CRM for Fun and Profit, Part II: Costs

CRM for Fun and Profit, Part II: Costs

Some time ago I was at a Microsoft Convergence conference and was immersed in all things CRM. During one discussion the topic of the costs of CRM implementations came up. I distinctly remember one of the comments.

“The trouble with CRM projects is that the first 80% of the project takes the first 80% of the budget and the remaining 20% of the project takes the other 80%.”

I recall that we all had a pretty good laugh over this.

Like most humor, it’s funny because it’s true. The typical CRM project costs more than originally expected.

I think there are a few reasons for this. The first is most of us are unreasonably optimistic and tend to underestimate the complexity of the average project. This just doesn’t apply to CRM projects – it’s virtually every technology project. (See Management by Wishful Thinking for background on why this occurs.) Invest some time and though in the planning process in order to combat this.

A second reason is that companies try to go it alone and don’t get expert help. It is very difficult to get it right the first time; contracting some expert help can minimize the risk greatly.

A third (and biggest) reason is that the scope of CRM projects become broader than originally planned. There are several factors that influence this.

Business Processes: Your company probably has its business processes documented and there’s a good chance that they reside in some dusty binders resting on an obscure shelf somewhere. The challenge is that they are likely out of date. Processes change fairly regularly and unless your company is extremely diligent the documentation doesn’t necessarily get updated. And these are just the formal changes. Users develop their own shortcuts and workarounds and these never get documented. The processes in those binders are at best an approximation of what actually happens. So you are going to have to spend some extra time understanding the current state of your processes.
Organization: It’s not just business processes. To get the maximum benefit from CRM you have to make sure the culture and philosophy of the organization are themselves customer centric. Companies that are implementing CRM for the first time typically aren’t focused on the customer – they are focused on whatever product or service they offer the customer. The journey to becoming customer-centric is longer and harder than expected.
Another organizational consideration is who owns the customer? I have seen CRM create turf wars in organizations over ownership of the customer. Sales? Marketing? Customer Service? Does the regional office or national office own the customer? CRM requires a customer engagement strategy where this type of thing is defined in detail, or else your customers could be bombarded by disconnected messaging from various functions in your organization. Developing this strategy takes time and money.

People: Winning the hearts and mind of the users can be difficult. It’s great that CRM is good for the company, but what’s in it for them? There will be resistance because the implementation of CRM is creating a new area of subject matter expertise and likely diminishing the importance of some existing subject areas. That’s a difficult situation for the present subject matter experts. Change is always hard – it can be helped along by providing compelling explanations of the benefits that the users will get from CRM. Make sure that end-user training is complete and answers the ‘why’ questions as well as the ‘how’. Also remember that CRM can give you a lot of information on end-user productivity and that attention is not always welcome. The bottom line is that training and education will be a larger effort than you originally anticipated.

Integration: Most CRM systems are integrated with existing systems and data. Integration with existing systems is harder than you think it will be. There’s a number of reasons for this. It’s likely that, like your business processes, your current systems and data are inadequately documented. The effort to better understand your current state will again be larger than expected.

Once you understand what you have there is the issue of data quality. Data quality has numerous properties that need to be considered (accuracy, validity, timeliness, consistency and completeness). The older your data the greater the likelihood that a data quality effort will need to occur before this data can be integrated into the CRM system. This is not a trivial effort.
One more thought about integration – there are actually two integration efforts that need to be considered. The first is the initial data load, the second is the periodic (daily, weekly or whatever) update/refresh. The efforts are similar but different; plan to manage them as two separate and distinct efforts.

Security: CRM collects (and generates) a *lot* of data. It needs to be managed and safeguarded. Regardless of whether it’s on-premise or in the cloud, security, confidentiality and privacy of data is a big deal and by implementing CRM you have just made it bigger, particularly if any of the data is being exposed to the internet through a portal. Protecting the CRM data from unauthorized access from both internal and external sources needs to be considered part of the project.

Success: Success can be a problem. Once the business community starts to better see the benefits of CRM there will be pressure to broaden existing functionality or add additional capabilities. There will be demands to broaden scope and start adding these additional capabilities immediately, particularly if you are implementing CRM in a series of small releases. Indiscriminately adding scope to the project is an easy way to turn a 12 month project into one that takes 18 months. Ensure that you have a robust change control process defined or you may find yourself with a project that never ends.

CRM is worthwhile investment but it’s good to start with your eyes wide open. There are aspects to CRM projects that aren’t readily apparent at first glance; missing these can lead to increased costs, extended durations, unfulfilled expectations and general disappointment.

And who wants that?

photo credit: photosteve101 via photopin cc

CRM for Fun and Profit: A Primer

CRM for Fun and Profit: A Primer

How your organization can leverage relationship management to drive growth and profitability

So … you are thinking about implementing CRM, or you’ve decided to implement CRM (or maybe it’s been decided for you) but you are not sure where to begin. There are any number of software vendors that would love the opportunity to sell you their software right now (because it’s their quarter-end now and the deals are just too good to pass up and the software is all you really need and could you sign right here please?). In this case resistance is not futile; politely decline, take 15 minutes and read on to get a better understanding of what lies ahead. CRM (Customer Relationship Management) has been part of the business landscape since the mid-1990s. The initial offerings were little more than enhanced contact management systems but in the twenty years since then both the philosophy and technology of CRM has matured and evolved to the point where CRM can be considered a mature offering; it represents a viable business strategy for an organization to follow.

Objectives of CRM

Any discussion of CRM would be incomplete without a reminder of the primary goal of the typical business: it exists to make money. Implementing CRM requires a significant investment in people, process and technology; the end result needs to deliver sufficient revenue to offset the initial investment and the continuing operational costs. CRM doesn’t necessarily make sense for all companies. If you are selling low-cost commodity items to the general public, like laundry detergent or a pound of butter you probably don’t need to establish a relationship with your customers (nor are they likely to want a relationship with you). But it’s different if you are selling a higher value, customizable product or service, like a financial product, a car or a vacation. There is value in understanding your customer and using that understanding to establish a long-term relationship. The fundamental objectives of CRM are twofold:

  • The first is finding the right customers and establishing long-term relationships with them. CRM is not particularly concerned with the value obtained from a single transaction with a customer; its objective is to develop enduring relationships and drive revenue and generate profit over a lifetime of transactions with the customer. Customer retention is paramount; customers are viewed as assets rather than just the buyer on the other side of the single transaction.
  • The second objective is increasing revenue through obtaining a larger customer ‘share of wallet’ – building a broader, more profitable relationship. In addition to increasing the length of relationships, CRM also strives to expand the breadth of relationships by more fully engaging customers and having them utilize a fuller range of the total goods and services provided by your organization (or by a partner organization).

It is critical to note that the value derived is mutual. Your company receives revenue, but the customer receives something valuable in return. He deals with a company that understands him (sometimes almost anticipating what is needed), actions requests promptly and accurately (following up when required), and treats him in a way that reflects the value and importance of his business. Following the principles of CRM allows your organization to provide to the customer the type of experience that he values. (Just a note: I know there are organizations that aren’t driven by profit, such as government agencies, not-for-profit, charities and the like. CRM can make sense for them too by ensuring that they deliver their services to their customers as effectively and completely as possible.) CRM became a very popular buzzword in the early 2000s, but most companies that implemented it were unable to fully realize the potential of CRM. Significant investments were made in tools and training, but few companies changed their organizational philosophies and strategies to align with a CRM approach. This need – to move away from traditional strategies towards those that are more customer focused – is the biggest barrier to the adoption of strategic CRM. If you take away anything from the document it needs to be this: CRM is a class of technology products but it is also a business philosophy that requires significant and fundamental changes to your organization to implement fully. But it can (and in many cases, should) be done.

The Fundamentals of CRM: 8 Factors to Consider

Before you look at CRM as a business philosophy you need to consider the fundamentals.

1.   It’s about the Customer

At its very core, CRM focuses on engaging with customers on a one-to-one basis. The goal is to satisfy the needs of the customer, but this also gives your organization the opportunity to better understand who customer is, what they value, how they wish to be engaged, their opinion of your organization and perhaps even what the competition is offering. Every contact with the customer is an opportunity to engage them in a deeper/more complete manner. CRM is a very long term strategy; one where time is measured and success is determined over the period of years and decades rather than months and quarters. In following a CRM-focused strategy, the organization must move from a product-based volume selling approach where the focus is on short term results to a strategy that concentrates on delivering what customers want when they want it over a much longer term. This approach – mass customization at the level of the individual customer – requires that an organization:

  • understand the needs and preferences of each customer
  • provide personalized offerings
  • provide ‘a perception of value’ (or value proposition) to each customer
  • retool technologies and processes to support CRM
  • partner with organizations that share a CRM-based business strategy
  • not have the need to maximize the profit from each individual transaction

Achieving this requires a complete rethink of how the organization operates. What culture needs to be in place for a relationship based approach to succeed? Ultimately there are two prevailing characteristics: it is patient, and the customer relationship is the primary focus of the organization. Sales, distribution, product – all remain important but are viewed through the lens of the customer relationship. At a one-to-one level, CRM is about ensuring that each and every customer feels that they have a personal relationship with your company; that the person on the other end of the telephone line (or web chat, text message or email) knows who they are, how they like to be engaged and understand what it is they need. CRM enables this by providing to its users a deep and comprehensive understanding of each customer. This degree of intimacy cannot be achieved without leveraging technology. The CRM application, the internet and communication capabilities (such as portals, email, telephone, web chat and social networking) can all be deployed and exploited to aid in establishing long-term, mutually profitable relationships with customers. One of the key differences between today’s environment and that of twenty years ago is the internet. The internet and the ‘always connected’ society changes everything and provides you with two opportunities: the ability to inexpensively create and execute marketing campaigns (that can range from mass marketing to large groups to selectively marketing to individuals), and increased access to information, both for your organization and for your customers. Organizational websites now allow a level of access to information and data that would have been unthinkable just a few years ago, and the advent of social media has added an additional dimension (as well as additional complexity) to the customer/company relationship. CRM allows an organization (through better understanding of their customers, their preferences and their history of interactions) to leverage the internet to better (and more completely) engage their customers, in both outbound and inbound interactions. CRM is about defining who the ‘right’ customers are for your organization. All customers are not created equal; segmentation of customers into logically related groups is essential for successful relationship marketing and servicing. Once this is determined, you can define how those segments will be served. (It is worth noting that customer needs and expectations are a moving target, and as needs and expectations shift your organization needs to respond accordingly.) Customers should be valued based on the current value they bring to the company plus the potential future value that they can be expected to deliver. The criteria used to create the segments are unique to each organization, but I believe there needs to be at least 4 segments:

  • Which customers are our ‘best’ customers – who do we focus on?
  • Who are our average customers – can we promote them?
  • Who are our less than average customers – how can we better engage them?
  • Who are our worst customers – who do we fire?

The best customers, those that provide the best total value to your organization, are the customers that should receive the best value in return. Remember Pareto – 20% of your customers drive 80% of your revenue. You need to decide what you are willing to do differently for high value customers. For the high value segment you could create an exclusive product, a custom website or perhaps provide concierge service with shorter turnaround times or better loyalty rewards. Customer care is the true ‘value-add’ of relationship management; it’s what can determine the success (or failure) of the entire customer experience. It goes beyond the transactional nature of customer service activities to the determination of what needs to be done, again on a one-to-one basis, to make the products and services more attractive to each specific individual and to increase the bond between them and your organization.

2.   Customer Measurements

Proper segmentation of customers can only be achieved once the required metrics have been established and a measurement program is in place. The prerequisite to achieving this is sufficient performance data. Your organization needs to be able to measure the performance of each channel and of each customer. CRM captures a great deal of data – interactions with the customer, administrative events (e.g. a bill payment or a change of address), personal data (preferences, demographic, financial and psychographic) and relationship data (how the customer relates to other customers [e.g. households or sales teams]). On an individual level this data provides you with the necessary information to tailor interactions with each specific customer – to engage the customer in the way that he wishes to be engaged. On a macro level, once all this data is aggregated you can interpret the information and perform detailed, complex analyses and data mining activities to uncover nuggets of knowledge that would otherwise remain hidden, and then leverage these insights for the benefit of your company and the customer. CRM relies heavily on analytics for gaining knowledge and insight about their customers as well as the effectiveness of their operations. Successful analytics requires data (organized in a manner that is conducive to analytics) as well as the necessary expertise to perform the analysis efforts. Neither of these is easy to come by; establishing an analytical capability typically requires a significant commitment. Fortunately analytics is an area where an organization can start with simple measures and evolve to more complex approach over time. The analytics effort can include such metrics as:

  • Developing simple trends based on single factors like geography or product
  • Analytics that look at the profitability of individual customers and accounts
  • Analysis of customer behaviors and the factors behind the customer’s decision making process.
  • Differentiation of service delivery for different customer groups (for instance, through a customer segmentation strategy)

One of the key metrics is customer satisfaction, although ‘satisfaction’ is probably not a descriptive enough term. A typical customer expects to be satisfied; successful relationships are not likely to be built if satisfaction is the target. Organizations need to exceed satisfaction and move towards building customer loyalty. Part of a successful CRM effort should concentrate on moving your customers towards developing an affinity with your company and brand. It’s much harder to lose a loyal customer than one who is merely satisfied. Measurement is a two-way street – you also need to allow customers to measure your organization’s performance. The ability to listen to customer feedback and capture their views and opinions is a basic capability of CRM. The explosion of social media and of customers who are more than willing to proffer their opinions, is a logical starting place. The challenge is to rapidly triage the information that is captured and act decisively on those that will have the biggest impact to the customers as a whole.

3.   The Value Proposition

The value proposition that you offer to your customers is another key fundamental of relationship management. The development of the value proposition – what you are promising to the customer – needs to consider numerous questions, including these eight:

  • What products and services do our customers want (and how much are they willing to pay for them)?
  • What products and services will we choose to provide?
  • What investment are we willing to make in people/process/technology to support the creation and delivery of products and services
  • How can provide these products and services?
  • What scale is required?
  • What level of quality will be provided?
  • What value does the customer receive, and what value do we receive?
  • How do we demonstrate the validity of the value proposition?

4.   Capabilities

In order to deliver on the value proposition your organization need to develop a suite of capabilities to support the delivery of its chosen products and services. The capabilities of an organization need to be marshaled around meeting the expectations of the customers and fulfilling the value proposition. The capabilities question is one that needs to be asked very early in the CRM process. Following a CRM approach is not inexpensive, and an organization needs to decide how much of an investment it is prepared to make. It is better for your organization to focus on a limited set of capabilities and deliver them very well than to choose a wide breadth of capabilities and deliver them in a mediocre fashion. (An alternative approach to CRM is to approach it tactically, but more on that later). Capabilities include business processes. Developing processes that are ‘CRM-friendly’ is different than conducting a traditional process reengineering effort where the focus of the effort is the design of efficient functional processes. The intent of a CRM focused process is to deliver maximum value to the individual customer; the process needs to be intelligent enough to recognize what the customer values and flexible enough to deliver it. The primary goal of CRM processes is not concerned with delivering maximizing efficiency (work deliver per time unit) but on delivering effectiveness – maximizing the value exchanged during the interaction. And CRM processes are designed to facilitate the measurement of cycle times and the performance of individuals or groups. Capabilities also includes technology. CRM is also about computing, and it’s a complex undertaking. The CRM system itself, the integration of multiple supporting applications and data sources, storage of large volumes of data, the development of portals that allow customers access to information, the mining of data and the associated historical and predictive analytics are the primary areas where investments in computing technology are required. It’s definitely not trivial. Which comes first, the technology or the processes? It’s really an iterative approach. When using commercially developed software, in virtually every instance it makes most sense to build the business processes around the capabilities of the technology rather than adapting the technology to the business processes. But before the software is acquired it’s necessary to define the business processes in sufficient enough detail to ensure a good fit between how the business expects to run and how the technology can support it. Once the software is acquired the business processes are optimized to leverage the capabilities of the software. This approach results in processes that are streamlined, efficient and tightly integrated with the technology. Procuring software without a clear understanding of the anticipated business processes is a recipe for disaster. Software can (and should) be configured to deliver the ideal end user experience, but customizing software is something that should be avoided at all costs. When software is customized it is actually being modified to perform a task that it was not designed to do, and results in highly modified software that requires significant cost and effort to support (and has likely strayed from the upgrade path). Configure to your heart’s delight but customize at your peril.

5.   Organizational Considerations

Organizations that focus on CRM move customer information as close to the front line as possible and provide the individuals who interact directly with customers the ability to make as many decisions as possible without need for approvals or the handing off of the request to more senior staff. The move from order taker to decision maker is a shift of significant proportions. Your organization will have to look at all aspects of human resources, training and talent management to make this transition successful. (Be prepared; not all your staff will be able to make the necessary transition.)

“People are the key to any relationship. Business is still people, but these people must be supported by technologies and processes to multiply their capabilities and make them even more effective ….The people at the front lines should have the ability to communicate with customers in a manner that recognizes them, remembers their contact history, understands the current customer issues, predicts anticipated behaviors and suggests appropriate responses, solutions or suggestions. Increasingly, the front-line people are becoming consultants, working with customers to add value to their company. This is a marked departure from historical practice and requires recognition, reward and incentives that support this redirection.”

Ian Gordon, ‘Relationship Marketing’

It also requires that organizations modify their structure to support CRM. Rather than having traditional product managers it may be necessary to organize by customer segment and have managers for each of these segments, or perhaps to change the focus of acquisition efforts to concentrate on finding customers who most closely match the profile of an ideal customer; not necessarily just someone who wants to make a purchase. No process or technology will provide the anticipated benefits unless trained staff is available to do the work. CRM is a complex undertaking, and the people, process and technology must work in harmony to deliver a customer experience that meets the expectations of both the customer and your organization. This can’t happen without thorough training at initial implementation time (as well as when new hires are brought on), supplemented by periodic refresher training. In conjunction with the training, the appropriate supports need to be in place to reinforce the training. This includes processes, rewards, and recognition for individuals who actively advocate and promote the building of relationships with customers, co-workers and partners. All this requires leadership. The leaders of a CRM-focused organization need to ensure that the organization stays true to its strategy. While strategy defines what your organization will do, perhaps more importantly it also defines what your organization will not do; it is the responsibility or the leadership to ensure that new opportunities that arise but fall outside of the adopted strategy are either not pursued, or are acted upon with a full understanding of the impacts on the existing strategy.

6.   Profitability, Value and Cost

Profitability of your organization is normally driven by two variables: growth and the efficiency of its operations. While neither of these variables is exclusive to a CRM-based approach, the strategies that you follow in pursuit of profitability will shape your adoption of CRM. These include:

  • Controlling the cost variables associated with the people, processes and technology as closely as possible
  • Developing and deploying new and improved products and services (and ensuring that the customers are engaged in the design)
  • Establishing new revenue streams – new channels and partners
  • Servicing customers in the appropriate manner in order to maintain the required persistency and retention
  • Terminating the relationship with low value customers

7.   Collaboration and Integration

CRM is about collaboration – bi-directional interactions between an organization and its customers. It’s conversational. Customers want their needs met and concerns addressed. We live in an age where information is king and access to that information is demanded. Customers expect visibility into internal processes that in the past were hidden from view. (Imagine ordering from Amazon and not being able to track your order.) This visibility is the new norm and it will require that you open up internal processes to customers in ways not previously considered. And it goes beyond sharing of transactional information; customers want to contribute in to such efforts as product design or the provision of new or improved services. The explosion of social media and the willingness of people to share their opinions is something that organizations can benefit from. When the customer speaks the organization needs first to listen and then to act. Regardless of the channel employed (which may include e-mail, webchat, SMS, IVR, social media and in some cases regular mail or a face-to-face interaction), when a customer engages an organization some action needs to take place. The key is to reduce the time of the decision cycle as much as possible to allow the action to be performed real-time and if not real-time then as quickly and transparently as possible. (How quickly? That’s determined by the service levels that you have defined.) At an enterprise level, CRM can help reach across departmental and functional boundaries in order to provide complete solutions to customers. It aligns customer touch-points so the customer experience is consistent across people, departments and even organization. By capturing and sharing all customer interactions you develop an ‘institutional memory’ that gives all employees an understanding of a customer’s history. There are three perspectives on collaboration that need to be considered:

  • Internally, within teams and across teams
  • Externally, with customers
  • Externally, with partners

The collaboration must extend beyond the customer relationship into secondary relationships – your partners and suppliers – and the potential of providing value-added services. From your organization’s perspective, who actually provides the product and/or service is immaterial as long as the organization continues to own and manage the relationship with the customer and can derive some value from it. From the customer’s perspective, their relationship continues to be with a single organization – the delivery of products and services by third parties occurs transparently.

8.   Manufacturing and service capability

The rapid development of new products or services is a prerequisite to meeting the needs of your customers. Bringing a new product to market in a timely manner is essential to successful CRM, as the product design should be driven, at least in part, by the needs and requirements of the customers. Ideally, the product development process should be efficient enough to allow the customization of specialized products for specific customers or customer segments. The same holds true for service capabilities. Again, customization is key – the ability to adapt the service process to the needs of the individual or segment being serviced is a prerequisite for the success of CRM.

Non-Strategic CRM

In looking at the previous 8 considerations maybe you’ve lost your appetite for taking a strategic approach to CRM; it’s quite a lot to handle. Perhaps for your organization taking a tactical approach makes more sense. It still requires that you establish the necessary capabilities for CRM but represents a much smaller commitment in both time and money than a strategic approach. There are several fundamentals of CRM that are more tactical in nature and could be implemented independently of a larger CRM strategy. One reason for taking this approach is to deliver value to the organization in the short-term and demonstrate some ‘wins’ to the business stakeholders and CRM users.

Customer Segmentation

You can easily apply simple segmentation rules to your customers. At a tactical level, the main benefit of doing this is the provision of different levels of service to the different segments, most notably lower cost service to lower value customers.

Capture of all customer interactions and events

Tracking of all customer interactions and events and capturing this information in a CRM allows all employees (subject to security and privacy considerations) of an organization to have a 360º understanding of that customer. Of particular importance is being aware of other dealings that the customer has had with the organization. From the customer’s perspective, this prevents the need of the customer to re-educate the organization about past interactions and requests on every new interaction and help for a relationship to be established between the customer and the organization, not between the customer and a specific employee in the organization. Capturing historical data also permits the running of simple analytics independently of a larger business intelligence effort.

Rapid and accurate fulfillment of customer requests

Although ‘one and done’ was the mantra of the original CRM implementations, what is more important is the rapid and accurate servicing of requests. Many customer requests that appear simple on the surface are more complex underneath, requiring a multi-step workflow to complete. CRM can ensure this happens by accurately capturing the request and then orchestrating the workflow required to properly complete the request.

Measure and continuously improve

Using CRM to capture all interactions with all customers allows an organization to accurately measure its service times for every customer facing interaction. These measurements should be used to determine where bottlenecks exist within business processes or staffing levels and to then readjust the process accordingly. Depending on the granularity of the data, it is even possible to measure the performance of departments, teams and individuals.

More complete service

CRM allows the delivery of more complete and individualized service. It’s all about understanding as much as possible about the customer. Knowing what the customer wants and, perhaps more importantly, how the customer wants to be engaged allows an organization to hit each individual customer’s ‘sweet spot’ and drive engagement and loyalty.


CRM allows for the establishment of a relationship between a customer and an organization; what is essential is that the relationship be long-lasting. By determining the variables that establish customer loyalty and putting programs in place to leverage this loyalty, CRM can increase the ‘stickiness’ of relationships. Even tactical CRM requires a substantial commitment of money and time; it’s not an initiative to be undertaken casually. Regardless of the approach taken, CRM can be the path to higher revenues, more (and more loyal) customers and increased profits. It’s worth thinking about; your customers are waiting. Just remember, it’s about far more than buying software, no matter how attractive the price.

Alan Baker is the President of, a boutique consulting firm based in Toronto, Canada. He has led or directed projects (including CRM implementations!) that modernized technology, re-engineered business processes, improved organizational effectiveness, introduced processing efficiencies, won awards and spurred and accommodated remarkable growth.

photo credit: hz536n/George Thomas via photopin cc

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