CONVERGYS ASSIGNMENT

Customer Relationship Management Class

Spring 2019
Edwige Le Gavrian
Edwige Le Gavrian CRM 2019

Q1.

Convergy’s CEO, Bob Lento, is currently searching for ways to increase the company’s revenue
of current clients before working to acquiring new clients. So far, the company used a
classification of its clients using 3 categories: A (key clients, handled by key-account
management system with senior executives), B (handled by mid-level managers, each
responsible of 2 to 6 clients) and C (handled by one manager for 25 clients, 80% of the
company’s total clients).

From Exhibit 1 of the case, we can observe a money deficit: in 2000, the balance sheet was
equal however assets and liabilities lose their equilibrium in 2006. There are too many costs
and debts leading the company in a financial distress. The balance sheet is not good, and we
observe a decreasing gross margin because of cost increase. As Convergys is providing high
quality services to clients generating a high revenue, the opportunities to increase revenues
from a A clients are lower than a B or even C client: An A client is already using a lot of services,
while B and C clients are more interesting for Convergys. If they manage to sell them more
services, an increase in profitability and revenues is expected.

From Convergys data, we see that many B and C clients are not exploited to their full potential.
Convergys has a high opportunity of customization as they are offering services in many
different industries, which should be attractive to many clients. A way to focus more on B and
C customers would be to maintain a good relationship with them by making executives more
available for them. A good way to develop their increasing revenue strategy would therefore
be to focus on B and C clients by changing the managers in charge, making clients not fully
exploited feel more important as they interact with more executives. This will make clients
more loyal that will, definitely, increase Convergys revenues.

Q2.

The Economic Value (EV) and Relationship Value (RV) are indicators of the value of the client to
the firm, but their computation requires more data so that the result can be representative.

With the EV, I used the formula: (Sales – Average Spend) x Contract Length. The results shows
an approximate of how much the client will give Convergys during the length of its contract but
it does not consider if there is an acquisition cost, the economic size of the company and their
unexploited opportunities, the probability of a client resigning a new contract, if the contract
has just be signed or is near the end,…

I also computed the RV, using (1- P(Switching)) x Fortune Index and then standardized both EV
and RV results using Value – Mean / Std, in order to have comparable measures. I also figured
out that RV is lacking variables, making it not a very good measure instrument. My assumption
is that when comparing EV and RV, the results of the best client could be opposite in some
cases because of the lack of variables in these two formulas.

Therefore, I believe using the CLV would be a better measure as it uses more variables that can
give a result closer to Convergys expectation for classifying customers. I calculated it using the

Page 1 of 3
Edwige Le Gavrian CRM 2019

(
following formula: 𝐶𝐿𝑉 = 𝐶𝑃 ∗ (*+,-(). To facilitate calculation, I set i = 0,1, and the used r = 1
– Probability of Switching and CP = Average Spend.

CP allows us to have the most valuable customer and understand differences between our
clients. I found the CLV very interesting as it gives is the net present value of all future cash
flows that a customer generates over the life of business with Convergys. As I am confident the
company should focus on retaining customers and making them more loyal, this measure is the
most appropriate to find which customer has a lot of potential, so that executives know on who
to focus on.

If the Acquisition Costs were available, we could have calculated the Customer Equity, that
would also have been a good measure.

Q3.

According to Carlson’s rule, the top 14 “B” and 28 “C” customers are listed in Appendix 1. I have
classified them by category and then order, from the highest EV or RV (both standardized values)
to the lowest. Ex. of highest EV “B” customers are GE and Wal-Mart Stores, and RV “B”
customers are Wal-Mart Stores and Cardinal Health System Inc. Results, comparing only EV and
RV for B customers are not the same, proving my above assumptions.

Using CLV, the ranking gives top 42 customers (listed in Appendix 1), for ex in B category there
are still Wal-Mart stores coming first, but second comes Verizon Communications Inc. Just
comparing EV, RV and CLV, the 2 best scores give 2 different results.

To find the customers with the highest scores in my CLV measure and that are higher than the
average EV and RV score, I did the average between EV and RV and then classified my data
according to the CLV, from highest to lowest. Having highlighted the above EV/RV average, I
could clearly see that for both categories, all top 14 “B” and 28 “C” customers that have the
highest CLV also have a higher EV/RV average. This makes sense as all three measurement are
related. Small exception for “B” category as Cox Communications has a smaller EV/RV average
while having the highest CLV.

Q4.

To list top 15 customers, I’m going to look at the highest CLV, all categories included. The list
of customers is in Appendix 2. We can see that, over 15 customers the 4 top companies are
form category “A”, 7 from category C, and 4 from category B. This clearly proves my previous
point that Convergys should focus on B & C categories clients to improve their profits. The 5th
most profitable customers, by highest CLV, is Wal-Mart Stores, followed by Verizon
Communications Inc. and Continental Casualty Co Inc. I am confident Convergys should put its
top executives focus on most profitable customers, no matter their category, in order to gain
in efficiency and profits.

Page 2 of 3
Edwige Le Gavrian CRM 2019

Appendix 1: List of best B & C customers from Data

Appendix 2: List of Top 15 Customers

Page 3 of 3