Our grandparents were recipients of good CRM or customer relationship management. Their local grocer knew them by name, what they purchased, how much they spent and their tastes. The grocer was the forerunner of what marketeers call one-to-one marketing - the basis of CRM. The first and worst mistake any organisation could make right now would be to throw technology at the concept. CRM is as much a mindset or business philosophy, as it is a set of software. IT research company Ovum acknowledges this discrepancy. It argues in its recent white paper CRM strategies: technology choices for the customer-focused business, that much of the confusion about CRM results from the sheer variety of tools used to help maintain relationships with an organisation's customers. This is because vendors of different types of software all lay claim to the title 'CRM software' and, by association, all the benefits of it. 'This has made it difficult to understand which piece of software performs which task and how these fit together, yet this is essential to the success of CRM,' Ovum argues in the paper. And this is where it gets difficult. 'The fact that there is no one kind of CRM software, but a mixture of tools and techniques required to meet CRM objectives, raises two issues. First, there are functions that a CRM strategy requires software to perform, but vendors do not provide products that map directly to those functions. There is always a mixture of products required to fulfil the requirements of CRM.' Second, 'the technology employed in CRM initiatives is not complex itself - however, integration to make it work together is complex'. Ovum's definition of CRM is 'a management approach that enables organisations to identify, attract and increase retention of profitable customers by managing relationships with them'. More succinctly, a company can increase profitability by engaging in relationships with its customers, rather than merely conducting transactions with them. Vantive, a technology company started by, among others, ex-Informix founder Roger Sippl, has built a reputation for supplying customer-focused solutions. 'There's a lot of uncertainty in the market as to what CRM is in the true sense of the word,' says Charles Grover, director of technical sales at Vantive Europe. 'CRM is not just a sales and marketing tool - it's about managing your customers more effectively, and it should be for everyone in that organisation interested in managing their customers. So any information that can be gleaned from customer interaction should be in a format that can be reused by other individuals in an organisation.' Suppliers such as Vantive often quote findings from the Gartner Group which states that it costs between four and ten times the amount of money to acquire customers as it does to retain existing ones. Add Web technology and the savings are starkly visible. Gartner estimates it costs on average $1 to service a customer via Web interaction, compared with $5 through a call centre. In fact, switched-on organisations are actively pushing customers towards sales channels they want them to use. For example, Abbey National charges pensions customers a fee to cash a cheque at the till, and prefers them to use the ATMs instead, thus freeing up counter time for high-value customers in the market for, say, mortgages. Food-retailer Iceland, with its home-delivery service for shoppers, charges customers £5 to order by telephone, but the same service is free to Internet customers. 'If you take them down the Web route,' says Grover, 'all the traditional costs go away or are reduced. But, more importantly, a true CRM system will also trap the information about that customer and reuse that information in an intelligent format in any form of customer interaction.' The aim is, of course, to cross-sell appropriate, additional products to that customer. 'A true CRM system should be the single consistent interface for customer-related information. Some of this will be stored in a front-office CRM application and some of it will be extracted out the back office,' adds Grover. Vantive's recent merger with PeopleSoft - a big enterprise resource planning player - has changed the vendor landscape forever. The ERP vendors have been itching to get into the CRM market but, perhaps with the exception of Oracle, they have not as yet been able to boast complete CRM solutions. Some of the more traditional CRM vendors include Siebel, Point Information Systems, Pivotal, Onyx, IBM, Clarify, Baan and Applix. With a watchful eye on events, Ovum has come up with what it dubs universal business applications, or UBAs, as ERP vendors increasingly position themselves as providers of end-to-end support for CRM strategies. This, according to Ovum, has required suppliers to move out of the back office and introduce functionality to support customer-facing front-office functions, and provide business intelligence functionality. 'It's a market in the making,' says Laurent Lachal, a senior analyst at Ovum. 'The question is who is going to buy whom?' According to the Butler Group in its 1999 report, the two keywords set to dominate the IT scene over the next few years are 'workflow', 'which will take the actualities of business and apply them to technological infrastructures,' and, more importantly, 'integration'. Whether it is e-business, ERP, knowledge management or CRM - the one fact tying them together is the need to integrate. 'Everything has to be able to talk to everything else. Applications do not and cannot exist as islands of technology. Data - and by extension, information - has to be freely available across departmental and organisational boundaries. In a word, systems need to be integrated,' states the report. The biggest barrier, however, to successful CRM appears to be cultural, not technological. Ernst & Young has scrutinised the success of CRM projects both in the US and Europe. 'A big chunk of what has been called CRM has been about building data warehouses, single customer files, single points of view, and it's been largely regarded as a technical solution,' says Jonathan Charley, financial services partner at Ernst & Young. US financial services companies are two to three years ahead of Europe in terms of how much they spend on CRM. But Europe is increasing its spend by an average of 36% - significant sums of money by anyone's estimate. Ernst & Young asked banks with experience of implementing CRM what the biggest challenge was. US banks (66%) said the biggest challenge was organisational issues, whereas European institutions (55%) said it was being able to access customer information. 'What we conclude from that,' adds Charley, 'is having spent an awful lot of money on it and putting a lot of technology in place, banks are actually finding the thing that's inhibiting them from getting the benefit is their internal organisation.' Around 70% of them for example, are still organised by product line or geography - in effect missing the point of CRM, which is to put the customer right at the heart of the business. 'It's a dramatic volte face for banks, where traditionally the idea has been to design a product and then sell it to your customers, as opposed to starting from the proposition - what do our customers want?' While expenditure on CRM and CRM technology is galloping ahead, some 70% to 80% of CRM projects are failing to deliver the intended result - and organisational issues are at the heart of that failure, says Ernst & Young. The firm itself provides consultancy on CRM, recommending solutions from the various technology players because 'no one party is providing a total and complete solution is our observation at his point,' according to Charley. Like others in the Big Five, Ernst & Young deploys customer-focused processes and technology to maintain good relationships with its own customers. Deloitte & Touche also provides CRM consultancy to the banking sector. Tony Compton, partner in the management solutions division, explains how the consulting process involves asking the customer organisation what it needs to do to become more customer centred, which often means 'a complete change in the way most of the banks work'. The firm's preferred technology solutions are Siebel and Onyx. Convincing customers of the bottom-line benefits is a cinch, says Compton. He again points to the independent surveys that state that it costs ten times as much to get a new customer as it does to keep a customer. 'If you improve your customer retention rate by 10% you can add something like 20% to your bottom line,' he claims. And successful implementation of sales automation - a component of CRM - can improve sales closure rates fourfold. 'We can guarantee that if you put this in and use it properly, then you are going to improve your close rate and improve your retention. Returns on investment on these are sometimes six to nine months,' adds Compton. If CRM is employed properly, the process and the technology provides a holistic view of data management rather than each application having its own view of customer data. CRM is about having a single, virtual, store of customer data. CRM is emphatically not just a sales and marketing tool. 'Accountants should get involved everywhere,' says Neil Brooks, applications marketing manager at Oracle, 'because one of the things we are trying to do with the technology is change the cost base of operation. The start point might be: who are your profitable customers, which are the profitable products and services you sell to them - and have you got the right mix? Are you selling your most profitable products to your least profitable customers or vice versa? Are the customers who are buying actually the good payers, or are they costing you more in administration costs than they are worth in profit? 'All these are good accounting issues. Some of the radical thinking may come from the accounting department.' While the benefits of CRM are tantalisingly clear, implementing a complete CRM solution is no mean feat, as user organisations will admit, and some vendors grudgingly acknowledge. Software and services company Cap Gemini offers CRM consultancy, as do a host of others. Philip Blackwell, director of CRM, says the CRM life cycle is very simple. The first phase is know your customer, second is target your customer, then sell to them, and lastly service them. The theory is that if you can do those small things, you keep your customers. Advocates of CRM, such as Cap Gemini, like to say 'we've covered the first 100 metres of a double marathon'. According to Blackwell, organisations are still working at odds with each other internally. 'There are all these different departments working in functional silos. We're saying: "You've got it wrong, guys. You've got to be thinking holistically about the customer. You've got to have seamless, integrated processes and relatively seamless data synchronisation. But it's a complex task."' - Jason Hobby is a freelance journalist CASE STUDY: ROYAL BANK OF SCOTLAND The Royal Bank of Scotland has been using elements of CRM technology for nearly four years. But the first thing you need to do, warns head of database marketing Ian Wilson, is to divorce very clearly the methodology from the technology. 'A lot of vendors out there are claiming they have CRM solutions. In my view, what they have are pieces of technology that will enable customer relationship management, but the technology piece isn't the major piece.' Again the process seems to be just as important, if not more, than the technology itself. The bank began by upgrading its existing, centralised database marketing capability. This, adds Wilson, is a key element of a CRM approach. Since then, the bank has been improving the functionality of that centralised resource, adding a campaign management product called Prime Vantage, supplied by Prime Response. The Butler Group describes the product as a CRM solution allowing organisations to manage and automate their marketing campaigns - citing the product's strengths as the ability to access information from an existing data warehouse, which enables organisations to get a quick return on investment. Other strengths include allowing organisations to maximise marketing opportunities by building and maintaining customer relations through the careful targeting of marketing campaigns, and the ability to automatically schedule marketing campaigns which are event or time driven. Product weaknesses However, according to the Butler Group, the weakness of the product is that, as a campaign management tool, it does not have all the functionality of a complete CRM product, therefore some customers may be deterred. Either way, the Royal Bank of Scotland uses the product successfully to manage communications with individual customers, to ensure the bank sends consistent messages to customers and automates some of the processes of the messages and analyses of campaigns. The bank employs a team of about 20 analysts within the retail marketing function to be selective about customers and specific campaigns. The big challenge for Wilson and his team is to bring all the points of customer contact together - be that through branches, call centres or the Web (the bank claims to be the first in the UK to offer Internet banking). The road ahead 'The challenge is to provide consistent communication with the customer across whatever channel they use to purchase. The reality of actually delivering that is not to be underestimated. There are a number of different components other than the centralised database marketing. You have call centre technologies, case-management technologies for the branches and so on,' says Wilson. 'The challenge is to identify the right components and integrate them all,' he adds. By his own admission the centralised marketing capabilities are a long way off but getting consistency across all channels (branch, Web and call centre) involves a lot more work and time. In terms of returns on investment, the campaign management tool, and some of the processes associated with it, have paid the bank back quickly. 'We've had the system for three years, but I would say one or two of the campaigns we are able to run now, that we couldn't before, have probably more than paid for the project within a year to 18 months.' The CRM approach has allowed the bank to undertake a sophisticated analysis of its customer base - examining customer propensity to purchase, customer value and channel usage and preference, to build a complete picture of the customer. But Wilson adds: 'There's a lot written about this. You can't move now for conferences on CRM, you can't move for vendors selling CRM solutions. One thing a lot of these things never do, is say how hard it is. It's a major undertaking. Nobody should underestimate the size of the task to do one small part of it.'
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