.฀ 1.6฀Acknowledgements฀ This฀project฀would฀not฀have฀come฀to฀fruition฀without฀the฀support฀ of฀the฀project฀partners.฀Project฀champions฀deserving฀of฀special฀ mention฀are฀Quentin฀Long฀(MIS),฀Matthew฀Bushby฀(MIS)฀and฀ Jennifer฀Roach฀(SAP).฀We฀also฀wish฀to฀thank฀Natasha฀Dubauskas฀ and฀Noel฀Parkhill฀for฀assistance฀in฀executing฀the฀survey.฀Fran฀ Prior฀provided฀diligent฀secretarial฀assistance฀and฀Pauline฀Olive฀ aided฀us฀in฀her฀capacity฀as฀the฀business฀manager฀of฀the฀Centre฀ for฀Corporate฀Change.฀ The฀remainder฀of฀the฀report฀is฀structured฀as฀follows: ■ Chapter฀2฀–฀we฀build฀the฀platform฀for฀this฀study฀by฀reviewing฀ the฀work฀that฀purports฀to฀show฀that฀customer฀relationship฀ management฀makes฀a฀difference.฀We฀then฀plot฀the฀way฀strategic฀ orientations฀vary฀between฀respondents฀in฀our฀study.฀ ■ Chapter฀3฀–฀we฀explore฀the฀company฀specifi฀c฀capabilities฀ required฀to฀achieve฀an฀advantage.฀We฀break฀a฀customer-relating฀ capability฀into฀its฀constituent฀parts฀and฀then฀show฀how฀the฀ combination฀of฀these฀individual฀capabilities฀can฀lead฀to฀ positional฀advantage. 7 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀ Customer฀Relationship฀Success฀Report฀2004 02฀Does฀it฀Pay฀to฀be฀Customer฀Focused? “Would you tell me, please, which way I ought to go from here?” asked Alice. “That depends a good deal on where you want to get to,” said the Cat. “I don’t care where,” said Alice. “Then it doesn’t matter which way you go,” said the Cat. – Lewis Carroll, Alice’s Adventures in Wonderland For฀years,฀managers฀and฀marketers฀have฀emphasised฀strategies฀ designed฀to฀increase฀the฀size฀of฀their฀customer฀base,฀encourage฀ brand฀switching฀and฀boost฀purchase฀frequency.฀However,฀one฀of฀ the฀most฀signifi฀cant฀trends฀in฀recent฀years฀has฀been฀the฀shift฀in฀ focus฀from฀engaging฀in฀single฀transactions฀to฀establishing฀longterm฀relationships฀with฀customers.฀Consultants฀and฀company฀ directors฀echo฀this฀line฀of฀thinking:฀ First,฀you฀do฀everything฀you฀can฀to฀keep฀the฀clients฀you฀already฀ have฀and฀defend฀your฀market฀share;฀only฀then฀can฀you฀think฀ about฀looking฀for฀new฀customers.฀ Why฀the฀shift฀in฀strategic฀focus? Markets฀in฀developed฀countries฀like฀Australia฀are฀often฀mature฀ or฀at฀best฀growing฀slowly.฀This฀implies฀that฀there฀are฀fewer฀new฀ customers฀over฀which฀companies฀compete.฀Competition฀is฀ frequently฀intense฀and฀strategies฀based฀on฀customer฀acquisition฀ are฀increasingly฀diffi฀cult฀to฀meet.฀It฀has฀been฀estimated฀that฀the฀ cost฀of฀attracting฀new฀customers฀can฀be฀up฀to฀fi฀ve฀times฀as฀much฀ as฀the฀cost฀of฀serving฀existing฀ones฀effi฀ciently฀to฀ensure฀that฀they฀ stay฀with฀you.฀Current฀thought฀in฀marketing฀theory฀and฀practice฀ points฀out฀that฀competing฀through฀superior฀service฀and฀customer฀ relationships฀can฀be฀more฀profi฀table.฀Hence,฀allocating฀resources฀ to฀customer฀service฀initiatives฀can฀be฀particularly฀effective฀when฀ the฀cost฀of฀generating฀a฀new฀customer฀can฀substantially฀exceed฀ the฀cost฀of฀retaining฀a฀present฀customer. 2.1฀Service฀Profi฀t฀Chain The฀service฀profi฀t฀chain฀has฀proven฀to฀be฀one฀of฀the฀most฀popular฀ ways฀to฀illustrate฀the฀link฀between฀customer-focused฀behaviour฀ and฀profi฀tability.฀The฀logic฀is฀quite฀simple.฀When฀organisations฀turn฀ their฀attention฀towards฀the฀customer,฀they฀create฀value฀for฀those฀ customers฀that฀can,฀with฀some฀likelihood,฀drive฀customer฀satisfaction฀ with฀the฀product฀and฀purchasing฀experience.฀In฀turn,฀the฀increased฀ customer฀satisfaction฀will฀enhance฀loyalty.฀Finally,฀higher฀customer฀ loyalty฀will฀drive฀increased฀fi฀rm฀profi฀tability฀(see฀Exhibit฀5). ฀A฀classic฀example฀of฀the฀implementation฀of฀the฀service฀value฀ chain฀is฀the฀revitalisation฀of฀Sears,฀Roebuck฀and฀Company฀–฀the฀ large,฀established฀American฀catalogue฀retailer฀and฀department฀ 8 store฀that฀fell฀on฀hard฀times฀in฀the฀1980s฀as฀the฀consumer฀retail฀ market฀changed฀on฀a฀number฀of฀dimensions.฀More฀than฀100฀toplevel฀Sears฀executives฀spent฀three฀years฀rebuilding฀the฀company฀ around฀its฀customers.฀They฀developed฀a฀holistic฀business฀model฀ for฀the฀company฀–฀the฀employee-customer-profi฀t฀model฀–฀and฀an฀ accompanying฀management฀system฀that฀tracked฀activities฀from฀ management฀behaviour฀through฀employee฀attitudes฀to฀customer฀ satisfaction฀and฀fi฀nancial฀performance.฀Using฀statistical฀testing฀they฀ established฀that฀a฀fi฀ve฀percentage฀point฀improvement฀in฀employee฀ attitude฀drove฀a฀1.3฀percentage฀point฀increase฀in฀customer฀ satisfaction฀that,฀in฀turn,฀drove฀a฀0.5฀percentage฀point฀increase฀in฀ sales฀turnover.฀Although฀this฀might฀appear฀small,฀one฀has฀to฀keep฀ Service฀profi฀t฀chain Exhibit฀5฀–฀Service฀profi฀t฀chain฀(Heskett฀et฀al.฀1994฀Harvard฀Business฀Review) In one of the pioneering studies in this area, Bain & Company showed that something as small as a reduction in customer defections by 5 per cent could lead to an astounding 60 per cent increase in financial services profits over a five-year period. The implication of these studies is that companies should allocate resources to build more cooperative and long-lasting relationships with their customers. Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 in฀mind฀that฀Sears’฀sales฀in฀2003฀were฀US$41.1฀billion฀(A$54.3b).฀ The฀service฀profi฀t฀chain฀has฀been฀used฀in฀a฀host฀of฀industries,฀ providing฀further฀evidence฀of฀a฀relationship฀between฀customer฀ satisfaction,฀loyalty฀and฀company฀performance.฀ ■ Banking.฀Customer฀satisfaction฀in฀retail฀banking฀can฀be฀ correlated฀highly฀with฀branch฀profi฀tability.฀Highly฀satisfi฀ed฀ customers฀had฀balances฀20฀per฀cent฀higher฀than฀satisfi฀ed฀ customers฀and,฀as฀satisfaction฀levels฀went฀up฀over฀time,฀so฀did฀ account฀balances.฀The฀reverse฀was฀also฀true.฀As฀satisfaction฀ levels฀fell,฀so฀did฀account฀balances฀(Carr฀1999). ■ Telecommunications.฀A฀10฀per฀cent฀increase฀in฀a฀customer฀ satisfaction฀index฀led฀to฀a฀2฀per฀cent฀increase฀in฀customer฀ retention฀and฀a฀3฀per฀cent฀increase฀in฀revenues.฀In฀addition,฀ customer฀satisfaction฀was฀a฀leading฀indicator฀of฀customer฀ retention,฀revenue฀and฀revenue฀growth฀(Ittner฀and฀Larcker฀1998).฀ ■ Airlines.฀As฀one฀might฀expect,฀the฀main฀drivers฀of฀ dissatisfaction฀in฀the฀airline฀industry฀are฀high฀load฀factors฀ (crowding),฀mishandled฀baggage฀and฀poor฀punctuality.฀The฀study฀ concluded฀that฀as฀dissatisfaction฀rose,฀operating฀revenue฀fell฀and฀ consequently฀operating฀expenses฀rose฀and฀operating฀income฀fell฀ (Behn฀and฀Riley฀1999). However,฀these฀studies฀do฀not฀claim฀to฀establish฀a฀cause-effect฀ relationship.฀They฀simply฀fi฀nd฀evidence฀of฀a฀strong฀correlation฀ between฀customer฀satisfaction,฀loyalty฀and฀performance.฀Overall,฀ these฀results฀indicate฀that฀the฀strongest฀indicator฀of฀success฀is฀ loyalty.฀But฀what฀is฀loyalty฀and฀do฀all฀customers฀really฀want฀to฀be฀ loyal?฀As฀individuals฀we฀exhibit฀loyal฀behaviour฀to฀the฀things฀that฀ really฀matter฀to฀us: ■฀ To฀our฀spouse฀or฀partner ■฀ To฀our฀rugby฀league,฀soccer,฀Aussie฀rules฀or฀rugby฀union฀team ■฀ To฀our฀political฀party฀ But฀do฀we฀really฀want฀to฀be฀loyal฀to฀a฀bank,฀airline,฀hotel฀or฀retail฀store? 2.2฀The฀Service฀Profi฀t฀Chain฀Under฀Attack฀ Contrary฀to฀the฀popular฀view฀that฀long-life฀customers฀are฀more฀ profi฀table,฀others฀such฀as฀AGSM฀Professor฀Grahame฀Dowling,฀ caution฀that฀loyal฀customers฀can฀often฀be฀less฀profi฀table.฀One฀ reason฀for฀this฀is฀that฀they฀expect฀a฀reward฀for฀their฀loyalty;฀such฀ as฀a฀price฀discount฀or฀extra฀free฀service.฀In฀the฀case฀of฀fast฀ moving฀consumer฀goods,฀service,฀retail฀and฀lifestyle฀markets,฀ there฀is฀no฀logical฀reason฀why฀customers฀should฀stay฀loyal฀to฀a฀ single฀brand.฀There฀are฀many฀good฀reasons฀for฀this: ■฀ Different฀brands฀are฀used฀during฀different฀usage฀occasions฀ (eg.฀French฀Champagne฀for฀celebrations,฀Chenin฀Blanc฀or฀ Riesling฀with฀fi฀sh).฀ ■฀ Brands฀are฀complementary฀not฀substitutes฀(eg.฀The฀Sydney฀ Morning฀Herald฀for฀daily฀news฀and฀The฀Australian฀Financial฀ Review฀for฀in-depth฀company฀analysis). ■฀ It฀is฀necessary฀to฀combine฀various฀brands฀in฀order฀to฀create฀a฀ complete฀product฀(eg.฀with฀clothing,฀cosmetics,฀cooking,฀travel)฀ and฀customers฀are฀unwilling฀to฀have฀such฀choice฀constrained฀by฀ the฀supplier. ■฀ Consumers฀are฀variety฀seekers฀(eg.฀Italian,฀French,฀Mexican,฀ Chinese฀and฀Indian฀restaurants)฀and฀are฀unlikely฀to฀want฀to฀ remain฀with฀the฀same฀supplier฀forever. ■฀ The฀desire฀for฀novelty฀(let’s฀experiment฀and฀try฀something฀new).฀ Additionally,฀the฀levers฀that฀managers฀need฀to฀pull฀to฀drive฀ customer฀satisfaction฀can฀be฀quite฀different฀from฀what฀ determines฀dissatisfaction.฀We฀see฀evidence฀of฀this฀on฀customer฀ retention฀when฀a฀one-point฀increase฀in฀customer฀satisfaction฀(say฀ 9 from฀‘2’฀to฀‘3’฀on฀a฀fi฀ve-point฀scale฀for฀measuring฀‘satisfaction’)฀ does฀not฀compare฀equally฀with฀a฀one-point฀downward฀shift฀ (say฀from฀‘4’฀to฀‘3’฀on฀the฀same฀fi฀ve-point฀scale).฀Diminishing฀ returns฀may฀also฀set฀in฀if฀customer฀expectations฀are฀already฀met.฀ Further฀investment฀aimed฀at฀increasing฀customer฀satisfaction฀ from฀high฀to฀very฀high฀levels฀may฀not฀have฀the฀same฀impact฀ on฀performance฀as฀investments฀aimed฀at฀moving฀customer฀ satisfaction฀from฀low฀levels฀to฀parity.฀ What฀this฀means฀for฀a฀manager฀is฀that฀customer฀orientation฀does฀ not฀always฀lead฀to฀greater฀customer฀satisfaction,฀nor฀does฀customer฀ satisfaction฀always฀increase฀performance.฀Hence฀the฀equation฀ “market฀orientation฀=฀performance”฀is฀far฀too฀simplistic฀and฀does฀ not฀hold฀in฀most฀circumstances.฀Therefore,฀the฀impact฀of฀CRM฀ programs฀on฀fi฀rm฀performance฀may฀be฀either฀positive฀or฀negative,฀ depending฀upon฀the฀measure฀used,฀the฀industry฀analysed฀and฀the฀ type฀of฀IT฀system฀considered.฀What฀we฀can฀take฀from฀this฀is฀that฀more฀ relationship฀building฀is฀not฀necessarily฀better,฀but฀rather฀building฀the฀ right฀type฀of฀relationship฀is฀the฀key฀to฀performance฀success.฀ 2.4฀CRM฀Strategic฀Orientation฀ We฀know฀that฀CRM฀means฀different฀things฀to฀different฀ organisations.฀In฀some฀cases฀it฀is฀designed฀to฀support฀cooperation฀ and฀create฀a฀customer-centric฀business฀culture.฀This฀orientation฀ treats฀customers฀as฀true฀partners฀and฀refl฀ects฀a฀genuine฀ willingness฀to฀cater฀to฀individual฀service฀requirements.฀Others฀ are฀more฀focused฀on฀the฀implementation฀of฀best฀practice฀to฀ capture฀cost฀savings฀through฀business฀process฀automation.฀Some฀ focused฀proactively฀on฀the฀generation฀of฀customer฀intelligence฀ to฀enhance฀customer฀and฀company฀value.฀And฀some฀engage฀in฀ CRM฀for฀purely฀tactical฀reasons฀to฀block฀the฀impact฀of฀loyalty฀and฀ other฀relationship-based฀programs฀initiated฀by฀competitors.฀Each฀ of฀these฀four฀strategic฀orientations฀is฀summarised฀in฀Exhibit฀6. Strategic฀ Orientation Dominant฀Characteristic Customer฀as฀ Partner A฀top-down฀perspective฀that฀views฀CRM฀as฀a฀core฀ customer฀centric฀business฀strategy.฀This฀orientation฀ treats฀customers฀as฀true฀partners฀and฀refl฀ects฀a฀ genuine฀willingness฀to฀cater฀to฀individual฀service฀ requirements. Operational฀ Effi฀ciency This฀perspective฀on฀CRM฀is฀focused฀on฀the฀ implementation฀of฀best฀practice฀to฀capture฀cost฀ effi฀ciencies฀through฀major฀automation฀projects฀such฀ as฀service,฀sales฀force฀and฀marketing฀automation. Analytic฀Mining A฀bottom-up฀perspective฀on฀CRM฀concentrating฀on฀ the฀intelligent฀mining฀of฀customer฀data฀for฀strategic฀ and฀tactical฀purposes. Tactical฀Response A฀tactical฀perspective฀that฀seeks฀to฀deny฀an฀ advantage฀to฀competitors฀by฀imitating฀competitive฀ initiatives฀such฀as฀loyalty฀programs฀to฀retain฀ existing฀customers. Exhibit฀6฀–฀Four฀levels฀of฀strategic฀orientation We live and breathe the service-profit chain, understanding our customers is fundamental to our success – satisfied customers make satisfied clients, make happy shareholders. – AC Nielsen (www.acnielsen.com.au) Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 BREAKDOWN฀BY฀STRATEGIC฀ORIENTATION Customer฀as฀Partner Operational฀Excellence Data฀Analytic Tactical฀Response Exhibit฀7฀–฀Relevant฀strategic฀orientation฀that฀best฀describes฀your฀organisation’s฀CRM฀emphasis The฀results฀of฀our฀study฀show฀that฀in฀96฀per฀cent฀of฀cases,฀CRM฀ programs฀incorporate฀elements฀of฀all฀four฀strategic฀orientations.฀ Managers฀were฀asked฀to฀allocate฀the฀degree฀to฀which฀they฀ were฀pursuing฀each฀of฀these฀four฀strategic฀orientations.฀Two฀ orientations฀in฀particular฀display฀statistically฀signifi฀cant฀variation.฀ First,฀the฀median฀allocation฀to฀a฀“customer฀as฀partner”฀orientation฀ is฀40฀per฀cent.฀One฀third฀of฀companies฀in฀our฀sample฀allocate฀ “21-40%”฀and฀another฀28฀per฀cent฀allocate฀“40-60%”฀to฀this฀ strategic฀orientation.฀The฀other฀signifi฀cant฀area฀in฀which฀CRM฀is฀ deployed฀is฀operational฀effi฀ciency.฀The฀median฀allocation฀is฀30฀ per฀cent,฀with฀43฀per฀cent฀of฀companies฀allocating฀“1-20%”฀and฀ 33฀per฀cent฀allocating฀“21-40%”฀to฀operational฀excellence฀in฀an฀ effort฀to฀reduce฀costs.฀Although฀the฀remaining฀orientations฀are฀ not฀statistically฀signifi฀cant฀they฀are฀still฀important.฀In฀the฀case฀of฀ analytic฀mining฀the฀median฀orientation฀is฀10฀per฀cent,฀with฀73฀per฀ cent฀allocating฀between฀“1-20%”฀of฀their฀CRM฀strategy฀towards฀ data฀intelligence฀and฀other฀analytic฀activities.฀In฀the฀case฀of฀ tactical฀response฀programs,฀such฀as฀loyalty฀schemes,฀82฀per฀cent฀ of฀respondents฀allocated฀less฀than฀20฀per฀cent฀to฀this฀orientation.฀ 10 These฀fi฀ndings฀imply฀that฀customer฀relationship฀and฀ operational฀excellence฀strategies฀are฀primary฀strategic฀ orientations฀in฀our฀sample.฀Data฀analytic฀and฀tactical฀response฀ orientations฀appear฀to฀represent฀secondary฀strategic฀postures.฀ It฀is฀interesting฀to฀note฀that฀in฀most฀cases฀(96฀per฀cent)฀ organisations฀employ฀a฀balanced฀approach฀that฀includes฀ elements฀of฀all฀four฀strategic฀orientations.฀Why฀might฀this฀be฀ the฀case?฀First,฀most฀organisations฀are฀rational฀when฀it฀comes฀ to฀choosing฀the฀portfolio฀of฀markets฀in฀which฀they฀will฀operate.฀฀ They฀choose฀a฀balance฀of฀mature฀markets฀where฀they฀can฀exploit฀ existing฀capabilities฀and฀growth฀markets฀where฀they฀explore฀ and฀seek฀new฀opportunities.฀For฀example,฀only฀25฀per฀cent฀of฀ the฀companies฀surveyed฀indicate฀that฀they฀deal฀repeatedly฀with฀ same฀customer฀base.฀The฀implication฀of฀this฀is฀that฀companies฀ must฀work฀with฀customers฀that฀are฀at฀different฀relationship฀ stages฀and฀these฀stages฀are฀changing฀dynamically.฀Second,฀this฀ portfolio฀of฀markets฀is฀associated฀with฀differential฀rates฀of฀return฀ and฀commensurate฀levels฀of฀risk.฀For฀example,฀54฀per฀cent฀of฀ companies฀indicate฀that฀less฀than฀21฀per฀cent฀of฀their฀customers฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 FINDING฀THE฀OPTIMAL฀CRM฀COMBINATION฀ account฀for฀more฀than฀80฀per฀cent฀of฀profi฀ts฀and/or฀lifetime฀value฀ –฀an฀amazing฀validation฀of฀the฀80:20฀rule!฀Hence,฀the฀goal฀of฀any฀ organisation’s฀marketing฀strategy฀is฀not฀so฀clear฀and฀simple. What฀we฀see฀in฀the฀data฀is฀that฀a฀balanced฀approach฀makes฀ sense.฀The฀starting฀point฀is฀to฀deploy฀a฀customer฀as฀partner฀ orientation฀to฀change฀the฀way฀managers฀think฀about฀their฀ customers฀and฀their฀business.฀Closely฀complementary฀to฀this฀is฀ the฀development฀of฀systems฀for฀the฀collection฀of฀customer฀data฀ that฀reduce฀costs฀through฀operational฀excellence.฀If฀used฀well,฀ data฀analytics฀will฀also฀change฀the฀way฀customers฀think฀about฀ your฀company.฀But฀what฀is฀the฀optimal฀allocation? To฀illustrate฀how฀companies฀perform฀when฀CRM฀programs฀are฀ deployed฀for฀different฀reasons,฀we฀looked฀at฀the฀best,฀average฀ and฀worst฀performing฀segments฀in฀our฀data.฀The฀different฀ orientations฀are฀best฀illustrated฀on฀a฀two-by-two฀matrix฀(see฀ Exhibit฀8)฀where฀the฀arrows฀indicate฀the฀mean฀score฀for฀each฀of฀ the฀four฀categories.฀ Median฀scores฀are฀also฀useful฀for฀descriptive฀purposes฀and฀ are฀more฀effective฀at฀capturing฀the฀symmetry฀that฀characterises฀ 11 Attention฀to฀Offensive฀Marketing Attention฀to฀Offensive฀Marketing Exhibit฀8฀–฀Mean฀allocation฀of฀CRM฀activity our฀data.฀If฀we฀look฀at฀the฀organisations฀that฀are฀performing฀ better฀or฀far฀better฀than฀the฀competition,฀the฀‘best’฀combination฀ is:฀customer฀as฀partner฀(50฀per฀cent),฀operational฀excellence฀ (30฀per฀cent),฀data฀analytics฀(10฀per฀cent)฀and฀tactical฀response฀ (12.5฀per฀cent).฀The฀companies฀that฀are฀average฀performers฀ in฀their฀industry฀tend฀to฀place฀less฀emphasis฀on฀deploying฀ CRM฀to฀become฀customer฀focused฀and฀more฀on฀data฀analytic฀ activities.฀The฀median฀distribution฀for฀this฀segment฀is:฀customer฀ as฀partner฀(40฀per฀cent),฀operational฀excellence฀(30฀per฀cent),฀ analytic฀mining฀(15฀per฀cent)฀and฀tactical฀response฀(10฀per฀cent).฀ Finally,฀the฀group฀of฀companies฀that฀performed฀worse฀or฀much฀ worse฀than฀the฀competition฀are฀less฀sure฀about฀exactly฀what฀ they฀should฀be฀doing฀with฀their฀marketing฀programs.฀They฀use฀ CRM฀to฀achieve฀effi฀ciency฀through฀operational฀excellence฀and฀to฀ defend฀their฀current฀market฀position.฀These฀companies฀allocate฀ the฀highest฀scores฀to฀operational฀excellence฀(35฀per฀cent)฀and฀ tactical฀response฀(15฀per฀cent)฀orientations.฀Consequently฀they฀ score฀lowest฀on฀customer฀as฀partner฀(35฀per฀cent)฀and฀analytic฀ mining฀(10฀per฀cent).฀ Lesson 1 CRM programs are strategically deployed for different reasons. The optimal combination is 50 per cent customer intimacy, 30 per cent operational excellence, 10 per cent data analytics and 12.5 per cent tactical response. Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 03฀What฀Capabilities฀are฀Required฀for฀Success?฀ Today, when people say “implement” CRM, they often think about technology; the reality is that you can only enable CRM with technology. There is a pattern in the marketplace where some big technology is introduced and everyone gets excited about tracking customer information with it. But CRM is more than that. You need three things: a means to track the information, the ability to evaluate customer performance with metrics, and the means to make change happen. – Heidi Wisbach, manager CRM analytics, Capgemini Ernst & Young Marketing News, 7 May, 2001 Many฀organisations฀are฀coming฀to฀the฀realisation฀that฀sustained฀ competitive฀advantage฀is฀based฀largely฀on฀possession฀of฀the฀right฀ resources฀and฀capabilities.฀Conceivably,฀an฀organisation฀can฀possess฀ many฀resources฀and฀capabilities,฀but฀only฀a฀few฀of฀these฀have฀the฀potential฀ to฀lead฀to฀positions฀of฀sustained฀advantage.฀It฀is฀rare฀that฀investment฀in฀ simple฀customer฀relationship฀solutions฀such฀as฀network฀technology,฀CRM฀ software,฀good฀intentions฀and฀skilled฀staff฀will฀produce฀superior฀outcomes.฀ Instead,฀organisations฀require฀a฀deep-seeded฀commitment฀that฀ underscores฀an฀investment฀in฀an฀overarching฀customer-relating฀capability.฀ customer-relating฀capability But฀what฀is฀a฀customer-relating฀capability?฀We฀need฀to฀ appreciate฀that฀broad฀generalisations฀will฀not฀suffi฀ce.฀Defi฀ning฀ the฀necessary฀capability฀as฀possession฀of฀customer฀marketing฀ skills฀for฀example,฀can฀be฀misleading฀if฀the฀value฀lies฀in฀a฀ particular฀channel฀relationship฀as฀well฀as฀other฀ingredients฀ such฀as฀technology,฀pricing฀or฀promotion฀that฀are฀merely฀ average.฀Additionally,฀there฀needs฀to฀be฀some฀sense฀of฀how฀an฀ organisation฀compares฀to฀others฀in฀their฀industry฀to฀appreciate฀ the฀impact฀that฀each฀capability฀has฀on฀competitive฀advantage. To฀fully฀understand฀the฀scope฀of฀a฀customer-relating฀capability฀we฀ break฀it฀down฀into฀three฀constituent฀parts: ฀ ฀ 12 (1)฀฀฀Information฀technology฀infrastructure nformation฀technology฀infrastructure฀–฀the฀bedrock฀of฀ a฀formal฀CRM฀system฀is฀data.฀If฀CRM฀is฀going฀to฀have฀ a฀positive฀impact฀on฀performance,฀reliable฀data฀and฀ information฀are฀prerequisites. (2)฀฀Skill฀converting฀market฀data฀into฀customer฀knowledge Skill฀converting฀market฀data฀into฀customer฀knowledge฀–฀ data฀and฀information฀alone฀are฀insuffi฀cient.฀Organisations฀ must฀be฀capable฀of฀interpreting฀data฀correctly฀to฀ensure฀ the฀decisions฀that฀need฀to฀be฀made฀are฀in฀the฀right฀ business฀context.฀Know-how฀must฀lead฀to฀new฀knowledge฀ about฀customers฀that฀can฀be฀used฀to฀inform฀managerial฀ and฀employee฀decision-making.฀ (3)฀฀฀Supporting฀organisational฀structures upporting฀organisational฀structures฀–฀simply฀gathering฀ information฀and฀gaining฀new฀customer฀insight฀will฀have฀no฀ impact฀on฀business฀performance฀unless฀actions฀can฀be฀ taken฀appropriately฀and฀effi฀ciently.฀The฀outputs฀of฀CRM฀ systems฀have฀to฀be฀acted฀upon฀and฀this฀requires฀appropriate฀ organisational฀structures,฀control฀systems฀and฀incentives.฀ 3.1฀Customer฀Information฀Infrastructure฀ Over฀the฀last฀15฀years฀strong฀empirical฀evidence฀supported฀ by฀managerial฀supposition฀has฀accumulated฀suggesting฀that฀ information฀technologies,฀when฀effectively฀deployed,฀can฀ contribute฀to฀superior฀performance.฀These฀advantages฀arise฀ because฀the฀type฀of฀IT฀architecture฀required฀to฀support฀CRM฀ is฀not฀effortless฀to฀deploy฀and฀requires฀skills฀that฀are฀rare฀ and฀cannot฀be฀duplicated฀easily.฀Hence,฀the฀companies฀that฀ can฀develop฀this฀architecture฀reveal฀their฀superior฀internal฀ capabilities. A฀prime฀objective฀of฀many฀CRM฀systems฀is฀to฀gain฀a฀more฀ complete฀picture฀of฀the฀customer฀by฀integrating฀data฀collection฀ across฀all฀customer฀touch-points.฀The฀data฀in฀our฀study฀indicates฀ that฀approximately฀one฀third฀(35฀per฀cent)฀have฀achieved฀this฀ goal฀while฀another฀third฀(37฀per฀cent)฀are฀clearly฀struggling.฀ These฀results฀confi฀rm฀that฀delivery฀of฀a฀well-integrated฀picture฀of฀ the฀customer฀is฀complex฀and฀diffi฀cult฀to฀achieve฀(see฀Exhibit฀9).฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 PROVIDING฀A฀FULL฀PICTURE฀OF฀THE฀CUSTOMER฀IS฀DIFFICULT Exhibit฀9฀–฀State฀of฀CRM฀program฀today฀and฀in฀2-3฀years’฀time As฀anyone฀who฀has฀tried฀to฀deploy฀a฀CRM฀program฀will฀ appreciate,฀the฀wrong฀technology฀base฀can฀turn฀integration฀ initiatives฀into฀a฀massive฀technological฀and฀organisational฀ nightmare.฀Integrating฀legacy฀systems฀and฀unfamiliar฀software฀ requires฀custom฀integration฀that฀is฀costly,฀time฀consuming฀and฀ risky.฀Therefore,฀the฀quality฀of฀a฀company’s฀IT฀infrastructure฀ can฀act฀as฀a฀hedge฀against฀future฀uncertainty.฀It฀can฀facilitate฀ the฀organisation’s฀future฀ability฀to฀cost฀effectively฀respond฀to฀ customer฀demands฀and฀provide฀the฀basis฀on฀which฀new฀service฀ improvements฀can฀be฀developed฀and฀implemented.฀ We฀asked฀the฀managers฀in฀our฀study฀to฀indicate฀whether฀ their฀information฀systems฀were฀extremely฀diffi฀cult,฀or฀very฀good฀ at฀adapting฀and฀responding฀to฀unplanned฀customer฀needs.฀One฀ third฀(33฀per฀cent)฀indicate฀that฀they฀fi฀nd฀it฀diffi฀cult฀to฀adopt฀their฀ IT฀systems฀to฀changing฀customer฀needs.฀While฀another฀third฀(34฀ per฀cent)฀indicate฀that฀they฀are฀good฀at฀adapting฀their฀IT฀systems.฀ The฀infl฀exibility฀of฀IT฀architecture฀also฀has฀implications฀for฀the฀ ease฀with฀which฀CRM฀software฀can฀differentiate฀among฀customer฀ segments฀(see฀Exhibit฀10). Consider฀for฀a฀moment฀the฀range฀of฀technologies฀that฀need฀to฀ be฀interlinked.฀This฀list฀might฀include฀a฀combination฀of฀network฀ infrastructure,฀front฀offi฀ce฀applications฀such฀as฀sales฀force฀ automation,฀call฀centres฀and฀telesales,฀campaign฀management฀ and฀fi฀eld฀service฀support,฀back฀end฀enterprise฀resource฀planning฀ and฀other฀legacy฀systems.฀To฀simplify฀the฀wide-ranging฀scope฀of฀ IT฀infrastructure฀we฀created฀an฀aggregate฀measure฀that฀combined฀ measures฀of:฀IT฀fl฀exibility,฀system฀integration,฀real-time฀data฀ provision,฀and฀the฀ability฀to฀differentiate฀among฀customers.฀ Lesson 2 Sophisticated IT infrastructures are a necessary but not sufficient condition for customer relationship success. IMPACT฀OF฀IT฀FLEXIBILITY฀ON฀CUSTOMER฀DIFFERENTIATION To฀what฀extent฀is฀the฀following฀true฀of฀the฀information฀systems฀in฀your฀organisation? CRM฀allows฀us฀to฀differentiate฀ among฀customers฀as฀to฀their฀ lifetime฀value It฀is฀extremely฀diffi฀cult฀to฀adapt฀ our฀IT฀&฀respond฀to฀unplanned฀ customer฀needs฀ Average We฀are฀very฀good฀at฀adapting฀our฀ IT฀&฀responding฀to฀unplanned฀ customer฀needs Total฀ Strongly฀disagree 21% 19% 8% 29 Neither฀agree฀nor฀disagree 2% 5% 15% 22 Strongly฀agree 6% 7% 11% 24 29 31 34 Total฀ Exhibit฀10฀–฀To฀what฀extent฀is฀the฀following฀true฀of฀the฀information฀systems฀in฀your฀organisation฀and฀CRM฀allows฀us฀to฀differentiate฀among฀customers฀ as฀to฀their฀lifetime฀value IT฀INFRASTRUCTURE฀RELATIVE฀TO฀COMPETITORS Overall,฀how฀does฀your฀business฀compare฀to฀the฀three฀most฀profi฀table฀companies฀at฀managing฀ customer฀relationships IT฀Infrastructure Among฀the฀Lowest Average Among฀the฀Best Total฀ Poor 16% 13% 11% 40 Average 6% 8% 8% 22 High 5% 6% 27% 38 27 27 46 Total฀ Exhibit฀11฀–฀IT฀infrastructure฀and฀competitive฀position฀ 13 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 IT’S฀NOT฀EASY฀TO฀DEVELOP฀THE฀FORMALISED฀DOCUMENTATION฀REQUIRED SOPHISTICATED฀DATA฀MODELLING฀TELLS฀A฀TALE Exhibit฀12฀–฀To฀assist฀staff฀in฀extracting,฀manipulating,฀analysing฀and฀ presenting฀data฀in฀our฀organisation฀we฀have฀in฀place฀little฀or฀extensive฀ formalised฀documentation฀and฀procedures Exhibit฀13฀–฀Sophisticated฀models฀are฀frequently฀used฀to฀analyse฀data฀ When฀we฀compare฀this฀aggregate฀measure฀of฀‘IT฀ Infrastructure’฀with฀the฀competitive฀position฀in฀each฀industry฀the฀ correlation฀is฀statistically฀signifi฀cant.฀Twenty-seven฀per฀cent฀of฀ companies฀with฀high฀levels฀of฀IT฀infrastructure฀are฀also฀among฀ the฀best฀performers฀in฀their฀industry.฀Likewise,฀16฀per฀cent฀of฀ companies฀with฀poor฀IT฀infrastructure฀are฀also฀among฀the฀lowest฀ performers฀in฀their฀industry.฀ These฀results฀provide฀strong฀evidence฀of฀the฀growing฀ importance฀of฀sophisticated฀IT฀architectures฀to฀support฀ customer฀information฀fl฀ows.฀However,฀future฀performance฀and฀ company฀survival฀is฀not฀based฀on฀the฀sophistication฀of฀data฀ collection,฀storage฀and฀delivery฀devices.฀Customer฀data฀needs฀ to฀be฀interpreted฀correctly฀in฀the฀context฀of฀the฀business฀and฀ new฀insights฀gained฀that฀inform฀the฀decision-making฀process.฀ Additionally,฀simply฀gathering฀information฀and฀gaining฀insight฀will฀ have฀no฀impact฀on฀business฀performance฀unless฀the฀outputs฀of฀ the฀CRM฀system฀are฀acted฀upon฀in฀the฀wider฀business.฀ 3.2฀Skills฀and฀Experience:฀Converting฀ Data฀to฀Knowledge One฀of฀the฀primary฀reasons฀many฀organisations฀fail฀in฀ implementing฀new฀forms฀of฀CRM฀technology฀is฀because฀they฀ simply฀don’t฀have฀the฀requisite฀skills฀and฀experience฀necessary฀ to฀use฀the฀data฀effectively.฀For฀example,฀as฀new฀forms฀of฀data฀are฀ made฀available,฀human฀insight,฀skill฀and฀experience฀is฀required฀ to฀transform฀static฀data฀into฀knowledge.฀This฀knowledge฀is฀then฀ used฀to฀support฀decision-making฀such฀as:฀whether฀a฀customer฀ is฀more฀or฀less฀important,฀whether฀an฀idea฀for฀a฀new฀product฀is฀ attractive฀or฀marginal,฀and฀so฀on.฀ Development฀of฀these฀skills฀requires฀deliberate฀investment฀in฀ a฀cycle฀of฀learning฀through฀knowledge฀articulation฀and฀knowledge฀ codifi฀cation.฀Formalised฀documentation฀and฀procedures฀are฀a฀ fi฀rst฀step฀towards฀the฀articulation฀and฀codifi฀cation฀of฀customer฀ knowledge.฀Many฀organisations฀indicate฀that฀there฀are฀problems฀ in฀this฀area,฀with฀37฀per฀cent฀indicating฀that฀little฀formalised฀ documentation฀and฀few฀procedures฀are฀in฀place.฀Among฀the฀ better฀performers฀in฀this฀area฀are฀28฀per฀cent฀of฀organisations฀ that฀say฀they฀have฀in฀place฀extensive฀documentation฀and฀ 14 procedures฀that฀can฀be฀shared฀and฀used฀by฀others฀in฀the฀ organisation฀(see฀Exhibit฀12).฀No฀industry฀specifi฀c฀trends฀were฀ visible฀in฀the฀data.฀ Additional฀questions฀in฀our฀study฀identifi฀ed฀several฀common฀traits฀ among฀the฀better฀performing฀organisations฀(ie.฀those฀with฀above฀ average฀skills฀and฀experience): ■฀ They฀have฀in฀place฀extensive฀documentation฀and฀procedures฀ to฀assist฀staff฀extract,฀manipulate,฀analyse฀and฀present฀ customer฀data, ■฀ They฀utilise฀sophisticated฀models฀to฀analyse฀data, ■฀ There฀is฀a฀common฀understanding฀between฀managers฀in฀ customer฀service฀and฀IT฀units฀regarding฀how฀data฀can฀be฀used฀to฀ improve฀customer฀service,฀and ■฀ When฀extracting฀data฀from฀CRM฀systems฀and฀databases฀most฀ of฀the฀staff฀involved฀have฀extensive฀knowledge฀of฀the฀business฀ issues฀facing฀the฀company. When฀we฀compare฀these฀measures฀with฀the฀competition,฀ the฀correlation฀between฀skills฀and฀competitive฀position฀in฀each฀ industry฀is฀statistically฀signifi฀cant.฀Thirty-fi฀ve฀per฀cent฀of฀these฀ companies฀with฀strong฀skills฀and฀experience฀are฀among฀the฀top฀ performers฀in฀their฀industry;฀while฀only฀5฀per฀cent฀of฀companies฀ with฀high฀skills฀are฀among฀the฀lowest฀performers฀in฀their฀industry฀ (see฀Exhibit฀14).฀ Lesson 3 Although market data is readily available from innumerable sources, the ability to ask penetrating questions, glean useful insights, and act decisively comes from a skill set that is not evenly distributed between organisations. Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 SKILLS฀&฀KNOW-HOW฀RELATIVE฀TO฀COMPETITORS Overall,฀how฀does฀your฀business฀compare฀to฀the฀three฀most฀profi฀table฀companies฀at฀managing฀ customer฀relationships? Skills฀&฀know-how Among฀the฀Lowest Average Among฀the฀Best Total฀ Poor 11% 11% 11% 33 Average 3% 8% 8% 19 High 5% 8% 35% 88 19 27 54 Total฀ Exhibit฀14฀–฀Skill฀and฀know-how฀compared฀to฀competition DIVERGENT฀INCENTIVES WIDESPREAD฀ACCOUNTABILITY Exhibit฀15฀–฀To฀what฀extent฀are฀employee/management฀incentives฀used฀in฀ your฀organisation฀to฀support฀customer฀relationship฀building? Exhibit฀16฀–฀Accountability฀for฀customer฀relationships 3.3฀Supporting฀Organisational฀Structures skills฀combine฀to฀ensure฀that฀information฀and฀knowledge฀fl฀ows฀are฀ embedded,฀activated฀and฀given฀meaning.฀For฀example,฀are฀satisfaction฀ Competitive฀advantage฀lies฀not฀only฀in฀people฀and฀technology,฀but฀ levels฀as฀high฀as฀anticipated?฀Is฀this฀segment฀growing฀as฀fast฀as฀ also฀in฀the฀architectural฀alignment฀that฀provides฀complementarity฀ expected?฀And฀so฀on.฀Without฀the฀information฀from฀these฀systems,฀there฀ between฀company฀incentives฀and฀controls,฀decision฀making฀processes,฀ is฀no฀basis฀for฀learning,฀correcting฀mistakes,฀and฀adjusting฀assumptions฀ technologies,฀skills฀and฀routines.฀Different฀companies฀may฀possess฀the฀ to฀better฀align฀what฀the฀fi฀rm฀is฀doing฀with฀what฀it฀should฀be฀doing.฀A฀key฀ same฀basic฀physical฀technology฀and฀similar฀skills,฀but฀only฀one฀of฀these฀ aim฀of฀an฀effective฀customer฀relationship฀control฀system฀is฀to฀ensure฀that฀ companies฀may฀possess฀organisational฀culture฀and฀social฀relations฀to฀ accountability฀for฀the฀overall฀quality฀of฀the฀relationship฀is฀well฀defi฀ned฀ fully฀exploit฀this฀technology.฀When฀we฀speak฀of฀supporting฀organisational฀ and฀understood.฀As฀accountability฀becomes฀more฀widely฀dispersed฀ structures฀we฀refer฀to฀the฀organisational฀heirarchy,฀incentives฀and฀ across฀organisational฀stakeholders฀this฀task฀becomes฀increasingly฀ controls,฀revealed฀competitive฀strategy฀and฀the฀ease฀with฀which฀ diffi฀cult.฀The฀results฀indicate฀that฀34฀per฀cent฀agree฀or฀strongly฀agree฀ technologies฀can฀be฀adjusted฀to฀meet฀new฀customer฀demands.฀ that฀accountability฀for฀customer฀relationships฀is฀widely฀dispersed฀and฀42฀ For฀example,฀managerial฀expectations฀are฀communicated฀to฀ per฀cent฀of฀companies฀disagree฀or฀strongly฀disagree.฀ employees฀through฀various฀performance฀measures,฀incentives฀ The฀ability฀to฀align฀organisational฀structures฀with฀marketing฀ and฀other฀coordinating฀mechanisms฀that฀emphasise฀whether฀ objectives฀is฀a฀key฀aspect฀of฀this฀capability.฀The฀implication฀is฀ customers฀are฀viewed฀as฀valuable฀assets฀to฀be฀retained฀or฀ that฀whenever฀alignment฀is฀high,฀the฀company฀is฀more฀likely฀ anonymous฀transactional฀targets.฀These฀signals฀act฀as฀a฀litmus฀ to฀be฀successful.฀Several฀questions฀in฀our฀survey฀were฀used฀ test฀to฀the฀effectiveness฀of฀company฀behaviour฀both฀before,฀ to฀determine฀the฀extent฀to฀which฀an฀organisation’s฀strategy฀ during฀and฀after฀each฀exchange.฀Our฀data฀indicates฀that฀35฀ emphasises฀the฀importance฀of฀customer฀relationships.฀We฀ per฀cent฀of฀organsiations฀have฀in฀place฀considerable฀incentives฀ created฀a฀scale฀to฀measure฀organisational฀architecture฀that฀ schemes฀(payrise,฀promotion฀etc.)฀based฀on฀customer฀satisfaction฀ included฀the฀importance฀of:฀(1)฀customer฀retention,฀(2)฀ and฀retention.฀However,฀incentives฀are฀not฀well฀developed฀in฀a฀ importance฀of฀customer฀knowledge฀to฀future฀success,฀and฀(3)฀ number฀of฀companies฀that฀responded฀to฀our฀survey;฀44฀per฀cent฀ whether฀the฀fi฀rm฀takes฀a฀long-term฀or฀short-term฀view฀to฀customer฀ claim฀that฀they฀have฀no฀incentive฀schemes฀based฀on฀measures฀of฀ relationships.฀Thirty-eight฀per฀cent฀of฀companies฀with฀highly฀ product฀sales฀and฀profi฀tability฀(see฀Exhibit฀15). aligned฀organisational฀architectures฀are฀also฀among฀the฀best฀ Control฀systems฀are฀used฀to฀tell฀organisations฀which฀resources฀and฀ performers฀in฀their฀industry฀(see฀Exhibit฀17). 15 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 ORGANISATIONAL฀ARCHITECTURE฀RELATIVE฀TO฀COMPETITORS Overall,฀how฀does฀your฀business฀compare฀to฀the฀three฀most฀profi฀table฀companies฀at฀managing฀ customer฀relationships? Organisational฀Architecture Among฀the฀Lowest Average Among฀the฀Best Total฀ Poor 8% 2% 3% 13 Average 3% 11% 11% 25 High 5% 18% 38% 61 16 31 52 Total฀ Exhibit฀17฀–฀Organisational฀architecture฀compared฀to฀competition ORGANISATIONAL฀ARCHITECTURE฀RELATIVE฀TO฀COMPETITORS Exhibit฀18฀–฀Dimensions฀of฀a฀customer-relating฀capability The฀trend฀that฀emerges฀from฀each฀of฀the฀table฀exhibits฀in฀this฀ chapter฀is฀that฀strong฀organisational฀capabilities฀are฀valuable.฀ Those฀organisations฀with฀sophisticated฀IT฀infrastructure,฀strong฀ skills฀and฀customer-focused฀architectures฀are฀highly฀likely฀to฀ be฀among฀the฀best฀performers.฀Being฀not฀so฀good฀on฀each฀of฀ these฀capabilities฀means฀average฀or฀parity฀performance.฀The฀ interpretation฀of฀this฀implies฀that฀strategic฀themes฀are฀required฀ to฀prioritise,฀orchestrate฀and฀direct฀the฀collection฀of฀customer฀ relationship฀resources.฀ 3.4฀฀ CRM฀Program฀as฀a฀Combination฀of฀Capabilities Whether฀weak฀or฀strong,฀CRM฀capabilities฀cannot฀be฀taken฀ in฀isolation.฀The฀reason฀for฀this฀is฀that฀each฀dimension฀is฀ nested฀within฀an฀intricate฀organisational฀system฀of฀interrelated฀ and฀interdependent฀resources.฀Therefore฀it฀is฀important฀to฀ conceptualise฀a฀CRM฀program฀as฀a฀combination฀of฀activities฀ requiring฀managers฀to฀concentrate฀not฀on฀one฀or฀two฀capabilities฀ independently฀but฀to฀optimise฀the฀overarching฀CRM฀program.฀ Failure฀to฀do฀so฀may฀conceivably฀lead฀to฀worse฀customer฀ response฀and฀satisfaction฀than฀the฀less฀sophisticated฀systems฀ they฀are฀meant฀to฀replace.฀ In฀summary,฀we฀suggest฀that฀alone,฀each฀of฀the฀individual฀ capabilities฀discussed฀in฀this฀chapter฀is฀necessary฀but฀not฀ suffi฀cient฀for฀CRM฀success.฀Only฀when฀combined฀do฀they฀capture฀ the฀true฀nature฀of฀interdependence฀contained฀in฀a฀customerrelating฀capability฀at฀an฀enterprise฀level฀(see฀Exhibit฀18). Sometimes฀the฀valuable฀resource฀is฀an฀adroit฀combination฀of฀ capabilities,฀none฀of฀which฀is฀superior฀alone,฀but฀when฀combined,฀ makes฀a฀better฀package.฀Then฀competitive฀superiority฀is฀due฀ 16 to฀a฀weighted฀average฀effect฀–฀the฀business฀does฀rank฀fi฀rst฀on฀ any฀asset฀or฀capability฀but฀is฀better฀on฀average฀than฀any฀of฀the฀ rivals.฀We฀saw฀evidence฀of฀this฀effect฀in฀Exhibits฀11,฀14฀and฀17,฀ where฀a฀small฀percentage฀of฀companies฀score฀low฀on฀individual฀ capabilities,฀yet฀are฀still฀among฀the฀better฀performers฀in฀their฀ industry.฀This฀weighted฀average฀effect฀is฀also฀infl฀uenced฀by:฀ (1)฀฀The฀environmental฀turbulence฀and฀fi฀ckleness฀of฀customers฀ in฀those฀markets฀where฀the฀company฀competes, (2)฀฀The฀superior฀clarity฀and฀strategic฀focus฀that฀managers฀ bring฀to฀the฀change฀initiative.฀This฀is฀important฀to฀provide฀ the฀strategic฀thrust฀necessary฀to฀mobilise฀resources฀and฀ create฀the฀type฀of฀organisational฀change฀required,฀and฀ (3)฀฀The฀feasibility฀of฀implementing฀complex฀system฀integration฀ and฀mutually฀reinforcing฀capabilities.฀ Each฀of฀these฀points฀is฀discussed฀in฀the฀chapters฀that฀follow.฀ Lesson 4 CRM systems are a combination of activities that require managers to align and orchestrate the disparate parts of the organisation. Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 04฀฀Environmental฀Pressures฀Driving฀Investment฀ in฀CRM Over time researchers have increasingly come to see business strategies as systems of related choices. These choices are influenced by the multiplicity of connections or interactions that take place within an industry’s performance landscape. – Daniel Levinthal,. “Adaptation on Rugged Landscapes.” Management Science 43(7), 1997 Customer฀relationship฀success฀is฀not฀simply฀a฀matter฀of฀investment฀ in฀superior฀technology฀and฀data฀modelling฀capabilities.฀Success฀is฀ also฀dependent฀upon฀the฀market฀and฀non-market฀conditions฀facing฀ the฀organisation.฀These฀industry฀level฀factors฀determine฀the฀‘rules฀of฀ engagement’฀that฀in฀turn,฀directly฀affect฀customer฀capabilities฀and฀ problem฀solving,฀supplier฀capabilities฀and฀resource฀allocation.฀New฀ opportunities฀for฀economic฀value฀may฀arise฀for฀many฀reasons฀such฀as฀ customer฀co-production,฀customisation฀opportunities,฀reduction฀of฀links฀in฀ the฀value฀chain,฀and฀so฀on.฀However,฀a฀necessary฀condition฀for฀successful฀ customer฀relationship฀investment฀is฀there฀must฀be฀some฀economic฀value฀ added฀from฀the฀new฀arrangement.฀What฀prior฀research฀shows฀is฀that฀the฀ fi฀rst฀mistake฀made฀by฀companies฀is฀the฀assumption฀that฀this฀economic฀ value฀exists฀when฀no฀such฀case฀exists.฀ 4.1฀Customer฀Willingness฀to฀Participate฀in฀ a฀Relationship฀ The฀development฀of฀a฀meaningful฀exchange฀relationship฀depends฀directly฀ on฀the฀ability฀and฀motivation฀of฀both฀the฀customer฀and฀the฀supplier฀to฀ participate.฀For฀example,฀a฀company’s฀success฀at฀moving฀a฀customer฀ from฀an฀arm’s฀length฀arrangement฀to฀a฀deeper฀level฀of฀commitment฀is฀ contingent฀upon฀the฀customer’s฀time,฀energy฀or฀motivation฀to฀form฀a฀ relationship.฀Therefore,฀any฀understanding฀of฀exchange฀relationships฀ requires฀that฀both฀sides฀be฀understood฀simultaneously.฀ Our฀study฀captured฀each฀manager’s฀assessment฀of฀their฀customer฀ base฀according฀to฀four฀different฀types฀of฀relationships.฀Each฀segment฀ type฀captures฀a฀different฀stage฀of฀relationship฀development฀–฀from฀ total฀strangers฀on฀one฀end,฀that฀do฀not฀require฀personalisation,฀to฀true฀ partners฀at฀the฀other฀end฀that฀are฀willing฀to฀contribute฀actively฀to฀the฀ relationship.฀We฀calculated฀median฀scores฀for฀each฀segment฀type฀based฀ on฀the฀number฀of฀customers฀and฀their฀revenue฀contribution.฀The฀mean฀ proportion฀of฀customers฀that฀do฀not฀require฀personalisation฀is฀34฀with฀ a฀mean฀revenue฀contribution฀for฀this฀segment฀of฀16฀per฀cent.฀The฀yet฀ to฀be฀convinced฀group฀has฀a฀mean฀of฀14฀and฀revenue฀contribution฀of฀ 11฀per฀cent.฀The฀segment฀that฀accepts฀some฀personalisation฀has฀a฀ mean฀of฀20฀and฀revenue฀contribution฀of฀19฀per฀cent.฀Alternatively,฀the฀ mean฀proportion฀of฀customers฀that฀are฀true฀partners฀is฀30.฀Although฀this฀ segment฀is฀quite฀small,฀it฀makes฀an฀impressive฀contribution฀of฀57฀per฀cent฀ to฀company฀revenues.฀See฀Exhibit฀17.฀฀ PROPORTION฀OF฀CUSTOMERS฀THAT฀REQUIRE฀PERSONALISATION฀ Proportion฀of฀Customers (mean฀score)฀ Proportion฀of฀Revenue฀Contribution฀ (mean฀score) Strangers Customers฀that฀do฀NOT฀require฀personalisation฀ 34 ฀฀฀ 16 ฀฀฀ Acquaintances Customers฀that฀are฀yet฀to฀be฀convinced฀that฀entering฀a฀‘relationship’฀ with฀your฀fi฀rm฀is฀benefi฀cial฀to฀them 14 11 Friends Customers฀that฀accept฀some฀personalised฀contact฀but฀don’t฀really฀want฀ a฀relationship฀ 20 19 30 57 True฀Partners Customers฀who฀believe฀they฀will฀benefi฀t฀from฀a฀closer฀association฀with฀ your฀organisation฀ Exhibit฀19฀–฀Provide฀your฀best฀estimate฀of฀the฀percentage฀distribution฀of฀customers฀and฀revenue฀for฀each฀segment 17 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 PREDICTABLE฀STRATEGIES฀BY฀COMPETITORS฀IS฀DRIVING฀CRM฀INVESTMENT฀ Strategies฀of฀key฀competitors฀in฀our฀industry฀are฀extremely฀predictable Investment฀driven฀by฀ competitive฀initiatives Strongly฀disagree Unsure Strongly฀agree Total฀ Very฀weak 5% 9% 12% 26 Some 8% 9% 22% 39 Very฀strongly 2% 8% 25% 35 15 26 59 Total฀ Exhibit฀20฀–฀Customer฀requirements฀for฀the฀products฀and/or฀services฀sold฀in฀our฀industry฀are฀changing฀continually The฀data฀clearly฀shows฀that฀customer฀circumstances฀and฀ preferences฀differ฀widely.฀These฀differences฀are฀independent฀of฀ industry฀type฀or฀fi฀rm฀size.฀Most฀importantly,฀the฀data฀shows฀that฀ revenue฀contribution฀increases฀markedly฀as฀customers฀move฀from:฀ ■฀ Strangers฀that฀do฀not฀require฀personalisation,฀to ■฀ Acquaintances฀that฀have฀yet฀to฀be฀convinced฀that฀entering฀a฀ ‘relationship’฀is฀benefi฀cial,฀to ■฀ Friends฀that฀accept฀some฀personalised฀contact,฀to ■฀ True฀partners฀that฀believe฀they฀will฀benefi฀t฀from฀a฀closer฀ association฀with฀your฀organisation. This฀underscores฀the฀need฀to฀differentiate฀marketing฀programs฀ on฀the฀basis฀of฀how฀value฀is฀created฀and฀to฀link฀value฀creation฀ within฀each฀relationship฀segment฀to฀overall฀value฀creation฀for฀ the฀company.฀In฀other฀words,฀organisations฀need฀to฀be฀selective฀ about฀when฀to฀and฀when฀not฀to฀grow฀a฀relationship.฀For฀example,฀ insurance฀companies,฀utilities฀and฀casinos฀categorised฀many฀of฀ their฀customers฀as฀strangers฀that฀do฀not฀want฀a฀relationship.฀ 4.2฀Competitive฀Pressures Competitive฀pressures฀can฀arise฀because฀of฀the฀widespread฀ adoption฀of฀CRM฀within฀sectors฀like฀banking,฀telecommunications฀ and฀airlines฀–฀requiring฀later฀adopters฀to฀respond฀in฀kind.฀ Alternatively,฀adoption฀of฀such฀systems฀can฀occur฀in฀related฀ and฀complementary฀environments฀such฀as฀casinos,฀car฀rental฀ agencies,฀hotels฀and฀tour฀operators.฀In฀these฀industries,฀CRM฀can฀ potentially฀change฀the฀nature฀of฀inter-fi฀rm฀interaction,฀requiring฀ integration฀of฀systems฀and฀thinking.฀ Our฀results฀indicate฀that฀organisations฀face฀strong฀competitive฀ pressures.฀In฀45฀per฀cent฀of฀cases฀managers฀agree฀or฀strongly฀agree฀ that฀one฀frequently฀hears฀about฀new฀competitive฀products,฀models฀ and฀other฀strategic฀initiatives.฀The฀implication฀is฀that฀whenever฀highly฀ competitive฀pressures฀characterise฀your฀market,฀customers฀are฀ more฀likely฀to฀switch฀because฀of฀an฀abundance฀of฀substitutes.฀CRM฀ systems฀are฀also฀likely฀to฀be฀used฀heavily฀to฀manage฀organisational฀ operations฀creating฀positional฀advantages฀that฀tend฀to฀be฀stronger฀ and฀enduring.฀In฀the฀case฀where฀competitive฀pressures฀are฀low,฀ executives฀may฀be฀led฀to฀believe฀that฀they฀can฀get฀away฀with฀minimal฀ amounts฀of฀customer฀service.฀In฀these฀markets,฀CRM฀is฀unlikely฀to฀ add฀value฀beyond฀traditional฀marketing฀activities. When฀we฀look฀at฀the฀reasons฀why฀organisations฀have฀ invested฀in฀CRM,฀it฀is฀clear฀that฀respondents฀believe฀that฀as฀ competitive฀pressures฀increase,฀the฀incentives฀to฀match฀and฀ neutralise฀another฀competitor’s฀relationship฀advantage฀increases.฀ Additionally,฀many฀managers฀(59฀per฀cent)฀strongly฀agree฀that฀the฀ strategies฀of฀key฀competitors฀are฀extremely฀predictable.฀In฀25฀per฀ cent฀of฀cases฀this฀predictability฀is฀correlated฀with฀a฀very฀strong฀ belief฀that฀competitive฀initiatives฀are฀also฀driving฀CRM฀investment.฀ Banking฀and฀insurance฀companies฀face฀stronger฀competitive฀ pressures฀than฀most฀of฀the฀other฀sectors.฀Fifty฀per฀cent฀of฀banks฀ 18 FICKLE฀CUSTOMERS฀CREATE฀MANY฀CHALLENGES฀ Exhibit฀21฀–฀Customer฀requirements฀for฀the฀products฀and/or฀services฀sold฀ in฀our฀industry฀are฀changing฀continually and฀40฀per฀cent฀of฀insurance฀companies฀indicate฀that฀they฀are฀ under฀strong฀to฀very฀strong฀competitive฀pressure฀to฀invest฀in฀ customer฀relationships.฀Respondents฀from฀retail฀and฀airlines฀are฀ surprisingly฀less฀concerned฀with฀competitive฀pressures.฀When฀ compared฀to฀company฀size,฀our฀data฀does฀not฀indicate฀any฀ signifi฀cant฀difference฀between฀small฀fi฀rms฀and฀large฀organisations. 4.3฀Market฀Turbulence A฀natural฀consequence฀of฀market฀growth฀–฀and฀the฀diffusion฀of฀ innovation฀within฀a฀product฀life฀cycle฀–฀is฀that฀customer฀demand฀ becomes฀more฀heterogeneous฀over฀time.฀In฀response฀to฀this฀ heterogeneity,฀companies฀constantly฀innovate,฀putting฀forward฀ alternative฀systems,฀services฀processes฀and฀products฀to฀create฀ value฀for฀and฀to฀attract฀new฀customers.฀Turbulent,฀fast฀changing฀ markets฀appear฀to฀dominate฀our฀study฀with฀40฀per฀cent฀of฀ managers฀indicating฀they฀agree฀or฀strongly฀agree฀that฀customer฀ requirements฀are฀changing฀continually.฀Only฀25฀per฀cent฀disagree฀ or฀strongly฀disagree฀that฀products฀and฀services฀are฀constantly฀ changing฀in฀their฀markets.฀See฀Exhibit฀21. Lesson 5 The type of relationship a customer wants with a supplier can in itself be an effective way of segmenting markets around fundamental customer needs. Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 MAIN฀DRIVER฀IS฀CUSTOMER฀SERVICE฀ NEW฀TECHNOLOGY฀=฀NEW฀OPPORTUNITIES฀ Exhibit฀22฀–฀Industry฀pressures฀to฀deliver฀high฀levels฀of฀customer฀service Returns฀to฀customer฀relationship฀building฀activities฀are฀likely฀ when฀fast฀changing฀markets฀demand฀different฀assets฀and฀ capabilities฀than฀those฀required฀in฀more฀stable฀environments.฀ Advantages฀are฀short฀lived฀as฀competitive฀pressures฀quickly฀ undermine฀the฀value฀derived฀from฀product฀differentiation.฀The฀ ability฀to฀stay฀on฀top฀of฀customer฀trends฀and฀to฀respond฀quickly฀ to฀changing฀markets฀is฀critical฀for฀superior฀performance฀in฀such฀ environments.฀ This฀point฀is฀visible฀in฀our฀study฀as฀market฀pressures฀quite฀ clearly฀provide฀the฀strongest฀drivers฀of฀CRM฀adoption.฀Seventyeight฀per฀cent฀of฀organisations฀consider฀themselves฀under฀ considerable฀pressure฀to฀deliver฀high฀levels฀of฀customer฀service.฀ These฀companies฀indicate฀that฀their฀decision฀to฀invest฀in฀CRM฀ programs฀is฀a฀direct฀refl฀ection฀of฀industry฀forces฀that฀demand฀ high฀levels฀of฀customer฀service.฀See฀Exhibit฀22. The฀22฀per฀cent฀of฀companies฀suggesting฀that฀market฀ pressure฀is฀a฀weak฀to฀very฀weak฀refl฀ection฀of฀their฀decision฀to฀ invest฀in฀CRM฀appear฀to฀operate฀in฀stable฀environments.฀This฀ suggests฀that฀organisations฀facing฀relatively฀stable฀environments฀ prefer฀to฀exploit฀existing฀knowledge฀and฀capabilities฀rather฀than฀ explore฀new฀possibilities.฀When฀the฀levels฀of฀customer฀service฀ demanded฀by฀the฀market฀are฀low฀we฀also฀see฀more฀involvement฀ by฀privacy฀activists฀and,฀not฀surprisingly,฀less฀demand฀for฀highly฀ integrated฀products฀that฀span฀different฀business฀units. Exhibit฀23฀–฀The฀Internet฀and฀related฀technologies฀will฀make฀it฀very฀easy฀to฀ personalise/tailor฀product฀or฀service฀offerings฀in฀our฀industry CONCERNS฀WITH฀CONSUMER฀PRIVACY Exhibit฀24฀–฀Privacy฀activists฀are฀extremely฀active฀in฀our฀industry Technological฀pressures฀have฀been฀felt฀most฀in฀banking,฀ insurance,฀telecommunications฀and฀utility฀sectors.฀This฀point฀ 4.4฀Technological฀Pressures is฀also฀evidenced฀in฀shareholder฀pressure฀where฀36฀per฀ Technological฀advances฀such฀as฀the฀Internet,฀relational฀databases฀ cent฀of฀managers฀strongly฀agree฀that฀investment฀in฀CRM฀is฀ and฀CRM฀software฀create฀enormous฀opportunities฀for฀fi฀rms฀and฀ a฀direct฀refl฀ection฀of฀shareholder฀beliefs฀that฀technologically฀ their฀customers.฀A฀sizable฀83฀per฀cent฀of฀managers฀strongly฀agree฀ sophisticated฀companies฀are฀more฀favourable฀in฀comparison฀with฀ that฀technological฀changes฀provide฀big฀opportunities฀to฀deliver฀ technologically฀naïve฀organisations.฀ new฀levels฀of฀service฀to฀customers฀in฀their฀industry.฀These฀same฀ executives฀also฀have฀high฀hopes฀indicating฀that฀the฀Internet฀and฀ 4.5฀Customer฀Privacy฀ related฀technologies฀will฀make฀it฀very฀easy฀to฀personalise/tailor฀ their฀product฀or฀service฀offerings฀to฀customers฀(see฀Exhibit฀23).฀ In฀markets฀where฀the฀customer฀has฀little฀information฀on฀the฀ Forty-fi฀ve฀per฀cent฀of฀managers฀strongly฀disagree฀that฀advances฀in฀ company฀and/or฀the฀company฀has฀insuffi฀cient฀information฀and฀ the฀use฀of฀database฀technologies฀by฀competitors฀is฀a฀key฀reason฀ understanding฀about฀the฀customer,฀transaction฀marketing฀is฀ for฀investment฀in฀customer฀relationship฀programs.฀Forty฀per฀cent฀ likely฀to฀dominate.฀This฀is฀because฀consumers฀will฀often฀use฀ believe฀that฀advances฀in฀the฀Internet฀and฀networking฀technologies฀ their฀power฀to฀hinder฀information฀exchange.฀This฀environment฀ strongly฀refl฀ect฀their฀decision฀to฀invest฀in฀CRM฀programs.฀This฀ will฀encourage฀activists฀with฀a฀view฀that฀companies฀are฀not฀to฀be฀ suggests฀that฀the฀drivers฀for฀new฀customer฀relationship฀programs฀ trusted.฀Under฀these฀circumstances฀individuals฀will฀be฀reluctant฀ are฀new฀opportunities฀for฀low฀cost฀interconnection฀between฀the฀ to฀become฀voluntary฀members฀of฀CRM฀programs,฀and฀will฀only฀ customer฀and฀the฀various฀touch฀points฀in฀the฀fi฀rm.฀ want฀transactional฀exchanges.฀This฀will฀lead฀to฀higher฀costs฀ 19 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 and฀lower฀levels฀of฀communication฀between฀the฀customer฀and฀ company,฀reducing฀the฀effi฀ciency฀of฀CRM.฀These฀activists฀will฀use฀ legal฀regulation฀to฀protect฀themselves฀and฀exploit฀the฀new฀data฀ protection฀software฀and฀technology฀to฀their฀own฀advantage.฀ Some฀50฀per฀cent฀of฀companies฀strongly฀agree฀with฀the฀ statement฀that฀privacy฀activists฀are฀extremely฀active฀in฀their฀ industry.฀A฀relatively฀small฀24฀per฀cent฀indicate฀that฀privacy฀ activists฀are฀not฀very฀active฀in฀their฀industry. In฀the฀banking฀sector฀56฀per฀cent฀of฀managers฀strongly฀agree฀ that฀privacy฀activists฀are฀extremely฀active.฀This฀compares฀with฀ retail฀where฀55฀per฀cent฀of฀managers฀strongly฀disagree฀that฀ privacy฀activists฀are฀extremely฀active฀in฀their฀industry. Understanding฀the฀dynamic฀competitive฀environment฀is฀a฀ necessary฀step฀to฀effectively฀allocate฀the฀right฀type฀of฀marketing฀ program฀to฀the฀right฀type฀of฀customer.฀This฀chapter฀has฀shown฀ that฀the฀type฀of฀relationship฀a฀customer฀wants฀with฀a฀supplier฀and฀ the฀strength฀of฀competitive฀and฀market฀pressures฀facing฀the฀fi฀rm฀ are฀strong฀indicators฀of฀CRM฀program฀success. 20 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 05฀฀The฀Implementation฀of฀Complex฀ Organisational฀Change฀ Change sticks when it becomes “the way we do things around here.” Until new behaviours are rooted in social norms and shared values, they are only temporary and a waste of time and energy. – John Kotter, “Leading Change: Why Transformational Efforts Fail” Harvard Business Review, 73(2), 1995 In฀order฀to฀execute฀a฀CRM฀strategy฀successfully,฀especially฀in฀ uncertain฀environments฀such฀as฀CRM,฀fi฀rms฀need฀to฀manage฀ change฀in฀people,฀systems฀and฀structures.฀This฀requires฀ an฀appreciation฀of฀the฀forces฀that฀infl฀uence฀the฀process฀of฀ strategy฀implementation.฀This฀is฀made฀all฀the฀more฀diffi฀cult฀ by฀the฀fact฀that฀CRM฀is฀unlike฀other฀re-engineering฀change฀ programs฀that฀have฀preceded฀it.฀The฀complexity฀involved฀in฀a฀ CRM฀program฀creates฀enormous฀challenges฀for฀staff฀expected฀ to฀integrate฀disparate฀customer฀databases฀and฀qualitative฀and฀ quantitative฀approaches฀to฀managing฀customers.฀Additionally,฀ the฀diversity฀in฀a฀CRM฀program฀creates฀accountability฀issues฀and฀ complicates฀the฀challenge฀of฀persuading฀employees฀to฀embrace฀ the฀behavioural฀change฀required.฀Consider฀for฀a฀moment฀the฀ stakeholders฀affected฀by฀a฀CRM฀initiative.฀They฀include฀frontline฀ sales฀and฀service฀providers,฀call฀centre฀representatives,฀business฀ analysts,฀IT฀professionals฀and฀a฀broad฀array฀of฀managers฀located฀ in฀diverse฀positions฀throughout฀the฀organisation฀(just฀to฀name฀a฀ few).฀Any฀of฀these฀stakeholders฀can฀break฀a฀CRM฀program,฀but฀ none฀individually฀can฀make฀it฀successful.฀When฀the฀responsibility฀ for฀different฀aspects฀of฀a฀solution฀rests฀in฀different฀places,฀it’s฀ often฀hard฀to฀muster฀the฀organisational฀resolve฀to฀pull฀in฀the฀right฀ people,฀unclog฀the฀bottlenecks฀and฀make฀effective฀decisions.฀ Companies฀that฀lack฀experience฀working฀with฀these฀perennial฀ organisational฀challenges฀all฀too฀frequently฀fail฀to฀appreciate฀the฀ challenges฀they฀impose.฀In฀the฀rush฀to฀fi฀x฀the฀technology฀and฀ business฀alignment฀issues,฀managers฀tend฀to฀overlook฀what฀is฀ feasible฀and฀focus฀instead฀on฀what฀is฀desirable.฀The฀impact฀of฀ this฀has฀been฀played฀out฀in฀several฀abandoned฀IT฀projects฀such฀ as:฀Westpac’s฀CS฀90฀project฀that฀lost฀A$150m,฀and฀the฀London฀ Stock฀Exchange฀Taurus฀project฀that฀was฀dumped฀after฀an฀£80m฀ investment฀(Drummond฀1999).฀ 5.1฀Direct฀System฀Costs฀of฀Implementation CRM฀systems฀are฀typically฀quite฀expensive,฀with฀some฀reports฀ suggesting฀that฀the฀median฀price฀for฀a฀CRM฀project฀exceeds฀ US$1฀million฀(Yu,฀2001).฀Many฀organisations฀in฀our฀study฀were฀ rightly฀spooked฀by฀these฀costs: Mistakes are going to happen, and you can bank on it. – 02 May 10998, Australian Financial Review TAURUS – JOBS HIT BY RIPPLE EFFECT – 18 March 1993, Computer weekly CRM฀PROGRAMS฀ARE฀NOT฀CHEAP฀ The฀cost฀of฀hardware,฀software฀and฀network฀infrastructure Strongly฀disagree Unsure Strongly฀agree Banking฀ 8% 33% 58% Insurance 0% 50% 50% Telecommunications 25% 62% 12% Airlines฀ 40% 60% 0% Hotels/Tourism 0% 33% 66% Utilities 50% 0% 50% Retail 66% 22% 12% Other 0% 92% 8% Exhibit฀25฀–฀In฀your฀business฀unit,฀to฀what฀extent฀does฀the฀following฀constrain฀your฀organisation’s฀ability฀to฀deploy฀CRM฀ 21 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 ■฀ 55฀per฀cent฀indicate฀that฀the฀cost฀of฀network฀infrastructure฀ and฀hardware฀is฀a฀large฀constraint. ■฀ 49฀per฀cent฀indicate฀that฀the฀cost฀of฀CRM฀and฀sales฀force฀ automation฀software฀is฀a฀large฀constraint.฀ The฀impact฀of฀direct฀costs฀of฀implementation฀is฀clearly฀a฀ signifi฀cant฀factor฀but฀CRM฀programs฀also฀incur฀additional฀costs฀ associated฀with฀call฀centre฀infrastructure฀and฀IT฀staff฀required฀to฀ maintain฀these฀systems.฀We฀combine฀these฀costs฀into฀an฀overall฀ measure฀that฀includes฀costs฀of฀hardware,฀software,฀infrastructure฀ and฀maintenance฀(see฀Exhibit฀25).฀Less฀than฀10฀per฀cent฀of฀ respondents฀believe฀that฀when฀combined,฀these฀costs฀are฀a฀ small฀deterrent฀to฀implementation.฀Forty฀per฀cent฀of฀companies฀ see฀these฀costs฀as฀a฀large฀or฀very฀large฀factor฀inhibiting฀CRM฀ deployment.฀ When฀we฀examine฀the฀impact฀of฀cost฀constraints฀on฀each฀ industry฀sector฀the฀results฀are฀not฀surprising.฀Managers฀in฀the฀ hotel฀and฀banking฀sectors฀are฀more฀likely฀to฀be฀concerned฀with฀ the฀direct฀costs฀of฀IT.฀Sixty-six฀per฀cent฀of฀hotels฀and฀casinos฀view฀ direct฀costs฀as฀a฀large฀or฀very฀large฀constraint,฀while฀58฀per฀cent฀ of฀those฀in฀banking฀express฀the฀same฀level฀of฀concern.฀Managers฀ from฀the฀retail฀sector฀are฀less฀concerned฀with฀direct฀costs,฀with฀ 66฀per฀cent฀indicating฀that฀costs฀are฀a฀small฀constraint.฀ WHAT฀DO฀MANAGERS฀BELIEVE? Exhibit฀26฀–฀CRM฀is฀a฀major฀breakthrough฀that฀will฀have฀a฀revolutionary฀ strategic฀impact฀on฀our฀industry฀in฀the฀next฀two฀years beliefs฀infl฀uence฀outcomes.฀At฀one฀extreme฀is฀the฀tendency฀ to฀cater฀to฀risk฀aversion.฀If฀complex฀re-engineering฀programs฀ 5.2฀Indirect฀Costs฀of฀Implementation฀ such฀as฀CRM฀are฀to฀succeed฀they฀require฀managers฀who฀hold฀ strong฀beliefs฀regarding฀the฀value฀of฀CRM.฀We฀see฀evidence฀of฀ The฀full฀impact฀of฀cost฀constraints฀is฀a฀function฀of฀not฀only฀direct฀ this฀commitment฀in฀our฀managers฀where฀67฀per฀cent฀strongly฀ costs,฀but฀indirect฀costs฀as฀well.฀There฀are฀three฀areas฀where฀ agree฀that฀CRM฀programs฀will฀create฀new฀value฀for฀their฀major฀ these฀indirect฀costs฀arise,฀the฀diffi฀culty฀of฀acquiring฀skilled฀ workers,฀the฀time฀needed฀to฀effectively฀codify฀customer฀data฀and฀ customers.฀A฀smaller,฀although฀still฀signifi฀cant฀35฀per฀cent฀ strongly฀believe฀that฀CRM฀is฀a฀major฀breakthrough฀that฀will฀have฀ the฀impact฀that฀system฀failure฀may฀have฀on฀brand฀equity. a฀revolutionary฀strategic฀impact฀on฀their฀industry฀in฀the฀next฀two฀ (1)฀฀Diffi Diffi฀culty฀acquiring฀skilled฀staff ฀culty฀acquiring฀skilled฀staff฀–฀the฀cost฀and฀availability฀ years฀(see฀Exhibit฀26).฀ of฀skilled฀staff฀to฀manage฀complex฀IT฀related฀projects฀ The฀variance฀in฀this฀data฀is฀strongly฀related฀to฀the฀impact฀that฀ has฀frequently฀been฀the฀cause฀of฀concern฀for฀many฀ technological฀developments฀such฀as฀the฀Internet฀and฀e-business฀ organisations.฀However,฀the฀companies฀surveyed฀here฀ have฀had฀on฀the฀industries฀of฀the฀companies฀considered.฀Many฀ appear฀less฀concerned,฀with฀60฀per฀cent฀believing฀that฀ managers฀are฀unwilling฀to฀‘bet฀the฀fi฀rm’฀and฀espouse฀more฀ the฀shortage฀in฀acquiring฀skilled฀managers฀to฀strategically฀ modest฀ambitions฀with฀31฀per฀cent฀strongly฀disagreeing฀that฀ manage฀internal฀CRM฀developments฀is฀a฀small฀constraint.฀ CRM฀is฀a฀major฀breakthrough฀for฀their฀industry.฀This฀division฀ (2)฀฀Effort฀required฀to฀codify฀customer฀data Effort฀required฀to฀codify฀customer฀data฀–฀the฀time฀needed฀ is฀particularly฀visible฀in฀banking฀where฀39฀per฀cent฀strongly฀ to฀recode฀customer฀data฀is฀another฀matter.฀Relational฀ agree฀with฀the฀statement฀and฀34฀per฀cent฀strongly฀disagree.฀ databases฀are฀not฀designed฀to฀deal฀with฀unstructured฀ Such฀uncertainty฀leads฀to฀fragmented฀and฀contradictory฀signals฀ data฀and฀58฀per฀cent฀of฀respondents฀believe฀that฀the฀ and฀incentives.฀The฀investment฀ends฀up฀being฀insuffi฀cient฀for฀ time฀needed฀to฀effectively฀code฀customer฀data฀is฀a฀big฀ real฀success฀and฀the฀commitment฀to฀changing฀organisational฀ consideration.฀This฀is฀completely฀independent฀of฀industry฀ processes,฀training฀and฀reward฀systems฀that฀CRM฀demands฀can฀ or฀fi฀rm฀size. be฀erratic.฀ (3)฀฀Risk฀of฀System฀Failure Risk฀of฀System฀Failure฀–฀the฀importance฀of฀system฀failure฀ At฀the฀other฀extreme฀is฀managerial฀over-optimism.฀Managers฀ on฀brand฀reputation฀and฀equity฀does฀not฀appear฀to฀create฀a฀ can,฀at฀times,฀succumb฀to฀over-optimism฀when฀it฀comes฀to฀their฀ barrier฀to฀adoption฀with฀54฀per฀cent฀claiming฀this฀is฀a฀small฀ company’s฀ability฀to฀manage฀change฀successfully.฀Although฀this฀ impediment฀to฀implementation. over-optimism฀can฀be฀traced฀to฀many฀sources,฀one฀of฀the฀most฀ 5.3฀Beliefs฀Held฀by฀Managers When฀new,฀infant฀technological฀opportunities฀such฀as฀CRM฀arise,฀ even฀managers฀in฀competing฀companies฀in฀the฀same฀market฀ or฀managers฀within฀the฀same฀company฀can฀hold฀very฀different฀ beliefs฀about฀the฀opportunities฀the฀technology฀will฀create฀and฀its฀ likely฀impact฀on฀performance.฀For฀example,฀some฀managers฀may฀ believe฀CRM฀will฀enhance฀the฀effectiveness฀of฀the฀organisation฀ or฀its฀legitimacy฀in฀the฀market฀and฀still฀others฀will฀believe฀it฀will฀ have฀little฀or฀no฀effect฀on฀current฀performance.฀The฀hallmark฀ of฀all฀ideas฀is฀that฀someone฀must฀see฀the฀opportunity฀the฀idea฀ presents;฀CRM฀is฀no฀different. Characterising฀the฀beliefs฀of฀managers฀is฀a฀diffi฀cult฀exercise.฀ However,฀we฀can฀talk฀about฀two฀extremes฀that฀highlight฀how฀ 22 “Nothing is ever smooth. The biggest problem we have in the bank is implementing, you know, just getting the people to develop the systems is basically a pain in the backside. It just takes so long and we have been trying to get a new net system going for this financial services type offering. We have gone around in circles in the last two months, we still haven’t got there and I think we are pretty frustrated by it all.” Director, Financial Services Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 per฀cent฀strongly฀agree฀that฀their฀companies฀are฀profi฀cient฀in฀this฀ area,฀and฀only฀26฀per฀cent฀strongly฀disagree฀with฀the฀statement.฀ Most฀executives฀know฀that฀new฀CRM฀applications฀change฀ how฀people฀work.฀The฀greater฀the฀organisational฀and฀cultural฀ change฀the฀less฀likely฀the฀company฀is฀to฀achieve฀its฀return฀on฀ investment฀goals฀for฀CRM฀projects.฀Success฀in฀such฀a฀climate฀ demands฀the฀need฀for฀executive฀support,฀user฀buy-in,฀ongoing฀ communication฀with฀users฀and฀extensive฀training.฀There฀is฀a฀need฀ to฀involve฀business฀users฀early฀and฀let฀them฀drive฀the฀functional฀ requirements฀that฀include฀on-screen฀design฀and฀navigation.฀ Getting฀the฀systems฀right฀so฀the฀salespeople฀will฀be฀eager฀to฀ use฀it฀appears฀to฀be฀a฀challenge฀for฀many฀of฀the฀companies฀ studied.฀Only฀26฀per฀cent฀believe฀that฀they฀are฀well฀prepared฀for฀ implementation฀challenge฀and฀38฀per฀cent฀strongly฀disagree฀that฀ they฀are฀prepared฀for฀CRM฀(see฀Exhibit฀29).฀ DANGERS฀OF฀OVER-OPTIMISM Exhibit฀27฀–฀Over-optimism฀compared฀to฀competitors powerful฀is฀the฀tendency฀by฀individuals฀to฀exaggerate฀their฀own฀ talent;฀to฀believe฀that฀they฀are฀above฀average.฀Consider฀the฀results฀of฀ a฀survey฀conducted฀by฀the฀US฀College฀Board฀in฀the฀1970s฀involving฀ one฀million฀students,฀which฀has฀recently฀been฀republished฀in฀a฀ 2003฀edition฀of฀the฀Harvard฀Business฀Review.฀When฀students฀were฀ asked฀to฀rate฀themselves฀in฀comparison฀to฀their฀peers,฀70฀per฀cent฀ of฀students฀said฀they฀were฀above฀average฀in฀leadership฀ability.฀For฀ athletic฀prowess,฀60฀per฀cent฀saw฀themselves฀above฀the฀median,฀6฀ per฀cent฀below.฀When฀assessing฀their฀ability฀to฀get฀along฀with฀others,฀ 25฀per฀cent฀considered฀themselves฀to฀be฀in฀the฀top฀1฀per฀cent.฀ In฀a฀similar฀manner,฀the฀respondents฀in฀this฀study฀display฀ evidence฀of฀over-optimism.฀Thirty-four฀per฀cent฀of฀managers฀ indicate฀that฀they฀are฀either฀more฀positive฀or฀far฀more฀positive฀ than฀their฀competitors,฀while฀42฀per฀cent฀believe฀that฀they฀hold฀ similar฀beliefs฀to฀their฀competitors฀(see฀Exhibit฀27). Although฀such฀optimism฀is฀not฀necessarily฀bad,฀particularly฀ when฀radical฀change฀is฀required,฀the฀trick฀is฀to฀balance฀optimism฀ with฀an฀ability฀to฀generate฀realistic฀assessments฀of฀whether฀this฀ type฀of฀change฀is฀feasible. “Probably the biggest impediment to e-intelligence so far has been serious doubts by the managing director in particular and other senior managers about the value of e-business. Some of them think this is really a flash in the pan, they spend a lot of money then find out it’s just a passing phase and then why did we bother to spend all that money and waste all that time with it?” Managing Director, Retail Sector HOW฀WELL฀PREPARED฀ARE฀YOU฀FOR฀CRM? 5.4฀Cultural฀Change In฀most฀cases,฀introducing฀CRM฀requires฀a฀major฀cultural฀change฀ to฀the฀sales,฀service฀or฀marketing฀functions฀of฀companies.฀ Integrating฀legacy฀systems฀with฀new฀customer฀relationship฀needs฀ is฀a฀tricky฀activity.฀Surprisingly,฀many฀executives฀indicate฀that฀their฀ organisations฀are฀highly฀profi฀cient฀at฀integrating฀legacy฀systems.฀Fifty฀ Exhibit฀29฀–฀My฀organisation฀is฀well฀prepared฀to฀implement฀a฀fully฀integrated฀CRM฀system ABILITY฀TO฀INTEGRATE฀IS฀A฀PREREQUISITE฀FOR฀CRM฀ We฀are฀very฀profi฀cient฀at฀integrating฀legacy฀systems฀with฀new฀customer฀needs My฀organisation฀is฀well฀ prepared฀to฀implement฀CRM Strongly฀disagree Neither Strongly฀agree Total฀ Strongly฀disagree 19% 11% 8% 38 Neither 20% 15% 1% 36 Strong฀agree 5% 8% 15% 28 44 34 24 Total฀ Exhibit฀28฀–฀My฀organisation฀is฀well฀prepared฀to฀implement฀CRM฀and฀we฀are฀very฀profi฀cient฀at฀integrating฀legacy฀systems฀with฀new฀customer/฀partner฀ relationship฀needs฀ 23 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 The฀main฀insight฀emerging฀from฀the฀discussion฀above฀is฀that฀ before฀any฀new฀CRM฀programs฀can฀be฀developed฀it฀must฀fi฀rst฀ be฀‘do-able’.฀Do-able฀means฀either฀that฀it฀is฀not฀in฀confl฀ict฀with฀ the฀operational฀or฀strategic฀constraints฀or฀that฀suffi฀cient฀strategic฀ resources฀are฀in฀place฀to฀overcome฀the฀operational฀constraints.฀ Direct฀and฀indirect฀costs฀were฀found฀to฀be฀strong฀operational฀ constraints฀and฀these฀no฀doubt฀combine฀to฀form฀inertial฀ tendencies฀that฀restrict฀new฀initiatives฀in฀many฀organisations.฀ Add฀to฀this฀the฀reality฀that฀old฀skills฀and฀knowledge฀embedded฀ in฀organisational฀routines฀and฀procedures฀are฀not฀easily฀ changed฀and฀we฀see฀many฀implementation฀diffi฀culties฀arising฀for฀ companies฀in฀their฀attempts฀to฀exploit฀CRM.฀ “The end-users of CRM tend to be special animals. The big thing is that since marketing, sales and customer-service personnel work on commission, time lost adjusting to a hard-to-use system is money lost” Barton Goldenberg, president of ISM Inc., a CRM advisory firm in Bethesda, Md, US. Lesson 6 In the rush to fix the technology and business alignment issues, managers tend to overlook what is feasible and focus instead on what is desirable. 24 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 06฀Positioning฀for฀Competitive฀Success฀ The essence of competitive advantage is a positioning theme that sets a business apart from its rivals in ways that are meaningful to the target customer. – George S. Day, “Market Driven Strategy: Processes For Creating Value” The Free Press (1994) As฀we฀have฀shown฀in฀previous฀chapters,฀CRM฀projects฀can฀ easily฀cost฀several฀million฀dollars,฀not฀counting฀the฀time,฀human฀ resources฀and฀organisational฀‘angst’฀involved฀in฀the฀process฀ itself.฀Any฀proposal฀for฀funding฀an฀initiative฀to฀build฀customer฀ relationships฀must฀clearly฀demonstrate฀how฀the฀initiative฀ will฀affect฀key฀measures฀that฀are฀important฀to฀the฀company฀ fi฀nancially.฀Quantifying฀the฀right฀performance฀measures฀will฀not฀ only฀increase฀the฀chances฀of฀getting฀a฀project฀approved฀but฀also฀ pave฀the฀way฀to฀improve฀organisational฀performance.฀Determining฀ the฀appropriate฀measurements฀to฀be฀used,฀however,฀is฀a฀ particularly฀elusive฀task. Traditional฀measures฀of฀success,฀such฀as฀quarterly฀product฀ sales,฀cost฀of฀goods฀sold,฀the฀number฀of฀new฀customers฀acquired,฀ and฀earnings฀before฀interest,฀taxes฀or฀depreciation฀are฀tried฀and฀ true,฀but฀are฀also฀problematic฀for฀a฀variety฀of฀reasons.฀First,฀they฀ don’t฀measure฀those฀factors฀that฀create฀future฀value฀such฀as฀ customer฀responsiveness,฀quality฀service฀and฀speed฀of฀response.฀ Second,฀they฀miss฀the฀importance฀of฀innovation฀and฀the฀ability฀ to฀learn.฀Last,฀they฀don’t฀motivate฀long-term฀behaviour.฀Over฀the฀ past฀two฀decades฀a฀great฀deal฀of฀attention฀has฀been฀devoted฀to฀the฀ development฀of฀a฀more฀balanced฀set฀of฀measures.฀One฀approach฀ suggested฀in฀the฀academic฀literature฀is฀to฀measure฀customer฀ orientation฀on฀the฀basis฀of฀reactive฀and฀proactive฀measures.฀ RESPONSIVE฀TO฀INDIVIDUAL฀CUSTOMER฀NEEDS 6.1฀Reactive฀Customer฀Orientation As฀the฀title฀suggests฀a฀reactive฀orientation฀is฀focused฀on฀the฀ expressed฀needs฀of฀customers.฀The฀assumption฀is฀that฀the฀better฀ the฀company฀is฀at฀reacting฀to฀these฀expressed฀needs฀the฀more฀ likely฀it฀is฀to฀retain฀customers฀and฀outperform฀its฀competitors.฀ Compared฀to฀their฀competition฀61฀per฀cent฀of฀companies฀ investigated฀indicate฀that฀their฀company฀is฀among฀the฀most฀ responsive฀at฀meeting฀individual฀needs฀(see฀Exhibit฀30).฀Clearly฀ these฀companies฀treat฀customer฀interaction฀very฀seriously฀as฀ indicated฀by฀a฀number฀of฀other฀performance฀measures:฀ ■฀ 53฀per฀cent฀believe฀they฀are฀the฀easiest฀for฀customers฀to฀do฀ business฀with,฀ ■฀ 39฀per฀cent฀believe฀they฀are฀the฀best฀at฀sharing฀customer฀ experiences฀across฀the฀business, ■฀ 77฀per฀cent฀consider฀themselves฀among฀the฀most฀trusted฀of฀ companies,฀and฀ ■฀ 47฀per฀cent฀feel฀they฀are฀among฀the฀best฀at฀developing฀ systems฀that฀allow฀customers฀to฀help฀themselves. 6.2฀Proactive฀Customer฀Orientation฀ Being฀reactive฀to฀the฀customer฀is฀one฀thing,฀but฀it฀is฀also฀ important฀that฀companies฀are฀proactive฀in฀their฀desire฀to฀satisfy฀a฀ customer’s฀latent฀needs.฀This฀approach฀is฀based฀on฀intelligence฀ gathering฀and฀is฀therefore฀focused฀on฀acquiring฀information฀about฀ customer฀behaviour฀in฀an฀attempt฀to฀identify฀latent฀customer฀ needs฀and฀competitor฀capabilities฀and฀strategies.฀In฀our฀study,฀ 40฀per฀cent฀of฀companies฀believe฀that฀they฀are฀among฀the฀best฀ at฀discovering฀unarticulated฀(latent)฀customer฀needs฀(see฀Exhibit฀ 31).฀This฀proactive฀orientation฀was฀confi฀rmed฀by฀a฀number฀of฀ additional฀measures: ■฀ 45฀per฀cent฀consider฀themselves฀among฀the฀best฀at฀predicting฀ new฀market฀developments, ■฀ 47฀per฀cent฀think฀they฀are฀among฀the฀best฀at฀brainstorming฀ how฀customers฀use฀new฀products฀and฀services, ■฀ 48฀per฀cent฀view฀themselves฀as฀among฀the฀best฀at฀working฀ closely฀with฀lead฀users,฀and฀ ■฀ 52฀per฀cent฀believe฀they฀are฀among฀the฀best฀at฀driving฀ business฀objectives฀by฀customer฀satisfaction. Exhibit฀30฀–฀Taking฀the฀perspective฀of฀your฀most฀profi฀table฀ customer฀segment,฀how฀would฀they฀compare฀your฀business฀to฀ your฀three฀nearest฀competitors? 25 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 PROACTIVE฀ATTEMPTS฀TO฀DISCOVER฀LATENT฀CUSTOMER฀NEEDS CUSTOMER฀DEFECTION฀RATES Exhibit฀31฀–฀Taking฀the฀perspective฀of฀your฀most฀profi฀table฀ Exhibit฀32฀–฀What฀is฀the฀annual฀rate฀of฀customer฀defections฀to฀ customer฀segment,฀how฀would฀they฀compare฀your฀business฀to฀ your฀three฀nearest฀competitors? your฀competitors? There฀is฀a฀strong฀argument฀to฀make฀that฀a฀reactive฀or฀ proactive฀positional฀advantage฀will฀lead฀to฀improved฀return฀on฀ investment,฀increased฀sales,฀etc.฀When฀we฀compared฀these฀two฀ measures฀only฀proactive฀orientations฀were฀statistically฀related฀to฀ performance.฀Reactive฀measures฀did฀not฀have฀a฀signifi฀cant฀effect฀ on฀performance.฀ Despite฀these฀promising฀results,฀there฀is฀still฀room฀for฀caution฀ regarding฀the฀accuracy฀of฀these฀fi฀ndings.฀While฀30฀per฀cent฀of฀ respondents฀indicate฀that฀they฀are฀extremely฀confi฀dent฀that฀their฀ answers฀are฀correct,฀approximately฀68฀per฀cent฀indicate฀that฀they฀ are฀only฀mildly฀confi฀dent,฀with฀a฀very฀small฀1฀per฀cent฀indicating฀ that฀they฀are฀not฀confi฀dent฀at฀all.฀The฀reasons฀for฀this฀are฀that฀ many฀companies฀do฀not฀measure฀these฀aspects฀of฀performance฀ formally.฀ 6.3฀Additional฀Measures฀of฀Customer฀ Orientation Other฀popular฀marketing฀performance฀metrics฀seek฀to฀capture฀ the฀duration฀of฀a฀customer’s฀relationship฀with฀the฀company฀by฀ measuring฀customer฀retention฀rate฀and฀annual฀rate฀of฀customer฀ defections.฀In฀general,฀the฀companies฀in฀our฀study฀experience฀ quite฀low฀levels฀of฀customer฀defection.฀In฀39฀per฀cent฀of฀cases,฀ defection฀rates฀are฀between฀0฀percent฀to฀4฀per฀cent,฀in฀17฀per฀ cent฀of฀cases฀they฀are฀between฀5฀per฀cent฀to฀9฀per฀cent,฀and฀19฀ per฀cent฀at฀10฀percent฀to฀14฀per฀cent.฀Most฀telecommunications฀ companies฀report฀defection฀rates฀of฀between฀5฀and฀15฀per฀cent.฀ Only฀3฀per฀cent฀of฀companies฀experience฀a฀defection฀rate฀higher฀ than฀30฀per฀cent.฀Not฀surprisingly฀these฀are฀largely฀ hotel฀and฀retail฀companies฀that฀face฀strong฀to฀very฀strong฀ competitive฀pressures.฀ Lesson 7 Being responsive to customer needs is no longer sufficient. Positioning for success requires a proactive approach that is capable of identifying latent customer needs and competitive strategies. 26 CHANGE฀IN฀CUSTOMER฀DEFECTION฀RATES Exhibit฀33฀–฀How฀has฀the฀rate฀of฀defections฀changed฀in฀the฀past฀ three฀years It฀is฀important฀to฀know฀not฀only฀the฀rate฀of฀defection฀but฀also฀ how฀this฀rate฀has฀changed฀over฀the฀past฀three฀years.฀The฀data฀ indicates฀that฀some฀Australian฀companies฀face฀considerable฀ pressures฀with฀5฀per฀cent฀indicating฀that฀they฀have฀experienced฀a฀ considerable฀increase฀in฀the฀rate฀of฀defections,฀33฀per฀cent฀report฀ a฀modest฀increase฀and฀35฀per฀cent฀indicate฀no฀change฀at฀all฀(see฀ Exhibit฀33). What฀is฀important฀in฀this฀climate฀is฀not฀only฀the฀rate฀of฀ defections,฀as฀companies฀in฀telecommunications,฀hotels฀and฀ retail฀should฀expect฀that฀many฀of฀their฀customers฀would฀switch฀ between฀competitors.฀Instead,฀what฀is฀relevant฀is฀the฀share฀ of฀wallet฀or฀degree฀of฀a฀customer’s฀total฀product฀usage฀that฀is฀ controlled฀by฀your฀company.฀Here฀we฀see฀that฀8฀per฀cent฀of฀ companies฀report฀a฀considerable฀increase฀and฀55฀per฀cent฀report฀ a฀modest฀increase.฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 SHARE฀OF฀WALLET Exhibit฀34฀–฀With฀regards฀to฀your฀most฀valuable฀customers,฀state฀ how฀your฀‘share฀of฀wallet’฀(degree฀of฀a฀customer’s฀total฀product฀ usage฀that฀is฀controlled฀by฀your฀organisation)฀has฀changed฀in฀ the฀past฀three฀years฀ What฀this฀study฀indicates฀is฀that฀it฀is฀the฀amount฀of฀money฀ that฀a฀customer฀spends฀with฀a฀company฀that฀drives฀lifetime฀ value฀to฀the฀company฀–฀regardless฀of฀how฀long฀they฀have฀been฀ or฀are฀likely฀to฀be฀a฀customer฀of฀the฀company.฀For฀example,฀ 50฀percent฀of฀companies฀that฀report฀a฀modest฀or฀considerable฀ increase฀are฀either฀average฀or฀better฀than฀average฀performers฀ in฀their฀industry.฀The฀implications฀for฀decision-making฀are฀that฀ managers฀should฀focus฀on฀revenue฀enhancement฀as฀opposed฀ to฀customer฀retention.฀One฀way฀to฀cross฀check฀this฀is฀to฀look฀at฀ those฀fi฀rms฀in฀our฀survey฀that฀have฀devoted฀a฀very฀large฀part฀of฀ their฀strategic฀orientation฀to฀customer฀loyalty฀programs.฀Although฀ these฀programs฀keep฀their฀customers฀‘on฀the฀books’฀for฀an฀ extended฀period฀of฀time,฀there฀is฀no฀evidence฀to฀suggest฀that฀they฀ are฀enhancing฀profi฀tability฀relative฀to฀competitors.฀In฀fact฀our฀data฀ indicates฀an฀even฀performance฀split฀for฀those฀companies฀with฀a฀ heavy฀emphasis฀on฀loyalty฀programs.฀ Lesson 8 Different stages of relationship development represent different revenue and cost profiles. This implies that different customers are managed in different ways. 27 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 07฀A฀Final฀Wrap Our฀study฀reveals฀that฀CRM฀programs฀are฀becoming฀ commonplace฀in฀medium฀to฀large฀sized฀Australian฀companies.฀ Within฀the฀next฀two฀years฀three฀quarters฀of฀the฀companies฀in฀ our฀survey฀believe฀that฀they฀will฀have฀in฀place฀advanced฀CRM฀ programs.฀The฀results฀presented฀are฀very฀much฀‘warts-and-all’฀ showing฀both฀the฀positive฀and฀negative฀aspects฀of฀organisational฀ attempts฀to฀manage฀customer฀relationships.฀Without฀underemphasising฀the฀complexity฀of฀the฀problem฀we฀can฀summarise฀ our฀results฀succinctly฀as฀follows: While฀many฀CRM฀strategies฀are฀based฀on฀the฀theory฀of฀increasing฀ customer฀retention฀through฀improved฀satisfaction,฀it฀is฀a฀myth฀ that฀all฀customers฀have฀the฀time,฀motivation฀and฀energy฀to฀form฀ information-intensive฀‘personal’฀relationships. ■฀฀฀Segmenting฀markets฀around฀fundamental฀customer฀needs,฀ can฀in฀itself,฀be฀an฀effective฀starting฀point฀for฀performance฀ improvement, ■฀฀฀This฀is฀not฀easy฀as฀most฀organisations฀work฀with฀customers฀ that฀are฀at฀different฀relationship฀stages฀and฀these฀stages฀ are฀dynamically฀changing,฀and ■฀฀฀To฀deal฀with฀this฀problem,฀the฀best฀organisations฀employ฀ a฀balanced฀approach฀where฀they฀trade-off฀the฀benefi฀ts฀ and฀costs฀associated฀with฀customer฀intimacy,฀operational฀ excellence,฀data฀analytics฀and฀loyalty฀programs.฀ ฀ o฀ensure฀CRM฀program฀success,฀organisations฀need฀to฀develop฀ T a฀high฀level฀customer-relating฀capability.฀The฀three฀constituent฀ parts฀of฀a฀customer฀relating฀capability฀are:฀ ■฀฀฀A฀fl฀exible฀IT฀infrastructure฀that฀provides฀a฀full฀picture฀of฀the฀ customer฀histories,฀purchasing฀activity฀and฀problems,฀ ■฀฀฀The฀skill฀to฀convert฀market฀data฀into฀knowledge฀of฀ the฀customer฀(management฀of฀information฀collection,฀ organisation฀and฀use),฀and฀ ■฀฀฀Supporting฀organisational฀structures฀(the฀degree฀to฀which฀ the฀behaviours฀and฀values฀of฀staff฀are฀aligned฀with฀the฀new฀ customer฀orientation)฀ ฀ ฀ •฀฀ALONE,฀each฀of฀these฀capabilities฀is฀insuffi฀cient฀for฀ success.฀Therefore,฀managers฀should฀be฀wary฀of฀ concentrating฀on฀one฀or฀two฀aspects฀independently฀in฀an฀ effort฀to฀gain฀control฀over฀what฀can฀be฀a฀large-scale฀project.฀ The฀main฀constraints฀limiting฀CRM฀programs฀are฀organisational฀ fi฀rst,฀fi฀nancial฀second฀and฀technological฀third: ■฀฀฀Organisational฀constraints฀are฀not฀just฀political฀and฀cultural฀ issues,฀but฀also฀the฀way฀CRM฀programs฀can฀disturb฀the฀ delicately฀balanced฀chain฀of฀customer฀knowledge฀related฀ activities.฀The฀implications฀of฀this฀are฀that฀managers฀need฀ to฀sell฀CRM฀programs฀early฀and฀sell฀them฀often฀to฀ensure฀ participation฀by฀the฀necessary฀stakeholders, ■฀฀฀Financial฀constraints฀loom฀large฀and฀a฀systematic฀ analysis฀of฀how฀you฀do฀things฀now฀and฀the฀organisational฀ transformation฀required฀to฀support฀relationship฀programs฀is฀ required,฀and ■฀฀฀Technological฀constraints฀are฀not฀about฀what฀software฀ solutions฀are฀available฀but฀revolve฀around฀the฀ability฀to฀get฀ systems฀to฀talk฀to฀one฀another฀and฀integrating฀disparate฀and฀ legacy฀systems฀in฀an฀organisationally฀friendly฀manner. 28 Exhibit฀35฀–฀Evolving฀relationship฀types฀ Firms฀operate฀CRM฀programs฀with฀varying฀degrees฀of฀success฀ with฀many฀experiencing฀outstanding฀success฀stories฀and฀failures.฀ Some฀examples฀of฀these฀include: “Direct฀customer฀feedback฀has฀proven฀to฀be฀an฀excellent฀program฀ that฀was฀not฀originally฀requested”฀(CFO฀–฀Financial฀Services) “The฀implementation฀of฀a฀new฀frequent฀fl฀yer฀proposition฀ to฀market฀that฀is฀fully฀supported฀by฀our฀CRM฀system฀has฀ strengthened฀our฀internal฀processes฀and฀improved฀our฀ competitive฀position฀considerably”฀(Airline฀Sales฀Director) “Success฀has฀been฀the฀use฀of฀a฀new฀data฀warehouse฀for฀ developing฀customer฀retention฀strategies,฀failure฀has฀been฀the฀ continual฀failure฀to฀use฀the฀CRM฀system฀by฀Account฀Managers”฀ (CIO฀–฀Financial฀Services) “We฀have฀experienced฀too฀many฀failures฀to฀list.฀Availability฀of฀ skilled฀resources฀in฀Australia฀is฀a฀major฀problem”฀(CRM฀Director฀ –฀Telecommunications) “Failure฀is฀due฀to฀the฀use฀of฀the฀technology,฀not฀the฀technology฀ per฀se”฀(CEO฀–฀Financial฀Services) The฀fi฀nal฀insight฀we฀offer฀is฀that฀CRM฀is฀about฀managing฀different฀ types฀of฀customer฀relationships.฀In฀this฀study฀we฀looked฀at฀four฀ different฀types฀of฀relationship:฀strangers,฀acquaintances,฀friends฀ and฀true฀partners.฀As฀these฀relationship฀types฀evolve฀over฀time฀ they฀create฀very฀different฀demands฀on฀CRM฀programs฀and฀ subsequent฀company฀value฀and฀profi฀tability฀(see฀Exhibit฀35).฀ ■฀฀฀Strangers฀to฀acquaintances฀–฀strangers฀are฀customers฀ that฀have฀not฀yet฀entered฀the฀market฀or฀are฀customers฀ of฀competing฀suppliers฀and฀hence฀do฀not฀require฀ personalisation.฀As฀soon฀as฀there฀is฀a฀business฀transaction,฀ a฀customer฀moves฀to฀a฀new฀level฀of฀awareness.฀At฀this฀ point฀the฀supplier฀and฀customer฀become฀acquaintances.฀In฀ many฀cases,฀these฀customers฀are฀still฀yet฀to฀be฀convinced฀ that฀entering฀into฀a฀‘relationship’฀will฀be฀benefi฀cial.฀In฀this฀ case,฀suppliers฀need฀only฀provide฀a฀value฀proposition฀ to฀a฀customer฀that฀is฀on฀par฀with฀competitors,฀or฀parity฀ value.฀By฀listening฀to฀their฀customers฀and฀delivering฀on฀ the฀basics,฀companies฀will฀gain฀experience฀and฀learn฀to฀ improve฀production฀effi฀ciencies.฀As฀you฀become฀better฀at฀ providing฀the฀routine฀benefi฀ts฀that฀customers฀expect฀to฀get฀ when฀they฀make฀a฀purchase฀you฀begin฀to฀gain฀a฀positional฀ Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 advantage฀over฀those฀with฀less฀experience฀and฀volume.฀ ■฀฀฀Acquaintances฀to฀friends฀–฀by฀directing฀resources฀towards฀ ensuring฀that฀all฀communication฀between฀your฀company฀ and฀your฀customers฀is฀relevant.฀You฀show฀customers฀that฀ you฀remember฀them฀and฀that฀their฀business฀matters฀to฀you.฀ As฀the฀customer฀relationship฀evolves฀from฀acquaintance฀ to฀friend,฀suppliers฀are฀increasingly฀required฀to฀move฀from฀ delivering฀value฀on฀par฀with฀the฀competition฀to฀creating฀ differential฀value.฀This฀requires฀development฀of฀trust฀in฀the฀ relationship฀through฀provision฀of฀diversifi฀ed฀products฀and฀ services.฀A฀natural฀consequence฀is฀that฀customers฀require฀ more฀information,฀thereby฀placing฀greater฀demands฀on฀ the฀company’s฀technology฀and฀the฀staff฀responsible฀for฀ modelling฀customer฀data.฀ ■฀฀฀Friends฀to฀true฀partners฀–฀ultimately฀trust฀breeds฀greater฀ commitment฀that฀results฀in฀a฀shift฀from฀short-term฀ exchanges฀to฀long-term฀relationships.฀Customised฀ information฀and฀products฀are฀required฀for฀true฀partners.฀ This฀implies฀that฀appropriate฀organisational฀structures฀are฀ in฀place฀to฀ensure฀that฀you฀treat฀your฀best฀customers฀well.฀ This฀implies฀that฀staff฀behaviours฀and฀values฀are฀tightly฀ aligned฀with฀customer฀needs.฀ From฀a฀resource฀allocation฀perspective,฀organisations฀need฀to฀ ensure฀that฀the฀delivery฀of฀parity฀value,฀differential฀value,฀and฀ customised฀value฀is฀tightly฀aligned฀with฀customer฀motivation฀to฀ remain฀as฀strangers,฀acquaintances,฀friends฀or฀true฀partners.฀ Carte฀blanche฀approaches฀that฀seek฀to฀establish฀relationships฀ with฀all฀your฀customers฀are฀unlikely฀to฀be฀profi฀table.฀In฀our฀ study,฀the฀companies฀that฀are฀most฀comfortable฀with฀customer฀ relationship฀programs฀are฀companies฀that฀know฀what฀they฀want฀ to฀get฀from฀their฀data฀systems฀and฀have฀a฀realistic฀appreciation฀ for฀the฀organisational฀constraints฀that฀exist.฀In฀other฀words,฀ these฀companies฀have฀a฀clear,฀unconstrained฀strategy฀aimed฀ at฀identifying฀customer฀segments฀and฀extracting฀the฀most฀ value฀from฀their฀economic฀interactions฀with฀different฀types฀of฀ customers.฀It฀is฀in฀this฀area,฀as฀many฀organisations฀would฀agree,฀ that฀considerable฀room฀for฀improvement฀exists.฀In฀our฀next฀report,฀ we฀aim฀to฀provide฀companies฀with฀more฀detailed฀measurement฀ instruments฀and฀classifi฀cations฀schemes฀that฀enable฀them฀to฀ identify฀and฀sort฀different฀customers฀according฀to฀their฀value.฀For฀ those฀wanting฀more฀detail฀on฀this฀a฀list฀of฀selected฀readings฀has฀ been฀included.฀Should฀you฀wish฀to฀be฀involved฀in฀further฀research฀ in฀this฀area,฀then฀please฀contact฀the฀authors฀of฀this฀report.฀ 29 Australian฀Graduate฀School฀of฀Management฀Report฀2004 Customer฀Relationship฀Success฀Report฀2004 Further฀Readings฀For฀Those฀Who฀Want฀More฀ Behn,฀B.฀K.฀and฀R.฀A.฀Riley฀(1999).฀“Using฀Non-Financial฀ Information฀to฀Predict฀Financial฀Performance:฀The฀Case฀of฀The฀ US฀Airline฀Industry.”฀Journal฀of฀Accounting,฀Auditing฀and฀Finance Journal฀of฀Accounting,฀Auditing฀and฀Finance 41(1):฀29-56. Carr,฀N.฀G.฀(1999).฀“Marketing:฀The฀Economics฀of฀Customer฀ Satisfaction.”฀Harvard฀Business฀Review฀77(2):฀15-16. Coltman,฀T.,฀T.฀M.฀Devinney,฀et฀al.฀(2001).฀“E-Business:฀ Revolution,฀Evolution฀of฀Hype?”฀California฀Management฀Review฀ California฀Management฀Review฀ 44(1):฀57-85. Coltman,฀T.,฀T.฀M.฀Devinney,฀et฀al.฀(2002).฀“Keeping฀e-Business฀ in฀Perspective.”฀Communications฀of฀the฀ACM฀45(8):฀69-74. Day,฀G.฀S.฀(1994).฀“The฀Capabilities฀of฀Market-Driven฀ Organizations.”฀Journal฀of฀Marketing Journal฀of฀Marketing฀58(4):฀37-52. Day,฀G.฀S.฀(2003).฀“Creating฀a฀Superior฀Customer-Relating฀ Capability.”฀MIT฀Sloan฀Management฀Review MIT฀Sloan฀Management฀Review฀(Spring):฀77-82. Dowling,฀G.R.฀(2002)฀“Customer฀Relationship฀Management฀ in฀B2C฀Markets,฀Often฀Less฀is฀More”฀California฀Management฀ California฀Management฀ Review,฀44(3):฀87-103. Review, Drummond,฀H.฀(1999).฀“Are฀We฀Any฀Closer฀to฀the฀End?฀ Escalation฀and฀the฀Case฀of฀Taurus.”฀International฀Journal฀of฀ Project฀Management฀17(1):฀11-17. Project฀Management Fletcher,฀K.฀(2003).฀“Customer฀Power฀and฀Privacy:฀the฀Changing฀ Nature฀of฀CRM.”฀International฀Journal฀of฀Advertising International฀Journal฀of฀Advertising฀22:฀249-272. Ittner,฀C.฀D.฀and฀D.฀F.฀Larcker฀(1998).฀“Are฀Non-Financial฀ Indicators฀of฀Financial฀Performance:฀An฀Analysis฀of฀ Customer฀Satisfaction.”฀Journal฀of฀Accounting฀Research Journal฀of฀Accounting฀Research 36(Supplementary):฀1-16. Heskett,฀J.฀L.,฀L.฀James,฀et฀al.฀(1994).฀“Putting฀the฀service-profi฀t฀ chain฀to฀work.”฀Harvard฀Business฀Review฀72(2):฀164-175. Johnson,฀M.฀D.฀and฀F.฀Selnes฀(2004).฀“Customer฀Portfolio฀ Management:฀Toward฀a฀Dynamic฀Theory฀of฀Exchange฀ Relationships.”฀Journal฀of฀Marketing Journal฀of฀Marketing฀68(4):฀1-17. Langerak,฀F.฀(2003).฀An฀Appraisal฀of฀Research฀on฀the฀Predictive฀ Power฀of฀Market฀Orientation.฀European฀Management฀Journal. European฀Management฀Journal.฀21:฀ 447-464. Reichheld,฀F.฀F.฀(1993).฀“Loyalty-based฀Management.”฀Harvard฀ Business฀Review฀(March-April):฀64-73. 30 Australian฀Graduate฀School฀of฀Management฀Report฀2004