Good Customer Relations: So Happy Together

The hottest mantra in corporate computing is customer relationship management.
Bronwyn FryerJune 1, 1999

Cheryl Currid, president and CEO of Houston-based consulting firm Currid & Co., is a very good airline customer. She spends at least $1,000 per flight on an average of 100 trips annually, and she always rides first-class. On the other hand, she’s a terrible credit-card customer. Since she pays her bills down every month, the banks don’t make a dime. Still, the card companies beg for her business. “I want to tell the banks, ‘If you really knew me, you wouldn’t want me for a customer,’ ” she says.

Knowing the customer — the profitable ones and the not-so-profitable — is the heart of the latest hot business trend. Customer relationship management, or CRM for short, combines a set of business disciplines (finding out who your customers are and what they want) with technology (storing that information in a database, and using specialized software to sort it out). That data can be used to find ways to make more money from customers, or to improve the quality and efficiency of serving them.

Offer special perks to those who spend more with your company, so CRM thinking goes, and “grow” those who spend less. Let’s say a flight attendant notices that Currid likes a glass of zinfandel when she takes her first-class seat. The attendant enters that information into a hand-held computer and later uploads it to the corporate data management system. There, Currid’s name is sorted into the group of “good” customers who receive extra perks. On Currid’s next flight, the flight attendant magically produces the glass of wine, to the traveler’s delight.

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Likewise, if Currid’s credit-card bank knows she’s the zero-balance type (classifying her as a low-profit “transactor” instead of a high- profit “revolver”), it can come up with other ways to make money on her — perhaps by interesting her in an IRA, or offering her a deal on a home-improvement loan, or simply charging her an annual service fee.

But CRM isn’t just about selling, it’s about service. A full-blown enterprise CRM system, made up of various software applications, affects every area that touches the customer. In the marketing department, marketing automation software helps generate and qualify leads. In the sales division, contact management software can record customer and prospect information; so-called opportunity managers track potential sales through the selling cycle. Product configurators help ensure that sales orders are complete and accurately priced, and quote generators prepare formal quotations for customers.

In the customer-support area, call-center software helps employees follow up on purchases or technical support. By combining technical-support “knowledge bases” with the Web, companies can help customers help themselves. And field service applications can be used to dispatch engineers, control parts inventories, and manage repair operations.

Finally, CRM software can be integrated with an ERP (enterprise resource planning) system to enable — in theory, at least — an entire organization to realign itself around its customers.

New Configurations

In Stamford, Connecticut, $4 billion Pitney Bowes is rolling out phase one of a multimillion-dollar CRM system to reverse alarming trends in sales. The office-equipment maker found that misconfigured mailing systems were causing some customers to cancel their orders, resulting in millions of dollars’ worth of lost revenue annually and causing turnover in the company’s sales force.

Pitney Bowes’s CRM system is being assembled with applications from Trilogy Software and Siebel Systems, and with a preexisting Pitney Bowes database. Using Trilogy’s SC configuration software on a laptop computer, a salesperson in the field can sit down with a customer and perform a series of “what-if” scenarios (for example, “What if I want a mailing system that can be refilled with postage via modem?”), and deliver an accurate solution and quote based on the customer’s preferences. When the customer accepts the order, the salesperson can submit the order to the company’s mainframe-based order system.

Plans for the next phase of the rollout will see Pitney Bowes salespeople using Siebel’s Sales Enterprise software for opportunity management. The salesperson will be able to call up a profile of the customer account and tap into brochures, data sheets, presentations, and even video clips.

Six months after going online, the sales configuration system has already allowed Pitney Bowes to decrease cancellations by 27 percent and speed up order-processing times by 45 percent. Less tangible but no less important are increased customer loyalty and improved sales opportunity. “No surprises and faster delivery mean more satisfied customers — and that doesn’t hurt the bottom line,” says Pitney Bowes vice president of finance Steven J. Green, who expects an annual ROI from the system of at least 30 percent.

Other companies are using CRM technology to save money in the costly areas of service and support. Seattle-based aerospace giant Boeing Co. ($56 billion in revenues), for example, has built a knowledge base of 1,800 “solution topics” to computer hardware and software problems. By making the knowledge base available in 1998 — first to help-desk personnel and eventually opening it up to online users within the company — Boeing was able to reduce the cost per call by 20 percent, improve its ability to resolve problems on the first call by 5 percent, and reduce the amount of time customers spend on hold. “The overall process improvement in the customer help center saved Boeing several million dollars in operating costs over the previous years,” says Barbara Johnson, who manages Boeing’s central service response center in Bellevue, Washington.

Likewise, Internet service provider GTE Internetworking handles 10,000 service calls a day at a per-call rate ranging from $6 to $31, depending on the complexity of the problem. The company’s online help system, which went live in June 1998, now allows customers to diagnose and troubleshoot problems themselves without having to make a call. GTE Internetworking estimates it can lower the number of support calls by 10 percent and save millions. Today, the average cost of support has dropped to $3 per subscriber.

From Product-Centric to Customer-Centric

With promised returns like these, it’s no wonder analysts see CRM as the hottest thing since ERP. According to Boston-based AMR Research Inc., total revenue for the CRM software market will grow from $1.2 billion in 1997 to $11.5 billion in 2002, a 58 percent compound annual growth rate.

The odd thing about the current love-affair with CRM is that the customer was supposed to have been Number One all along. Certainly, companies renowned for velvet-gloved service — retailers like Nordstrom spring to mind — weren’t born yesterday. And companies have always stored customer information such as names and addresses in databases.

But two trends have brought CRM to the forefront, explains Boston University professor Tom Davenport, who directs Andersen Consulting’s Institute for Strategic Change. First, as global competition has increased and products have become harder to differentiate, “companies have begun moving from a product-centric view of the world to a customer-centric one,” says Davenport.

Second, technology has ripened to the point where it’s possible to put customer information from all over the enterprise into a single system. “Until recently, we didn’t have the ability to manage the complex information about customers, because information was stored in 20 different systems,” says Davenport. But as network and Internet technology has matured, CRM software has found its place in the world.

Essentially, there are four different types of CRM software, each designed to tackle CRM from either the sales, customer support, marketing, or enterprise point of view (though products are increasingly converging to offer combinations of these). So-called front-office technology, available from such vendors as Siebel, Vantive, Clarify, Corepoint, and Onyx enables system users to mine customer databases and provides sales reps with productivity tools. While these packages can function on top of enterprise systems from the likes of Baan, Oracle, and SAP, the enterprise players are making their own claims as one-stop CRM-ers. And a plethora of smaller companies, including SalesLogix, Chordiant Software, and Motive Communications, offer subclasses of CRM, catering to specific areas such as sales or customer support.

In fact, there are now hundreds of products on the market, ranging from the smallest contact-management packages to multimillion-dollar enterprise systems — and all claiming to belong to the CRM space. Finding the appropriate application can be an awful task. In a survey of 580 participants at the Fall 1998 DCI Customer Relationship Management Conference in Chicago, 59 percent of respondents indicated that choosing the right software was their main concern with CRM.

A Change Will Do You Good

But sorting out the software isn’t the hardest part for nontechnology executives. Instead, they have to grapple with the notion of spending millions to chase intangibles like “customer satisfaction” and “lifetime value.” And in choosing an enterprise CRM system, they must also contemplate the prospect of organizational change — arguably as radical as the change wrought by ERP implementations.

Like ERP, customer relationship management is a discipline supported by a technology, not the other way around. For this reason, an organization should resist the temptation to hunt for technology until it supports CRM as a culture, warns Boston University’s Davenport. “People justify these systems thinking they can make money off customers, but implementing a CRM strategy can be much harder than many organizations imagine.”

Indeed, without careful analysis and project management, CRM initiatives can flop as expensively as ERP. Davenport cites an example of one North Carolina bank that spent more than $100 million on CRM technology for naught, all because internal politics got in the way. Departments continued to operate as fiefdoms that squirreled away customer information, and no one championed the effort. The bank even had problems at the definitional level. “They couldn’t decide whether a customer was an individual or an organization,” says Davenport.

On the other hand, CRM can shine in a customer-as-God culture. Carter Lusher, a director of research for IT advisory firm GartnerGroup, says the companies that have been most successful with CRM initiatives share key characteristics. Citing such “category killers” as Charles Schwab & Co., Cisco Systems Inc., and, Lusher ticks off common qualities: “a command of their product, great up- and cross-sale potential, and the ability to break down internal barriers and processes quickly.”

At Pitney Bowes, success of the CRM initiative depended on two factors key to any major IT undertaking: setting forth a clear business case and involving senior management every step of the way. Before the company thought about software, it looked at goals and processes, says Green, the finance vice president. “We made sure we designed and reviewed the process from end to end,” he says.

Pitney Bowes also designed the project in increments, so that it could pull the plug if goals weren’t met along the way. “We had decision points where we would drop the project if it looked like it would not achieve the benefits we wanted,” says project manager Dave Thomas. Success also depended on understanding how people worked. “We had salespeople involved in development all along; otherwise, we knew they wouldn’t use it,” Thomas recalls.

Not All Customers Are Equal

Once they fit the appropriate technology to the business, companies can begin to manage their customer portfolios as seriously as their financial ones. “Companies are discovering that all customers aren’t created equal,” says Paul Cole, director of Ernst & Young’s Customer Connections Solutions practice in Boston, “and they’re refining their notions of the customer to [include] economics of the relationship.”

This doesn’t mean companies should necessarily say sayonara to customers they can’t milk. After all, today’s poor college student will be tomorrow’s salaried manager; keeping that student loyal over the years can translate into more-profitable business later on. (The jargon for this ROI is “lifetime value.”) “You don’t have to fire your customers, but you become more disciplined about how you serve them,” says Cole.

In this sense, CRM can mean offering a broader variety of services and catering a little more to bigger investors. One commonly cited example of this kind of CRM in action is that of Charles Schwab, of San Francisco. For the past 10 years, Schwab has developed increasingly sophisticated technologies for slicing and dicing customer information stored in centralized databases, “so we have a collective memory of who the customer is,” says Jamie Moldafsky, senior vice president for retail client services. Schwab’s Siebel software not only tracks and sorts customer transactions, it also allows the information to be shared among various departments — from marketing and sales to production and logistics, from finance and billing to technical support. “Once you know the customer, you can come back with the right level of service,” says Moldafsky.

Schwab’s new Signature Services program, for example, divvies up customers and their perks into entry-level, gold, and platinum categories, depending on how much money they have in their accounts or how often they trade. In an age when switching brokerages is a simple matter of pointing one’s browser to a new Web site, Schwab’s extra level of service is key to keeping customers loyal, says Moldafsky.

Companies are also using CRM technology to come up with new sources of revenue. Thomas Cook Travel Group of London, for example, wanted to increase its share of each customer’s lifetime value by providing a level of service that competitors couldn’t match. To this end, it worked with Chordiant and systems integrator MCI Systemhouse to set up an “international rescue service” for travelers. By telephoning Thomas Cook’s call center, travelers receive one-stop access to personalized services, including legal and medical services, emergency cash, card and ticket replacement, and so on.

The supporting technology routes calls to specific agents based on who is calling; when they pick up the phone, the agents can respond in the customer’s language. All the relevant information about the customer — including profile, preferences, and itinerary — appears on the agent’s screen, so customers get everything they need from a single agent, rather than being passed around.

“It’s like integrating database technology with intelligent telecommunications to register a caller’s nationality and exact position,” says Mike Hughes, worldwide operations director for global traveler services. According to divisional CIO Myles Gibson, Thomas Cook expects to see an annual return on its $25 million investment of 12 percent — a return measured by heightened customer satisfaction, increased customer retention, and increased customer lifetime value.

Clearly, any ambitious CRM venture will require a serious investment in planning, time, and money. “The sweet spot is to be efficient and effective while you’re gaining customer loyalty,” says Ernst & Young’s Cole. To this end, he advises, finance managers need to push for a demonstrated payback when people talk in vague terms about making customers happy. “Certainly, CFOs need to activate those things that help the company’s growth agenda, but they also have to be the voice of reason,” says Cole.

Dreams of payback will evaporate without the intensive participation of senior management and a cultural buy-in from everyone in the company. But a successful CRM project can be the beginning of beautiful friendships — with customers, that is. “The bottom line of our CRM initiative is improved earnings, shortened sales cycles, and increased sales confidence,” says Pitney Bowes’s Green, “all wrapped around by better customer service and increased satisfaction.”

Bronwyn Fryer is a freelance writer based in Santa Cruz, California.