Flexibility needed to address

complexity of production and

reduce lead timesNew Millennium
by Jim Berkowitz
This paper outlines how e-commerce has redefined the concept of customer-centric
ity and takes readers through a mechanism for visualizing and analyzing customer
behavior, loyalty, and value.
Abstract
While technology fads come and go, CRM is here to stay. CRM isn't merely a softw
are package from a vendor or a "quick fix" service that a consulting firm "does"
to your organization, it's a philosophy; a way to run your business.
CRM can best be defined as "customer-centric business strategies that optimize t
he long-term value of selected customers." To simplify it even further, CRM is a
ll about getting, growing, and keeping customers.
This paper outlines how e-commerce has redefined the concept of customer-centric
ity and takes readers through a mechanism for visualizing and analyzing customer
behavior, loyalty, and value. Readers will learn how to embark on a CRM initiat
ive, what CRM technologies are available, the importance of building a central c
ustomer data repository, and how to implement an Analytic CRM system.
Introduction
While Customer Relationship Management (CRM) seems to currently be the "hot" bus
iness topic, it is much more than simply the latest technology fad. In fact, a C
RM dialogue has been taking place for more than three decades.
Back in the 1960s, management gurus Peter Drucker and Theodore Levitt began prea
ching the CRM gospel: The true business of every company is to make customers, k
eep customers, and maximize customer profitability.
By the early 1990s, Michael Hammer and James Champy were talking about the need
for customer-centric business models in their classic book, Reengineering the Co
rporation, while Don Peppers and Martha Rogers were introducing the concept of "
one-to-one marketing." More recently, Patricia Seybold's book, Customer.com, put
an e-commerce twist on the CRM dialogue by discussing the importance of becomin
g "customer-facing" in order to maximize customer retention.
While technology fads come and go, the bottom line is that CRM as a concept is h
ere to stay. CRM isn't merely a software package from a vendor or a "quick fix"
service that a consulting firm "does" to your organization. It's a philosophy; a
way to run your business.
CRM can best be defined as "customer-centric business strategies that optimize t
he long-term value of selected customers." To simplify it even further, CRM is a
ll about getting, growing, and keeping customers.
E-Commerce Has Helped Redefine Customer-Centricity
The rapid growth of e-commerce over the past several years, and the tremendous a
mount of competition within a number of business-to-business and business-to-cus
tomer markets, have created an unprecedented business environment, one that requ
ires rapid-fire business development, strategic and technological innovation, an
d response to customer needs.
Once e-commerce companies discovered that they could capture customer demographi
c and behavioral information more readily than ever before, their hunger to put
this information to use became seemingly insatiable. To meet the demands of this
"hot" e-commerce marketplace, hundreds of new enabling CRM technologies have be
come available in the past several years.
More importantly, all of this e-commerce action has awakened the sleeping CRM gi
ant. For Internet-based businesses, it quickly became very clear that in cybersp
ace the customer rules. For many non-Internet-based companies, this heightened a
wareness of the importance of customer-centric processes created an urgency to i
mplement CRM strategies. As a result, today many companies have identified CRM a
s their primary business initiative.
The Promise of a Successful CRM Initiative
Ten years ago, Bain & Company and Earl Sasser of Harvard Business School analyze
d the costs and revenues derived from serving customers and published their resu
lts in the September-October 1990, issue of the Harvard Business Review. The bot
tom line was that because of the high cost of customer acquisition, increasing c
ustomer retention rates by 5 percent could increase profits by 25 percent to 95
percent. These numbers startled many executives and established customer loyalty
(retention) as the cornerstone for numerous successful CRM initiatives.
More recently, in their book, The Customer Marketing Method: How to Implement an
d Profit from Customer Relationship Management, Jay and Adam Curry revitalized t
he concept of the customer pyramid. (See Figure 1.) The customer pyramid paradig
m provides a company with a mechanism for segmenting its customer base and, in s
o doing, to visualize and analyze customer behavior, loyalty, and value within e
ach of those customer segments.
In studying numerous customer pyramids, the Currys showed that if your CRM initi
atives focus on implementing customer-centric strategies for getting, growing, a
nd keeping customers, the resulting revenue and profit increases can yield very
high returns on your CRM investments.
Moving Forward With a CRM Initiative
Armed with the knowledge of CRM as a set of customer-centric business strategies
, how does one begin to create a vision for CRM within an organization? As in an
y risky venture, the best approach is to develop formal, written strategies and
tactical plans that will maximize the potential for success while limiting the e
xposure to failure.
Your CRM plan must define the problems that you are planning to address and deve
lop an initial set of goals and objectives to guide you. Ask yourself and others
in your organization these questions: What do we want to accomplish? Why are we
doing it? What will success look like? How well do our plans fit with our curre
nt organizational structure and operating dynamics? How are we going to monitor
and measure the effectiveness of our CRM efforts? What organizational changes mi
ght need to be made?
Enabling CRM Technologies
When considering moving forward with the implementation of CRM, many companies s
till think exclusively of technologies that focus on data collection, query, and
reporting. But with the myriad of CRM technologies available today, this thinki
ng can be considered myopic.
CRM technologies can be segregated into three broad, yet distinctive, categories
: Operational, Analytic, and Collaborative.
• Operational CRM software technology focuses on data collection, query, and repor
ting. For bricks and mortar business-to-business companies, this may include sys
tems for each customer-facing department. For example: campaign and promotions m
anagement for the marketing department; lead management, account planning, oppor
tunity management and forecasting for the sales department; and customer help an
d incident management for the customer service department. In business-to-custom
er companies Operational CRM may also include point-of-sale, call center, and e-
commerce systems.
• Analytic CRM software technology, also referred to as Business Intelligence (BI)
software, transforms Operational CRM data into "actionable" customer informatio
n. Analytic CRM tools provide companies with the means to manage their customer-
facing processes and help them acquire, grow, and retain customers. Analytic CRM
technologies include:
o Data Warehouse Building and Management tools for consolidating and clean
sing customer data from disparate systems located throughout a company.
o Data Mining software for performing exploratory data analysis and modeli
ng to discover the hidden patterns and associations needed to make predictions a
bout customer behavior.
o Online Analytical Processing (OLAP) solutions for performing dynamic ana
lyses of the effect the company's actions are having on select customers over ti
me.
Data Mining and OLAP complement each other. Online Analytical Processing (OLAP)
technologies help you analyze why things have happened whereas Data Mining attem
pts to predict what will happen. (See Figure 2.)
• Collaborative CRM Technologies are all about communicating and sharing informati
on within the company, with business partners and suppliers, and with customers.
(See Figure 3.) These technologies are primarily Internet-based (e-CRM) tools w
hich include:
o Interactive response communications (email, fax, and wireless).
•
o Real-time communications (conferencing, instant messaging/chat, and voic
e over IP).
o Web content personalization.
o Information management and sharing using "Enterprise Information Portals
" (EIPs). EIPs allow companies to increase collaboration among corporate employe
es, business partners, suppliers, and customers by integrating and managing dyna
mic free-form content, Internet services, and enterprise application information
.
Constructing a Solid Foundation for Your CRM Initiative
The two strategic pillars that will need to be addressed in order to form a soli
d foundation for your CRM initiative are organizational issues and information i
ssues.
When embarking on your CRM initiative, the first and most important organization
al question that needs to be answered is: Has our company's leadership committed
to a customer-centric business philosophy, culture, and strategy?
If the answer is no, or in other words if the CRM initiative is being driven by
one or more departmental VPs or managers within your company (marketing, sales,
and/or customer service) to the exclusion of others, in the long-run you may be
headed for trouble. Implementing the cross-departmental processes that will be n
eeded to drive your company's transformation to customer-centricity can only be
led by a CEO or other high-level executive above the departmental fray.
CRM should be about holistically managing the entire customer life cycle. In ord
er for your systems and people to begin operating in a more customer-centric man
ner, many of your internally focused departmental processes will need to begin t
o share a common, more highly integrated process flow and information structure.
This process flow and information structure should transform your company into a
unified whole that is committed to anticipating customer needs, navigating cust
omers to value, educating customers about solutions that will address their need
s, and simplifying the process of doing business with your company. (See Figure
4.)
Information Issues
CRM's promise includes combining information from each customer touchpoint so th
at all customer-facing personnel have a complete understanding of the organizati
on's relationship with each customer.
Today, this promise can be difficult to keep. The availability of customer data
is exploding. However, this data is typically located among many different data
systems located throughout a company's various divisions and departments. For ex
ample, in many companies, customer sales revenue data (along with product purcha
se details, order fulfillment status, product returns, and order cancellation in
formation) is located in a financial system that is not integrated with other Op
erational CRM systems.
In addition, many companies have split their Web businesses and/or activities fr
om the rest of their operations. If the Web is indeed just a tool for providing
another customer touchpoint, then combining all of the customer data gathered on
the Web with other customer touchpoint data will be critical to the success of
your CRM initiative.
Implementing Operational CRM technologies successfully requires special care. Un
less they are holistically designed and deployed, these systems can be less cust
omer-centric then you may want. Why? Because although they can easily be set up
to improve the effectiveness and efficiency of the people within a given departm
ent, they may continue to support departmental informational barriers or create
data redundancy and inconsistency.
CRM's "Holy Grail"-A Central Customer Data Repository
Just as the spreadsheet was the "killer app" for the personal computer, Analytic
CRM is the "killer app" for CRM. Creating, institutionalizing, and leveraging a
customer-centric knowledge base, which contains actionable information and deli
vers this information to decision makers within a user-friendly and intuitive en
vironment, should be the focal point for an organization's CRM plans.
For most companies, combining all of their customer data into a central reposito
ry will be just the beginning of the process. The disparate departmental systems
in many cases store incomplete, inconsistent, and/or duplicate information. Gai
ning a complete and consistent view of the behavior, loyalty, and value of each
customer will require some serious data cleansing.
For example, in many business-to-business companies, even the definition of who
the customer is can be inconsistent within a company's various operating departm
ents. Accounting may set up each unique billing location as a separate customer.
Meanwhile, the sales department may consider each subsidiary, division, or depa
rtment that can make independent buying decisions as separate customers. At the
same time, the customer service organization may consider each authorized suppor
t contact to be a separate customer.
Data warehouse building and management software will provide the means to truly
begin to construct CRM's "Holy Grail," a centrally managed and cleansed customer
data repository. Because this repository will represent "a single version of th
e truth," it will make data query and analysis easier and more manageable for no
n-technical personnel. Most importantly, the repository will allow companies to
gain a more holistic view of their customers.
Implementing Analytic CRM Systems
Today, CRM is no longer just the gathering of information; it's the accurate ana
lysis of the information that gives businesses the opportunity to improve their
customer relationships and maximize their bottom lines. This is the primary role
of online analytical processing (OLAP). Online analytical processing software h
elps a company maximize the profits from its customer base by focusing on:
• What is done, when, and how;
• To whom; and
• Its affect on the behavior, loyalty, and value of your customers. (See Figure 5.
)
Being able to monitor the effect various actions have on specific customer segme
nts will, in itself, allow a company to implement more customer-centric strategi
es.
Performing a CRM Data Audit
Many Operational CRM solutions for marketing, sales, and customer service organi
zations have been rolled out without a clear understanding of how the data that
is being collected will ultimately be used for customer-centric decision-making.
As a result, without further customization, many of these systems will not prov
ide the information needed for your Analytic CRM system. Therefore, designing an
d deploying Analytic CRM systems before implementing Operational CRM can signifi
cantly improve the success of your organization's overall CRM efforts.
To begin implementing an Analytic CRM system, you should identify the specific s
ource data that will be needed for performing desired OLAP and Data Mining analy
ses. After your data needs have been defined, conducting a data audit will allow
you to determine the current availability of this information.
Start with What You Have
Once the CRM data audit has been completed, you will know exactly where you stan
d. From a data availability standpoint, the picture may be rosy or bleak. Either
way, the best approach to Analytic CRM is to begin with what you have.
Every company has valuable customer data in its existing systems, particularly w
ithin its accounting/ERP systems. Starting with the data that's currently availa
ble will allow you to begin building your central customer data repository and t
o move forward with the implementation of an Analytic CRM system.
However, building the customer data repository should not become
a project in itself. The value in the repository will come from the analyses tha
t it will allow to be produced. Therefore, prioritize your Analytic CRM objectiv
es and place the data needed for the first set of analyses into the repository.
As you continue to implement more OLAP and data mining analyses, over time you w
ill grow the information that is stored in the customer data repository.
Building Your Customer Pyramids
Analytic CRM begins with the customer segmentation process. But first, we must d
efine the word "customer." Customers are quite simply any group of people or org
anizations whose purchasing behavior can be influenced by your company. For many
companies, that may include multiple types of customers, including distributors
, retailers, and end-user customers. Each type of customer should be segregated
into a separate customer group. This can be accomplished by building a customer
pyramid. (See Figure 6.)
Building customer pyramids will allow you to analyze and continuously monitor th
e answers to the following questions:
• Who are our largest and most profitable customers?
• How are our marketing and sales resources being spread between acquiring new cus
tomers and retaining or growing existing customers?
• Which of our customers are in danger of becoming, or have recently become, inact
ive?
• Who are the customers that have the greatest potential for growth?
• Specifically, how many accounts must be retained and/or moved up in the pyramid
in order to meet our revenue and profit targets?
Building customer pyramids requires defining a set of business rules. The first
set of rules should define each of your separate customer pyramids. These rules
should segregate different customer types (e.g., distributors, retailers, and co
nsumers), as well as different customer groups (e.g., by division, region, and s
ales representative).
Within each group or pyramid, the following additional business rules should be
defined:
• Customers versus non-customers: "Customers" are people or organizations that hav
e made purchases from your company in the past, whereas "non-customers" have nev
er made any purchases.
• Active versus inactive customers: This business rule usually involves defining s
ome period of time in which the most recent purchase was made. For example, a co
mpany may decide that for a customer to be considered "active," a purchase must
have been made within the past six months. If this rule is not met, then the cus
tomer will be classified as "inactive."
• Large, medium, and small customers: These rules segregate your