Cover Story: CRM rises to the top

According to sceptics, the new emphasis on customer relationship management (CRM) is just so much vendor hype.

However, many executives are beginning to believe that an overhaul of their organisation's customer-facing applications offers an opportunity to steal a march on the competition.

Those who deploy new CRM solutions face significant challenges, not the least of which are management of cultural change within the organisation, and integration of diverse technologies.

And a shortage of reference sites in this country means that Australian companies setting out on CRM projects can find themselves in largely uncharted territory.

Organisations looking to improve their interactions with customers, reduce customer churn and skim off more profits are beginning to turn to customer relationship management (CRM).

However, they face design and implementation challenges along the way.

Laura Mason looks at how managing, tracking and utilising customer contact is becoming top of mind for organisations wanting to improve the bottom line, and at the keys to avoiding mistakes which can sour a CRM implementationJoe Locandro, CIO of Village Roadshow, has a vision.

He is creating a technology solution that will give Village a detailed picture of customer behaviour across demographics and cinema locations, and right down to individual cinema goers.

This means the company will be able to target particular demographics and customers with specific marketing offers, loyalty schemes, and personalised service with the goal of maximising box office and candy bar takings.

"Our business is our customers. We need to retain them to be more profitable," Locandro said.

Village's CRM solution is evolving around its NCR Teradata data warehouse, which has already delivered significant benefits to the company.

The data warehouse replaces disparate data sources across the organisation.

"At this stage we use the warehouse mostly to improve internal performance," Locandro explained.

"However, by better understanding our business and modifying our internal processes we have been able to make better operational decisions. This in turn has had a positive impact on our customers.

"We have created a substantial base (for CRM)," Locandro said, adding that the CRM project will be ongoing; as he sees it, "the journey is never ending".

There is no one definition of CRM: broadly it encompasses both the technology and business strategies surrounding an organisation's front-end, customer facing applications with the aim of handling a customer consistently, across the enterprise from the call centre, to the Web, to sales and service house calls.

To add to the confusion, CRM goes by a variety of other names -- customer interaction systems (CIS), customer asset management (CAM), customer management systems (CMS) and technology enabled relationship management (TERM) can all refer to the front-office applications which support customer contact. Whatever you want to call it, the aim of the game is to understand your customers better, to separate them into groups, to build up individual customer profiles, and to use that understanding to create more sales.

In his Guide to Customer Relationship Management Professional Services: 1999 Edition, Aberdeen Group senior analyst Stephen Lane identifies a number of drivers behind the emergence of CRM as a high priority for organisations.

These include the desire to increase customer retention rates, and increase sales opportunities in an increasingly competitive global environment; a realisation that many organisations' IT systems do not deliver the connected CRM processes needed to back up customer-focused business strategies; and the emergence of the internet as a new customer contact channel.

Merv Langby, senior analyst, IDC Australia, commented that a factor behind the growing emphasis for CRM is the replacement of one-to-many marketing models with one-to-one marketing strategies. These drivers are changing the way customer facing applications are deployed.

It's true that today's CRM solutions can seem like repackaged sales automation, customer service and marketing software that organisations have implemented in the past.

And IT managers recognise that CRM solutions tend to be made up of familiar components such as customer interfaces, messaging systems, middleware, interactive voice response (IVR) and data warehouses, many of which have been rebranded as CRM solutions.

According to a recent Ovum report, what differentiates today's CRM from the customer handling solutions of old is "its ability to maintain a single cohesive view of the customer for the customer-facing sales, service and marketing".

Lane explains that "enterprise CRM applications and supporting technologies are increasingly being planned and deployed in an integrated fashion.

"As a result of this drive toward integration, CRM business initiatives and technology are becoming more sophisticated and complex."

Aberdeen Group states most "current (CRM) implementations are centred on integrating traditional CRM applications into a single cohesive system. By sharing information, business rules and processes across multiple CRM applications, user organisations hope to leverage their existing customer relationships in new ways . . . They want a system that will support the entire customer acquisition and retention process."

Peter Van Ritingan, general manager IT, Australia and New Zealand at Cigna Insurance, said: "My gut feeling is that any business dealing with consumers will want to integrate their service and marketing approach.

"I guess there is a lot of [CRM] hype out there. But certain organisations must have a need for [CRM]."

Van Ritingan said he planned to start looking at how Cigna might integrate e-mail and internet customer services with the company's in-house developed call centre system which tracks customer enquiries and marketing information.

Moreover, companies look increasingly for CRM solutions that handling customer relationships across a range of channels, markets, internet, call centres as well as face to face.

Rowan Howatt, general manager, CRM at Ericsson Australia, predicts that kiosks and ATM machines are set to take off as additional customer contact channels.

Village is about to begin trialling kiosks as a new channel for interacting with customers.

"Kiosks will allow customers to feel at ease with new technology and allow us to monitor customer purchase behaviour at point of sale. In essence, it's another step towards understanding customer interactions and needs," Locandro said.

And the ASB Bank in New Zealand is implementing an enterprise-wide CRM solution based around technology from Onyx, which will replace disparate customer handling systems across the bank with an integrated solution.

"We . . . wanted to implement the system across all our channels -- the Web, call centre, branch network, mobile lenders, mobile investment advisers. It had to be able to go across everything," said Garry Fissenden, general manager, technology and operations, ASB Bank.

The aim is to increase the bank's customer retention rates by creating a more detailed picture of customers and prospects, whilst giving them seamless multichannel service.

ASB's system will provide instant cues for staff to offer customers tailored promotions and upsell opportunities.

"This multichannel customer contact integration is still in the planning stages for most organisations and will take some time to be realised in actual production systems," Aberdeen said.

IDC forecasts a 46 per cent compound annual growth rate for the CRM market, predicting that it will reach a total value of $US9 billion by 2002.

Amongst the early movers on CRM in Australia are financial, telco and high-tech companies, with insurance, utilities and government catching up fast, according to commentators.

However, Alan Power, executive director of the Customer Relationship Management Institute, says the general consensus is that: "Australian companies are quite behind in consideration of CRM as a strategy, let alone in terms of planning and implementing it."

Power cites a number of reasons for this, including cynicism amongst chief executive and chief finance officers, preoccupation with Y2K, confusion about vendor CRM offerings, recent poor purchase experience, a need to cut costs, and a perception that CRM will be a difficult project. Also, Power adds that there are insufficient reference sites in Australia to provide examples of fully fledged CRM solutions.

CRM Institute research indicates that 60 per cent of Australian organisations are only at the early planning stage when it comes to CRM; 24 per cent had started planning CRM and made some progress; 8 per cent are along the CRM track; and only 8 per cent are well advanced.

One utility currently weighing up the CRM options is Queensland-based electricity retailer Ergon Energy.

Kate Leighton, general manager customer service at Ergon, estimates the company will invest between $15 million and $20 million on a CRM solution incorporating billing to marketing and asset management applications.

Deregulation and the introduction of a contestable electricity market has spurred Ergon into considering how it will proceed with development of its customer facing systems, Leighton said. She said the utility hasn't yet determined whether it will implement an end-to-end CRM solution from one vendor, or opt for an integrated, best of breed approach.

Whichever it chooses, Ergon plans that the internet will play an increasingly important role as a customer service channel, Leighton said.

"Whether it's e-commerce, with customers wanting to make payments over the Net, or just getting information out to our customers, I think [the internet] will be extremely important," she said.

Currently Ergon has a legacy billing and CRM system, developed in the 1980s, which holds information on the equipment the customer has, and metering, but does not include any marketing data. Customer service staff in Ergon's four call centres uses this legacy system.

"I suppose the biggest problem [with the legacy system] is that it's hard-coded so it's very difficult to get the flexibility you need for the introduction of new products," Leighton said.

Another problem with the legacy system is that it doesn't allow Ergon to access customer data easily when customers move.

"If we are dealing with a customer in Cairns and they move to Toowoomba we still want to be able to deal with them and track them. And whilst we can do that [with the legacy system] to a degree, it's difficult."

CRM, in its new integrated guise, is an emerging and rap-idly evolving concept, which makes devising and implementing a CRM strategy a complex and challenging venture.

According to Power, it is widely reported that between 55 per cent and 75 per cent of CRM implementations are doomed to failure.

So what are the keys to CRM success?

Getting senior executives involved in the projectPower emphasised that senior management support is vital to the success of a CRM strategy.

"CRM must be a top-down driven strategy and that means the CEO, and board, need to embrace it, as only the CEO has the power to cross departmental boundaries within companies."

Senior management needs to focus on the cultural changes a CRM solution requires to work effectively, Power said.

"Traditionally we look at companies with a corporate culture which doesn't measure benefits from a customer perspective. Objectives usually relates to product.

"Organisations have to move from a product view to a customer view. The CEO must accept that the corporate culture must change."

Senior management must also accept that CRM involves a heavy and continuing investment in IT, Power said.

Inevitably, CRM is not cheap -- the CRM Institute estimated the costs of implementation at between $1500 per seat at the low end, to $10,000 per seat at the high end.

Being aware of problems with today's CRM technologyCareful evaluation of technologies and how they will fit together and evolve is crucial to the success of a CRM project -- and immaturity of CRM technology, combined with vendor hype, means this is no easy task.

Those who know the CRM market warn that many vendors claiming to have CRM solutions can often only deliver part of an end-to-end, integrated, enterprise-wide solution.

In fact there are many who say that no one vendor can deliver end-to-end CRM.

"[Vendors] are focused on components. Some do sales-force automation, some are configurators, others handle call centre systems. It's a little cumbersome to work with, especially compared to the enterprise resource planning model of the holistic suite," says Kevin McManus, a partner in the strategic services group of KPMG Peat Marwick.

Ovum's report, entitled 'CRM in the Front Office' elaborates, "vendors that produce completely different software all claim to be producing CRM software.

This has made it difficult to understand what piece of software performs what task and how these fit together . . . The technology that is used in CRM initiatives is not complex -- the complex part is making it all work together."

Peggy Menconi, research director of CRM at AMR Research, is of the opinion that most CRM applications are more focused on data gathering than managing the customer relationship.

"In a lot of ways, CRM software is telling you about customer contacts and recording customer contacts, but they're not telling you much about [customers] or your relationship with them," she said.

And while front-office vendors are "scurrying to offer the broadest possible suite", links to key back-office functions such as order management are missing, Menconi said.

According to a recent Aberdeen Group report on CRM, "Many of the market's current 'Web' applications are unsophisticated modifications of software that was intended to run in a traditional client/server environment. Aberdeen believes that long-term success will go to those applications that are built from the ground up using internet technologies and are designed and built to run in a thin-client environment."

In its June 1999 report, The Demise of CRM, Forrester states "Today's traditional CRM vendors hold size and market position advantages over Web-based start-ups. But they face a stiff technical challenge to revamp their architectures to become Web-centric while providing a safe migration path to existing clients."

Aberdeen Group concurs with the view that CRM will become increasingly internet focused, "Aberdeen believes that CRM and e-business are morphing into a singly customer-centric application set -- with the CRM applications and best practices establishing the necessary foundation."

Planning, particularly when it comes to integrationWhen it comes to CRM implementation, planning is everything.

"Make sure you go back to the eternal truth of making sure you've clearly specified the objectives, understood the business processes and that you plug in the right expertise," Langby said.

Howatt warned that companies "tend to underestimate the integration side of things" in terms of cost and complexity when it comes to CRM.

CRM implementations involve tight integration of customer-facing, front-office and back-office systems, as well as integration across customer-facing systems.

On the subject of integration, Leighton commented: "I think one of the [mistakes one could make] is to segment too much instead of looking at the full end-to-end solution and how the different parts of the business actually need to integrate."

Keep your mind on the customer

Perhaps most importantly organisations need to keep thinking about customer needs and the customer experience, throughout design and deployment of a solution.

Companies need to be aware of the privacy issues CRM implementations raise.

They also need to be mindful of customer irritation that can result from ill-thought-out CRM systems -- such as interactive voice response systems which take forever to put customers through to a company representative.

Jos Mensink, manager, customer centre at the Water Corporation of Western Australia, says that IVR is used very selectively at the corporation's call centre. During business hours, customer service representatives answer general enquiries.

"We want our customers to talk to real people," he said.

Leighton said it was vital to remain focused on how the system will impact on the customer, and on creating a seamless service for the customer.

"I think it's very easy to start focusing more inwardly," she said, "and I think that's a real danger." bMartin LaMonica contributed to this articleConfusion obfuscatesConfused about where CRM stops and other front-office applications take over? That's hardly surprising as it also goes by a variety of other names:

CIS -- customer interaction systems,

CAM -- customer asset management,

CMS -- customer management systems and

TERM -- technology enabled relationship management can all refer to the front-office applications that support customer contact.

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