Fifty-five percent of all customer relationship management (CRM) programs fail, according to Gartner. A 2001 Bain & Co. survey of more than 400 executives found that one in five of them thought their CRM initiatives had actually damaged customer relationships. Even so, Meta Group Inc. predicts that the CRM software market will more than double, from US$20 billion last year to $46 billion by 2003.
Why do so many CRM projects fail, and how can you increase your odds of success? Darrell K. Rigby, a director at Bain & Co. in Boston, tackles those questions with colleagues Frederick F. Reichheld and Phil Schefter in February's Harvard Business Review. Rigby spoke with Computerworld's Kathleen Melymuka about the perils of CRM.
Q: What is it that executives don't understand about CRM?
A: The biggest problem is they confuse strategy with software. A lot of executives don't understand what they're implementing, let alone how much it will cost or how long it will take.
Q: What is CRM really about?
A: CRM aligns business processes with customer strategies to build customer loyalty and increase profits over time. You'll notice that definition doesn't even include the words technology or software.
Q: Who should be in charge of a CRM effort?
A: Somebody who is as close as possible to the customer. In some organizations that may be the CEO, and in others [it] may be the head of marketing. But it needs to be someone who is going to use this information to improve the value and loyalty of customers, so they have to understand customers intimately.
Q: You say that many companies implement CRM without creating a customer strategy. What are they thinking?
A: They are thinking that software will make their lives easier. They look at the potential for automation and the improved speed, reduced cost, superior targeting and say, "Maybe a weapon like this is the answer to all my problems." It turns out, it's not.
Q: How do I develop a customer strategy?
A: Start with these questions: "How must our value proposition change to earn greater customer loyalty? What are we going to do to make the customer want to do more business with us? How much customization is appropriate and profitable for our strategy?"
A lot of companies are enticed by the idea of mass customization, but many find it adds more costs in the process than customers appreciate. Getting that right is crucial.
Q: Then what?
A: Ask, "What is the potential value of increasing the loyalty of customers, and how much does it vary by customer segment?" Some customer segments are extraordinarily profitable, and some are unprofitable. The last thing you want to do is spend additional money to attract and retain unprofitable customers.
Q: Once I've got a customer strategy, I'm ready to develop my CRM technology, right?
A: Well, you're closer. Strategy is the first step. But changing the organization to match that strategy needs to be done before you're ready to roll.
Q: Why does the organization need to change?
A: Companies that don't redefine people's jobs and change performance measures, compensation systems and training programs often introduce CRM programs but get no traction from them at all.
Q: How do these changes work?
A: A while back, USAA [financial services firm] managers invested in a device to measure the average wait experienced by customers calling into their phone teams. A digital scoreboard tracked this. As a result, phone reps began to focus more on getting customers off the phone quickly than on customer service.
[Management] realized the potential effect, took down the digital signs and started tracking the percentage of customers who completed their business on the first call. This raises the issue of what kind of performance you're looking for. You have to get the right measures and set people's compensation to help employees want this as much as you do. Then give them training to enable them to achieve it.
Q: These organizational changes can take months or years, but CEOs and boards are looking for results tomorrow. What's a CRM team to do?
A: The best results come from implementing CRM programs in a modular fashion. You start with the areas where you know you can get the organization on board and that will lead to quick results and encourage additional investment to get the remaining results.
Q: Can you give an example?
A: Wal-Mart has a very sophisticated system for tracking what customers bundle together in shopping carts. They have changed the merchandise locations in stores to make sure the things that tend to be bought together are found together. But they have not taken the step of issuing loyalty cards and trying to differentiate the way they treat customers, and they may never do that. But changing the stores to be as convenient as possible has propelled them past every retailer.
Q: Is CRM worth all this trouble?
A: It really is. When it works, CRM allows companies to gather customer data efficiently, identifies their most valuable customers over time, increases loyalty by offering customers products and services they want, reduces the cost of providing those and makes it easier to acquire similar customers down the road. The benefits are enormous.