Bending Over Backward

Keeping the customer satisfied is never easy. Now, CFOs can tap into Web-based systems that promise to manage every aspect of customer relations while making their employees more productive.

Armand Arief knows very well that the customer is king. He started out in hospitality, having learned about attending to the peccadilloes of guests at the national hotel institute in Bandung. A few decades and an MBA later he is still worried about keeping customers happy. Only now, the stakes are higher. As vice president and director of Indonesia’s Bank Danamon, Arief is responsible for the bank’s consumer business, as well as its marketing services and credit card divisions. That means he presides over a customer base of nearly 2 million individuals across Indonesia’s 17,000 island archipelago.

And that demographic nightmare is not the only thing keeping Arief up at night. Danamon is now the country’s fourth-largest bank, following its merger with eight smaller financial institutions in July 2000. Danamon itself was taken over by the government last year because of its large portfolio of nonperforming loans, a legacy of the economic crisis which hobbled the country in 1997 and 1998.

By May 2000, however, the new management lineup and the Indonesian Bank Restructuring Agency (IBRA) had made enough progress to win approval for recapitalization bonds worth 30 trillion rupiah ($3.4 billion). Still, Arief, who brings four years of experience at Citibank to the table, knows the bank’s troubles are far from over. New competition from Web-based banking channels, as well as heightened consumer expectations, will see to that.

Arief also knew the bank’s incumbent computer systems, internally developed, were simply not up to the job: “The system was online but not [able to do transactions in] real-time,” he recalls. A fresh start was needed.

After contemplating a raft of options the bank focused on a shortlist of four vendors. In July, it signed with US-based Fiserv, a specialist supplier to many financial institutions around the world, including two of the banks subsumed by Danamon. Fiserv’s eight years of experience in Indonesia helped to clinch the deal.

Its International Comprehensive Banking System product, which will form the backbone of Bank Danamon’s core banking system, automates all interactions with customers including transaction processing and account management. Called customer relationship management (CRM), it’s the software system that Arief thinks will set his bank ahead of the crowd. In the short term, this means improvements to the bank’s call centers and over- the-counter service at branches. Down the track, electronic banking and even wireless transactions will be possible. (For a list of CRM vendors, see “Calling All Customers,” at the end of this article.)

If implementation of the software means an overhaul of the bank’s operations, success will hinge on customer perceptions. Bringing other organizations into the Danamon fold is an operational feat, certainly, but customers don’t care about that. They are interested in how it affects them — if they don’t like what they see, they will turn elsewhere. And if there’s one thing Indonesia’s banking upheavals have made clear to Arief, it’s that the experience of dealing with Danamon must be consistent, wherever the customer is located. “My ambition is to make us just like McDonald’s,” he says. “You expect the same product and service everywhere you go.”

Cult of the Customer

If McDonald’s-style consistency is a desirable trait, the flip side of the burger is that companies must find ways to differentiate themselves from the pack. Whatever the industry, the forces of market liberalization and globalization mean the pack is getting bigger and tougher; there is nowhere to hide.

The Internet, in particular, creates a scenario where competitive pressures can emerge from unexpected quarters. “Service expectations are being set outside financial services,” observes Tom Romeo, worldwide director for customer relationship management solutions at IBM Financial Services. “The consumer is being impacted by the likes of Amazon.com. You could say that competition for banks is not just other financial service providers; it’s anyone providing service.”

Indeed, many traditional players have woken to find themselves hemorrhaging customers. At the same time, studies show that it costs a lot less to retain a customer than it does to acquire a new one. Clearly, customers are worth fighting for.

Bain & Co, the US-based management consultancy, recently found that if a credit-card company could improve customer retention by just 5 percent, it could boost profitability by 140 percent. A bank or insurance company would enjoy a healthy 45 to 50 percent improvement. By contrast, a 5 percent improvement in new business might result in only a 5 percent improvement in profit. “If you’ve done segmentation and you know who your profitable customers are, you can measure improvements and retention,” IBM’s Romeo says. “It’s not hard to make a very small improvement in retention for a very big financial gain.”

So it makes sense for a company to develop infrastructure that sheds light on what makes its customers tick — and to use this information to lock them into long-term, profitable relationships. Increasingly, the answer lies in CRM software. Already, many have installed enterprise resource planning (ERP) systems to handle “back office” functions such as finance, logistics, and human resources. By contrast, CRM software sits in the “front office,” where it enables companies to coordinate the three pillars of customer interaction: sales, service, and marketing.

At its best, CRM can be a wonderful thing. It can help companies identify profitable — and unprofitable — customers. It can facilitate round-the-clock selling and lower call-center labor costs through Web-based self-service options. And it can help suppliers to tailor products. Dell Computer’s much-vaunted “direct” model is the classic example: The entire process, from product configuration to delivery and billing, can be performed online.

It follows that product-wise, the pitch is crowded. Companies like Fiserv, with their focus on service-oriented niche markets, have been talking about customer relationships for a long time. Now, just about everyone else is, too. US-based researcher Meta Group predicts the market, growing at an annual rate of 50 percent, will be worth $67 billion by 2004.

These numbers are not just hype. At most companies, the number of workers who engage in selling, service or marketing is greater than those who make use of an ERP application as part of their job. Added to that, the definition of CRM is bursting at the seams. Traditional CRM systems have married elements as diverse as sales force automation, contact management, customer history, product configuration, call-center management, and help-desk support. Ebusiness adds to the complexity by giving customers new ways of interacting with vendors. Suddenly, E-mail, Web-site clickstreams, and emerging technologies such as computer-telephony, text-based Internet chat, and wireless devices might be integrated into the process.

Other activities that surround and support sales, such as information portals, search engines, and even content management for Web-site personalization, must be tackled. It’s a tough market: Research suggests that two out of three Web-site “shopping carts” are abandoned before customers click the buy button.

With human interaction downplayed, many assumptions about customer management bite the dust. So far, no single vendor has been able to bridge the divide between traditional and Internet-based selling. As a result, the CRM market is packed with players of all shapes and sizes, with an ever-widening range of capabilities. If there are almost 50 subcategories of CRM products, a company with a reasonably advanced setup might easily use products from a dozen different vendors.

For its part, Meta Group takes a stab at clarity by describing CRM as a three-pronged ecosystem with operational, analytical and collaborative elements. Most traditional CRM applications fit in the operational category, helping companies to answer the question: “What customers have been contacted lately, and how have we interacted with them?” Analytical CRM, the fastest-growing market segment, leverages data warehousing to help companies add depth to their customer relationships by addressing the question: “How well are we satisfying our customers?” Collaborative applications, the new kids on the CRM block, help build long-term partnerships, particularly for B2B E-commerce.

On the Money

If it sounds daunting, well, that’s because it is. “CRM poses a huge integration challenge,” says Bob Chatham, an analyst at US-based Forrester Research. “Because unlike ERP, which is fairly standardized, CRM implementation will reflect the personality of the corporation.”

Asian companies have not been key participants in CRM’s first act. The good news — or bad news, depending on how companies look at it — is that many will skip straight to the more sophisticated stuff. So, beyond the usual barrage of tech terms, CFOs can anticipate a new familiarity with marketing terms such as “up-sell” and “cross- sell”; jargon for looking at customer feedback, analyzing the data for hidden potential — and converting that knowledge into a new sale.

Anecdotal evidence suggests finance managers have less to do with CRM projects than they did with ERP. If that’s the case, they neglect CRM at their peril. “CFOs controlled a lot of the back-office ERP rollout,” says Andrew Zoldan, vice-president of Internet applications at US-based Siebel Systems, a market leader in CRM. “By contrast, the front-office rollout is typically in the hands of the vice-president of sales or service.”

These executives are tasked with top-line growth in the company, and they haven’t had to go to the CFO for permission to spend money. This should change as CRM projects gain in profile and cost: Zoldan anticipates CRM implementations that entail investment two or three times the biggest ERP projects.

The cost breakdown is quite different, however. Murray Creighton, vice-president and general manager of Siebel in Asia Pacific, says the software license-to-consulting cost ratio is about two or three to one for a CRM project. “With ERP that figure is six, eight, ten to one,” he observes. Creighton contends that the average revenue growth achieved by a Siebel customer is 15 percent, with a typical installation period of 90 days per module and a payback period of ten months. Customer satisfaction reportedly improves by 20 percent. “That’s pretty compelling,” he says. Even objective observer International Data Corp., a US-based research organization, says companies that implement CRM systems can reasonably expect revenue growth to nudge 10 percent.

That said, there is a school of thought that says CRM is more about effectiveness than efficiency, so it shouldn’t be subjected to the same metrics as other applications. IBM’s Romeo says his emotions are mixed. “On the one hand, the reality is that the way companies invest in IT today is very much tied to ROI. The CFO can help focus the company on where the real value lies,” he says. “But it shouldn’t be transferred into a cost containment issue, because strategies that say, ‘We’re going to develop the Internet because it’s a cheaper channel,’ can have a serious impact on brand.”

In any case, the breadth of product functionality means there is no single formula for justifying investment in CRM. On the one hand, E-mail engines can yield productivity savings if the subject matter is reasonably structured, and if there is a critical mass of queries on known topics with definite answers. On the other, call-center support technologies weren’t necessarily intended as productivity tools but as knowledge enhancers. It’s hard to put figures on that.

And don’t just look at CRM as a fast track to shedding human capital. “People don’t buy our software to get rid of staff; it’s not even part of the equation,” Siebel’s Zoldan insists. “They buy it to make their existing staff more productive.” Zoldan feels that the metrics available to CFOs are solid: things like customer churn, revenue per call, length of call, close rates in selling, and hit rates in marketing. Among the most popular data-warehouse or data-mart applications include profitability by customer, profitability by sales representative, and incidence of repeat sales. “That body of knowledge is reasonably mature,” he says.

Look Who’s Talking

Thanks to the pre-Y2K frenzy, most computerized companies now keep their customer data in ERP applications of some kind. As Don Smallwood, senior director of E-business suite marketing, CRM, for Oracle in Asia Pacific, notes: “The important thing, as more focus is put on the customer, is to be able to access that data in the easiest way so that you can build a 360-degree view of the customer.”

In practice this means that CRM and ERP systems, more often than not from different suppliers, will coexist. That’s the case at Hyderabad-based Tata Teleservices, a licensed private operator for fixed phone services in the southern Indian state of Andhra Pradesh and part of the $5.5 billion Tata Group. Currently the company has about 50,000 subscribers, with hopes of installing 300,000 lines over the next three years. This goal pitches it against the state-run Department of Telecommunications; the supporting computer systems simply must provide a competitive edge.

“Expectations are very high,” says Rajeev Nagpal, the company’s chief information officer. “In terms of products, there’s very little to distinguish between what telcos can offer. If you’re the new kid on the block, then the only differentiator is service.”

Earlier this year Tata Teleservices, which installed ERP applications from SAP about 18 months ago, bought CRM software from Oracle; these were deemed the best fit even though SAP has its own customer management lineup. “A lot of telco customer queries can be answered using the billing system,” Nagpal says. “But a billing system just gives you one particular view of a customer. It may be appropriate to refer to other systems such as order management, so previously the customer service rep would have to look at multiple systems. The CRM system gives us an integrated view.”

Although ROI measurement hasn’t yet started, the core objective of the project’s first phase is a 30 percent productivity increase among 50 or so customer service personnel — on the back of just two days’ training. Nagpal also expects that the system will help the company monitor its service level agreements more aggressively. More-sophisticated applications such as customer analysis will come. “In phase two we’ll be pumping a lot of this information into our data warehouse, which will enable us to do more analysis,” he says.

Meanwhile, Back at the Bank

Might CRM become mired in the same problems associated with ERP: high cost, complex implementations, and elusive ROI? “There’s no doubt that CRM will have elements of the ERP problem,” says Forrester’s Chatham. “But the real barriers won’t involve technology but corporate behavior.”

Bank Danamon’s Arief knows this only too well. His team is implementing CRM and ERP all at once — as well as rebuilding the business from the ground up. So far, so good. With the assistance of IBRA, 227 branches have been closed, and the number of regional offices have been cut from ten to six. Some 500 staff from the merging banks have been absorbed, as have 500,000 new customers. At the same time, overall headcount has been slashed from 22,000 to about 12,000.

Arief says he can imagine a time when the bank needs only 50 or 100 branches. A core target is the country’s middle classes, who increasingly have computers at home and are attracted by the convenience of Internet banking. Says Arief: “It is a very ambitious target, but we feel we can do it. The strategy going forward would not be centered on bricks and mortar, but for the time being we must mix and match.”

General ledger consolidation on the new system is slated for the end of October 2000. Then, attention will shift to launch of the first pilot branch, in March 2001. After that, it’s full steam ahead; the aim is to install the system at all 490 branches in the space of a year. A retail Internet banking service should be launched in the last quarter of 2001, although Arief is sanguine about the timing. “Sometimes it is better to come in late and benefit from the market’s learning process,” he says. With re-privatization slated for sometime next year — a true symbol of recovery — the bank can’t afford to slip up.

Indeed, the applications Arief mentions are not, in the global scheme of things, revolutionary; they are standard applications for call centers, branch tellers, direct debit cards, and electronic banking. But it’s a start. Previously, customer relations were handled on an account-by-account basis. The new system’s central liability function will afford a single-glance view of all a customer’s obligations. This will enable the bank to improve its ability to cross-sell services; Arief says this has been a weakness in the past.

As the bank gets better at customer segmentation, priority banking services such as mutual funds and fixed income will be tailored to the needs of more-sophisticated customers. For Arief, this bit is a no-brainer. “If you contribute more, you expect to be treated better,” he says.

Indeed, the consumer, as he learned long ago, always rules.

Adam Lincoln is an executive editor at CFO Asia and a frequent contributor to eCFO.

Calling All Customers

CRM can be diced into dozens of submarkets. Software developers fashioned traditional CRM systems from people-to-people sales-force automation and help- desk backgrounds, with customer contact limited to the phone or fax. More recently, “E-CRM” products have introduced E-mail and Web- site clicks to the mix. By the time tools for systems integration, workflow, and data warehousing and analysis are factored in, hundreds of vendors, with expertise in different areas, can lay claim to a piece of the CRM pie. They include:

Aspect Communications: call centers (www.aspect.com)

Baan: ERP, some CRM (www.baan.com)

Brightware: E-mail automation (www.brightware.com)

BroadVision: E-business (www.broadvision.com)

Clarify-Nortel Networks: call centers (www.clarify.com)

CrossWorlds: integration software (www.crossworlds.com)

eGain: Web and E-mail management (www.egain.com)

Epicor: ERP, some CRM (www.epicor.com)

Fiserv: (www.fiserv.com)

Fujitsu: contact management, communications (www.fujitsu.com)

Hyperion: analytical tools (www.hyperion.com)

IBM: integration services, hardware, software (www.ibm.com)