Reaping Business Rewards From CRM From Charting the Vision to Measuring the Benefits
56 Top Gallant Road Stamford, CT 06902
About Gartner Gartner, Inc. is the leading provider of research and analysis on the global information technology industry. Gartner serves more than 10,000 clients, including chief information officers and other senior IT executives in corporations and government agencies, as well as technology companies and the investment community. The Company focuses on delivering objective, in-depth analysis and actionable advice to enable clients to make more informed business and technology decisions. The Company’s businesses consist of Gartner Intelligence, research and events for IT professionals; Gartner Executive Programs, membership programs and peer networking services; and Gartner Consulting, customized engagements with a specific emphasis on outsourcing and IT management. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 3,700 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. For more information, visit www.gartner.com.
About Gartner Press Gartner Press publishes books and reports on the intersection of business and technology. Leveraging the intellectual capital of Gartner’s worldwide research analysts and consultants, our publications provide practical and visionary thought leadership on today’s most compelling drivers of business growth. For more information, visit www.gartnerpress.com/reports.
Reaping Business Rewards From CRM From Charting the Vision to Measuring the Benefits
Content selection and editing: Ned Frey, Senior Business Technology Writer Content development: Brian Lett, Business Technology Writer Based on research content authored by the following Gartner analysts: Whit Andrews, Alexa Bona, Steven Cain, Wendy Close, Kimberly Collins, Adam Daum, Robert Desisto, Beth Eisenfeld, Joe Galvin, Dale Hagemeyer, Kathy Harris, Gareth Herschel, Frances Karamouzis, Esteban Kolsky, Debra Logan, Michael Maoz, Scott Nelson, John Radcliffe, Adam Sarner, Kevin Strange, Ed Thompson, Brian Zrimsek
May 2004
ISBN 0-9741571-8-X 2004-CRMSPR © 2004 Gartner, Inc. and/or its affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
The Gartner Strategic Planning Series Gartner Strategic Planning Reports provide focused, in-depth guidance on topics of critical interest to today’s business, IT and strategic-planning executives. Distilled from the latest analysis and advice offered in Gartner’s extensive knowledge base of research documents and resources — including Gartner conference presentations, Research Notes and Strategic Analysis Reports — the Strategic Planning Series is designed to arm executives with the knowledge they need to gain a competitive edge in today’s fast-paced, technology-driven business world. For more information, visit www.gartnerpress.com/reports.
Gartner Strategic Planning Series Staff Heather Pemberton Levy, Vice President & Publisher Edward Younker, Vice President, Editorial Ned Frey, Editorial Director Paulette Ryan, Marketing Director Patty Ivan-Pal, Production Director and Layout Artist Peter Amis and Robert Mango, Graphic Artists Brian D. Miller, Cover Design
Contents 1.0
Introduction and Executive Overview ..................................................... 1 1.1 Research Elements Used in This Report .......................................................................3 1.1.1 Probabilities Defined .................................................................................................... 3 1.1.2 Type A, B and C Enterprises Defined ...........................................................................3 1.1.3 The Gartner Magic Quadrant .......................................................................................4 1.1.4 The Gartner MarketScope ........................................................................................... 5 1.1.5 The Gartner Hype Cycle .............................................................................................. 5 1.2 Positioning the Enterprise for CRM Success ................................................................ 5 1.3 Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels ........................................................................................................................8 1.4 Business-to-Business CRM: Fusing Processes and Technology .................................9 1.5 CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships ................................................................................................................. 11 1.6 Justifying CRM Costs and Boosting Return on Investment ....................................... 14 1.7 The Eight Essential Elements of Successful CRM Initiatives ..................................... 17 1.8 How to Create Great Customer Experiences .............................................................. 20 1.9 Customer Data: Key to Unlocking Customer Value .................................................... 21 1.10 The Role of Analytics in Successful CRM Strategies ................................................. 23 1.11 Key Privacy Considerations in CRM ............................................................................ 25 1.12 Managing CRM Initiatives for Long-Term Success ..................................................... 27 1.13 Using Knowledge Management to Enhance CRM Value ............................................ 28 1.14 Best Practices for Negotiating CRM Software Deals .................................................. 30 1.15 Getting Optimal Value From CRM Consultants and System Integrators ................... 32 1.16 Ensuring the Benefits of Improved Marketing Processes ........................................... 35 1.17 The Evolution of Relationship Marketing .................................................................... 37 1.18 Using E-Marketing to Build Online Relationships ....................................................... 39 1.19 How Technology Can Boost the CRM Sales Effort ..................................................... 40 1.20 Achieving World-Class Customer Service .................................................................. 42 1.21 Getting the Most Out of Contact Center Investment .................................................. 43 1.22 Rewards and Pitfalls of Outsourcing Customer Service and Support ....................... 45 1.23 CRM Solutions for Midsize Businesses ...................................................................... 47
2.0
Positioning the Enterprise for CRM Success ......................................... 51 2.1 The Right Ways to Consider CRM for the Enterprise ................................................. 52 2.1.1 Defining CRM ............................................................................................................ 52 2.1.2 Becoming More Customer-Centric ............................................................................. 53 2.1.3 The Chief Customer Officer ........................................................................................ 53 2.1.4 The Generational Model of CRM ................................................................................ 54 2.1.5 Selling Upper Management on the Value of CRM ....................................................... 55 2.1.6 What Should Drive a CRM Initiative ............................................................................ 55 2.1.7 Creating a CRM Maturity Profile ................................................................................. 55
I
2.2 Avoiding — and Fixing — CRM Problems ................................................................... 57 2.2.1 Learning From Mistakes of the Past ........................................................................... 57 2.2.2 Salvaging a Failed CRM Project ................................................................................. 57 2.3 Turning Customers Into Assets ................................................................................... 58 2.3.1 Four CRM Strategies ................................................................................................. 58 2.3.2 A Six-Step Methodology for Developing a CRM Strategy ........................................... 58 2.3.3 Focus on the Customer ............................................................................................. 59 2.3.4 Customer Data Integration ......................................................................................... 60 2.3.5 Influencing the Customer Process ............................................................................. 60 2.3.6 Strategies for Harvesting the Value of Customer Information ....................................... 61 2.3.6.1 Zero-Gain Compliance ............................................................................... 61 2.3.6.2 Mass Exploitation ....................................................................................... 62 2.3.6.3 Targeted Exploitation .................................................................................. 62 2.3.6.4 Trusted Advisor .......................................................................................... 62 2.3.7 Aligning CRM Decisions With Enterprise Goals .......................................................... 62 2.3.8 The Future of CRM .................................................................................................... 63 2.4 Recommendations ....................................................................................................... 63
3.0
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels ................................................................................... 65 3.1 Key Drivers and Strategies in B2C CRM ..................................................................... 66 3.1.1 Benchmark Against Similar Business Models, Not Industries ...................................... 66 3.1.2 Creating a CRM Road Map ........................................................................................ 67 3.1.3 Customer Segmentation and CRM Strategy .............................................................. 67 3.1.4 Four Customer Service Lessons From Mobile Telecom Service Providers ................... 68 3.1.5 CRM Metrics ............................................................................................................. 69 3.2 Critical B2C CRM Technologies................................................................................... 70 3.2.1 Controlling the Customer Information Architecture ...................................................... 70 3.2.2 The Challenge of Integrating Customer Processes ..................................................... 70 3.2.3 Leveraging Service-Oriented Application Approaches ................................................ 71 3.2.4 The Customer Interaction Hub ................................................................................... 71 3.3 Selecting B2C CRM Vendors ....................................................................................... 71 3.3.1 The B2C CRM Hype Cycle ........................................................................................ 71 3.3.2 B2C CRM Suites ....................................................................................................... 73 3.3.3 What to Consider When Evaluating B2C CRM Vendors .............................................. 73 3.3.4 The Gartner Magic Quadrant for B2C CRM Suites ..................................................... 73 3.4 Recommendations ....................................................................................................... 75
4.0
Business-to-Business CRM: Fusing Processes and Technology ........... 77 4.1 Using CRM to Enhance Customer and Partner Business Processes ........................ 78 4.1.1 CRM Vision and Strategy Can Increase Profits ........................................................... 78 4.1.2 Seamless Execution of Processes ............................................................................. 78 4.1.3 Customer Value in the Demand Chain ........................................................................ 79 4.1.4 Sharing Processes Throughout the Demand Chain .................................................... 80 4.1.5 The Value of Business Modeling ................................................................................ 81 4.2 Using Technology to Improve Sales and Service ........................................................ 82 4.2.1 Emerging Technologies to Support the Demand Chain ............................................... 82 4.2.2 Establishing Collaborative Demand Chain Relationships ............................................. 82 4.2.3 Planning the Evolution to an Integrated CRM Architecture .......................................... 83 4.3 B2B CRM Vendors ....................................................................................................... 84 4.3.1 The Role of Enterprise Application Vendors ................................................................ 84
II
4.3.2 4.3.3 4.3.4 4.3.5
Considerations Beyond Features, Functions and Viability ........................................... 84 Industry Considerations for B2B CRM Vendors .......................................................... 84 B2B CRM Magic Quadrant for 2004 .......................................................................... 85 Extending CRM Suites ............................................................................................... 87
4.4 Three Case Studies in B2B CRM ................................................................................. 87 4.4.1 Choice Hotels Benefits From Electronic Marketplaces ................................................ 87 4.4.2 Seagate Collaborates With Customers to Cut Costs and Meet Needs ........................ 89 4.4.3 Mercury Builds Online Community to Offer World-Class Support ................................ 90 4.5 Recommendations ....................................................................................................... 91
5.0
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships ............................................................................. 93 5.1 The Factors Influencing B2B2C CRM .......................................................................... 94 5.1.1 The Increased Need for Collaboration ........................................................................ 94 5.1.2 Value and Loyalty ...................................................................................................... 94 5.1.3 Developing the CRM Strategy .................................................................................... 95 5.1.4 Using Gap Analysis to Build the Business Case for CRM ............................................ 96 5.1.5 Using CRM to Support Differentiation ......................................................................... 96 5.1.6 Defining Tangible Benefits for a CRM Initiative ............................................................ 96 5.2 B2B2C CRM Technologies and Architectures ............................................................. 97 5.2.1 CRM and Business Process Automation .................................................................... 98 5.2.2 Technology-Enabling Information Flows ..................................................................... 99 5.2.3 2004 Hype Cycle for B2B2C CRM ........................................................................... 100 5.2.4 Case Study: Maytag Uses Shared E-Commerce to Boost Online Sales .................... 101 5.3 Making the Proper B2B2C CRM Vendor Decision .................................................... 102 5.3.1 A Framework for Developing RFP Criteria ................................................................ 102 5.3.2 B2B2C CRM Implementers Must Consider Best-of-Breed Products ......................... 103 5.3.3 Vendors for the Consumer Goods Industry .............................................................. 103 5.3.4 B2B2C CRM and External Service Providers ............................................................ 104 5.3.5 ESPs and Sales Solution Implementations ............................................................... 104 5.4 Recommendations ..................................................................................................... 106
6.0
Justifying CRM Costs and Boosting Return on Investment ................ 107 6.1 Delivering ROI From CRM Investments ..................................................................... 108 6.1.1 The Need to Determine CRM ROI ............................................................................ 108 6.1.2 Who Should Pay for CRM ........................................................................................ 109 6.1.3 Creating a Master Plan for CRM .............................................................................. 109 6.1.4 Successfully Managing CRM TCO ........................................................................... 110 6.2 Validating and Measuring a CRM Project .................................................................. 112 6.2.1 Analyzing CRM TCO Survey Results ........................................................................ 112 6.2.2 Underbudgeted CRM Costs .................................................................................... 113 6.2.3 CRM and Business Performance Management ........................................................ 114 6.2.4 Sales Metrics ........................................................................................................... 114 6.2.5 Marketing Metrics .................................................................................................... 115 6.2.6 Customer Service Metrics ........................................................................................ 115 6.3 Overseeing the CRM Investment Portfolio ................................................................ 116 6.3.1 Matching Desired Benefits to CRM Applications ....................................................... 116 6.3.2 Financial Measurement Methodologies Used in CRM ............................................... 116 6.3.3 The Right Way to Calculate ROI ............................................................................... 118 6.3.4 Sample ROI Calculation ........................................................................................... 118 6.3.5 Business Justification for CRM Investments ............................................................. 119
III
6.3.6 6.3.7
Creating a Solid Business Case for CRM ................................................................. 120 Using the Business Case Throughout the CRM Project Life Cycle ............................ 121
6.4 Recommendations ..................................................................................................... 122
7.0
The Eight Essential Elements of Successful CRM Initiatives ............. 123 7.1 Creating the CRM Vision ............................................................................................ 124 7.1.1 The Goals Underpinning the Vision .......................................................................... 125 7.2 Developing the CRM Strategy ................................................................................... 126 7.3 Designing the Customer Experience ......................................................................... 128 7.4 Enabling Organizational Collaboration ...................................................................... 128 7.5 Redesigning Processes ............................................................................................. 130 7.6 Creating a Customer Information Strategy ............................................................... 131 7.7 Enabling CRM Through Technology .......................................................................... 132 7.7.1 Dealing With Application Integration ......................................................................... 132 7.8 Defining and Monitoring Metrics ............................................................................... 133 7.9 Summary and Recommendations ............................................................................. 135
8.0
How to Create Great Customer Experiences ...................................... 137 8.1 What Makes the Customer Experience Critical ........................................................ 137 8.1.1 The Customer Experience and Brand Differentiation ................................................. 138 8.1.2 The Relationship Between Customer Experience and Customer Loyalty ................... 138 8.1.3 Before, During and After the Experience .................................................................. 139 8.2 Creating and Driving the Right Customer Experience .............................................. 140 8.2.1 Setting Expectations Through Brand Values ............................................................. 140 8.2.2 Tailoring the Experience to Customer Segments ...................................................... 140 8.2.3 Tracking Critical Experiences in Multiple Channels .................................................... 141 8.2.4 The Role of Customer-Focused Performance Management ..................................... 142 8.2.4.1 Case Study: Using Performance Management to Improve Customer Experiences ............................................................................................................ 143 8.2.5 Using Customer Feedback to Improve the Experience ............................................. 143 8.2.6 Acting on Customer Feedback ................................................................................ 144 8.2.7 Metrics and the Customer Balanced Scorecard ....................................................... 145 8.3 Getting Started on the CEM Initiative ........................................................................ 146 8.3.1 Improving the “Front Line” Contact Experience ........................................................ 146 8.3.2 The Customer Experience Governance Model ......................................................... 147 8.4 Recommendations ..................................................................................................... 147
9.0
Customer Data: Key to Unlocking Customer Value ............................ 149 9.1 Why Customer Data is Critical to CRM ..................................................................... 150 9.1.1 The Shift to a Customer-Focused View .................................................................... 150 9.1.2 Key Challenges to Gaining a Customer-Focused View ............................................. 150 9.1.3 Business Users Must Agree on Semantics ............................................................... 150 9.1.4 Customer Data’s Impact on CRM Implementation Costs .......................................... 151 9.2 The Role of Data Warehouses in Supporting and Delivering CRM Value ................. 151 9.2.1 The Data Warehouse as the Foundation for Business Intelligence ............................. 152 9.2.2 Data Warehouses vs. Data Marts ............................................................................. 153 9.2.3 Leveraging the Data Warehouse to Support Analytical CRM ..................................... 154 9.2.4 Key Considerations for the Data Architecture ........................................................... 155
IV
9.3 The Importance of Data Quality ................................................................................. 156 9.3.1 Organization and Leadership Are Key to Data Improvement ..................................... 158 9.3.2 Data Quality as an Ongoing, Iterative Process .......................................................... 158 9.4 Recommendations ..................................................................................................... 158
10.0 The Role of Analytics in Successful CRM Strategies ......................... 161 10.1 How Analytics Support the CRM Strategy ................................................................ 162 10.1.1 The Value of a Strategy for Customer Insight ............................................................ 162 10.1.2 Guidelines for Categorizing CRM Analytics ............................................................... 163 10.1.3 Segmenting Customers by Current and Potential Value ............................................ 163 10.2 Using Analytics and Metrics to Ensure CRM Success ............................................. 164 10.2.1 CRM Metrics and Performance Management ........................................................... 165 10.3 Using Analytics to Gain and Leverage Customer Insight ......................................... 167 10.3.1 Using Data Mining to Analyze Customer Behavior and Discover Affinities .................. 167 10.3.2 Data-Mining Workbenches vs. Black Boxes ............................................................. 167 10.3.3 Scoring and Predictive Modeling .............................................................................. 167 10.4 CRM Analytics Technologies and Vendors ................................................................ 169 10.4.1 The Different Types of CRM Analytics Vendors ......................................................... 170 10.5 Conclusions and Recommendations ........................................................................ 171
11.0 Key Privacy Considerations in CRM .................................................... 173 11.1 The Need to Manage Personal Customer Information ............................................. 174 11.1.1 The Potential for High-Profile Privacy Abuse ............................................................. 174 11.1.2 Understanding the Differences Between Privacy and Security .................................. 174 11.1.3 Responsible Privacy Management ........................................................................... 175 11.1.4 The Costs of Privacy Mismanagement ..................................................................... 175 11.2 Government Regulation and Privacy Management .................................................. 176 11.2.1 Government’s Role in Protecting Personal Information ............................................. 176 11.2.2 International Privacy Laws ....................................................................................... 176 11.3 The Path to Effective Privacy Management .............................................................. 177 11.3.1 Five Rules for Collecting and Analyzing Customer Information .................................. 177 11.3.2 Abuse of Enterprise Privacy Policies ......................................................................... 177 11.3.3 Protecting Privacy by Encouraging Opt-In ................................................................ 177 11.3.4 Technology Requirements of Privacy Management ................................................... 178 11.3.5 Eight Guidelines for Enterprise Privacy Management ................................................ 178 11.3.6 Mapping Privacy Requirements to Enterprise Applications ....................................... 179 11.3.7 How Applications Should Handle Customer Data ..................................................... 180 11.3.8 Privacy Management and the Solution Demand Conundrum .................................... 180 11.3.9 A Case Study in Privacy Management ..................................................................... 180 11.4 Recommendations ..................................................................................................... 181
12.0 Managing CRM Initiatives for Long-Term Success .............................. 183 12.1 The Changing Face of Operations, Maintenance and Upgrades ............................. 184 12.1.1 Adopting a Life Cycle Mentality Toward CRM ........................................................... 184 12.1.2 Managing Risk, Costs and Value Through the CRM Application Life Cycle ................ 185 12.1.2.1 Managing Risk ......................................................................................... 185 12.1.2.2 Managing Costs ....................................................................................... 185 12.1.2.3 Managing Value........................................................................................ 185 12.1.3 The “Home Improvement” Strategy .......................................................................... 186
V
12.2 Increasing the Value of CRM Investments ................................................................ 186 12.2.1 Changing the Way Enterprises Implement Business Applications ............................. 187 12.2.2 The Five Steps to CRM Improvement and Optimization ............................................ 187 12.3 Transformations in Application Deployment ............................................................. 188 12.3.1 Six Steps for Planned Improvement ......................................................................... 188 12.3.2 CRM Excellence Award Standouts Show the Way ................................................... 188 12.3.3 Establishing Continuous-Improvement Programs ..................................................... 189 12.4 Optimally Supporting Post-Implementation CRM .................................................... 189 12.4.1 The CRM Competency Center ................................................................................. 190 12.5 CRM Upgrades ........................................................................................................... 190 12.5.1 The Need for an Upgrade Project Plan ..................................................................... 191 12.6 Conclusions and Recommendations ........................................................................ 192
13.0 Using Knowledge Management to Enhance CRM Value ..................... 193 13.1 How Developments in KM Affect CRM ..................................................................... 194 13.1.1 The Need for Operational and Innovation Initiatives .................................................. 194 13.1.2 Defining KM ............................................................................................................ 194 13.1.3 Explicit and Tacit Knowledge ................................................................................... 195 13.1.4 The Four Dimensions of KM Initiatives ...................................................................... 195 13.2 Returns From Using KM in CRM ............................................................................... 196 13.2.1 The Four Types of KM Applications .......................................................................... 196 13.2.2 The Role of Content Management ........................................................................... 197 13.2.3 Expertise Management ............................................................................................ 198 13.2.4 Collaboration ........................................................................................................... 199 13.2.5 Case Study: Openwave Systems ............................................................................. 199 13.2.6 Case Study: Capital One ......................................................................................... 200 13.2.7 Adding Interactive Capabilities to CRM .................................................................... 202 13.2.8 KM and Marketing Resource Management .............................................................. 202 13.2.9 Deploying KM in Sales ............................................................................................. 203 13.3 Providers and Offerings That Use KM to Support CRM ........................................... 204 13.3.1 The Smart Enterprise Suite ...................................................................................... 204 13.3.2 CRM Suites and KM ................................................................................................ 205 13.3.3 Innovative Approaches to KM and CRM Processes .................................................. 206 13.4 Conclusions and Recommendations ........................................................................ 206
14.0 Best Practices for Negotiating CRM Software Deals .......................... 207 14.1 Trends in CRM Software Licensing and Negotiation ................................................ 208 14.1.1 Vendors Seek More Revenue From Established Customers ..................................... 208 14.1.2 License Functionality, Not Products ......................................................................... 209 14.1.3 The Effects of Mergers, Acquisitions and Divestitures ............................................... 209 14.1.4 Complications Associated With Named-User Pricing ............................................... 210 14.1.5 New Licensing Models ............................................................................................ 211 14.1.6 CRM License Model Evaluation Criteria .................................................................... 212 14.1.7 Trends in Software Maintenance .............................................................................. 212 14.2 License Negotiation Best Practices That Protect Software Investments ................ 213 14.2.1 Transfer Fees ........................................................................................................... 213 14.2.2 Terminating Maintenance on Unused Licenses ......................................................... 213 14.2.3 Caps and Maintenance ........................................................................................... 214 14.2.4 The Cost of Unused Licenses .................................................................................. 215 14.2.5 Leveraging the Vendor Relationship After the Initial Purchase ................................... 216
VI
14.2.6 Additional Tactics for Reducing the Cost of a Licensing Deal .................................... 216 14.2.7 Evaluating Hosted and ASP Software Models .......................................................... 217 14.3 Negotiating With the Major CRM Suite Vendors ....................................................... 217 14.3.1 Siebel Systems ........................................................................................................ 217 14.3.2 SAP ........................................................................................................................ 218 14.3.3 Oracle ..................................................................................................................... 219 14.3.4 PeopleSoft .............................................................................................................. 220 14.4 Recommendations ..................................................................................................... 220
15.0 Getting Optimal Value From CRM Consultants and System Integrators ............................................................................................ 221 15.1 How ESPs Can Deliver Value to CRM Initiatives ....................................................... 222 15.1.1 Using ESPs ............................................................................................................. 222 15.1.2 Surveying CRM ESP Users ...................................................................................... 223 15.2 ESPs’ CRM Knowledge and Capabilities .................................................................. 224 15.2.1 Cost and Staffing Levels .......................................................................................... 224 15.2.2 ESPs and CRM Project Types .................................................................................. 225 15.2.3 CRM ESP Customer Satisfaction ............................................................................. 226 15.2.4 ESP Pricing ............................................................................................................. 226 15.3 Assessing ESPs ......................................................................................................... 228 15.3.1 Gartner’s Magic Quadrant for Worldwide CRM ESPs ............................................... 228 15.3.2 CRM ESP MarketScope for the Americas ................................................................ 230 15.3.3 Offshore CRM Service Providers .............................................................................. 231 15.3.4 ESPs and Global Service Delivery ............................................................................ 232 15.3.5 Evaluating ESPs vs. Evaluating Products ................................................................. 232 15.3.6 Using One or Many ESPs ........................................................................................ 233 15.3.7 CRM ESP Evaluation Criteria ................................................................................... 234 15.3.8 Using a Vendor Evaluation Framework ..................................................................... 235 15.4 Recommendations ..................................................................................................... 236
16.0 Ensuring the Benefits of Improved Marketing Processes ................... 237 16.1 The Future of Marketing ............................................................................................ 238 16.1.1 Marketing Must Embrace Technology ...................................................................... 238 16.1.2 Marketing Evolves Toward Just-in-Time Relationship Building .................................. 238 16.1.3 Effectively Handling the Information Deluge Through Analytics .................................. 239 16.1.4 More Data From Microsensors and RFID Chips ........................................................ 239 16.1.5 Broadcast and Targeted Communications Will Blend Together ................................. 239 16.2 Bringing About World-Class Marketing ..................................................................... 240 16.2.1 From Customer and Product Segments to Marketing Ecosystems ........................... 240 16.2.2 The Marketing Function Begins to Evolve to an Advanced State .............................. 240 16.2.3 States of Value Development ................................................................................... 241 16.3 Technologies to Improve Management of Marketing Operations ............................ 241 16.3.1 Improving Efficiency and Effectiveness Through MRM .............................................. 243 16.3.2 MRM Application Architecture Requirements ........................................................... 244 16.3.3 Deciding Whether to Build or Buy MRM Applications ............................................... 245 16.3.4 The 2004 MRM Magic Quadrant.............................................................................. 245 16.3.5 The Evolving MRM Vendor Environment ................................................................... 247 16.4 Recommendations ..................................................................................................... 247
VII
17.0 The Evolution of Relationship Marketing ............................................ 249 17.1 The Early Generations of Relationship Marketing ..................................................... 250 17.1.1 The First Generation: The Right Customer ............................................................... 250 17.1.2 The Second Generation: The Right Channel ............................................................ 251 17.2 The Third Generation of Relationship Marketing ...................................................... 251 17.2.1 The Three Styles of Customer Interactions ............................................................... 252 17.2.2 The Five Stages of Event-Triggered Marketing .......................................................... 252 17.2.3 What Real-Time Analytics Means, and Whether Enterprises Need It ......................... 253 17.2.4 Two Case Studies in Determining the Right Time for an Offer ................................... 254 17.2.4.1 National Australia Bank’s Event-Driven Lead Generation ........................... 254 17.2.4.2 How Bell Mobility Leverages Inbound Interactions and Real-Time Analytics254 17.3 Advanced Generations of Relationship Marketing ................................................... 254 17.3.1 The Fourth Generation: The Right Offer .................................................................... 255 17.3.1.1 Case Study: Scotiabank’s Offer Optimization ............................................ 255 17.3.2 The Fifth Generation: The Right Relationship ............................................................ 256 17.4 Relationship-Marketing Vendors ............................................................................... 256 17.4.1 Gartner’s MarketScope on Relationship Marketing ................................................... 256 17.4.2 Vendor Functionality Supporting the Five Generations of Relationship Marketing ...... 258 17.5 Conclusions................................................................................................................ 258
18.0 Using E-Marketing to Build Online Relationships ............................... 259 18.1 Creating Effective E-Marketing Strategies ................................................................ 259 18.1.1 Popularity Will Be E-Mail Marketing’s Demise ........................................................... 260 18.1.2 Move From Mass E-Marketing to Relevant Loyalty Building ...................................... 261 18.1.3 Leverage Online Data for Offline Channels ................................................................ 261 18.1.4 E-Marketing Drives Sales to Physical Stores ............................................................ 262 18.1.5 Value Framework for E-Marketing and Sell-Side E-Commerce .................................. 263 18.1.6 Case Study: Finish Line E-Marketing Power ............................................................. 264 18.1.6.1 Problem ................................................................................................... 264 18.1.6.2 Objectives ................................................................................................ 264 18.1.6.3 Approach ................................................................................................. 264 18.1.6.4 Results .................................................................................................... 266 18.2 E-Marketing and Sell-Side E-Commerce Vendors and Offerings ............................. 266 18.2.1 The E-Commerce and E-Marketing Infusion ............................................................. 266 18.2.2 B2C Sell-Side E-Commerce Functionality ................................................................ 266 18.2.3 E-Marketing Functionality ........................................................................................ 267 18.2.4 Sell-Side E-Commerce MarketScope ....................................................................... 267 18.2.5 E-Marketing MarketScope ....................................................................................... 268 18.2.6 What’s Next for E-Marketing and E-Commerce Vendors .......................................... 270 18.3 Recommendations ..................................................................................................... 270
19.0 How Technology Can Boost the CRM Sales Effort .............................. 271 19.1 Business and Technology Factors Affecting Sales Organizations ........................... 272 19.1.1 The Sales Technology Value Framework .................................................................. 272 19.1.2 Functions Within the Sales Technology Value Framework ......................................... 273 19.1.3 Technology’s Impact on the Sales Technology Value Framework .............................. 274 19.1.4 Case Studies in Four States of the Sales Technology Value Framework .................... 275 19.1.4.1 A Second-State Case Study: Mitsubishi Digital Electronics America .......... 275 19.1.4.2 A Third-State Case Study: ViewSonic ....................................................... 275 19.1.4.3 A Fourth-State Case Study: Combining Market Insight With Sales Execution275 19.1.4.4 A Fifth-State Case Study: Selling in a Value Network ................................. 276
VIII
19.2 Making the Right Decisions About Sales Technologies ........................................... 276 19.2.1 The Hype Cycle for Sales Technologies .................................................................... 277 19.3 Sales Application Vendors ......................................................................................... 278 19.3.1 Mapping Sales Vendors to the Sales Technology Value Framework .......................... 279 19.3.2 Direct Sales Vendors ............................................................................................... 279 19.3.3 PRM Vendors .......................................................................................................... 280 19.3.4 Sell-Side E-Commerce Vendors ............................................................................... 281 19.3.5 The CRM Sales Suite Magic Quadrant ..................................................................... 282 19.4 Recommendations ..................................................................................................... 283
20.0 Achieving World-Class Customer Service ........................................... 285 20.1 How Business and Technology Will Affect Customer Service .................................. 286 20.1.1 Enhancing Revenue Through Customer Service ....................................................... 286 20.1.2 Better Understanding of CSS Strategies .................................................................. 287 20.1.3 Trends in CSS Spending .......................................................................................... 287 20.1.4 Re-engineering Customer Processes Enterprisewide ............................................... 287 20.2 CSS Processes and Solutions Need to Shift ............................................................. 289 20.2.1 The Role of Service Analytics ................................................................................... 289 20.2.2 The Customer Interaction Hub ................................................................................. 289 20.2.3 Monitoring and Improving Agent Performance .......................................................... 290 20.3 Technologically Supporting CSS Strategies ............................................................. 291 20.3.1 CSS Technology Spending ...................................................................................... 291 20.3.2 Considering CSS Vendors ....................................................................................... 291 20.3.3 Categorizing CSS Vendors ...................................................................................... 292 20.3.4 CSS Suite Magic Quadrant ...................................................................................... 293 20.3.4.1 The Leaders’ Quadrant ............................................................................ 294 20.3.4.2 The Visionaries’ Quadrant ........................................................................ 294 20.3.4.3 The Challengers’ Quadrant ....................................................................... 294 20.3.4.4 The Niche Players’ Quadrant .................................................................... 294 20.3.5 The 2004 CSS Hype Cycle ...................................................................................... 295 20.4 Recommendations ..................................................................................................... 296
21.0 Getting the Most Out of Contact Center Investments ........................ 297 21.1 About the Data Used in This Chapter ........................................................................ 298 21.2 The Economics of the Customer Service Contact Center ........................................ 298 21.2.1 The Cost of Unsatisfied Customers .......................................................................... 298 21.2.2 The Basis for Determining Overall Performance ........................................................ 298 21.2.3 Cost per Handled Contact ....................................................................................... 299 21.3 Choosing Where to Best Make Contact Center Investments ................................... 299 21.3.1 Graduated Agent Salaries Based on Skills ............................................................... 300 21.3.2 Benefits and Best Practices of Agent Training .......................................................... 300 21.3.3 The Importance of Agent Surveys ............................................................................ 301 21.3.4 Handling Dissatisfied Customers .............................................................................. 302 21.4 Optimizing Cost and Service ..................................................................................... 302 21.4.1 Reducing Maintenance Contract Costs .................................................................... 302 21.4.2 IVR Systems ............................................................................................................ 302 21.4.3 CRM Building-Block Technologies for Contact Centers ............................................ 303 21.4.4 Reducing Costs Through Alternative Channels ......................................................... 303 21.4.5 Optimize the Voice Channel First ............................................................................. 304 21.4.6 Telecommunications Costs ...................................................................................... 305 21.4.7 Moving to a New Outsourcing Model ....................................................................... 305
IX
21.4.8 Improving First-Contact Resolution .......................................................................... 306 21.5 Recommendations ..................................................................................................... 308
22.0 Rewards and Pitfalls of Outsourcing Customer Service and Support 309 22.1 Deciding Whether to Outsource Customer Service .................................................. 310 22.1.1 CSS Outsourcing Drivers and Inhibitors ................................................................... 310 22.1.2 Analyzing the Need for BPO .................................................................................... 310 22.1.3 What Enterprises Want From Contact Center Outsourcing ....................................... 311 22.2 CSS Outsourcing Costs, Benefits and Lessons ........................................................ 312 22.2.1 Top Mistakes in CSS Outsourcing ............................................................................ 312 22.2.2 Process Maps and Selective Outsourcing ................................................................ 312 22.2.3 Key Capabilities for Global Support .......................................................................... 313 22.2.4 Case Study: Outsourced Call Center ....................................................................... 313 22.2.5 Offshore Outsourcing Benefits Beyond the Costs ..................................................... 314 22.2.6 Challenges in CSS Offshore Outsourcing ................................................................. 315 22.2.7 Leveraging a Global Delivery Model .......................................................................... 315 22.2.8 Structuring CSS Outsourcing Deals ......................................................................... 316 22.2.9 The Right Way to Build an SLA ................................................................................ 317 22.3 CSS Outsourcing Options .......................................................................................... 317 22.3.1 Evaluating Service Providers .................................................................................... 318 22.3.2 The Growing Importance of Process Capabilities ..................................................... 319 22.3.3 The CSS Contact Center Offshore Outsourcing Market ............................................ 320 22.4 Recommendations ..................................................................................................... 320
23.0 CRM Solutions for Midsize Businesses ................................................ 323 23.1 What MSBs Are Doing With CRM .............................................................................. 324 23.1.1 Evidence of CRM Benefits for MSBs ........................................................................ 324 23.1.2 Key Benefits Delivered by CRM ................................................................................ 324 23.1.3 Case Study: Reported Benefits of an MSB CRM Implementation ............................. 325 23.2 Buying, Installing and Maintaining CRM Solutions ................................................... 326 23.2.1 Using Licensed CRM Application Software .............................................................. 326 23.2.2 Using ASPs for CRM Functionality ........................................................................... 326 23.2.3 A Three-Year TCO Scenario for CRM ....................................................................... 327 23.2.4 CRM Decision Criteria Critical to MSBs .................................................................... 329 23.2.5 Using ESPs ............................................................................................................. 330 23.3 Choosing CRM Application Vendors ......................................................................... 331 23.3.1 Use Size and Complexity to Choose a CRM Solution ............................................... 331 23.3.2 The 1H04 CRM Software MarketScope for MSBs .................................................... 332 23.3.2.1 Rating for the Overall Market .................................................................... 333 23.3.2.2 Evaluation Criteria .................................................................................... 333 23.3.2.3 Onyx Software ......................................................................................... 334 23.3.2.4 Pivotal ...................................................................................................... 334 23.3.2.5 SalesLogix ............................................................................................... 335 23.3.2.6 Salesforce.com ........................................................................................ 336 23.3.2.7 Siebel Systems ........................................................................................ 337 23.3.2.8 Microsoft .................................................................................................. 338 23.3.2.9 Other Players ........................................................................................... 339 23.4 Recommendations ..................................................................................................... 340
X
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards ................. 341 A.1 The City of Baltimore Turns a Corner With CRM ...................................................... 342 A.2 GSI Commerce Uses CRM to Drive Online Sales ..................................................... 344 A.3 AGF Gains Visibility Through Customer Segmentation ............................................ 347 A.4 With CRM, Viewpoint Proves That Change Is Good ................................................. 349 A.5 YORK Uses CRM to Open New Market Segments ................................................... 352
Appendix B: Glossary ..................................................................................... 357 Vendor Index .................................................................................................. 365
XI
Figures Figure 1-1: The Gartner Magic Quadrant ........................................................................................... 4 Figure 1-2: The Gartner Hype Cycle ..................................................................................................6 Figure 2-1: CRM Includes More Than Just the Customer ................................................................. 52 Figure 2-2: CRM Generational Framework ....................................................................................... 54 Figure 2-3: Three Broad Shifts in CRM Maturity ............................................................................... 56 Figure 2-4: The New CRM Cycle ..................................................................................................... 59 Figure 2-5: The Customer Experience Across Multiple Channels ...................................................... 60 Figure 2-6: Four Approaches to Harvesting Customer Information Value .......................................... 61 Figure 3-1: Learning About B2C CRM by Looking Across Industries ................................................ 66 Figure 3-2: Gap Analysis Helps Prioritize CRM Strategically and Logically ......................................... 67 Figure 3-3: Customer Segmentation Is Fundamental to a CRM Strategy .......................................... 68 Figure 3-4: The Hierarchy of CRM Metrics ....................................................................................... 69 Figure 3-5: B2C Hype Cycle for CRM in 2004 .................................................................................. 72 Figure 3-6: B2C CRM Vendors: Industry Impact, February 2004 ...................................................... 74 Figure 3-7: B2C CRM Suites Magic Quadrant .................................................................................. 75 Figure 4-1: Examples of Defined Objectives Linked to Measurable Returns ...................................... 78 Figure 4-2: The Importance of Seamlessly Integrating Processes ..................................................... 79 Figure 4-3: Linear Processes Impede Effective Interactions .............................................................. 80 Figure 4-4: Shared-Relationship Model Lowers Barriers ................................................................... 81 Figure 4-5: Integrating Operational and Analytical Systems .............................................................. 83 Figure 4-6: The Evolving B2B CRM Vendor Environment .................................................................. 85 Figure 4-7: B2B CRM Magic Quadrant, 2004 .................................................................................. 86 Figure 5-1: The Drive to Equate Value With Loyalty .......................................................................... 95 Figure 5-2: CRM and Differentiation ................................................................................................. 97 Figure 5-3: B2B2C Functional Building Blocks ................................................................................. 98 Figure 5-4: B2B2C CRM Architectural Framework ........................................................................... 99 Figure 5-5: 2004 Hype Cycle for B2B2C CRM ............................................................................... 100 Figure 5-6: Developing and Weighting RFP Criteria ........................................................................ 102 Figure 5-7: B2B2C Vendor Landscape .......................................................................................... 103 Figure 5-8: ESP Industry Focus Varies, but Satisfaction Levels Are Similar ...................................... 105 Figure 6-1: Few Enterprises Measure CRM ROI ............................................................................. 108 Figure 6-2: Why the IS Organization Should Not Fund a CRM Initiative ........................................... 110 Figure 6-3: CRM Spending by Category ........................................................................................ 112 Figure 6-4: Underbudgeted CRM Project Costs by Category ......................................................... 113 Figure 6-5: Typical Benefits Claimed .............................................................................................. 117 Figure 6-6: Common ROI Methodologies Used for CRM ................................................................ 117 Figure 6-7: A Sample CRM ROI Calculation by a U.S. Manufacturer ............................................... 119
XII
Figure 6-8: Different Levels of Business Justification for CRM ......................................................... 120 Figure 6-9: Elements of a Solid CRM Business Case ..................................................................... 121 Figure 6-10: Using the Business Case to Add Value Throughout the Project Life Cycle ................... 122 Figure 7-1: Survey Results on CRM Objectives .............................................................................. 125 Figure 7-2: How CRM Strategy Enhances Marketing Strategy ........................................................ 126 Figure 7-3: The Customer Asset Matrix ......................................................................................... 127 Figure 7-4: Research, Feedback and the Evolving Customer Experience ........................................ 129 Figure 7-5: CRM Application Sourcing Options .............................................................................. 133 Figure 7-6: A Hierarchy of CRM Performance Metrics .................................................................... 134 Figure 8-1: A Brand Model Example .............................................................................................. 141 Figure 8-2: Moments of Truth — an Airline Example ....................................................................... 142 Figure 8-3: The Economics of a Poor Customer Experience ........................................................... 144 Figure 8-4: Customer Experience Planning and Metrics ................................................................. 145 Figure 9-1: The Business Intelligence Framework .......................................................................... 153 Figure 9-2: Comparing Topology Choices ...................................................................................... 154 Figure 9-3: Analytics Drive Long-Term Value .................................................................................. 155 Figure 9-4: Data Architecture Challenges and Goals ...................................................................... 156 Figure 9-5: Data Quality Is a Business Issue ................................................................................... 157 Figure 9-6: A Successful Data Quality Program Never Ends ........................................................... 159 Figure 10-1: The Customer Information and Insight “Blood Supply” ............................................... 162 Figure 10-2: The Hierarchy of CRM Analysis .................................................................................. 163 Figure 10-3: Different Measures of Customer Value ........................................................................ 164 Figure 10-4: Planning Metrics by Activity, Process and Function ..................................................... 165 Figure 10-5: Cascading a Retailer’s Balanced Scorecard Into Customer Channels ......................... 166 Figure 10-6: The Data-Mining Tool Complexity Spectrum ............................................................... 168 Figure 10-7: Four Scoring Approaches to Predictive Modeling ....................................................... 168 Figure 10-8: Three Conceptual Approaches to CRM Analytics Suites ............................................. 169 Figure 10-9: The CRM Analytics Vendor Landscape ...................................................................... 170 Figure 11-1: Consumer Concern About Online Privacy .................................................................. 174 Figure 11-2: Privacy Checklist ....................................................................................................... 179 Figure 12-1: The CRM Life Cycle ................................................................................................... 184 Figure 12-2: The Five Steps to CRM Improvement and Optimization .............................................. 188 Figure 12-3: Upgrades Can Take Many Shapes ............................................................................. 191 Figure 13-1: KM Dynamics and CRM — Building Value.................................................................. 196 Figure 13-2: The Four KM Application Types .................................................................................. 197 Figure 13-3: Moving From Content to Knowledge .......................................................................... 198 Figure 13-4: Potential Benefits Associated With Deploying KM in Sales .......................................... 203 Figure 13-5: The Smart Enterprise Suite Emerges .......................................................................... 204 Figure 13-6: KM Support and CRM Suites ..................................................................................... 205 Figure 14-1: Which Customers Drive Revenue as Market Conditions Detiorate ............................... 208 Figure 14-2: Common CRM Software Pricing Models .................................................................... 211
XIII
Figure 14-3: Increasing Maintenance Costs and the “Year 6” Problem ............................................ 214 Figure 15-1: Top 10 and Bottom Three CRM Services Provided ..................................................... 223 Figure 15-2: Services Comprise 20 Percent to 55 Percent of Total Project Cost ............................. 224 Figure 15-3: CRM Implementations by Domain .............................................................................. 225 Figure 15-4: CRM ESP Customer Satisfaction ............................................................................... 227 Figure 15-5: Magic Quadrant for Worldwide CRM ESPs, 2004 ....................................................... 228 Figure 15-6: MarketScope for CRM ESPs in the Americas ............................................................. 230 Figure 15-7: Determining Whether to Use One or Multiple ESPs .................................................... 233 Figure 15-8: Most- and Least-Important CRM ESP Evaluation Criteria ........................................... 234 Figure 15-9: Sample Vendor Evaluation Framework ....................................................................... 235 Figure 16-1: Value Development Framework for Technology-Enabled Marketing ............................. 242 Figure 16-2: Increased Marketing Complexity Demands Efficient Operations .................................. 243 Figure 16-3: The 2004 MRM Magic Quadrant ................................................................................ 246 Figure 17-1: The Five Generations of Relationship Marketing ......................................................... 250 Figure 17-2: Determining The Need for Real-Time Analytics ........................................................... 253 Figure 17-3: Rating and Categorizing Vendors of Relationship Marketing Technology ..................... 257 Figure 17-4: Relationship Marketing Vendors Mature With the Market ............................................ 258 Figure 18-1: Enterprise Priorities in E-Marketing Capabilities Will Change ....................................... 260 Figure 18-2: The Loyalty Hierarchy of Needs .................................................................................. 261 Figure 18-3: Top 10 Retail Web Sites Integrating Online and In-Store Traffic ................................... 262 Figure 18-4: Value Framework for E-Marketing and Sell-Side E-Commerce .................................... 263 Figure 18-5: Sell-Side E-Commerce MarketScope ......................................................................... 268 Figure 18-6: E-Marketing MarketScope ......................................................................................... 269 Figure 19-1: Sales Technology Value Framework ........................................................................... 272 Figure 19-2: A Functional View of the Sales Technology Value Framework ...................................... 273 Figure 19-3: Technology Impact Varies by State ............................................................................. 274 Figure 19-4: Most Sales Applications Are Difficult to Implement ...................................................... 277 Figure 19-5: Hype Cycle for Sales Technologies, 2004 ................................................................... 278 Figure 19-6: Suites Are Closing the Functionality Gap .................................................................... 279 Figure 19-7: Mapping Vendor Capabilities to the Sales Technology Value Framework ..................... 280 Figure 19-8: Direct Sales MarketScope .......................................................................................... 281 Figure 19-9: PRM MarketScope .................................................................................................... 282 Figure 19-10: CRM Sales Suites Vendor Magic Quadrant .............................................................. 283 Figure 20-1: Changing Priorities for CSS Initiatives in 2004 ............................................................. 288 Figure 20-2: The Customer Service Value Framework .................................................................... 290 Figure 20-3: Vendors Come From Four Different Camps and Offer Different Value .......................... 292 Figure 20-4: 2004 Magic Quadrant for CSS Suites ........................................................................ 293 Figure 20-5: The 2004 CSS Hype Cycle ........................................................................................ 295 Figure 21-1: Typical Customer Service Contact Center Spending ................................................... 299 Figure 21-2: Overall Cost per Handled Contact Across All Channels .............................................. 300 Figure 21-3: Survey Agents and Act on What They Say ................................................................. 301
XIV
Figure 21-4: Using Alternative Channels Can Reduce Costs .......................................................... 304 Figure 21-5: The Dominance of the Voice Channel ......................................................................... 305 Figure 21-6: Toll-Free Inbound Usage ............................................................................................ 306 Figure 21-7: Service Provider Costs and Price in the Historic Outsourcing Model ........................... 307 Figure 21-8: Service Provider Costs and Price in the New Outsourcing Model ................................ 307 Figure 22-1: Top Five Reasons for Outsourcing Contact Centers ................................................... 311 Figure 22-2: Global Delivery Options From a U.S. Enterprise Perspective ....................................... 316 Figure 22-3: CSS Outsourcing Contract Types ............................................................................... 317 Figure 22-4: Different Approaches for Different Enterprises ............................................................. 319 Figure 22-5: Selected CSS and Contact Center Outsourcing Vendors ............................................ 320 Figure 23-1: MSB Benefits Gained From CRM ............................................................................... 325 Figure 23-2: A Three-Year TCO Scenario for CRM ......................................................................... 329 Figure 23-3: MSB CRM Decision Drivers — More Than Technology ............................................... 330 Figure 23-4: Determining a CRM Solution Based on Size and Complexity ...................................... 332 Figure 23-5: CRM Suites for MSB — 1H04 MarketScope .............................................................. 333
XV
Introduction and Executive Overview
1.0 Introduction and Executive Overview
R
ecent Gartner surveys indicate that CRM remains a priority for more than 80 percent of large enterprises, although two-thirds have yet to see positive results from their implementations. Executives remain committed to CRM in an economy driven by fixed budgets, intense competition for resources and demands for fast returns on investment. But they are placing greater emphasis on changing processes, structures and behaviors, rather than buying and deploying technology, in order to reap the true business rewards that CRM can bring. The loosely defined strategies and objectives of CRM initiatives in the late 1990s are giving way to hard-nosed objectives for financial gains and clear business results. Now more than ever, enterprises are focused on the “brass ring” — achieving benefits that boost the business and jettison it ahead of the competition. Savvy businesses can reap rewards from CRM in several ways. These include: • Extending the depth and breadth of customer relationships, to gain increased customer “wallet share” as well as market share • Reducing delivery channel costs by moving customers and transactions from costly channels to less expensive ones, such as the Web • Reinforcing the enterprise’s brand — not merely by raising awareness through traditional media (such as television), but by fulfilling the brand’s promise through more-interactive media (such as the call center) • Building customer satisfaction and loyalty through every interaction with the customer, across multiple channels Grabbing the brass ring isn’t easy, however. The leaders of CRM initiatives are increasingly challenged on many fronts: • For mission-critical projects, managers must understand their company’s CRM readiness, risk and cost parameters, resource requirements, vendor selection criteria, and measurement capabilities — all in the context of the company’s overall goals and strategies.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
1
Reaping Business Rewards From CRM
• As managers struggle to unlock the value of prior investments, they must tighten implementation strategies, retain executive support, refine and deploy return on investment (ROI) metrics, and manage the staffing, training and turnover issues that impact project success.
• Examining CRM strategy from business-to-consumer and business-to-business perspectives
There is no “one size fits all” approach to a successful CRM initiative, but there are common “rules of the road” that are essential to project success. Enterprises need to understand what CRM is really all about, how to approach it, what CRM means to the business and its customers, and how to entice customers and gain market share. They also need to ensure that time and money are well-spent and that a project’s value is clear and quantifiable. In addition, success requires effective change management, strong leadership and governance, measurement of project results, tight integration of technologies and a processbased approach to solving problems.
• The best approaches for creating great customer experiences
We asked attendees at a recent Gartner conference to cite the most critical CRM issues facing them in the coming year. The following challenges were prominent among their top responses: • How best to develop a CRM strategy, and to ensure executive support and commitment
• Enhancing customer relationships through channel partnerships • Justifying CRM costs and boosting ROI
• Using data as the key to unlock customer value • Gaining valuable insights through CRM analytics • Addressing key customer privacy considerations • Managing CRM implementations for long-term success • Using knowledge management to enhance CRM value • Best practices for negotiating CRM software deals • Getting optimal value from CRM consultants and system integrators • Ensuring the benefits of improved marketing processes • Understanding the evolution of relationship marketing • Using e-marketing to build online relationships • Key technologies to boost sales performance
• How to prove the business case for CRM, and what should be measured to demonstrate its success
• Achieving world-class customer service
• How to improve the customer experience
• Getting the most out of contact center investments
• How to create a base of high-quality integrated customer information to enable CRM
• The rewards and pitfalls of outsourcing customer service and support
• How to select the technologies that will best support various components of the CRM strategy (such as marketing, sales and customer service), and to decide which consultants and other service providers should be used for assistance
• CRM solutions for midsize businesses
• How best to manage the license, maintenance and implementation costs of CRM software These and other issues are explored in the pages of this Strategic Planning Report, which examines critical concerns for enterprises engaging in CRM initiatives. Topics addressed in the chapters and appendixes of this report include: • How to position the enterprise for CRM success
2
Gartner
• Case studies in successful CRM initiatives The remainder of this introductory chapter provides a general overview of the research elements and high-level concepts presented in this report. Section 1.1 reviews the standard Gartner research elements used, while the remaining subsections provide an executive overview each of the 22 remaining chapters of this report. This overview has been tailored for executives who require a high-level summary of the issues, forecasts, guidelines and recommendations offered in each chapter. Each section number corresponds to the chapter summarized — for example, Section 1.2 summarizes Chapter 2, Section 1.3 summarizes Chapter 3, and so on.
Strategic Planning Series
Introduction and Executive Overview
1.1
Research Elements Used in This Report
This Strategic Planning Report is developed from Gartner’s extensive research resources and archives, which include conference presentations, Research Notes and Strategic Analysis Reports. The report is structured around Gartner Key Issues and corresponding Strategic Planning Assumptions and Tactical Guidelines. • Key Issues pose questions that embody important concepts or problems facing decision makers in a given topic area. Gartner develops Key Issues about markets, technologies and business strategies. • Strategic Planning Assumptions are forecasts — usually framed within a defined time horizon — that are assigned probabilities denoting Gartner’s level of confidence in the outcome (see Section 1.1.1). • Tactical Guidelines are analytical statements addressing important tactical factors enterprises will face in addressing a Key Issue. In addition, selected sections conclude with Action Items — statements that convert a section’s analysis into concise, actionable advice. High-level recommendations, spanning the overall content of the chapter, are typically offered in the concluding section of the chapter.
1.1.1
Probabilities Defined
Probability statements are most commonly used within Gartner Strategic Planning Assumptions, although they are occasionally used in other research contexts (for example, to qualify the likelihood of a vendor’s product availability estimate, or within a figure illustrating a timeline of future events). In any context, probabilities never exceed 0.9, which represents Gartner’s highest confidence level in a forecast. (Because no future outcome is 100 percent certain, a probability of “1.0” is never used.) Because a forecast is logically phrased in form of the likely outcome, probabilities lower than 0.6 are rarely used. Occasionally, however, probabilities ranging from 0.1 to 0.5 may be used in special contexts — for example, in “scenarios” of mutually exclusive possible outcomes, in which all probabilities total 1.0.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Within the context of a formal Strategic Planning Assumption, the probabilities assigned will normally range from 0.6 to 0.9. These probabilities are defined as follows: • 0.9: This will almost certainly happen, barring a major industry reversal. Gartner would be shocked otherwise. Moreover, the timing is almost certain. • 0.8: This is likely to happen, barring exceptional circumstances. Gartner would be quite surprised if it failed to happen, but a degree of uncertainty exists. The timing estimate is fairly certain. • 0.7: There is good reason to believe that this will be true, but there is a fair chance that it won’t. Gartner would be surprised, but not shocked, if it did not happen. Moreover, the timing is unclear and may vary from estimates. • 0.6: For planning purposes, this should be treated only as a general direction, rather than a solid forecast. It is better than a rumor or a guess, but not necessarily by a wide margin. Most likely, Gartner does not have a firm idea of the timing.
1.1.2
Type A, B and C Enterprises Defined
Gartner often identifies enterprises as “Type A,” “Type B” or “Type C” based on the aggressiveness with which they adopt and use technology. These terms are often used to offer different recommendations to different types of enterprises, based on their approach to technology adoption. Briefly defined: • Type A enterprises are technology-driven, and are often willing to risk using immature, cutting-edge technologies to gain a competitive edge. • Type B enterprises are moderate technology adopters, using new technologies once they have been proven and have entered the mainstream. • Type C enterprises are technologically risk-averse and cost-conscious, and are usually among the last to adopt new technologies.
3
Reaping Business Rewards From CRM
1.1.3
The Gartner Magic Quadrant
• The strength of a vendor’s finances and alliances
Magic Quadrants (see Figure 1-1) are graphical portrayals of vendor performance in a market segment. Within the diagram, vendors are grouped within four categories — Leaders, Challengers, Visionaries and Niche Players — based on their positioning along two axes. Completeness of Vision, the horizontal axis, assesses factors such as:
Based on these positionings, vendors fall within one of the following four quadrants: • Leaders are companies that are doing well today and have great prospects for tomorrow. • Visionaries are those that have great ideas for tomorrow, but may not be executing consistently or well in all areas.
• The existence of clear vision • Challengers are those that execute well today and may dominate a large segment, but do not fully understand market trends and directions and thus may not have all the elements necessary for future success.
• Consistency with industry trends • Product completeness for the target buyer • Creativity in the plan of attack for the defined market Ability to Execute (the vertical axis) assesses factors such as:
• Niche Players are either companies that focus on a small segment of the market (and may do so well), or those that have modest horizons and possibilities owing to their inability to innovate or outperform other vendors.
• Senior management talent • Sales, marketing and distribution capabilities • The depth of research and development • The quality of a vendor’s professional services and support
Magic Quadrants can be used to support technology selection decisions; however, Gartner cautions that they should not be used as the sole means of evaluation. Enterprises should not limit their considerations only to vendors that are in the Leaders category, nor should they
Figure 1-1: The Gartner Magic Quadrant Challengers
Leaders
Niche Players
Visionaries
Ability to Execute
Completeness of Vision Source: Gartner
4
Gartner
Strategic Planning Series
Introduction and Executive Overview
necessarily reject those ranked as Niche Players. In certain situations, Niche Players’ products may be appropriate tactical choices. User organizations should carefully evaluate vendors based on their own unique circumstances and specific requirements.
1.1.4
The Gartner MarketScope
For certain markets, Gartner uses a vendor evaluation framework called a MarketScope, rather than the Magic Quadrant. Gartner MarketScope ratings are based on a weighted evaluation of a group of vendors in comparison with a set of evaluation criteria Gartner has defined for the vendors’ market. Based on this evaluation, each vendor is assigned one of the following five ratings:
1.1.5
The Gartner Hype Cycle
Gartner uses its Hype Cycle diagram (see Figure 1-2) to illustrate the pattern of intense hype, followed by disillusionment, that emerging technologies typically pass through on the road to eventual productive use and mainstream adoption. Technologies or services are plotted on the diagram to illustrate Gartner’s estimates of their current maturity, and how far away they are from providing mainstream value. The Hype Cycle contains five phases: • Technology Trigger: This is an event that generates significant press and industry interest, such as a breakthrough, invention, discovery, public demonstration or product launch.
• Strong positive — This is a solid provider of strategic products, services or solutions. Customers should continue investments. Potential customers should consider this vendor to be a strong strategic choice.
• Peak of Inflated Expectations: During this phase of overenthusiasm and unrealistic projections, a flurry of wellpublicized activity by technology leaders results in some successes, but more failures, as the technology is pushed to its limits.
• Positive — This vendor demonstrates strength in specific areas but is largely opportunistic. Customers should continue incremental investments. Potential customers should put this vendor on a shortlist of tactical alternatives.
• Trough of Disillusionment: The technology fails to live up to the inflated promise. As a result, it rapidly becomes unfashionable, and the press abandons the technology or touts its failure deliver on what were, in retrospect, unrealistic expectations.
• Promising — This vendor shows potential in specific areas, but the vendor or its initiative has not fully evolved or matured. Customers should watch for a change in status, and consider scenarios for short- and long-term impact. Potential customers should plan for, and be aware of, issues and opportunities related to the evolution and maturity of this initiative or vendor.
• Slope of Enlightenment: Focused experimentation and hard work performed by an increasingly diverse range of organizations leads to a true understanding of the technology’s applicability, risks and benefits. Commercial, off-the-shelf methodologies and tools become available to ease the development process and application integration.
• Caution — The vendor faces challenges in one or more areas. Customers should understand challenges in relevant areas, and assess short- and long-term benefit or risk to determine if contingency plans are needed. Potential customers should note the vendor’s challenges as part of due diligence.
• Plateau of Productivity: The real-world benefits of the technology are demonstrated and accepted. Tools and methodologies are increasingly stable as they enter their second and third generations. The final height of the plateau varies according to whether the technology is broadly applicable or benefits only niche markets.
• Strong negative — The vendor has difficulty responding to problems in multiple areas. Customers should exit immediately. Potential customers should consider this vendor only if no alternatives exist.
1.2
Positioning the Enterprise for CRM Success
CRM isn’t as easy as it may appear. Many enterprises get lulled into thinking that they can simply buy a software package, install it and achieve “instant” CRM.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
5
Reaping Business Rewards From CRM
Figure 1-2: The Gartner Hype Cycle
Visibility
Technology Trigger
Peak of Inflated Expectations
Trough of Disillusionment
Slope of Enlightenment
Plateau of Profitability
Time Source: Gartner
In reality, CRM requires thorough understanding of customer preferences, and using that insight to maximize the probability of a sale or improve the level of service. As a result, CRM becomes a complex interplay of many factors throughout the enterprise. CRM requires considerable work to craft a strategy for: • Capturing data accurately • Analyzing that information effectively • Moving the data to the appropriate customer contact points • Using the information properly Many enterprises fall into the trap of equating CRM with the automation of customer contact points. However, this automation often occurs at a departmental level, resulting in conflicting systems that can’t be coordinated. In addition, enterprise politics may cause battles about who “owns” the customer. Usually, these skirmishes result in: • Customers receiving different levels of service across different channels
6
Gartner
• Customers providing the same information repeatedly • An inability for the enterprise to differentiate top-tier customers from more-mainstream ones When these problems occur, many enterprises fail to achieve expected benefits and ROI, and don’t see a measurable improvement in the results of their interactions with customers. These enterprises feel that CRM has failed them — a situation that occurs all too commonly. To avoid such problems, enterprises need to understand the keys to successful CRM initiatives. Key Issue: How should enterprises think about CRM to position themselves for success? Strategic Planning Assumptions: • Through 2007, only 15 percent of enterprises will promote and advocate customers to senior management by creating the position of chief customer officer (0.8 probability). • By 2006, successful enterprises will use CRM to focus on developing and sustaining their customer-centric strategy — including assessing their capabilities in this area compared with those of their rivals (0.8 probability).
Strategic Planning Series
Introduction and Executive Overview
Tactical Guideline: Enterprises should choose CRM technologies that enable greater customer insight, increase customer access, allow for more-effective customer interactions, and provide integration throughout all customer channels and with back-office enterprise functions. Action Items: • Understand what constitutes true customer-centricity, then move in that direction. Corporate politics represents one of the major reasons enterprises stray from this course. • Designate a chief customer officer to represent customer needs to senior management and the board of directors.
• By 2006, in Global 1,000 enterprises, 85 percent of business-to-business (B2B) relationships — and 75 percent of business-to-consumer (B2C) relationships — will involve three or more channels (0.8 probability). • Through 2006, fewer than 15 percent of executives will clearly articulate how selected CRM applications will help them attain specific enterprise goals, such as revenue growth, profit growth, market share or earnings per share (0.8 probability). • By 2006, although 15 percent of CRM initiatives will include broader business processes that extend outside of traditional organizational and enterprise boundaries, fewer than a half-dozen solutions will adequately address this need (0.7 probability).
• Understand the generational model of CRM, and develop a clear picture of where the enterprise is now, and where it is going, within each CRM building block.
Tactical Guideline: Understanding the four strategies that make CRM work will help an enterprise plan and prioritize its investments accordingly, which in turn will improve the enterprise’s prospects for CRM success.
• Think strategically, invest tactically and continue to reexamine the enterprise’s long-term CRM plans to ensure that they remain relevant.
Action Items:
• Evaluate the enterprise’s processes in light of customer expectations. Conduct an honest assessment of strengths and weaknesses, and rebuild processes where necessary based on what customers want. Key Issue: Why do CRM initiatives commonly fail, and how can enterprises turn failing initiatives into successful ones? Strategic Planning Assumption: Through 2006, more than 50 percent of CRM implementations will be viewed as failures from a customer perspective, due to an inability to link channels, a lack of process redesign or the failure to provide any real customer benefits (0.8 probability). Key Issue: What are the keys to developing a successful strategy to turn customers into assets? Strategic Planning Assumptions: • By 2006, as leading-edge marketing organizations increasingly focus on customer growth strategies and more-mainstream ones focus on customer retention and extension strategies, the relationship marketing process will involve multiple points of contact (0.8 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Use Gartner’s six-step methodology as a starting point when developing a CRM strategy, and customize and enhance this methodology to meet the specific needs of the enterprise. • Examine the enterprise’s points of customer contact, and determine where they may be suboptimal from the customer’s perspective. • Focus on influencing the customer process consistently — at all stages and in all channels. • Prioritize application functionality investments based on their ability to support enterprise strategy. • Prepare for the need for the enterprise to integrate and collaborate its broader network of partners and affiliates. Recommendations • Evaluate the enterprise’s market position with regard to customer requirements and the competition. Define a valued, differentiated customer proposition based on the enterprise’s resources and capabilities. • Don’t ignore the brand in the age of CRM.
7
Reaping Business Rewards From CRM
• Value the potential of the customer base, not just the profits it now delivers. Build a customer asset portfolio. • Establish the motivating factors for customer loyalty, and determine where to excel and what opportunities exist to cut costs. • Understand what technology enables enterprises to do.
Key Issue: What are the critical B2C CRM business drivers and strategies, and the resulting benefits? Tactical Guidelines: • An enterprise should study CRM initiatives in other industries that have similar business models, in addition to CRM initiatives among competitors.
• Build a process for evolving the strategy from operational feedback so that it provides a business integration point in a changing environment
• CRM planners should create an enterprise CRM road map that has documented goals and objectives, and is based on a gap analysis that identifies CRM opportunities.
1.3
• Before creating a CRM strategy, an enterprise must segment customers by current and potential value as well as needs.
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
B2C CRM is all about creating business value and improving customer relationships. The most-successful B2C CRM initiatives result from taking the time to develop a CRM strategy that reflects a strong customer vision, and supports the enterprise’s business goals and objectives. Functionality remains important in B2C CRM technology decisions — but so do architecture, integration and flexibility. Leading B2C enterprises will buy leading functionality, integrate it with their in-place architecture and systems, and use it to develop differentiating processes that create sources of competitive advantage. Proving value will be another area where leaders will differentiate themselves. In the early days of CRM, enterprises gave little thought to measuring CRM efforts — much less what impact they had on profitability. Many enterprises simply assumed there would be returns. Today, enterprises can’t afford to make that assumption, and must prove the benefits and value that they will derive from such efforts — and then prove they’re actually getting them. Translating objectives into metrics and profitability isn’t easy, and it will remain a challenge for most enterprises using CRM. Through 2007, more than 85 percent of firms will remain unable to link CRM initiatives to profitability (0.8 probability). However, leading enterprises are proving that it can be done.
8
Gartner
• Vendors that sell directly to consumers can learn valuable lessons from mobile telecom service providers by examining their use of customer analysis to improve customer service, Web-based ordering, bill presentment and speed of service activation. • An enterprise should select the most-appropriate metrics to track results against goals and objectives, and align them with corporate performance. Action Item: When searching for similarities in other CRM initiatives, examine the enterprise’s business model first, rather than its industry. Then look for similar models in other industries to learn more about the enterprise’s CRM initiative. Key Issue: What technologies and architectures are critical for B2C CRM success? Strategic Planning Assumptions: • Through 2007, although most will struggle to create an enterprisewide single customer view for operational purposes, successful implementations will use federated information architectures that flexibly integrate alreadycreated and new customer databases (0.8 probability). • By 2007, more than 30 percent of new integration projects that involve Siebel Systems applications will use Siebel’s Universal Application Network, together with third-party integration middleware (0.7 probability).
Strategic Planning Series
Introduction and Executive Overview
• Through 2008, enterprises that deploy service-oriented business applications (SOBAs) will realize average process productivity gains of more than 20 percent, and cost savings of more than 15 percent, by fusing dissimilar applications and breaking down structured and nonstructured information silos (0.6 probability). • Through 2008, the customer interaction hub will not emerge as a standard product suite (0.8 probability). Tactical Guideline: Leading enterprises will need to invest in building a customer interaction hub. Action Items: • Develop strategies for integrating the enterprise’s customer processes — both internally and with business partners. • If your enterprise is a large one, be sure that it starts planning now for how it will leverage SOBAs. Key Issue: How can enterprises select the mostappropriate B2C CRM solution and partner? Strategic Planning Assumption: Through 2007, CRM vendors will narrow their research, development and sales efforts, and focus more on industry and relationship model combinations in which they have domain expertise, competitive functionality and a solid chance of market differentiation (0.7 probability). Tactical Guidelines: • An enterprise needs to: – Understand the hype and the realties of different CRM solutions. – Select a solution that meets its requirements. – Apply change management to ensure the enterprise best leverages all capabilities. • No current B2C CRM suite provides all the functionality an enterprise requires. Through 2007, enterprises will have to create and maintain extensions to have their CRM suites deliver the complete functionality they need. Action Items: • When evaluating B2C CRM suites, ensure that the enterprise weighs the following factors, and their fit with enterprise objectives and business processes:
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
– Product features and functions – Vendor viability – The architectural foundation of the CRM suite • Rather than relying solely on a vendor’s placement within Gartner’s B2C CRM Suites Magic Quadrant, be sure to focus on other factors specific to the enterprise, such as the vendor’s depth of industry expertise. Recommendations • B2C CRM is creating business value and improving customer relationships. The most-successful B2C CRM initiatives stem from a CRM strategy that reflects a strong customer vision — as articulated by top management. • Although functionality remains important, so do architecture, integration and flexibility. Leading B2C enterprises should seek not only to buy leading functionality, but also to integrate it with their established architecture and create differentiating processes. • Vendors have strengths in different vertical markets and with different relationship models. An enterprise must ensure that any vendor chosen demonstrates commitment to its industry, delivers the necessary industry-specific capabilities and remains dedicated to the B2C relationship model.
1.4
Business-to-Business CRM: Fusing Processes and Technology
Enterprises that depend on demand networks for a substantial part of their revenue, or those that look to alliances and partners to enhance their competitive positions, must understand how to tap into CRM to unlock the demand chain’s full value potential. Increasingly, these enterprises will have to focus on: • Linking CRM initiatives to profitability • Integrating processes seamlessly throughout the demand chain by sharing processes • Using business modeling • Establishing collaborative demand chain relationships
9
Reaping Business Rewards From CRM
• Prioritizing application investments that build partner and customer capabilities, collaboration and trust • Planning the evolution to a CRM architecture that can integrate with the extended enterprise • Understanding the limitations of CRM suites and how to close functionality gaps • Choosing the right vendor — or vendors — to meet B2B CRM needs Key Issue: How will enterprises leverage CRM to improve customer and partner processes? Strategic Planning Assumptions: • Through 2007, more than 85 percent of enterprises will remain unable to link CRM initiatives to profitability (0.8 probability). • Through 2008, enterprises will base application purchases more on integrated processes than application components (0.7 probability). • Through 2007, 15 percent to 20 percent of Type A enterprises will double annually the number of shared processes implemented in their demand chains (0.7 probability). • Through 2005, fewer than 25 percent of packagedapplication providers will have two-way exchange capabilities with modeling and simulation tools that support external business processes (0.7 probability).
• As an alternative to the traditional reactive approach, enterprises should complete time-constrained scenario planning through business modeling. Key Issue: How will enterprises exploit technology to capture sales and service revenue? Strategic Planning Assumption: By 2007, enterprises that share CRM processes with partners will achieve a 30 percent greater return than will enterprises that don’t take this step (0.7 probability). Action Items: • Type A enterprises should investigate a demand chain strategy that encompasses the entire life cycle (sales, marketing and service components). They should also prepare for heavy integration burdens involved in assembling solutions from multiple vendors, some of which will have viability concerns. • Type B enterprises should consider tactically implementing individual application components from vendors that can demonstrate proven production deployments to partners for at least two years. • Type C enterprises should consider implementing individual application components from vendors that can demonstrate proven production deployments to partners for at least three years. • Enterprises should: – Evaluate their demand network processes and capabilities.
Action Items: • Enterprises should define proposed process improvement in terms of measurable productivity improvements, and deploy the tools needed to measure the improvements. • To drive customer process design, enterprises should identify key personalization opportunities, not focus on CRM or enterprise resource planning (ERP) deployment.
– Conduct gap analysis relative to documented best practices in demand chain management. • Enterprises must take stock of their fragmented operational and analytic capabilities, and start planning an evolution to a more-integrated CRM architecture. Key Issue: Which vendors will best help enterprises gain value from their CRM systems?
• Enterprises need to identify the obstacles to customer satisfaction in the demand chain.
Strategic Planning Assumptions:
• To deliver more customer value, enterprises should identify opportunities to share processes with other entities in the demand chain.
• By 2007, vendors of enterprise application suites will account for no more than 30 percent of CRM license revenue (0.7 probability).
10
Gartner
Strategic Planning Series
Introduction and Executive Overview
• By 2010, enterprises will be more concerned with business process fusion than selecting CRM suites (0.8 probability). • Through 2006, most new CRM implementations will have a core application suite that is integrated with multiple, additional technologies (0.8 probability). Tactical Guideline: In addition to assessing the architectural foundation of the CRM suite for its fit with overall enterprise objectives and business processes, enterprises must weigh vendors’ features, functions and viability. Action Items: • Enterprises that have established relationships with CRM and ERP vendors should evaluate their niche offerings and development plans, but not rule out bestof-breed vendors. • No CRM B2B application suite provides all the functionality an enterprise requires. Enterprises will have to create and maintain the necessary extensions to CRM systems through 2007. • Rather than relying solely on placement within Gartner’s B2B CRM Suite Magic Quadrant, enterprises should also focus on a vendors’ industry expertise. • Although the depth of the CRM suite vendors’ CRM modules continues to improve, their ability to support relationships outside the firewall will remain a challenge. In addition, production references will remain the litmus test of vendor hype about CRM capabilities. Therefore, an enterprise must weigh: – The architectural foundation of a CRM suite for its fit with overall enterprise objectives and business processes – Vendors’ features, functions, viability and industry expertise • Because the complexity of business model changes will outpace suite vendors’ vision in responding, enterprises should plan for the need to extend CRM suites by using outside components. Recommendations • Design B2B CRM projects with specific monetary or productivity improvements in mind, and deploy the tools and resources to measure change.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Know how to model the business flow before evaluating technology. • Prioritize application investments that build partner and customer capabilities, collaboration and trust. • Promote early success and ongoing value. • Assess and prepare for extended-enterprise information architecture requirements. • Understand the limitations of CRM suites and how to close functionality gaps.
1.5
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
The insurance, banking, brokerage, consumer goods, automotive and pharmaceutical industries include many enterprises that sell to consumers through channel partners (such as distributors, retailers and brokers) and must maintain business-to-business-to-consumer (B2B2C) relationships. Despite their desire to understand and satisfy the needs of consumers, many enterprises struggle to collaborate in this highly complex relationship. For example: • A financial services provider wants to sell insurance products to some of its investment customers. However, its dealers and brokers hesitate to let the issuing organization work directly with “their” customers. • A consumer goods firm wants to engage in one-toone marketing with consumers. However, retailers feel apprehensive about being cut out of the transaction through direct selling because they believe they “own” the consumer. • Automobile manufacturers are at odds with dealers. Manufacturers want consumers to stay loyal to their brand, while dealers believe that consumers primarily should remain loyal to the dealership, purchasing from any of the various brands that the dealer sells and services. • Pharmaceutical firms want to influence patients through direct-to-consumer advertising. However, doctors aren’t particularly happy about pharmaceutical firms’ marketing tactic of telling patients to ask the doctor whether they should consider an advertised prescription medication.
11
Reaping Business Rewards From CRM
To make better sense of — and improve — this complex web of relationships, many enterprises have turned to CRM. To get the most out of a B2B2C CRM initiative, an enterprise needs to: • Develop processes before attempting to enable them with CRM technology. • Pace itself and prioritize — all-at-once implementations carry significantly more risk than staged implementations. • Realize that, although CRM has become mature in many industries, B2B2C CRM isn’t yet at that level — vendors may have to be pushed to bundle products to create an offering that meets the enterprise’s needs. • Evaluate external service providers (ESPs) thoroughly — most enterprises spend three times more on CRM services than they do on a CRM application. Key Issue: What B2B2C business drivers, strategies and resulting benefits will help an enterprise understand and meet the needs of consumers?
sales and customer service) to guide the allocation of CRM resources and prioritize the approach to CRM. Action Items: • Identify the processes that can be enhanced through collaboration between manufacturers and channel partners. • Start with paper-based information flows and manual processes, and work toward collaboration and data sharing. • Focus collaborative efforts on better serving consumer needs, not on preserving the status quo. • Evaluate CRM priorities based on loyalty and customer value. • Identify processes that the enterprise can change or streamline to collaboratively increase customer loyalty and value. • When developing a CRM strategy: – Start with the enterprise vision.
Strategic Planning Assumptions: • Through 2006, B2B2C CRM initiatives that can’t address collaborative processes will fail to deliver the desired results (0.8 probability). • Through 2005, only the 60 percent of enterprises that link their CRM initiatives with corporate strategy will perceive that they have succeeded (0.7 probability). • Through 2008, enterprises that select the mostappropriate B2B2C CRM applications and match them to the benefits they’re seeking will experience a 15 percent to 30 percent faster return on their CRM investments than will enterprises that don’t take this step (0.8 probability). Tactical Guidelines: • Building and presenting a business case becomes relatively easy when enterprises use proper gap analysis. The value lies in closing the gaps, each of which should tie to some quantifiable monetary return. • An enterprise should align elements of its vision statement — such as whether customer intimacy, operational efficiency or product differentiation represents a differentiating factor — with the corresponding CRM elements (such as marketing,
12
Gartner
– Identify the key success factors that hinge on B2B2C relationships. – Determine the customer-facing processes that technology can improve. – Assess whether the enterprise is ready for this type of change. • Analyze the gaps and opportunities for manufacturer and channel partner roles. Then consider how the enterprise can work collaboratively within the value chain to create situations in which both parties win, or one party wins while loyalty increases. • Identify the enterprise’s key competitive differentiating factor — whether it’s product, price, service or customer intimacy. • Consider operational and analytical CRM components that support this differentiation — for example, marketing tools that support customer intimacy, or forecasting tools that help improve operational efficiency. • To justify CRM investments, define a minimum of two benefit categories (such as efficiency and reduced costs) in addition to the intangible benefits that CRM can provide.
Strategic Planning Series
Introduction and Executive Overview
Key Issue: What CRM technologies and architectures can successfully link manufacturers, channel partners and consumers? Strategic Planning Assumption: Through 2006, underlying architecture and data integration issues will make 20 percent to 30 percent of B2B2C applications unsuitable (0.8 probability). Tactical Guideline: While understanding and prioritizing its CRM technology requirements, an enterprise should also map its current business flows, which will help identify potential shortcomings (such as manual and paper-based processes).
demonstrate proven production deployments to partners for at least three years. Key Issue: How can an enterprise select the most appropriate CRM solution and partner? Strategic Planning Assumptions: • During 2004, at least one vendor’s offerings will enable all five field-selling processes for the consumer goods industry (0.8 probability). • Through 2006, 75 percent to 85 percent of B2B2C CRM implementations will rely on external service providers (0.8 probability).
Action Items:
Tactical Guidelines:
• Consider B2B2C solutions from the ground up to ensure that they are correctly architected, and that have the appropriate capabilities to meet CRM, industry-specific, mobile and online requirements.
• When possible, an enterprise should use a project team that includes staff members so that knowledge is retained within the enterprise.
• Resist the urge to deploy a specific function without considering how the building blocks depend on foundational elements.
• Although an enterprise can consider a vendor’s services group for project management and specific technical assignments, vendor services typically cost slightly more than those provided by ESPs.
• Map the hierarchy of the enterprise’s applications and data sources. Understand which interfaces are manual, batch and automated.
• ESPs offer solid “utility players” to fill in the project team. In January 2004, their rates averaged $175 per hour.
• Determine which processes will provide the most analytical leverage if the enterprise can get in-depth information more quickly and accurately, and prioritize accordingly. • In planning for the adoption of CRM technologies, consider the enterprise’s technology adoption profile: – Type A enterprises should investigate a B2B2C demand chain strategy that encompasses the entire life cycle — sales, marketing and customer service components — but must be prepared for the heavy integration burdens involved with piecing together multiple-vendor solutions, some of which will have viability concerns. – Type B enterprises should consider tactical deployments of individual applications from vendors that can demonstrate proven production deployments to partners for at least two years. – Type C enterprises should consider implementing individual applications from vendors that can
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Action Items: • When developing a request for proposal, start with the general topic areas outlined in this section and work into specifics. • Plan with the expectation that any multichannel sales deployment, and most vertical-selling capabilities, will require the integration of multiple best-of-breed vendors — particularly for sales compensation, partner relationship management and sell-side e-commerce. • Consider the five key selling processes and quantify the economic impact associated with alleviating a problem area, reducing a cost or driving value for your company. Determine whether you have the basis for a multiphase strategy or simply need a “quick fix.” Evaluate vendors accordingly. • Spend as much effort in choosing an ESP as the enterprise does in choosing its software. Be sure to check references.
13
Reaping Business Rewards From CRM
• In the contract, specify resources that the enterprise wants to work with on its project, which will ensure that the people spoken to during the selection process are the same ones that work on the project.
their initiatives to ensure they don’t repeat the same mistakes.
Recommendations
Enterprises need to realize that CRM is a business strategy with underlying technology, and that it requires large investments in applications, hardware, software, telecommunications, internal labor, external consulting services and training. Therefore, an enterprise should calculate the business benefits associated with reducing the total cost of ownership (TCO) of CRM, and use these to build a compelling justification for its CRM project. In addition, ongoing measurement of CRM benefits helps ensure that an enterprise receives expected advantages and achieves strategic objectives.
• Develop all processes before attempting to enable them with technology, and clarify who “owns” the consumer.
Several key concepts form the foundation of CRM economics.
• Consider B2B2C CRM as the enterprise’s next source of competitive advantage — although CRM has matured in many industries, B2B2C CRM hasn’t.
• TCO provides a holistic view of IT costs across the enterprise over time, and includes people, processes and technologies.
• Pace and prioritize — all-at-once CRM implementations carry significantly more risk than staged implementations.
• Benefits are those tangibles or intangibles that promote or enhance the well-being of, or provide an advantage to, the business. Demonstrated benefits result from identifying various metrics and the degree to which implementing CRM will impact those metrics.
• When developing a project team, start with internal resources, followed by vendor resources and ESP resources. • Ensure that the final team has a balance that can ensure sufficient project-related knowledge transfer to those who will support the application after implementation.
• Push vendors to create and bundle a solution that meets the specific needs of the enterprise, because most out-of-the-box B2B2C offerings lack complete functionality. • Evaluate ESPs thoroughly — most enterprises spend three times more on CRM services than they do on CRM applications.
1.6
Justifying CRM Costs and Boosting Return on Investment
Many enterprises pursue expensive CRM initiatives without first understanding the challenges and costs involved. This approach often results in CRM projects that fail to meet measurable benefit objectives. As enterprises acknowledge such first-try CRM failures and boards of directors demand increased accountability, IT and CRM managers are now held to the same standards as their business counterparts. As a result, they have started creating economic justifications to ensure that their CRM projects get funding. Moreover, smart CRM managers not only justify their CRM initiatives; they also utilize the business case throughout
14
Gartner
• ROI — which, in its simplest form, is benefits less cost — is the most important concept, because it is a measure of how a project affects an enterprise’s financial statement. An enterprise must understand CRM economics because two of the three key drivers of a CRM strategy — optimizing revenue and profitability — link directly to understanding economic benefits. These benefits (for example, contributions to earnings per share) accrue only after an enterprise follows through and takes the necessary actions. Key Issue: What are the critical success factors for achieving ROI? Strategic Planning Assumption: Through 2006, enterprises that create an enterprisewide CRM strategic plan, and fit individual initiatives within that plan, will deliver a 25 percent higher level of return than enterprises that neglect to do so (0.7 probability).
Strategic Planning Series
Introduction and Executive Overview
Tactical Guidelines: • An enterprise without standardized measures of business benefits is unlikely to achieve its CRM goals. • To ensure that required process changes occur and the CRM system is properly used, the business units that benefit from the CRM initiative should also fund it, and be accountable for the costs incurred and benefits achieved. • TCO — a fundamental decision support tool — presents a holistic view of IT costs across the enterprise over time, and includes people, processes and technologies. Action Items: • When making CRM investment decisions, enterprises should take into account the impact of spending and benefits on each business unit’s profit and loss or operational budget. Doing this will allow the enterprise to understand how investment levels will affect behavior. • An enterprise should: – Create an enterprisewide CRM plan that incorporates implementation plans for sales, marketing and service, and for the integration of these domains. – Have project managers establish, record and measure multiple success metrics. – Link project team, project sponsor, executive management and ESP payments and bonuses to such metrics — not to implementation time and initial budget. • An enterprise should calculate TCO for each tactical project in the CRM initiative and ensure that it includes people, process and technology costs over the planning horizon — including ongoing management and enhancement, not just the initial acquisition costs.
• By 2008, more than 20 percent of large enterprises will incorporate customer equity as a component of their valuation (0.6 probability). Tactical Guidelines: • To remain competitive and achieve benefits from CRM initiatives, a large enterprise will implement an average of seven CRM components or modules, and should expect to pay more than $20 million in TCO over three years. • Closing the measurement gap in business performance requires a standard business performance framework. • Sales executives should use established metrics that assess the effect of technology investments and strategies to improve sales effectiveness. • Operational metrics for customer service should focus on measuring relationships and the efficiency of processes. Action Items: • An enterprise should: – Build its TCO model to include consistent cost categories across all CRM projects for at least three years. – Monitor and measure costs and spending throughout the project. • CRM managers should: – Interview other business units that have implemented successful projects, and learn how they developed their budgets and where they believe they could have improved. – Staff projects with a sufficient number of internal resources throughout the CRM initiative. • Enterprises should:
Key Issue: How should an enterprise quantify and justify a CRM initiative? Strategic Planning Assumptions: • Through the end of 2006, most large enterprises will underestimate the total cost of implementing CRMoriented projects by more than 35 percent (0.7 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
– Develop competency in business metrics determination, measurement and monitoring. – Start simply. First develop a discipline; then, when competent in that discipline, apply the framework to all initiatives. – Look to approaches such as (but not limited to) Gartner’s Business Performance Framework,
15
Reaping Business Rewards From CRM
Deloitte Consulting’s Enterprise Value Map or eLoyalty’s Value To/Value From Customer. • An enterprise should choose sales-based metrics that encourage desired behavior, which in turn will help deliver value from a CRM initiative. • Marketing organizations should adopt customer-centric metrics to gain a better understanding of customers, and enhance strategic and tactical marketing. • An enterprise should determine to what extent its organizations use effectiveness metrics, and then implement the processes and systems to collect the data needed to implement and track these metrics. Key Issue: How can an enterprise best manage its CRM investments? Strategic Planning Assumptions: • Through 2008, return on CRM investments will occur 15 percent to 30 percent faster in enterprises that match the most appropriate CRM applications to desired benefits (0.8 probability). • Through 2008, less than 20 percent of CRM project managers will be able to prove ROI using commonly accepted methodologies — although 28 percent of these managers will claim they can measure ROI (0.8 probability).
– Have this team work with the CRM project champions in the business units to develop the business case and manage it throughout the CRM investment life cycle. Action Items: • To justify CRM investments, CRM managers should define a minimum of two benefit categories (such as improved efficiency, improved effectiveness or lowered costs) in addition to the intangible benefits cited. • When cost-justifying CRM investments, an enterprise should use methodologies such as net present value, payback period and IRR in conjunction with measuring soft benefits, such as the impact on customer satisfaction or employee productivity. • An enterprise not experienced with ROI methodologies should use an ESP to assist in building and measuring the ROI from its CRM projects. • To calculate ROI, an enterprise should take a pragmatic, scenario-oriented view of the potential outcomes to a CRM initiative and evaluate each scenario using discounted cash flows. • An enterprise should work with peer groups, research firms and consultants to incorporate best practices into the investment analysis process for CRM investments. • An enterprise should expand its:
• Through 2008, less than 20 percent of large enterprises will implement appropriate processes and economic tools to guide decision-making throughout the life cycle of CRM initiatives (0.7 probability).
– Business justification approaches, to consider traditional and emerging value categories that blend tangible and intangible forms of value
Tactical Guideline:
– Analytical skills, to evaluate the full range of value created through CRM investments
• When calculating ROI, an enterprise should: – Consider a variety of cost and benefit scenarios – Discount future cash flows in current terms • More than 80 percent of CRM funding requests will require more justification than just ROI calculations. • An enterprise should: – Focus on building the skills of a small team of specialists in the IS organization who will become subject matter experts in project justification.
16
Gartner
• Executives funding CRM initiatives should: – Require project teams to follow the capitalappropriations request process, and to meet enterprise financial targets. – Use the outline in Figure 6-9 as a framework for creating a solid business case for CRM. • An enterprise should use the business case to drive project execution throughout its CRM journey.
Strategic Planning Series
Introduction and Executive Overview
Recommendations • Analyze TCO, benefits and ROI. Proven returns on CRM investments are more commonly achieved by organizations that develop effective business cases, calculate their estimated ROI upfront and measure it on an ongoing basis after implementation. • Make the business unit project champion — not the IS organization — responsible for making the business case for CRM. • Ensure the IS organization works with business units when building CRM systems and creating processes. • Get help from the finance organization or CRM ESPs, as needed. • Include soft benefits in the business case — don’t rely solely on ROI for justification. • Use the business case to guide decision making throughout the three phases of the CRM initiative.
1.7
The Eight Essential Elements of Successful CRM Initiatives
Gartner defines CRM as a business strategy that maximizes profitability, revenue and customer satisfaction by: • Organizing around customer segments • Fostering behavior that satisfies customers • Implementing customer-centric processes It is important to note that this definition identifies CRM as a business strategy, not as a category of applications or technologies. CRM is not a type of technology, although technologies are critical to enabling CRM strategies. Gartner defines “CRM technologies” as those that support CRM by enabling: • Greater customer insight • Increased customer access • More effective interactions • Integration throughout all customer channels and backoffice enterprise functions
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
To achieve the long-term value of CRM, enterprises must understand that it is a strategy involving the whole business, and therefore should be approached at an enterprise level. Many enterprises still attempt to implement CRM as a series of unintegrated, departmental projects — but this is not “true CRM,” and will not yield benefits or long-term value for the enterprise. True CRM is not easy. It requires board-level vision and leadership to drive a relentless focus on the customer; otherwise, it will remain fragmented. It involves potentially difficult changes to processes, culture and organization. Technology staff must grapple with the challenges of multichannel alignment, system integration and data quality. CRM initiatives need a framework to ensure that programs are approached on a strategic, balanced and integrated basis. Gartner has developed such a framework, called the Eight Building Blocks of CRM. Just as a road map helps understand the context of a journey, so Gartner’s CRM framework is designed to help enterprises make decisions about the best route and objectives, given their situation. Successful CRM requires expertise in following eight areas (each of which serves as one of the eight “building blocks” in the Gartner framework): 1. Vision — creating a picture of what the customercentric enterprise will look like, in order to build a competitive market position based on value propositions that are defined, communicated and personified by the enterprise brand. 2. Strategy — developing a strategy to turn the customer base into an asset by delivering customer value propositions. This includes setting objectives and determining how resources will be used to interact with customers. 3. Valued Customer Experience — ensuring that the enterprise’s offerings and interactions deliver ongoing value to customers, are delivered consistently and achieve the desired market position. 4. Organizational Collaboration — changing cultures, organizational structures and behaviors to ensure that employees, partners and suppliers work together to deliver customer value.
17
Reaping Business Rewards From CRM
5. Processes — effectively managing not only customer life cycle processes (for example, welcoming new customers, handling inquiries and complaints, and winning back lost customers), but also analytical and planning processes that build knowledge of the customer. 6. Information — collecting the right data and routing it to the right place. 7. Technology — managing data and information, customer-facing applications, IT infrastructure and architecture. 8. Metrics — measuring internal and external indications of CRM success and failure. Key Issue: What is a CRM vision and how should it be created? Action Item: Examine the current core business proposition to customers: Is there one, and is it different from those of your competitors? Is it understood by staff, and does it motivate them? Do customers associate your enterprise with it? Key Issue: How does a CRM strategy enhance a traditional marketing strategy? Strategic Planning Assumptions:
Action Items: • Use customer and employee feedback to design, evolve and personalize the customer experience. Encourage customer feedback by telling customers how their feedback changes the service. Allow employees to add their own touches to a consistent, basic service to improve employee and customer satisfaction. • Use strategic and operational feedback to calculate the cost of customer defection and lost wallet share caused by poor feedback and complaint-handling systems. This analysis should provide the business case for installing a complete operational feedback system. Key Issue: What cultural and structural changes are required to enable the organizational collaboration needed to deliver on the CRM strategy? Tactical Guideline: Change management means planning communication phases, adequately allocating resources, ensuring that the staff sees the personal benefits of the change, providing continuous coaching, and offering positive reinforcement of the correct behaviors and attitudes. Key Issue: How will enterprises redesign processes to be more customer-centric?
• Through 2005, more than 60 percent of CRM strategies will be developed independently of an enterprise’s business strategy, and more than two-thirds of these independent strategies will fail because they lack support (0.6 probability).
Tactical Guideline: Identifying which processes matter most to customers is the hardest step in customer process reengineering.
• By year-end 2006, the 10 percent of CRM initiatives that are the most successful will invest more in refining measures of the customer’s view of the relationship than in analysis of current and potential customer value to the supplier (0.6 probability).
• Audit the business processes that affect the customer and map them by touchpoint. Solicit feedback from customers about their priorities.
Action Item: Start gathering the detailed information needed to set market and customer objectives. Ensure that the objectives are measurable and have key performance metrics. Key Issue: How should an enterprise design the customer experience to deliver on the CRM strategy?
Action Items:
• Prioritize processes based on their importance to customers and their impact on the enterprise’s strategic CRM objectives. Key Issue: How will enterprises create and apply an integrated customer view for improved customer interaction and greater customer insight? Strategic Planning Assumptions: • Less than 50 percent of enterprisewide CRM initiatives will generate payback by 2005, due to the lack of
18
Gartner
Strategic Planning Series
Introduction and Executive Overview
enterprisewide customer insight re-engineering (0.8 probability). • By year-end 2008, the majority of outbound interactions within CRM-driven organizations will be triggered by customer behaviors or events (0.6 probability). Tactical Guideline: Enterprises must be driven by their insight into their customers’ business needs, not by the availability of data. Action Items: • Create a proper CRM information strategy. Customer information is the foundation of any CRM program. • Identify and strengthen the weak links in your enterprise’s customer relationship value chain. Key Issue: Which applications, infrastructure components and integration technologies will enterprises use to enable CRM? Strategic Planning Assumption: Through 2006, the mix of application types used for CRM will shift toward ERP vendors and CRM framework and component suppliers, and away from CRM suites, best-of-breed applications and build-it-yourself approaches (0.8 probability). Tactical Guidelines: • Enterprises must take stock of their fragmented operational and analytic capabilities and start planning the evolution to a more integrated CRM architecture. • Enterprises need to create a set of enterprise integration standards to ensure conformity. The integration of CRM applications with other enterprise applications must be considered as part of a wider vision. Action Items: • Review your enterprise’s skill levels, its technology outlook, and its process, data model and integration requirements before evaluating and selecting CRM applications. • Create a vision for integrating operational, analytic and, if relevant, partner systems. Key Issue: What performance management metrics will enterprises define and track to support a CRM strategy?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Strategic Planning Assumption: Through 2005, CRM success will depend on the adoption of a balanced set of metrics, including financial, employee, business process and customer satisfaction metrics (0.8 probability). Action Items: • Create a hierarchy of CRM metrics for the purposes of defining key CRM strategy objectives, and of tracking progress in meeting those objectives. Build processes to continuously monitor customer feedback, and conduct ongoing market research. • Build the hierarchy of CRM metrics from the top down, with bottom-up checking, and ensure that the different levels are interlinked. Communicate the purpose of the metrics system internally. Work with other parts of the business, particularly finance, to help them understand and integrate CRM metrics into the broader set of corporate metrics. • Ensure CRM metrics are key to the business intelligence (BI) competency center. Appoint someone in the center to focus specifically on mapping and defining the linkages between CRM metrics. Summary and Recommendations • Vision: The board must take a leadership role in creating a CRM vision (the “what” and “why”) for the enterprise. The CRM vision should be used to guide the creation of CRM strategy (the “how”). • Strategy: The CRM strategy focuses on the means of building and developing a valuable asset — the customer base. It must set objectives and metrics for achieving that goal. • Customer Experience: The design of the customer experience must be aligned with the CRM vision, and must be constantly refined based on customer feedback. • Organizational Collaboration: Changes to organizational structures, processes, metrics, incentives, skills and even the enterprise culture must be made to deliver the required external customer experience. Ongoing change management will be key. • Processes: Customer process re-engineering efforts should create processes that not only meet customers’ expectations and deliver value to the customer, but
19
Reaping Business Rewards From CRM
also provide competitive differentiation and contribute to a designed customer experience.
resulting in significantly reduced resulting benefits (0.8 probability).
• Information: Successful CRM demands the creation of a customer information “blood supply” that flows through the enterprise, as well as tight integration between operational and analytical systems.
• Through 2006, enterprises that fail to establish strong relationships with their customers will erode their competitive positions by 15 percent to 20 percent per year (0.6 probability).
• Technology: CRM technologies form a fundamental part of any enterprise’s application portfolio and architecture. The goal of CRM applications is to deliver integrated functionality to support seamless, customercentric processes throughout all areas of the enterprise and its partners. • Metrics: To turn customers into assets, enterprises must set measurable CRM objectives and monitor metrics at multiple levels. Without performance management, a CRM strategy will fail.
1.8
How to Create Great Customer Experiences
Every time a customer comes into contact with an enterprise — whether through interactions with people, a Web site, advertising campaigns or marketing materials — that customer has an opportunity to form an opinion, be it good, bad or indifferent. Over time, this collective set of customer experiences forms a picture in the customer’s mind, which ultimately forms the image of the brand and its values. Enterprises that consider CRM to be crucial are serious about designing and maintaining a quality customer experience. They recognize that a poor experience moves the customer a step toward defection, whereas a good one encourages loyalty. This chapter provides advice and guidance on how enterprises can ensure that they are creating great customer experiences. It also provides guidance on how enterprises can manage these experiences to build customer loyalty and create brand value. Key Issue: What is customer experience management (CEM), and why is it important? Strategic Planning Assumptions: • More than 80 percent of CRM strategies will fail to articulate brand values in the customer experience,
20
Gartner
Action Items: • Commit funding to research loyalty ratings as well as customer emotional states and behavior patterns. • Think about the customer experience in three parts — before, during and after the experience. Invest more in the “before” and “after” of CEM by investing in processes and technology that improve the expectations set and the feedback received. Key Issue: How will enterprises create and drive positive customer experiences? Strategic Planning Assumption: Through 2007, more than 75 percent of organizations that exceed customer expectations through increased service levels will not recoup the associated costs through increased sales because of the lack of effective customer segmentation (0.8 probability). Tactical Guidelines: • Building trust at its lowest level requires a credible experience. Through time, a trust relationship develops when it can be demonstrated that the seller’s interest in the buyer’s welfare is motivated by the desire to seek mutual gain. • Without customer-focused management and metrics, enterprises cannot deliver consistently satisfying customer experiences. • Businesses should measure how many of their customers claim to have had a poor experience, what percentage of their customers complained, and what portion of that group had their problems resolved and remained customers. Action Items: • Involve customers and employees in setting brand values. Ensure that the brand values matter to customers and deliver competitive differentiation.
Strategic Planning Series
Introduction and Executive Overview
• Determine the investment to be made in CEM, based on the actual and potential value of each customer. • Measure the perceived value that customers see from human interactions for each customer-facing process. • Audit moments of truth and critical impact points, and then map them to the processes that underpin them. • Set up ongoing tracking and measurement of performance at critical impact points. Collect customer feedback specifically about these impact points. • Develop a communication plan to address the critical impact points. Ensure that the plan can be delivered consistently through multiple channels and to individual employees, and across broader enterprise or brand communications. • Determine which incentives have the greatest impact on employees — they may not be financial. • Consider paying commission-based salaries partly on the basis of customer satisfaction. • Review all sources of customer feedback, and make them more consistent. • Run customer and employee feedback systems together to establish a correlation between employees’ attitudes and the customer experience. • Focus on the customer complaints management process first. • Use customer and staff feedback to design, develop and personalize the customer experience. Encourage customer feedback by telling customers how their feedback changes the service. Key Issue: What changes should be made first to drive CEM? Strategic Planning Assumption: Through 2009, 60 percent of initiatives that are designed to improve the customer experience will have made no difference — and 20 percent will have made the experience worse — because of a lack of focus on fixing basic processes first (0.7 probability). Tactical Guideline: Businesses should develop a customer experience governance model that defines managers’ and employees’ responsibilities for the customer experience, and their freedom to influence that experience.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Action Items: • Address your business’s own process issues before making demands of suppliers and partners, because they will set their level of commitment to the customer experience based on the business’s standards. • Focus on meeting basic customer expectations first. • Allow staff to add their own touches to a consistent, basic service. It will improve satisfaction among staff and customers. Recommendations • Invest more in measuring the “before” and “after” aspects of the customer experience, rather than focusing on the “during” aspect. • Ask customers what their expectations are across channels (for example, in face-to-face, Web site and call center interactions), and determine whether these expectations match the intended brand values. • Ensure that there is a multichannel feedback system in place. Businesses should respond to customers that provide feedback, and communicate results to employees. • Segment the customer base. This should be the basis for determining the level of investment in the customer experience. • Get the basics right first. Focus on what the business controls directly, and create a customer experience governance model.
1.9
Customer Data: Key to Unlocking Customer Value
With the advent of CRM, e-commerce and other externally facing initiatives, customer data has become increasingly critical to business success. However, identifying, acquiring and ensuring the quality of customer data presents a major obstacle to realizing any benefits from these initiatives. In addition, too many organizations treat CRM as a standalone application from a data perspective, deploying additional data “silos” in the form of CRM analytical data marts. Successful CRM analytics require the broader perspective found in the data warehouse.
21
Reaping Business Rewards From CRM
Customer data is key to the “customer information” building block in Gartner’s Eight Building Blocks of CRM. CRM success depends on ensuring that the right data is collected, that it is of high quality, and that the right information goes to the right place. This chapter explores the importance of data to CRM and discusses how data warehouse implementations can support CRM initiatives — enabling the complete view of the customer that provides the greatest CRM benefits. In addition, it examines the impact of poor data quality and suggests approaches to deal with this issue from business, organizational and methodological perspectives. Key Issue: Why is customer data so critical to externally facing initiatives such as CRM? Strategic Planning Assumption: Through 2006, 70 percent of CRM projects will have to be re-evaluated because project managers overlooked data, people and process issues in favor of solely technological implementations (0.7 probability). Tactical Guidelines: • Enterprises must create an integrated, multichannel, customer-facing view, but be pragmatic about how to achieve the right perception at each customer touchpoint. Enterprises’ business requirements need to be driven by their customer insight, in addition to the availability of data. • Getting businesspeople to agree on all customer business rules and attributes is a difficult challenge, but it is a prerequisite for building an integrated view of the customer. The solution is to identify and model the attributes that provide the greatest value in addressing customer information needs and supporting customercentric business processes.
• Determine the data required to support customer-facing business processes, and allocate the appropriate resources to resolve the semantic discrepancies that will inevitably arise in a distributed, heterogeneous environment. • Recognize that most of the effort in a CRM application implementation relates to data acquisition and quality. Allocate appropriate resources and time to address these issues successfully. Key Issue: How can data warehouse efforts be leveraged to support enduring CRM strategies and value? Strategic Planning Assumptions: • Through 2006, more than 50 percent of enterprises will spend more on implementation than is necessary because of a lack of coordination between strategic BI initiatives, including CRM (0.7 probability). • Through 2006, only 10 percent of enterprises will have an accurate customer value proposition for a majority of their customers, while 50 percent of enterprises will have one for a minority of their customers; for the remaining 40 percent enterprises, all customer value propositions will be estimated ones, making these enterprises vulnerable to customer loss (0.7 probability). Tactical Guidelines: • There is significant overlap in the technologies, skills and tasks involved in performing data acquisition for CRM applications and data warehouses. Enterprises must leverage each effort for the benefit of the other to minimize overall costs and delivery time.
Action Items:
• When building BI infrastructures, enterprises must be guided by the core principle that change is inevitable — including changes in data types, applications, users and availability.
• Execute a shift in mind set by educating internal associates on the importance of an external, customer focus. Organize business processes and establish measurements based on value to the customer.
• Data marts aren’t small data warehouses. They don’t achieve a data warehouse’s primary goals of flexibility, extensibility and an application-neutral data model to support strategic business activities.
• Recognize the significant challenges arising from customer data. This is an underestimated aspect of a CRM initiative.
Action Items:
22
Gartner
• Ensure that CRM data integration efforts are linked as closely as possible to established and future data warehouse and BI activities.
Strategic Planning Series
Introduction and Executive Overview
• Consider an application-neutral design for the data warehouse. This will enable many BI requirements to be met without significant redevelopment work or the creation of new structures, thereby reducing costs and increasing the deployment speed of additional BI applications. • Consider the operational and analytical aspects of an architecture for CRM, and the demands of creating a near-real-time closed loop. Key Issue: What is the impact of poor data quality, and how can it be addressed? Strategic Planning Assumptions: • Through 2007, more than 25 percent of customer data within Fortune 1000 enterprises will remain flawed — that is, inaccurate or incomplete (0.8 probability). • Through 2006, most large enterprises won’t recognize data quality as a strategic issue, and will continue to reactively deploy tactical solutions when they identify data quality problems (0.8 probability). Tactical Guidelines: • Data quality improvement efforts cannot succeed without organizational change. Clearly identifying responsibilities and including measures to guarantee accountability are critical to achieving results. • Data quality issues are a major reason for the failure of CRM efforts. To ensure success, enterprises must take a structured approach to data quality, viewing it as a constant focus rather than a one-time problem. Action Items: • Treat data quality as a broad business issue rather than a tactical, technical one. Raise business leaders’ awareness and understanding of the impact of poor data quality. • Assess the enterprise’s culture as it relates to data, and recognize that a significant mind set shift will be required to achieve data quality improvement. • In addition to culture and visibility, focus on deploying the appropriate organization to serve as the foundation for a successful data quality effort. • Staff efforts adequately to assess and improve data
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
quality on a continual basis, leveraging training and process improvements in addition to technology investments. Recommendations • Don’t forget the data — great strategy, skills and technology will fail without a solid data foundation. In the course of CRM application implementation efforts, enterprises must increase their focus on data issues. Raising awareness of data-related challenges, and expending the effort and resources to address them early in the project, will minimize the risk of rework later on. • Avoid deploying stand-alone data marts for CRM — CRM analytics require the broader perspective found in the data warehouse. Analytics are a critical part of long-term CRM success. Linking CRM analytics efforts to an established data warehouse infrastructure will ensure consistency and speed delivery. • Match strategic business requirements and structure with the appropriate data warehouse design and topology. Err toward fewer processes and data stores. • Leverage tools, people and skills across data warehouse and CRM data acquisition efforts. Leveraging tools and skills, and consolidating the number of deployed data stores, will improve efficiency and minimize cost. • View data quality as a strategic business issue, rather than an IT problem. Enterprises must raise the visibility and impact of poor customer-data quality on the enterprise. This is a strategic business issue and must be addressed with a combination of business and IT resources. Continually focusing on customer data quality — rather than making only a one-time effort at the time of system implementation — is critical to delivering the accurate customer view necessary for CRM success.
1.10
The Role of Analytics in Successful CRM Strategies
Although important to CRM activities, analytics remains poorly understood by most enterprises. Many enterprises don’t know: • How to begin using CRM analytics • How to determine what they should measure
23
Reaping Business Rewards From CRM
• Whether data mining is required • Which vendors to consider CRM analytics focuses on reporting, managing, predicting and understanding customer behavior. It can give individuals better data, which allows them to make more informed decisions — and therefore likely better decisions. However, CRM analytics by itself can’t fix bad underlying processes. Even superb analysis of near-perfect information won’t compensate for decision-making processes that are inherently flawed. Approaches to CRM analytics — and the vendor offerings that support them — can vary significantly, depending on factors such as business requirements, industry, company size and software installed in the enterprise. Many valid analytics approaches can meet the same business need. The choice of CRM analytics tools should be based on specific enterprise or organizational requirements. Enterprises need to understand the importance, value and scope of the necessary investment in CRM analytics to remain competitive in their markets, and to manage their customer relationships and CRM strategies effectively. Key Issue: What role can analytics play in developing a successful CRM strategy? Tactical Guidelines: • To achieve its CRM objectives and gain a competitive advantage, an enterprise must establish a business plan for sourcing, maintaining and leveraging its customer information assets. • Enterprises need to build and develop a “blood supply” of customer information and insight.
Strategic Planning Assumption: Through 2006, 55 percent of CRM initiatives will fail to meet measurable benefit objectives and will fail to have a positive impact on ROI because of a lack of business processes for conducting ongoing measurements (0.7 probability). Action Items: • Identify key constituencies involved in customer-related processes, and then design metrics that apply directly to these groups. • Choose a structure that is core to the enterprise into which to cascade the enterprise’s balanced scorecard. Key Issue: How can analytics help an enterprise understand customer behavior and leverage that insight? Tactical Guidelines: • Most enterprises will benefit from a combination of a data-mining workbench and analytics black boxes. • The distinction between traditional data-mining workbenches and analytics black boxes will blur as workbench vendors build applications out of their tools and vendors allow greater flexibility in use of their black boxes. Key Issue: How can enterprises best select vendors and technologies for CRM analytics? Tactical Guidelines: •
To make their investments in CRM analytics applications successful, enterprises must deploy these applications more broadly than the narrowly focused, operational CRM applications typically in place today.
• An enterprise needs to invest in analysis that creates greater understanding of operations (that is, reporting) before moving to higher, value-added analytical activities, such as predicting customer behavior or making management decisions.
• CRM analytics comprise a confused set of markets, with many vendors reaching out from their established competency positions to stake a claim. Enterprises much be aware of where the vendors are coming from, and what implications this has for the scope, style and limitations of the functionality that they offer.
Action Item: In customer retention and service efforts, focus on prioritizing customers based on their potential profitability.
Conclusions and Recommendations
Key Issue: How can an enterprise communicate, monitor and manage the success of its CRM strategy?
• Analytics form a hierarchy — reporting, managing, predicting and understanding customers’ behavior. Assess your analytics requirements and portfolio, and build a road map for improvement.
24
Gartner
Strategic Planning Series
Introduction and Executive Overview
• There are no simple answers in the analysis of customer value. Develop your value measurement capabilities step by step. • Metrics must be well-integrated across the enterprise. Take an inventory, map the metrics hierarchy and determine how it can fit together. • Analytics give you better data to inform your decisions — they do not provide the answers. Ensure that you have a good decision-making process. • Different categories of tools and applications are available, depending on the enterprise’s needs. Work out which approaches best meet your requirements.
1.11
Key Privacy Considerations in CRM
Survey data contained in the latest Internet Report from the University of California, Los Angeles (UCLA) indicates that the vast majority of consumers are concerned about their online privacy. According the UCLA Internet Report, released in early 2003, 89 percent of consumers surveyed indicated that they were “somewhat” to “extremely” concerned about their privacy when shopping online. Although economic pressures may make enterprises more aggressive in how they address customers, the privacy sacrifices that customers make for national security won’t translate into tolerance for privacy abuses in less-critical areas, such as marketing. Enterprises and vendors can’t forecast the shape that U.S. government privacy legislation will take. However, those that address privacy management concerns now — rather than waiting for a catalyst event to force them to act — not only will be ahead of the competition but also will be better prepared to accommodate privacy requirements when they become the law. Enterprises can self-legislate now, or wait until the government dictates compliance. The need for privacy management is inevitable. Enterprises must implement more-robust privacy policies. Key Issue: Why must enterprises establish appropriate internal processes to manage and protect personal customer information?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Strategic Planning Assumptions: • By the end of 2005, at least one major U.S. enterprise will experience high-profile customer backlash due to the mismanagement of customer privacy information, and public outcry will motivate the U.S. Congress to mandate restrictive privacy legislation (0.7 probability). • Through 2005, 80 percent of spending on privacy and security initiatives will focus on security aspects, leaving privacy issues as a low-priority vulnerability (0.7 probability). • By 2006, 20 percent to 30 percent of Global 1000 enterprises will suffer financial exposure because of mistakes in customer privacy management (0.7 probability). • By 2006, a large enterprise’s typical costs to recover from mistakes in customer privacy management will range from $5 million to $20 million (0.7 probability). Action Items: • The public will remain concerned about customer privacy issues. Enterprises must make privacy initiatives a high priority. • Although overlapping issues may exist between the two, enterprises must recognize and understand the differences between privacy and security because the methods required to address each are different. • Privacy management isn’t a tactical, short-term returnon-investment initiative. Enterprises must consider it to be a critical part of their defensive business strategy. • An enterprise can minimize exposure to lawsuits by implementing best practices, such as: – Providing accountability for use of customer data – Enhancing role-based data access with purposebased access capability – Training employees on properly collecting, storing and sharing customer choice criteria Key Issue: How will current and potential government regulation affect the ways in which enterprises can use personal customer information?
25
Reaping Business Rewards From CRM
Strategic Planning Assumptions: • By 2005, government surveillance and information access strategies will fail to meet the public’s expectations for a balance between increased security and privacy, leading to a politically significant backlash against intrusive information collection policies (0.6 probability). • Through 2006, stakeholder pressure will direct enterprise privacy policies toward universally acceptable practices — with or without specific regulatory guidance (0.8 probability). Action Item: Privacy is a global concern. Enterprises must consider international laws when managing privacy within multinational organizations. Key Issue: How can enterprises demonstrate responsible privacy management to ensure customer confidence and security? Strategic Planning Assumptions: • By 2006, U.S. consumers will routinely make explicit value exchanges with enterprises for the right to use their personal information (0.6 probability). • Through 2006, technology solutions for privacy management will remain fragmented (0.8 probability). • By 2006, enterprises will see a tenfold increase in spending to secure the technology, expertise and training required to respond to customer preference and privacy demands (0.7 probability). Tactical Guidelines: • Compliance with data privacy legislation has little direct impact on the ability of an enterprise to abuse the privacy of its customers. • Developing an appropriate privacy policy is a baseline requirement at the enterprise level. However, the execution of that policy is likely to be challenging, and the technology requirements for managing that execution are not always readily apparent. • Growing consumer concerns and privacy restrictions will cause enterprises to rethink their customer-datahandling methodologies. Enterprises should combine varying solutions to address all points of data access and storage.
26
Gartner
• The recent U.S. economic downturn means that privacy management must be prioritized with other IT investments. Without a serious public breach of privacy to serve as a broad warning, privacy management likely will continue to be ignored by many enterprises. Action Items: • An enterprise needs to: – Respect the stated preferences of customers – Candidly communicate what data it is collecting and how it will use it – Err on the conservative side, if it has any doubts • To ensure total compliance with its privacy policy, an enterprise must effectively address all eight guidelines for privacy management. • As this enterprise’s experience shows, crafting a privacy policy is only part of the battle. Once an enterprise establishes its privacy policies, it then must take steps to verify and enforce compliance. Recommendations • Audit customer data to determine whether customers have expressed a preference in how the enterprise handles their personal data, and work toward associating those preferences with the customer data wherever it is accessed in the enterprise. • Extend privacy policy considerations consistently to encompass all customer touchpoints — not just the Web and e-mail. • Evaluate marketing plans in the context of customer permissions and potential or perceived risk to consumer privacy. • Centralize campaign management and marketing processes to ensure consistency and minimize risk. • Move away from the practice of using purchased lists and unsolicited e-mail as acquisition tools, and focus instead on using e-mail for customer retention and development. • Minimize exposure to lawsuits by implementing global practices, such as: – Providing accountability for the use of customer data
Strategic Planning Series
Introduction and Executive Overview
– Enhancing role-based data access with purposebased access capability – Training employees on properly collecting, storing and sharing customer choice criteria
1.12
Managing CRM Initiatives for Long-Term Success
After completing the initial CRM implementation project, the work never seems to end as many critical issues emerge. Often enterprises aren’t prepared for life after the project. So much time and energy has gone into the project that the go-live date feels more like an end than a beginning. Production use of the CRM systems, however, represents just the start. Many other activities must follow. Thinking of the end of the project as the first step in the CRM life cycle will help users better prepare for what lies ahead. This chapter examines tough post-implementation issues (outside of vendor consolidation) facing CRM users. It also provides best-practice advice on how to address these issues, including: • Why enterprises supporting CRM systems need to take a life cycle view • Ways to derive more value from CRM • How to reduce CRM costs • The best support strategies for CRM systems and users • Whether to upgrade to the latest version of CRM software Enterprises continue to grapple with extracting value from their installed application software by using it to meet current business demands related to transparency, realtime processing and productivity. From 2004 to 2006, enterprises will focus more on better execution — getting what’s in place working better, getting it connected and, finally, getting a payback. Only when they’ve accomplished this will enterprises have the right foundation for their core business processes to evolve toward a real-time enterprise.
Tactical Guidelines: • Enterprises must think and plan for CRM in terms of a life cycle, rather than as a one-time project. • Throughout the CRM application life cycle, enterprises must equally manage risk, cost and value. Key Issue: What should enterprises do to get more value from their established CRM investments? Tactical Guidelines: • To manage costs on an ongoing basis, enterprises must measure and benchmark. • To drive value from application investments, enterprises must make established CRM implementations more effective for users through optimization. Action Items: • Prior to the implementation process, ensure that business users identify CRM business process key performance indicators and create baselines for comparison against future measurements. • Follow Gartner’s five-step approach to optimization to enhance the internal value of CRM systems through productivity increases. Users will feel more appreciated because their most important application needs will be met. Key Issue: How is the application deployment process changing? Tactical Guideline: To create prolonged value from application investments, enterprises must establish continuous-improvement programs. Action Item: During the implementation process, focus on planned improvements to ensure that the project delivers the intended results. Key Issue: How should enterprises organize to best support CRM after starting production use of the application? Tactical Guidelines:
Key Issue: How are operations, maintenance and upgrades changing?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• To support business applications after implementation, enterprises should embrace the competency center model.
27
Reaping Business Rewards From CRM
• The CRM competency center and the appropriate business process owners need to develop and deploy service-level agreements (SLAs).
1.13
Using Knowledge Management to Enhance CRM Value
Action Item: To provide optimal support for the enterprise’s application environment, consider creating a CRM competency center.
CRM is a set of knowledge-focused business processes that rely on:
Key Issue: How should enterprises consider and plan for an eventual CRM upgrade?
• Knowledge-based marketing
• Knowledge from and about customers and employees
• Other knowledge-intensive activities Tactical Guideline: An enterprise should create an upgrade project plan and business case based on the scope of the planned upgrade. Conclusions and Recommendations Enterprises that use business applications must realize that their application initiatives never end. Although a project may have been completed, another phase is only beginning, and new business requirements, functions, versions or technologies will need continuous evaluation and implementation. In short, enterprises need to remember the CRM application life cycle. To best support applications throughout the life cycle, enterprises should embrace the structure of the competency center to address CRM processes, functions, development, integration, operations and architecture. Enterprises should benchmark against peers on an annual basis to improve IT cost competitiveness. Similarly, enterprises should start application improvement initiatives to increase the value that CRM can deliver to business units. At times, an improvement may require a version upgrade — the justification for which requires delivering business benefits. In addition, enterprises should, when possible, leverage an upgrade as an opportunity to correct the mistakes of past implementations. One common issue is a proliferation of versions and configurations. Enterprises should consolidate applications geographically, logically and then physically to: • Reduce overall complexity • Decrease related support costs • Provide to the enterprise a more-consistent set of applications, processes and data
28
Gartner
Knowledge management (KM) naturally complements CRM: • CRM generates volumes of digitized information and content, and KM provides an approach to managing it. • CRM connects the enterprise to customers and partners, and KM can link those seeking knowledge to those providing knowledge. • CRM success depends on managing complex relationships; KM can support this by capturing what people know, linking experts to each other, enabling collaboration across complex boundaries, and applying organizational learning and best practices to future challenges and opportunities. The use of KM in CRM processes has developed slowly. In 2004, most CRM products that include any level of KM support provide mostly knowledge base management. These knowledge bases support the most common service or sales issues, such as: • Answers to frequently asked questions • Common problems and their solutions These knowledge bases are valuable to improving internal productivity and providing customer value in self-service environments. However, knowledge bases rarely support or enable competitive process design or distinguishing service capabilities. CRM requires far-more-sophisticated forms of KM, such as: • Collaborative knowledge sharing among CRM professionals • Customer communities
Strategic Planning Series
Introduction and Executive Overview
• Customer e-learning Ultimately, CRM needs KM to enable complex knowledge sharing, collaboration and innovation among customers, employees and business partners. Key Issue: What are the trends in KM support and applications for CRM? Strategic Planning Assumption: By 2005, more than twothirds of successful CRM initiatives will integrate explicit and tacit KM practices into their CRM processes (0.6 probability). Tactical Guideline: Enterprises that foster operational and innovation initiatives will prevent the decline of their business services and products. Action Items: • Actively manage operational-excellence and innovation initiatives by: – Articulating distinct goals
• By 2006, 20 percent of the Fortune 1000 will incorporate internal practices to systematically measure the value of, and return on, intellectual capital (0.6 probability). • Through 2006, CRM management will implement advanced KM in sales more than twice as often as in marketing, or customer service and support (0.6 probability). Tactical Guidelines: • If KM program objectives include using mature technologies and minimizing implementation risk, the enterprise should select knowledge base maintenance and access as its first KM application. • Through 2005, as customer connectivity increases, enterprises must: – Identify the KM and knowledge requirements for effective Web-based sales and for customer selfservice and support. – Deliver KM-enabled, Web-based selling and support.
– Ensuring adequate funding – Assigning accountability – Tracking performance • Evaluate requirements for explicit and tacit knowledge in CRM processes, since these requirements define the CRM-KM opportunity. Key Issue: How and when will enterprises realize value from their investments in KM-enabled CRM?
Action Items: • Evaluate each KM application and how it may apply to customer service, sales and marketing processes, because this insight determines the best starting place for KM in CRM. • Consider expertise management as a potential KM “quick win” for CRM. • Design and build collaboration processes to support people and how they work.
Strategic Planning Assumptions: • By 2005, more than two-thirds of successful CRM initiatives will integrate knowledge base access, expertise management and collaboration into their CRM processes (0.6 probability). • By 2005, 50 percent of knowledge-centric enterprises (such as consulting, research and engineering firms) and 30 percent of other enterprises will have explicit processes and applications for expertise management (0.7 probability). • Through 2005, two-thirds of new investments in KM will focus on collaboration (0.6 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Avoid the urge to merely buy and install software with the expectation that collaboration will happen on its own. • Determine the role of knowledge in the enterprise’s marketing initiatives, and select KM programs that: – Commercialize knowledge into products and services – Support internal business processes • Consider the aggressive deployment KM functionality in sales. In a difficult economy, KM can ensure the
29
Reaping Business Rewards From CRM
quality of solutions while reducing cycle times and sales costs. Key Issue: Through 2008, which vendors and innovative offerings will support CRM with KM? Strategic Planning Assumption: By 2005, most enterprise will retarget investments in portals and team collaboration to smart enterprise suites (0.7 probability). Tactical Guidelines: • In 2004, CRM suites will make progress toward adding substantial KM capabilities, including more-advanced knowledge base maintenance and access, e-learning support, and sales team collaboration. • From 2004 to 2007, technology support for KM in CRM will include innovative products and tools, as well as traditional KM applications. Action Item: If your enterprise hasn’t embarked on largescale integration of its workplace applications, consider buying an integrated smart enterprise suite, rather than building this integration capability. Conclusions and Recommendations KM programs combine applications for managing explicit and tacit knowledge, expertise and content, while also supporting advanced collaboration. Complex enough on their own, these programs become significantly more complicated to implement and manage when interconnected with CRM: • The technology environment increases the number of vendors, interfaces or products. • Business processes for KM and CRM will have enterprisewide and extended-enterprise implications. • Complexity increases in metrics programs and business management practices, such as strategic planning, management accountability, financial planning and problem resolution. The following best practices can help enterprises successfully implement KM initiatives in CRM: • Think expansively. KM will demand business process design, cultural, organizational and behavioral change, and sophisticated technology.
30
Gartner
• An enterprise can’t overemphasize cultural change. Analyze present behavior, incentives and processes, and establish baselines. Revise practices that discourage collaboration and KM. • Never buy technology before designing business processes. • Start the cultural change by introducing KM programs first to CRM executives and managers. • To motivate the desired behaviors, make knowledge use, creation and collaboration 15 percent to 20 percent of the performance plan. • Make KM useful and intuitive for the user. Beyond implementation, enterprises will need to enhance other capabilities to sustain and grow KM. These include: • Skills in business process design • Increased business process automation • Advanced problem resolution capabilities • New customer behavior and feedback analysis KM initiatives are most successful when the enterprise focuses on simultaneously improving entire systems — including human practices, business processes and technology.
1.14
Best Practices for Negotiating CRM Software Deals
A software license grants the right to use a vendor’s intellectual property within a set of parameters. Frequently, enterprises stress pricing and discounts, and forget crucial software licensing terms. Enterprises shouldn’t let the lure and pressure of discounts rush them into closing deals that they haven’t properly examined, or they will often find themselves paying heavily in subsequent years. Vendors often include contract clauses to increase revenue in subsequent years. Maintenance fees and license costs can double in three years. Enterprises that believe they’re protected by prepaid license fees and maintenance may have to pay additional license fees when vendors introduce new functionality or enhancements, or change license models to accommodate new trends like pay-as-you-go pricing or application service provider (ASP) offerings.
Strategic Planning Series
Introduction and Executive Overview
Many CRM software contracts don’t have terms that cover the transfer of licenses in the event of mergers, acquisitions, divestitures or outsourcing. Others have ill-defined clauses for access outside the enterprise — for example, for customers and partners. CRM vendors are discounting aggressively in competitive deals. When negotiating a licensing agreement, enterprises should use this factor to their advantage. But a discount off the list price isn’t the only thing for enterprises to focus on when crafting a licensing agreement. They must also remember to include terms and conditions that protect their investments. This point becomes increasingly important as vendors change their licensing models more rapidly than ever before. Key Issue: What are the key trends in CRM software licensing and negotiation? Strategic Planning Assumptions: • Through 2010, enterprises that don’t assess the effect of vendors’ terms, conditions and business practices will incur additional, unplanned fees that will at least double the original license and maintenance cost during a three-year period (0.7 probability). • Through 2010, enterprises will pay more in license and maintenance fees as 80 percent of major vendors offer standard enhancements and vertical capabilities as rebundled or renamed products, rather than include these enhancements and capabilities in maintenance entitlements (0.7 probability). • Of 500 vendors claiming to sell CRM software in early 2002, fewer than 350 survived. Of these 350 vendors, only 100 will survive through 2006 (0.8 probability). • Through 2008, vendors will increasingly restrict software maintenance entitlements to lower their costs and increase revenue (0.8 probability).
• Enterprises should establish license conversion metrics in all major software contracts, ensuring that the conversion occurs at their option and that they receive credit for 100 percent of the value of the converted licenses. • No perfect licensing model exists. Each has strengths and challenges, depending on the technology environment and how the enterprise uses the software. Action Items: • An enterprise should clearly document the functionality included in the original software licensed, and include continued rights to that functionality, or anything substantially similar, at no additional fee. • Enterprises should protect themselves from vendor or product acquisition through contract terms and conditions that ensure the acquiring vendor assumes the obligations of the contract, including continuing product availability and support at the agreed-on price. • Enterprises should negotiate clauses in agreements that give them the option to move to a new licensing model — if the vendor introduces one — but doesn’t oblige them to move to the new model. • To avoid doubt or confusion regarding vendor-proposed conversion metrics, enterprises should clearly document the basis of any conversion to a new model (such as list-to-list or net-to-net), and ensure they receive 100percent credit for investments converted to the new licensing model. • Enterprises should incorporate into the licensing agreement the process by which the vendor can conduct a usage audit. Key Issue: How can enterprises negotiate best-in-class CRM deals and protect their investments? Strategic Planning Assumptions:
• Through 2006, although they will offer increased discounts for licenses, vendors will resist reducing the maintenance percentage during negotiations (0.8 probability). Tactical Guidelines: • Although the model of a named user with some module fee remains the dominant method of licensing CRM software, this model is inappropriate for external groups, such as customers.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Through 2008, software vendors will make it increasingly difficult to terminate maintenance on unused licenses (0.7 probability). • By 2005, large enterprise CRM vendors that fail to offer license and maintenance contract flexibility will lose ground to rivals that do (0.7 probability).
31
Reaping Business Rewards From CRM
• Through 2008, enterprises that fail to fix maintenance entitlements and cap annual price increases will have their maintenance costs increase by up to 100 percent during the following five years (0.8 probability). • Through 2005, 80 percent of enterprises engaging in enterprisewide licensing agreements will pay at least 20 percent more for licenses and maintenance than they would for agreements based on actual usage (0.7 probability). • Through 2006, at least 30 percent of business application deals originally signed between 1998 and 2000 will be significantly renegotiated (0.7 probability). • Through 2008, enterprises that fail to evaluate the impact of a vendor’s licensing model over a minimum of five years will face increases in license and maintenance fees of at least 10 percent per year (0.8 probability). Tactical Guideline: An enterprise shouldn’t focus exclusively on the discount percentage — it can reduce the price of a deal many ways. Key Issue: How should enterprises negotiate with Siebel, SAP, Oracle and PeopleSoft? Tactical Guidelines: • Enterprises converting R/3 contracts to mySAP contracts should negotiate for 100 percent credit for their R/3 investments. • Because SAP selectively charges enterprises for outgoing interfaces from SAP applications (based on its indirect-access clauses), enterprises should seek to strike the indirect-access terms from their contracts to avoid the potential for significantly increased license fees. • Oracle’s e-business suite pricing represents an alternative to modular-based pricing — not a replacement for it. Therefore, enterprises using only one application, such as CRM, will likely to continue to find modular pricing more attractive. • Enterprises licensing PeopleSoft’s CRM software — or adding other PeopleSoft modules — should negotiate maintenance increases based on the Consumer Price Index, or cap them at a maximum of 5 percent throughout the life of the contract.
32
Gartner
Recommendations • Difficult market conditions have forced business application vendors to discount more aggressively in competitive deals. An enterprise should use this factor to its advantage when negotiating a licensing agreement. It also must ensure any agreement protects its investments. • An enterprise has the greatest negotiating leverage when it initially acquires its licenses. Vendors treat new customers better than established, loyal ones, and tend to offer the latter less-attractive deals. An enterprise should ask its software vendor to articulate its CRM philosophy, and then relate that philosophy to the enterprise’s business practices. • License models will continue to change rapidly. Vendors are starting to offer ASP or pay-as-you-go models, as well as models that are theoretically more closely related to the business value received. An enterprise that moves to a new model should ensure that it receives full financial credit from its vendor. Furthermore, the enterprise must ensure that any transition occurs by its choice — not the vendor’s.
1.15
Getting Optimal Value From CRM Consultants and System Integrators
The market for CRM services continues to change: • The implementation of packaged CRM software applications, which is fast approaching the status of a commodity service, continues to diminish as a factor that differentiates ESPs. • Enterprises are demanding that their CRM ESPs provide services that deliver business results — not merely implement CRM technology “on time and on budget.” • Buyers want lower prices for services, which requires delivery costs at much lower levels than ESPs historically have achieved. • New competitors are entering the market using lowercost service delivery from India and other offshore locales. • Large ESPs have been forced to use a global delivery model that combines domestic, “nearshore” and offshore resources.
Strategic Planning Series
Introduction and Executive Overview
• Smaller ESPs have been forced to reduce their costs by merging, or becoming more focused on an industry segment or geographic market. As a result of these changes, a gap has emerged among CRM ESPs: • Large players are becoming larger, bundling services into “solutions” and expanding their offshore delivery capabilities. • Smaller players are retreating and shrinking to specialize in specific industries, or delivering specific expertise in a particular CRM function. As CRM ESPs migrate implementation components of their delivery models offshore and nearshore, they introduce new risks that make evaluating CRM ESPs more complex and difficult. Enterprises buying CRM ESPs’ services must assess their competencies in domestic, nearshore and offshore delivery of services. CRM ESPs, if used strategically, can help an enterprise develop its overall CRM strategy and implement tactical projects, as well as provide valuable program and project management insights. ESPs provide help along a continuum, which spans high-level business strategy (management consulting); consulting and system integration; and outsourcing. This chapter focuses on consulting and system integration. Consulting services include issues related to: • Business processes (re-engineering)
Key Issue: What is the value of using consultants or systems integrators on a CRM project? Strategic Planning Assumption: Through 2009, projects undertaken using a proven methodology — such as those offered by the leading ESPs — will carry fewer risks and have a 30 percent greater chance of meeting their financial goals than unstructured projects (0.6 probability). Tactical Guideline: An enterprise should use CRM ESPs to help develop the enterprisewide CRM strategy and associated business cases, including TCO and ROI calculations. After delivery of the strategy and business case, use a shortlist of two or three ESPs, and re-bid the implementation work so that the ESP that did the business case must re-bid as well. Action Items: • Inventory the enterprise’s internal business and technical expertise. After determining strengths, weaknesses and gaps, look to CRM ESPs to strengthen the weaknesses and fill the gaps. • Develop an overall, enterprisewide strategy — based on a phased implementation — that sets the stage for CRM. • Add TCO and ROI competency to the set of services purchased from ESPs. • Execute multiple tactical projects within the context of an overall CRM program — one that establishes a clear plan and articulates the associated costs, benefits and ROI.
• Change management • Program and project management
Key Issue: What is the truth behind consultants’ and system integrators’ claims about CRM expertise?
• Technology assessment Strategic Planning Assumptions: • Custom and packaged application implementation • Project tuning System integration services include: • Designing or building a customized architecture or applications • Integrating architectures or applications with legacy solutions • Configuration of packaged applications
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Through 2006, more than 75 percent of CRM projects will focus on field sales, call and contact center service management, and customer data management (0.9 probability). • Through 2006, more than half of enterprises will implement an average of seven CRM modules (0.6 probability). • Although CRM ESPs will increasingly offer businessvalue-based contracts (such as revenue sharing) for consulting and system integration work, less than 10
33
Reaping Business Rewards From CRM
percent of enterprises will take them up on these contracts by 2009 — up from less than 2 percent in 2003 (0.8 probability). Tactical Guideline: On average, regional and boutique CRM ESPs tend to have higher customer satisfaction rates — albeit for smaller or more-focused projects. Action Items: • Use a blended team to bring enterprise and ESP skills to the job. • Ensure that the work plan includes a reduction of external resources over the life of the plan as internal employees gain expertise from ESPs. • Be wary of ESP claims regarding the newer aspects of CRM. In most cases, ESPs will not be able do demonstrate depth in each component, as they prefer to offer a broader set of CRM capabilities. • Measure the enterprise’s satisfaction levels and regularly inform the CRM ESP of the results. Although the project manager and sponsors may feel satisfied, end users may not. If the enterprise doesn’t make the ESP aware of any dissatisfaction, the chance to rectify the problems will decrease and the risk of a relationship breakdown will rise. • Begin to understand the risk and reward tradeoffs of business-benefit-based contracts, and be willing to commit to both upside and downside metrics to achieve true business value from CRM initiatives.
• By 2009, 40 percent of CRM implementation work will be performed offshore — up from 8 percent in 2003 (0.7 probability). • Through 2008, 65 percent of enterprises will continue to devote more time, resources and money to the CRM application selection process than to the ESP evaluation process, which will result in inappropriate choices or project delays (0.8 probability). • Through 2008, although multisourcing will remain the dominant sourcing strategy, 40 percent of large enterprises will adopt a prime or general contractor to manage CRM ESP complexity (0.7 probability). • Through 2009, enterprises that develop comprehensive, adaptable evaluation models will reduce the time needed to evaluate vendors by 20 percent (0.8 probability). Tactical Guidelines: • Although the operating model of global service delivery represents an attractive way to reduce costs, enterprises must evaluate their CRM service providers on functional skills, industry expertise and business process expertise in addition to their technology expertise. • Although cultural fit represents a subjective and often ill-defined metric, enterprises nevertheless should define it as one of the top five criteria they use when evaluating CRM ESPs. Action Items:
Key Issue: Which consultants or system integrators should an enterprise consider for CRM, and what approach should it use to evaluate them? Strategic Planning Assumptions: • Accenture and IBM Business Consulting Services will remain the leaders in delivering worldwide CRM consulting and system integration services through 2006 (0.7 probability). • By 2008, when competing for business from Type A or Type B enterprises in North and South America, CRM ESPs that have between 50 and 250 consultants, and that derive more than 60 percent of their business from three or fewer industries, will win more deals than they lose against large, global ESPs (0.7 probability).
34
Gartner
• Conduct due diligence and check references to ensure that the enterprise’s culture fits with that of the service provider. All other things being equal, the most-critical criterion for success when choosing CRM ESPs often is the ability of providers to: – Work within an enterprise’s culture – Work with its people – Effect the kind of organizational change that a successful CRM program requires • Assess the CRM ESPs appearing on the worldwide Magic Quadrant, as well as the regional ones appearing on the Americas MarketScope, based on the enterprise’s unique CRM needs.
Strategic Planning Series
Introduction and Executive Overview
• When creating a shortlist of appropriate vendors, weight industry and domain expertise — along with the cultural fit of the ESP — highest among the evaluation criteria used. • When deciding on an offshore provider for CRM services, do not limit the enterprise’s options to India and the high-profile offshore ESPs. Other equally viable ways exist to access lower-cost skills. • Rather than focusing too heavily on technology skills and hourly rates, create a decision framework that prioritizes: – Business process expertise – Functional skills in the core CRM domains of sales, marketing, and customer service and support – Industry expertise • Create evaluation criteria that incorporate the intricate, human-performance-based nature of selecting a service provider. • Use the multiple-supplier approach if your enterprise has strong supplier management and integration capabilities and wants top performance. • Use the prime-contractor approach if your enterprise has solid supplier management capabilities, but lacks the resources and infrastructure necessary for supplier integration. • Rely on the key criteria shown in Figure 15-8 to evaluate CRM ESPs; price should remain a less-important criterion. However, all other things being equal, the most-critical criterion often is the ability for providers to work within an enterprise’s culture to affect organizational change. • Apply a structured vendor evaluation model to facilitate objective analysis of the competencies and suitability of specific service providers. Using Gartner tools, an enterprise can make its selection in approximately eight to 12 weeks. Recommendations • Supplement internal staff with CRM ESPs — but don’t abdicate control of the project to them.
• Consider using ESPs to assess a CRM strategy and help build the business case. • Expect external services to cost two to three times the amount of the license fee in 2004. • Realize that smaller ESPs tend to have higher customer satisfaction levels. • Evaluate credentials carefully — but don’t underestimate the need to have a good working relationship and cultural match. • Understand that vendor neutrality doesn’t exist — CRM ESPs will tend to play to their strengths, whether they lie in specific project types, industries or preferred technologies. • Smaller providers with specialized skills may represent a better fit in the long run.
1.16
Ensuring the Benefits of Improved Marketing Processes
An enterprise defined by its customers remains a conceptual idea for most. Although the concept of customer-centricity was introduced to marketing 40 years ago, for the most part, it hasn’t yet been integrated into the strategic, organizational and tactical dimensions of the marketing function. From a technology perspective, marketing remains the last major business discipline to undertake systematic automation and infrastructure improvement. This chapter focuses on: • Critical issues that the marketing function must address • The technologies and applications that enable the practice of technology-enabled marketing • How marketing will evolve during this decade and next • What the marketing function can do to best prepare for tomorrow’s realities Key Issue: What does the future of marketing look like through 2010, and why should enterprises worry about it now?
• Ensure that knowledge transfer occurs so that the enterprise builds the skills its internal team needs.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
35
Reaping Business Rewards From CRM
Strategic Planning Assumptions:
Action Items:
• Through 2007, enterprises that effectively deploy marketing processes and capabilities focused on the ability to sense and respond to customer-driven events will improve return on marketing investments by at least 70 percent compared with their current marketing efforts (0.8 probability).
• Conduct brainstorming sessions to map the complex marketing ecosystems affecting the enterprise.
• By 2015, leading marketers will depend on sophisticated analytics and recommendation engines for more than 70 percent of their tactical marketing decisions (0.7 probability).
• Identify areas where oversimplification may hinder performance. • To develop the enterprise’s marketing capabilities, start by understanding and benchmarking the current state and capabilities of the marketing function. Then develop a high-level vision and road map for evolution to the desired state of development, and analyze gaps to identify priorities.
• By 2020, more than 70 percent of marketing-driven communications delivered on behalf of Global 1000 enterprises will be customized to the customer or household (0.7 probability).
Key Issue: What technologies, applications and vendors will best enable marketers to manage the increased complexity of their marketing operations?
Action Items:
Strategic Planning Assumptions:
• Begin to identify the most relevant life-stage- and eventdriven interaction opportunities.
• By 2005, Global 1000 enterprises that can deploy customer-centric, enterprisewide marketing management processes will deliver a 30 percent higher return on their marketing investments than industry peers that fail to do so (0.7 probability).
• Examine the possibilities and the potential impact of systems for advanced data analysis. • Examine the possibilities and the potential impact of advanced data collection technologies such as microsensors and radio frequency identification. • Examine the possibilities and the potential impact of advanced, mass-customized communications and realtime customer interaction management, and begin to prepare for a future that includes these capabilities. Key Issue: What strategic, process and organizational issues must enterprises address to enable world-class marketing? Strategic Planning Assumptions: • Through 2005, more than 80 percent of Global 1000 enterprises will remain unable to accurately measure returns on their marketing investments (0.8 probability). • Through 2007, although more than 80 percent of Global 1000 enterprises will make some organizational changes to become more customer-centric, less than 20 percent of these enterprises will transform themselves sufficiently to realize the associated benefits (0.9 probability).
36
Gartner
• By 2005, marketing organizations that have deployed marketing resource management (MRM) applications will develop their creative materials 70 percent faster than peer marketing organizations that aren’t using MRM applications (0.9 probability). • By 2005, MRM applications that support distributed administration, application, business logic and workflow capabilities will provide enterprises with increased flexibility, enabling them to support increased marketing complexity that will drive at least 30 percent greater adoption and use (0.7 probability). • By 2007, MRM will emerge as the dominant application serving the broad, day-to-day execution and coordination needs of the marketing function (0.7 probability). • Through 2005, enterprise application suite and marketing suite vendors will focus primarily on MRMrelated deals as part of their direct-marketing application sales (0.8 probability). • By 2007, acquisition, consolidation and attrition will leave three or fewer viable, best-of-breed MRM vendors (0.8 probability).
Strategic Planning Series
Introduction and Executive Overview
• By 2007, vendors of large-enterprise application suites will generate more than 30 percent of MRM license revenue (0.7 probability).
the role customer data plays in the enterprise’s treatment of the customer. Each change in generation represents a fundamental shift in the scope of the enterprise’s marketing and customer relationship activities.
Action Items: • Outline marketing capabilities relative to marketing functionality components, and determine areas that need improvement. Then prioritize technology implementation according to strategic value, likelihood of successful implementation, and potential impact on marketing efficiency and effectiveness. • Be careful not to overlook MRM application architecture requirements. Doing so will likely limit the overall potential benefit from the application by restricting flexibility and the ability to manage increasing complexity. • Assess MRM-related custom-built applications relative to the enterprise’s detailed MRM requirements and the functionality available from prepackaged MRM applications. • Evaluate the MRM offerings and development plans of the CRM, ERP or marketing automation vendors with which the enterprise has an established relationship — but continue to consider products from best-of-breed MRM vendors. Recommendations • Marketing strategies, processes and capabilities must evolve to support increasingly complex ecosystems. • Marketing investments must be prioritized based on their ability to: – Enhance operational efficiency – Anticipate customer behavior – Strengthen customer relationships • Marketing functions must increase the efficiency of their operations so they can devote more time to highervalue activities.
1.17
The Evolution of Relationship Marketing
Relationship marketing has five generations, each of which represents a progressively higher level of sophistication in
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
An enterprise usually has elements of all generations in its marketing strategy. However, a dispassionate evaluation of the enterprise’s attitudes, typical campaign design and IT infrastructure will reveal the generation in which the enterprise primarily resides. • The first generation represents the traditional view of campaign management, in which campaigns are: – Designed and executed through a predefined channel at a time of the enterprise’s choosing – Preplanned to minimize cross-campaign conflict – Designed to meet the marketing needs of the enterprise • The second generation takes advantage of the enterprise’s multichannel capabilities to allow multistage campaigns — and the “cascading” of customers — across these channels. • The third generation shifts the timing of campaigns from the enterprise to the customer. It accomplishes this through customer-initiated interactions, or by timing campaigns in response to changes in customers or in their relationships with the enterprise. • The fourth generation recognizes the impact that campaigns have on each other and addresses this (at least in part) by incorporating the customer’s need for “the right offer” into the campaign-design process. • The fifth generation extends the concepts of customer analysis and segmentation — and of the refinement and communication of a value proposition to the customer — beyond the marketing organization and out to the broader enterprise. To achieve the most appropriate state for creating business value and better relationships, an enterprise needs to: • Understand the five generations of relationship marketing • Assess where it resides on the evolutionary scale • Build a road map for reaching its relationship-marketing goals
37
Reaping Business Rewards From CRM
Key Issue: How will relationship marketing evolve through different generations? Tactical Guideline: For mature database marketing organizations, process integration to run campaigns more quickly and frequently will yield higher ROI than increased investment in data-cleansing or data-mining technologies. Action Item: Consider the extent to which a lack of integration of the larger campaign process is limiting the frequency or design of marketing campaigns. If this is proving to be a significant constraint to better ROI, consider investing in advanced capabilities offered by campaign management and best-of-breed MRM vendors to address this issue. Key Issue: How will the “right time” generation of relationship marketing create business value? Strategic Planning Assumption: Through the end of 2005, most deployments of real-time analysis will fail to include the required focus on the business logic needed to turn analysis into the appropriate business recommendations (0.7 probability). Tactical Guidelines: • The largest problem associated with scaling eventtriggered marketing activities is defining the appropriate response once customer events are recognized. • The time needed for analysis will vary depending on the decision being made. • Enterprises can make most CRM decisions on a monthly, weekly or daily basis. • Strong collaboration between marketing and customer service is critical to the success of any real-time analytic deployment. However, successful implementation will be an organizational and technical challenge for most enterprises. Action Items: • Consider whether the number of campaigns being run is beginning to cause serious channel, budget and customer conflicts. If so, it’s time to evaluate the fourth generation or relationship marketing. • Leverage all customer interactions to optimize their value to the enterprise.
38
Gartner
• Identify the roles that need to be involved in creating, maintaining and using event triggers. • Identify the level of real-time analysis that makes sense based on how quickly the data ages (that is, becomes too old to offer significant value). Key Issue: How will the “right offer” and “right relationship” generations of relationship marketing create business value? Strategic Planning Assumption: Robust functionality for continuous management of the right customer relationship won’t emerge before the end of 2005 (0.9 probability). Tactical Guideline: Reconciling enterprise and customer constraints will be increasingly critical functionality for providers of campaign management software. Action Items: • Consider how different campaigns interact with each other so that the enterprise can identify constraints for the optimization process. • Evaluate the potential benefits of taking the skills and technologies developed during the first four generations of relationship marketing, and deploying them across the enterprise. Key Issue: Which vendors can best support the different generations of relationship marketing? Tactical Guideline: Enterprises should base vendor selection decisions on how quickly they expect to evolve through the five generations of relationship marketing. Action Item: Consider how sophisticated the enterprise’s requirements are likely to be within each generation of relationship marketing. Conclusions • Moving from one generation of relationship marketing to the next requires more than a set of new applications or technologies — it requires a significant shift in the way the marketing organization defines its role and the meaning of relationship marketing. • Each generation has a range of sophistication inherent to its performance. Diminishing returns with growing
Strategic Planning Series
Introduction and Executive Overview
the sophistication of an enterprise’s activity may drive marketing organizations to the next generation without “full” adoption of the current one. • Although many vendors offer components that support each generation, significant differences exist among their abilities to support sophisticated approaches to each generation.
1.18
Using E-Marketing to Build Online Relationships
As the Web evolved from an interesting curiosity to a business necessity, enterprises found that they had to deal with what would make them successful online — and what wouldn’t. Many enterprises hesitated to make the needed investments in their Web sites, fearing that they wouldn’t be able to achieve the results they expected. In most cases, these fears were unfounded. Many Web site failures occurred because enterprises viewed the Web as a medium that’s different from other media. As a result, they made mistakes that they never would have made with traditional media. Because they viewed the Web differently, enterprises treated it as a separate entity, with little attention paid to integrating the Web with other channel activity. Rather than focusing on a single channel as a solution to the overall buying process, enterprises must evaluate each step of the buying process against its available consumer channels, and maximize the effectiveness of delivering each step at the most appropriate channels. To improve customer interactions in all channels, enterprises must leverage the interaction and information-gathering efficiencies that e-channels offer. Key Issue: How can enterprises develop e-marketing strategies to move from mass marketing to relevant customer dialogues?
• Through 2006, the majority of enterprises executing email marketing campaigns will achieve no customer value (0.8 probability). Tactical Guideline: E-marketing value transcends the echannel. Retailers are beginning to understand the effects of e-marketing in relation to other significant channels, such as the physical store. Action Items: • Shift the enterprise’s e-marketing focus from operational functionality to customer-relevant functionality. • Within the context of a CRM strategy, use information from a variety of sources to add context and personalization to e-mail messages to make them more relevant — and, therefore, more appealing — to the targeted audience. • Use e-channels to: – Make customer interactions more efficient – Gather customer data to develop richer customer profiles, which can be used to promote intimacy in customer interactions Key Issue: How will vendors evolve to deliver solutions that incorporate e-marketing and sell-side e-commerce as part of a multichannel offering? Strategic Planning Assumptions: • By 2007, packaged applications will lower TCO by as much as 40 percent, and provide needed flexibility for expanding to new lines of business and business processes (0.7 probability). • By the end of 2005, 30 percent of Fortune 1000 companies will increase their investments in emarketing and e-commerce, and shift e-marketing projects to more revenue-producing activities (0.7 probability).
Strategic Planning Assumptions: • By the end of 2004, more than 80 percent of enterprises engaged in direct marketing will conduct at least one e-mail marketing campaign (0.8 probability). • By 2005, Internet service providers, content managers and software will “blacklist” 80 percent of permissionbased e-mail marketing campaigns (0.7 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Action Item: Treat e-marketing as the foundation for morecomplete e-commerce initiatives. Recommendations • Implement e-marketing efforts as part of an overall CRM strategy.
39
Reaping Business Rewards From CRM
• Understand how e-marketing relates to other significant channels (such as the physical store), and recognize that its value transcends the e-channel. • Shift e-mail marketing efforts way from cost-efficient e-mail “blasting” and toward relevant relationship building. • Use e-channel efficiencies and data collection capabilities to improve interactions throughout the customer life cycle. • When considering the complexities of interaction through e-channels, focus on scenarios driven by customer preferences, rather than enterprise needs.
1.19
How Technology Can Boost the CRM Sales Effort
As sales organizations return to revenue growth in 2004, they will reprioritize their resource allocations to take advantage of sales technology advances, such as broadband, ASP models and sales analytics. Gartner has formulated the following predictions for these key sales technology areas in 2004: • ASPs will assume their rightful place for sales automation. Through 2005, however, acquired software will remain the solution of choice for complex sales models that require integration and customization (0.8 probability). • Broadband access, which can have a dramatic effect on reducing the TCO for field sales technology, will supersede remote synchronization for sales force automation. Through 2004, 80 percent of direct salespeople will use broadband to connect and synchronize with enterprise applications and data stores (0.8 probability). • Sales analytics will gain greater focus in 2004. By 2006, 25 percent of sales organizations will achieve measurable benefit from sales reporting and analytics (0.7 probability). None of these capabilities, however, will be a guaranteed solution for increasing revenue. Sales organizations should avoid the hype of these new capabilities by putting them in the context of improving revenue-enhancing processes and reducing expenses through improved efficiency.
40
Gartner
This chapter addresses a number of key factors to help enterprises develop effective sales technology deployment strategies. First, it introduces a sales technology value framework, which links business objectives, applications, architectural considerations and vendor categories through a progression of five sales deployment “value states.” This framework enables sales organizations to place themselves along a continuum of sales technology deployment maturity to help determine the approach that best suits their organization. In addition, this chapter examines implementation best practices for each of the five sales deployment value states in our framework. It also analyzes how the vendor landscape for sales applications will evolve through 2009. Key Issue: How will business drivers and technology affect the role of sales organizations? Strategic Planning Assumptions: • Through 2005, more than 80 percent of enterprises will continue to deploy sales applications that improve channel efficiency (0.7 probability). • By the end of 2006, 35 percent of Type A sales organizations will adopt Web services (0.6 probability). Tactical Guideline: Given that most enterprises will focus their sales technology initiatives on driving channel efficiencies, leaders should focus on enabling effectiveness across all channels. Action Items: • Before developing migration plans for future strategies, determine the sales organization’s status in the sales value framework, and the costs associated with people, process and technology change management. • To optimize ROI, adopt technologies that match the enterprise’s sales value strategy. Type A enterprises are investing in fourth-generation sales technologies to ensure that their sales forces reap the benefits of greater sales effectiveness. • Identify tasks that salespeople now perform but to which their involvement adds little or no value, and migrate these processes to the Web in a self-service environment.
Strategic Planning Series
Introduction and Executive Overview
• If your enterprise is a manufacturer, seek opportunities to leverage e-commerce to sell products directly to the customers that resellers have no desire to sell to.
• When evaluating PRM technology, consider the enterprise’s technology adoption type and the complexity of its requirements:
Key Issue: How will enterprises prioritize and deploy sales technologies?
– Type A enterprises with complex requirements should continue to evaluate best-of-breed suite vendors.
Tactical Guideline: Enterprises should use Gartner’s hype cycle as a tool to help gain a realistic understanding of the capabilities and benefits that technology can provide, given its maturity and the organization’s style of IT adoption. Action Item: Before adopting a particular sales application or technology, carefully map the enterprise’s user type (A, B or C) to the relevant position on the Hype Cycle for Sales Technologies. Key Issue: How will sales application vendors evolve to meet changing sales organization requirements? Strategic Planning Assumptions: • Through 2005, Siebel will remain the functional leader for supporting sales complexity for direct sales organizations (0.7 probability). • By 2006, Oracle and SAP will increase their partner relationship management (PRM) MarketScope ratings (0.7 probability). • Through 2005, Click Commerce and Comergent will remain the most-proven vendors for distributed order management (0.7 probability). • Through 2005, Siebel will remain the best starting point for an integrated multichannel sales application suite requiring deep functionality (0.8 probability). Action Items: • Before researching best-of-breed alternatives, investigate whether a suite vendor whose products the enterprise already uses (such as Oracle or Siebel) can provide enough functionality to meet the enterprise’s requirements. • Consider a vendor’s ability not only to meet the requirements of the sales organization’s current value state, but also to keep pace with the organization’s migration through the value framework.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
– Type B enterprises with basic requirements (for example, lead management and single-partner-tier needs) should evaluate large-enterprise business application suite vendors, such as Oracle, PeopleSoft and SAP. – Type B and Type C enterprises with complex requirements should wait until 2005 or reduce their requirements so larger business suite vendors can handle the requirements. • In the sell-side e-commerce market, evaluate how each vendor conforms to the enterprise’s relationship models. Enterprises will find common operational functionality for both B2B and B2C models. • Move away from the all-at-once deployment model and focus instead on installing specific modules. Suite vendors that can configure their products to solve specific sales problems — such as quoting and proposal generation — will deliver the most value to enterprises in 2004. Recommendations • Type B sales organizations should focus on improving sales efficiency in a specific channel — many have achieved a good return on their technology investments by doing so. • Type A sales organizations should focus on improving effectiveness, which will help increase revenue; however, doing so will require a leap of faith for many enterprises. • Forget the all-at-once CRM implementation; instead, reduce risk and potential problems by doing the job in stages. • Don’t wait for suite vendors — if they don’t have the functionality the enterprise requires, look elsewhere to meet business needs.
41
Reaping Business Rewards From CRM
1.20
Achieving World-Class Customer Service
As brand loyalty erodes and markets slow, retaining profitable customers through customer service becomes more important. Separate Gartner surveys show that CIOs and business strategists in Europe and North America view customer intimacy and customer service excellence as top business priorities and key differentiating factors.
Tactical Guidelines: • Customer service managers must coordinate with IT planners to prioritize applications that the enterprise can leverage across multiple interaction channels. • Through 2005, customer service and support (CSS) applications that reduce costs and improve productivity will receive the highest level of investment approval. Action Items:
To turn customer service into a key business process that creates sources of competitive advantage, enterprises need to: • Transform customer service from a departmental objective into an enterprise technology and process framework. • Build and maintain a set of formal customer metrics to demonstrate the impact of improvements to customer service processes. • Re-engineer customer processes, using customer input and collaboration. • Apply analytics throughout the customer life cycle and develop a mechanism to analyze the experiences of key customer groups.
• Customer service managers should discuss with colleagues in the IS organization and other lines of business ways to align customer-facing strategies and identify underlying technologies such changes would affect. • Enterprises shouldn’t dismiss revenue enhancement as a benefit that results from deploying service technology. • Enterprises must be aware of how CSS application spending patterns are changing in their industries. • Enterprises must map their key customer processes and then model them for consistency — from the customer perspective.
• Base the phases of a customer service framework on the key business value of the customer interactions.
Key Issue: How will customer service organizations continually evolve their processes and solutions to meet changing expectations?
• Secure executive buy-in before attempting to redesign customer service processes that will extend beyond the department, and beyond the enterprise.
Strategic Planning Assumptions:
Key Issue: How will business drivers and technology impact the role of customer service organizations? Strategic Planning Assumptions: • By the end of 2008, nonintegrated customer service initiatives will double the costs of coordinated application selection, deployment and maintenance (0.7 probability). • By 2007, enterprises that employ business process modeling across customer touchpoints will achieve 30 percent greater return than those that fail to do so (0.7 probability).
42
Gartner
• Through 2008, 30 percent of projects to change customer service processes end-to-end will fail due to the lack of a single leader (0.7 probability). • Through 2005, 10 percent of new and upgraded customer service implementations will use a customer interaction hub as their framework (0.7 probability). • By 2007, 70 percent of Type A enterprises will have adopted all components of workforce optimization to monitor and improve performance of call center and contact center agents (0.8 probability). Action Items: • Enterprises should determine which metrics accurately measure customer service effectiveness, and what data the enterprise must collect and analyze to reach those
Strategic Planning Series
Introduction and Executive Overview
metrics. Then, they must ensure that a strong and dedicated leader is charged with seeing to it that the processes gain a foothold. • Enterprises should define the core value proposition of the call center before evaluating the technologies required for it to achieve maximum effectiveness. • Service managers must understand how their initiatives fit into the larger trends in corporate performance management, or risk losing their jobs by 2006. Key Issue: What technologies, applications and service models will best support customer service strategies? Strategic Planning Assumptions: • Through 2007, packaged applications will account for less than 15 percent of the budget to enable a customer service agent desktop (0.8 probability). • By 2005, the number of vendors that make up the CSS market will decrease by 80 percent through mergers, acquisitions or business failures (0.8 probability). • Through 2007, no general-purpose customer service suite will be available, which will result in continued custom integration of subcomponents (0.7 probability). • Through 2005, 70 percent of large enterprises will use a minimum of three vendors to create an enterprise CSS environment, whereas 80 percent of small and midsize businesses will prefer suites or single-vendor solutions (0.7 probability). • Through 2005, customer service architectures won’t change radically, even though they will evolve as technologies improve and mature (0.7 probability). Tactical Guideline: Through 2005, a successful CSS approach must blend best-of-breed methodologies and products, as needed. Action Items: • When planning CSS budgets, organizations must be realistic about the cost inputs, their relative weightings and their potential returns. • Enterprises looking for a CSS vendor should partner with an experienced and visionary vendor that has demonstrated its financial and technical stability.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• When making the decision to implement a new, unproven technology, an enterprise should consider the risk it takes, and weigh that risk against needs and potential benefits. Recommendations • Create a five-year plan for the migration of customer service from a departmental objective to an enterprise technology and process framework. • Build and maintain a set of formal customer metrics to demonstrate the impact of improvements to customer service processes. • Re-engineer customer processes, using customer input and collaboration. • Apply analytics throughout the customer life cycle and develop a mechanism to analyze the experiences of key noncustomer groups. • Base the phases of a customer-service framework on the key business value of the customer interactions. • Consider a CSS suite as the core application environment on which to build a broader customer service solution. • Secure executive buy-in before attempting to redesign customer service processes that will extend beyond the department, and beyond the enterprise.
1.21
Getting the Most Out of Contact Center Investment
Effectively managing a customer service contact center requires understanding many costs. The bulk of these expenses stem from agent costs, which typically represent between 55 percent and 80 percent of total spending in a contact center. For this reason, savings in personnel costs have a large impact on overall contact center efficiency. An enterprise can make no better investment than developing the best agents it can find. Gartner research indicates that every hour agents spend in training reduces the per-contact cost for customer service by 3.1 cents. Moreover, every 1 percent increase in first contact resolution reduces the cost per handled contact by 7.8 cents.
43
Reaping Business Rewards From CRM
The high cost of agent time represents the most-important factor driving enterprises to consider use of alternate channels, such as interactive voice response (IVR), Web chat, Web-based self-help and e-mail. However, before choosing alternate channels in which to invest, an enterprise should first optimize its voice channel. Enhancement of the technologies and procedures required for voice optimization also benefits other channels. Therefore, the benefits received from investments in alternate channels will be limited if the enterprise fails to optimize its voice channel first. To better manage costs in the contact center, an enterprise should: • Baseline its performance and define clear targets before implementing any changes. • Quantify the results after making these changes. • Make a series of small improvements, rather than try to undertake one massive initiative. • Identify three best practices that improve cost, customer satisfaction, agent satisfaction or service levels, and focus on them for at least six months. • Cultivate agent buy-in on any changes made, because this buy-in is indispensable to success. Key Issue: What should the economic model of a customer service contact center contain? Tactical Guidelines: • To improve customer service, an enterprise needs to understand the TCO and service differences between its starting point and world-class contact centers. • At least one-third of all U.S. contact centers have underinvested by 20 percent or more in critical enabling technologies. Enterprises must consider service levels along with cost when determining world-class targets. Action Item: Start to track the percentage of repeat calls from customers, and attack the root cause of these repeated contacts. Key Issue: How can enterprises prioritize their contact center investments?
44
Gartner
Strategic Planning Assumptions: • By 2006, agent training will become a greater factor in customer satisfaction than contact center tools, because the overall complexity of issues handled by contact centers will continue to rise (0.7 probability). • By 2007, individualized computer-based training will become the predominant method of ongoing agent training (0.7 probability). • Through 2006, expectations of callers will continue to rise as Type A enterprises continue to raise standards for call handling, and for delivering relevant enterprise knowledge into the hands of their contact center agents (0.8 probability). Tactical Guideline: A measurable improvement in the top three agent concerns will increase agent productivity and customer satisfaction. Action Items: • Recognize that agents are your largest asset and expense, and are also critical to successful contact center initiatives. Spend time “selling” the value of customer service to your agents and developing and implementing scripts and other operational practices. • Track the importance and performance of agent issues through anonymous surveys. Communicate progress on key initiatives to the agents regularly. • Provide an easy way for customers to offer complaints — and, by extension, for the enterprise to resolve complaints — by making the contact method obvious (for example, by providing a toll-free phone number on the Web site). Key Issue: What key opportunities exist for optimizing cost and service? Strategic Planning Assumption: Through 2006, voice will remain the dominant communications channel (0.8 probability). Tactical Guidelines: • Selecting agent support applications based on usability — rather than the greatest number of functions — generally yields superior results.
Strategic Planning Series
Introduction and Executive Overview
• Agent productivity will continue to fall as automation and self-help handle the simpler inquiries.
• Cultivate agent buy-in to change — it is indispensable to success.
• Enterprises should identify and fill any significant gaps in their core CRM technologies.
1.22
• Although telecommunications costs have fallen dramatically, they still represent a significant cost to the contact center. When renegotiating rates, an enterprise should use benchmark data to determine the competitiveness of the deal. • Unless the enterprise is uniquely qualified to provide an outstanding customer experience, outsourcing customer service provides a tremendous opportunity to increase enterprise flexibility and responsiveness as competition intensifies. • The quality of issue resolution remains the dominant factor in determining contact center customer satisfaction. Action Items: • Explore the availability of used components that can be used as spares for your private branch exchange. • Perform a check-up on any IVR that has been in place for more than a year to validate and optimize its performance. • Invest first in technologies that principally will benefit the enterprise’s primary channel (presumably voice). Many of these investments will pay dividends when applied to alternative channels. • When renegotiating telecommunications usage fees, consider using a consultant that specializes in negotiating telecommunications contracts. Recommendations • Conduct baseline performance measurements and define clear targets before implementing changes, and quantify results after doing so. • Meaningful improvement comes from the culmination of making many small improvements, not from any single initiative — set expectations accordingly. • Identify three best practices that improve cost, customer satisfaction, agent satisfaction or service levels, and focus on them for at least six months.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Rewards and Pitfalls of Outsourcing Customer Service and Support
Before engaging in the outsourcing of CSS, enterprises need to determine what they want from outsourcing. A surprisingly large number of enterprises that already have outsourcing agreements don’t have a written statement that clearly identifies even their most basic objectives for outsourcing. Enterprises also need to map their customer-facing processes throughout the enterprise. Some processes may prove to be excellent candidates for outsourcing, while others may need to remain in-house. Many enterprises have problems in areas where retained processes intersect with outsourced ones. To overcome this challenge, enterprises must dedicate sufficient management resources to this issue. The cost savings associated with outsourcing can be compelling. However, as enterprises look to leverage global service delivery capabilities for process support, they must look beyond mere cost savings and carefully evaluate providers, paying particular attention to vendors’ depth of vertical business process understanding. Enterprises also should consider numerous factors — such as training, recruiting and additional management needs — that can add costs and decrease the potential savings enterprises can achieve. Enterprises also need well-defined metrics for vendor and process performance management. With these metrics in place, enterprises can effectively manage and measure their outsourcing relationships. Key Issue: How can an enterprise determine whether to outsource its customer service operations? Strategic Planning Assumptions: • The worldwide market for business process outsourcing of CSS processes will grow from $7.6 billion in 2003 to $12.2 billion by 2007 (0.7 probability). • By 2007, two of the top three objectives of contact center outsourcing initiatives will be vertical-process
45
Reaping Business Rewards From CRM
knowledge, and the ability to effectively cross-sell and up-sell from a customer service environment (0.7 probability). Tactical Guideline: Enterprises that have no experience with outsourcing should start by outsourcing small processes instead of committing to large, multiprocess engagements. Key Issue: What are the costs and benefits of outsourcing CSS, and what lessons can be learned from the enterprises that have done so? Strategic Planning Assumptions: • Through 2006, 60 percent of enterprises outsourcing parts of their customer-facing processes will encounter customer defection and hidden support costs that will exceed any outsourcing-derived savings (0.8 probability). • Through 2007, the requirements to consolidate contact centers and to provide effective global support will remain two key factors driving enterprises to consider outsourcers (0.7 probability). • By the end of 2004, significant customer service failures will arise from the inappropriate application of the global delivery model (0.7 probability). • Through 2006, although 70 percent of enterprises will entertain the notion of business-value-based contracts (such as revenue sharing) for outsourcing of customer service processes, 50 percent of enterprises won’t be able to negotiate these contracts because they lack the measurements needed to determine success (0.8 probability).
• CSS outsourcing SLAs should consistently follow a formal structure that contains, at a minimum, the following elements: – A definition – Minimum acceptable metrics – Measurement formulas – Measurement frequencies – Credits and penalties – The tool or technique used for gathering the results Action Item: Carefully plan, integrate and manage outsourced channels, functions or processes that remain part of the enterprisewide strategy for customer service. Key Issue: What are the options available to an enterprise considering CSS outsourcing? Strategic Planning Assumptions: • Through 2005, no single CSS outsourcing vendor will be able to demonstrate a combination of world-class operational excellence, value-added services and vertical-market expertise (0.7 probability). • Through 2006, vertical-industry process capabilities will differentiate CSS outsourcers (0.7 probability). • Through 2004, to compete more effectively on a cost basis, most U.S.-based CSS outsourcers will acquire smaller companies that have knowledge of local (offshore) resource pools, cultures and business practices (0.8 probability).
Tactical Guidelines:
Action Items:
• Although the operating model of global service delivery represents an attractive way to reduce costs, enterprises must use three key value factors — operational excellence, technology capabilities, and process and industry skills — to evaluate their sourcing options.
• Avoid evaluating operational capabilities for transformational relationships, and vice versa.
• First-time contact center outsourcers desiring the benefits of labor arbitrage should initially experiment with a phased approach to nearshore locations.
46
Gartner
• Prioritize operational depth over process expertise for efficiency-led service bureau models. • Create a decision framework that prioritizes business process expertise, functional skills and industry expertise over technology skills and hourly rates.
Strategic Planning Series
Introduction and Executive Overview
Recommendations • Clearly identify the enterprise’s objectives for outsourcing. • Map all customer-facing processes, and dedicate sufficient management resources to the areas where retained processes intersect with outsourced ones. • Develop contracts that require service delivery innovation to reduce the cost of ongoing operations. • Leverage global service delivery capabilities for process support.
• The most compelling options for CRM software investments, including solutions from: – Best Software (makers of SalesLogix) – Microsoft – Onyx Software – Pivotal – Salesforce.com – Siebel Systems • CRM solutions appropriate for organizations with:
• Carefully evaluate providers, paying particular attention to vendors’ depth of vertical business process understanding. • Ensure that well-defined metrics are in place for both vendor and process performance management, so that the enterprise can effectively manage and measure the outsourcing relationship. • Don’t underestimate the management time required to make outsourcing work — particularly during the first year.
1.23
CRM Solutions for Midsize Businesses
Gartner estimates that in North America, fewer than 20 percent of the estimated 90,000 midsize businesses (MSBs) — which have between 100 and 999 employees — adopted CRM early and have already deployed systems to support a CRM strategy. For the other 80 percent of MSBs, CRM remains an unfulfilled opportunity. In addition, only 2 percent of North America’s almost 5 million small businesses — which have 1 to 99 employees — have implemented CRM.
– Between 50 to 300 CRM users – CRM deployment budgets of less than $3,500 per user Key Issue: What kind of results are MSBs achieving by implementing CRM software suites? Strategic Planning Assumption: Through 2007, the topthree reasons that will successfully justify MSB CRM investments will be reducing service and sales channel costs, keeping track and maintaining a single view of customers, and acquiring new customers (0.7 probability). Action Item: When investing in CRM software, an MSB should aim to use customer data to: • Enhance customer interactions • Provide visibility into sales cycles • Improve customer service and support Key Issue: How can MSBs best purchase, deploy and maintain CRM software? Strategic Planning Assumptions:
Results from 2003 Gartner MSB IT surveys indicate that, although CRM remains a high priority, security and IT infrastructure improvements take higher precedence. As a result, many MSBs will continue to delay implementing CRM, or will consider partial or interim CRM projects. This chapter — which focuses on MSBs, as well as business units of larger enterprises or holding companies that operate independently from a parent company — analyzes and compares:
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Through 2006, purchasing packaged software will remain the most-popular approach for MSBs to acquire CRM applications (0.8 probability). • By 2006, 25 percent of MSBs and small businesses investing in CRM software will choose an ASP for their CRM software needs (0.7 probability).
47
Reaping Business Rewards From CRM
• Since more than 50 percent of CRM vendors will be acquired, merge or go out of business by 2006, CRM vendor viability will remain a critical consideration (0.6 probability). • Through 2005, risk reduction, speed-to-benefits and shortages of in-house skilled resources will drive more than 50 percent of MSBs and small businesses to use implementation services from their CRM software vendors, and will drive more than 30 percent to use an integrator for implementation services (0.8 probability). Tactical Guidelines: • There is now enough evidence of Type A MSB success using ASPs for CRM functionality that Type B and Type C MSBs should consider using CRM ASPs. • For an organization with 170 users, Salesforce.com’s Enterprise Edition ASP offering will be the least-cost CRM solution during the first two years; however, by year three, it will cost more than licensing SalesLogix or Microsoft CRM. Action Items:
Key Issue: Which CRM application vendors are best for MSBs? Strategic Planning Assumptions: • By 2005, the competitive nature of the MSB CRM market will create viability issues that will constrain Onyx, even though it will remain independent (0.8 probability). • Chinadotcom’s recent acquisition of Pivotal won’t relieve Pivotal of the increasing competitive pressure it will face after 2005 (0.9 probability). • In 2004, Best Software will feel the impact of Microsoft CRM in the form of slowed revenue growth (0.9 probability). • Through 2005, the number of Salesforce.com users and the company’s revenue will continue to grow by more than 100 percent annually (0.7 probability). • Through 2004, an upturn in revenue from Siebel CRM OnDemand will help Siebel remain the largest market share holder in CRM software for MSBs (0.8 probability).
• MSBs should: – Establish a cross-functional team at the inception of a CRM initiative. – Delegate any function associated with technology procurement evaluation, selection or negotiation to this cross-functional team. – Ensure that this team uses a managed procurement process to achieve technical, business, financial and contractual requirements. • MSBs must recognize that, although an ASP solution may represent a solid short-term choice to meet CRM needs, it can become costly in the long term. • In their CRM application selection decisions, MSBs must increase the importance they assign to vendor viability and application integration. • An MSB should:
48
– Treat the evaluation and selection of an ESP as a project in itself, because most MSB-focused ESPs tend to be small and regional firms.
• By the end of 2005, Microsoft will be the fifth-largest CRM application vendor worldwide (0.7 probability). Tactical Guideline: In 2004, Best Software, Salesforce.com, Siebel, Microsoft, Onyx and Pivotal are best positioned to meet MSB CRM software suite requirements. Action Items: • An MSB should evaluate solutions that align with its size as well as the complexity of its CRM requirements. • An MSB that hasn’t invested in CRM software should evaluate the offerings analyzed in this MarketScope, because they can help develop CRM maturity by: – Delivering a more consistent customer experience – Enhancing organizational collaboration
– Maintain active involvement in its CRM projects by managing its ESP.
– Improving the quality of information available on customers
– Take advantage of the opportunities for reduced project costs and knowledge transfer by involving in-house staff with a CRM project.
• To remain competitive and achieve benefits from CRM, an MSB should expect to:
Gartner
Strategic Planning Series
Introduction and Executive Overview
– Pay, over three years, between $3,900 and $5,400 per key customer-facing employee for CRM software, services and support – Implement an ASP solution in 50 days, or licensed CRM application software in 70 to 140 days (on average) • Although Onyx belongs on shortlists for more-complex CRM needs, MSBs need to monitor the company’s financial health closely. • Although Pivotal belongs on shortlists for more-complex CRM needs, MSBs need to monitor the company’s support levels. • For simple CRM needs focused mostly on the sales staff, MSBs should add SalesLogix to their evaluation shortlists — particularly those MSBs that already use Best Software back-office products. • MSBs that are willing to consider an ASP for simple CRM needs should add Salesforce.com to their vendor shortlists. • MSBs and small businesses that have simple CRM needs, and that would consider using an ASP for CRM software, should add Siebel CRM OnDemand to their vendor shortlists. • Although Siebel Professional Edition offers a compelling product feature set for a list price of $995, MSBs should be cautious about whether to move forward with the
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
product because of potentially high overall costs. Siebel hasn’t proven its ability to deliver affordable, licensed CRM software and services to MSBs. However, because the benefits of the features may outweigh the costs for come businesses, MSBs should conduct their own cost/benefit analyses. • Most MSBs should wait for Microsoft CRM v.3, which will be a more mature offering. Recommendations • Recognize that CRM works for MSBs. – Develop a CRM strategy. – Create customer-focused sales and service processes. – Enable the strategy and processes with technology. • Use TCO and ROI analyses to evaluate CRM software purchasing alternatives (such as ASPs vs. direct licensing). • In any CRM application selection decision, increase the importance assigned to vendor viability and application integration. • Consider the benefits of ESP involvement in a CRM initiative. • Evaluate solutions that align with the business’s size, as well as the complexity of the its CRM requirements.
49
Positioning the Enterprise for CRM Success
2.0 Positioning the Enterprise for CRM Success
C
ustomer relationship management (CRM) isn’t as easy as it may appear. Many enterprises get lulled into thinking that they can simply buy a software package, install it and achieve “instant” CRM. In reality, CRM requires thorough understanding of customer preferences, and using that insight to maximize the probability of a sale or improve the level of service. As a result, CRM becomes a complex interplay of many factors throughout the enterprise. CRM requires considerable work to craft a strategy for: • Capturing data accurately • Analyzing that information effectively • Moving the data to the appropriate customer contact points • Using the information properly Many enterprises fall into the trap of equating CRM with the automation of customer contact points. However, this automation often occurs at a departmental level, resulting in conflicting systems that can’t be coordinated. In addition, enterprise politics may cause battles about who “owns” the customer. Usually, these skirmishes result in: • Customers receiving different levels of service across different channels • Customers providing the same information repeatedly • An inability for the enterprise to differentiate top-tier customers from more-mainstream ones When these problems occur, many enterprises fail to achieve expected benefits and return on investment (ROI), and don’t see a measurable improvement in the results of their interactions with customers. These enterprises feel that CRM has failed them — a situation that occurs all too commonly. To avoid such problems, enterprises need to understand the keys to successful CRM initiatives.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
51
Reaping Business Rewards From CRM
all customer channels and with back-office enterprise functions.
The following Key Issues frame the analysis in this chapter: • How should enterprises think about CRM to position themselves for success?
Many enterprises remain uncertain about the correct definition of popular terms such as CRM, e-business, ecommerce and enterprise relationship management (ERM).
• Why do CRM initiatives commonly fail, and how can enterprises turn failing initiatives into successful ones? • What are the keys to developing a successful strategy to turn customers into assets?
Gartner defines CRM as a business strategy designed to optimize profitability, revenue and customer satisfaction by:
2.1
• Organizing around customer segments
The Right Ways to Consider CRM for the Enterprise
• Fostering customer-satisfying behaviors
Key Issue: How should enterprises think about CRM to position themselves for success?
2.1.1
• Implementing customer-centric processes CRM applications are typically defined as customer-facing applications for marketing, sales and service (see Figure 2-1).
Defining CRM
Tactical Guideline: Enterprises should choose CRM technologies that enable greater customer insight, increase customer access, allow for more-effective customer interactions, and provide integration throughout
Although they may not be used enterprisewide, e-business applications help enable and manage relationships between an enterprise’s functions and processes and
Figure 2-1: CRM Includes More Than Just the Customer Supply Chain Management Virtual Partners, Informal Information Sharing Deals
BI and KM for External Info
Supply Chain
Business Partners
Product and Service Creation
Customer Relationship Management
Administration and Operations
Legally Defined Enterprise
52
Gartner
Customers Potential Customers and Influencers
Logistics and Fulfillment Potential Competitors
Suppliers
Marketing, Sales and Service
Electronic Commerce Back Office
Source: Gartner
Distribution Channels
Industry Networks
Competitors
Web Commerce Front Office
BI business intelligence KM knowledge management
Strategic Planning Series
Positioning the Enterprise for CRM Success
those of its customers, suppliers, value chain, community or industry. E-commerce remains a useful term that describes electronic-based business transactions — for example, the transmission of purchase orders or other business documents between business partners — and includes technologies such as electronic data interchange. As new Web-based interaction software evolves —such as customer service, e-mail forms, catalogs and personalization — e-commerce as a term is being subsumed under the more popular e-business term. ERM describes a business environment in which all constituents share a common set of applications — crafted to the needs of the individual — that link all parts of the internal enterprise to its external customers and partners. ERM remains beyond the five-year planning horizon.
2.1.2
Becoming More CustomerCentric
In the 1980s and most of the 1990s, many enterprises cut costs, restructured and trimmed operations to achieve their financial objectives. As a result, they developed a well-practiced behavior of looking inward for answers when they had to find new ways to satisfy shareholders. This somewhat introverted behavior, while strengthening the skills of the cost cutters and internal process re-engineers, often resulted in a loss of focus on the most important reason why enterprises are in business — to satisfy customers profitably. Many enterprises find that the old ways no longer foster strong customer relationships. These enterprises are moving away from being merely customer-aware and moving toward becoming more customer-centric. Many are shifting their center or focus away from enterprises in general and toward specific customer markets. Leaders, however, will push their enterprises further to become the most customer-centric and, in turn, to establish collaborative, real-time relationships with individual customers. These enterprises will enable themselves to provide greater value to customers, and will be able to serve these customers more quickly and accurately than any competitor can.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Because the rewards of greater customer-centricity are significant, many enterprises are turning to the business strategy of CRM, which places the customer at the heart of the enterprise’s strategy. Action Item: Understand what constitutes true customer-centricity, then move in that direction. Corporate politics represents one of the major reasons enterprises stray from this course.
2.1.3
The Chief Customer Officer
Strategic Planning Assumption: Through 2007, only 15 percent of enterprises will promote and advocate customers to senior management by creating the position of chief customer officer (0.8 probability). Although many enterprises describe themselves as customer-centric, few will involve the customer or a customer advocate at their highest levels. The senior management teams in most enterprises consist of a combination of key disciplines (such as finance, marketing and human resources) or divisions (such as those that represent geographical segments or product lines). However, these teams often lack formalized governance for customer relationships. Forward-thinking firms are creating the position of chief customer officer (CCO). Companies such as PepsiCo, American Skandia Marketing and others have installed a CCO, bringing customer advocacy and responsibility for effective governance of customer-satisfying products and services directly to the senior-management level. The CCO in the customer-centric enterprise will report to the CEO, and be responsible for ensuring that the enterprise delivers customer value as well as shareholder value. The notion of a community driven by e-business — in which the customer often is in charge — requires enterprises to embrace customers and their input into enterprise strategies. Action Item: Designate a CCO to represent customer needs to senior management and the board of directors.
53
Reaping Business Rewards From CRM
2.1.4
The Generational Model of CRM
Successful CRM initiatives require a focus on eight critical elements: • Vision
In each of these building blocks, different enterprises will have progressed to different levels. These differences are normal (and appropriate), because CRM should represent a continuous process, not a one-time initiative. Therefore, enterprises need to understand where they are and where they’re heading. Figure 2-2 shows a generational framework for each of the eight building blocks.
• Strategy Few enterprises align in a single generation across all building blocks. Instead, they tend to have several in a particular generation, one or two that are one generation ahead, and one or two that lag by a generation. Enterprises shouldn’t worry about perfect alignment by generation. Instead, they should focus on understanding where they are and where they are going with regard to each building block.
• Customer experience • Organizational collaboration • Processes • Information • Technology • Metrics Gartner refers to these elements as the Eight Building Blocks of CRM. (For more information these building blocks, see Chapter 7.0, “The Eight Essential Elements of Successful CRM Initiatives.”)
Enterprises that are more than one generation off (either forward or behind) in a particular building block, however, may have an out-of-balance CRM strategy that needs careful examination. For example, a sophisticated, fourthgeneration strategy won’t work if customer information remains basic and fragmented (level 1).
Figure 2-2: CRM Generational Framework CRM Building Block:
Generation: 1st
2nd
3rd
4th
5th
Vision
None
Initial productivity and visibility
Function/ channel effectiveness
Intraenterprise integration
Value-networkenabled
Strategy
None
Isolated projects, initiated from the bottom up
More “joined up” thinking, but still silo-oriented
Enterprise-level CRM program
Value-based collaboration for mutual benefit
Unknown concept; designs itself
Unknown concept; designs itself
Understanding and focus at silo level
Cross-LOB understanding and focus
Understanding of wider scope; collaboration
Organizational Collaboration
Inward focus; silo structures
First signs of customer centricity; silos
Changing culture and incentives; silos
Customer-centric; reorganized by segment
Shared customer centricity; goal alignment
Processes
Inward focus; silo-oriented
Start optimizing for efficiency; silo-oriented
Optimization at silo level for cost and value reasons
Enterprise-level optimization for cost and value
True end-to-end process optimization
Information
Basic and fragmented
Team-based; fragmented; minimal insight
Shared information at silo level; insight developing
Technology
Very fragmented; weak functionality
Fragmented; limited functionality and focus
Strong functionality within silos
Few metrics; inward focus
Fragmented and limited metrics; operational focus
Focus on silo efficiency; lack of customer focus
Customer Experience
Metrics
Source: Gartner
54
Gartner
Shared information Shared information and insight across and insight beyond the enterprise the enterprise Strong functionality Strong functionality; with enterpriseintegrated beyond level integration the enterprise Enterprise- and customer-focused; balanced hierarchy
Shared objectives and balanced metrics; aligned
CRM customer relationship management LOB line of business
Strategic Planning Series
Positioning the Enterprise for CRM Success
Action Item: Understand the generational model of CRM, and develop a clear picture of where the enterprise is now, and where it is going, within each CRM building block.
2.1.5
Selling Upper Management on the Value of CRM
Clients repeatedly ask Gartner how they can convince management of the value of CRM. The answer boils down to knowing how to address the politics of CRM within the enterprise. CRM creates territorial battles within the enterprise. Everyone wants control of the customer, and no single person or group wants to relinquish any of their established control. As a result, many enterprises make small CRM investments at departmental levels because such spending decisions don’t involve senior management. However, to achieve an enterprisewide business strategy that is supported and enabled by CRM, the senior management team needs to get involved. The following guidelines will help individuals “sell” CRM within the enterprise: • Don’t look for the “magic wand” that will change everyone’s mind about CRM — it doesn’t exist. • Look for friends in unusual places — that is, everywhere. • Build the justification thoroughly and one step at a time. • Look for the serious problems and challenges (sometimes called “pain points”). • Have management become a customer. • Involve the enterprise’s customers.
2.1.6
What Should Drive a CRM Initiative
Many enterprises fall victim to a common CRM pitfall by believing that IT and the advanced capabilities it can bring should drive the enterprise’s CRM strategy. Although technology is important aspect of CRM, it shouldn’t drive the strategy. Business users benefit from CRM because it helps them solve their real-world problems. Therefore, key business units — such as marketing, sales, and customer service and support — must articulate what they want CRM to accomplish, and in what areas they face pain points. Only after business users have identified their needs should the IS organization start to determine how to achieve its goals for the initiative. Without such an approach, CRM tends to remain immature (see Figure 2-3). Attitudes quickly shift away from integrating CRM with strategic business planning, and equate a CRM initiative with simply buying and installing software. Enterprises should start using CRM technology at a departmental level — for example, by launching a databasemarketing initiative within the marketing organization. From there, enterprises can use what they learn from early projects to start redesigning customer processes and driving change management. This tactic enables more strategic thinking upfront and avoids the all-at-once approach that is common in many unsuccessful CRM implementations. Action Item: Think strategically, invest tactically and continue to re-examine the enterprise’s long-term CRM plans to ensure that they remain relevant.
• Think strategically but invest tactically. Management often resists the idea of CRM because it can be radical and painful, and senior executives will often perceive that their enterprises are doing fine just as they are. However, ever-demanding customers — whether consumers or businesses — eventually will force enterprises to adapt or face losing market share. Successful enterprises need internal employees working to alter the change-resistant ideas of their management. Without these people and their eventual successes, the long-term decline of such enterprises is inevitable.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
2.1.7
Creating a CRM Maturity Profile
Strategic Planning Assumption: By 2006, successful enterprises will use CRM to focus on developing and sustaining their customer-centric strategy — including assessing their capabilities in this area compared with those of their rivals (0.8 probability). Leading-edge practitioners recognize that CRM represents an iterative process, within which the enterprise’s
55
Reaping Business Rewards From CRM
Figure 2-3: Three Broad Shifts in CRM Maturity 1. From IT into marketing
2. From marketing to a full-blown CRM function
3. Toward strategic planning and business operations
Analytical CRM Marketing
Redesigning the business
CRM CRM
Strategic Planning
Freestanding CRM function
IT
CRM technology
Customer Service and Support
Cross-functional process re-engineering
Business Operations
Tactical CRM
Source: Gartner
understanding of CRM progressively grows and matures. The creation of a CRM maturity profile will help the enterprise evaluate where it is and where it needs to go to be successful.
• Aligning marketing strategy with customer value and expectations — Do our strategies capitalize on our customer-centric capabilities? After using this simple tool, enterprises can begin to:
The process begins with an examination of the enterprise’s customer-centric business practices. These practices should be evaluated against the following six components of customer-centric maturity: • Managing the customer experience — How well do we coordinate and manage product and service delivery? • Integrating across business units — How well do we maximize our efforts and competitive advantages across functions and business units? • Measuring ongoing customer value — Do we know who our most valuable customers are?
• Prioritize investments to shore up their weakest areas. • Understand better the types of technology and vendor offerings that will deliver the most value. • Examine and improve processes that interfere with CRM initiatives. • Develop strategies and tactics that best exploit enterprise strengths. Action Item: Evaluate the enterprise’s processes in light of customer expectations. Conduct an honest assessment of strengths and weaknesses, and rebuild processes where necessary based on what customers want.
• Identifying customer expectations — Are we consistently meeting or exceeding these expectations? • Managing customer information as a strategic asset — Can we capture and leverage customer information to provide a competitive advantage?
56
Gartner
Strategic Planning Series
Positioning the Enterprise for CRM Success
2.2
Avoiding — and Fixing — CRM Problems
Key Issue: Why do CRM initiatives commonly fail, and how can enterprises turn failing initiatives into successful ones?
2.2.1
Learning From Mistakes of the Past
Before starting to plan a CRM initiative, enterprises should examine their past internal failures — as well as missteps made by other enterprises — to avoid repeating the same mistakes. In order of frequency and impact, the top causes of failed CRM initiatives are: • Management, especially at the board level, that has little understanding of — or involvement with — the customer
2.2.2
Salvaging a Failed CRM Project
Strategic Planning Assumption: Through 2006, more than 50 percent of CRM implementations will be viewed as failures from a customer perspective, due to an inability to link channels, a lack of process redesign or the failure to provide any real customer benefits (0.8 probability). Roughly 50 percent of CRM projects fail to meet customer expectations. This percentage is similar to that of many other major IT projects, and often results from enterprise politics, poor vendor choices or poorly managed implementations. Whatever the reason, a failed implementation doesn’t have to spell the end of the enterprise’s CRM efforts. Although picking up the pieces and trying again can be difficult, it can be done. Learning from prior CRM mistakes provides a great opportunity for the enterprise to do things right the next time.
• Rewards and incentives remaining tied to old objectives that aren’t customer-centric
The following rules can help salvage a failed CRM project and put the enterprise’s CRM initiative back on track:
• Staff culture that doesn’t change to focus relentlessly on the customer
• Reset expectations.
• Limited or no input from the customer’s perspective in developing the CRM strategy • Thinking that technology is the solution, and that buying a software package will create CRM • Forgetting that architecture and integration issues are bigger and more expensive than those associated with software selection and procurement
• Determine what went wrong, but resist the urge to assign blame. • Gather what metrics one can. • Set up customer flows. • Find a real pain point. • Simplify the project. • Check the data.
• Lack of specifically designed, mutually reinforcing processes • Poor-quality customer data and information, leading to poor analysis and decision making • Little coordination and communication between departments and divisions about their multiple initiatives and projects • A CRM team that was created as the last step in the process, and that lacks business staff • Failure to measure or monitor benefits, and lack of testing
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Follow the rules this time: – Create and follow a project plan. – Use all available resources to help select the best vendor for the project. – Ensure adequate training occurs — don’t try to speed up implementation by skimping on this step. – Leverage pilots and rollouts properly — a wellplanned pilot can reveal key deficiencies before the general rollout. – Involve stakeholders from the beginning, including customers.
57
Reaping Business Rewards From CRM
2.3
Turning Customers Into Assets
Key Issue: What are the keys to developing a successful strategy to turn customers into assets?
2.3.1
Four CRM Strategies
Tactical Guideline: Understanding the four strategies that make CRM work will help an enterprise plan and prioritize its investments accordingly, which in turn will improve the enterprise’s prospects for CRM success. The following four strategies help make CRM work: • Extend the depth and breadth of relationships to get a larger share of the customer relationship. Assume that the enterprise is underrepresented in the customer’s thinking, and that it can enlarge its “fair share” of the relationship. • Reduce transaction barriers and costs. Move customers and transactions from high-cost channels to low-cost ones, such as the Web. • Reinforce the brand. CRM fulfills the promise created around the brand. This strategy emphasizes the handoff from branding media (for example, television) to more interactive media (for example, the call center). • Create customer satisfaction and loyalty. The goal is happier customers. An enterprise needs to approach every interaction with the customer as an opportunity to create customer satisfaction. Because no single strategy works for everyone, an enterprise shouldn’t limit itself to just one. Although an enterprise should work on all four strategies simultaneously, one strategy will end up dominating, based on the goals and culture of the enterprise.
2.3.2
A Six-Step Methodology for Developing a CRM Strategy
CRM strategy guides how an enterprise turns customers into assets, beginning with an understanding of current customers and how they relate to the market. Because fewer than 15 percent of enterprises understand this relationship, most skip this vital planning step.
58
Gartner
Enterprises achieve benefits from CRM when they capture and analyze customer insight, and apply that information to increase the quality of communication and deliver relevant value-added services. Technology and the Internet economy increase the opportunity — and expense — of understanding customer needs. Therefore, enterprises need to know what’s possible and manage their available funds to optimize benefits. An enterprise should consider the following best practices when aligning its CRM strategy: • Engage the CEO, business and technology strategists, and key executives from functions such as marketing, human resources, sales and customer service. • Define CRM as an enterprise-level initiative (although implementation of the strategy may start at the departmental level). • Ensure that the enterprise and marketing strategy are in place, and that target customers have been welldefined. • Name a CRM executive sponsor and define his or her role. If this sponsor leaves the enterprise, appoint another quickly. • Use a methodology for CRM strategy development. Because CRM is an evolving, creative science, an enterprise should use the following six-step methodology to develop a CRM strategy: • Audit the enterprise’s current position with customers, and in the market. • Segment the customer base, and identify target segments. • Set customer objectives (such acquisition, development or retention) for each market objective. • Define metrics for monitoring the execution and evolution of the strategy. • Outline, by segment, the strategy to customize products, pricing, communication and channels — and to manage customer service and contacts — in order to create the desired customer value proposition and customer experience. • Specify the required customer capabilities and infrastructure (such as people, IT and data).
Strategic Planning Series
Positioning the Enterprise for CRM Success
Action Item: Use Gartner’s six-step methodology as a starting point when developing a CRM strategy, and customize and enhance this methodology to meet the specific needs of the enterprise.
2.3.3
Focus on the Customer
Strategic Planning Assumption: By 2006, as leadingedge marketing organizations increasingly focus on customer growth strategies and more-mainstream ones focus on customer retention and extension strategies, the relationship marketing process will involve multiple points of contact (0.8 probability). Adopting a customer-centric CRM cycle requires enterprises to implement the supporting infrastructure that each element requires (see Figure 2-4). This involves new IT systems (with the IS organization’s cooperation) as well as changes in organizational processes and attitudes. Enterprises must therefore determine their technological readiness (for example, in terms of the automation of
marketing processes, and of internal skills and capabilities) and their organizational readiness (for example, business objectives and organizational commitment). The movement to CRM occurs in two key areas. The first is a focus on understanding the customer’s relationship to the enterprise. This attitude is reflected in more-responsive technology and marketing processes, and in a willingness to integrate the customer more fully into the enterprise. This can be achieved by integrating the multiple channels that marketing uses to deal with the customer. The second area for development is to extend customer understanding beyond the marketing organization and into other groups within the enterprise, such as the supply chain for mass customization or customer service for crossselling opportunities. Action Item: Examine the enterprise’s points of customer contact, and determine where they may be suboptimal from the customer’s perspective.
Figure 2-4: The New CRM Cycle
Channel Usage Channel Management One-to-One Marketing
Customer Profitability Modeling
Custom Segmentation Developed
Data Mining Decision Support
Marketing Exposure
New Media Chosen
Unique Four “P’s”
Service Need
Process: Iterative
Channel Integration/ Customer Interaction Touchpoints
Response/ Channel Choice
Key: Learning About Customer Advantage: Tighter Relationship
Database Updated
Purchase Decision
Behavioral Data Collected
Supply Chain Integration
Data Capture and Cleansing
Marketing Information Systems Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
59
Reaping Business Rewards From CRM
2.3.4
Customer Data Integration
2.3.5
Enterprises and vendors are starting to talk about customer data integration (CDI) as an established market. However, many enterprises aren’t certain about exactly what it means or includes.
Influencing the Customer Process
Strategic Planning Assumption: By 2006, in Global 1,000 enterprises, 85 percent of business-to-business relationships — and 75 percent of business-to-consumer relationships — will involve three or more channels (0.8 probability).
CDI is the combination of technology, software, processes and services required to achieve a single, accurate and complete view of the customer across multiple sources of customer data (internal and external), databases and business lines. Successful CDI provides the capability to instantly recognize customers and have their relevant information dynamically available — regardless of the interaction touchpoint. CDI forms the foundation for all other customer-centric initiatives, including CRM, as well as integration with enterprise resource planning implementations across departments and enterprises.
When evaluating the effectiveness of customer interactions, enterprises traditionally focused on where the purchase transaction occurred. However, customers pass through many steps before and after this transaction (see Figure 2-5). It is only within the context of these steps that a customer makes a purchase. Selecting the point of transaction becomes a matter of convenience. Complicating things further, customers move across channels as they make their way through the process. As they move between different channel touchpoints, their weakest channel interaction will most strongly influence their overall impressions of the enterprise. Therefore, an enterprise must provide a consistent level of service across all channels, and make historical data on a customer available at every channel so that he or she won’t be treated as a stranger during each new interaction.
In some ways, CDI represents nothing new — especially in the area of CRM known as database marketing. What’s new is the integration of all these capabilities into vendor solutions, providing real ROI benefits by improving the underlying quality of the database. In addition, the CDI market’s emphasis on quality customer data also helps advance CRM.
Figure 2-5: The Customer Experience Across Multiple Channels Buying Process 1. Establish need 2. Find sources
Communication Medium Mail Fax E-mail Web Phone Retail
Enterprise Perspective
Customer Path
3. Establish trust 4. Determine value 5. Select product 6. Make transaction 7. Services 8. Upgrade/repeat
ty ali Re
Customer Perspective
p Ga
Buying Process 1. Establish need
Customer Path
2. Find sources 3. Establish trust 4. Determine value 5. Select product 6. Make transaction 7. Services 8. Upgrade/repeat
Mail Web Phone
Communication Medium
Retail Web
Source: Gartner
60
Gartner
Strategic Planning Series
Positioning the Enterprise for CRM Success
Action Item: Focus on influencing the customer process consistently — at all stages and in all channels.
2.3.6
Strategies for Harvesting the Value of Customer Information
In many respects, privacy is a state of mind, depending on the customer’s view of its relationship with the enterprise. Extensive data collection and analyses of customers won’t automatically be seen privacy abuse — and complying with data privacy legislation won’t necessarily prevent enterprises from being perceived as abusing privacy. Permission-based marketing may not be the universal remedy to privacy, either, because it: • Can make interactions less effective • Places the onus on the customer to understand fully what he or she does and doesn’t want to receive To avoid jeopardizing the customer relationship, enterprises need to understand the four key strategies for harvesting the value of customer information (see Figure 2-6): • Zero-gain compliance
• Mass exploitation • Targeted exploitation • Trusted advisor Enterprises must make privacy strategy choices after considering the business case and the characteristics of the desired customer — bearing in mind that a “trusted advisor” relationship is difficult to achieve once a brand is associated with the abuse of customer privacy. In other words, for a given customer-enterprise relationship, the strategies are mutually exclusive. However, in theory, an enterprise could pursue different strategies in different markets.
2.3.6.1
Zero-Gain Compliance
This strategy happens when customers deny an enterprise permission to use data, and the enterprise scrupulously observes customer permissions (as most law-abiding businesses do, especially after a little regulatory attention). Both customer and enterprise face downsides as a result (for example, lack of attention for the customer, and added data management costs for the enterprise) and neither gets much in return.
Figure 2-6: Four Approaches to Harvesting Customer Information Value
High Targeted exploitation
Trusted advisor
Mass exploitation
Zero-gain compliance
Long-term customer revenue potential
Low Low
High Customer concern for privacy
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
61
Reaping Business Rewards From CRM
This is the default strategy for dealing with suspicious privacy fundamentalists or with privacy pragmatists who’ve been cheated by an enterprise. An enterprise in this position must minimize its data acquisition and management costs because revenue opportunities already have been reduced. Enterprises should avoid this strategy whenever possible.
2.3.6.2
Mass Exploitation
Spamming — one example of mass exploitation — is: • Inherently oriented toward transactions, rather than relationships • Aimed at those unconcerned about privacy • Reliant on low overhead and large numbers of contacts, to make even extremely low rates of customer response profitable The regulatory requirements for customer data and preference management ultimately make this strategy highly profitable only for unscrupulous businesses. Morelegitimate enterprises will find that, over time, spamming tends to push the vendor into the zero-gain compliance scenario as privacy-sensitive customers react to the exploitation approach by denying permission to use their data.
2.3.6.4
The trusted advisor strategy has a long-term, two-way relationship orientation. Enterprises assume customers are informed — and if they aren’t, the enterprise helps inform them. The enterprise aims to be the preferred choice for high-revenue-potential, privacy-sensitive, informed buyers. Trust and explicit permissions empower the trusted advisor to take proactive steps on behalf of the customer (for example, suggesting new partners, products or services to complement the current relationship). In this model, privacy is part of a bundle of products and services, and enables a larger commercial relationship. Although its maintenance requires considerable enterprise attention, this relationship delivers high value to all involved. The enterprise incurs costs similar to those of other compliant approaches. However, it gains more revenue opportunities over a longer period. Enterprises will find it easier to take this approach from the start, rather than converting to it from a zero-gaincompliance, mass-exploitation or targeted-exploitation approach. Trust takes time to develop, and a history of privacy insensitivity can prove difficult to overcome — especially when the customer is a privacy-sensitive one.
2.3.7 2.3.6.3
Targeted Exploitation
Like mass exploitation, targeted exploitation assumes a passive, privacy-insensitive customer — whether unconcerned or a pragmatist — whose information can be exploited heavily by the enterprise and third parties involved with the enterprise. Financial-services vendors that depend on opt-out laws to enable widespread sharing of customer information with an unlimited range of third parties practice targeted exploitation. Although this approach is more relationship-oriented than mass exploitation, the relationship is one-way — the enterprise isn’t really listening to the customer. If the customer becomes privacy-sensitive and has a choice, the scenario may quickly convert to zero-gain compliance.
62
Gartner
Trusted Advisor
Aligning CRM Decisions With Enterprise Goals
Strategic Planning Assumption: Through 2006, fewer than 15 percent of executives will clearly articulate how selected CRM applications will help them attain specific enterprise goals, such as revenue growth, profit growth, market share or earnings per share (0.8 probability). CRM initiatives often lack alignment among enterprise strategy, business processes and applications of technology. This lack of alignment usually leads to project failure. Although senior executives can espouse enterprise strategies, those making process-transforming technology decisions are often unable to articulate which software applications will best support the enterprise’s goals.
Strategic Planning Series
Positioning the Enterprise for CRM Success
Enterprises also end up with less-than-optimal results when they choose technologies primarily based on how well they support departmental needs. CRM winners — business architects who understand the important role technology plays in transforming business processes — know which strategies support enterprise goals, and which business processes they must optimize to support the strategy. Action Item: Prioritize application functionality investments based on their ability to support enterprise strategy.
This will lead to the full integration of analytics, operations and infrastructure. Although this vision won’t occur overnight, it will occur, regardless of business model. Industries and enterprises need to determine how to link their various systems. Action Item: Prepare for the need for the enterprise to integrate and collaborate its broader network of partners and affiliates.
2.4 2.3.8
The Future of CRM
Strategic Planning Assumption: By 2006, although 15 percent of CRM initiatives will include broader business processes that extend outside of traditional organizational and enterprise boundaries, fewer than a half-dozen solutions will adequately address this need (0.7 probability). The future of CRM looks like a complex machine. The various CRM systems required and used by all organizations in the extended enterprise will combine into one collaborative environment, in which: • Information flows freely. • Customers can receive the same high level of sales and service, regardless of touchpoint or partner. • The enterprise has a complex hierarchy of strategy, supported by metrics and tactics — which are, in turn, supported by departments and their operational systems.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Recommendations
• Evaluate the enterprise’s market position with regard to customer requirements and the competition. Define a valued, differentiated customer proposition based on the enterprise’s resources and capabilities. • Don’t ignore the brand in the age of CRM. • Value the potential of the customer base, not just the profits it now delivers. Build a customer asset portfolio. • Establish the motivating factors for customer loyalty, and determine where to excel and what opportunities exist to cut costs. • Understand what technology enables enterprises to do. • Build a process for evolving the strategy from operational feedback so that it provides a business integration point in a changing environment
63
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
3.0 Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels B
usiness-to-consumer (B2C) customer relationship management (CRM) is all about creating business value and improving customer relationships. The most-successful B2C CRM initiatives result from taking the time to develop a CRM strategy that reflects a strong customer vision, and supports the enterprise’s business goals and objectives. Functionality remains important in B2C CRM technology decisions — but so do architecture, integration and flexibility. Leading B2C enterprises will buy leading functionality, integrate it with their in-place architecture and systems, and use it to develop differentiating processes that create sources of competitive advantage. Proving value will be another area where leaders will differentiate themselves. In the early days of CRM, enterprises gave little thought to measuring CRM efforts — much less what impact they had on profitability. Many enterprises simply assumed there would be returns. Today, enterprises can’t afford to make that assumption, and must prove the benefits and value that they will derive from such efforts — and then prove they’re actually getting them. Translating objectives into metrics and profitability isn’t easy, and it will remain a challenge for most enterprises using CRM. Through 2007, more than 85 percent of firms will remain unable to link CRM initiatives to profitability (0.8 probability). However, leading enterprises are proving that it can be done. The following Key Issues frame the analysis in this chapter: • What are the critical B2C CRM business drivers and strategies, and the resulting benefits? • What technologies and architectures are critical for B2C CRM success? • How can enterprises select the most-appropriate B2C CRM solution and partner?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
65
Reaping Business Rewards From CRM
3.1
Key Drivers and Strategies in B2C CRM
Key Issue: What are the critical B2C CRM business drivers and strategies, and the resulting benefits?
3.1.1
cases, the differences result from whether the enterprise sells to consumers, businesses or through intermediaries. However, enterprises that have similar business models usually share more similarities among their CRM initiatives than those in the same industry. Figure 3-1 highlights the most common business models in many different industries. An enterprise can use this figure to look for other industries in which a similar business model may yield new CRM insights.
Benchmark Against Similar Business Models, Not Industries
Tactical Guideline: An enterprise should study CRM initiatives in other industries that have similar business models, in addition to CRM initiatives among competitors. In the same industry, a CRM initiative in one enterprise often looks nothing like an initiative in another. In most
Action Item: When searching for similarities in other CRM initiatives, examine the enterprise’s business model first, rather than its industry. Then look for similar models in other industries to learn more about the enterprise’s CRM initiative.
Figure 3-1: Learning About B2C CRM by Looking Across Industries B2C B2B B2B2C Agriculture, Mining, Construction Agriculture Mining Construction Discrete Manufacturing Industries Transportation Equipment (Auto, Plane, Rail, Ship) Computer and Electronic Products (High-Tech) Industrial and Electrical Products Medical Equipment and Supplies Other Discrete Manufacturing Process Manufacturing Industries Pharmaceutical and Medicine Chemical, Plastics and Rubber Products Petroleum and Coal Products Textiles and Apparel Metal, Wood, Minerals, Paper, Printing Publishing Consumables (Food, Beverage and Tobacco) Other Process Manufacturing Utilities Electric and Gas Water Wholesale Retail General Retailers Specialty Retailers Grocery Restaurants and Hotels
Source: Gartner
66
Gartner
X X X
X X X
X
X
X
X
X
X
X X X
X X X
X
X X
X X X
X X X
X
X X
X
X
X X X
X
X X
X X X
X X X X
X X X X
B2C B2B B2B2C Transportation Rail and Water Motor Freight Air Transport Pipelines (Except Natural Gas) Warehousing, Couriers and Support Services Communications (Information) Wireless Wireline Satellite and Other Broadcasting and Cable Financial Services Banking Securities Insurance (Other Than Health) Health Insurance (Payer) Healthcare (Provider) Services Software Publishers Professional, Scientific and Technical Services Real Estate Business and Consumer Services Other IT Service Providers Education Primary and Secondary Schools Higher Education National and International Government Defense and Intelligence Civil Local and Regional Government
X X X X
X X X X X
X X X X
X X X X
X X X X X
X X X X
X X
X X
X
X X X
X X X
X X X
X X
X
X X X
X X
X X X
X X X
X X
B2B business to business B2C business to consumer B2B2C business to business to consumer
Strategic Planning Series
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
3.1.2
Creating a CRM Road Map
This map allows the enterprise to identify areas with large gaps, and to start quantifying the effects of a CRM initiative. As the example in Figure 3-2 shows, if the cost to acquire a new customer is $300 and the goal is $200, the enterprise can measure its progress over time. It can also estimate the upside potential of such an initiative to its customers.
Tactical Guideline: CRM planners should create an enterprise CRM road map that has documented goals and objectives, and is based on a gap analysis that identifies CRM opportunities. Enterprises often have no idea where they are with CRM or where they eventually will go. When asked if they see real results from their CRM initiatives, they often can’t answer definitively.
3.1.3
Customer Segmentation and CRM Strategy
Tactical Guideline: Before creating a CRM strategy, an enterprise must segment customers by current and potential value as well as needs.
To help set goals and determine direction for a CRM initiative, and to ascertain its status, an enterprise needs to develop a CRM road map. This process starts by identifying key customer-centric measures in marketing, sales and service. Some enterprises break this down further into steps of the sales cycle (such as identification, communication, acquisition, fulfillment and service).
Development of a CRM strategy requires detailing the enterprise’s objectives, and the tactics it will use to achieve them. These tactics may include analyzing customer segments, and customizing product, price, communication and channel strategies to target different segments (see Figure 3-3). It may also involve making greater use of new technologies, value-added service and customer care to improve the customer experience and create loyalty. These new tactics require more personalized and event-driven communication.
Whatever system an enterprise uses, key metrics are essential. Only after the enterprise has identified its key customer-centric measures can it put a stake in the ground and begin determining where it stands and where it wants to go.
Figure 3-2: Gap Analysis Helps Prioritize CRM Strategically and Logically Acquisition cost per new customer $200
Revenue per new customer $1,000
Goal
Current $600
$300
Average cross-sell 25% rate per customer
$30
20%
$14 Average increase in order size 15%
$15 Cost per lead
Opportunity
25%
10%
$2 Cost per interaction
$2,000 $2,495 Lifetime value
10% Defection rate
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
67
Reaping Business Rewards From CRM
• Applying propensity models to data in real time to predict the likelihood of customer churn, bad debt and the purchase additional services.
An enterprise must pay greater attention to managing customers cost-effectively, and to which relationship models will be used. Because enterprises offer customers more services through a proliferation of channels (such as Web, phone and retail channels), this is increasingly important to CRM.
3.1.4
• Passing this information to call center agents in a format they can use while talking to customers. Mobile telecom service providers also set the standard in Web-based bill presentment. Many have emulated this standard in industries such as:
Four Customer Service Lessons From Mobile Telecom Service Providers
• Fixed-line telecommunications
Tactical Guideline: Vendors that sell directly to consumers can learn valuable lessons from mobile telecom service providers by examining their use of customer analysis to improve customer service, Web-based ordering, bill presentment and speed of service activation.
• Water, electricity and gas utilities
Although mobile telecom service providers offer many lessons for other B2C industries, the biggest takeaway is how using analysis, profiling and segmentation systems can help measure and manage customer turnover and profitability. Innovations in this area include:
Speed of service activation represents the third area of innovation that an enterprise can leverage. Initially, poor integration of processes (and systems) often meant a delay of one to two weeks before activation of mobile-phone service. Today, providers can activate service within hours — quickly satisfying the customer. Streamlining the
• Retail, travel and transportation firms (with their loyalty programs) • Retail banks (in their balance statements)
Figure 3-3: Customer Segmentation Is Fundamental to a CRM Strategy
Increase customer retention
$1,500
$1,000 $500
Low value Reduce cost to serve
Upsell Increase product penetration
Crosssell
High-value segment
High value
Reduce costs Increase revenue Loyalty gains
10% 30% 60%
Profit Low-value segment ($500)
Reduce costs Increase revenue Loyalty gains
Manage churn
70% 20% 10%
($1,000)
1
2
3
4
5
6
7
8
9
10
Household deciles ranked by profit Source: KPMG
68
Gartner
Strategic Planning Series
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
activation process is an area where many banks, insurers and utilities still struggle — partly due to regulation but mainly because of poorly defined and implemented processes.
In addition to gauging the level of success, metrics also can:
A fourth area to emulate is front- to back-office integration. Mobile telecom service providers have done great work in connecting call center agents to multiple back-office processes, so the customer needs to deal with only one point of contact in areas such as bill dispute management, field service agent scheduling and contract management.
• Make effective change management tools
3.1.5
CRM Metrics
Tactical Guideline: An enterprise should select the mostappropriate metrics to track results against goals and objectives, and align them with corporate performance. To become customer-centric, an enterprise must set measurable, specific CRM objectives and metrics. These must follow and measure an enterprise’s own CRM strategy — in other words, CRM metrics must be unique to the enterprise.
• Provide a feedback mechanism for iterative development of strategy and tactics
• Help restructure employee incentives A hierarchy needs to exist for linking required CRM metrics, depending on their purpose and who is using them. Gartner recommends that CRM metrics be defined at four levels: corporate; customer strategic; operational and process; and infrastructure input. Examples of metrics and goals at each of the four levels in this hierarchy are shown in Figure 3-4. (For more information on this hierarchy of CRM metrics, see Section 7.8.) An enterprise faces two primary challenges when developing CRM metrics: • Understanding the points that link levels • Avoiding too much complexity or excessive simplicity
Figure 3-4: The Hierarchy of CRM Metrics Corporate
Market share Revenue growth
Profit growth Margin growth
Cost ratios Customer loyalty
Objective: Key measures to support corporate, financial and market goals Customer Strategic
Lifetime value Customer profitability Cost to serve
Acquisition Development Retention
Risk profile Staff satisfaction
Objective: Key measures for monitoring the customer strategy Operational
Response levels Conversion ratios Complaints
Staff turnover Channel-specific measures
Cross-sell ratio Recommendation levels
Objective: Key measures for monitoring the customer processes Infrastructure
Call answering times Customer data Accuracy
Response times “Do not mail” markers
Staff qualifications Staff sickness
Objective: Key measures for monitoring efficiency and inputs Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
69
Reaping Business Rewards From CRM
3.2
Critical B2C CRM Technologies
Key Issue: What technologies and architectures are critical for B2C CRM success?
3.2.1
Controlling the Customer Information Architecture
Strategic Planning Assumption: Through 2007, although most will struggle to create an enterprisewide single customer view for operational purposes, successful implementations will use federated information architectures that flexibly integrate already-created and new customer databases (0.8 probability). In large enterprises, history and the intricacies of multiple applications, geographies and lines of business make it impossible to use one database to provide a single, integrated view of the customer. Because customer information usually resides in numerous different major systems, enterprises must take control of their customer information architecture. They must decide how to synchronize, reconcile and integrate their various databases that contain customer data. Although the physical model that is fundamental to a CRM suite usually represents a key building block to the customer information architecture, it: • Needs to be integrated — potentially bidirectionally and in real time — with other key systems • Potentially duplicates many functional and data elements of established systems
• The degree to which they physically or virtually instantiate customer data • Whether applications (typically service-oriented) reference data directly, or simply act as a synchronization point between databases
3.2.2
The Challenge of Integrating Customer Processes
Strategic Planning Assumption: By 2007, more than 30 percent of new integration projects that involve Siebel Systems applications will use Siebel’s Universal Application Network, together with third-party integration middleware (0.7 probability). Many customer-oriented processes need to span multiple functions and organizations within the enterprise. They also may need to include business partners. Similarly, although some customer-oriented processes may start and end within “the CRM system,” many others will need to access internal application systems — and potentially external ones — to provide the desired customer experience and deliver customer value. Investment in an enterprise suite that includes CRM, enterprise resource planning and supply chain management applications may reduce the extent of the enterprise’s process integration challenge (particularly for B2B-oriented manufacturers). However, B2C industries, such as financial services and communications, face a major customer process integration challenge when attempting to integrate processes across CRM systems and throughout vertical-industry systems — for example: • Provisioning and billing systems in communications
This can create a tough decision regarding whether to remove duplicative systems or just “live with them.” An alternative approach — suitable only for large enterprises that have rationalized their customer information architectures — is to create a virtual data model with the CRM vendor’s product, and map the new operational CRM applications into established databases. In addition to these two approaches — and potentially complementing both — customer data integration (CDI) offerings are emerging that can overlie databases, and create one system of record or reference point for customer data across the enterprise. These CDI products vary with regard to:
70
Gartner
• Payment and core banking systems in financial services Solutions that leverage established middleware investments and stem from evolving Web services standards — particularly Business Process Execution Language (BPEL) — are becoming best practices. In addition, the emergence of packaged integrated processes could reduce the cost of business process integration — and the time needed for implementation. Action Item: Develop strategies for integrating the enterprise’s customer processes — both internally and with business partners.
Strategic Planning Series
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
3.2.3
Leveraging Service-Oriented Application Approaches
Strategic Planning Assumption: Through 2008, enterprises that deploy service-oriented business applications (SOBAs) will realize average process productivity gains of more than 20 percent, and cost savings of more than 15 percent, by fusing dissimilar applications and breaking down structured and nonstructured information silos (0.6 probability). Service-oriented approaches will push application providers to open their monolithic structures and allow Web-servicesbased access to internal business processes. SOBAs will create sources of competitive advantage by allowing new combinations of application functionality at new, morerefined levels. In 2004, enterprises will start deploying SOBAs. SOBAs will demonstrate the real-world benefits of serviceoriented architectures (SOAs), as well as service-oriented development by vendors and users creating composite applications. Vendors, including Microsoft, Oracle PeopleSoft, SAP and Siebel, will support SOBAs by: • Transforming established applications into SOA-oriented formats • Incorporating Web services standards, such as BPEL and Simple Object Access Protocol (SOAP) • Introducing applications that use new dynamic business-modeling techniques
Tactical Guideline: Leading enterprises will need to invest in building a customer interaction hub. An enterprise’s success increasingly will depend on an ability to use the insight gained from customer interactions and customer feedback to deliver what customers expect in a timely manner. As enterprises improve their ability to identify the key customer service events — as seen from the customer perspective — they also will more easily identify the owners of those processes. The resulting business case will redesign customer-centric processes. In turn, this will lead to the creation of a customer interaction hub. The customer interaction hub — an integrated customer interaction framework — provides to all relevant customerfacing employees a real-time, thorough view of the customer across all channels. This will include a: • Segmented, analytical evaluation of the customer • Determination of the level of service resources to apply to the customer, based on the customer’s profile This hub will allow the enterprise to: • Identify the customer inquiry. • Determine — for the customer or the employee — the best method for answering. • Provide the expected solution in the least amount of time by accessing the necessary content, business rules and customer information.
SOBAs will create sources of competitive advantage by breaking down the walls that separate disparate applications and information stores. Type A enterprises can achieve the first benefits of composite SOBAs within six months of implementation, and achieve ROI within 12 months.
• Deliver to the agent information personalized to meet his or her role and information needs.
Action Item: If your enterprise is a large one, be sure that it starts planning now for how it will leverage SOBAs.
Key Issue: How can enterprises select the mostappropriate B2C CRM solution and partner?
3.2.4
3.3.1
The Customer Interaction Hub
Strategic Planning Assumption: Through 2008, the customer interaction hub will not emerge as a standard product suite (0.8 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
3.3
Selecting B2C CRM Vendors
The B2C CRM Hype Cycle
Tactical Guideline: An enterprise needs to: • Understand the hype and the realties of different CRM solutions.
71
Reaping Business Rewards From CRM
• Select a solution that meets its requirements. • Apply change management to ensure the enterprise best leverages all capabilities. Many CRM capabilities are now maturing (see Figure 35), including:
Fueling this is recognition that lead management in B2C organizations is driven more by marketing processes than sales processes. As such, many enterprises invested in realtime analytics for lead generation with great success — but without qualification, prioritization and execution capabilities.
• Call center applications
Overpromised and underdelivered value has pushed CRM suites, CRM framework vendors, verticalization and external service providers toward the Trough of Disillusionment. Generating new hype in the market are:
• Data quality tools
• Wireless CRM
• Loyalty programs
• Data mining in the call center
• Campaign management systems
• Marketing optimization
Self-service selling and e-marketing have emerged from the Trough of Disillusionment and are moving toward generating more productivity in enterprises. Although sales force automation and lead management represent mature applications in B2B industries, they remain relatively underused — and one of the major factors in CRM failure — in B2C industries that lack effective change management for sales staff.
• Marketing resource management
• Customer segmentation
• Collaborative customer service Technologies recognized as keys to successful enterprise CRM include: • CDI
Figure 3-5: B2C Hype Cycle for CRM in 2004 Visibility
Key: Time to Plateau Less than two years
Customer data integration
Two to five years
CRM suites
CEM Customer interaction hub Marketing resource management
Real-time analytics
More than five years
CRM framework vendors Lead management solutions
Business process fusion
Call center
Verticalization
Collaborative customer service
Data quality Marketing optimization
CRM ESPs
Affinity/loyalty programs
Contact center
Campaign management systems
Self-service selling
SFA
Data mining in the call center
CRM overall
E-marketing As of February 2004
Wireless CRM Technology Trigger
Segmentation
Peak of Inflated Expectations
Trough of Disillusionment
Slope of Enlightenment
Plateau of Productivity
Maturity Source: Gartner
72
Gartner
CEM CRM
customer experience management customer relationship management
ESP external service provider SFA sales force automation
Strategic Planning Series
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
• The customer interaction hub • Business process fusion
expertise, competitive functionality and a solid chance of market differentiation (0.7 probability).
• Customer experience management
B2C enterprises considering vendors for broad functionality must weigh the following three considerations:
3.3.2
• The breadth of vertical-specific CRM functionality to support the business model
B2C CRM Suites
Tactical Guideline: No current B2C CRM suite provides all the functionality an enterprise requires. Through 2007, enterprises will have to create and maintain extensions to have their CRM suites deliver the complete functionality they need. Because B2C enterprises sell to, market to and service consumers directly, they require a different mix of CRM suite functionality than B2B enterprises need to maintain their relationships. Although B2C industries are often cited as early adopters of CRM technology, the software market for suites to support this model consistently has been less mature than the equivalent market for B2B industries. Whereas B2B models tend to emphasize the connection between sales and service, B2C models emphasize marketing and service. The large growth opportunities in the sales and service markets — combined with the relative immaturity and fragmentation of the marketing software market — made the concept of a truly B2C-oriented suite slow to emerge. With marketing functionality (which often includes analytics) now one of the fastest-growing components of CRM, most vendors are increasing their spending on marketing capabilities. This new spending positions them for renewed assaults on the B2C suite market. Action Item: When evaluating B2C CRM suites, ensure that the enterprise weighs the following factors, and their fit with enterprise objectives and business processes: • Product features and functions • Vendor viability • The architectural foundation of the CRM suite
3.3.3
What to Consider When Evaluating B2C CRM Vendors
Strategic Planning Assumption: Through 2007, CRM vendors will narrow their research and development (R&D) and sales efforts, and focus more on industry and relationship model combinations in which they have domain
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• The vendor’s knowledge of that industry • The importance of an industry to the vendor’s success through 2006 The leading vendors have strengths in different areas. Siebel generates most revenue in financial services, insurance and telecommunications — the highest-investing sectors in CRM. However, the public sector and the utilities, travel and hospitality industries have grown in importance. Most SAP customers come from: • Engineering and construction • Consumer products • Service provision • Utilities • Retail • High tech SAP put its R&D for mySAP CRM v.4 into consumer goods, automotive, pharmaceuticals and media CRM. Its CRM products tend to deliver less industry-specific CRM functionality for financial services and telecommunications, and for B2C in general (with the exception of utilities). Oracle has had success with CRM in government, parts of telecommunications, travel and hospitality, and high tech. PeopleSoft has been successful in CRM in financial services and telecommunications. Amdocs, the leader in CRM for telecommunications, has high-tech experience and plans to enter the financial services market (see Figure 3-6).
3.3.4
The Gartner Magic Quadrant for B2C CRM Suites
Two categories of vendors are competing in the B2C CRM suite market (see Figure 3-7):
73
Reaping Business Rewards From CRM
Figure 3-6: B2C CRM Vendors: Industry Impact, February 2004 Amdocs
Breadth of VerticalSpecific CRM Functionality and Domain Expertise
E.piphany
Oracle Manufacturing Government High Technology
Communications
High Technology Retail Financial Svcs. Insurance
Public Sector Opportunistic
Strategic
High Technology Hospitality
Financial Svcs. Communications
Communications Transportation Financial Svcs. Healthcare CPG
Opportunistic
Strategic
Opportunistic
Strategic
Importance of Vertical to Vendor Success Through 2006
PeopleSoft
Government
Retail Utilities Healthcare
Financial Svcs. Service Industry Communications High Technology Insurance
Opportunistic Source: Gartner
Strategic
Engineering and Construction Automotive
Opportunistic
Siebel continues to set the standard for ability to execute in the CRM market. However, as the architectural requirements and thought leadership elements of the B2C market diverge from those of the B2B market, Siebel must
Gartner
Strategic
(as of January 2004)
• Enterprise suites — Amdocs, Oracle, PeopleSoft and SAP leverage elements of functionality outside traditional CRM to help build sales momentum and customer ROI. Although Amdocs has the advantage of the highest adoption of B2C CRM within its targeted markets, PeopleSoft and Oracle have put significant effort into competing as best-of-breed CRM suite players in B2C industries.
Life Sciences CPG
Utilities
High Technology Service Providers Retail CPG
• CRM suites — CRM requires the integration of analytic and operational areas. Most vendors provide this integration by making acquisitions that serve as the basis for further internal development. Siebel has come from the sales side of CRM to build a broad suite, while E.piphany has come from the marketing side to add field sales and customer service functionality. Chordiant Software has accomplished the most evenly balanced merger of marketing and call center functionality.
74
Siebel
SAP
Energy/Utilities Automotive Public Sector Opportunistic CPG
High Technology Financial Svcs. Communications Insurance Strategic
consumer packaged goods
be perceived as driving — not just responding to — those trends to ensure its continued dominance. E.piphany is demonstrating a strong vision by leveraging embedded insight and using an open architecture to tie into enterprises’ established business processes. PeopleSoft continues to leverage its architecture and demonstrate its strength in customer service. Although Amdocs has widened its offerings, its stronghold market remains customer service in telecommunications. Oracle and SAP have invested heavily in the development of recent releases and have positioned themselves well to improve their location in the Magic Quadrant, but they must make up ground to become contenders in largescale B2C enterprises (with the exception of SAP in the utilities market). Although Chordiant Software has the potential to succeed, it must execute in North America to improve its overall position.
Strategic Planning Series
Business-to-Consumer CRM: Managing Millions of Relationships Across Multiple Channels
Figure 3-7: B2C CRM Suites Magic Quadrant Challengers
Leaders
Siebel Systems
Ability to Execute
Amdocs Oracle PeopleSoft E.piphany
SAP Chordiant Software
As of January 2004
Niche Players
Visionaries
Completeness of Vision Source: Gartner
Onyx Software and Kana aren’t significant competitors in this market and therefore weren’t included in the 2004 B2C CRM Suites Magic Quadrant. Although Onyx continues to sell to some large enterprises — particularly in the financial-services industry — and into smaller divisions and groups, it has generally focused on its core strengths in the midsize-enterprise market. Kana claims some sales in Europe and Asia/Pacific for its service suite. However, until it appears consistently on customer shortlists, receives stronger levels of support from service providers, and demonstrates initiatives related to its marketing or analytic solutions, its product won’t represent a true CRM suite. Action Item: Rather than relying solely on a vendor’s placement within Gartner’s B2C CRM Suites Magic Quadrant, be sure to focus on other factors specific to the enterprise, such as the vendor’s depth of industry expertise.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
3.4
Recommendations
• B2C CRM is creating business value and improving customer relationships. The most-successful B2C CRM initiatives stem from a CRM strategy that reflects a strong customer vision — as articulated by top management. • Although functionality remains important, so do architecture, integration and flexibility. Leading B2C enterprises should seek not only to buy leading functionality, but also to integrate it with their established architecture and create differentiating processes. • Vendors have strengths in different vertical markets and with different relationship models. An enterprise must ensure that any vendor chosen demonstrates commitment to its industry, delivers the necessary industry-specific capabilities and remains dedicated to the B2C relationship model.
75
Business-to-Business CRM: Fusing Processes and Technology
4.0 Business-to-Business CRM: Fusing Processes and Technology E
nterprises that depend on demand networks for a substantial part of their revenue, or those that look to alliances and partners to enhance their competitive positions, must understand how to tap into customer relationship management (CRM) to unlock the demand chain’s full value potential. Increasingly, these enterprises will have to focus on: • Linking CRM initiatives to profitability • Integrating processes seamlessly throughout the demand chain by sharing processes • Using business modeling • Establishing collaborative demand chain relationships • Prioritizing application investments that build partner and customer capabilities, collaboration and trust • Planning the evolution to a CRM architecture that can integrate with the extended enterprise • Understanding the limitations of CRM suites and how to close functionality gaps • Choosing the right vendor — or vendors — to meet business-to-business (B2B) CRM needs The following Key Issues frame the analysis in this chapter: • How will enterprises leverage CRM to improve customer and partner processes? • How will enterprises exploit technology to capture sales and service revenue? • Which vendors will best help enterprises gain value from their CRM systems?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
77
Reaping Business Rewards From CRM
4.1
Using CRM to Enhance Customer and Partner Business Processes
Key Issue: How will enterprises leverage CRM to improve customer and partner processes?
4.1.1
CRM Vision and Strategy Can Increase Profits
Strategic Planning Assumption: Through 2007, more than 85 percent of enterprises will remain unable to link CRM initiatives to profitability (0.8 probability). Today, planners of CRM initiatives must prove the benefits and value they will derive from these initiatives — and prove they’re delivering them. Although translating objectives into metrics and showing the impact on profitability isn’t easy, leading enterprises are proving that it can be done. To gain the approval from the CIO and CFO, York International, Volkswagen, Maytag and a diagnostic product company all defined specific CRM objectives and anticipated returns from their projects (see Figure 4-1). In
all four cases, the results were overwhelmingly positive returns. Action Item: Enterprises should define proposed process improvement in terms of measurable productivity improvements, and deploy the tools needed to measure the improvements.
4.1.2
Seamless Execution of Processes
Strategic Planning Assumption: Through 2008, enterprises will base application purchases more on integrated processes than application components (0.7 probability). “Mass personalization” is finally on the verge of emerging. To date, mass personalization has been almost impossible because of the inability to link: • CRM systems • Enterprise resource planning (ERP) systems • Product life cycle management (PLM) environments
Figure 4-1: Examples of Defined Objectives Linked to Measurable Returns Company
Objectives
Returns
York International
Expand into new markets Reduce the number of systems deliver consistent service
Consolidated 70 call centers into one Improved service sales by 20 percent
Volkswagen
Develop a real-time data network among partners
Reduced warehousing costs Improved logistics control Increased productivity by 15 percent
Maytag
Avoid competing with retail partners Provide more customer choices Increase brand lock-in
Online purchases averaged twice the size of in-store purchases More than 50 percent of online orders occurred outside retail hours
A diagnostic products company
Lower maintenance expense Improve service levels for customers at the same or lower price Reduce personnel
Emergency repairs declined by 80 percent Routine inspections dropped by 60 percent Maintenance costs decreased by 51 percent
Source: Gartner
78
Gartner
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
• Supply chain management (SCM) systems However, service- and event-oriented system architectures, combined with process flow automation achieved through business process fusion, will enable enterprises to manufacture to individual desires while maintaining the underlying economics that ensure profitable operations. The day is coming when product design (such as for an automobile) will come from the customer, not the internal product team. Although the manufacturer will still drive the overall product forward, the customer will determine the particular features of the product. Portals that unify user experiences across applications will allow for seamless execution of processes (see Figure 42). This capability will raise expectations that all applicationenabled processes should operate seamlessly. When making application selections, enterprises will focus on process integration capabilities more than features or functions.
Action Item: To drive customer process design, enterprises should identify key personalization opportunities, not focus on CRM or ERP deployment.
4.1.3
Customer Value in the Demand Chain
Demand chain entities — for example, enterprises responsible for fulfilling customer demand, such as distributors and dealers — face considerable challenges to: • Lower costs and increase revenue in the short term • Improve the customer experience to ensure growth in the long term In a typical demand chain, most customer relationship processes occur linearly, with a single owner responsible for their success (see Figure 4-3).
Figure 4-2: The Importance of Seamlessly Integrating Processes Prospect to cash without a process focus:
Prospect to cash with a process focus: CRM Applications
CRM Applications
1. Log activity
16. Apply payment
EAI 15. Invoice
2. Log opportunity 3. Check for contract 4. Check inventory 5. Check ATP/CTP 6. Determine price 7. Quote customer 8. Create quote
EAI
14. Ship
Financials, inventory management and order management
13. Send ASN 12. Plan and Produce
EAI
11. Confirm order 10. Check credit
EAI
9. Generate order
16. Apply payment
1. Log activity 2. Log opportunity
CRM functionality
15. Invoice 14. Ship
3. Check for contract 13. Send ASN 4. Check inventory
ERP functionality
5. Check ATP/CTP
11. Confirm order
6. Determine price 7. Quote customer
12. Plan and Produce
SCM functionality
10. Check credit 9. Generate order
8. Create quote
SCM Applications
SCM Applications
ASN ATP CRM Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
advance shipment notice available to promise customer relationship management
CTP EAI ERP SCM
capable to promise enterprise application integration enterprise resource planning supply chain management
79
Reaping Business Rewards From CRM
In this model, entities often make poor handoffs to each other. These slow and sometimes erroneous exchanges result in lost or delayed time-critical data, such as price changes, order status information and amounts of inventory. This poor data access: • Increases expenses unnecessarily (because people have to redo work) • Creates poor customer experiences • Limits opportunities to capitalize on customer growth potential In the demand chain, most entities have their own IT strategies and implement applications to benefit their enterprise — not to optimize the value that the demand chain can provide customers. Therefore, to bring shared value to customers, enterprises must look beyond their own needs and seek forms of collaboration with others in the demand chain. Action Item: Enterprises need to identify the obstacles to customer satisfaction in the demand chain.
4.1.4
Sharing Processes Throughout the Demand Chain
Strategic Planning Assumption: Through 2007, 15 percent to 20 percent of Type A enterprises will double annually the number of shared processes implemented in their demand chains (0.7 probability). In the mid- to late 1990s, many manufacturers believed they could lower their cost of sales and increase profits by going directly to customers on the Internet. The theory seemed sound. But manufacturers quickly discovered that they weren’t prepared to fulfill orders and provide quality aftermarket service that their channel partners offered. This caused manufacturers to refocus their Internet strategies toward investing in partner relationships. However, demand chain entities faced considerable challenges — such as multiple, proprietary content and data formats describing products and customers. By investing in technology that fosters collaboration and information sharing with other members, manufacturers are attempting to take a lead role in addressing these
Figure 4-3: Linear Processes Impede Effective Interactions
Limited Customer Visibility
No Influence at Point of Sale
Handoffs Prone to Errors and Latency
Increasing Expenses, Low Service Levels
Untapped, Profitable Aftermarket Potential
Manufacturer
Dealer
Distributor
Dealer
Dealer
Create Demand
Sell
Fulfill
Service
Grow
Customer Relationship Source: Gartner
80
Gartner
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
challenges by enhancing the ability to share and leverage information in a timely manner throughout their demand chains (see Figure 4-4). Prime examples of multiple demand chain entities sharing processes, data and application functionality to bring superior value to end customers include: • Shared e-commerce • Distributed order management • Community-based customer service In 2004, 15 percent to 20 percent of Type A enterprises are implementing at least one shared process in their demand chains. Action Item: To deliver more customer value, enterprises should identify opportunities to share processes with other entities in the demand chain.
4.1.5
The Value of Business Modeling
Strategic Planning Assumption: Through 2005, fewer than 25 percent of packaged-application providers will have
two-way exchange capabilities with modeling and simulation tools that support external business processes (0.7 probability). Lack of a well-tuned plan makes implementing complex systems difficult. Because intraenterprise integration requires significant time and resources, enterprises need to plan carefully to optimize time to market and minimize costs. However, as soon as enterprises consider integration with their demand chain partners, complications grow exponentially. These challenges can prove difficult to anticipate without trying alternative scenarios. Business models play a crucial role when planning alternatives. By time-constraining their efforts, enterprises can quickly try alternatives without the traditional high costs associated with methods that require near-full implementation. Enterprises can construct abstract business models, which is a faster and lower-cost process. The more complex the solution, the more business modeling excels for coordinating multiple contexts, audiences and geographies across alternative scenarios over time. Although business modeling doesn’t necessarily imply simulation, use of simulations works better than committees
Figure 4-4: Shared-Relationship Model Lowers Barriers Sample Shared Processes
Shared Campaigns
Shared Commerce Services
Special Price Authorization
CommunityBased Services
Distributed Order Management
Shared Relationship Model Create Demand
Sell
Fulfill
Service
Grow
Customer Relationship Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
81
Reaping Business Rewards From CRM
because simulations examine business processes in a lesslabor-intensive manner. Action Item: As an alternative to the traditional reactive approach, enterprises should complete time-constrained scenario planning through business modeling.
4.2
Using Technology to Improve Sales and Service
Key Issue: How will enterprises exploit technology to capture sales and service revenue?
4.2.1
Emerging Technologies to Support the Demand Chain
In the late 1990s, enterprises primarily deployed demand chain applications to manage orders, or distribute leads and product content to demand chain partners. These features provided business benefits, albeit tactical ones. Few enterprises dealt with the larger strategic issues — such as the proper selection and measurement of partners — to provide the greatest value to their customers. Leading enterprises will: • Take a more-complete relationship view of their technology investments with demand chain partners • Emphasize business processes and applications that support partner collaboration and enhance customer satisfaction Action Items: • Type A enterprises should investigate a demand chain strategy that encompasses the entire life cycle (sales, marketing and service components). They should also prepare for heavy integration burdens involved in assembling solutions from multiple vendors, some of which will have viability concerns. • Type B enterprises should consider tactically implementing individual application components from vendors that can demonstrate proven production deployments to partners for at least two years.
can demonstrate proven production deployments to partners for at least three years.
4.2.2
Establishing Collaborative Demand Chain Relationships
Strategic Planning Assumption: By 2007, enterprises that share CRM processes with partners will achieve a 30 percent greater return than will enterprises that don’t take this step (0.7 probability). Most enterprises that depend on demand chain partners to provide value-added services — such as global distribution, vertical marketing and sales reach, or localized operations and customer support — recognize that competing effectively requires proper orchestration of these indirect relationships. The Internet is proving to be a powerful catalyst in reformulating these relationships to capitalize on new ways of using and maximizing the assets of the overall demand network. Establishing increasingly collaborative demand chain relationships will require enterprises to develop key processes and capabilities, including: • Collaborative work spaces that foster communication and knowledge sharing among partners • Business process and rules integration between the enterprise and its demand chain to deliver a complete customer experience • Collaborative direct and indirect marketing, sales and service models • Distributed administration, application, content and data deployment capabilities • Improved demand chain visibility that enables better planning and effective resource allocation Action Item: Enterprises should: • Evaluate their demand network processes and capabilities. • Conduct gap analysis relative to documented best practices in demand chain management.
• Type C enterprises should consider implementing individual application components from vendors that
82
Gartner
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
Figure 4-5: Integrating Operational and Analytical Systems Operational Systems
Analytical Systems
External Data
Partner Systems
Data Mart ERP
SCM
Other
ETL, Cleansing, Enrichment
Data Warehouse
Data Mart
Enterprise Nervous System CRM Analytics Historical and Predictive Customer Interaction Database
Customer Insight Database
Multichannel
Multichannel
Sales, Service, Marketing
Marketing
Customer Interaction Management
Campaign and Dialog Management
Inbound/Outbound
Source: Gartner
4.2.3
Marketing Transaction Database
Planning the Evolution to an Integrated CRM Architecture
Enterprises must acquire, store, analyze, distribute and apply customer data enterprisewide in a timely manner. Doing so creates the basis for developing insight into customers, and into interactions with them across any channel. Most enterprises’ CRM information capabilities result from a fragmented buildup of numerous systems and customer databases over time — an obviously suboptimal situation for supporting an integrated CRM strategy. Enterprises need a more-strategic approach to customer information. However, challenges associated with trying to achieve a unified customer view remain complex. No one-size-fitsall solution exists. An enterprise needs to acquire, cleanse and store data in one set of structures (such as data warehouses and data
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Outbound/Inbound CRM ERP ETL SCM
customer relationship management enterprise resource planning extraction, transformation and loading supply chain management
marts) to support analytic applications (that is, customer analysis and business intelligence), and to be instantiated (carried out) in other structures (such as an operational data store) for customer interaction. Historically, analytic and operational requirements were considered to be related but separate, with a unidirectional flow of data from operational to analytic systems. Now, the demands of CRM necessitate tightly linking these two sides with analytical insights — such as predictive customer models and real-time analytics (see Figure 4-5). Doing so will help drive customer interactions in operational systems — whether for self-service over the Web or assisted service from the call center. Action Item: Enterprises must take stock of their fragmented operational and analytic capabilities, and start planning an evolution to a more-integrated CRM architecture.
83
Reaping Business Rewards From CRM
4.3
B2B CRM Vendors
4.3.2
Key Issue: Which vendors will best help enterprises gain value from their CRM systems?
4.3.1
The Role of Enterprise Application Vendors
Strategic Planning Assumption: By 2007, vendors of enterprise application suites will account for no more than 30 percent of CRM license revenue (0.7 probability). In an effort to appeal to their substantial customer bases, vendors of enterprise applications for large enterprises will eventually provide offerings that provide sufficiently extensive functions in most CRM modules, as well as tight integration with their application suites. However, niche functionality provided by large enterprise application vendors won’t deliver the level of detail and flexibility that many enterprises will need to drive broad enterprisewide adoption and ongoing use (see Figure 4-6). Marketing automation vendors, for example, are expanding their functionality to include marketing resource management (MRM) as they seek to integrate with other marketing functionality and capitalize on established relationships with marketing organizations. To survive the onslaught of larger vendors, best-of-breed MRM vendors will have to deliver: • Superior functionality • Greater flexibility to support more-detailed and morediverse marketing processes • Standards-based integration to readily interface with a variety of other best-of-breed, enterprise and legacy applications As IS organizations gain experience with these suites, some of them will seek to leverage these applications to support cross-functional processes.
Tactical Guideline: In addition to assessing the architectural foundation of the CRM suite for its fit with overall enterprise objectives and business processes, enterprises must weigh vendors’ features, functions and viability. B2B enterprises — which sell to, market for and service other businesses (such as wholesalers and resellers) — require CRM suite functionality with different strengths than enterprises that need to maintain business-to-consumer relationships. B2B CRM emphasizes specific key functionality in a CRM application suite, such as: • Compensation and incentive management • Complex lead management • Contract and entitlement management • Embedded sales methodologies and support for service life cycle management • Field service management • Many-to-many relationships, including partner-topartner collaboration and partner channel management • Order fulfillment • Proposal generation • Scalable applications for large, mobile sales teams or field technicians • Sell-side transaction platforms Action Item: No CRM B2B application suite provides all the functionality an enterprise requires. Enterprises will have to create and maintain the necessary extensions to CRM systems through 2007.
4.3.3 Action Item: Enterprises that have established relationships with CRM and ERP vendors should evaluate their niche offerings and development plans, but not rule out best-of-breed vendors.
Considerations Beyond Features, Functions and Viability
Industry Considerations for B2B CRM Vendors
B2B enterprises considering vendors for broad functionality must weigh the following three considerations: • The breadth of vertical-specific CRM functionality to support the business model
84
Gartner
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
Figure 4-6: The Evolving B2B CRM Vendor Environment Opportunities Major ERP Vendors
!
!
Siebel
! !
Challenges
Large established ERP client base Integrated ERP/CRM functionality
!
Early market share leader Solid breadth/depth of integrated functionality
!
!
! !
Best-of-Breed Vendors
! !
Many-to-many architecture Functionality focus
Source: Gartner
• The vendor’s knowledge of that industry • The importance of an industry to the vendor’s success through 2006 Enterprises such as Onyx Software, rated as a “Niche Player” in Gartner’s B2B CRM Magic Quadrant, are strong in supporting specific areas, such as wealth management. Oracle will continue to strengthen its capabilities in government and manufacturing. Although PeopleSoft does well (generically) throughout several industries, it’s a true specialist in only a few of them. One vendor that didn’t make the CRM B2B Magic Quadrant, Amdocs, has strengths in telecommunications and high-tech manufacturing, and should be considered for these industries. Action Item: Rather than relying solely on placement within Gartner’s B2B CRM Suite Magic Quadrant, enterprises should also focus on a vendors’ industry expertise.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
! !
CRM ERP
4.3.4
Breadth/depth of functionality Architecture flexibility and support of many-to-many relationships
Ease and seamless backoffice integration Architecture flexibility Large ERP competitors
Resources for growth Perceived or real viability
customer relationship management enterprise resource planning
B2B CRM Magic Quadrant for 2004
Strategic Planning Assumption: By 2010, enterprises will be more concerned with business process fusion than selecting CRM suites (0.8 probability). Stand-alone CRM applications are becoming less relevant as enterprises increasingly look toward automating business processes that cut across enterprisewide functions (for example, sales, manufacturing and customer service). The market is moving toward process-focused offerings that enable enterprises to unite multiple areas more easily (for example, billing, provisioning, parts, logistics, inventory and service history). These require skills in application integration and platform development, which will challenge many enterprises. Vendors coming from an ERP or back-office application foundation (such as SAP, PeopleSoft and Oracle) offer CRM solutions that appear immature when compared to the offerings of established CRM vendors, such as Siebel
85
Reaping Business Rewards From CRM
Systems. However, ERP vendors are tapping into a growing trend: Enterprises are increasingly realizing that to complete customer transactions quickly and accurately, many core sales and service processes require tight integration with ERP, SCM or other legacy systems. Foundation architectures will assert themselves as critical evaluation criteria. Some vendors, mainly SAP and Oracle, believe that success requires offering a complete set of enterprise applications for ERP, SCM and CRM. Others, such as Siebel, prefer to partner to create complete solutions. Either way, as enterprises increasingly consider business process flow to be as important as any individual piece of functionality, the market will shift from a focus on pure features and functions to a focus on architectures. Vendors increasingly will emphasize middleware, standards, interoperability and choice of database. CRM suite vendors that assist in this endeavor will lead in the market by 2006. The Magic Quadrant for CRM B2B Large-Enterprise Suites results from Gartner’s CRM large-enterprise suite evaluations for 2004 (see Figure 4-7).
Siebel remains the only leader for CRM B2B suites based on functional breadth, demonstrated scalability, reference accounts, industry and geographic coverage, and system integrator support. Siebel continues to enrich its vertical functionality, particularly in the communications sector, in support of key business processes. However, the product is challenging when enterprises must use the customization tools to extend out-of-the-box capabilities (compared with relying on the application configuration capabilities). Oracle has improved its execution by more than doubling the number of customers with active deployments in B2B sales. However, customer growth has been flat in B2B customer service and technical support. The breadth of Oracle 11i’s enterprise customer data model provides integration benefits for enterprises implementing multiple Oracle business applications. Oracle customers cite potential benefits, such as increased customer visibility during the entire prospect-to-cash process; however, integration of the components isn’t seamless. SAP gained market traction and added 50 more production-use, referenceable customers in 2003 —
Figure 4-7: B2B CRM Magic Quadrant, 2004 Challengers
Leaders
Siebel Systems
Ability to Execute
Oracle
SAP
PeopleSoft
Onyx Software As of January 2004
Niche Players
Visionaries
Completeness of Vision
Source: Gartner
86
Gartner
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
mostly B2B implementations of low-to-moderate complexity. Although it lags a distant second behind Siebel, SAP made strides in 2003, gaining mind share with the largest system integrators. However, Gartner continues to recommend SAP CRM only to current SAP customers, particularly to those seeking benefits from tight SAP frontand back-office integration.
Large enterprise application vendors rarely have delivered innovative CRM products. Therefore, enterprises will have to depend on the creativity of many vendors at the edges of the market. A few example include:
PeopleSoft now has two CRM products — PeopleSoft Enterprise CRM and PeopleSoft EnterpriseOne CRM (formerly from J.D. Edwards). Only PeopleSoft Enterprise CRM was evaluated for this Magic Quadrant, as EnterpriseOne fails to meet the criteria for consideration. PeopleSoft remains a good alternative when considering a best-of-breed B2B CRM suite provider. Although PeopleSoft Enterprise CRM is best-suited to serviceoriented industry segments, it works well for a number of other industries.
• Cramer Systems, a European vendor with a product suite for telecommunications that focuses on network inventory and provisioning automation
Onyx is rarely a finalist in large-enterprise CRM suite selection, except in the areas of wealth management and healthcare. The company has had little traction to date with IBM for its hosted CRM initiative. The product has a good Internet architecture that leverages Web services for online sales users but lacks proven mobile support. Gaps in the Onyx product line make it difficult for enterprises to support complex selling or service processes unless they build them using Onyx’s customization tools. Action Item: Although the depth of the CRM suite vendors’ CRM modules continues to improve, their ability to support relationships outside the firewall will remain a challenge. In addition, production references will remain the litmus test of vendor hype about CRM capabilities. Therefore, an enterprise must weigh: • The architectural foundation of a CRM suite for its fit with overall enterprise objectives and business processes • Vendors’ features, functions, viability and industry expertise
4.3.5
Extending CRM Suites
Strategic Planning Assumption: Through 2006, most new CRM implementations will have a core application suite that is integrated with multiple, additional technologies (0.8 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Knowledge Extraction Engines, which focuses on the increasingly crucial need for predictive analytics systems that can score, classify and cluster key customer data
• ActiveWebParts, which provides a solution to improve a manufacturer’s parts ordering and customer support for dealers and distributors (among others) • Yantra, which helps suppliers and retailers to synchronize information about inventory and orders Enterprises considering CRM applications should realize that 80 percent of independent software vendors will cease to operate as such within 36 months. However, enterprises should not let this inhibit plans to use such vendors. Action Item: Because the complexity of business model changes will outpace suite vendors’ vision in responding, enterprises should plan for the need to extend CRM suites by using outside components.
4.4
Three Case Studies in B2B CRM
4.4.1
Choice Hotels Benefits From Electronic Marketplaces
Despite the overhyped and underdelivered promises of emarketplaces in the late 1990s, successes do exist, such as Choice Hotels International’s ChoiceBuys.com. This emarketplace helps Choice Hotels franchises to lower costs through leveraged buying, and helps endorsed suppliers to sell more. One of the world’s largest hospitality franchisers, Choice Hotels has more than 5,000 hotels open or under development in 42 countries. With more than $1.5 billion in hotel goods and services purchased by its hotel franchisees yearly, Choice Hotels acted on an opportunity to reduce procurement costs by building the
87
Reaping Business Rewards From CRM
ChoiceBuys.com e-marketplace for its hotels and supply vendors. Problem: Choice Hotels offers a nonmandatory program for its member hotels to buy supplies, services and capital items from an endorsed-vendor program. Choice Hotels began this program several years ago using an informal call center for order processing. However, a call center approach alone can be inefficient. Furthermore, it doesn’t help expose promotions, cross-selling and other suppliergenerated programs as quickly and dynamically as a Web interface, where content is easily personalized and updated. Objectives: The objectives for ChoiceBuys.com included: • Providing one-stop shopping for an entire catalog of products and services • Enabling franchisees to aggregate their purchasing power and shop at significantly reduced prices • Streamlining the annual spending process • Creating a source of competitive advantage by being easier to work with, thereby increasing franchisee satisfaction and loyalty and attracting new franchisees Approach: The first step required transforming the ChoiceBuys.com help desk from just answering e-mail or phone inquiries to offering discount sales and promotions based on user buying history. Although answering inquiries provided some value, Choice Hotels realized that it needed a more scalable approach to gain the full benefit of bringing suppliers and buyers together. Choice Hotels turned to sell-side commerce vendor Comergent Technologies to redevelop Choice Hotels’ emarketplace. Choice Hotels reintroduced the ChoiceBuys.com portal — built on the Comergent Distributed E-Business System — in mid-2002. Hotel franchisees received an enhanced shopping experience, where buyers can choose from more than 100,000 products that meet Choice Hotels’ brand standards from endorsed vendors. The guided-selling feature helps franchisees easily find complementary products and product sets. The simplified order processing, improved recurring-order functionality and new order tracking allow hotels to place orders quickly and keep track of expenses.
88
Gartner
With ChoiceBuys.com, the franchisees now have one secure Web site through which to transact business with hundreds of supply vendors. They also know more about endorsed products, and can make better purchase decisions and reduce their supply costs. Suppliers benefit from reduced costs of sales and marketing through participating in ChoiceBuys.com. Both suppliers and franchisees benefit from the site’s capability to manage real-time product pricing and availability, and enable online business transactions. Choice Hotels can now easily track volume purchases and transactional rebates between suppliers and franchisees. With this visibility, Choice Hotels can better understand franchisees’ purchasing habits and ensure that their purchase selections meet Choice Hotels standards. Results: Supplier (vendor) results: The program increased suppliers’ business. For example, one television supplier discounted a particular television set by $25 and featured the promotion on ChoiceBuys.com; sales tripled and the average order size increased from $7,600 to $10,100. Another vendor, a bedding supplier, offered a 4 percent discount and increased its business vs. the previous year from $241,000 to $568,000. Buyer (hotel) results: Choice Hotels research shows that, in 88 percent of cases when a franchisee buys a market basket of commonly used items through the vendor program and ChoiceBuys.com, it saves anywhere from 12 percent to 15 percent — and sometimes as much as 25 percent. Intermediary (Choice Hotels) results: Choice Hotels’ Partner Services division, which manages the endorsed-vendor program, now oversees approximately $350 million in annual purchasing volume between hotel members and preferred suppliers. Choice Hotels receives a small transaction rebate for each purchase, depending on factors such as product and volume. Benefits for Choice Hotels include: • It achieved more control over the Choice Hotels brand for quality and consistency. • It reduced order-processing costs and order errors by reducing manual steps and decreasing time to delivery. • ChoiceBuys.com helped Choice Hotels create a source of competitive advantage.
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
4.4.2
Seagate Collaborates With Customers to Cut Costs and Meet Needs
This case study provides a good example of how automating a process can reduce expenses while creating opportunities for more sales. Like Seagate did, enterprises should strive to reduce the administrative burden on salespeople by making the customer — in this case, distributors — more self-sufficient. Seagate is a leading provider of storage technology for Internet, business and consumer applications. It sells the majority of its products to value-added resellers (VARs) through distributors and original equipment manufacturers. VARs often request quotes from distributors for large quantities of Seagate products — as well as special pricing (discounts) on these large potential purchases. When making these requests, VARs usually ask for prices that end up being lower than the distributors’ costs. Therefore, the distributors go to Seagate for special pricing authorization — confirmation that Seagate will make up the difference to the distributors on the cost of the sale. The ability to authorize a special price quickly often means the difference between winning and losing a sale.
To support the time reduction, Seagate had to automate the approval and routing of price requests. Rather than have salespeople perform the administrative task of handling requests, Seagate would have customers submit them directly themselves. To keep sales representatives informed, any price requests would be communicated through alerts. Based on the pricing request, business rules would take into account parameters such as volume and customer. Requests not covered by the business rules would go to the pricing group. The desire to improve revenue initially drove the effort. However, the project was justified primarily based on savings related to reducing resources in the pricing- and sales-support groups. Because Seagate was using Comergent Technologies for other business processes, it chose Comergent to automate the special-pricing authorization process. The Comergent solution provides Seagate with a Web-based, automated product that handles special-pricing approvals between Seagate and its customers, including: • Submissions • Alerts • Workflows
Pr oblem: Seagate’s manual special-pricing authorization Problem: submission and approval process took approximately 20 hours from start to finish. By taking too long to process special-pricing authorizations, Seagate was losing business. It wasn’t responding and closing sales fast enough. Objective: Seagate collaborated with its customers to create upfront business objectives and expectations. By agreeing to two-hour or less turnaround for its specialpricing authorization process, Seagate created a tangible metric to drive its implementation strategy. Approach: Seagate followed the Six Sigma project management process for this initiative. Its executive steering committee consisted of the directors of e-business, sales, marketing and customer service. The team carefully managed interviews with Seagate’s customers (that is, distributors) to determine the acceptable turnaround time for communicating price authorizations (which was two hours or less). By setting the business objective with its customers, Seagate felt confident it was delivering customer value.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Business rules • Exception handling The Seagate implementation team consisted of a project leader, an IT leader and four developers from Comergent. Seagate had four other people from its staff shadow the Comergent implementation team. This shadowing facilitated knowledge transfer for ongoing maintenance of the application. Results: Results of implementing this special-pricing authorization process included: • Reducing special-pricing approval time by 50 percent • Improving customer-auditing capabilities by matching point-of-sale data with special-pricing authorization quotes • Reducing costs in Seagate’s inside-selling and pricing groups through the use of automation
89
Reaping Business Rewards From CRM
4.4.3
Mercury Builds Online Community to Offer WorldClass Support
Mercury Interactive exemplifies the new standards in customer service that place customer needs at the center of the business equation through the creation of shared service and support processes. Leveraging collaboration among its active and growing online user community allows Mercury to increase customer and brand loyalty while lowering its support costs. Customers and the company benefit. Mercury provides application delivery and management products (for example, LoadRunner) that help remove performance bottlenecks in IT infrastructure and ensure it performs as required. Web visitors and callers into the support center are usually IT professionals with a high degree of technical knowledge. The company recognized that it could leverage its online user community to lower technical-support costs and grow brand loyalty. Problem: As the company experienced rapid growth during 1999 and 2000, support costs accelerated. Although Mercury began with an online service focus, it reconsidered its customer service and support approach. The company realized that it needed to create a shared community environment that fostered greater interaction — among its users, as well as between users and Mercury.
Approach: Mercury sought an outside partner — Participate Systems — to enhance its Web-based service capabilities by managing and growing the emerging community. Participate worked in partnership with customer support management at Mercury to determine how to best foster a community, while developing a business case to demonstrate a strong return on investment (ROI). Gartner estimates that businesses like Mercury can resolve cases via a community Web site at a maximum cost of between $4 and $7 per issue. This metric was enough to make the ROI case for building a community Web site, the capabilities of which include: • A discussion forum • A message board • Content ratings • A member-rated knowledge base — information that gets poor ratings (through polling) is removed automatically • Member-driven downloads — users share tips, best practices and troubleshooting approaches • Expert seminars • Member recognition • Polls and surveys
Objective: Mercury initially wanted to shift support activities to lower-cost channels without reducing service delivery or customer satisfaction. The cost of a technical-support query generally is the same regardless of whether the question begins as an e-mail message or a phone call. This meant that the company had to consider other options — such as Web communities and advanced content searching, where answers to technical-support questions can be posted and retrieved. Mercury initiated a series of steps that established: • Discussion forums • Troubleshooting downloads • Online case tracking
• Event and product notifications In addition to the collaborative community functionality, the Web site offers the ability to: • Personalize the content delivered to the user by product • Upload personal tips and tricks • Access product extensions and updates, and an expansive technical knowledge base • Participate in a customer reward program (an incentive program where users earn points for sharing useful information) • Submit and track service requests online
• Several knowledge-sharing opportunities
90
Gartner
Strategic Planning Series
Business-to-Business CRM: Fusing Processes and Technology
Results: Mercury continues to refine the support site, as well as discover hard and soft benefits. Some of the community dynamics measured include: • Number and types of articles reviewed • New discussion threads created • Discussion threads searched • Discussion threads voted on Although this data isn’t completely scientific, it indicates the impact and degree of knowledge transfer. Mercury also polls users directly to determine the percentage of support calls deflected through knowledge base searches, articles posted on the support site and the use of the discussion forums. Measurable results during a two-year period included: • ROI totaled more than 100 percent per year. • Twenty percent of new customer requests were solved on the Web.
dialogue captured and monitored in the community section • Viewing customer support as a true differentiating factor over competitors • Higher prioritization of user-based requests, due to product design and R&D groups’ increased awareness of end-user requirements • Increasing employee morale in the support center — questions submitted to agents are more complex and challenging, and less repetitive
4.5
Recommendations
• Design B2B CRM projects with specific monetary or productivity improvements in mind, and deploy the tools and resources to measure change. • Know how to model the business flow before evaluating technology. • Prioritize application investments that build partner and customer capabilities, collaboration and trust.
• Community membership increased 96 percent. • Promote early success and ongoing value. • Member participation increased 107 percent. • Answers posted increased 136 percent.
• Assess and prepare for extended-enterprise information architecture requirements.
Other benefits to Mercury — important but less tangible — include:
• Understand the limitations of CRM suites and how to close functionality gaps.
• Streamlining customer feedback — functional enhancements of new software stems, in part, from
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
91
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
5.0 CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships T
he insurance, banking, brokerage, consumer goods, automotive and pharmaceutical industries include many enterprises that sell to consumers through channel partners (such as distributors, retailers and brokers) and must maintain business-to-business-to-consumer (B2B2C) relationships. Despite their desire to understand and satisfy the needs of consumers, many enterprises struggle to collaborate in this highly complex relationship. For example: • A financial services provider wants to sell insurance products to some of its investment customers. However, its dealers and brokers hesitate to let the issuing organization work directly with “their” customers. • A consumer goods firm wants to engage in one-to-one marketing with consumers. However, retailers feel apprehensive about being cut out of the transaction through direct selling because they believe they “own” the consumer. • Automobile manufacturers are at odds with dealers. Manufacturers want consumers to stay loyal to their brand, while dealers believe that consumers primarily should remain loyal to the dealership, purchasing from any of the various brands that the dealer sells and services. • Pharmaceutical firms want to influence patients through direct-to-consumer advertising. However, doctors aren’t particularly happy about pharmaceutical firms’ marketing tactic of telling patients to ask the doctor whether they should consider an advertised prescription medication. To make better sense of — and improve — this complex web of relationships, many enterprises have turned to CRM. To get the most out of a B2B2C CRM initiative, an enterprise needs to: • Develop processes before attempting to enable them with CRM technology. • Pace itself and prioritize — all-at-once implementations carry significantly more risk than staged implementations. • Realize that, although CRM has become mature in many industries, B2B2C CRM isn’t yet at that level — vendors may have to be pushed to bundle products to create an offering that meets the enterprise’s needs.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
93
Reaping Business Rewards From CRM
• Evaluate external services providers thoroughly — most enterprises spend three times more on CRM services than they do on a CRM application. The following Key Issues frame the analysis in this chapter: • What B2B2C business drivers, strategies and resulting benefits will help an enterprise understand and meet the needs of consumers? • What CRM technologies and architectures can successfully link manufacturers, channel partners and consumers? • How can an enterprise select the most appropriate B2B2C CRM solution and partner?
5.1
The Factors Influencing B2B2C CRM
an opportunity to sell around traditional channels. Retail channel partners retaliated by deploying their own Internet sales presence to complement their retail locations and counter the manufacturers’ moves. In the end, most of these attempts failed. Trust decreased between manufacturers and retailers, and consumers were confused. Action Items: • Identify the processes that can be enhanced through collaboration between manufacturers and channel partners. • Start with paper-based information flows and manual processes, and work toward collaboration and data sharing. • Focus collaborative efforts on better serving consumer needs, not on preserving the status quo.
Key Issue: What B2B2C business drivers, strategies and resulting benefits will help an enterprise understand and meet the needs of consumers?
5.1.2
5.1.1
Manufacturers, channel partners and consumers have different and often conflicting objectives that place them at odds with one another. For example, consider the grocery store. Every few years, these retailers cycle from:
The Increased Need for Collaboration
Strategic Planning Assumption: Through 2006, B2B2C CRM initiatives that can’t address collaborative processes will fail to deliver the desired results (0.8 probability). The battle over “who owns the customer” has raged for years. The players in this drama see the process linearly, with products and services flowing to consumers through intermediaries. In some cases, an extended “value chain” of several intermediaries is involved. This creates an even greater need for balance and collaboration. This constant push-and-pull battle doesn’t favor consumers. This conflict typically manifests itself in information not being shared by the manufacturer or channel partner. This lack of communication results in unmet consumer demand and creates inefficiency in the value chain. Consumers want to buy — or want to know what to buy — but manufacturers and channel partners often squabble about who gets to meet that consumer demand and how it will be accomplished. The dot-com era represented a good example of pent-up greed and mistrust. Manufacturers saw the Internet as
94
Gartner
Value and Loyalty
• A high-low pricing strategy to “everyday low prices” • A bare-bones store format to “everything under one roof” Similarly, manufacturers cycle between focusing on trade promotions and traditional media advertising. Consumers also cycle between price and variety, and product loyalty. They also can change demographically as the average age of customers at a particular retail store changes over time. The critical glue that cements the relationship arises when product or service value is equated with loyalty. A manufacturer and its channel partners provide the value as elements in the value chain. At the same time, channel partners and consumers become loyal as they solidify their preferences for the manufacturer’s products. All other factors become secondary. However, manufacturers, channel partners and consumers have significant other needs that can inhibit this drive for value and loyalty (see Figure 5-1).
Strategic Planning Series
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
Action Items: • Evaluate CRM priorities based on loyalty and customer value. • Identify processes that the enterprise can change or streamline to collaboratively increase customer loyalty and value.
pursuing. They may sell through partners in one channel while selling directly to consumers in another. This difference illustrates why it’s important for an enterprise to consider business drivers and constituency needs when building its business case for B2B2C CRM. It is also important to develop a CRM strategy that considers: • Enterprise strategy
5.1.3
Developing the CRM Strategy
• Processes that can be technology-enabled
Strategic Planning Assumption: Through 2005, only the 60 percent of enterprises that link their CRM initiatives with corporate strategy will perceive that they have succeeded (0.7 probability).
• How well B2B organizations work together
As enterprises contemplate CRM, manufacturers and their channel partners often share perspectives on gaining customer loyalty. At other times, their requirements and approaches tend to remain distinct.
• Identify the key success factors that hinge on B2B2C relationships.
In B2B2C CRM, manufacturers sometimes act like channel partners, depending on which channel they’re
• Assess whether the enterprise is ready for this type of change.
Action Item: When developing a CRM strategy: • Start with the enterprise vision.
• Determine the customer-facing processes that technology can improve.
Figure 5-1: The Drive to Equate Value With Loyalty Value for the price Traffic
Variety
Consumer
SKU rationalization
Convenience Total returns
Diverting and forward buying
Service
Trade spending
Purchasing experience
Extended terms
Price comparison Value
Value = Loyalty
Channel Partner
Private label Media support
Effective promotions
Web-like convenience
One-to-one marketing Contract compliance
Consumer loyalty Product availability
Synchronized demand Persistence/compliance Lifetime value
Manufacturer
Loyalty Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
SKU stock-keeping unit
95
Reaping Business Rewards From CRM
5.1.4
Using Gap Analysis to Build the Business Case for CRM
Tactical Guideline: Building and presenting a business case becomes relatively easy when enterprises use proper gap analysis. The value lies in closing the gaps, each of which should tie to some quantifiable monetary return. The nature of manufacturer and channel partner roles often changes depending on the distribution channel. For example, a manufacturer of computer peripherals may: • Sell directly to consumers through the Web • Sell directly to enterprises through its own sales force • Sell indirectly to consumers through retailers • Have its equipment included in branded offerings from PC manufacturers
5.1.5
Using CRM to Support Differentiation
Tactical Guideline: An enterprise should align elements of its vision statement — such as whether customer intimacy, operational efficiency or product differentiation represents a differentiating factor — with the corresponding CRM elements (such as marketing, sales and customer service) to guide the allocation of CRM resources and prioritize the approach to CRM. When enterprises collaborate in their manufacturer and channel partner roles to better understand and meet the needs of their consumers, they come to understand how their roles mesh and complement each other (see Figure 5-2).
• Cost per interaction
For example, a manufacturer may create superior products and have the ability to deliver them at a competitive price. A channel partner can then work with consumers to match the right product to their needs, provide follow-up service or repairs, and sell related products over time as consumer demand changes. Therefore, the manufacturer and channel partner must pool their efforts and expertise related to:
• Revenue per customer
• The initial sale of the product
• Cost per lead
• Service requirements
Therefore, when building a business case for CRM, this manufacturer needs to consider its gaps as a manufacturer and channel partner. It can evaluate gaps or opportunities, depending on the channel, using measures such as:
For other manufacturers that don’t assume a channel partner role, gap analysis represents the opportunity to collaborate and examine ways to increase loyalty and business benefits. A channel partner will favor manufacturers that can help it acquire new customers — perhaps by providing leads (as many automobile manufacturers do with online tools that direct buyers to dealers) or by creating demand through advertising. Some of these collaborative activities can create joint benefits — such reducing costs — while others benefit only one party but increase loyalty. Action Item: Analyze the gaps and opportunities for manufacturer and channel partner roles. Then consider how the enterprise can work collaboratively within the value chain to create situations in which both parties win, or one party wins while loyalty increases.
96
Gartner
• Ways to position future products Action Items: • Identify the enterprise’s key competitive differentiating factor — whether it’s product, price, service or customer intimacy. • Consider operational and analytical CRM components that support this differentiation — for example, marketing tools that support customer intimacy, or forecasting tools that help improve operational efficiency.
5.1.6
Defining Tangible Benefits for a CRM Initiative
Strategic Planning Assumption: Through 2008, enterprises that select the most-appropriate B2B2C CRM applications and match them to the benefits they’re
Strategic Planning Series
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
Figure 5-2: CRM and Differentiation Relationship Optimization
Extended CRM
Manufacturer Perspective Traditional CRM
Resource Trade-Off
.
Customer Intimacy
Effective Business
Channel Partner Perspective
Product Differentiation Business as Usual
Operational Efficiency
Efficient Business
Source: Gartner
seeking will experience a 15 percent to 30 percent faster return on their CRM investments than will enterprises that don’t take this step (0.8 probability).
applications it should implement to support and enable its enterprise objectives through its CRM strategy — rather than view CRM technology as a single item.
As they pursue B2B2C CRM strategies, enterprises soon realize the significant potential benefits — and costs. This recognition creates a need to measure the value of CRM in terms of benefits. Categories of benefits include:
Action Item: To justify CRM investments, define a minimum of two benefit categories (such as efficiency and reduced costs) in addition to the intangible benefits that CRM can provide.
• Reduced costs • Improved efficiency
5.2
B2B2C CRM Technologies and Architectures
• Improved effectiveness • Competitive advantage Strategic initiatives as broad as B2B2C CRM are difficult to justify based on the measurable and tangible benefits of the strategy itself. Often, the enterprise realizes the benefits over a long period of time because it breaks down its overall CRM strategy into individual projects that it executes tactically. Trying to ascertain the benefits of implementing CRM technology is seeking an answer to the wrong question. An enterprise needs to determine which of the many CRM
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Key Issue: What CRM technologies and architectures can successfully link manufacturers, channel partners and consumers? Strategic Planning Assumption: Through 2006, underlying architecture and data integration issues will make 20 percent to 30 percent of B2B2C applications unsuitable (0.8 probability). Most manufacturers’ B2B2C CRM requirements include Web architectures, data integration and analytics (see Figure 5-3).
97
Reaping Business Rewards From CRM
Figure 5-3: B2B2C Functional Building Blocks
Mobile Channel E-Channel
Co n Go sum od er s Ph ar m ac eu tic al
ce an su r In
Au to m
Building Blocks
Br o
ke ra g
e
ot iv e
Industry
Team Sales, Field Sales Remote Order Entry
4
Product Content and Data Sell-Side E-Commerce
4
3
5
Interactive Selling
2
4
3
Configurator, Proposal Generator
3
1
2
Incentive Compensation
4
5
E-Service, Contact Center, E-Marketing, Industry-Specific
1
2
4
1
1
3
2
3
4
3
1
2
4
Priority: 1 = Highest 6 = Lowest
Analytics
Functionality
Architecture
Web Architecture, Multilanguage, Multicurrency
Foundational
ERP & External Data Integration
ERP enterprise resource planning
Source: Gartner
All industries require basic CRM functionality, such as: • E-service (such as self-help and Web chat) for providing support • A complete contact center that uses e-mail, fax and phone channels for customer support • E-marketing for campaign management and optimization • Compensation management for managing sales agents’ incentive plans • Configurators for putting together customized or semicustomized offerings • Proposal generators for tailoring product or service proposals to specific customer requirements • Interactive selling for increasing sales rates, up-selling and cross-selling
The upper layers in Figure 5-3 split functionality between what will be used in a mobile environment — such as field sales and service — and Web-delivered capabilities. Action Items: • Consider B2B2C solutions from the ground up to ensure that they are correctly architected, and that have the appropriate capabilities to meet CRM, industry-specific, mobile and online requirements. • Resist the urge to deploy a specific function without considering how the building blocks depend on the foundational elements shown in Figure 5-3.
5.2.1
CRM and Business Process Automation
An enterprise needs to automate its business processes because they tend to break down when they require too
98
Gartner
Strategic Planning Series
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
much manual intervention. Business process redesign, which includes business and technology integration, must cross the functional areas of CRM (marketing, sales and service), and integrate with legacy systems and front-office applications (see Figure 5-4). As a B2B2C enterprise embraces an enterprisewide strategy for automating its business processes, CRM architecture can become a major issue for front-office and back-office systems: • Back office — If the enterprise hasn’t already consolidated data from its legacy systems into a data warehouse, it must put the data into a customer data repository for use and analysis. The complexity of a CRM project often relates closely to the number of legacy systems and extent of customer data integration required. • Front office — Improving consistency in the customer experience and enhancing customer-facing processes for sales and marketing require integrating CRM with front-office financial applications within and across channels. Access to relevant data via a customer information file or online customer profile is critical.
Action Items: • Map the hierarchy of the enterprise’s applications and data sources. Understand which interfaces are manual, batch and automated. • Determine which processes will provide the most analytical leverage if the enterprise can get in-depth information more quickly and accurately, and prioritize accordingly.
5.2.2
Technology-Enabling Information Flows
Tactical Guideline: While understanding and prioritizing its CRM technology requirements, an enterprise should also map its current business flows, which will help identify potential shortcomings (such as manual and paper-based processes). Information flows among B2B2C constituencies occur virtually and physically. Technology-enabling the complexities associated with these information flows can improve process effectiveness and efficiency.
Figure 5-4: B2B2C CRM Architectural Framework
Branch
Agent/Broker Call Center Direct Mail PC/Internet Kiosk Emerging Customer Touchpoints: Marketing Applications, Sales and Service Solutions Integration: APIs, Industry Standards, Web Services, J2EE, .NET, Portals
Centralized Customer Information File or Online Customer Profile Batch Update RealTime
Real-Time Access
Marketing and Analytics (Third-party and partner data)
Batch Update
Real-Time Access
Finance/ERP
Batch
Batch
Batch
Physical or Virtual Data Warehouse or Customer Data Repository Integration: APIs, Industry Standards, Web Services, J2EE, .NET
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
API ERP J2EE
application programming interface enterprise resource planning Java 2 Platform, Enterprise Edition
99
Reaping Business Rewards From CRM
Consider the example a consumer who purchases a microwave oven. For the purchase to take place, information had to flow from manufacturer to channel partner to consumer. Indications of the level of cooperation involved include manufacturer’s and channel partner’s collaborative efforts to: • Optimize inventory
consumer later calls with a question or product-related issue, there is typically no method to link old and new customer data, and to complete a more-thorough consumer profile (for example, the microwave was sent to college with the child of the purchaser, or is being used in a mountain cabin). If enabled, these links could help the manufacturer and channel partner better understand and meet the needs of their consumers.
• Have the product available just in time • Co-promote the microwave oven
5.2.3
The consumer then takes the product home. If it fails to work right away, the consumer will probably take it back to the retailer. If it fails later, and is still under warranty, the consumer will probably take it or ship it to a service center. The manufacturer and channel partner coordinate these aspects well.
Because B2B2C CRM draws its functional components from the same pool as B2B and B2C CRM, the technologies are largely the same. Only the way they are deployed to partners may change.
However, when the consumer fills out the warranty registration card, a set of data is created and sent to the manufacturer. The channel partner usually doesn’t receive this data from the manufacturer. Similarly, when the
2004 Hype Cycle for B2B2C CRM
Gartner’s Hype Cycle is useful in aligning an enterprise’s inclination for adopting technology (see Figure 5-5). This consideration can help prevent the implmentation of tools that aren’t consistent with how the enterprise uses and deploys technology.
Figure 5-5: 2004 Hype Cycle for B2B2C CRM Warranty management
Visibility
Partner Life Cycle
Community management
Marketing
Order fulfillment
Sales Service
Incentive compensation
Analytics
Lead management
Campaign management
Partner portal
Sales configuration
Proposal generation
E-service Measurement and reporting
Collaborative issue resolution Marketing tools
Content management
Product content and data management
Team selling Interactive selling
Resource optimization
Technology Trigger
Peak of Inflated Expectations
Registration Order entry Call management Training and certification
As of January 2004
Trough of Disillusionment
Slope of Enlightenment
Plateau of Productivity
Source: Gartner
100
Gartner
Strategic Planning Series
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
Action Item: In planning for the adoption of CRM technologies, consider the enterprise’s technology adoption profile: • Type A enterprises should investigate a B2B2C demand chain strategy that encompasses the entire life cycle — sales, marketing and customer service components — but must be prepared for the heavy integration burdens involved with piecing together multiple-vendor solutions, some of which will have viability concerns. • Type B enterprises should consider tactical deployments of individual applications from vendors that can demonstrate proven production deployments to partners for at least two years. • Type C enterprises should consider implementing individual applications from vendors that can demonstrate proven production deployments to partners for at least three years.
the dealer had no appropriate Maytag item in stock. Therefore, Maytag needed to help dealers take these highly qualified online leads and close the sales, despite some dealers not having their own Web stores. Approach: Maytag has never pursued a direct-toconsumer sales strategy, and it didn’t want to circumvent its channel partners. So it established a Web site — MyMaytag.com — on which consumers could: • Seek and locate information about Maytag products • Place those products in electronic “shopping carts” • Deliver the shopping-cart order seamlessly to a distributor Retailers can establish promotional rules that enable Maytag to reveal coupons and sales to shoppers before they select a retailer and buy. Maytag used:
5.2.4
Case Study: Maytag Uses Shared E-Commerce to Boost Online Sales
As this case study illustrates, manufacturers that have traditionally relied on dealers and distributors to interact directly with consumers must consider that relationship as strategic, and respect it when launching an Internet sales strategy. The assumption that selling online only means selling directly to consumers is a misguided one. Any manufacturer with a lagging sales channel must invigorate that channel through commercial syndication and shared commerce services, or risk losing substantial market share to more-nimble rivals. Problem: Maytag determined through market research that its Web site visitors were, first and foremost, seeking information on Maytag products. A secondary, but important, reason for visits to the site was to purchase Maytag products. Selling directly to consumers would have required Maytag to make significant investments in establishing fulfillment capabilities for single-item shipment. It also would have meant taking these committed, readyto-buy customers away from Maytag’s distributor and dealer partners. Reduced sales by its channel partners would have negatively affected Maytag’s sales model. Objective: Maytag wanted to convert these high-value customers without forcing them to travel to a dealer’s store, where other brands might seduce them — particularly if
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Broadvision products to manage the user experience, providing top-level personalization, content management and a catalog • Comergent Technologies products to facilitate the cartto-cart transfer of the customer from Maytag to its retailers and dealers Results: Sales of merchandise through its manufacturerto-dealer cart transfer system, although a small percentage of its overall revenue, exceeded expectations. The average spent per online purchase exceeded the average in-store sale by 40 percent. Maytag set a goal of eventually enabling 10 percent of its overall sales through this method — a highly aggressive sales target that it likely won’t reach. However, the mere ambition of the goal demonstrates Maytag’s commitment to: • The Web to serve consumer needs and drive sales • Working with its channel partners to provide a seamless purchasing experience Lessons Learned: Maytag learned the following: • Establishing and maintaining a unified technology strategy for a complex Web site and commercial operation is a best practice.
101
Reaping Business Rewards From CRM
• Expediency for Web site operations can demand the use of multiple vendors — even when offerings overlap, as BroadVision’s and Comergent’s do. • Channel partners respond positively when manufacturers provide shared commercial capability.
5.3
Making the Proper B2B2C CRM Vendor Decision
Key Issue: How can an enterprise select the most appropriate CRM solution and partner?
• Product offerings — Key components include transactional and analytical functionality — that is, whether the product can handle the processes, and provide insight into the processes so that they can be better understood, managed and predicted. • Service offerings (by itself or through partners) — Services are critical because they compose the largest cost element of most CRM projects. They also involve more data integration because B2B2C has more constituencies involved, and therefore more data sources. Key components include: – Industry understanding
5.3.1
– CRM strategy
A Framework for Developing RFP Criteria
– Data integration – Product configuration
The basis for most solution-vendor processes is the request for proposal (RFP). Figure 5-6 illustrates a framework for developing RFP criteria.
– Change management – Training
At a high level, a vendor differentiates itself through its:
– Follow-up support
Figure 5-6: Developing and Weighting RFP Criteria
Market Penetration (10%) • Global account penetration • Micro vertical penetration • Target customer size
Sales & Marketing
Go to Market (15%) • • • •
Verticalized PSO Dedicated sales force Industry demos Verticalized marketing collateral
Vendor Partnerships (5%)
Data (20%) • Industry KPIs • Technical support • Industry data model
Product
Business Logic (40%) • Application/user support • User interface verticalization • Templates for microvertical processes
Percentages indicate suggested weighting in evaluation process. Source: Gartner
102
Gartner
Partnerships
• Multi-industry software vendors with strong industry traction • Industry-specific software vendors
Services Partnerships (10%) • • • • •
ASPs Industry data providers Strategic industry consultants Industry-specific system integrators Vertical practice of multi-industry system integrators ASP application service provider KPI key performance indicator PSO professional service organization
Strategic Planning Series
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
• Strength in the market — Although this may not seem important, key questions range from the viability of the vendor to its ability to follow an enterprise when it expands operations globally. Action Item: When developing an RFP, start with the general topic areas outlined in this section and work into specifics.
5-7). Drawing from both categories, sample vendor shortlists for various industries include: • Automotive — Siebel Systems, Oracle, SAP, Comergent • Financial services — Chordiant Software, E.piphany, PeopleSoft, Onyx, SAP, Siebel • Consumer goods — CAS, MEI Group, Siebel • Pharmaceuticals — Dendrite, Siebel, StayinFront
5.3.2
B2B2C CRM Implementers Must Consider Best-of-Breed Products
The most functionality doesn’t always equate to the best fit with an enterprise’s needs. Although offerings can provide breadth across industries (such as multivertical suites), best-of-breed products often provide a good functional fit at an attractive price. For the most-complete B2B2C solutions by industry, enterprises will need to consider a variety of vendors, with both best-of-breed and multivertical offerings (see Figure
Action Item: Plan with the expectation that any multichannel sales deployment, and most vertical-selling capabilities, will require the integration of multiple best-ofbreed vendors — particularly for sales compensation, partner relationship management and sell-side ecommerce.
5.3.3
Vendors for the Consumer Goods Industry
Strategic Planning Assumption: During 2004, at least one vendor’s offerings will enable all five field-selling processes for the consumer goods industry (0.8 probability).
Figure 5-7: B2B2C Vendor Landscape Sales Functionality: Positive
Automotive • Autobase • AutoSoft • Chordiant • Kaidara
Sales Functionality: Caution
Marketing Functionality: Positive
Marketing Functionality: Positive
Service Functionality: Caution
Service Functionality: Positive
Pharmaceutical • Dendrite • StayinFront
Brokerage/Insurance • Chordiant Multivertical Suites • E.piphany • Onyx • Oracle • PeopleSoft • SAP • Siebel
• PeopleSoft • Pegasystems
Consumer Goods • CAS • MEI
Sales Functionality: Positive Sales Functionality: Strong Positive Marketing Functionality: Promising
Marketing Functionality: Positive Service Functionality: Positive
Service Functionality: Caution
Sales Functionality: Positive Marketing Functionality: Strong Negative Service Functionality: Strong Negative
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
103
Reaping Business Rewards From CRM
In the consumer goods industry, B2B2C focuses largely on field sales automation. The market is highly fragmented, with numerous point solutions enabling only one of the five key selling processes:
a problem area, reducing a cost or driving value for your company. Determine whether you have the basis for a multiphase strategy or simply need a “quick fix.” Evaluate vendors accordingly.
• Category management • Customer planning
5.3.4
B2B2C CRM and External Service Providers
• Volume planning • Retail execution and monitoring • Settlement Only four vendors can currently enable at least four of the five processes: • CAS • MEI Group • SAP • Siebel Larger global consumer goods enterprises — particularly those that sell consumable products, such as food and beverages — tend to be the most-forward thinking and take a strategic approach in enabling the key selling processes, and typically choose sales force automation suites. Smaller and regional-specific enterprises tend to choose tactical solutions that address their greatest needs. An enterprise best realizes value through integration of key processes. Specific value areas include: • Competitive intelligence • Compliance with merchandising contracts • Effective and efficient trade promotions • Efficient customer reimbursement
Strategic Planning Assumption: Through 2006, 75 percent to 85 percent of B2B2C CRM implementations will rely on external service providers (0.8 probability). An enterprise should be as thorough when selecting an external service provider (ESP) as it is when choosing software. Project strategy and implementation are considerably more critical to successful deployments than the software selected. Recent Gartner survey data indicates that the principal ESPs cover the B2B2C functional components well (including Web sales, call center, field sales, telesales, market analytics and sell-side e-commerce). Capabilities deployed with the assistance of ESPs generally received high satisfaction scores. Action Items: • Spend as much effort in choosing an ESP as the enterprise does in choosing its software. Be sure to check references. • In the contract, specify resources that the enterprise wants to work with on its project, which will ensure that the people spoken to during the selection process are the same ones that work on the project.
5.3.5
ESPs and Sales Solution Implementations
• Fact-based selling • Fund management • Reduced retail out-of-stocks • Supply chain integration Action Item: Consider the five key selling processes and quantify the economic impact associated with alleviating
104
Gartner
Tactical Guidelines: • When possible, an enterprise should use a project team that includes staff members so that knowledge is retained within the enterprise. • Although an enterprise can consider a vendor’s services group for project management and specific technical
Strategic Planning Series
CRM “From B to B to C”: Enhancing Customer Relationships Through Channel Partnerships
assignments, vendor services typically cost slightly more than those provided by ESPs. • ESPs offer solid “utility players” to fill in the project team. In January 2004, their rates averaged $175 per hour. The integration and implementation efforts related to a sales solution implementation typically cost three to four times what the enterprise spends on software licenses.
• A software vendor’s services group has resources that can implement a specific aspect of the project faster, due to its high familiarity with the solution • An ESP has specific and sufficient expertise across the entire solution being implemented — such as partner relationship management, field sales and sell-side ecommerce (see Figure 5-8) Action Items:
Therefore, an enterprise needs to balance its approach to using ESPs for a sales solution implementation by drawing on internal resources, along with those of a software vendor and an ESP. To help balance its use of ESPs, an enterprise needs to determine whether: • Internal resources are key to retaining intellectual capital in the enterprise
• When developing a project team, start with internal resources, followed by vendor resources and ESP resources. • Ensure that the final team has a balance that can ensure sufficient project-related knowledge transfer to those who will support the application after implementation.
Figure 5-8: ESP Industry Focus Varies, but Satisfaction Levels Are Similar
2003 ESP Revenues by Industry
* Global figure ** North America only
Discrete Financial Process Manufacturing Services Healthcare Manufacturing Service Provider eLoyalty** 5% 14% 37% 12% Hitachi Consulting** 22% 2% 0% 13% CGEY* 16% 18% 4% 15% Deloitte* 23% 8% 6% 8% Akibia** 13% 36% 24% 12% Accenture* 8% 15% 4% 9% Computer Sciences** 28% 14% 4% 23% Unisys* 0% 33% 1% 8% BearingPoint* 15% 10% 2% 9% IBM BCS* 19% 15% 3% 10%
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
BCS Business Consulting Services
IB M
BC S
oi nt ar in gP
Be
U ni sy s
C on Ak su ibi lti a n Ac g ce nt ur e C om Sc p ie ute nc r es
D el oi tte
Y
eL oy al ty
November 2003 Gartner survey, 154 respondents
CG E&
Standard Deviation
9 8 7 6 5 4 3 2 1 0 C H on it su ac lti hi ng
Satisfaction Score (1-10)
Retail 4% 5% 3% 13% 3% 4% 3% 4% 5% 8%
Other 28% 58% 44% 42% 12% 60% 28% 54% 59% 45%
CGE&Y Cap Gemini Ernst & Young ESP external service provider
105
Reaping Business Rewards From CRM
5.4
Recommendations
• Develop all processes before attempting to enable them with technology, and clarify who “owns” the consumer. • Consider B2B2C CRM as the enterprise’s next source of competitive advantage — although CRM has matured in many industries, B2B2C CRM hasn’t.
• Push vendors to create and bundle a solution that meets the specific needs of the enterprise, because most out-of-the-box B2B2C offerings lack complete functionality. • Evaluate ESPs thoroughly — most enterprises spend three times more on CRM services than they do on CRM applications.
• Pace and prioritize — all-at-once CRM implementations carry significantly more risk than staged implementations.
106
Gartner
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
6.0 Justifying CRM Costs and Boosting Return on Investment M
any enterprises pursue expensive customer relationship management (CRM) initiatives without first understanding the challenges and costs involved. This approach often results in CRM projects that fail to meet measurable benefit objectives. As enterprises acknowledge such first-try CRM failures and boards of directors demand increased accountability, IT and CRM managers are now held to the same standards as their business counterparts. As a result, they have started creating economic justifications to ensure that their CRM projects get funding. Moreover, smart CRM managers not only justify their CRM initiatives; they also utilize the business case throughout their initiatives to ensure they don’t repeat the same mistakes. Enterprises need to realize that CRM is a business strategy with underlying technology, and that it requires large investments in applications, hardware, software, telecommunications, internal labor, external consulting services and training. Therefore, an enterprise should calculate the business benefits associated with reducing the total cost of ownership (TCO) of CRM, and use these to build a compelling justification for its CRM project. In addition, ongoing measurement of CRM benefits helps ensure that an enterprise receives expected advantages and achieves strategic objectives. Several key concepts form the foundation of CRM economics: • TCO provides a holistic view of IT costs across the enterprise over time, and includes people, processes and technologies. • Benefits are those tangibles or intangibles that promote or enhance the well-being of, or provide an advantage to, the business. Demonstrated benefits result from identifying various metrics and the degree to which implementing CRM will impact those metrics. • Return on investment (ROI) — which, in its simplest form, is benefits less cost — is the most important concept, because it is a measure of how a project affects an enterprise’s financial statement. An enterprise must understand CRM economics because two of the three key drivers of a CRM strategy — optimizing revenue and profitability — link directly to understanding economic benefits. These benefits (for example, contributions to earnings per share) accrue only after an enterprise follows through and takes the necessary actions.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
107
Reaping Business Rewards From CRM
The following Key Issues frame the analysis in this chapter: • What are the critical success factors for achieving ROI?
business cases from which to manage and measure their CRM initiatives (see Figure 6-1).
• How should an enterprise quantify and justify a CRM initiative?
Some of the more common reasons cited for not calculating CRM ROI include:
• How can an enterprise best manage its CRM investments?
• Difficult to accomplish
6.1
Delivering ROI From CRM Investments
Key Issue: What are the critical success factors for achieving ROI?
• Not necessary • Lack of priority by business or IT • No tools for the job • Will be considered after the CRM implementation • No ownership • No clear method for determining ROI
6.1.1
The Need to Determine CRM ROI
• Dropped after initiating the project • Confidentiality
Tactical Guideline: An enterprise without standardized measures of business benefits is unlikely to achieve its CRM goals. Disenchantment with CRM largely results from few enterprises completing ROI assessments and building solid
However, calculating TCO and benefits, building a business case and measuring ROI will help an enterprise make wiser CRM investments and enable it to enjoy the results — instead of complaining that CRM fails to meet expectations. Therefore, an enterprise needs to assess
Figure 6-1: Few Enterprises Measure CRM ROI
71% Claim to Calculate TCO
5% Real ROI 17% Claim to Calculate ROI
Source: Gartner Estimate
108
Gartner
80% Claim to Measure Benefits
ROI return on investment TCO total cost of ownership
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
the costs (such as technology, labor, consulting services and training) and benefits associated with CRM programs, and express that evaluation in terms of ROI. To determine a viable ROI, an enterprise needs: • A full understanding of the TCO associated with the systems • The ability to measure the CRM program’s business benefits, using terms familiar to those working in the business units • A strong foundation in business case preparation • The capability to augment established business standards with realistic, risk-oriented evaluation techniques
and which ones benefit. Most enterprises have a hard time doing this. ROI methods, such as internal rate of return (IRR) and net present value, often don’t account for such distribution issues. Furthermore, they don’t ensure optimal investment outcomes for business units that make their own profitability their first priority. In most cases, the IS organization assumes the role of provider — turning business unit input into a CRM project. However, IS needs to influence equitable alignment of costs with benefits. If the business unit that funds a CRM program doesn’t recover its investment or receive benefits, it likely won’t: • Invest further to maintain the solution and keep it updated as changes in the business necessitate
Delivering ROI from CRM requires: • Ensuring that the funder of the CRM initiative is the one who will directly derive the benefits projected, and that IS on the “hook” for delivering the projected benefits • Business unit leaders who actively ensure that redesigned processes meet business unit needs, and are widely adopted within the business unit • Tracking operational and financial projections in the business case, analyzing the difference between the projected and actual results, and taking the appropriate measures or courses of action when differences are observed Because of the cost and complexity of a CRM program, only an enterprise that has these elements will reliably deliver returns.
6.1.2
Who Should Pay for CRM
Tactical Guideline: To ensure that required process changes occur and the CRM system is properly used, the business units that benefit from the CRM initiative should also fund it, and be accountable for the costs incurred and benefits achieved. Any project that requires funding needs to align stakeholders’ incentives with the money that will be spent — particularly which business units pay for the project
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Encourage use of the system by appropriate business users When determining the right funding model for a CRM initiative, an enterprise should ensure that: • It equitably distributes costs to business units that will use and benefit from the system. • Business units that fund the CRM initiative receive benefits and a return in line with their strategic objectives. Once an enterprise aligns CRM costs with business unit needs and usage, the funding business units can be held accountable for delivering results from CRM investments. Proving ROI then becomes much easier (see Figure 6-2). Action Item: When making CRM investment decisions, enterprises should take into account the impact of spending and benefits on each business unit’s profit and loss or operational budget. Doing this will allow the enterprise to understand how investment levels will affect behavior.
6.1.3
Creating a Master Plan for CRM
Strategic Planning Assumption: Through 2006, enterprises that create an enterprisewide CRM strategic plan, and fit individual initiatives within that plan, will deliver
109
Reaping Business Rewards From CRM
Figure 6-2: Why the IS Organization Should Not Fund a CRM Initiative The Investment Life Cycle Investment Appraisal (Funding) Scenario A: Scenario B:
Project Execution
Benefits Harvesting (Returns)
CEO sponsors businesswide CRM program over multiple years.
Business unit funds an SFA application.
Scenario C:
IS buys and runs it.
IS funds, implements and runs a campaign marketing project.
All business units use the system.
Marketing uses the system … or not.
CRM IS ROI SFA
Source: Gartner
a 25 percent higher level of return than enterprises that neglect to do so (0.7 probability). CRM implementation requires a unique, overarching enterprisewide work plan that includes the phases, activities and tasks specific to each technology implementation, broken down into manageable components (for example, project management, business process and application design). In addition, the enterprise needs to align each initiative with the overall CRM business process and infrastructure plan, which details execution of the strategies, tactics, processes, skills and technologies. An enterprise should follow a structured methodology and use economic justification to make sound business-based decisions. Implementation represents just one milestone in a CRM initiative. Because other process metrics better indicate project success, an enterprise — using a balancedscorecard approach — should measure these metrics, which include:
Result: Funder recovers all returns — straightforward to prove ROI. Funder recovers some returns — troublesome to prove ROI. Funder recovers no returns — very difficult to prove ROI.
customer relationship management information systems return on investment sales force automation
Although an enterprise can’t deliver or measure many such outcomes for months or years after the initial implementation, it nonetheless should begin measurements with the pilot and perform periodic measurements throughout the project life cycle. Action Items: An enterprise should: • Create an enterprisewide CRM plan that incorporates implementation plans for sales, marketing and service, and for the integration of these domains. • Have project managers establish, record and measure multiple success metrics. • Link project team, project sponsor, executive management and external service provider (ESP) payments and bonuses to such metrics — not to implementation time and initial budget.
6.1.4
Successfully Managing CRM TCO
• The quality of data • System and network performance • Knowledge transfer to users
110
Gartner
Tactical Guideline: TCO — a fundamental decision support tool — presents a holistic view of IT costs across the enterprise over time, and includes people, processes and technologies.
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
CRM project managers need to complete a TCO analysis of each CRM work plan, accounting for people, technology and process costs.
• Marketing • Service • Corporate finance
People costs can include: • Department accounting • Internal staff • Legal • Customers • Human resources • Shareholders • ESP or system integrator staff • Vendor staff • Internal support • External support • Education • Skills Technology costs can include: • Software, hardware and maintenance • Servers • Desktops • Notebooks • Handheld devices • Storage devices • Printers • Accessories • Telecommunications • Middleware
In addition, CRM project managers should use the following guidelines to manage TCO successfully: • Understand each TCO component, its impact on costs and the assumptions regarding its useful life. • Build best- and worst-case scenarios to determine TCO tolerances. • Staff the CRM project with employees who have experience in building and measuring TCO. • Include financial analysts on the project to assist with the approval process, and to provide insight for senior management during the life cycle of the initiative. • Create a TCO model that accommodates monthly budgeting for the initiative’s life cycle. • Ensure that senior management and the steering committee commit to the assumptions that underlie each TCO component and scenario. • Align the TCO model with project phases and milestones, and produce a graphic display of costs. • Expect vendor proposals and internal staffing decisions to come before a final TCO calculation. • Use the TCO model to drive many project decisions, such as:
• Integration
– Whether to use an ESP
• Data cleansing
– Vendor selection
Process costs can include: • Strategies • Tactics • Skills • Sales
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
– Internal staffing scenarios – Choosing a centralized or distributed model Action Item: An enterprise should calculate TCO for each tactical project in the CRM initiative and ensure that it includes people, process and technology costs over the planning horizon — including ongoing management and enhancement, not just the initial acquisition costs.
111
Reaping Business Rewards From CRM
6.2
Validating and Measuring a CRM Project
Key Issue: How should an enterprise quantify and justify a CRM initiative?
6.2.1
TCO needs to include all costs that an enterprise will incur for a CRM investment, over the life of that investment, not just its acquisition cost. At a bare minimum, an enterprise should develop CRM TCO for two years; Gartner recommends developing it for at least three years. The survey results also indicated a high variability in what CRM TCO includes and excludes. The standard cost categories were:
Analyzing CRM TCO Survey Results
Tactical Guideline: To remain competitive and achieve benefits from CRM initiatives, a large enterprise will implement an average of seven CRM components or modules, and should expect to pay more than $20 million in TCO over three years.
• Software licenses
CRM project costs will vary greatly among large enterprises because they use different assumptions and make different estimates. A detailed analysis of the responses to a recent Gartner survey showed that, although 71 percent of respondents provided TCO costs, few enterprises understand TCO.
• Services (internal and external)
When asked for their TCO period, many respondents indicated one year. However, one-year TCO is not TCO at all. An enterprise that calculates only a one-year TCO considers only the acquisition or purchase costs for the project. It fails to consider spending over a period of years — for example, for ongoing maintenance and required enhancements.
• Software license maintenance • Hardware • Telecommunications
• Other costs As a percentage of the total costs of a CRM project, software licenses represent a relatively small portion (16 percent). External services (including system integrators and software vendors’ professional-services consultants) represents the highest cost category (31 percent). Total labor costs — including the costs of internal and external resources — account for nearly one-half of total CRM project costs (see Figure 6-3).
Figure 6-3: CRM Spending by Category
Other 19%
Software Licenses 16%
Hardware 7%
Internal Staff 16%
Software Vendor Professional Services 4%
Software Maintenance 6%
System Integrators 27%
Telecommunications 5%
Source: Gartner Survey of December 2003, 64 respondents
112
Gartner
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
Survey results also indicated the following trends regarding CRM TCO: • Most enterprises aren’t including telecommunications in their TCO calculations. • Less than one-half of enterprises included all hardware costs in their CRM TCO calculations. Action Items: An enterprise should: • Build its TCO model to include consistent cost categories across all CRM projects for at least three years. • Monitor and measure costs and spending throughout the project.
6.2.2
Underbudgeted CRM Costs
Strategic Planning Assumption: Through the end of 2006, most large enterprises will underestimate the total cost of implementing CRM-oriented projects by more than 35 percent (0.7 probability).
Most enterprises have grossly inaccurate CRM budgets at key project phases. They tend to accurately forecast only short-term, controllable budget items (such as costs for next year’s network services or application software). When passing CRM plans to upper management for review and approval, enterprises tend to omit items too difficult to forecast and explain. As a result, enterprises significantly underbudget these items (see Figure 6-4). In most cases, successful implementation of CRM applications, processes or business models depends on using specialty consultants and system integrators. Therefore, services are the most-underbudgeted cost because most enterprises don’t properly staff their projects with enough internal people and over-rely on ESPs. Then, when these enterprises think that the project is “over,” they discover that they need to keep their ESPs on their projects longer to handle a transfer of knowledge that should have already occurred. Enterprises should benchmark their CRM initiative budgets against projects of comparable complexity. Regardless of the process or industry, too many
Figure 6-4: Underbudgeted CRM Project Costs by Category Project Phase
Infrastructure
Network Service
Application Software
Internal Staff
Vendor Support
ESP/SI Integration
Strategize Evaluate • Pilot • First team
Execute • Multisite • Year 2 to Year N
Manage • Upgrades • Release 1 to Release N
Well-budgeted by most businesses
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Costs underbudgeted by 10% to 30%
Costs underbudgeted by 40% to 75% ESP external service provider SI system integrator
113
Reaping Business Rewards From CRM
enterprises rely on metrics that vendors suggest (for example, implementation costing 1.5 times the license cost). Projects of comparable complexity provide a reality check on the adequacy of the enterprise’s implementation budget.
Action Items: Enterprises should: • Develop competency in business metrics determination, measurement and monitoring.
Action Items: CRM managers should:
• Start simply. First develop a discipline; then, when competent in that discipline, apply the framework to all initiatives.
• Interview other business units that have implemented successful projects, and learn how they developed their budgets and where they believe they could have improved.
• Look to approaches such as (but not limited to) Gartner’s Business Performance Framework, Deloitte Consulting’s Enterprise Value Map or eLoyalty’s Value To/Value From Customer.
• Staff projects with a sufficient number of internal resources throughout the CRM initiative.
6.2.3
CRM and Business Performance Management
Tactical Guideline: Closing the measurement gap in business performance requires a standard business performance framework. Any business performance management system requires a measurement framework that has these characteristics: • All metrics, when used collectively, are leading indicators of financial performance. • No more then seven (plus or minus two) metrics are used at any given level. • Metrics should be collectively exhaustive and mutually exclusive, and should be selected based on data available in automated business systems. • The framework should: – Focus on the needs of executives and middle management – Be based on standard prime metrics to foster collaboration and allow comparison to internal and external entities – Allow combinations of standard and custom metrics
6.2.4
Sales Metrics
Tactical Guideline: Sales executives should use established metrics that assess the effect of technology investments and strategies to improve sales effectiveness. Only after a sales organization develops a common set of standardized, successful sales processes can technology be applied to reinforce the selling process. Successful sales processes should complement each other and form an integrated approach to CRM. Many enterprises mistakenly believe that freeing salespeople from paper-based processes will automatically make them more productive and increase sales. However, leading enterprises will focus their salesoriented technology investments toward areas that affect key selling objectives directly — that is, spending that improves the effectiveness of the sales process and increases client retention. These enterprises also will reinforce well-defined, streamlined sales processes through the aggressive use of sales technologies, such as: • Direct-sales technologies (such as opportunity, contact and account management systems) • Telesales (outbound and inbound) • Configurators • Collaboration tools
– Capture the relationships between functions • Knowledge management systems – Evolve and develop over time • Sales-driven customer portals
114
Gartner
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
• Competitive-intelligence systems • Partner relationship management systems • Incentive compensation technologies However, an enterprise needs to use metrics so it can measure the effectiveness and performance of its sales technology spending. For example, an enterprise could create a sales-close index, which divides the number of successful sales campaigns by the total sales campaigns closed (either successfully or through inactivity) during the month. An enterprise can augment its metrics by determining: • The percentage of deployed sales technology that focuses on managing sales activities • System adoption rates • The number of people accessing the total functionality of the system Action Item: An enterprise should choose sales-based metrics that encourage desired behavior, which in turn will help deliver value from a CRM initiative.
6.2.5
Marketing Metrics
Strategic Planning Assumption: By 2008, more than 20 percent of large enterprises will incorporate customer equity as a component of their valuation (0.6 probability). Marketing organizations need to focus on identifying opportunities in terms of customer segments with unique requirements. In terms of innovation, most marketing organizations remain product-centric. Some use metrics — such as the number of new products or the revenue derived from new products — to measure the effects of innovation. However, innovation metrics need to become customer-centric. Customer-centric measures that serve as relevant indicators of innovation include: • Revenue growth associated with new customer segments • Average return on customer investment for new customer segments
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
To determine a level of effective reach, marketing organizations should consider measures of competitive spending and the relative market opportunity (that is, market size and potential market share). When trying to determine whether a brand is building equity, an enterprise needs to evaluate the following metrics: • Levels of competitive spending • Relative market opportunity • Revenue per marketing dollar • Marketing expenditures as a percentage of sales Overall estimates will become more accurate as detail associated with each metric becomes richer. For example, an enterprise should allocate the costs of a regionally focused marketing effort to customers in that targeted area. However, in an acquisition-oriented campaign, an enterprise should allocate costs to the new customers obtained in that region as a result of the campaign. Action Item: Marketing organizations should adopt customer-centric metrics to gain a better understanding of customers, and enhance strategic and tactical marketing.
6.2.6
Customer Service Metrics
Tactical Guideline: Operational metrics for customer service should focus on measuring relationships and the efficiency of processes. Enterprises have long used operational-efficiency metrics to measure improvements in customer service. For example, if an enterprise could decrease the average amount of time spent on a customer call by 20 seconds, it would improve profitability by reducing customer maintenance costs. However, customer experiences are shaped by more than just interactions with the customer service department. Enterprises need to elevate customer service from a departmental function to a business objective. When an enterprise makes customer service a strategic business function — and starts to consider it a revenue opportunity rather than just a cost center — the metrics for tracking customer satisfaction will need to change from operational efficiency to customer effectiveness.
115
Reaping Business Rewards From CRM
To achieve customer effectiveness, an enterprise needs to adopt metrics that reflect customer satisfaction — rather than the enterprise’s perception of customer satisfaction. For example: • Instead of determining whether a customer service representative closes a call within two minutes, an enterprise should determine whether a customer received the information needed in the first call. • An enterprise could create a customer care performance index that divides the number of satisfactory customer care requests by the total number of customer care requests made during regular operating hours.
An enterprise that tries to determine the benefits of implementing CRM is seeking the wrong information. Rather than viewing CRM technology as a single item, an enterprise needs to determine which CRM applications it should implement as part of its CRM strategy. The choice of applications should align with the business objectives the enterprise has for its CRM strategy. A recent Gartner CRM survey asked respondents if they’d achieved benefits in several categories (see Figure 6-5): • Increasing revenue • Lowering costs • Improving efficiency
Action Item: An enterprise should determine to what extent its organizations use effectiveness metrics, and then implement the processes and systems to collect the data needed to implement and track these metrics.
• Improving effectiveness
6.3
Among the open-ended responses to the “other” choice, nearly 80 percent of these responses noted that — although their enterprises planned to measure benefits — it was either too early to tell just what the benefits were, or they hadn’t started measuring benefits because the CRM project wasn’t yet implemented.
Overseeing the CRM Investment Portfolio
Key Issue: How can an enterprise best manage its CRM investments?
6.3.1
Matching Desired Benefits to CRM Applications
Strategic Planning Assumption: Through 2008, return on CRM investments will occur 15 percent to 30 percent faster in enterprises that match the most appropriate CRM applications to desired benefits (0.8 probability). As they start to pursue CRM strategies, enterprises soon realize the significant potential costs and benefits of CRM. At this point, many enterprises start to feel the need to quantify the value of CRM. Broad, strategic initiatives such as CRM are hard to justify solely on the basis of the strategy’s measurable and tangible benefits. Because most CRM strategies consist of tactically executed individual projects, an enterprise often must wait a long time before it starts seeing benefits from a CRM initiative.
116
Gartner
• Gaining a competitive advantage • Other (responses to this category were open-ended)
Action Item: To justify CRM investments, CRM managers should define a minimum of two benefit categories (such as improved efficiency, improved effectiveness or lowered costs) in addition to the intangible benefits cited.
6.3.2
Financial Measurement Methodologies Used in CRM
Strategic Planning Assumption: Through 2008, less than 20 percent of CRM project managers will be able to prove ROI using commonly accepted methodologies — although 28 percent of these managers will claim they can measure ROI (0.8 probability). A recent Gartner survey indicates that, while many enterprises claim to achieve benefits from their CRM initiatives, a minority perform financial measurements to confirm the financial outcomes of these initiatives. Absent such measurements, enterprises cannot really know
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
whether their CRM initiatives are delivering value for the enterprise and its employees, customers and stakeholders.
common financial measurement methodologies used in CRM are (see Figure 6-6): • Net present value
Traditional financial measurement methodologies still dominate among CRM managers who measure the outcomes of their CRM initiatives — and will likely continue to do so for the next several years. The three most
– The discounted value of future cash flows minus the present value of the investment and associated future cash flows
Figure 6-5: Typical Benefits Claimed Improved Efficiency
61%
Improved Effectiveness
55%
Increased Competitive Advantage
35%
Lowered Costs
29%
Other
28%
Increased Revenue
23%
0
10
20
30
40
50
60
70%
Gartner Survey of December 2003, 150 respondents
Figure 6-6: Common ROI Methodologies Used for CRM Net Present Value
29.8%
Internal Rate of Return
24.6%
Payback Period
22.8% 10.5%
Cost-Benefit Ratio Other
8.8%
Economic Value Added
3.5% 0
5
10
15
20
25
30
35%
Source: Gartner Survey of December 2003, 57 respondents
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
117
Reaping Business Rewards From CRM
– Expresses a multiyear investment in terms of the current value of the currency used (be it dollars, yen, pounds or euros) • Payback period
To address this issue, an enterprise should: • Assess potential, plausible cost and benefit outcomes from implementing a CRM initiative, using best-case, worst-case and probable-case scenarios.
– The net investment divided by the average annual cash flow from that investment
• Evaluate the relative likelihood of each of these scenarios.
– Estimates the period of time that will elapse before the enterprise gets its money back
• Ensure the evaluation appraises the costs and benefits using discounted cash flows, so that the analysis doesn’t unfairly favor outcomes that provide more immediate benefits.
• IRR – The discounted rate that results in a net present value of zero for a series of future cash flows – A cutoff rate of return – When the IRR is lower than the cost of capital or the desired rate of return, investments usually aren’t made Action Items: • When cost-justifying CRM investments, an enterprise should use methodologies such as net present value, payback period and IRR in conjunction with measuring soft benefits, such as the impact on customer satisfaction or employee productivity. • An enterprise not experienced with ROI methodologies should use an ESP to assist in building and measuring the ROI from its CRM projects.
6.3.3
The Right Way to Calculate ROI
Tactical Guideline: When calculating ROI, an enterprise should: • Consider a variety of cost and benefit scenarios • Discount future cash flows in current terms Many enterprises perform CRM ROI analysis using simple calculations that are based on nominal costs and benefits, instead of discounted cash flows (which factor in the opportunity cost of capital). Even more enterprises calculate ROI using only a best-case scenario. In most instances, these two approaches lead to missed estimates and a gaping hole in credibility (akin to what happened with enterprise resource planning in the late 1990s).
118
Gartner
CRM project managers that find this process unfamiliar should consult with the enterprise’s finance department, whose staff uses these methods regularly and should understand them well. Action Item: To calculate ROI, an enterprise should take a pragmatic, scenario-oriented view of the potential outcomes to a CRM initiative and evaluate each scenario using discounted cash flows.
6.3.4
Sample ROI Calculation
The following example of an ROI calculation, produced by a U.S. manufacturer, illustrates the best practice of taking a scenario approach, and expressing the business impact of the CRM program in terms of revenue and earnings. Figure 6-7 shows one of the many pages of scenario-based output this manufacturer generated as part of its business case for CRM investment. This manufacturer followed a number of best practices in its approach to generating an ROI estimate for its CRM systems. These included: • Adopting a scenario approach to evaluating benefits, considering a minimum of three viable business outcomes to evaluate the expected benefit from each investment • Evaluating the likelihood of each scenario, using confidence levels to set internal expectations realistically and drive internal discussion about benefit assumptions • Making the assumptions behind each scenario explicit, which drives most review discussion at the front end of
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
Figure 6-7: A Sample CRM ROI Calculation by a U.S. Manufacturer
ROI Scenario
NPV of Revenue
NPV of EBITDA
Confidence Level 90%
75%
50%
Improve Close Rate 1.5%
$2,843,637
$1,137,455
2.0%
$3,791,516
$1,516,606
3.0%
$5,687,274
$2,274,910
$1,137,455 $1,516,606 $2,274,910
Increase Product A Renewal and Sales 3% each
$571,031
$228,412
5% each
$951,718
$380,687
$1,903,436
$761,374
10% each
$228,412 $380,687 $761,374
Increase Billable Service Calls per Technician 1.25 calls per week 1.75 calls per week 2.5 calls per week
$4,299,750 $6,019,650
$1,719,900 $2,407,860
$8,599,500
$3,439,800
EBITDA Source: Gartner
earnings before interest, taxes, depreciation and amortization
the process, when the finance organization makes its preliminary business case review • Breaking out expected benefits by business unit • Requiring each business unit to commit to delivering its own estimated benefits Action Item: An enterprise should work with peer groups, research firms and consultants to incorporate best practices into the investment analysis process for CRM investments.
6.3.5
$1,719,900
Business Justification for CRM Investments
Tactical Guideline: More than 80 percent of CRM funding requests will require more justification than just ROI calculations. CRM investments take many forms. This leads to complex processes for identifying and articulating the value created.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
$2,407,860 $3,439,800
NPV net present value ROI return on investment
CRM investments require a multifaceted analysis of financial (tangible) and nonfinancial (intangible) measures, which must create synergies to provide greater overall returns. Developing the benefits analysis for CRM investments has usually involved a quest for direct cost reductions — to the exclusion or de-emphasis of other forms of enterprise value. Business justification for investment depends on the degree of risk associated with investing. Where risks are certain — such as with legal requirements and regulations — CRM programs are easy to justify. However, where the risks and rewards are less certain — such as gaining firstmover advantage by entering a new market — justifying CRM becomes more difficult (see Figure 6-8). An enterprise should try to position a CRM project based on its perceived business value, and within a category in which proof of benefits is easiest. These dimensions expand the view of value creation by blending emerging and traditional elements. The business justification of CRM initiatives increasingly will depend on exploiting the full range of intangible and tangible value.
119
Reaping Business Rewards From CRM
Figure 6-8: Different Levels of Business Justification for CRM
High
Legal Requirement Innovation and Revenue Enhancement
Ease of Proof
Cost Avoidance and Containment Risk Mitigation First-Mover Advantage
Low
Cost of “insurance” relative to worst-case scenario, probability analysis, benchmarks, duration
Market share, NPV, ROI, ROA, P&L, EVA, margins, cash flows
High
EPS earnings per share EVA economic value added NPV net present value
Source: Gartner
Action Item: An enterprise should expand its: • Business justification approaches, to consider traditional and emerging value categories that blend tangible and intangible forms of value • Analytical skills, to evaluate the full range of value created through CRM investments
6.3.6
NPV, ROI, ROA, P&L, EVA, EPS, margins, cash flows, industry trends and directions
Benchmarking, operational gains (process, labor, fixed assets, inventory, taxes, depreciation, life cycle management)
Perceived Business Value
Low
Industry trends and regulations
Creating a Solid Business Case for CRM
Strategic Planning Assumption: Through 2008, less than 20 percent of large enterprises will implement appropriate processes and economic tools to guide decision-making throughout the life cycle of CRM initiatives (0.7 probability).
P&L profit and loss ROA return on assets ROI return on investment
To develop a sound business justification for each project, an enterprise first needs to complete the standard capitalappropriations request process and required financial analyses for each CRM initiative, and combine these to provide a complete, enterprisewide view of total CRM costs and benefits. Excellent business cases give decision makers all the information they need. Most enterprises use a standard business case template to ensure completeness and consistency. Although section titles and sequencing vary, most cover similar topics (see Figure 6-9). Standard sections typically include: • Executive summary: This should state: – What the problem is – What the recommendations are
An enterprise pursuing CRM must complete an enterprisewide prioritization process for the CRM initiative. Prioritization at the board level can help assess the value of various CRM investment options. TCO analysis, ROI and business justifications should be required as part of the prioritization process.
120
Gartner
– What the enterprise hopes to achieve • Opportunity or problem definition: This should be stated in business terms, and linked to business objectives or challenges.
Strategic Planning Series
Justifying CRM Costs and Boosting Return on Investment
Figure 6-9: Elements of a Solid CRM Business Case Business Case Section
Content Description
1. Executive summary
Summarizes the opportunity, recommendation and business impact
2. Introduction and background
Sets the scene by tracing the key events leading up to the business case, and builds credibility by summarizing the due diligence performed
3. Opportunity or problem definition 4. Recommended solution and alternatives 5. Benefits estimates and assumptions 6. Cost estimates and assumptions
Describes the opportunity to be seized or problem to be solved in business terms, either linked to business objectives or pain points Recommends a specific solution, and provides the rationale for its selection from the alternatives considered Presents underlying assumptions, and quantifies major sources and types of expected benefits, how they will be measured and who is responsible for them Quantifies expected costs and the assumptions on which they are based, usually with scenarios for the range of costs Quantifies the major risks that could impact project success and provides mitigation strategies for each
7. Risk factors and mitigation
9. Implementation approach/ timeline
Presents the standard financial measures (such as ROI, NPV or IRR) used to evaluate other capital investments Provides estimated timing of major tasks and phases, so that financial analyses based on the timing of expenditures and benefits can be completed
10. Appendices
Presents detailed supporting data, such as financial models
8. Financial analysis
IRR internal rate of return NPV net present value ROI return on investment
Source: Gartner
• Recommended solution and alternatives considered: This discussion should include architectural compliance issues. • Financial analysis: This sometimes combines: – Benefit estimates and assumptions – Cost estimates and assumptions
6.3.7
Using the Business Case Throughout the CRM Project Life Cycle
Tactical Guideline: An enterprise should: • Focus on building the skills of a small team of specialists in the IS organization who will become subject matter experts in project justification.
– Risk factors and mitigation Action Items: Executives funding CRM initiatives should: • Require project teams to follow the capitalappropriations request process, and to meet enterprise financial targets. • Use the outline in Figure 6-9 as a framework for creating a solid business case for CRM.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Have this team work with the CRM project champions in the business units to develop the business case and manage it throughout the CRM investment life cycle. Just as an enterprise should view CRM as a journey, it should also consider the business case supporting CRM as a dynamic document that serves multiple purposes throughout three phases of the CRM investment (see Figure 6-10).
121
Reaping Business Rewards From CRM
Figure 6-10: Using the Business Case to Add Value Throughout the Project Life Cycle Investment Life Cycle Phase Investment Appraisal
Project Execution
Benefit Harvesting
Business Case Objective
Get project buy-in, approval and funding
Keep project on track
Achieve project payoff
Business Case Role
Inform and convince, develop collective ownership
Baseline reference for scope decisions
Measurement yardstick for auditing
Key Persons and Groups Involved
Executive sponsor, project owner, investment committee
Project manager, project steering committee
Business unit management, auditors
Source: Gartner
• Investment appraisal: During this phase, the business case should be used as a tool to gain project buy-in and management approval and funding, and to survey all stakeholders to ensure their needs and issues are being addressed. It should also be used to brief and pre-sell influencers and decision makers. Final presentation to the investment committee becomes a formality if the necessary pre-selling occurred with influencers and decision makers. • Project execution: During this phase, the business case should be used to guide project execution. • Benefit harvesting: Enterprises that shelve the business case after it has served its purpose to get project funding are overlooking a powerful tool. They should continue to use the business case to prove that the enterprise achieved the promised payoffs, so that requests for additional funding are more readily approved. Action Item: An enterprise should use the business case to drive project execution throughout its CRM journey.
122
Gartner
6.4
Recommendations
• Analyze TCO, benefits and ROI. Proven returns on CRM investments are more commonly achieved by organizations that develop effective business cases, calculate their estimated ROI upfront and measure it on an ongoing basis after implementation. • Make the business unit project champion — not the IS organization — responsible for making the business case for CRM. • Ensure the IS organization works with business units when building CRM systems and creating processes. • Get help from the finance organization or CRM ESPs, as needed. • Include soft benefits in the business case — don’t rely solely on ROI for justification. • Use the business case to guide decision making throughout the three phases of the CRM initiative.
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
7.0 The Eight Essential Elements of Successful CRM Initiatives G
artner defines CRM as a business strategy that maximizes profitability, revenue and customer satisfaction by:
• Organizing around customer segments • Fostering behavior that satisfies customers • Implementing customer-centric processes It is important to note that this definition identifies CRM as a business strategy, not as a category of applications or technologies. CRM is not a type of technology, although technologies are critical to enabling CRM strategies. Gartner defines “CRM technologies” as those that support CRM by enabling: • Greater customer insight • Increased customer access • More effective interactions • Integration throughout all customer channels and back-office enterprise functions To achieve the long-term value of CRM, enterprises must understand that it is a strategy involving the whole business, and therefore should be approached at an enterprise level. Many enterprises still attempt to implement CRM as a series of unintegrated, departmental projects — but this is not “true CRM,” and will not yield benefits or long-term value for the enterprise. True CRM is not easy. It requires board-level vision and leadership to drive a relentless focus on the customer; otherwise, it will remain fragmented. It involves potentially difficult changes to processes, culture and organization. Technology staff must grapple with the challenges of multichannel alignment, system integration and data quality. CRM initiatives need a framework to ensure that programs are approached on a strategic, balanced and integrated basis. Gartner has developed such a framework, called the Eight Building Blocks of CRM. Just as a road map helps understand the context of a journey, so Gartner’s CRM
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
123
Reaping Business Rewards From CRM
framework is designed to help enterprises make decisions about the best route and objectives, given their situation. Successful CRM requires expertise in the following eight areas (each of which serves as one of the eight “building blocks” in the Gartner framework): 1. Vision — creating a picture of what the customercentric enterprise will look like, in order to build a competitive market position based on value propositions that are defined, communicated and personified by the enterprise brand. 2. Strategy — developing a strategy to turn the customer base into an asset by delivering customer value propositions. This includes setting objectives and determining how resources will be used to interact with customers. 3. Valued Customer Experience — ensuring that the enterprise’s offerings and interactions deliver ongoing value to customers, are delivered consistently and achieve the desired market position. 4. Organizational Collaboration — changing cultures, organizational structures and behaviors to ensure that employees, partners and suppliers work together to deliver customer value. 5. Processes — effectively managing not only customer life cycle processes (for example, welcoming new customers, handling inquiries and complaints, and winning back lost customers), but also analytical and planning processes that build knowledge of the customer.
• How does a CRM strategy enhance a traditional marketing strategy? • How should an enterprise design the customer experience to deliver on the CRM strategy? • What cultural and structural changes are required to achieve the organizational collaboration needed to deliver on the CRM strategy? • How will enterprises redesign processes to be more customer-centric? • How will enterprises create and apply an integrated customer view for improved customer interactions and greater customer insight? • Which applications, infrastructure components and integration technologies will enterprises use to enable CRM? • What performance management metrics should enterprises define and track to support a CRM strategy?
7.1
Creating the CRM Vision
Key Issue: What is a CRM vision and how should it be created? Creating an effective enterprise CRM vision requires that enterprise leaders: • Define what CRM means to the enterprise • Set objectives
6. Information — collecting the right data and routing it to the right place.
• Draw a picture of what the enterprise wants to be for its target customers
7. Technology — managing data and information, customer-facing applications, IT infrastructure and architecture.
Creating a vision is not the same as developing a strategy — vision defines the “what” and “why,” while strategy addresses the “how.”
8. Metrics — measuring internal and external indications of CRM success and failure. This chapter provides advice and analysis on each of the eight key areas in Gartner’s framework. The analysis in this chapter is framed by the following Key Issues, each of which addresses one of the eight building blocks of CRM: • What is a CRM vision and how should it be created?
124
Gartner
The CRM vision is the company’s personality. Without it, customers will not have a clear image of what the enterprise offers vs. the competition, and service expectations will be unmanaged and left to the mercy of market forces. Employees need a vision of what to deliver to customers. The vision should motivate staff to work together, generate customer loyalty, gain greater “wallet share” and turn target customers into advocates.
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
The key word in the phrase “customer relationship management” is “relationship.” Because relationships are built on value, enterprises embarking on CRM initiatives need to define the value they expect to receive from customers, and the value they intend to deliver. This means understanding market demand and the enterprise’s market position, and then creating a core proposition to target customers — one they will value above that of the competition. This core proposition should be a declaration of intent around which a customer value proposition and culture can be built. The next step is to create a set of competitively differentiated brand values that are important to the customer — for example, innovation, independence, quality, expertise and involvement. They should be determined from the customer’s viewpoint, not the company’s perspective. Too many enterprises think they know what customers want but discover, through costly mistakes, that they do not. They invest heavily in services customers don’t want or value, and don’t invest enough in delivering the services that would generate real value and loyalty.
The final step is to outline what the customer experience should be for different situations and customer segments. Action Item: Examine the current core business proposition to customers: Is there one, and is it different from those of your competitors? Is it understood by staff, and does it motivate them? Do customers associate your enterprise with it?
7.1.1
The Goals Underpinning the Vision
Not surprisingly, given the recent economic downturn, the most common objectives underpinning enterprises’ CRM initiatives have changed. For most enterprises, acquiring new customers is now less important than retaining them. The result is less investment in sales applications and more in complaint management, call management, e-service and field service. However, our most recent survey has shown that as economic confidence improves, the pendulum is swinging back toward growth objectives such as increased sales revenue and acquiring new customers (see Figure 7-1).
Figure 7-1: Survey Results on CRM Objectives What are the primary objectives of your current CRM plans and initiatives? Increase customer satisfaction Increase sales revenue Increase customer loyalty Increase customer retention Enhance cross/up-sell opportunities Acquire new customers Increase profit per customer Reduce service costs Increase profit margins Reduce other operations costs Reduce sales costs Reduce marketing costs Increase asset utilization Other 0 174 Respondents, November 2003
50
100
150
Number of Responses
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
125
Reaping Business Rewards From CRM
Most Gartner clients say their enterprises have several CRM objectives. Typically, one objective dominates, but there are often several others. The average number of objectives cited by respondents to the above-mentioned survey was six.
• By year-end 2006, the 10 percent of CRM initiatives that are the most successful will invest more in refining measures of the customer’s view of the relationship than in analysis of current and potential customer value to the supplier (0.6 probability).
Not all objectives are mutually exclusive — many are subsets of others. For example, enhanced cross-selling can contribute to increased profitability per customer, although the connection between these objectives is not guaranteed.
A CRM strategy is a blueprint for turning customers into valuable assets. A CRM strategy takes direction and financial goals from the business strategy, and revisits the marketing strategy to customize it (see Figure 7-2). It provides an overview of how the enterprise will build valuable customer relationships and customer loyalty. Without an active connection to the business strategy, the CRM strategy will quickly be viewed as an academic exercise and disregarded.
7.2
Developing the CRM Strategy
Key Issue: How does a CRM strategy enhance a traditional marketing strategy? Strategic Planning Assumptions: • Through 2005, more than 60 percent of CRM strategies will be developed independently of an enterprise’s business strategy, and more than two-thirds of these independent strategies will fail because they lack support (0.6 probability).
The first stage in developing the CRM strategy is to segment customers into categories, and to set objectives and metrics for each segment. Segmenting customers by current and potential value and needs is a necessary, but not sufficient, prerequisite to an effective CRM strategy. A traditional marketing strategy positions the enterprise in its market relative to its competitors. It audits the enterprise’s market position, and then defines objectives
Figure 7-2: How CRM Strategy Enhances Marketing Strategy
Business Strategy How do we deliver stakeholder value and build competitive advantage?
Marketing Strategy
CRM Strategy
How do we take advantage of market opportunities and mitigate competitive threats?
How do we get closer to the customers to deliver value to them and create value for us?
• Vision: market position • Market definition and audit • Analysis of strengths, weaknesses, • • • •
opportunities and threats Target market segments Objective for each market segment: penetration, development, maintenance and productivity Measures: market share, brand equity and market penetration Based on product life cycle
• Vision: customer experience • Customer definition, and behavior and requirement audit
• Capability analysis • Target customer segments by value • Objective for each customer segment: acquisition, • •
development, retention and efficiency Measures: satisfaction, loyalty, cost to serve and employee satisfaction Based on the customer life cycle
Source: Gartner
126
Gartner
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
based on this position and the product life cycle. The CRM strategy complements this by providing the required customer perspective — it positions the enterprise relative to its customer base, and seeks to increase customer value and loyalty. It audits the current customer base, and then defines objectives based on the customer life cycle. Building customer loyalty, understanding customer value and gaining customer insight is difficult without understanding customers in the context of market segments and market forces. In addition, enterprises need to understand the customer base from the perspective of value — both provided and received. The first stage in developing a CRM strategy, therefore, is to assess the state of the customer base when viewed as an asset. This can be achieved by plotting the strength and value of customer relationships along two perspectives: • How much does the customer value the enterprise? • How much does the enterprise value the customer? The result is a customer asset matrix, which combines the supplier’s view of customer value segments (derived by combining current and future profitability) with an estimate of the strength of the customer relationship (measured in satisfaction and loyalty). These axes define
different customer segments for which the enterprise will have different strategic objectives — enabling the enterprise to determine the tactics and investments needed to achieve the desired objectives for each segment (see Figure 7-3). Measurements of current and future profitability are often the first things that enterprises look at when estimating the value of the customer relationship, even though allocating costs may be difficult. However, understanding the customer’s view of the strength of the relationship is equally important, and more rigorous methods to help gain this understanding are becoming available. Consequently, in 2003, the majority of investment by leading proponents of CRM were in metrics such as customer lifetime value and wallet share. By year-end 2004, however, leading enterprises will have increased their investment in measuring satisfaction and loyalty. The next stage in developing a CRM strategy is to define the objectives to be met and the tactics to be used. The customer strategy customizes the traditional marketing strategy (focusing on product, price, communication and channel) for different target customer segments, and thus supersedes it. The new CRM strategy uses technologyenabled initiatives and tactics, and makes greater use of value-added service and customer care to create loyalty — thus improving the customer experience. Employee
Figure 7-3: The Customer Asset Matrix High Key
Customer Potential (Value to Enterprise)
Large Share of Wallet
Some Potential
Transactional
Protect Position
Invest to Protect
Invest to Win Over
Damage Limitation
Counter Competition
Invest to Build
Win the Opportunity
Careful Management
Manage for Profitability
Build Selectively
Manage for Revenue
Manage for Revenue
Manage for Profitability
Manage for Profitability
Manage for Revenue
Consider Divesting
Highly Secure
Secure
Vulnerable
Fragile
Low
High
Strength of Relationship (Value to Customer)
Low
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
127
Reaping Business Rewards From CRM
skills and capabilities must evolve from servicing products to servicing customers. The new tactics employ a greater amount of personalized and event-driven communication.
• Ongoing and ad hoc customer research to monitor satisfaction, loyalty, requirements, usage and attitudes
More attention must also be paid to cost-effective customer management and the relationship models employed. This is an increasingly important part of CRM, as enterprises offer customers more services through a proliferation of channels. In the past, there were often only one or two channels for reaching customers. Now there are many, and they must deliver consistent service levels.
• Continuous customer feedback from monitoring each interaction
Customers will be reached through a variety of “touchpoints.” For example, broadcast media may be used to create awareness, inquiries may be received via the telephone or the Web, and the sale may be finalized through face-to-face contacts. The process of developing the customer relationship may use all of these channels and more. Action Item: Start gathering the detailed information needed to set market and customer objectives. Ensure that the objectives are measurable and have key performance metrics.
• Analysis of customer behavior
• Encouraging customer complaints and compliments Such research and feedback is critical in designing and evolving the customer experience. Many enterprises make the mistake of attempting to design a customer experience using only internal, non-customer-facing staff, without considering customer feedback or the views of employees who interact with customers. The implementation an operational customer feedback system will increase the enterprise’s awareness of customer complaints, thereby enabling more of these complaints to be resolved. The system should also gather feedback on how the customer experience can be improved. Resolving more complaints and improving the customer experience will reduce the customer defection rate and lost business. Action Items:
7.3
Designing the Customer Experience
Key Issue: How should an enterprise design the customer experience to deliver on the CRM strategy? The customer experience, at every interaction, impacts future revenue. A poor customer experience can pose the risk of losing some or all of a customer’s business. The defection of a single customer can cost some enterprises millions of dollars in lost revenue. Enterprises should use both customer and staff feedback as part of their efforts to improve the customer’s experience with the enterprise — and to design, evolve and personalize this customer experience. There are many ways to gather customer feedback. Customers’ experiences can be used at the strategic level (in relationship planning) and at the operational level (in monitoring and evolving customer interactions, communications and service delivery). All forms of customer feedback and research on potential customers should be used to design and improve the customer experience (see Figure 7-4). These forms of feedback and research include:
128
Gartner
• Use customer and employee feedback to design, evolve and personalize the customer experience. Encourage customer feedback by telling customers how their feedback changes the service. Allow employees to add their own touches to a consistent, basic service to improve employee and customer satisfaction. • Use strategic and operational feedback to calculate the cost of customer defection and lost wallet share caused by poor feedback and complaint-handling systems. This analysis should provide the business case for installing a complete operational feedback system.
7.4
Enabling Organizational Collaboration
Key Issue: What cultural and structural changes are required to enable the organizational collaboration needed to deliver on the CRM strategy? Tactical Guideline: Change management means planning communication phases, adequately allocating resources,
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
Figure 7-4: Research, Feedback and the Evolving Customer Experience Strategic Research Research on strength of relationship, drivers of satisfaction and loyalty
Business Intelligence
Data Collection
Relationship Planning
Customer Interaction
Operational Feedback Event-driven checks on customer experience Customer reviews Monitoring of complaints and compliments Source: Gartner
ensuring that the staff sees the personal benefits of the change, providing continuous coaching, and offering positive reinforcement of the correct behaviors and attitudes. People can be an obstacle to CRM success, but changing people’s behavior brings the biggest return on investment (ROI) for CRM. If direction comes from senior management, altering behaviors and overcoming politics is easier. A phased plan is needed to get people to work more collaboratively and deliver a valued customer experience. Ongoing change management and training are vital. Organizational structure, behavior and culture are built up over a long time. Change requires deliberate action. Employees must understand why their behaviors must change, and why they should support the initiative. This requires communication at the corporate level (“This is what we’re trying to achieve, and this is the value it will bring to us and to our customers”) and at the individual level (“This is what’s in it for you”). The five ingredients for successful CRM change management — for both organizations and individuals — are:
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Leadership: Today’s CEOs should seek to develop organizations that are less hierarchical and that have a strong sense of purpose, and they must know how to motivate their staffs. • Skills and Competencies: Great leaps in technology require development of the relevant business skills, especially in IT, analysis, project management, facilitation and service. • Knowledge: Sharing knowledge builds collaboration and innovation, but political barriers are high. Evolving knowledge management tools and techniques should be employed. • Organization: Decision making must come closer to the customer and enable faster action. Organizational structures must use communities and virtual teams. • Incentives: Targets must be aligned with customer goals, but recognition and celebration of contributions are more powerful motivators. There are numerous ways to recognize people. Incentives are often based on direct financial objectives, with little consideration of customer value. Profits are rarely
129
Reaping Business Rewards From CRM
aligned with customer satisfaction, which means that employee compensation and recognition are not aligned with customer goals. Under performance management, commission bonuses could be based on a customer’s experience as well as customer asset growth.
Yet in most industries, there are several, widely different key processes that both the enterprise and the customer care about. For example, in telecommunications services, fault restoration, service reliability and new-service introduction are critical processes.
In a world where staff loyalty is being destroyed, incentives must address three realities if companies want to maximize knowledge and creativity in collaboration:
A customer-centric approach to processes is likely to affect many applications. For example, Gartner is aware of one government department with more than 200 applications, and a national telecommunications enterprise with more than 150 applications. Even within an industry, different enterprises will find that their customers give different priorities and importance to the processes that affect them. The key is deciding which processes present opportunities for the enterprise to differentiate itself and enhance its value to the customer.
• Employees put themselves first. They assume they will leave at some point, taking their knowledge with them. They are therefore keen for continuous learning to ensure employability. • The desire for fulfillment is replacing money as a motivator. People are motivated by money, a leader and a cause, but the cause has the strongest effect. Interesting work, stimulating collaboration and the time to pursue personal goals have become core expectations. • Employees want an equitable relationship with their employer. One enterprise surveyed its 14,000 employees and was surprised to learn that what they wanted most was respect. These realities give enterprises the potential to be more creative with incentives. For example, they can reward good performance with assignments to special projects, achievement awards or paid sabbaticals.
7.5
Redesigning Processes
Key Issue: How will enterprises redesign processes to be more customer-centric? Tactical Guideline: Identifying which processes matter most to customers is the hardest step in customer process re-engineering. Much work has been done to identify, automate and optimize the horizontal processes that most industries use, such as welcoming, change of address and quote to cash. In industries such as high-tech, horizontal processes may dominate the interaction relationship. In these circumstances, processes can be implemented in fewer applications and more quickly. Here, the main challenge lies in building processes that will span internal departments and functions, because the politics of these internal organizations tend to put up a barrier.
130
Gartner
Re-engineering requires process mapping or auditing to identify the processes that affect the customer and those that don’t. This is no small task — one Swiss bank identified more than 3,000 processes. It is difficult to question customers without knowing which processes exist and how to articulate them to the customer. Enterprises should use the following framework in their customer process re-engineering efforts: • Audit and map the touchpoints and processes that affect customers • Identify the key processes from the customer’s perspective — find the processes that cause the most dissatisfaction and focus on them first. • Quantify and prioritize these processes according to their impact on strategic CRM goals. • Measure key processes based on their contributions to customer value. • Implement changes in the front office and back office where necessary. • No process should be left without ownership. Ensure that each key process has a cross-functional owner. • Examine how these changes may affect suppliers and other enterprise partners. The processes that matter most to customers may be entirely internal and within the control of the enterprise, but they often impact other enterprises.
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
• Using customer input, set meaningful, measurable targets. Set up a customer service-level agreement (SLA) for the key processes. • Segment the customer base, reassess key processes and redefine SLAs. The re-engineering may be significant, cutting across multiple departments and functions, and may take years to complete. One Dutch insurer needed 18 months to reengineer only one part of its claims-handling process. Discussing service-level targets with customers, and collecting feedback on improvements for individual processes, are key parts of designing the customer experience. After meeting the basic needs of the entire customer base, the approach can be repeated for moretargeted segments, such as those that have the highest value or profitability to the enterprise. Action Items: • Audit the business processes that affect the customer and map them by touchpoint. Solicit feedback from customers about their priorities.
Successful CRM demands the creation of a customer information “blood supply” that flows through the organization, and tight integration between operational and analytical systems. Customer information and insight must reach multiple touchpoints to support consistent customer interactions, manage these interactions and drive moreprofitable customer relationships. To achieve their CRM objectives and gain a competitive advantage, enterprises must establish a business plan for sourcing, maintaining and leveraging their customer information assets. Otherwise, the result will be “customer information anarchy” — a glut of useless data and a dearth of vital information. Most enterprises’ customer information capabilities are poor — the result of fragmented departments, initiatives, databases and systems. This poses several disadvantages, including: • High costs associated with storing and managing duplicate data • An inability to handle customer interactions efficiently, effectively and accurately
• Prioritize processes based on their importance to customers and their impact on the enterprise’s strategic CRM objectives.
• Poor insight into customers’ requirements, their current and potential value, and their past and likely future behavior
7.6
• Inability to segment and profile customers for differentiated product offerings and service levels
Creating a Customer Information Strategy
Key Issue: How will enterprises create and apply an integrated customer view for improved customer interaction and greater customer insight? Strategic Planning Assumptions: • Less than 50 percent of enterprisewide CRM initiatives will generate payback by 2005, due to the lack of enterprisewide customer insight re-engineering (0.8 probability). • By year-end 2008, the majority of outbound interactions within CRM-driven organizations will be triggered by customer behaviors or events (0.6 probability).
• Inability to calculate ROI or measure CRM strategy success Enterprises with customer-centric strategies must ensure that customer information flows smoothly through the enterprise. This requires sharing customer data (such as transaction histories, complaints and demographic information), and customer-specific analytical information (such as insights, current and potential profitability, loyalty and key decision drivers). The sharing of customer information must be part of a coherent organizational strategy that is used to determine: • What channels the customer should use • What products should be sold to the customer
Tactical Guideline: Enterprises must be driven by their insight into their customers’ business needs, not by the availability of data.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Whether the enterprise needs to focus on increasing customer satisfaction
131
Reaping Business Rewards From CRM
• Which areas of the enterprise’s customer value chain are opportunities for competitive advantage, and where the enterprise feels “pain” Only when an enterprise is capable of sharing all these elements of the customer relationship will it be in a position to manage that relationship.
Different approaches require varying amounts and types of integration. The most integration will be required for the best-of-breed approach, which is also likely to provide the best functionality.
Action Items:
Action Item: Review your enterprise’s skill levels, its technology outlook, and its process, data model and integration requirements before evaluating and selecting CRM applications.
• Create a proper CRM information strategy. Customer information is the foundation of any CRM program.
7.7.1
• Identify and strengthen the weak links in your enterprise’s customer relationship value chain.
Dealing With Application Integration
Tactical Guidelines:
7.7
Enabling CRM Through Technology
Key Issue: Which applications, infrastructure components and integration technologies will enterprises use to enable CRM? Strategic Planning Assumption: Through 2006, the mix of application types used for CRM will shift toward enterprise resource planning (ERP) vendors and CRM framework and component suppliers, and away from CRM suites, bestof-breed applications and build-it-yourself approaches (0.8 probability). Enterprises have many sources for CRM applications. They range from homegrown systems to enterprise application suites that include CRM. In between are integrated CRM suites, CRM frameworks and best-of-breed applications (see Figure 7-5). The fully integrated enterprise suite guarantees that the data and processes are integrated internally, but its horizontal and vertical functionality tends to lag behind the best-of-breed applications and CRM suites. To compete, CRM suites must continue to offer better functionality and ensure integration with ERP systems. Both approaches usually impose a data model (an exception being E.piphany, with its operational CRM modules). Some vendors also promote their own process definitions as industry best practices. Enterprises that want to approach CRM from a process viewpoint, redefine processes and live with their current data models will choose a framework approach.
132
Gartner
• Enterprises must take stock of their fragmented operational and analytic capabilities and start planning the evolution to a more integrated CRM architecture. • Enterprises need to create a set of enterprise integration standards to ensure conformity. The integration of CRM applications with other enterprise applications must be considered as part of a wider vision. CRM suites promise seamless processes, integrated modules and sharing of a common customer data model. However, if the enterprise opts to add best-of-breed products to a core suite or use only best-of-breed products, it will face integration challenges and costs. In addition, CRM applications may need to be integrated with ERP, supply chain management and other internal applications, as well as partners’ systems. The enterprise must impose integration standards. Historically, operational applications for sales and customer service were separate from the analytical and campaign management systems used in marketing. However, the scope of marketing automation software has expanded to optimize CRM through all inbound and outbound interactions. CRM doesn’t stop at the front office; it extends outward into customer interactions. Most enterprise planners must deal with an inherited application portfolio where integration has been done on a point-to-point basis. These planners face the need to take control of their integration architectures to improve robustness, reduce maintenance costs, and provide an “enterprise nervous system” that enables an agile response to changing business requirements.
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
Figure 7-5: CRM Application Sourcing Options
Value Proposition
Integrated ERP/CRM
CRM Suite
CRM Framework
Best of Breed
Build It Yourself
Provide an integrated enterprisewide suite from a single platform
Most breadth of CRM functionality in a single suite
Freedom to control own architecture and differentiate processes
Best functionality for your department
Freedom to control own architecture. Suites too expensive and don't fit. No other way
Board, CIO, business
IT strategists, bus. process
Business functions
IT strategists, CIO, other chief officers
Type A/B
Type A/B
Type A/B
Type A/B/C
Boardroom, Buying CIO Center Attitude Toward Type B/C Technology/ In-house Skills
Representative Vendors
Microsoft, Oracle, PeopleSoft, SAP
Onyx, Pivotal, Siebel
Chordiant, Graham, Pegasystems
CAS, Firepond, Comergent, NCR, SAS
Software infrastructure vendors (e.g., BEA, IBM, Microsoft, Oracle) and ESPs
Processes
Integrated CRM & ERP processes. “Best practice”
Integrated CRM processes. “Best practice”
Re-express your own processes. Workflow engine
Limited process integration. “Best practice”
Re-express own processes at application level
Data Model
Imposed data model covering CRM and ERP
Imposed data model covering CRM
Designed to fit existing data models
Builds on existing data models
None within CRM/ERP suite. Needs integration with other systems 22% 45%
None within CRM suite. Needs integration with ERP and other systems 30% 20%
Need to integrate framework backbone with rest of infrastructure 3% 10%
Some impose own data model. Others fit to existing data models Need to integrate with other CRM applications and other systems 25% 15%
Integration Requirements 2001 2006 Source: Gartner
CIO chief information officer CRM customer relationship management
Action Item: Create a vision for integrating operational, analytic and, if relevant, partner systems.
7.8
Defining and Monitoring Metrics
Key Issue: What performance management metrics will enterprises define and track to support a CRM strategy? Strategic Planning Assumption: Through 2005, CRM success will depend on the adoption of a balanced set of metrics, including financial, employee, business process and customer satisfaction metrics (0.8 probability). CRM metrics have a number of applications, including: • Setting and gauging the level of success in meeting CRM objectives • Providing feedback to modify the CRM strategy and implementation • Monitoring the customer experience
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Need to integrate applications as required 20% 10%
ERP enterprise resource planning ESP external service provider
• Acting as a tool for change management • Changing the way employees are compensated and given incentives • Communicating how an enterprise wants to be evaluated compared to the competition All enterprises use metrics to measure performance to some degree. Call centers measure response rates to determine staffing levels, and marketing departments measure campaign response rates to determine targeting success. However, few enterprises link these metrics to provide an overview of enterprise performance, and to facilitate the evolution of capabilities to support the customer strategy. This means financial and CRM performance are often divorced from each other, individual CRM initiatives cannot be tracked, local targets have a higher priority than enterprisewide benefits and customer concerns are not addressed. A Gartner survey rated CRM measurement and performance management as the most difficult of the eight building blocks of CRM. The challenges lie in identifying which metrics are critical to drive CRM benefits, and in
133
Reaping Business Rewards From CRM
knowing where to find the information. A performance management framework is required — without a hierarchy of linked metrics, a CRM strategy is likely to fail (see Figure 7-6). Within this framework, different areas have different metrics, but they are all help achieve customer and corporate goals: • Corporate metrics are set by board-level executives. They have a direct bearing on the CRM strategy. They are simple, understandable and aimed primarily at shareholders or dominant stakeholders. • Customer strategic metrics monitor the success of the CRM strategy. Customer metrics should have clear links to corporate objectives. The most important ones are connected to the customer life cycle.
site analytic systems, human-resource systems (for example, for employee qualifications), and ERP systems (for example, for manufacturing defect rates and delivery dates). A wealth of metrics is available in this category, and these metrics are often the easiest to obtain. Setting up a framework of metrics is not easy. It requires perseverance and patience. As a process, it is based on growing insight. Many pitfalls are associated with getting it right. Many organizational barriers must be overcome, and hidden cause-and-effect relationships must be uncovered. The number of metrics needs to be manageable, with a maximum of 15 to 20 per area measured. They need to be kept fresh, relevant and updated. Action Items:
• Operational and process metrics measure tactics and feed customer strategic metrics. There are many of them. Establishing the right ones requires determining the most important drivers of the strategic measures. • Infrastructure input metrics measure efficiencies of specific processes and provide input to the operational and process metrics. Infrastructure metrics can be extracted from systems such as call center logs, Web
• Create a hierarchy of CRM metrics for the purposes of defining key CRM strategy objectives, and of tracking progress in meeting those objectives. Build processes to continuously monitor customer feedback, and conduct ongoing market research. • Build the hierarchy of CRM metrics from the top down, with bottom-up checking, and ensure that the different
Figure 7-6: A Hierarchy of CRM Performance Metrics
Shareholders
Executives
Management
Employees
Stakeholder
Corporate
Customer Strategic
Operational and Process
Infrastructure Input
Level
Bottom Line Results
Feedback on Strategy
Effectiveness
Efficiency
Focus
Source: Gartner
134
Gartner
Strategic Planning Series
The Eight Essential Elements of Successful CRM Initiatives
levels are interlinked. Communicate the purpose of the metrics system internally. Work with other parts of the business, particularly finance, to help them understand and integrate CRM metrics into the broader set of corporate metrics.
• Organizational Collaboration: Changes to organizational structures, processes, metrics, incentives, skills and even the enterprise culture must be made to deliver the required external customer experience. Ongoing change management will be key.
• Ensure CRM metrics are key to the business intelligence competency center. Appoint someone in the center to focus specifically on mapping and defining the linkages between CRM metrics.
• Processes: Customer process re-engineering efforts should create processes that not only meet customers’ expectations and deliver value to the customer, but also provide competitive differentiation and contribute to a designed customer experience.
7.9
• Information: Successful CRM demands the creation of a customer information “blood supply” that flows through the enterprise, as well as tight integration between operational and analytical systems.
Summary and Recommendations
• Vision: The board must take a leadership role in creating a CRM vision (the “what” and “why”) for the enterprise. The CRM vision should be used to guide the creation of CRM strategy (the “how”). • Strategy: The CRM strategy focuses on the means of building and developing a valuable asset — the customer base. It must set objectives and metrics for achieving that goal. • Customer Experience: The design of the customer experience must be aligned with the CRM vision, and must be constantly refined based on customer feedback.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Technology: CRM technologies form a fundamental part of any enterprise’s application portfolio and architecture. The goal of CRM applications is to deliver integrated functionality to support seamless, customercentric processes throughout all areas of the enterprise and its partners. • Metrics: To turn customers into assets, enterprises must set measurable CRM objectives and monitor metrics at multiple levels. Without performance management, a CRM strategy will fail.
135
How to Create Great Customer Experiences
8.0 How to Create Great Customer Experiences
E
very time a customer comes into contact with an enterprise — whether through interactions with people, a Web site, advertising campaigns or marketing materials — that customer has an opportunity to form an opinion, be it good, bad or indifferent. Over time, this collective set of customer experiences forms a picture in the customer’s mind, which ultimately forms the image of the brand and its values. Enterprises that consider customer relationship management (CRM) to be crucial are serious about designing and maintaining a quality customer experience. They recognize that a poor experience moves the customer a step toward defection, whereas a good one encourages loyalty. This chapter provides advice and guidance on how enterprises can ensure that they are creating great customer experiences. It also provides guidance on how enterprises can manage these experiences to build customer loyalty and create brand value. The analysis in this chapter focuses on the following Key Issues: • What is customer experience management (CEM), and why is it important? • How can enterprises best create and drive positive customer experiences? • What changes should an enterprise focus on first to drive CEM?
8.1
What Makes the Customer Experience Critical
Key Issue: What is CEM, and why is it important? Although CRM initiatives often ignore it, the customer experience cannot be avoided. Experiences are created each time a customer interacts with the enterprise. “Customers” in the context of CRM can include not only purchasers, but also employees, partners, students (in the case of an educational institution) or citizens (in the case of a government institution).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
137
Reaping Business Rewards From CRM
Customers’ experiences: • Are both rational and emotional • Can be designed • Involve all five senses • Are the result of individual or multiple events • Must be managed by enterprises not traditionally concerned with customer experiences (such as consumer goods firms, utilities and governments) as well as those in “experience” businesses (such as travel, education and entertainment) The most-common mistakes enterprises make when thinking of customer experiences include: • Considering only the logical or rational part of an experience (for example, the product packaging didn’t contain the statement “batteries not included”) when a large part of a customer experience is emotional (for example, my son cannot play with his new toy on his birthday) • Forgetting that an experience involves all five senses (for example, the life insurance salesman has a great product, but he smells of cigarette smoke) • Thinking that an experience is too nebulous to be designed • Confusing product or service design with experience design • Underestimating the value of an experience — in comparison to the value received from the product or service — when anticipating future customer behavior
customer experience, resulting in significantly reduced resulting benefits (0.8 probability). Competing brands are perceived by consumers to be increasingly similar. Brand differentiation is not defined as much as it once was by the physical attributes of a product, or the terms and conditions of a service. In addition, product availability and pricing are providing less differentiation as businesses become more global. Many businesses are using the same suppliers, hiring the same executives, educating their employees at the same universities and using the same management theories to run their businesses. It is inevitable that differences will diminish. As a result, customer buying decisions are becoming less influenced by rational factors and more by emotional ones — particularly for wealthier consumers. The more emotional the buying influences are, the more customer loyalty depends on the emotional relationship the customer has with the supplier. Brand managers are changing their focus as the customer experience becomes a greater factor. The brand management role is shifting toward: • Defining the promise to customers and potential customers about the likely customer experience they will get by dealing with that business — particularly in relation to the competition. • Helping to unify the business’s operations in delivering a consistent customer experience — including the creation of the type of culture required to ensure the brand promise is met.
Given these shortcomings, many enterprises need to conduct research to understand their customers before they can embark on CEM.
8.1.2
Action Item: Commit funding to research loyalty ratings as well as customer emotional states and behavior patterns.
Strategic Planning Assumption: Through 2006, enterprises that fail to establish strong relationships with their customers will erode their competitive positions by 15 percent to 20 percent per year (0.6 probability).
8.1.1
Customer satisfaction does not necessarily translate into customer loyalty. Customer satisfaction measures how well customers feel an enterprise has met their needs — it is a relative value that compares what was supplied by the enterprise with their satisfaction with purchases from other
The Customer Experience and Brand Differentiation
Strategic Planning Assumption: More than 80 percent of CRM strategies will fail to articulate brand values in the
138
Gartner
The Relationship Between Customer Experience and Customer Loyalty
Strategic Planning Series
How to Create Great Customer Experiences
enterprises. However, demonstrating good measures of customer satisfaction does not guarantee loyalty. Some studies have shown that many satisfied customers defect out of boredom or curiosity, and that many defectors rate their previous supplier or brand as “good” or “very good.” Therefore, although customer loyalty cannot be achieved without customer satisfaction, achieving satisfaction does not guarantee loyalty. Moreover, customer loyalty, even when achieved, does not necessarily translate to higher profits. It depends on the type of loyalty involved — whether it is rational or emotional in nature. Rational loyalty is based on quantitative and objective factors. Recent studies have shown that some long-term customers expect something extra in return for their loyalty. These rationally loyal customers know how to work the system to make maximum use of the supplier’s support services, to gain the best discounts, and to achieve the lowest prices. As a result, these customers are not necessarily more profitable than newly acquired customers. Emotional loyalty is more qualitative and subjective — it is a feeling of connection with, and belief in, a business and its proposition that is created by positive interactions. This is what is needed to improve profitability. Emotional loyalty is far more likely where involvement with the product or service is strong (that is, the purchase is personal or important to the buyer, and the transaction is more complex than routine). Emotional loyalty can also be created for what a business represents — this is the essence of branding. Many successful brands have come from the consumer packaged goods industry, where the involvement in product or service is low. Companies in this industry try to use their brands to transform their products from low-involvement to high-involvement ones to emotionally engage with their customers. Business-to-business companies are increasingly applying the branding lessons learned in consumer industries. Measuring emotional loyalty is more difficult than simply measuring the longevity of a relationship with a customer. It is important to collect information frequently and use a consistent scale, because emotional states vary from day to day. Some businesses use behavioral psychologists to
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
analyze their front-line employees, and the tone of customers’ verbal or written contacts with the enterprise.
8.1.3
Before, During and After the Experience
Most of the customer experience occurs at the interface between the customer and the business — particularly in service sectors. This “front line” experience is delivered through: • Billing agents • Call center representatives • Delivery people • Field engineers • Salespeople • Marketing and product brochures • Mass-media advertising • Web sites However, customer expectations filter this experience. So customer satisfaction levels can be as high for shoppers of a high-end retail store (such as Neiman Marcus or Harrods) as they are for shoppers of less-high-end stores (such as Costco and Ikea) — even for the same shoppers. As a result, these interactions do not just involve products or services, but customers’ experience of products and services, mediated by their expectations. The process of managing customer experiences includes: • Helping set customer expectations before the experience • Delivering on this promise during the experience • Collecting customer feedback after the experience — either explicitly (for example, by conducting a survey) or implicitly (for example, by following a customer’s mouse clicks as he or she navigates a Web site) — and responding to that feedback Action Item: Think about the customer experience in three parts — before, during and after the experience. Invest more in the “before” and “after” of CEM by investing in processes and technology that improve the expectations set and the feedback received.
139
Reaping Business Rewards From CRM
8.2
Creating and Driving the Right Customer Experience
• Finally, it decided on the culture needed to ensure that the values were met and the market position achieved.
Key Issue: How will enterprises create and drive positive customer experiences?
Action Item: Involve customers and employees in setting brand values. Ensure that the brand values matter to customers and deliver competitive differentiation.
8.2.1
Setting Expectations Through Brand Values
Brands set expectations of a particular customer experience implicitly and explicitly. In the past, the brand was an expression of a product’s or company’s reputation, built up over many years. However, brands are increasingly developed through marketing communications, by creating an expectation of a particular quality of customer experience. Businesses should involve customers and employees in setting brand values. For many enterprises, visions, mission statements and values are internally focused and effectively mean little. Few enterprises: • Base their vision and values on what customers want • Involve employees in developing the values • Link the values to the brand and the central customer proposition • Encourage staff to align their behavior with the values • Reward employees for living up to what the brand promises Businesses need to ensure that the brand values matter to customers and deliver competitive differentiation. Figure 8-1 illustrates the results of one company’s approach to achieving this goal in the development of its brand model — starting with its core vision, and moving from there to its values, proposition and culture: • The company began by defining its market position as that of being the “definitive source” for its product. • Next, it set out to establish from customers and prospects what values the enterprise had to reflect in everything it did to ensure that it built customer loyalty.
8.2.2
Tailoring the Experience to Customer Segments
Strategic Planning Assumption: Through 2007, more than 75 percent of organizations that exceed customer expectations through increased service levels will not recoup the associated costs through increased sales because of the lack of effective customer segmentation (0.8 probability). One can easily visualize the benefits of allocating sales and marketing resources based on customer data (such as orders placed in the last quarter or revenue generated last year). In such a scenario, the largest customers would receive the most support. Customers would get more attention as they spend more (assuming that the customer wants more attention). However, a hidden danger lies in the fact that customers’ behavior and circumstances are not static — they move across segments. As such, enterprises need the flexibility to dynamically change management attention, budgets and behaviors associated with segment-based strategies and resource allocations as customers move among segments. In addition, businesses should pay greater attention to how customers will be managed cost-effectively, what relationship models will be employed and which customer experiences will be created. This aspect of CRM becomes more important as businesses offer customers more services through a proliferation of channels. Positive experiences have to be planned and, in most cases, will cost more as involvement with the customer increases. In particular, humans can be seven times more effective in delivering value in the customer experience than hightechnology channels, but are often more than seven times as expensive.
• It then developed more-detailed information on how it would deliver its value proposition to customers, so that this information could be broken down by segment.
140
Gartner
Strategic Planning Series
How to Create Great Customer Experiences
Figure 8-1: A Brand Model Example Culture Confident
Proposition
Proactive Contact
Detailed Committed
Knowledgeable
Values
Collaborative National
Vision
Supportive
I Definitive Information Social Source Mission Expertise
Educator Sense of Purpose
Solidarity
Accessibility
Quality Specialist Valued Staff
Understand Others
Innovation Technically Advanced
Impartial Pride Custodian
Up-to-date Inspired
Optimistic Drive Source: Gartner
Action Items: • Determine the investment to be made in CEM, based on the actual and potential value of each customer. • Measure the perceived value that customers see from human interactions for each customer-facing process.
8.2.3
Tracking Critical Experiences in Multiple Channels
Tactical Guideline: Building trust at its lowest level requires a credible experience. Through time, a trust relationship develops when it can be demonstrated that the seller’s interest in the buyer’s welfare is motivated by the desire to seek mutual gain. The customer perspective defines and details experiences. In addition, customer experiences align strongly with the channels and organizations that deliver them. Therefore, enterprises need to identify and address critical impact points and moments of truth. • Critical impact points are situations or occurrences that, if unaddressed, could escalate to become serious problems.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Moments of truth are instances when companies touch customers deeply — for better or worse — by delivering a terrible experience or superior value. Figure 8-2 shows an airline’s moments of truth for the journey of a business traveler — illustrating where welldelivered service increased value and where poor service posed the risk of defection. In this example, the business traveler experienced several negative moments of truth in one journey, with less compensation on the positive side. In one journey, the customer’s view of the airline went from average to loathing. Even in-flight comfort and the helpfulness of some staff members did not compensate for the hardships endured. In this particular case, the root of the customer’s displeasure was not really the cancelled flight or the lost luggage, but rather the poor attitude of staff and the lack of help in putting things right quickly. The staff was more intent on adhering to processes and procedures than on providing a high-quality customer experience. The passenger’s feeling of lack of control and power is at the core of the dissatisfaction. Many moments of truth can be traced back to feelings of loss of control in a situation. Keeping customers informed and being as open as
141
Reaping Business Rewards From CRM
possible is a major factor in building trust between customer and supplier. Given the challenging economic conditions and competitive environment in which companies find themselves today, no enterprise can afford the bad publicity and loss of a valuable customer that such an experience could cause.
Although enterprises can copy others’ products and undercut competitors’ prices, they cannot easily replicate another enterprise’s culture. The beliefs, behaviors, attitudes and values used to meet or exceed customer demands can be a source of competitive advantage. Every enterprise needs to discover its own formula for leveraging and aligning employee needs, enterprise goals and customer satisfaction.
Action Items: • Audit moments of truth and critical impact points, and then map them to the processes that underpin them. • Set up ongoing tracking and measurement of performance at critical impact points. Collect customer feedback specifically about these impact points. • Develop a communication plan to address the critical impact points. Ensure that the plan can be delivered consistently through multiple channels and to individual employees, and across broader enterprise or brand communications.
8.2.4
The Role of Customer-Focused Performance Management
Tactical Guideline: Without customer-focused management and metrics, enterprises cannot deliver consistently satisfying customer experiences.
Incentives are usually based on objectives with direct financial goals and are rarely aligned with customer value. Profits often are not associated directly with customer satisfaction, which means that staff pay and recognition are not aligned with customer goals. Making performance management part of the enterprise’s culture can change that. For example, bonuses could be based on customer experience as well as customer asset growth. A large retail bank’s survey of its employees’ views on incentives found that financial incentives ranked third in importance behind freedom and flexibility of working conditions, and respect from the employer and peers. Programs that appear to demonstrate little respect from employers — or put employees in situations that degrade them in front of their peers — have far lower success rates in motivating behavioral changes.
Figure 8-2: Moments of Truth — an Airline Example
Enjoyable
+
Brand Selection
Functional
Leg Room
+
Efficient
+
+ Upgraded
+
Reservation Process
In-Flight Service +
Run of the Mill Subpar
Not Again Loathing
Poor Experience of Airport Personnel
-
Flight Canceled
-
Flight Delayed
-
Luggage Lost
Missed Connection
- Complaint Response
Source: Gartner
142
Gartner
Strategic Planning Series
How to Create Great Customer Experiences
Action Items: • Determine which incentives have the greatest impact on employees — they may not be financial. • Consider paying commission-based salaries partly on the basis of customer satisfaction, which Microsoft’s top 600 executives started doing in 2003.
8.2.4.1
Case Study: Using Performance Management to Improve Customer Experiences
In 2000, Netherlands-based mobile-phone service provider Ben (now part of T-Mobile International) ranked last in customer service. With staff needs jumping from 45 to more than 700 agents — in a country with low unemployment and more than 300 call centers all vying for candidates — the company faced a serious challenge. Because processes and people must precede technology deployment, Ben’s managers made it their priority to attract, motivate and retain high-quality agents. Working collaboratively with supervisors and managers, they put a plan in place to develop clearly defined career paths, as well as objectives, benchmarks and measurements to evaluate and motivate the staff. The result was a multipronged effort that included internal marketing, an innovative career development program, training ($8,000 per agent) and a search for suitable technology. A team of agents and managers selected Nice Systems’ Customer Experience Management interaction center solution to help develop agents. To determine promotion eligibility, using the Nice system, supervisors review agents’ phone and Web interactions and score them against approximately 40 performance indicators, ranging from the greeting to more-complex scenarios. Agent compensation is tied to skills and delivering a quality customer experience. The result: Ben’s interaction center earned top honors in 2001 and 2002 from the Netherlands’ National Contact Center Awards committee. Not only did the center offer superior service (for example, 80 percent of calls were picked up within 20 seconds, and 90 percent of issues were addressed in the first call), its employees were highly satisfied as well. The center’s turnover rate was only 2.8 percent per month, compared with the industry average of 7 percent.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
8.2.5
Using Customer Feedback to Improve the Experience
Tactical Guideline: Businesses should measure how many of their customers claim to have had a poor experience, what percentage of their customers complained, and what portion of that group had their problems resolved and remained customers. Figure 8-3 illustrates how a poor customer experience can put relationships and money at risk, and lead to defections and lost revenue. In this case study from a retail store, defection accounted for $19.6 million in lost revenue per year — almost 10 percent of the store’s annual revenue. In this example, the introduction of operational customer feedback system should increase the level of complaints received. This in turn provides more opportunity to resolve complaints previously not voiced. The system should also provide feedback on how to improve the customer experience. By resolving additional complaints and improving the customer experience, the level of defection and business at risk drops. Some enterprises that specialize in customer feedback technology (such as ResponseTek Networks, CustomerSat and ViewsCast) report that, on average, operational feedback can help reduce defection by 2 percent to 3 percent per year. One interesting result of good complaints management is that customers with complaints that are resolved tend to have higher customer satisfaction levels than customers that did not have any complaints to begin with. One notable example of an effective feedback program is eBay’s “Voice of the Customer.” eBay runs a face-toface session every two months with a sample of its leading sellers to discuss their likes and dislikes and the policing of the service. One outcome of these sessions was the eBay ratings system, which provides feedback on sellers’ reliability and trustworthiness. Action Items: • Review all sources of customer feedback, and make them more consistent. • Run customer and employee feedback systems together to establish a correlation between employees’ attitudes and the customer experience.
143
Reaping Business Rewards From CRM
Figure 8-3: The Economics of a Poor Customer Experience Case Study: Enterprise with 2 million customers Revenue = $200 million per year Average revenue per customer = $100 per year Complain 2% Poor experience 22%
8,800 customers
440,000 customers
Positive experience 78%
At risk — 34% Issue not resolved
2,992 customers $299,200
Defect — 28%
2,464 customers $246,400
Resolved — 38%
Do not complain 98%
431,200 customers
At risk — 55% Decline in wallet share
237,160 customers $23,716,000
Defect — 45%
194,040 customers $19,404,000
Source: ResponseTek Networks
• Focus on the customer complaints management process first.
8.2.6
feedback should be considered to be as important as customer feedback. In addition, a variety of techniques can be applied by enterprises to better understand the customer experience. They include:
Acting on Customer Feedback
The collection of feedback — from both customers and staff — is one means of capturing information on the customer experience. Unfortunately, enterprises often misuse the collection of customer feedback in their decision making. Their desire to listen to customers usually does not end up aligning with their resulting strategies. A study by Customer Champions, a U.K. consulting firm, found that: • Ninety-five percent of companies collect feedback. • Fifty percent alert staff of the findings. • Thirty percent make decisions using this insight. • Ten percent act on these decisions and improve.
• Regular reporting on customers (including information on customer acquisition, retention, complaints and satisfaction) • Formation of customer care and insight teams • Direct customer interaction by all — from top managers to shop-floor staff • Building mechanisms that use the customer information in decision making (such as account reviews and service workshops) • Creating internal CRM initiatives that increase knowledge sharing and break down internal barriers among departments and teams
• Five percent inform customers of the change.
• Continuously coaching staff in how their behavior supports brand values
In most cases, conducting only an annual customer satisfaction survey yields little value to the enterprise. Staff
Action Item: Use customer and staff feedback to design, develop and personalize the customer experience.
144
Gartner
Strategic Planning Series
How to Create Great Customer Experiences
Encourage customer feedback by telling customers how their feedback changes the service.
and used quickly in decision making to transform the customer experience into one that builds value at each customer contact.
8.2.7
The balanced scorecard is a popular methodology to structure management information. It translates strategy into action, ensures that the enterprise’s strategy is effectively translated into the right CRM processes, and provides the feedback to ensure that the strategy works.
Metrics and the Customer Balanced Scorecard
In the past, enterprises used cost efficiency metrics to manage operations and used financial metrics to measure performance. Simple categories such as these fail to take the customer into account. On their own, they will not work in a business environment that increasingly requires CRM and CEM. Operational and strategic metrics must also include the value customer management brings to the enterprise and, most importantly, to the customer (see Figure 8-4). A balanced scorecard should then link these metrics to enterprise goals for operations, strategy and financial returns. Some enterprises may need individual servicelevel metrics for customer contact (for example, in a business-to-business model). The most-important metrics in CEM are those that can be monitored on a daily basis
The balanced scorecard is an instrument used on an aggregate level, but it could be extrapolated to the individual customer level, even in a business-to-consumer environment, to communicate an integrated view on targets for that specific customer. This translates the CRM processes into tangible content in customer contacts, which enhances customer loyalty. We call this theory the “customer balanced scorecard.” The customer balanced scorecard is a mutual agreement between the individual customer and the enterprise that predicts, tracks and evaluates the enterprise’s performance in servicing the customer to increase
Figure 8-4: Customer Experience Planning and Metrics
Metrics Vision and Goals
CRM Strategy Effectiveness Feedback
Business Balanced Scorecard Actionable Feedback
Operational Customer Experience Management Customer Value Proposition Delivery Metrics Contact With the Customer
• Brand image • Market position • • • •
Customer acquisition Value (share of wallet, loyalty) Retention Strength of relationship
• • • • • •
Brand experience dimensions Key attributes of brand image Key attributes of product/service Key service levels Satisfaction Complaints
• Individual service levels • Resolution of problems
Number of Metrics/Volume of Data Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
145
Reaping Business Rewards From CRM
customer loyalty. This scorecard consists of performance indicators spanning four perspectives: financial, customer, process and innovation.
8.3
Getting Started on the CEM Initiative
Key Issue: What changes should be made first to drive CEM? Strategic Planning Assumption: Through 2009, 60 percent of initiatives that are designed to improve the customer experience will have made no difference — and 20 percent will have made the experience worse — because of a lack of focus on fixing basic processes first (0.7 probability). The complete customer experience is influenced by many different factors. The supplier can control some factors directly and can influence others (such as suppliers’ and partners’ behavior with customers), but some factors are beyond the supplier’s sphere of influence. The importance of independent influences is increasing as auction Web sites (such as eBay), chat rooms, communities (such as those on Amazon.com’s Web site) and e-mail enable the customer to discover more information from independent sources before buying. Nevertheless, enterprises should start with the areas that they can control first. Businesses will achieve little by making demands of suppliers and partners before addressing their own process issues. Some factors that have significant impact on the customer experience will take many years to alter, such as the design of a car, the range of insurance and mortgage services available, or the coverage of a telecommunications, retail store or automated teller machine network. Other key factors, however, can be changed in a matter of months, such as the layout of a Web site, the complaint-handling process or the number of call center agents on duty during evening hours. For the businesses that have succeeded in their customer experience improvement initiatives, the key has been to: • Analyze the most important established processes from the customer’s perspective.
146
Gartner
• Correct processes that are in the business’ control first. • Be willing to change back-office processes before the front-office ones, if the customer considers issues associated with the former to be more important. Action Item: Address your business’s own process issues before making demands of suppliers and partners, because they will set their level of commitment to the customer experience based on the business’s standards.
8.3.1
Improving the “Front Line” Contact Experience
Contact center managers rely on traditional service-level metrics, such as abandonment rates, average handling time, average speed of answer and first-call resolution, to assess how well agents are performing against standard service-level goals. However, these tools do not improve understanding of the customer experience. As a result, Gartner expects these metrics to be increasingly supplemented with business metrics (such as “saves” and “upsells”), quality-monitoring recordings, e-learning and analytics. • Quality-monitoring recordings can be tagged (based on rules, word spotting or both) and shared among departments, which receive and can then act on customer feedback. They can also be captured and represented visually, so that managers can analyze factors such as agent and team performance, best practices and customer experience. Analysis of this data provides managers with a more-complete picture of agent quality as it impacts the business, and a rich set of visual tools with which to manage the call center and the agents. • E-learning technology enables managers to push training to contact center agents at convenient times of the day. Career paths can be crafted based on improved performance and developed competencies. Agent competencies can be tested and scored regularly during the e-learning process. • Workforce optimization applications can be used to gather historic data for forecasting and scheduling purposes (for example, the staffing levels required for a product or service promotion), and to help managers match agent skills with specific tasks. They can also alert managers in real time when an agent is not
Strategic Planning Series
How to Create Great Customer Experiences
adhering to a previously assigned schedule (which could negatively impact service-level goals and customer satisfaction). Action Item: Focus on meeting basic customer expectations first.
8.3.2
The Customer Experience Governance Model
Tactical Guideline: Businesses should develop a customer experience governance model that defines managers’ and employees’ responsibilities for the customer experience, and their freedom to influence that experience. Employees need to know how much freedom they have to impact the customer experience. Management needs to ensure that employees do not to make alterations to core products or services or create their own contract types to preserve consistency, ensure brand integrity and manage financial and legal risks. However, excessive control of an employee’s behavior limits the scope for that employee to improve the customer experience. Franchise models illustrate how governance of the customer experience can be clearly defined and managed. For example, the restaurant chain TGI Friday’s has a clear set of contractual terms and guidelines at three levels: • The core service, including store locations and layouts, core menu offerings, ingredients, cleanliness standards and brand logo use. • Local management’s responsibilities and freedoms for recruitment, financial reporting, employee behavior and even the desired ambience. (Managers of TGI Friday’s restaurants in Korea, for example, used the freedom
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
they were given to promote the company as a Mexican food chain.) • Employees’ responsibilities and freedoms. Employees are encouraged to develop individual skills and identities (such as juggling and making balloon animals, and customizing their uniforms with their own buttons and hats) and to take responsibility for the customer’s faceto-face experience. Action Item: Allow staff to add their own touches to a consistent, basic service. It will improve satisfaction among staff and customers.
8.4
Recommendations
• Invest more in measuring the “before” and “after” aspects of the customer experience, rather than focusing on the “during” aspect. • Ask customers what their expectations are across channels (for example, in face-to-face, Web site and call center interactions), and determine whether these expectations match the intended brand values. • Ensure that there is a multichannel feedback system in place. Businesses should respond to customers that provide feedback, and communicate results to employees. • Segment the customer base. This should be the basis for determining the level of investment in the customer experience. • Get the basics right first. Focus on what the business controls directly, and create a customer experience governance model.
147
Customer Data: Key to Unlocking Customer Value
9.0 Customer Data: Key to Unlocking Customer Value
W
ith the advent of customer relationship management (CRM), e-commerce and other externally facing initiatives, customer data has become increasingly critical to business success. However, identifying, acquiring and ensuring the quality of customer data presents a major obstacle to realizing any benefits from these initiatives. In addition, too many organizations treat CRM as a stand-alone application from a data perspective, deploying additional data “silos” in the form of CRM analytical data marts. Successful CRM analytics require the broader perspective found in the data warehouse. Customer data is key to the “customer information” building block in Gartner’s Eight Building Blocks of CRM (see Chapter 7.0). CRM success depends on ensuring that the right data is collected, that it is of high quality, and that the right information goes to the right place. This chapter explores the importance of data to CRM and discusses how data warehouse implementations can support CRM initiatives — enabling the complete view of the customer that provides the greatest CRM benefits. In addition, it examines the impact of poor data quality and suggests approaches to deal with this issue from business, organizational and methodological perspectives. The following Key Issues frame the analysis in this chapter: • Why is customer data so critical to externally facing initiatives such as CRM? • How can data warehouse efforts be leveraged to support enduring CRM strategies and value? • What is the impact of poor data quality, and how can it be addressed?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
149
Reaping Business Rewards From CRM
9.1
Why Customer Data is Critical to CRM
Key Issue: Why is customer data so critical to externally facing initiatives such as CRM?
9.1.1
The Shift to a CustomerFocused View
Many industry analysts promote the idea that the goal of a CRM strategy is to provide higher value to customers. This suggests that a CRM strategy is a philanthropic exercise. In reality, the purpose of pursuing a CRM strategy is to bring value to the enterprise — value in the form of quantifiable improvements to the top or bottom lines of the balance sheet. Naturally, the higher the value of a company’s product or service is to customers, the higher the price and profit margins achieved by that company will be. This is why successful CRM strategies are built on the foundation of business processes that are organized around the behavior and requirements of the customer. Many enterprises will struggle with this transition due to a deeply ingrained internal focus. The challenge is to shift that focus outside the enterprise’s walls to genuinely consider the needs of the customer. Enterprises unable to make this shift will fail in their CRM efforts, regardless of the technology solutions that may be available. Action Item: Execute a shift in mind set by educating internal associates on the importance of an external, customer focus. Organize business processes and establish measurements based on value to the customer.
9.1.2
Key Challenges to Gaining a Customer-Focused View
Tactical Guideline: Enterprises must create an integrated, multichannel, customer-facing view, but be pragmatic about how to achieve the right perception at each customer touchpoint. Enterprises’ business requirements need to be driven by their customer insight, in addition to the availability of data. Challenges arise in creating the broad view of customer so necessary for delivering CRM. Data quality issues,
150
Gartner
which are often overlooked by CRM project teams, prevent accurate identification and contact with customers. Due to a lack of sufficient controls on data entry and maintenance, to human error, and to changes in customer attributes (such as name and address) that occur naturally over time, customer data in most large enterprises is in a far-worse state than expected or desired. Customer data is generally fragmented across different operational systems. Some components of customer data are stored and maintained in back-office order-processing systems, others in customer-facing applications and still others reside outside the enterprise in data provided by third parties. Fragmentation makes it difficult to achieve a complete, concise view of all aspects of a customer. These problems make the enterprise unable to execute coordinated and consistent interactions with customers across multiple business functions, channels and lines of business. They also prevent the enterprise from performing valuable customer analytics — meaning that the enterprise will be unable to understand critical metrics such as customer profitability, turnover rates and lifetime value. Without a strong analytical component, a CRM initiative will not be able to improve and tune itself over time, severely limiting long-term value. Action Item: Recognize the significant challenges arising from customer data. This is an underestimated aspect of a CRM initiative.
9.1.3
Business Users Must Agree on Semantics
Tactical Guideline: Getting businesspeople to agree on all customer business rules and attributes is a difficult challenge, but it is a prerequisite for building an integrated view of the customer. The solution is to identify and model the attributes that provide the greatest value in addressing customer information needs and supporting customercentric business processes. Gaining an integrated view of the customer as a subject area is as much a business issue as a technical one. Business constituents must work together to agree on semantics related to the customer and its attributes. For example: • At what point does a “prospect” become a “customer”?
Strategic Planning Series
Customer Data: Key to Unlocking Customer Value
• What should the customer hierarchy look like to facilitate consolidated sales information? • What are the different meanings for multiple addresses? Businesspeople must understand and be able to reconcile semantic differences in their use of customer data. This is usually a painful and arduous task — one that dwarfs the technical challenges of identifying where customer data is held, which system is most reliable or how to get customer data out to those who need it. Even when businesspeople agree on semantics, enterprises typically find that these semantics are not consistently implemented across their multiple, “stovepiped” operational systems. It is essential that enterprises identify the customer data elements that are most relevant in supporting the customer-centric business processes deployed to support the CRM strategy. Action Item: Determine the data required to support customer-facing business processes, and allocate the appropriate resources to resolve the semantic discrepancies that will inevitably arise in a distributed, heterogeneous environment.
9.1.4
Customer Data’s Impact on CRM Implementation Costs
Strategic Planning Assumption: Through 2006, 70 percent of CRM projects will have to be re-evaluated because project managers overlooked data, people and process issues in favor of solely technological implementations (0.7 probability). In many technology markets, the total cost of implementation is possibly the biggest area of misrepresentation. Vendors and integrators sometimes express cost as a multiple of the purchase price, which has little bearing on the actual implementation cost. In the case of CRM implementations, a large percentage of the cost (sometimes 70 percent or more) is tied up in the data acquisition, integration and cleansing operations necessary to build a consolidated customer data view. This is the aspect of the project that most enterprises drastically underestimate — often by 100 percent or more. The challenges begin with the time-consuming effort of identifying and keeping an inventory of the customer data
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
in its various forms and locations across the enterprise. Defining the business rules by which the data should be transformed, integrated and cleansed is the next step. This is followed by designing the integration processes. Finally, substantial effort is required to build and test these processes. It is during this part of the project that additional data issues (such as poor quality, discrepancies, and missing or incomplete information) are revealed, which usually results in rework. Placing strong emphasis on ensuring that the initial data is as thorough and accurate as possible is a best practice to minimize the level of rework later in the project. Action Item: Recognize that most of the effort in a CRM application implementation relates to data acquisition and quality. Allocate appropriate resources and time to address these issues successfully.
9.2
The Role of Data Warehouses in Supporting and Delivering CRM Value
Key Issue: How can data warehouse efforts be leveraged to support enduring CRM strategies and value? Strategic Planning Assumption: Through 2006, more than 50 percent of enterprises will spend more on implementation than is necessary because of a lack of coordination between strategic business intelligence (BI) initiatives, including CRM (0.7 probability). Tactical Guideline: There is significant overlap in the technologies, skills and tasks involved in performing data acquisition for CRM applications and data warehouses. Enterprises must leverage each effort for the benefit of the other to minimize overall costs and delivery time. Most enterprises today are not coordinating efforts related to analytical CRM strategies and other BI initiatives. With budget cuts and spending for even strategic initiatives being scrutinized, enterprises can keep costs down via better coordination and leverage of complementary initiatives Not only is there lack of coordination among different efforts, but often there is also a lack of coordination within the same effort. For example, one enterprise Gartner spoke with had a sales department with 24 different data marts,
151
Reaping Business Rewards From CRM
which were rigid in design and prevented the flexibility to alter business processes based on analysis results. Another enterprise had a marketing department with 17 different data marts. The cost of implementing and supporting such topologies becomes prohibitive, leading organizations to inflexible behavior that drives more chaos than innovation. Although CRM has commanded the attention of executive management, the effectiveness of such a strategy can only be as good as its underlying data and topology. IT skills are expensive, and user requirements tend to be forever dynamic. Support for multiple analytical applications with a consolidated topology will keep staffing and cost levels down while providing an ongoing return on investment (ROI). With all of the challenges involved in delivering the proper data to support a CRM initiative, enterprises should look to leverage components of their data architectures, such as data warehouses, operational data stores and data marts. When a data warehouse infrastructure has been implemented — or is in the process of being implemented — the CRM effort should leverage as many of the same tools, technologies, people and skills as possible to ensure consistency. Many of the tactics involved in delivering a data warehouse are the same for integrating customer data for CRM, and making use of the same tools and skills will speed implementation. On the analytical side of CRM, linking the CRM effort with the data warehouse effort will minimize the risk of deploying stand-alone, CRM-focused data marts that have no relationship to the enterprise data warehouse architecture. Rather, CRM analytics should be based on that architecture, or on dependent data marts created from it. Benefits of this approach include: • Improved speed of deployment • Lower overall costs • Better data consistency • Reduced data redundancy (and hence, lower storage capacity requirements) • A less complicated data architecture, with fewer data marts and data extraction, transformation and loading (ETL) processes • Less staff needed to support the environment on an ongoing basis
152
Gartner
Action Item: Ensure that CRM data integration efforts are linked as closely as possible to established and future data warehouse and BI activities.
9.2.1
The Data Warehouse as the Foundation for Business Intelligence
Tactical Guideline: When building BI infrastructures, enterprises must be guided by the core principle that change is inevitable — including changes in data types, applications, users and availability. Gartner’s BI framework is designed to enable enterprises to find and achieve maximum ROI on their BI investments, by looking for it in the right place. The framework defines four layers — infrastructure, functionality, organization and business — each with its own ROI considerations (see Figure 9-1). Data warehouses are at the core of the BI infrastructure layer, where ROI is achieved in the form of efficiency and flexibility. The infrastructure enables other applications and provides economies of scale. Without a flexible, applicationneutral, repeatable process for acquiring and integrating data, the enterprise will suffer constant rework and be restricted in its ability to deliver new applications in response to changing business needs. Since a majority of the effort in any BI initiative will be expended in the infrastructure layer, enterprises should focus on ensuring that this layer of the framework is as solid as possible. Allocating the proper time, skills and budget is critical to success. A BI infrastructure must provide support for the dynamics of an enterprise and its market conditions. Many data warehouses and BI environments built in the past lost sight of the flexibility goal and left users with significant delays to access data and use applications. Several types of business change are inevitable: • New data requirements — An enterprise’s application portfolio, which provides data to fuel BI, is forever changing. It expands and contracts as new applications are deployed and older ones are replaced. • Evolving analytic requirements — The types of questions that the business asks will change on a constant basis, and will generally become more sophisticated over time.
Strategic Planning Series
Customer Data: Key to Unlocking Customer Value
Figure 9-1: The Business Intelligence Framework ROI from: Business
Organization
Functionality
Key trends: globalization, virtualization and transparency
Competitiveness
Performance management, front office or back office, information culture (inclusion, exclusion), user types, BI methodology, skills and BI department
Leverage
BI applications: strategic, operational and analytical
Q&R: standard, prepared, ad hoc and user-driven
Effectiveness
BI platforms, business BI suites, data mining, IT-centric or user-driven Infrastructure
Data warehouse
Operational data store
Extraction, Extraction, transformation transformation and and loading loading
Integration Integration brokers brokers Real-Time
Point-in-Time
Transactional
ERP
BI CRM Source: Gartner
ERP
CRM
SCM
business intelligence customer relationship management enterprise resource planning
• Organizational change — Reorganization and acquisition activity will raise the need to perform analysis along different dimensions and across different slices of the data than previously required. • Core business strategy shifts — As markets and enterprises evolve, enterprises will make key changes in their overall business strategy, which will drive a change in where and how BI efforts must be focused. The agility of the infrastructure underpinning BI is critical to provide support for these changes. It is unacceptable to make the business wait while the IS organization undertakes significant redevelopment work. With the mantra “change is constant” in mind, BI project teams can architect their infrastructures to insulate themselves as much as possible from the impact of business change.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Efficiency
9.2.2
Legacy
IT Q&R ROI SCM
information technology query and reporting return on investment supply chain management
Data Warehouses vs. Data Marts
Tactical Guideline: Data marts aren’t small data warehouses. They don’t achieve a data warehouse’s primary goals of flexibility, extensibility and an applicationneutral data model to support strategic business activities. A significant amount of confusion remains in the market regarding topology choices and database styles related to the data infrastructure for BI (see Figure 9-2). Many enterprises — sometimes encouraged by vendors — have become enamored with deploying data marts to meet specific BI needs. In most cases, enterprises that seek a quick ROI and a less-risky implementation deploy a variety of application-specific data marts that meet current needs but aren’t flexible enough to stand up to significant business change. Furthermore, significant overlap
153
Reaping Business Rewards From CRM
Figure 9-2: Comparing Topology Choices Data Warehouses • Application-neutral • Centralized, shared • Cross-LOB or cross-business • Architected • Historical detailed data • Some summary • Lightly denormalized
Data Marts
Scope
Data Perspective
• Multiple subject areas
Subjects • Many • Operational, external data
Data Sources
• Nine to 18 months for first stage (two or three subject areas) • Multiple-stage implementation
Implementation Time Frame
• Flexible, extensible • Durable or strategic • Data orientation
Characteristics
In contrast, enterprises that take a more-strategic view — and expect constant change — tend to base their BI efforts on an application-neutral, data warehouse structure. These enterprises may also create data marts. However, these data marts tend to be sourced from (and dependent on) the data warehouse, and limited in number. Action Item: Consider an application-neutral design for the data warehouse. This will enable many BI requirements to be met without significant redevelopment work or the creation of new structures, thereby reducing costs and increasing the deployment speed of additional BI applications.
154
Gartner
Specific application requirement LOB, department or user area Business-process-oriented Multiple databases with redundant data
• Detailed (some history) • Summarized • Highly denormalized • Single partial-subject area • Multiple partial-subject areas • Operational source snapshot • • • •
Few Operational, external data OLTP database snapshot “Bootleg” data extract
• Four to 12 months
• Restrictive, nonextensible • Short life or tactical • Project orientation
LOB OLTP
Source: Gartner
and redundancy across data marts increases costs for these enterprises.
• • • •
9.2.3
line of business online transaction processing
Leveraging the Data Warehouse to Support Analytical CRM
Strategic Planning Assumption: Through 2006, only 10 percent of enterprises will have an accurate customer value proposition for a majority of their customers, while 50 percent of enterprises will have one for a minority of their customers; for the remaining 40 percent enterprises, all customer value propositions will be estimated ones, making these enterprises vulnerable to customer loss (0.7 probability). With a CRM strategy, many enterprises focus on the automation of internal processes (such as call center automation or sales force automation) to achieve internal efficiencies. These efficiencies can provide a measurable ROI in a reasonably short period of time, and some
Strategic Planning Series
Customer Data: Key to Unlocking Customer Value
Figure 9-3: Analytics Drive Long-Term Value
Analytical CRM Operational CRM
0
ROI Time
Source: Gartner
organizations see this as CRM’s main benefit. In reality, although these initiatives may show rapid ROI, the rate of return will ultimately level off (see Figure 9-3), reflecting that the process has achieved peak efficiency. Analytical CRM is typically more difficult to implement, and its ROI is usually harder to predict. It also requires a longer period of time to realize those returns. However, unlike operational CRM, the potential ROI of analytical CRM continues to grow over time. The analytical process delivers the ability to continually improve customer knowledge and relationships, which leads to continuing growth and profitability.
CRM ROI
customer relationship management return on investment
enterprise) necessary to perform analyses, such as customer profitability, facilitates the delivery of effective CRM analytics. Leveraging an established data warehouse infrastructure in this way speeds delivery and provides consistency across multiple CRM application implementations.
9.2.4
Key Considerations for the Data Architecture
The key to delivering effective CRM analytics is the availability of proper data — more than is produced by CRM applications alone. For example, to calculate customer profitability, cost details are necessary, but these details are not generally stored in the CRM application itself.
Customers demand easy, convenient access via channels of their choosing, but multiple touchpoints increase interaction inconsistency. A single customer database for operational purposes may seem ideal from an architectural and data management viewpoint, but it is unlikely to be feasible for most large enterprises because of their diverse application portfolios and associated databases. Similar inconsistency has arisen on the analytical side through a multiplicity of data marts and marketing databases.
This is where the data warehouse comes in — its ability to provide the additional information (from across the
Enterprises need to create a more-consistent and lessredundant data warehouse infrastructure and reconcile it
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
155
Reaping Business Rewards From CRM
with the database needs of CRM marketing and analytical applications (see Figure 9-4). IT architects will meet increasing demands to create more-up-to-date customer insight, and to deploy that insight closer to customer touchpoints. This requires a review of ETL processes, and of mechanisms for the generation and deployment of customer insight that cannot support the move to near real time. Action Item: Consider the operational and analytical aspects of an architecture for CRM, and the demands of creating a near-real-time closed loop.
9.3
The Importance of Data Quality
Key Issue: What is the impact of poor data quality, and how can it be addressed? Strategic Planning Assumptions: • Through 2007, more than 25 percent of customer data within Fortune 1000 enterprises will remain flawed — that is, inaccurate or incomplete (0.8 probability).
• Through 2006, most large enterprises won’t recognize data quality as a strategic issue, and will continue to reactively deploy tactical solutions when they identify data quality problems (0.8 probability). How enterprises view data drives their ability to improve its quality. Most enterprises view data as a necessary but cumbersome asset and a constant source of frustration. Few consider data as a potential competitive weapon. Most large enterprises are oblivious to data quality issues, assuming that the quality of their data is fine because operational systems continue to run without failure. Unfortunately, this is rarely the case — instead, poor-quality data is likely causing lost productivity at the operational level and an inability to deliver strategic objectives such as CRM. These negative influences can have a significant financial impact on the business, degrading top- and bottom-line results. The most visible manifestation of this impact will be wasted investments due to the failure of major projects that rely on high-quality data.
Figure 9-4: Data Architecture Challenges and Goals Challenges
Goals
Poor data quality — dirty, inconsistent, low in value
High-quality data — clean, consistent and rich
Operational silos by system, by channel — fragmented data and view
Single view of the customer across channels for operational purposes
Numerous, uncoordinated data marts — inconsistency, redundancy, cost
Consistent data warehouse and data mart infrastructure for analytics and marketing
Data is too old to use — Fragmentation and batch processes rule the day
Near real time (or right time) movement and use of data and insight
One-way flow of data from operational to analytical systems, poor use of insight
Closed loop between operational and analytical systems — learn and use
Source: Gartner
156
Gartner
Strategic Planning Series
Customer Data: Key to Unlocking Customer Value
The importance of data quality increases dramatically when applications that directly leverage the data have an impact on external stakeholders, such as customers and suppliers. Lack of accuracy in these applications can quickly lead to mistrust and damaged relationships, in turn leading to the failure of customer-related and supplier-related initiatives.
A small percentage of enterprises understand the importance of data quality from a business perspective. These enterprises are raising awareness of data quality issues in a manner that crosses all functions and lines of business, and are making business process changes to reduce quality flaws and improve the use of data assets.
As a result, most enterprises tend to react to narrow, function-specific data quality issues and address them only when needed — that is, when business problems stemming from poor data quality become too visible and difficult to ignore. In most cases, the tactical solutions deployed leave no room for growth to drive ongoing benefits, or to share these benefits across the enterprise.
Only a few enterprises’ cultures have ingrained the concepts and value of data quality. In these cases, the enterprise builds data quality controls into everything it does. By reaching this level (see Figure 9-5), the enterprise reaps the benefits of accurate and consistent information across the breadth of the business, which enables strategic business initiatives (such as CRM) to achieve optimal results.
Those enterprises that treat data quality as purely an IT issue are unlikely to achieve any significant improvement. Rather, successful data quality improvement programs must be built on the understanding that data quality is a strategic business issue. Those enterprises that make the data quality issue painfully visible to the business at a high level will be best positioned to effect improvements.
Action Items: • Treat data quality as a broad business issue rather than a tactical, technical one. Raise business leaders’ awareness and understanding of the impact of poor data quality. • Assess the enterprise’s culture as it relates to data, and recognize that a significant mind set shift will be required to achieve data quality improvement.
Figure 9-5: Data Quality Is a Business Issue
High
Ongoing, positive impact on business intelligence efforts
Low
High
Ingrained in culture
Business process change and view of data as a competitive asset
Identification of data quality issues and deployment of tactical solutions
Degree of cultural change
Low
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
157
Reaping Business Rewards From CRM
9.3.1
Organization and Leadership Are Key to Data Improvement
Tactical Guideline: Data quality improvement efforts cannot succeed without organizational change. Clearly identifying responsibilities and including measures to guarantee accountability are critical to achieving results. For many failed data quality improvement efforts, the problem wasn’t a lack of desire, funding or technology, but rather a poorly aligned organization. Most often, these failures result from the enterprise taking one of two viewpoints: • Data quality is an individual’s or department’s problem • Data quality is everyone’s problem (with no well-defined leadership) It is critical to assign visible, respected and empowered business leaders to have overall responsibility for data quality improvement. In addition, they must be supported by the proper resources and capabilities — a combination of business and IT resources provides the necessary skills to be effective. Leadership and resources are not enough, however; many enterprises fail to build accountability into their initiatives, leaving room for data quality improvement efforts to take a lower priority when other business issues are perceived to be more critical. In this case, the data quality program languishes, never achieving significant benefits. Enterprises that achieve success have not only identified capable leadership for the effort and allocated the proper resources, but have also been able to ensure accountability through constant measurement, reporting, senior leadership visibility and, in some cases, compensation plans. Action Item: In addition to culture and visibility, focus on deploying the appropriate organization to serve as the foundation for a successful data quality effort.
9.3.2
Data Quality as an Ongoing, Iterative Process
Tactical Guideline: Data quality issues are a major reason for the failure of CRM efforts. To ensure success, enterprises must take a structured approach to data quality, viewing it as a constant focus rather than a one-time problem.
158
Gartner
Many enterprises treat data quality as a one-time effort, typically focusing on cleansing data before loading it into a data warehouse. Although this approach helps address initial data quality issues, it doesn’t ensure long-term quality. The quality of data in operational systems decays rapidly, particularly in legacy systems that may lack the proper controls over data maintenance. When propagated to a data warehouse and other systems, data of dubious quality causes quality to decline there as well. As a result, business users obtain inaccurate information from BI applications and query tools, which leads to enterprises making poor business decisions. To address data quality issues properly, enterprises need to follow a methodology that includes: • Measuring key data quality metrics • Establishing goals for improvement • Deploying process improvements and technology Addressing this significant business issue requires the involvement of both business users and IT resources for optimal results. Business users should identify data quality issues, and build the business case for investing in resources and technology to improve data quality. Most importantly, enterprises should: • Focus data quality efforts on the root of their problems. • Consider data quality to be an ongoing, iterative process — not a one-time effort (see Figure 9-6). Action Item: Staff efforts adequately to assess and improve data quality on a continual basis, leveraging training and process improvements in addition to technology investments.
9.4
Recommendations
• Don’t forget the data — great strategy, skills and technology will fail without a solid data foundation. In the course of CRM application implementation efforts, enterprises must increase their focus on data issues. Raising awareness of data-related challenges, and expending the effort and resources to address them early in the project, will minimize the risk of rework later on.
Strategic Planning Series
Customer Data: Key to Unlocking Customer Value
Figure 9-6: A Successful Data Quality Program Never Ends
Identify and plan ongoing efforts
Allocate resources
Organize
Measure data quality
Tune Monitor results
Analyze Deploy processes, training and tools
Quantify the impact
Deploy
Set goals for improvement
Calculate potential return on investment
Source: Gartner
• Avoid deploying stand-alone data marts for CRM — CRM analytics require the broader perspective found in the data warehouse. Analytics are a critical part of long-term CRM success. Linking CRM analytics efforts to an established data warehouse infrastructure will ensure consistency and speed delivery. • Match strategic business requirements and structure with the appropriate data warehouse design and topology. Err toward fewer processes and data stores.
• View data quality as a strategic business issue, rather than an IT problem. Enterprises must raise the visibility and impact of poor customer-data quality on the enterprise. This is a strategic business issue and must be addressed with a combination of business and IT resources. Continually focusing on customer data quality — rather than making only a one-time effort at the time of system implementation — is critical to delivering the accurate customer view necessary for CRM success.
• Leverage tools, people and skills across data warehouse and CRM data acquisition efforts. Leveraging tools and skills, and consolidating the number of deployed data stores, will improve efficiency and minimize cost.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
159
The Role of Analytics in Successful CRM Strategies
10.0 The Role of Analytics in Successful CRM Strategies
A
lthough important to customer relationship management (CRM) activities, analytics remains poorly understood by most enterprises. Many enterprises don’t know:
• How to begin using CRM analytics • How to determine what they should measure • Whether data mining is required • Which vendors to consider CRM analytics focuses on reporting, managing, predicting and understanding customer behavior. It can give individuals better data, which allows them to make more informed decisions — and therefore likely better decisions. However, CRM analytics by itself can’t fix bad underlying processes. Even superb analysis of nearperfect information won’t compensate for decision-making processes that are inherently flawed. Approaches to CRM analytics — and the vendor offerings that support them — can vary significantly, depending on factors such as business requirements, industry, company size and software installed in the enterprise. Many valid analytics approaches can meet the same business need. The choice of CRM analytics tools should be based on specific enterprise or organizational requirements. Enterprises need to understand the importance, value and scope of the necessary investment in CRM analytics to remain competitive in their markets, and to manage their customer relationships and CRM strategies effectively. The following Key Issues frame the analysis in this chapter: • What role can analytics play in developing a successful CRM strategy? • How can an enterprise communicate, monitor and manage the success of its CRM strategy? • How can analytics help an enterprise understand customer behavior and leverage that insight? • How can enterprises best select vendors and technologies for CRM analytics?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
161
Reaping Business Rewards From CRM
10.1
How Analytics Support the CRM Strategy
Key Issue: What role can analytics play in developing a successful CRM strategy?
Customer data and insight must reach the points where the customer interacts with the enterprise (that is, customer “touchpoints”) to support and prioritize these interactions, and drive profitable customer relationships. An enterprise needs a CRM information strategy that defines how it intends to source, manage and leverage its customer information assets. Someone with the authority to prevent customer information from becoming poorly organized (that is, from containing unneeded data or not having enough vital information) should own and execute this strategy.
10.1.1 The Value of a Strategy for Customer Insight Tactical Guidelines: • To achieve its CRM objectives and gain a competitive advantage, an enterprise must establish a business plan for sourcing, maintaining and leveraging its customer information assets. • Enterprises need to build and develop a “blood supply” of customer information and insight. CRM requires:
Most enterprises’ CRM information capabilities remain poor because of the number of their disparate departments, initiatives, databases and systems. Problems related to such fragmented approaches include: • Increased costs stemming from storing and managing duplicate data • An inability to:
• A “blood supply” of customer information that flows throughout the enterprise (see Figure 10-1)
– Process customer interactions and contacts efficiently, effectively and accurately
• Tight integration between operational and analytical systems
Figure 10-1: The Customer Information and Insight “Blood Supply” Data integration and enrichment • • • • •
Data quality Appending demographic data Householding Relationship mapping Profiling
Data extraction and transformation
Single customer view for analytical CRM
Customer analysis
• Data warehouse • Data marts • Data models
• • • •
Data collection
CRM analytics Customer objectives
• Near real-time extraction, transformation and loading from operational systems Single customer view for operational CRM • Data quality • Physical or virtual data model • Federated model • Operational data store, customer information file • Process integration Source: Gartner
162
Gartner
Segmentation Value and profitability Behavioral analysis Measurement and prediction
• • • • Customer interaction
Relationship planning
Customer interaction • Different styles of interaction — outbound, inbound, event-driven • Information and insight at the touchpoint • Customer experience
Improve retention Improve cross-selling Improve satisfaction Reduce cost to serve
Customer planning • Plan by product and by line of business • Plan by segment — value proposition • Plan by customer — next action
Strategic Planning Series
The Role of Analytics in Successful CRM Strategies
– Segment and profile customers for differentiated products and service levels – Calculate return on investment (ROI) or measure CRM strategy success • Lack of insight into the customer’s: – Actual and potential value – Previous and potential behavior and requirements
10.1.2 Guidelines for Categorizing CRM Analytics Tactical Guideline: An enterprise needs to invest in analysis that creates greater understanding of operations (that is, reporting) before moving to higher, value-added analytical activities, such as predicting customer behavior or making management decisions. CRM analytics covers a wide range of techniques and objectives, and can be categorized several ways (see Figure 10-2). An enterprise needs to identify a definition and approach that meets its requirements. The analysis approach selected should be:
• Business-driven — Approaches defined in terms of analytical techniques don’t work because several techniques can support multiple types of analysis, and a variety of techniques can solve most business problems. The objective of CRM analysis is to solve CRM problems — not to use analytics techniques. As a business strategy, CRM requires a business-centric approach. • Vendor-independent — No single vendor will likely offer every type of analysis relevant to CRM. • Span the past, present and future — Although CRM analysis concerns more than reporting (even real-time reporting), it should not focus on the most-sophisticated data-mining predictions. To ensure that the enterprise gets full business value from its data, CRM analysis should include aspects of historic reporting, current operations and future predictions.
10.1.3 Segmenting Customers by Current and Potential Value A key prerequisite to a CRM strategy is to segment customers by current and potential value. (For more on
Figure 10-2: The Hierarchy of CRM Analysis
Surveys Customer Experience Management Tools Focus Groups
Understand
Predict
Manage
Channel Preferences Risk Analysis Product Preferences Demand Fraud Detection Forecasting Customer Loyalty
Balanced Balanced Scorecard Scorecard
Customer Lifetime Value Potential Customer Customer Value Segmentation "Wallet Share"
Benchmarking
Report
Product Profitability Product Profitability Metrics Key Performance Indicators Channel ChannelProfitability Profitability
Organization
Event Trigger Identification Market Basket Analysis Competitive Intelligence
Market
Customer Base Description Customer Profitability
Customer
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
163
Reaping Business Rewards From CRM
the role of customer segmentation in CRM strategies, see Section 3.1.3 and Section 7.2.) Most enterprises find calculating customer value to be difficult. Often, the only certainty is that the value calculated will prove to be inaccurate. Nevertheless, customer profitability remains an important consideration for an enterprise because it: • Encourages the enterprise to determine the factors driving — and inhibiting — customer profitability, the major cost elements involved, and what could be done to improve customer value. • Enables comparison of different customers. Although accurate customer value may prove impossible to calculate, an enterprise can compare different customers’ values for activities (such as resource allocation). • Pushes consideration of the different types of customer value, and the role each should play in determining the business’s strategy and tactics for managing the customer relationship. An enterprise needs to create and manage different estimates of customer value for different purposes (see Figure 10-3). For example, actual and potential value may help manage customer interactions, while estimates of
lifetime value and wallet share determine strategic treatment. Action Item: In customer retention and service efforts, focus on prioritizing customers based on their potential profitability.
10.2
Using Analytics and Metrics to Ensure CRM Success
Key Issue: How can an enterprise communicate, monitor and manage the success of its CRM strategy? Strategic Planning Assumption: Through 2006, 55 percent of CRM initiatives will fail to meet measurable benefit objectives and will fail to have a positive impact on ROI because of a lack of business processes for conducting ongoing measurements (0.7 probability). Heisenberg’s uncertainty principle states that the more precisely one knows the position of an object, the less precisely one knows its momentum at that instant — and vice versa. In the world of CRM and metrics, this means that the mere fact that one is tracking a metric — and is known to be doing so — will tend to focus behaviors on attempting to improve that metric, even if these behaviors
Figure 10-3: Different Measures of Customer Value Learning Value
Potential Value
(Value as guide to future or larger trends)
(Value if cost of service or retention is optimized)
Future Value Actual Value
(Discounted value of current relationship)
Lifetime Value (Net present value of relationship and future products)
Wallet Share Influencer Value (Network effect)
(Proportion of category spending that the business owns)
Source: Gartner
164
Gartner
Strategic Planning Series
The Role of Analytics in Successful CRM Strategies
don’t contribute to an improvement in overall business performance. Therefore, it is critical to ensure that the metrics selected are ones that drive better business performance. Otherwise, the result will be worse than having no metrics at all. Metrics should therefore be chosen with a view to their impact on key customer-enabling processes (see Figure 10-4). They should also reflect on all parts of the business affected by each process — not just the part of the business most-visibly associated with the activity. Action Item: Identify key constituencies involved in customer-related processes, and then design metrics that apply directly to these groups.
10.2.1 CRM Metrics and Performance Management CRM performance management requires a hierarchy of linked CRM metrics, These metrics:
• Provide the feedback needed for enhancing strategies and tactics • Can act as a tool for change management • Are vital for changing employee incentive structures • Should follow and measure an enterprise’s CRM strategy • Must be unique to the enterprise • Should be manageable in number (15 to 20 per result area, at most) • Need to be updated to remain relevant Gartner recommends that metrics be defined in a hierarchy of four levels: • Corporate • Customer strategic • Operation and process • Infrastructure input
• Allow the enterprise to gauge the success of its CRM efforts
Figure 10-4: Planning Metrics by Activity, Process and Function Metrics by Function Activities
Processes
Marketing
• Market segmentation • Campaign planning • Brand planning • Account planning • New-product launch
• Response rate • Number of new customers • Revenue per new customer • Acquisition cost
• Lead management • Needs assessment • Sales cycle management • Proposal generation • Closing the deal
• Cost per lead
Retention
• Order management • Installation • Inquiry handling • Problem resolution
• Involuntary attrition
Extension
• Customer business analysis • Needs reassessment • Upsell/cross-sell • Campaign management
Selection
Acquisition
Sales
Service
• Quote-to-close cycle time • Calls per day • Revenue per salesperson • Cost of sales call • Cost of interaction
• Increase in order size • Cross-sell rate per customer • Upsell rate per customer
• Time to resolve inquiry • First-touch resolution
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
165
Reaping Business Rewards From CRM
For more information on these levels of the CRM metrics hierarchy, see Section 3.1.5 and Section 7.8. To effectively link CRM metrics to higher-level corporate goals, a best practice is to use a framework that “cascades” an enterprise’s high-level balanced scorecard deeper into the customer-facing organization. Originated by Robert Kaplan and David Norton, the balancedscorecard approach provides a measurement-based strategic management system that aligns business activities and strategy, and monitors performance in meeting strategic goals over time. Many enterprises are using a balanced-scorecard approach to manage enterprise performance. The balanced scorecard explicitly links enterprise objectives and intangible assets (such as learning and growth, and internal business processes). As such, it helps determine which metrics are drivers, inhibitors or results of other metrics. Enterprises that manage by metrics need the overall context that techniques such as the balanced scorecard provide. Without such context, these enterprises risk pursuing contradictory or irrelevant metrics.
In practice, the structure of the customer-facing organization is often too fluid to make “cascading” the balanced scorecard into that structure worthwhile. Orientations change according to product, region, function (such as marketing, sales and service) or customer segment. Figure 10-5 illustrates a more-practical drill-down of the overall balanced scorecard into different customer channels. This example is that of an office supply retailer that is very sales-oriented: Revenue growth (needed for economies of scale) and healthy profitability are the bottom line. Each channel has an optimal “channel share.” The retailer’s balanced scorecard shows that the enterprise aims to reach customers through direct mail, mainly tries to convert sales over the Web and has a chain of branches aimed at mass sales. Recency, frequency and monetary value are important in each channel. Although the goals of each channel converge, each has unique process characteristics. Each has its own innovation goals as well. Overall, the retailer tries to personalize its campaigns and promotions and perfect them through pilots.
Figure 10-5: Cascading a Retailer’s Balanced Scorecard Into Customer Channels Case Study: Office supply retail chain Objective: Focus on attracting customers and then on repeat sales — a process in which each channel has a different role
Direct Mail Financial Customer
Process
Innovation
Branch
• Revenue ($, %, change) • Revenue ($, %, change) • Revenue ($, %, change) • Profitability ($, %, change) • Profitability ($, %, change) • Profitability ($, %, change) • No. and % prospects • RFM • Customer satisfaction
• % converted, cross-sell • RFM • Customer satisfaction
• Loyalty card holders (No., %, change) • RFM • % visitors buying promo • Customer satisfaction
• No. of campaigns • Average campaign size • No. of campaigns per customer/prospect
• % up-time • Average clicks to offer • Average/peak system load
• Stock turnover • % out of stock • % absence through illness
• % distribution via e-mail • % conversion on personal offers
• % videoconference • % conversion on personal offers
• % branches in new format • % conversion on personal offers
Source: Gartner
166
Web Site
Gartner
(Sample metrics only)
RFM
recency, frequency and monetary value
Strategic Planning Series
The Role of Analytics in Successful CRM Strategies
Action Item: Choose a structure that is core to the enterprise into which to cascade the enterprise’s balanced scorecard.
10.3.2 Data-Mining Workbenches vs. Black Boxes Tactical Guidelines:
10.3
Using Analytics to Gain and Leverage Customer Insight
Key Issue: How can analytics help an enterprise understand customer behavior and leverage that insight?
10.3.1 Using Data Mining to Analyze Customer Behavior and Discover Affinities There are many different techniques for data mining, each of which is useful for solving particular types of problems. In general, enterprises should consider four key techniques as the core of their analytics toolbox. • Decision trees use a series of questions to split the customer base into subgroups that are likely to exhibit a desired behavior. The advantage of decision trees is that their results can be deployed as a series of easyto-understand rules. • Regression delivers a specific estimate of the customer’s likely behavior. Because it combines a number of different data elements to arrive at its prediction, the process of generating the results is not always intuitive, but the results themselves are arguably more accurate. They are also often easier to handle, because they represent a specific value that can be easily stored, shared or compared with other values. • Clustering creates groups that are as homogenous as possible across a number of different dimensions. Traditional clustering is frequently used for customer segmentation — for example, to identify similar groups of customers for new product development. • Affinity modeling recognizes relationships between entities. It is often used for “market basket” analysis, to detect purchase patterns that could be leveraged in product positioning or cross-selling offers.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Most enterprises will benefit from a combination of a data-mining workbench and analytics black boxes. • The distinction between traditional data-mining workbenches and analytics black boxes will blur as workbench vendors build applications out of their tools and vendors allow greater flexibility in use of their black boxes. Growing business user interest in predictive analytics has increased the number and different types of data-mining tools. They range from highly sophisticated and complex data-mining workbenches to relatively simple and easyto-use “black boxes.” Figure 10-6 illustrates differences between how data-mining workbenches and black boxes address some of their common capabilities. Enterprises will often use a variety of tools, basing their selections on the skills and needs of particular users. The challenge for black-box vendors is to convince the analytics constituencies within the enterprise that their approach is valid. The challenge for data-mining workbench vendors is to broaden their reach by increasing their market penetration among more-casual business users — without sacrificing the robustness of their tools.
10.3.3 Scoring and Predictive Modeling Filtering different combinations of pre-interaction and insession data through a predictive model can yield different insights into the customer. The challenge is for enterprises to know which approach is suitable, and why. Figure 10-7 illustrates four approaches to scoring. The following list describes the circumstances under which each approach will prove useful: • Batch scoring is the baseline approach for most enterprises. It can be very efficient because the scoring process can be scheduled in advance, and the resulting scores can be shared among many different applications.
167
Reaping Business Rewards From CRM
Figure 10-6: The Data-Mining Tool Complexity Spectrum Data-Mining Workbenches Flexible
Black Box Applications Problem Understanding
Extensive
Data Understanding
Rigorous
Data Preparation
Accurate
Modeling
Subtle
Predefined Predetermined Automated Rapid
Evaluation of Results
Automated
Deployment
Seamless
Flexible
Source: Gartner
Figure 10-7: Four Scoring Approaches to Predictive Modeling Pre-Interaction Data
In-Session Data
Model
Model
Model
Model
Batch Score
Real-Time Score
Dynamic Score
Spontaneous Score
Efficient
Updated Treatment
Anonymous/ New Customer
Source: Gartner
168
Gartner
Strategic Planning Series
The Role of Analytics in Successful CRM Strategies
• Real-time scoring allows for updates based on recently collected data. It is effectively the same as batch scoring, but with the potential for data lags removed. This scoring approach is useful for interactions in which little new data is collected. • Dynamic scoring allows for combining the most up-todate information — both from data collected prior to the interaction and from new data collected during the session. It is useful when new data must be collected to refine the offer or when new information indicates a significantly different course of action. • Spontaneous scoring can be used to gain insight into a new or anonymous customer for whom a previous history or profile is unavailable.
10.4
CRM Analytics Technologies and Vendors
Key Issue: How can enterprises best select vendors and technologies for CRM analytics? Tactical Guideline: To make their investments in CRM analytics applications successful, enterprises must deploy these applications more broadly than the narrowly focused, operational CRM applications typically in place today.
Enterprises can choose from among three different approaches to implementing CRM analytics: • Building a solution from best-of-breed tools • Using embedded analytics capabilities in operational CRM applications • Buying a CRM analytics suite Figure 10-8 illustrates some of the pros and cons of each approach. The first is the most traditional approach. Enterprises commonly bring analytics into CRM through best-of-breed business intelligence and data-mining tools, and often customize these tools to solve the unique needs of the enterprise. However, as analytics become more central to CRM, vendors of these tools often struggle to demonstrate specific functional or industry expertise, and to provide the application integration that enterprises require. As operational CRM applications evolve, they are including more embedded analytics capability to enable enterprises to support and report on operational processes. Increasingly, enterprises are using analytics solutions from these CRM application providers. This approach usually provides solid integration between the CRM application
Figure 10-8: Three Conceptual Approaches to CRM Analytics Suites Advantages Build Solution From Tools
• Customized to fit specific needs • Builds on current capabilities
Disadvantages • Vendors focused on pulling data out than feeding it back • Vendor lack of CRM expertise
Embed Into Operational System
• Tight integration allows closed loop and rapid feedback
• Perpetuates operational stovepipes into analysis
• Vendor expertise in operational subject area
• Mismatch of analytics and operational focus and skills
Use CRM Analytic Application
• Best-of-breed analytics
• Immature solutions from vendors
• Operational vendor independent
• Variable integration with operational vendors
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
169
Reaping Business Rewards From CRM
and the analytics solution. However, since most enterprises have a mix of CRM applications, buying analytics solutions from the same vendors will result in a set of narrowly focused analytics tools on top of multiple, narrowly focused CRM applications. As a result, focus is increasing on the newest of the three approaches: CRM analytics suites. These suites combine the best-of-breed analytics capabilities of the businessintelligence vendors (which develop many of the CRM analytics tools) with CRM-focused expertise regarding business processes and key vertical industries. These suites work in a mixed application environment, and offer the CRM expertise previously available only in the embedded analytics from operational CRM vendors. However, they are relatively immature, and their ability to integrate with operational suites varies.
10.4.1 The Different Types of CRM Analytics Vendors Tactical Guideline: CRM analytics comprise a confused set of markets, with many vendors reaching out from their established competency positions to stake a claim.
Enterprises much be aware of where the vendors are coming from, and what implications this has for the scope, style and limitations of the functionality that they offer. Vendors from a variety of backgrounds comprise the CRM analytics market (see Figure 10-9). These vendors offer many different value propositions: • Data-mining suites — Often used by statisticians in large enterprises, these products provide strong predictive analytics capabilities. • Analytics tools — Vendors of stand-alone analytics tools focus on improving their tools rather than diversifying into operational elements of CRM. • CRM analytics and customer relationship optimization (CRO) hybrids — These vendors must ensure deepenough integration to appeal to enterprises looking for an integrated offering, while also ensuring that their products remain open enough to work with enterprises that invested in other vendors’ analytics or CRO applications. • Database vendors — These vendors integrate their data-mining technology into their relational database
Figure 10-9: The CRM Analytics Vendor Landscape Analytic “Stand-Alones”
Data-Mining Suites KiQ
Alterian SPSS
Enterprise Suites
Eudaptics Software
SAS
Teradata
PeopleSoft
ThinkAnalytics
Norkom Technologies
smartFOCUS
Blue Martini Software
Oracle
Database Vendors
Quadstone
170
Gartner
CRM Suites
E.piphany
SAP
Siebel Systems
Enterprise Analytic Suites
Source: Gartner
Unica
CRM Analytics and CRO Hybrids
CRM customer relationship management CRO customer relationship optimization
Strategic Planning Series
The Role of Analytics in Successful CRM Strategies
management systems, and offer analytic efficiency, particularly for scoring. • CRM suites — Vendors in this category combine analytics with a broader CRM suite to close the loop between analysis and action. • Enterprise suites — These vendors support the enterprise’s operational and analytics needs. • Enterprise analytics suites — These variants of enterprise suites work with a variety of operational applications and don’t require owning operational systems.
10.5
• There are no simple answers in the analysis of customer value. Develop your value measurement capabilities step by step. • Metrics must be well-integrated across the enterprise. Take an inventory, map the metrics hierarchy and determine how it can fit together. • Analytics give you better data to inform your decisions — they do not provide the answers. Ensure that you have a good decision-making process. • Different categories of tools and applications are available, depending on the enterprise’s needs. Work out which approaches best meet your requirements.
Conclusions and Recommendations
• Analytics form a hierarchy — reporting, managing, predicting and understanding customers’ behavior. Assess your analytics requirements and portfolio, and build a road map for improvement.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
171
Key Privacy Considerations in CRM
11.0 Key Privacy Considerations in CRM
S
urvey data contained in the latest Internet Report from the University of California, Los Angeles (UCLA) indicates that the vast majority of consumers are concerned about their online privacy. According to the UCLA Internet Report, released in early 2003, 89 percent of consumers surveyed indicated that they were “somewhat” to “extremely” concerned about their privacy when shopping online (see Figure 11-1). Although economic pressures may make enterprises more aggressive in how they address customers, the privacy sacrifices that customers make for national security won’t translate into tolerance for privacy abuses in less-critical areas, such as marketing. Enterprises and vendors can’t forecast the shape that U.S. government privacy legislation will take. However, those that address privacy management concerns now — rather than waiting for a catalyst event to force them to act — not only will be ahead of the competition but also will be better prepared to accommodate privacy requirements when they become the law. Enterprises can self-legislate now, or wait until the government dictates compliance. The need for privacy management is inevitable. Enterprises must implement more-robust privacy policies. The following Key Issues frame the analysis in this chapter: • Why must enterprises establish appropriate internal processes to manage and protect personal customer information? • How will current and potential government regulations affect the ways in which enterprises can use personal customer information? • How can enterprises demonstrate responsible privacy management to ensure customer confidence and security?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
173
Reaping Business Rewards From CRM
Figure 11-1: Consumer Concern About Online Privacy
Very or extremely concerned
54.3%
Somewhat concerned
34.5%
Not at all concerned
11.2%
0
10
20
30
40
50
60
Percent Source: UCLA Internet Report, 31 January, 2003
11.1
The Need to Manage Personal Customer Information
Key Issue: Why must enterprises establish appropriate internal processes to manage and protect personal customer information?
11.1.1 The Potential for High-Profile Privacy Abuse Strategic Planning Assumption: By the end of 2005, at least one major U.S. enterprise will experience high-profile customer backlash due to the mismanagement of customer privacy information, and public outcry will motivate the U.S. Congress to mandate restrictive privacy legislation (0.7 probability). Since the Sept. 11 terrorist attacks, many U.S. citizens have accepted the sacrifice of some of their personal information privacy as a price they’re willing to pay in the war against terrorism. Some enterprises have seen this as an opportunity to aggressively leverage customers’ personal information for marketing purposes — often with negative results. As enterprises become more aggressive in their marketing efforts and seek ways to circumvent privacy restrictions, the potential for a high-profile privacy abuse scandal increases. With the public remaining greatly concerned with corporate ethics and accountability, an enterprise that
174
Gartner
makes a significant misstep in managing its customers’ private information could become to privacy what Enron was to accounting. In addition to the potential damage to the enterprise’s reputation and brand, such an event would likely drive the U.S. government to enact privacy legislation similar to what the European Union has implemented. Action Item: The public will remain concerned about customer privacy issues. Enterprises must make privacy initiatives a high priority.
11.1.2 Understanding the Differences Between Privacy and Security Strategic Planning Assumption: Through 2005, 80 percent of spending on privacy and security initiatives will focus on security aspects, leaving privacy issues as a lowpriority vulnerability (0.7 probability). Although the two concepts are often are lumped together, enterprises must recognize that privacy and security represent distinct business concerns. The term “privacy” refers to the handling of individual-specific consumer information. Whether shopping at the local supermarket, surfing the Web or making a series of telephone calls, consumer activities can be monitored, trailed and documented. Understanding buying and usage habits is an extremely valuable marketing tool. In certain countries, an enterprise can collect and use this type of information for its own
Strategic Planning Series
Key Privacy Considerations in CRM
marketing efforts — and even sell this information to others for the same purpose. In other countries, this practice is illegal. Action Item: Although overlapping issues may exist between the two, enterprises must recognize and understand the differences between privacy and security because the methods required to address each are different.
11.1.3 Responsible Privacy Management Strategic Planning Assumption: By 2006, 20 percent to 30 percent of Global 1000 enterprises will suffer financial exposure because of mistakes in customer privacy management (0.7 probability). Customer privacy management within the enterprise represents a defensive business practice. Responsible privacy management doesn’t contribute significantly to profitability or business growth (although some customers will feel drawn by the trust and security offered). Rather, privacy management is a basic requirement for building and maintaining effective and trusting business relationships. Enterprises that ignore their customers’ need for privacy face potential damaging reactions from customers and the public, which can result in the following financial and legal repercussions:
• Customer distrust • Customer dissatisfaction Some companies have seen their stock prices decline after public backlash about privacy concerns. The European Union stated that it will restrict data flow to countries and enterprises that don’t comply with its Directive on Privacy and Electronic Communications. Action Item: Privacy management isn’t a tactical, shortterm return-on-investment initiative. Enterprises must consider it to be a critical part of their defensive business strategy.
11.1.4 The Costs of Privacy Mismanagement Strategic Planning Assumption: By 2006, a large enterprise’s typical costs to recover from mistakes in customer privacy management will range from $5 million to $20 million (0.7 probability). Understandably, the need for privacy management can be hard to “sell” to top management because responsible privacy practices don’t directly translate into increased profits through more revenue or less cost. However, the amount spent by enterprises after the fact to defend themselves and recover from privacy mistakes will be many times that spent by enterprises taking a proactive approach to customer privacy management.
• Lost customers • Lost revenue • Decreased profits due to the costs of civil litigation
Financial costs associated with privacy mismanagement go far beyond fines and legal settlements. They typically run two to three times the amount of the fine, and can include:
• Civil liability under common law tort doctrine of fraud or negligent misrepresentation
• Legal fees
• Decreased market capitalization
• Lost productivity (due to extra management time, internal audits, process reviews and process revisions)
• Inability to perform international transactions • Prison sentences In addition, less tangible (but nevertheless important) repercussions may include: • Decreased brand equity • Damage to corporate image
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Opportunity costs associated with training, monitoring, public relations, customer service activities and consultants Settlements often include ongoing monitoring and compliance. Multiple suits for the same infringement can come from many sources, such as the U.S. Federal Trade Commission, state attorneys general and individuals.
175
Reaping Business Rewards From CRM
Examples of fines paid in recent settlements include: • U.S. Bancorp (settled with the Minnesota state attorney general) for sharing customer data with third parties — $2.5 million • Eckerd Drugs (settled with the Florida state attorney general) for improper disclosure of data collection practices — $1 million • AT&T (settled with the Federal Trade Commission) for internal do-not-call list violations — $760,000 Action Item: An enterprise can minimize exposure to lawsuits by implementing best practices, such as: • Providing accountability for use of customer data • Enhancing role-based data access with purpose-based access capability • Training employees on properly collecting, storing and sharing customer choice criteria
11.2
Government Regulation and Privacy Management
Key Issue: How will current and potential government regulation affect the ways in which enterprises can use personal customer information?
11.2.1 Government’s Role in Protecting Personal Information Strategic Planning Assumption: By 2005, government surveillance and information access strategies will fail to meet the public’s expectations for a balance between increased security and privacy, leading to a politically significant backlash against intrusive information collection policies (0.6 probability). The balance among the interests of industry, individuals and government remains unstable. For a while after the Sept. 11 terrorist attacks, those interests seemed to align. However, that is not a natural condition, and already a backlash has started to build as: • Citizens worry about government homeland security plans eroding constitutional freedoms
176
Gartner
• Industry worries about government initiatives for protecting critical infrastructure Government has become increasingly responsive to citizens’ demands for greater protection of their personal data. People realize that the dissemination of information through cyberspace undermines the “practical obscurity” protecting them until now — that is, before the Internet, much publicly available information couldn’t be obtained and used easily by third parties. However, governments must balance privacy laws against freedom of information laws that make most data public. Governments also must contend with public perceptions that personal information isn’t kept secure and confidential.
11.2.2 International Privacy Laws Strategic Planning Assumption: Through 2006, stakeholder pressure will direct enterprise privacy policies toward universally acceptable practices — with or without specific regulatory guidance (0.8 probability). In May 2002, the European Parliament voted to approve a data protection directive that: • Adopts an opt-in approach to unsolicited e-mail • Covers all electronic messages sent to any type of fixed or mobile receiving terminal within the European Union • Bars use of mobile phone location-sensing devices without the explicit permission of the phone’s owner • Allows mobile phone users to temporarily block locationidentifying systems at any time In highly developed Asian nations, such as Japan (2001 Bill to protect Personal Data) and Hong Kong (Personal Data Ordinance), personal data protection has been addressed with stringent regulations. Other developed countries in Asia are just beginning to shape their consumer privacy protection laws. Some governments in Latin American countries also have pursued privacy directives. These include Chile (Law of Personal Data Protection 1999), Brazil, Argentina (Personal Data Protection Act of 2000) and Mexico.
Strategic Planning Series
Key Privacy Considerations in CRM
Action Item: Privacy is a global concern. Enterprises must consider international laws when managing privacy within multinational organizations.
11.3
The Path to Effective Privacy Management
Key Issue: How can enterprises demonstrate responsible privacy management to ensure customer confidence and security?
11.3.1 Five Rules for Collecting and Analyzing Customer Information Enterprises collecting and analyzing information about customers need to strike the appropriate balance between having a rich set of data that drives personalization efforts and not overstepping the boundaries of privacy concerns. An enterprise can successfully manage this by adhering to these five simple guidelines:
government-mandated privacy controls. A multinational enterprise must include these in its privacy planning.
11.3.2 Abuse of Enterprise Privacy Policies Tactical Guideline: Compliance with data privacy legislation has little direct impact on the ability of an enterprise to abuse the privacy of its customers. When dealing with personal information, an enterprise that strays from best practices risks customer backlash — or worse. Most enterprises realize that they should respect customer preferences about handling personal information. However, careful handling of customer information often frustrates marketing efforts, because the enterprise can’t directly reach customers who have opted out of company contact. Because of competitive and financial pressures, some enterprises have cut corners — and frequently paid the price in the form of ire from customers, which has included: • Lost sales
• Collect and use data, but only with permission — An enterprise can track and manipulate customer data. However, it can’t do so without customer knowledge. The proactive approach to privacy assumes that all customer data is off limits unless the customer explicitly opts in. • Communicate the value proposition first — When gathering personal information about customers, an exchange of value is involved. An enterprise must ensure that the value of what the customer gets in return is high enough to offset the perceived value of the information he or she is offering. • Don’t blatantly display how much is known — Although a smart enterprise knows a lot about its customers, it should temper any broadcast of that information. The goal is serendipity — that is, to appear that mere chance caused the delivery of a relevant message at the right time. • Enforce privacy policies throughout the enterprise — An enterprise should take steps to audit and control what customer data it has, where it is and who can access it. • Look overseas for direction in privacy legislation — Much of the European Union has implemented strict
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Lost customers • Lawsuits An enterprise should resist the temptation to sidestep the restrictions dictated by its own privacy policies. In most cases, such attempts will translate directly into customer anger, bad publicity and, ultimately, lost sales and lost customers. Action Item: An enterprise needs to: • Respect the stated preferences of customers • Candidly communicate what data it is collecting and how it will use it • Err on the conservative side, if it has any doubts
11.3.3 Protecting Privacy by Encouraging Opt-In Strategic Planning Assumption: By 2006, U.S. consumers will routinely make explicit value exchanges with enterprises for the right to use their personal information (0.6 probability).
177
Reaping Business Rewards From CRM
By encouraging customers to opt in, privacy is protected. An enterprise can encourage customers to opt in with the following five methods: • Offer selective opt-in — When customers are selecting their preferences, a small window of opportunity exists to enable them to select what types of contact with the enterprise they prefer. This helps with targeting efforts because the enterprise knows exactly what its customers want. • Use multiple channels — If an enterprise uses all customer touchpoints, customers may be enticed to opt back in without going against their specific wishes not to be contacted directly through one particular channel. • Provide incentives — An enterprise may provide incentives to customers who opt back in. These incentives can be offered on the enterprise’s Web site. Customer retention techniques such as loyalty programs can be administered and used to reward the customer and provide differentiated customer service. • Let customers manage their profiles — Allowing customers to control their profiles enables them to modify their preferences. If customers who previously opted out see options for valuable offerings in their profiles, they may decide to opt back in. • Encourage online communities — An online community, such as a message board or list server, can keep people engaged in the enterprise, promote follow-up for more information, and enable customers to talk to each other about products and services.
11.3.4 Technology Requirements of Privacy Management Tactical Guideline: Developing an appropriate privacy policy is a baseline requirement at the enterprise level. However, the execution of that policy is likely to be challenging, and the technology requirements for managing that execution are not always readily apparent. Privacy management has three basic technological requirements: • Communicate — An enterprise must determine, record and distribute (where appropriate) privacy preferences at the individual customer level. Customers also must have the ability to view and understand an enterprise’s
178
Gartner
privacy policies, and regularly access and maintain their profiles. Once collected, the complete set of preferences for each customer must be communicated enterprisewide, wherever a customer communication might occur. • Enable — Once an enterprise establishes customer privacy preferences, midlevel marketers shouldn’t make decisions as to which customer profiles they can access as marketing prospects. A central, higher-level role must manage the internal distribution of customer information and base that distribution on customer privacy preferences. • Enforce — An enterprise must implement processes and monitoring technologies to ensure that it properly enforces policies. Restricting data access can partly accomplish this. However, an enterprise also needs the ability to detect rogue internal initiatives and to monitor potential abuses that would test the limits of a privacy policy.
11.3.5 Eight Guidelines for Enterprise Privacy Management Strategic Planning Assumption: Through 2006, technology solutions for privacy management will remain fragmented (0.8 probability). When judging whether a particular business activity is effective, ethical or even legal from the perspective of customer privacy, the answer is simple — an enterprise can do anything it wants with a customer’s data, as long as the customer has been informed of it and has consented to it. Although simple in concept, the processes and technologies required to communicate, enable and enforce that consent form a complex web of activities within an enterprise (see Figure 11-2). To minimize this complexity, an enterprise should follow these guidelines for privacy management: • Communicate the privacy policy to customers. • Solicit and record customers’ consent preferences. • Enable customers to manage and update their consent preferences. • Communicate customers’ consent preferences to all potential customer touchpoints.
Strategic Planning Series
Key Privacy Considerations in CRM
Figure 11-2: Privacy Checklist Enterprise Privacy Policy
Enable
Communicate
Communicate to customers?
Defined implementation processes?
Enforce Solicit consent preferences?
Manage preferences?
Communicate preferences?
Enable compliance?
Monitor/audit compliance?
Monitor/audit abuses?
Source: Gartner
• Define internal processes to implement the privacy policy enterprisewide. • Use these processes to enable employee compliance. • Monitor and audit compliance with the privacy policy. • Monitor and audit abusive practices that may occur within the guidelines of the privacy policy. Action Item: To ensure total compliance with its privacy policy, an enterprise must effectively address all eight guidelines for privacy management.
11.3.6 Mapping Privacy Requirements to Enterprise Applications Strategic Planning Assumption: By 2006, enterprises will see a tenfold increase in spending to secure the technology, expertise and training required to respond to customer preference and privacy demands (0.7 probability). Rather than from rapid growth in privacy-specific applications, the real spending on privacy will come from:
• Development and implementation of appropriate business processes that regulate compliance with privacy policies Data consolidation and cleansing, selective viewing, data monitoring, and reporting all represent critical aspects of privacy management. However, broader applications — such as campaign management and operational customer databases — will be applied or enhanced to address privacy issues more often than dedicated, discrete applications. That isn’t to say that vendors don’t offer solutions designed to address privacy concerns. Privacy-specific applications exist — albeit with diverse functionality and specialized applications. However, in most cases, an enterprise will apply these solutions in conjunction with specific internal business processes and the appropriate supporting technologies. Although an enterprise could deploy privacyspecific applications to support tactical requirements in specific areas, the enterprise would have to incorporate these applications with other solutions as part of its overall customer privacy management process.
• Enhancements and customization of broader applications
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
179
Reaping Business Rewards From CRM
11.3.7 How Applications Should Handle Customer Data
applications share no common functionality and most attempt to address only small pieces of the privacy puzzle.
Tactical Guideline: Growing consumer concerns and privacy restrictions will cause enterprises to rethink their customer-data-handling methodologies. Enterprises should combine varying solutions to address all points of data access and storage.
The daunting complexities of privacy management and the lack of robust, accessible technology solutions make many enterprises’ approaches to customer privacy less than optimal. However, most vendors that offer privacy management solutions report that their enterprise customers express only lukewarm interest in more-robust solutions. This makes vendors reluctant to develop their solutions. The result is this market’s variation of the chickenor-egg scenario — enterprises hesitate to buy until morecompelling solutions appear, but vendors won’t devote development resources until more customers are willing to buy.
Although the financial risks of improper privacy management are too great to ignore, enterprises shouldn’t expect to find an out-of-the-box solution designed to address their needs. To effectively implement their privacy policies, enterprises must assess the architecture surrounding their current databases and the methods by which they access these databases. In some circumstances, the data management detail required may dictate that specific privacy-based applications augment the established solutions to support specific business processes. All points at which interaction with customer data occurs are key. Customer-facing and internal applications must be “aware” of the privacy status of the data being accessed. Internal users should be restricted through purpose-based authorization, rather than role-based authorization. One approach addresses the applications directly by assessing how these applications handle preference data. Alternatively, a middleware approach (such as what is used in IBM’s Tivoli Privacy Manager) could reside within the data flow, intercepting calls to the database and filtering the response based on privacy rules.
11.3.8 Privacy Management and the Solution Demand Conundrum Tactical Guideline: The recent U.S. economic downturn means that privacy management must be prioritized with other IT investments. Without a serious public breach of privacy to serve as a broad warning, privacy management likely will continue to be ignored by many enterprises. Although enterprises may have many of the tools required to meet their privacy goals, significant customization may be required to apply these tools to privacy management. Vendors are offering a slowly emerging group of enterprise privacy management applications. However, these
180
Gartner
Caught in the middle are customers, who remain confused about their privacy options and the security of their personal information. Without a serious public breach to serve as a warning, privacy management likely will continue to be ignored. Then, when the abuse of customers’ personal information by an enterprise leads to a highly visible public scandal, enterprises and vendors will be ill-equipped to respond.
11.3.9 A Case Study in Privacy Management A large U.S. financial institution is deeply committed to customer privacy. It has a dedicated chief privacy officer, and a 20-person privacy council meets monthly to evaluate privacy concerns and set privacy policies and procedures. This company faced a problem, however: It had to undergo a cumbersome manual process to ensure that its active, complex Web site complied with its detailed published privacy policy. As the first part of its approach to address this problem, it devised a method for verifying and reporting privacy policy compliance on-demand. Then, after eight months of evaluating third-party audit services and software vendors, the company selected Watchfire’s Privacy XM product to regularly scan and report on how well the site adheres to the enterprise’s privacy policy. The company now generates regular site compliance reports that are relevant to the nontechnical users who are charged with ensuring that privacy controls are in place.
Strategic Planning Series
Key Privacy Considerations in CRM
In addition, revisions to the site are now scanned for compliance before the Web site is updated, which reduces costly maintenance efforts.
• Evaluate marketing plans in the context of customer permissions and potential or perceived risk to consumer privacy.
Action Item: As this enterprise’s experience shows, crafting a privacy policy is only part of the battle. Once an enterprise establishes its privacy policies, it then must take steps to verify and enforce compliance.
• Centralize campaign management and marketing processes to ensure consistency and minimize risk.
11.4
Recommendations
• Audit customer data to determine whether customers have expressed a preference in how the enterprise handles their personal data, and work toward associating those preferences with the customer data wherever it is accessed in the enterprise. • Extend privacy policy considerations consistently to encompass all customer touchpoints — not just the Web and e-mail.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Move away from the practice of using purchased lists and unsolicited e-mail as acquisition tools, and focus instead on using e-mail for customer retention and development. • Minimize exposure to lawsuits by implementing global practices, such as: – Providing accountability for the use of customer data – Enhancing role-based data access with purposebased access capability – Training employees on properly collecting, storing and sharing customer choice criteria
181
Managing CRM Initiatives for Long-Term Success
12.0 Managing CRM Initiatives for Long-Term Success
A
fter completing the initial customer relationship management (CRM) implementation project, the work never seems to end as many critical issues emerge. Often enterprises aren’t prepared for life after the project. So much time and energy has gone into the project that the go-live date feels more like an end than a beginning. Production use of the CRM systems, however, represents just the start. Many other activities must follow. Thinking of the end of the project as the first step in the CRM life cycle will help users better prepare for what lies ahead. This chapter examines tough post-implementation issues (outside of vendor consolidation) facing CRM users. It also provides best-practice advice on how to address these issues, including: • Why enterprises supporting CRM systems need to take a life cycle view • Ways to derive more value from CRM • How to reduce CRM costs • The best support strategies for CRM systems and users • Whether to upgrade to the latest version of CRM software Enterprises continue to grapple with extracting value from their installed application software by using it to meet current business demands related to transparency, real-time processing and productivity. From 2004 to 2006, enterprises will focus more on better execution — getting what’s in place working better, getting it connected and, finally, getting a payback. Only when they’ve accomplished this will enterprises have the right foundation for their core business processes to evolve toward a real-time enterprise (RTE). The following Key Issues frame the analysis in this chapter: • How are operations, maintenance and upgrades changing? • What should enterprises do to get more value from their established CRM investments? • How is the application deployment process changing?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
183
Reaping Business Rewards From CRM
• How should enterprises organize to best support CRM after starting production use of the application? • How should enterprises consider and plan for an eventual CRM upgrade?
12.1
The Changing Face of Operations, Maintenance and Upgrades
Key Issue: How are operations, maintenance and upgrades changing?
12.1.1 Adopting a Life Cycle Mentality Toward CRM Tactical Guideline: Enterprises must think and plan for CRM in terms of a life cycle, rather than as a one-time project.
The process of taking the planned CRM application into production use requires many different procedures and processes. Many mistakenly believe that CRM implementation involves just one process — configuration. However, implementation involves parallel processes that an enterprise must manage thoroughly. Many also mistakenly believe that the CRM project ends once the application successfully moves into production use. A 10-year-plus life cycle commences once the enterprise begins production use of its CRM application. An enterprise can’t afford to consider CRM as a project; it has to think of CRM in terms of a life cycle (see Figure 12-1). Although considerable attention is focused on the CRM implementation process, most enterprises find the postimplementation part of the life cycle to be extremely difficult.
Figure 12-1: The CRM Life Cycle
Software Selection
Software Negotiation and Contract
ESP Selection
Evaluate Vision and Planning
Strategize
Program Management Change Management
Deployment Planning ESP Negotiation and Execute Contract
Active Deployment
Upgrade Manage Upgrade Planning
Includes: Gap Analysis Configuration Custom Coding Integration Conversion Training Testing Infrastructure
Support Improvement
Source: Gartner
184
Gartner
ESP
external service provider
Strategic Planning Series
Managing CRM Initiatives for Long-Term Success
Past projects mostly focused on bringing the application into production. Enterprises focused little on building proper post-implementation support models. Because of this lack of experience, many enterprises have found postimplementation issues more challenging than their implementations. Examples of these issues — all of which contribute to life cycle costs — include:
Enterprises must manage and mitigate postimplementation risks in the same way that they handled implementation risks. The major difference is that after implementation, the enterprise depends on the CRM application. Risks affect the entire enterprise — not just the project team.
• Upgrades
12.1.2.2 Managing Costs
• System changes • Scope changes, such as: – Adding new business processes – Including additional CRM application modules – Integrating systems due to acquisitions and mergers
12.1.2 Managing Risk, Costs and Value Through the CRM Application Life Cycle Tactical Guideline: Throughout the CRM application life cycle, enterprises must equally manage risk, cost and value.
12.1.2.1 Managing Risk The risks enterprises must continually measure, manage and control come in many forms. For example, they may be: • Clear — for example, defined in the business continuity plan • Self-created — for example, determining how to integrate applications within the enterprise and with critical business partners • Complete surprises — for example, Oracle attempting a hostile takeover of PeopleSoft
Costs also represent a critical life cycle issue because “support, patch and upgrade” activities never cease, and they require a highly skilled team. Other CRM life cycle cost challenges include: • Managing the cost of major CRM upgrades • Controlling total life cycle costs for CRM projects that span multiple business units and application versions • Retaining expert CRM resources Total cost of ownership (TCO) also remains an ongoing concern. In difficult economic times, enterprises should: • Have continuous improvement processes in place. • Benchmark CRM support costs against a specific peer group to identify areas for improvement.
12.1.2.3 Managing Value The CRM support team needs to respond rapidly to new demands from users as the enterprise seeks to drive more value or needs to react faster to changes in the business environment. Enterprises also need to deploy methods and tools to assist users in measuring, monitoring and managing performance and benefits. Other CRM life cycle cost challenges include: • Maintaining or creating sources of competitive advantage
Other CRM life cycle risk challenges include: • Maintaining performance, availability and continuity
• Measuring and improving business benefits, such as return on investment (ROI)
• Managing more-complex infrastructures • Dealing with vendor or product uncertainty • Forcing architectural changes through upgrades
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
185
Reaping Business Rewards From CRM
12.1.3 The “Home Improvement” Strategy
12.2
Although businesses and applications are evolving dramatically, enterprises tend to have a relatively constricted, result-oriented view of technology deployment. As a consequence, between now and 2007, most enterprises will try to extract every drop of value out of technologies they’ve already deployed — a sort of “home improvement” strategy.
Key Issue: What should enterprises do to get more value from their established CRM investments?
Enterprises will launch straightforward projects, aimed at improving business performance and end-user experiences. Major initiatives to rationalize applications will reduce the number of packages and versions deployed while leveraging updated technology and functionality from vendors whose software enterprises already use. As suite vendors enrich their functionality, enterprises increasingly will seek functionality that they’ve already purchased from those vendors, rather than try to deploy other vendors’ packages. Modernizing installed packages through upgrades — a process that is getting easier with newer technologies, but remains difficult and time-consuming — will help these efforts. Key maintenance activities include: • Maintaining good system performance and availability • Reacting quickly to new demands for system enhancements • Controlling ongoing expenditures with external consultants • Managing total life cycle costs for CRM projects that span multiple business units and application versions • Retaining experts who know how enterprise processes work, and how to configure CRM packages to support these processes Those most effective at maintaining business applications will do so through a competency center structure. This maintenance will be augmented, based on business requirements, to deliver incremental value through process and application improvement.
186
Gartner
Increasing the Value of CRM Investments
Tactical Guideline: To manage costs on an ongoing basis, enterprises must measure and benchmark. From 2004 through 2008, enterprises will face pressure to deliver more value from their IT investments, at a reduced TCO. From a CRM perspective, enterprises need to optimize their post-implementation support model — which includes squeezing maximum efficiency from the CRM competency center. After doing this, enterprises should pursue six key initiatives: • Measure and reduce CRM life cycle TCO — Although most enterprises have a rough idea of these costs, most don’t benchmark against similar organizations that have CRM life cycles of similar scale and complexity. Some enterprises run efficient CRM operations but still face tremendous pressure to cut costs further — beyond what is “reasonable.” Benchmarks provide the reference points of what other organizations consider reasonable. • Measure and improve internal customer satisfaction — Although this costs almost nothing, few enterprises take this step, which highlights key areas for future improvement to meet expectations. • Manage the CRM service delivered using a servicelevel agreement (SLA) — An SLA defines business expectations as a function of associated cost. An enterprise can monitor monthly SLA delivery performance against expectations, which visibly aligns CRM service to real business needs. • Measure and improve business benefits during the CRM life cycle — Improvement opportunities abound for many enterprises, in areas such as change management or monitoring business process performance. Smart enterprises have mapped benefits from CRM-related improvements to key performance indicators (KPIs) to achieve benefits such as reduced inventory, improved customer delivery performance and lower IT costs.
Strategic Planning Series
Managing CRM Initiatives for Long-Term Success
• Instigate process improvement — This also is an entirely internal initiative that needs no expensive external consultants. Various methods represent “business fundamentals” to all enlightened enterprises. Enterprises can apply this approach to the business processes enabled by CRM system, as well as the internal support and development processes for the CRM systems themselves. Systematic process improvement boosts business benefits and can create a source of competitive advantage — even when deploying a standard CRM package. • Improve the relationship between business units and the IS organization — Carefully executing the five aforementioned CRM life cycle initiatives will make this last initiative easier to achieve. A highly effective CRM competency center manager, who has the right business and interpersonal skills, can also help forge the right business-IT relationship, which is key to longterm CRM success.
12.2.1 Changing the W ay Enterprises Way Implement Business Applications During — or even after — an implementation, members of the project team often don’t know: • Why the project was initiated • The high-level business case underpinning the project • How project activities support the business case This lack of information and understanding reflects three problems: • Enterprises often undertake implementation initiatives with little or no business case. • The implementation team’s typically project-centric view focuses on a goal of on-time and on-budget application delivery. In this environment, business units and users have little influence. However, an IS organization managing a CRM implementation can only implement the application, not deliver business change and subsequent business value. • Users often fail to document pre-implementation performance indicators as a baseline for improvement measurement.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
With continued emphasis on value, enterprises must change their approach to justifying, planning and executing business application implementations. Action Item: Prior to the implementation process, ensure that business users identify CRM business process KPIs and create baselines for comparison against future measurements.
12.2.2 The Five Steps to CRM Improvement and Optimization Tactical Guideline: To drive value from application investments, enterprises must make established CRM implementations more effective for users through optimization. To optimize CRM investments, enterprises must focus on five key steps (see Figure 12-2): • Identify key areas of the system that aren’t meeting business needs, and that are frustrating users the most. • Determine viable alternatives to address these key areas. Explore all solutions, from training and process change through application customization. What users assume is a system problem may be solvable through training or process change. Resort to application customization only as a last resort after exploring all other alternatives. • Prioritize based on costs and benefits. Do what makes the most sense for the business. ROI is a critical consideration — CRM typically hasn’t delivered its originally intended savings. • Plan with an emphasis on keeping the time frame short and focusing on results. Small but successful steps that truly resolve user concerns will maintain user commitment. • Execute in a manner that involves users. Daily users will have the best insight into their own issues. Team these users with experienced integrators to develop solutions that reduce identified problem areas. Action Item: Follow Gartner’s five-step approach to optimization to enhance the internal value of CRM systems through productivity increases. Users will feel more appreciated because their most important application needs will be met.
187
Reaping Business Rewards From CRM
Figure 12-2: The Five Steps to CRM Improvement and Optimization
Identify the Pain
Determine Alternatives
! Head count ! Transaction times ! Corrective transactions ! Financial variances
Prioritize
! Cost ! Benefit ! Time to benefit
Plan
! Short time frame ! Narrow scope ! Focus on result
! Retraining requirements ! Process improvement/change
People
! More standard functionality ! Version upgrades
Core CRM
! Bolt-on applications ! Customizations
Customization
Execute
! Users know best ! Experienced system integrators
Source: Gartner
12.3
Transformations in Application Deployment
Key Issue: How is the application deployment process changing?
12.3.1 Six Steps for Planned Improvement To transform the leap of faith between business case identification and delivery into a path of improvement, enterprises must take six steps: • Develop a believable and defendable business case. • Document the current state so improvement can be measured. • Link planned benefits to specific project activities. • Keep improvement targets visible to the project team. Too often, a project team focuses only on delivering an application on time and on budget, and loses sight of the business value it should be delivering.
188
Gartner
• Validate that the configured solution includes planned improvements. • Launch continuous-improvement initiatives. Improvements, driven to enhance business value, must be part of any ongoing effort to enhance a business application. Action Item: During the implementation process, focus on planned improvements to ensure that the project delivers the intended results.
12.3.2 CRM Excellence Award Standouts Show the Way As a study of the winners and finalists from recent Gartner CRM Excellence Award competitions shows, the most successful CRM initiatives built their foundation for success on vision, strategy and metrics. • Vision: Eleven of the 16 winners and finalists (69 percent) cited strong support from senior executives. These
Strategic Planning Series
Managing CRM Initiatives for Long-Term Success
executives set sensible expectations for their CRM programs — and ensured that enterprisewide communications clearly articulated the reasons for undertaking CRM — to boost buy-in and collaboration among employees, business units and divisions worldwide. • Strategy: Six of the 16 finalists (38 percent) cited their clear understanding of the business opportunity presented by pursuing CRM. They painstakingly defined and articulated their goals to help them produce an unambiguous set of requirements for their multiple projects within their CRM programs. • Metrics: – Eight of the 16 finalists (50 percent) used an incremental and phased rollout of multiple small projects (repeatedly citing the potential pitfalls associated with large projects), and employed budget controls, feedback loops and other measures to prove their success. – Thirty-eight percent have a formal TCO calculation process, coupled with benefits calculations to determine ROI. – Most defined specific outcomes, and measured during the development and post-implementation phases. – Most continue to refine post-implementation metrics and measurement processes to ensure that the business value originally projected in their business cases stays on target. For case studies highlighting the efforts of the mostrecent CRM Excellence Award winners and finalists, see Appendix A.
12.3.3 Establishing ContinuousImprovement Programs
• Get an improvement and optimization project right the first time. Experience shows that an enterprise usually needs two, three or more cycles of improvement to fully complete an improvement and optimization project. A total quality control/continuous improvement (TQC/CI) methodology and philosophy helps significantly in this regard. Not all enterprises have a true quality culture, in which all employees and managers are involved in TQC/CI or Six Sigma. However, enterprises that have made TQC/CI part of their culture have an advantage when they seek to improve and optimize their CRM systems. Using this approach, enterprises can execute consecutive phases of CRM improvement and optimization to move along a path to improve, exploit and gain advantages. At the same time, the enterprise can monitor critical business benefits through KPI measurement. An enterprise should fully evaluate the CRM system with this approach before rushing headlong into its next CRM project to extend the CRM system. Failing to use this approach could compound hidden problems that the enterprise needs to resolve first.
12.4
Optimally Supporting PostImplementation CRM
Key Issue: How should enterprises organize to best support CRM after starting production use of the application? Tactical Guideline: To support business applications after implementation, enterprises should embrace the competency center model.
Tactical Guideline: To create prolonged value from application investments, enterprises must establish continuous-improvement programs.
Business application suites are ever-expanding sets of applications and technologies that go well beyond traditional enterprise resource planning and CRM. In addition to changes made by vendors, enterprises also have increased the complexity of their application environments. For example:
CRM improvement and optimization isn’t a one-time exercise. Given the highly integrated and complex nature of a CRM system, few enterprises:
• Many deployments include multiple packaged applications, increasing the need for application integration.
• Implement CRM right the first time.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
189
Reaping Business Rewards From CRM
• Long-term legacy applications are often closely integrated with packaged applications. • Supply chain partners increasingly rely on business-tobusiness integration. • Enterprises are focusing more on embedded business intelligence and critical-path management capabilities when deploying their business applications and processes. These functional, technical and process evolutions have changed the fundamental requirements of the competency center. Competency center functions need to evolve from: • Application functional support to business process enablement and functional support • Application development to application development and integration • Application operations to application architecture and operations Action Item: To provide optimal support for the enterprise’s application environment, consider creating a CRM competency center.
12.4.1 The CRM Competency Center Tactical Guideline: The CRM competency center and the appropriate business process owners need to develop and deploy SLAs. Many enterprises set high-end budgets for their software acquisitions, but plan for minimal maintenance costs after taking the application into production use. For example, one enterprise spent $14 million on its CRM project — about 15 percent above budget. Although that figure is reasonable, costs jumped another $8 million within a few months after starting production use, primarily because the project continued to depend on expensive consultants. Deployed correctly, a CRM competency center prevents budget overruns by building self-sufficiency into the enterprise. This kind of support allows long-term retention of CRM product skills to: • Support the CRM systems in production use
190
Gartner
• Provide small enhancements and developments rapidly • Act as a knowledge center on best practices, and on the evaluation of future technologies, tools and offerings The creation of a CRM competency center has proven to be a best practice for CRM post-implementation support because it enables high flexibility at lower TCO over the CRM life cycle. However, on its own, a CRM competency center isn’t enough. Also needed are: • Business process “superusers,” who act as the first point of contact for users • The right level of long-term involvement by business management, which, based on the business plan, must: – Own the business processes – Lead any business changes enabled by CRM – Prioritize the long list of enhancement requests from users • Effective problem resolution and change management processes
12.5
CRM Upgrades
Key Issue: How should enterprises consider and plan for an eventual CRM upgrade? Upgrades are becoming more complex. With integration requirements, Internet demands and vertical-industry functional enhancements driving new releases, simple upgrades that go unnoticed by users have become increasingly rare. When planning upgrades, enterprises should consider change along three dimensions: technology, functionality and deployment (see Figure 12-3). Technology change will affect the IS organization most significantly. Skills to support middleware, portals and various analytics will likely need updating, in addition to any fundamental application administration and support changes. Users may be affected if navigation or reportwriting usage changes. Furthermore, an application upgrade may also require a hardware upgrade to support new processing requirements.
Strategic Planning Series
Managing CRM Initiatives for Long-Term Success
Figure 12-3: Upgrades Can Take Many Shapes Some enterprises use an upgrade as an opportunity to revisit past decisions on instances, customizations, business processes and best-of-breed choices.
Deployment Changes
Typical upgrade projects seek to leverage new technology and functionality to improve processes or enhance overall capabilities.
Technology Changes
A technical upgrade attempts to minimize end user disruption as the application is moved to the latest version. Some functional change is unavoidable.
Additional Functionality
Source: Gartner
Functionality change comes in the form of new features, functions and modules. Previous customization work may need partial or full replacement. Vertical-specific functions may become available. Extended applications may replace best-of-breed ones. Deployment changes — the most significant kinds of change — typically are driven in a larger context. Technology and functionality can change without significant changes in deployment. However, if an enterprise changes version strategies or centralizes systems during an upgrade, change will ripple through the enterprise and affect functionality and technology — for users as well as the IS staff.
12.5.1 The Need for an Upgrade Project Plan
When considering an upgrade, an enterprise must understand why it should upgrade, and what activities it needs to undertake to make the upgrade successful. Some upgrades simply maintain vendor support for a critical application; others deliver new functionality to drive moredirect business benefits. In either case, enterprises should use the upgrade as an opportunity to revisit past implementation decisions and create a more cost-effective environment. Once the enterprise determines the scope of the upgrade, it must create a detailed plan of requirements and activities. As the scope of the upgrade increases, so will the need for greater project management and change management. The enterprise must assess (and appropriately consider in project plans) the impact of the upgrade on: • Infrastructure
Tactical Guideline: An enterprise should create an upgrade project plan and business case based on the scope of the planned upgrade.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Customizations • Interfaces
191
Reaping Business Rewards From CRM
• Best-of-breed products • Users The detailed project activities of an upgrade don’t differ greatly from those of an initial implementation, and should include: • Deciding what new functionality will be deployed • Considering deployment changes • Resizing and upgrading the infrastructure • Freezing all new enhancements • Reviewing all interfaces, tools and add-on products • Reviewing and adapting all previous customizations
12.6
Conclusions and Recommendations
Enterprises that use business applications must realize that their application initiatives never end. Although a project may have been completed, another phase is only beginning, and new business requirements, functions, versions or technologies will need continuous evaluation and implementation. In short, enterprises need to remember the CRM application life cycle. To best support applications throughout the life cycle, enterprises should embrace the structure of the competency center to address CRM processes, functions, development, integration, operations and architecture. Enterprises should benchmark against peers on an annual basis to improve IT cost competitiveness.
• Testing the new release with (new) customizations • Rehearsing the production cutover (multiple times) • Retraining users and partners • Updating documentation
Similarly, enterprises should start application improvement initiatives to increase the value that CRM can deliver to business units. At times, an improvement may require a version upgrade — the justification for which requires delivering business benefits.
• Executing final production cutover • Performing validation tests • Starting support for the new version Any CRM upgrade requires attention to data, processes, functions, organizational changes and infrastructure. Without appropriate planning and solid execution, risk of failure will increase dramatically.
In addition, enterprises should, when possible, leverage an upgrade as an opportunity to correct the mistakes of past implementations. One common issue is a proliferation of versions and configurations. Enterprises should consolidate applications geographically, logically and then physically to: • Reduce overall complexity • Decrease related support costs • Provide to the enterprise a more-consistent set of applications, processes and data
192
Gartner
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
13.0 Using Knowledge Management to Enhance CRM Value C
ustomer relationship management (CRM) is a set of knowledge-focused business processes that rely on:
• Knowledge from and about customers and employees • Knowledge-based marketing • Other knowledge-intensive activities Knowledge management (KM) naturally complements CRM: • CRM generates volumes of digitized information and content, and KM provides an approach to managing it. • CRM connects the enterprise to customers and partners, and KM can link those seeking knowledge to those providing knowledge. • CRM success depends on managing complex relationships; KM can support this by capturing what people know, linking experts to each other, enabling collaboration across complex boundaries, and applying organizational learning and best practices to future challenges and opportunities. The use of KM in CRM processes has developed slowly. In 2004, most CRM products that include any level of KM support provide mostly knowledge base management. These knowledge bases support the most common service or sales issues, such as: • Answers to frequently asked questions • Common problems and their solutions These knowledge bases are valuable to improving internal productivity and providing customer value in self-service environments. However, knowledge bases rarely support or enable competitive process design or distinguishing service capabilities. CRM requires far-more-sophisticated forms of KM, such as: • Collaborative knowledge sharing among CRM professionals
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
193
Reaping Business Rewards From CRM
• Customer communities • Customer e-learning Ultimately, CRM needs KM to enable complex knowledge sharing, collaboration and innovation among customers, employees and business partners. The following Key Issues frame the analysis in this chapter: • What are the trends in KM support and applications for CRM? • How and when will enterprises realize value from their investments in KM-enabled CRM? • Through 2008, which vendors and innovative offerings will support CRM with KM?
• Include objectives such as faster response, better product or service quality, product differentiation, and higher customer satisfaction Innovation initiatives: • Address the creation of new products, processes or market opportunities • Are critical because the ability to re-engineer or enhance products or services diminishes over time • Ensure the continued competitiveness of key aspects of the enterprise Action Item: Actively manage operational-excellence and innovation initiatives by: • Articulating distinct goals
13.1
How Developments in KM Affect CRM
Key Issue: What are the trends in KM support and applications for CRM?
• Ensuring adequate funding • Assigning accountability • Tracking performance
13.1.2 Defining KM 13.1.1 The Need for Operational and Innovation Initiatives Tactical Guideline: Enterprises that foster operational and innovation initiatives will prevent the decline of their business services and products. Enterprises undergo a natural life cycle of creation, growth, maturity and decline. This cycle occurs throughout the enterprise in its products, customer service approaches, employee services and other business-related aspects. Without actions that extend or restart the cycle, decline inevitably happens. To avoid this eventual decline, enterprises require two distinct types of initiatives — those that foster operational excellence, and those related to innovation. Operational-excellence initiatives: • Extend the growth and maturity stages • Focus on improving efficiency and effectiveness, by reengineering or enhancing operations, business processes, products or services
KM represents the intentional management and leverage of an enterprise’s intellectual assets. Three “pillars” are critical to KM success — intent, people and infrastructure Intent — KM doesn’t just happen on its own. The enterprise must intend to formally manage its knowledge and intellectual assets. This includes funding KM by providing people and business processes that design, implement and sustain KM. People — Over time, the enterprise should aim to engage and actively manage all of its sources of knowledge. KM depends on knowledge of and about the enterprise’s customers, employees, business partners and competitors. Infrastructure — KM programs take one of three common paths: • KM applications that focus on knowledge workers and knowledge work • KM programs that support a business function, such as CRM • KM programs focused on managing critical intellectual assets
194
Gartner
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
Any of these KM paths requires: • A clear strategy for managing knowledge and intellectual assets in support of business objectives • A culture and discipline that promotes knowledge sharing, collaboration and innovation • Robust business operations (including KM experts) and processes • A compelling technology environment that automates KM processes and stimulates KM use • A scalable environment capable of extending KM to customers, business partners and others
13.1.3 Explicit and Tacit Knowledge Strategic Planning Assumption: By 2005, more than two-thirds of successful CRM initiatives will integrate explicit and tacit KM practices into their CRM processes (0.6 probability). Knowledge can be most simply categorized as explicit or tacit. Explicit knowledge is captured, represented and codified — whether embedded in business rules and metadata, stored in structured records of customer transactions, or represented in documents. CRM extensively uses explicit knowledge, such as: • Information about customer transactions or feedback • Results of customer analytics • Product performance statistics Tacit knowledge resides only in people’s minds. Employees hold much of an enterprise’s tacit knowledge. For example, they know: • How things are done • Why the enterprise does something in a specific way • How to calm an irate customer • How to sell or position a product The highest-value customer knowledge is tacit. Customers know why they like or dislike a product, service or interaction. They have unstated wants or needs, as well as perceptions about an enterprise’s people, service or sales.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
However, an enterprise doesn’t need to capture tacit knowledge. KM includes processes to get at this knowledge. Most people think KM means managing explicit knowledge and providing access to vast stores of explicit data. Although managing and providing access to explicit knowledge represents part of KM, the most-powerful KM exposes and exploits tacit knowledge through human interaction. Knowledge is transferred through collaboration and interaction among employees, customers and business partners. About 80 percent of knowledge sharing occurs through human interactions. Action Item: Evaluate requirements for explicit and tacit knowledge in CRM processes, since these requirements define the CRM-KM opportunity.
13.1.4 The Four Dimensions of KM Initiatives KM programs can be targeted toward a wide range of enterprise initiatives, as shown by the four dimensions of the framework depicted in Figure 13-1: • Organizational impact (the left vertical axis in Figure 13-1): Intended performance ranges from individuals to interactions among the extended enterprise (that is, employees, customers and business partners). • Scope (the horizontal axis in Figure 13-1): KM may drive change that ranges from tactical (or incremental) to strategic (or transformational). For example, tactical KM might support improved employee access to customer information files, while strategic KM might enable customers to interact with each other to resolve problems. • Value objectives (the diagonal axis in Figure 13-1): These objectives range from productivity, to collaboration (synergistic value), to innovation. The value returned for initiatives varies for each combination of scope and impact, for example: – A tactical initiative aimed at individual employees — such as a database of frequently asked questions — could improve employee productivity.
195
Reaping Business Rewards From CRM
Figure 13-1: KM Dynamics and CRM — Building Value ExtendedEnterprise Performance
Innovation
Enterprise and Team Performance
Tacit + Explicit Knowledge
b
Collaboration CRM-KM Today
Individual Employee Performance
Productivity
Explicit Knowledge
Tactical Incremental
Strategic Transformational CRM customer relationship management KM knowledge management
Source: Gartner
– A tactical initiative aimed at teams — such as Webbased conferencing — could enable people to share complex customer problems and collaboratively resolve them. – A transformational initiative aimed at the extended enterprise — such as using Web conferencing for quarterly meetings with key customers to brainstorm product enhancements — could return innovation value. • Knowledge leveraged (the right vertical axis in Figure 13-1): This dimension ranges from explicit knowledge only to full use of explicit plus tacit knowledge. Explicit knowledge drives productivity; adding tacit knowledge drives collaboration and innovation. In 2004, CRM-KM focuses mainly on tactical improvements to the productivity of individual employees. An enterprise can also view employee productivity projects as investments in operational excellence rather than innovation. Some innovation may result when employees innovate their work practices. However, productivity investments don’t demonstrate any intent by the enterprise to invest in — or actively manage — innovation.
196
Gartner
13.2
Returns From Using KM in CRM
Key Issue: How and when will enterprises realize value from their investments in KM-enabled CRM?
13.2.1 The Four Types of KM Applications Strategic Planning Assumption: By 2005, more than two-thirds of successful CRM initiatives will integrate knowledge base access, expertise management and collaboration into their CRM processes (0.6 probability). The four application types that account for most KM investment (see Figure 13-2) — from least-complex to most-complex — are as follows: • Knowledge-base maintenance and access is the first step into KM for many enterprises. This application type focuses on the management of explicit knowledge (capturing information, organizing and providing access). This benefits any enterprise with mountains of
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
that are most relevant to CRM include e-learning and business intelligence.
inaccessible and underutilized information. This application type is used so widely in CRM that many think this is the only form of KM. • Expertise management provides high benefit by exposing tacit knowledge. The capability to find and ask an expert usually results in more insightful and contextual knowledge than reading a document or viewing a static data record. In terms of CRM service levels, this insight may prove to be the difference between a mere answer and a well-reasoned response. • Collaboration facilitates the creation of new knowledge, which may offer a higher level of business benefits than merely enabling better reuse or access to what is already known. Although technology cannot discover new knowledge, it can improve the interaction of groups by enabling them to work in greater depth or wider scope (such as engaging customers in collaboration). Enhanced collaboration can drive innovation in specific business functions. • KM business applications are designed to directly enable key knowledge processes. The applications of this type
Action Item: Evaluate each KM application and how it may apply to customer service, sales and marketing processes, because this insight determines the best starting place for KM in CRM.
13.2.2 The Role of Content Management Tactical Guideline: If KM program objectives include using mature technologies and minimizing implementation risk, the enterprise should select knowledge base maintenance and access as its first KM application. Content management has evolved in many enterprises to support the formalized processes of publishing content to defined audiences. These requirements were met with applications that provide content-oriented infrastructure in the form of: • Repositories
Figure 13-2: The Four KM Application Types Application
State of the Technology
Knowledge Base Maintenance and Access Organization, access and management of explicit knowledge
Maturing in portals, search engines and content management. Information overload will remain a challenge.
Expertise Management Identify experts (to tap their tacit knowledge) and expert practices (explicit knowledge)
Growing demand. In 2004, FAQ and expertise location are unique tools; in future, they will be integrated in suites.
Collaboration Enable human interaction — one-to-one, teaming, communities or projects (leverages tacit and explicit knowledge)
High growth and demand for stand-alone collaboration tools and collaboration embedded in other applications. Emerging in CRM.
KM Business Applications Knowledge-focused applications such as BI and elearning (KM combining explicit and tacit knowledge, plus collaboration)
High growth in e-learning and BI for CRM. Growing demand for integration with business applications and other KM applications.
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
BI CRM FAQ KM
business intelligence customer relationship management frequently asked questions knowledge management
197
Reaping Business Rewards From CRM
• Connector technology for accessing legacy content sources
– Delivering defined content to targeted audiences – Facilitating content exploration and discovery
• Delivery mechanisms, including search and personalization This content management infrastructure fits closely with KM. However, KM adds a different perspective on the role and exploitation of content management capabilities. KM will layer relevance, usability and context onto the infrastructure, and shift the focus to using content rather than just managing it. KM requires additional capabilities that are fundamental to productive knowledge work (see Figure 13-3): • Connecting the repositories, sources, individual users and groups that are relevant to business processes, areas of interest and knowledge work domains • Building a unifying framework — accessible as needed within the context of the need — that organizes all: – Relevant sources into a virtual knowledge base – Users into a virtual community • Providing highly personalized views and access across the virtual knowledge base and throughout user communities by:
– Supporting ever-changing processes, content or communities
13.2.3 Expertise Management Strategic Planning Assumption: By 2005, 50 percent of knowledge-centric enterprises (such as consulting, research and engineering firms) and 30 percent of other enterprises will have explicit processes and applications for expertise management (0.7 probability). Expertise management combines three functional and technological categories: • Question-and-answer applications connect knowledge seekers with answers, or show them where to find the answers. They combine a search engine with a knowledge base of frequently asked questions and wellcrafted answers. When a user asks a frequently asked question, he or she receives an automated response. If the response is unsatisfactory, the question can be routed to an expert person.
Figure 13-3: Moving From Content to Knowledge Select Diverse Sources and Formats • Internal business information • Content residing with business partners • Customer intelligence • Web public information • Other …
Content management “prism”
Data Documents Messages
Metadata
Provide Many Views of the Content • Employees • Customers/prospects • Business partners • Content managers • Content owners Using navigation maps, search engines, profiles, personalization, links to job functions, etc.
News Organize, Relate and Manage Content Using taxonomies, linking, indexing, value coding, securing, archiving, profiling, etc.
Source: Gartner
198
Gartner
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
• Profiling applications identify experts and their areas of expertise for knowledge seekers. These applications may determine experts and expertise based on their online activities, documents or e-mail messages. Experts can modify or add to their profiles. Few enterprises know who their experts are, which hinders collaboration or reuse of expertise. • Community management applications enable people to be associated with other people who share interests or responsibilities. Ideally, enterprises will have communities of employees, customers and business partners. Community management applications provide access to tacit knowledge when people interact, and can capture or search community content. They are available as stand-alone products or integrated into other applications, such as portals. Action Item: Consider expertise management as a potential KM “quick win” for CRM.
• Access to continually increasing knowledge bases • Expertise management • Access to work or interest communities Collaboration rarely stands alone. It sits at the heart of most e-workplace initiatives. Collaboration processes facilitate human interaction (such as e-mail, instant messaging and chat) and collaborative work processes (such as project management). Interactions can take place across time and geographic boundaries, and align physical and virtual teams — or even anonymous groups. Action Items: • Design and build collaboration processes to support people and how they work. • Avoid the urge to merely buy and install software with the expectation that collaboration will happen on its own.
13.2.4 Collaboration Strategic Planning Assumption: Through 2005, two-thirds of new investments in KM will focus on collaboration (0.6 probability). Collaboration is emerging as the core process for building and sustaining a broad range of business relationships between and among: • Enterprises • Employees • Customers • Business partners Collaboration increases the strength of these relationships by enabling interactions that can increase in complexity and richness over time. At their best, they create knowledge and innovation in all these relationships. Collaboration is often taken for granted. A common misconception is that connecting people makes collaboration happen. Although this is true to some degree, thriving collaboration must be intentional. Enterprises must provide: • Capabilities to link people to each other, and allow them to communicate and interact
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
13.2.5 Case Study: Openwave Systems Quality and timeliness of problem resolution are critical in interactions with high-value customers. KM techniques, CRM approaches and emerging technology are being combined to allow real-time capture of explicit information and real-time sharing of tacit information. These capabilities will help enterprises ensure fast, high-quality responses to customer queries. Openwave Systems, which sells business-to-business software and services to communication service providers, applied KM technology to provide fast, flexible support for a demanding customer base of application developers. Openwave considers developers to be an important customer group External developers increasingly are building applications and offering services based on Openwave’s technology. They may be independent or employees of global communication providers. Openwave’s challenge in supporting this group included: • Maintaining high customer service levels, as measured by timeliness of response and by ratio of first-time fixes to customer inquiries • Preserving established staffing levels
199
Reaping Business Rewards From CRM
• Managing call volumes that were increasing by as much as 50 percent per month Problem: Support requests used to arrive by e-mail and be distributed to members of the team on an ad hoc basis. This process had a number of disadvantages, including the lack of an effective way to: • Track the status or progress of support requests • Assign responsibility to individual support providers • Enable collaboration • Balance support team workload across a geographically dispersed team using asynchronous communication Openwave couldn’t easily assess the quality of support that it was providing to developers, its customer satisfaction levels or the productivity of individual support personnel. Objective: The goals of the customer support project were to: • Allow support personnel to move support requests between people and time zones smoothly. • Handle a growing volume of calls without increasing the number of dedicated support personnel. • Draw on the expertise available outside the immediate group of customer service representatives to help resolve problems more quickly. • Monitor individual developer requests. • Track customer satisfaction metrics. • Reduce resolution time. Approach: Openwave chose ePeople’s Teamwork product to track, monitor and resolve support requests from developers. Since its implementation in 2001, Openwave has used this technology for all of its support requests from developers. The system: • Captures all developer requests • Allows threaded discussions and the inclusion of contextual details when problems pass to another employee • Facilitates communication with others at Openwave by making it easy to enlist their expertise in resolving customer requests
200
Gartner
These functions solved several process problems immediately. Furthermore, Openwave had a collaborative working culture, which made acceptance of the solution easier throughout the company. Implementation would have been slower and more difficult if a collaborative organizational culture hadn’t existed. Results: Openwave was pleased with the speed of implementation of the system, which was up and running in less than six weeks. Openwave’s goal was to reduce issue resolution time by 50 percent. However, by using the team capabilities in ePeople Teamwork, Openwave reduced resolution times by more than 70 percent. Support personnel could work together on issues and access help from the larger technical community. The increase in productivity allowed the company to handle the growing volume of support requests without expanding the developer support organization. In addition, the application gives Openwave more information about its developer community. Core metrics, such as the volume of calls, help managers understand the activity within the community, and the need for additional training and materials. The system collects customer satisfaction information on every support issue. With quantitative and qualitative measures, Openwave’s marketing group can understand general levels of developer satisfaction and identify areas for further activity. Openwave can measure the performance of its developer support group more accurately, using data that ranges from individual analyst productivity to root cause information. Technically focused customer support environments, such as that at Openwave, must combine tacit and explicit customer support knowledge. Achieving this enables Openwave’s global support staff to work as a team, matching issues to the person with the most relevant expertise and knowledge.
13.2.6 Case Study: Capital One This financial holding company sought to replace an outdated, distributed help application with a search-based intelligence tool. With its new information-retrieval
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
application, it reduced agent training time and customer on-hold time. Headquartered in Falls Church, Virginia, Capital One Financial is a holding company whose principal subsidiaries offer loans and loan-oriented products. More than 6,500 call center agents provide Capital One customers with a variety of information related to their accounts, such as account status, rules, policies and procedures. Problem: Capital One determined that its Windows-based help system, which it used to support call center agents, wasn’t scaling well. The system included 54 servers in different buildings and call centers, which Capital One updated overnight. Capital One attributed periodic data corruption to a volume of 30,000 documents on the servers. Capital One feared that a catastrophic failure might send its representatives back to the outdated system of using paper records stored in binders, with consequent negative impact on call center performance (for example, keeping customers on hold). Objective: Capital One sought a single-interface application for collecting its documentation, which included: • Policies and procedures • Decision support information • Product descriptions • Archived solicitations The company believed such unification would allow novice representatives to use a single search field to locate a specific piece of information while responding to an inquiry call. Expert users would navigate a hierarchical taxonomy to find similar information. This information would include HTML and PDF documents that could reside in file folders and an Oracle relational database. Simultaneously, Capital One wanted to reduce the time it took representatives to navigate between one system with customer records and another with account information. It also wanted to establish an “administrative lens” to determine, in near real time, which queries resulted in no results. This would allow the company to immediately discover problems for which the call center had no documentation.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Approach: Capital One evaluated a broad range of search vendors to determine which could provide a cost-effective application to improve the customer experience at the call center. It chose Ultraseek, Verity and Autonomy to compete in a final round. (Verity has acquired the Ultraseek product, formerly managed by the enterprise search division of Inktomi.) Capital One sought an engine that: • Had easy-to-use but robust administrative tools • Demonstrated superior relevance • Needed little customization • Was priced reasonably It tested administrative tools through a tryout, in which it loaded its data and requested help from users to determine how effectively the installation worked. Ultraseek provided the best results to this test, although the results were close. As the project developed, Capital One also taught the 40 workers who maintain its call center knowledge base about Web presentation and application technologies, including researching “search.” Critical to the project was the development of an information architecture for the support documents that representatives would retrieve using a search- and navigation-based approach. Capital One selected Ultraseek, and runs several instances of the Ultraseek product on its Sun Microsystems’ servers in a data center. Every search passes to an instance via a load balancer. Approximately 120,000 searches are conducted weekly. Of the information accessed by call center workers, approximately 70,000 pieces of information are generated weekly from the searched data via the search field or navigation. A much greater number — approximately 630,000 pieces of information — are generated from IT applications that return customerspecific records. Advantages to the Capital One approach of combining search and Web development technologies to support customer service include: • Results are kept relevant through ongoing feedback. • Document creation includes a review step that evaluates and addresses all new documents’ search “friendliness.”
201
Reaping Business Rewards From CRM
• A thesaurus of regularly searched terms allows novice users to input phrases using customers’ questions or inexpert terminology.
• Traditional call centers that have made the initial transition to the Web (for example, Primus and ServiceWare) now provide interactive capabilities.
• The use of HTML and PDF formats as the new repository for support information — instead of the Windows-based, vendor-specific help system — could allow Capital One to deploy a different search engine with relatively little disruption.
• Call centers can add Web-based relationship management, either as basic chat (such as iServe) or with more-comprehensive capabilities (such as Pivotal).
• The use of a real-world testing system instead of abstract relevancy benchmarking allowed Capital One to select a cost-effective vendor. • Using a centralized collection of search installations improves reliability because it doesn’t force different user locations into relying on unique help installations that may fail. Results: The project resulted in an application that, in the two years following its launch, exposed its users to no downtime. Newly trained call center agents who have access to the search engine complete calls faster in the early stages of their employment than did agents without access to such a search engine. Capital One, therefore, reaps high productivity from new agents faster than it did prior to adopting the new information retrieval system. Capital One’s goal was to lower hold time for callers by four seconds. The results were far better — average hold time for callers dropped by 14 seconds for new call center representatives. Capital One also reduced agent training time by eight hours, getting agents working with customers more quickly and allowing greater reliance on outsourced call center agents.
13.2.7 Adding Interactive Capabilities to CRM Tactical Guideline: Through 2005, as customer connectivity increases, enterprises must: • Identify the KM and knowledge requirements for effective Web-based sales and for customer self-service and support. • Deliver KM-enabled, Web-based selling and support. Enterprises that need to add interactive capabilities to Webbased service and support can follow a number of paths:
202
Gartner
• As customer service sees opportunities to move beyond a one-to-one relationship with customers, communitybuilding facilities, in which customers can interact together, become important (for example, what eShare and Participate offer). • Service and support capabilities can extend into a wider customer relationship, covering the sales process, as well as post-sales activities. For example, Cisco Systems is taking the Collaboration Server product it acquired from Webline in that direction. Pivotal’s eSelling also supports this approach, and targets business-tobusiness selling with complex sales processes, including product configuration.
13.2.8 KM and Marketing Resource Management Strategic Planning Assumption: By 2006, 20 percent of the Fortune 1000 will incorporate internal practices to systematically measure the value of, and return on, intellectual capital (0.6 probability). Marketing operations must manage several conflicting needs. They include: • Responding quickly and effectively to market competition while minimizing the overhead associated with marketing operations • Becoming customer-segment-driven while increasing speed, flexibility and reliability when executing marketing activities • Managing increasingly complex processes and activities while raising the visibility, accountability and return on marketing investments Effective KM plays a key role in overcoming these challenges. When combined with marketing resource management, KM can help leverage and enhance an enterprise’s intellectual property, its brand equity, and the know-how of its workforce and business partners.
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
KM plays an important role in the adoption and proper use of marketing resource management applications. It also can improve marketing talent recruitment and retention by fostering a more-stimulating and professionally rewarding environment. Action Item: Determine the role of knowledge in the enterprise’s marketing initiatives, and select KM programs that: • Commercialize knowledge into products and services • Support internal business processes
13.2.9 Deploying KM in Sales Strategic Planning Assumption: Through 2006, CRM management will implement advanced KM in sales more than twice as often as in marketing, or customer service and support (0.6 probability). The “sweet spot” for KM in CRM is sales. Because few have developed KM capabilities for field sales, most of the knowledge potential remains untapped. By embedding field-sales-related KM in a sales force automation offering,
enterprises can effectively disseminate basic knowledge, and counter the loss of intellectual capital that results from salesperson turnover and transition. In addition, KM can help field sales to better leverage competitive insights and best practices — arguably the two most-valuable types of sales knowledge. Enterprises must make it easy for users to contribute and gain access to knowledge bases. Deploying KM in sales offers tremendous potential value (see Figure 13-4). Even a conservative evaluation will result in significant tangible benefits. For example, “anytime, anywhere” access to a KM environment can: • Lower travel and time costs • Reduce the time needed to orient new employees • Enable knowledge reuse on many levels Additionally, intangible benefits associated with deploying KM in sales include: • Increasing the rate of innovation • Retaining the expertise of employees who leave the organization
Figure 13-4: Potential Benefits Associated With Deploying KM in Sales Value/Payback
Knowledge Base Access Collaboration
ELM
E-Learning
Reuse work
X
X
Increase productivity
X
X
X
Reduce cycle times (sales, learning, etc.)
X
X
X
X
Improve response quality
X
X
X
X
Reduce errors
X
X
X
X
Reduce gaps in sales skills
X
X
X
X
Reduce duplicated effort
X
X
X
X
Proliferate best practices
X
X
X
X
Retain expertise (turnover)
X
Speed knowledge transfer
X
Increase employee satisfaction/reduce frustration
X
Increase quality of, and trust in, solutions
X
X
X
Provide support anytime, anywhere
X
X
X
Lower travel and time costs
X
X
Increase ideas and rate of innovation
X
X
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
X X
X
X
X
X
X X
X
X
ELM expertise location and management
203
Reaping Business Rewards From CRM
Figure 13-5: The Smart Enterprise Suite Emerges
Other Applications (ELM, BI, etc.) Collaboration Support
Information Retrieval
Smart Enterprise Suite
Content Management
Portal Framework Example Vendors • IBM • SAP • PeopleSoft • Siebel • Open Text • 10-15 others
BPM Application Platform Suite
Application Server
Source: Gartner
• Improving the quality, cycle times and trustworthiness of customer solutions Action Item: Consider the aggressive deployment KM functionality in sales. In a difficult economy, KM can ensure the quality of solutions while reducing cycle times and sales costs.
13.3
Providers and Offerings That Use KM to Support CRM
Key Issue: Through 2008, which vendors and innovative offerings will support CRM with KM?
Integration Suite
BI business intelligence BPM business process management ELM expertise location and management
The systems required to support “smart” enterprise processes, such as collaboration and managing knowledge, range from infrastructure technologies (such as application servers) to the application-level functionality (such as content management, information retrieval and collaboration support). Previously, enterprises had to buy these applications separately and integrate them into a coherent workplace environment. Today, consolidation is occurring at the upper level of these required systems through the emergence of smart enterprise suites. These suites combine multiple functional areas (see Figure 13-5), such as: • Collaboration and community support • Content management
13.3.1 The Smart Enterprise Suite
• Information retrieval
Strategic Planning Assumption: By 2005, most enterprise will retarget investments in portals and team collaboration to smart enterprise suites (0.7 probability).
• A portal framework • Process management • Business intelligence and analytics • Multichannel access
204
Gartner
Strategic Planning Series
Using Knowledge Management to Enhance CRM Value
Figure 13-6: KM Support and CRM Suites CRM Segment CRM Roles Supported With KM Employees
Service
Sales
Marketing
Some
Some
Customers Partners
KM Applications Included in CRM Suites Knowledge base maintenance and access Expertise management
Some
Collaboration
Some
E-learning
Source: Gartner
A parallel consolidation trend is occurring at the infrastructure level through the formation of application platform suites — sets of integrated software infrastructure technologies that include: • An enterprise application server • A portal product • An integration suite Action Item: If your enterprise hasn’t embarked on largescale integration of its workplace applications, consider buying an integrated smart enterprise suite, rather than building this integration capability.
13.3.2 CRM Suites and KM Tactical Guideline: In 2004, CRM suites will make progress toward adding substantial KM capabilities, including moreadvanced knowledge base maintenance and access, elearning support, and sales team collaboration. A quick survey of CRM suites shows that most integrated KM support remains focused on knowledge base
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
CRM customer relationship management KM knowledge management
maintenance and access — that is, providing structured, searchable knowledge repositories (see Figure 13-6). Knowledge base applications are widely deployed and integrated into most CRM suites. Despite the potential for KM-enabled sales, two main obstacles persist: • Vendors are struggling to integrate complex KM into sales. • Enterprises are struggling to shift their sales cultures from competitive to collaborative ones. Despite the slow progress, major CRM vendors have a vision for more-advanced KM functionality. Emerging sales functionality includes the integration of unstructured text (such as case studies and notes), and strong support for collaboration and team sales. In addition, marketing resource management is addressing intellectual-capital management and leveraging marketing knowledge. Other CRM issues also stand in the way of advanced KM support. Many enterprises are still awaiting positive returns from past CRM investments, and others are just beginning
205
Reaping Business Rewards From CRM
their CRM implementations. Such enterprises can’t — and shouldn’t — take on still another challenging implementation such as KM. However, enterprises that have implemented and refined CRM basics are shifting attention to issues such as engaging customers in active collaboration and advanced practices, and peer problem resolution in sales or customer communities. These enterprises have solid opportunities to create sources of competitive advantage through these initiatives.
13.3.3 Innovative Approaches to KM and CRM Processes Tactical Guideline: From 2004 to 2007, technology support for KM in CRM will include innovative products and tools, as well as traditional KM applications.
their own, these programs become significantly more complicated to implement and manage when interconnected with CRM: • The technology environment increases the number of vendors, interfaces or products. • Business processes for KM and CRM will have enterprisewide and extended-enterprise implications. • Complexity increases in metrics programs and business management practices, such as strategic planning, management accountability, financial planning and problem resolution. The following best practices can help enterprises successfully implement KM initiatives in CRM: • Think expansively. KM will demand business process design, cultural, organizational and behavioral change, and sophisticated technology.
Different vendors are assembling sets of products that emphasize collaborative processes and knowledge work. From 2004 through 2007, emerging technologies will prove their worth by providing innovative approaches to KM and CRM processes. These technologies include:
• An enterprise can’t overemphasize cultural change. Analyze present behavior, incentives and processes, and establish baselines. Revise practices that discourage collaboration and KM.
• Simulation for e-learning and decision making
• Never buy technology before designing business processes.
• Voting and feedback technologies • Visualization in KM, business intelligence and other information delivery systems • People-centric, as opposed to document-productioncentric, collaboration • Peer-to-peer, collaborative document sharing that allows multiple people to concurrently use spreadsheets, word processors and other office tools • Technologies to formally manage the idea generation and innovation processes • Text, audio and video mining extensions that go beyond simple data mining
• Start the cultural change by introducing KM programs first to CRM executives and managers. • To motivate the desired behaviors, make knowledge use, creation and collaboration 15 percent to 20 percent of the performance plan. • Make KM useful and intuitive for the user. Beyond implementation, enterprises will need to enhance other capabilities to sustain and grow KM. These include: • Skills in business process design • Increased business process automation • Advanced problem resolution capabilities • New customer behavior and feedback analysis
13.4
Conclusions and Recommendations
KM programs combine applications for managing explicit and tacit knowledge, expertise and content, while also supporting advanced collaboration. Complex enough on
206
Gartner
KM initiatives are most successful when the enterprise focuses on simultaneously improving entire systems — including human practices, business processes and technology.
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
14.0 Best Practices for Negotiating CRM Software Deals A
software license grants the right to use a vendor’s intellectual property within a set of parameters. Frequently, enterprises stress pricing and discounts, and forget crucial software licensing terms. Enterprises shouldn’t let the lure and pressure of discounts rush them into closing deals that they haven’t properly examined, or they will often find themselves paying heavily in subsequent years. Vendors often include contract clauses to increase revenue in subsequent years. Maintenance fees and license costs can double in three years. Enterprises that believe they’re protected by prepaid license fees and maintenance may have to pay additional license fees when vendors introduce new functionality or enhancements, or change license models to accommodate new trends like pay-as-you-go pricing or application service provider (ASP) offerings. Many customer relationship management (CRM) software contracts don’t have terms that cover the transfer of licenses in the event of mergers, acquisitions, divestitures or outsourcing. Others have ill-defined clauses for access outside the enterprise — for example, for customers and partners. CRM vendors are discounting aggressively in competitive deals. When negotiating a licensing agreement, enterprises should use this factor to their advantage. But a discount off the list price isn’t the only thing for enterprises to focus on when crafting a licensing agreement. They must also remember to include terms and conditions that protect their investments. This point becomes increasingly important as vendors change their licensing models more rapidly than ever before. The following Key Issues frame the analysis in this chapter: • What are the key trends in CRM software licensing and negotiation? • How can enterprises negotiate best-in-class CRM deals and protect their investments? • How should enterprises negotiate with Siebel, SAP, Oracle and PeopleSoft?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
207
Reaping Business Rewards From CRM
14.1
Trends in CRM Software Licensing and Negotiation
Key Issue: What are the key trends in CRM software licensing and negotiation?
14.1.1 Vendors Seek More Revenue From Established Customers Strategic Planning Assumption: Through 2010, enterprises that don’t assess the effect of vendors’ terms, conditions and business practices will incur additional, unplanned fees that will at least double the original license and maintenance cost during a three-year period (0.7 probability). In a fast-growing software market, most salespeople make or exceed their sales quotas by selling new licenses to new customers. However, as markets slow, vendors increasingly look to their customer bases to sustain growth. Like many software vendors, CRM, enterprise resource planning (ERP) and other business application vendors realized that they can achieve their growth targets during difficult economic conditions by using unfavorable
contractual terms and conditions to creatively mine revenue from enterprise customers. Examples of such exploitation of unfavorable contract terms include: • Licensing users not covered in the contract (such as customers and business partners). The licensee in many software contracts is still “the Enterprise,” which includes employees and, in the best case, contractors. With CRM applications, however, enterprises often open up the software for access by customers and business partners. If these entities are not explicitly covered in the contracts, some licensees may find themselves paying for these new large user populations — at the same rates, and using the same metrics, as they pay for internal users. • Re-bundling and repackaging products. • Restricting support of prior versions of the application. In some CRM contracts, software vendors only contract to support the software for 12 months after a subsequent version has been released. • Additional fees for vertical functionality and processes. • Outsourcing fees. We are seeing a great interest in contact center outsourcing for customer service and support, yet many contracts have no provision that
Figure 14-1: Which Customers Drive Revenue as Market Conditions Detiorate
CRM License Revenue
License revenue from installed base
New license revenue from sales to new customers
Time Source: Gartner
208
Gartner
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
would allow transfer of the licenses to a third party for the purposes of processing their business. Without these clauses, enterprises can end up re-buying licenses if they outsource a CRM business process. Many CRM software vendors are leveraging contract clauses that are unfavorable to their customers in order to increase revenue. Figure 14-1 depicts the typical pattern of this software vendor commercial behavior.
functionality or products which software vendor licenses separately or charges for separate from support services.” This kind of wording allows a vendor to rename or rebundle a product and provide the same, similar or added functionality in the new product. However, it also allows the vendor to: • Eliminate support for the originally licensed product • Require the licensee to pay an upgrade fee
When a market is new and “hot,” and generates considerable press interest, software vendors can make license revenue targets for Wall Street by just selling new software. However, when the market starts to drop a little, and there is not so much buying going on, this is when software vendors become more focused on mining revenue from the installed base. This is often done not just by extending existing projects, but also by leveraging unfavorable contract terms in deals with locked-in customers — terms that had been overlooked in the heady days of signing the deal.
14.1.2 License Functionality, Not Products Strategic Planning Assumption: Through 2010, enterprises will pay more in license and maintenance fees as 80 percent of major vendors offer standard enhancements and vertical capabilities as rebundled or renamed products, rather than include these enhancements and capabilities in maintenance entitlements (0.7 probability). Enterprises buy software for functionality. However, license and maintenance agreements often don’t describe the functionality. They tend to only name the product that includes the functionality. Most enterprises think that maintenance and support agreements provide application upgrades. However, standard software licenses often don’t guarantee upgrades. For example, one vendor’s definition of “updates” states that “updates means subsequent releases of the software and documentation generally made available to licensees of the software that are similarly situated to the licensee, as part of support services at no additional charge, other than fees for support, media and handling charges. Updates shall not include any releases, enhancements,
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Add functionality marketed as “enhancements” — an option for which an enterprise now would have to pay more Enterprise software licenses should include a functionality replacement clause that defines the bundles licensed. Don’t use vendors’ product names; use generic functional descriptions. The provision should state that if a vendor renames, rebundles or repackages the functionality described — or something substantially similar to it — the enterprise can license such software at no additional cost. Action Item: An enterprise should clearly document the functionality included in the original software licensed, and include continued rights to that functionality, or anything substantially similar, at no additional fee.
14.1.3 The Effects of Mergers, Acquisitions and Divestitures Strategic Planning Assumption: Of 500 vendors claiming to sell CRM software in early 2002, fewer than 350 survived. Of these 350 vendors, only 100 will survive through 2006 (0.8 probability). Mergers, acquisitions and divestitures are proliferating. PeopleSoft’s acquisition of J.D. Edwards and the hostile bid from Oracle for PeopleSoft indicate this trend applies to large vendors as well as smaller niche providers. When a CRM vendor gets acquired, user organizations should focus on: • Due diligence • Escrow and rights to source code • Assumption of obligations (The acquiring vendor should
209
Reaping Business Rewards From CRM
honor your contract for 12-18 months after the acquisition or until the contract ends, whichever is longer.) • Pricing and terms protection for licenses and maintenance agreements • Bundling and unbundling • License conversion • Option to terminate If not adequately addressed in enterprise license agreements, mergers, acquisitions and divestitures can limit or eliminate rights and entitlements favorable to enterprises before such an event occurred. Worse, enterprises may find their technology unsupported and have to pay to upgrade to a new vendor’s product. Of course, mergers and acquisitions don’t just occur in the vendor community. When user organizations acquire or become acquired, they often assume that their software contracts are flexible, when in many cases they are not. To protect themselves, these enterprises should focus on: • Due diligence • Assignment clauses
Enterprises should negotiate transitional arrangements in their software agreements to ensure business continuity. Full or partial assignment of licenses should be permitted to allow time for enterprises to make strategic decisions on integration of business processes and IT infrastructures. Action Item: Enterprises should protect themselves from vendor or product acquisition through contract terms and conditions that ensure the acquiring vendor assumes the obligations of the contract, including continuing product availability and support at the agreed-on price.
14.1.4 Complications Associated With Named-User Pricing Tactical Guideline: Although the model of a named user with some module fee remains the dominant method of licensing CRM software, this model is inappropriate for external groups, such as customers. One of the most common CRM license models (see Figure 14-2) — in which the enterprise must have a license for each named user — can become complicated due to several variations. These can include: • Requiring a named user for a nonhuman device (such as a server)
• New software procurement • Including multiplexing issues in the measurement • Platform, product and contract consolidation • Business continuity • Pricing and terms protection for licenses and maintenance agreements Many enterprises are merging with or acquiring other enterprises, and divesting business units — thereby facing a continuous need to integrate or disentangle their software licenses and associated agreements. Enterprises with strong asset management practices are positioned best to effectively manage software portfolio changes resulting from mergers, acquisitions and divestitures. Best-in-class enterprises use software asset management to: • Rationalize product and vendor portfolios • Achieve economies of scale
One disadvantage to named-user licenses may be licensing occasional users for whom the enterprise believes it can’t justify the cost. However, there will always be some named users who will use the system more than others. Rather than being overly concerned about low usage, enterprises should base needs evaluations on the average user. Named-user licensing doesn’t work for applications that the enterprise extends to customers and suppliers. External users are more difficult to count (or predict) and tend to be numerous. Today, on average, 20 percent of an enterprise’s customers may take advantage of e-service CRM applications (and this will grow significantly). Licensing 20 percent of customers under the same named-user fee that an enterprise uses to pay for internal users would likely prove to be prohibitively expensive.
• Leverage the enterprise’s strategic importance to certain vendors
210
Gartner
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
Figure 14-2: Common CRM Software Pricing Models
Model Per module Named user Concurrent user Named user per module Size of hardware platform Role-based pricing (professional, employee self-service, business partner) Revenue or other financial metric Transaction-based pricing Number of employees Other
Percent
Count
65% 43% 27% 20% 14%
58 38 24 18 12
12% 9% 8% 3% 36%
11 8 7 3 32
Survey of 89 CRM software vendors on their licensing models (Because some vendors offer multiple models, respondents could select more than one choice.) Source: Gartner
Many contracts lack explicit wording regarding how to pay for licenses for customers or external parties. To avoid unpleasant surprises, enterprises should define this in contracts at the earliest opportunity. Because it is easier to predict and manage, capacitybased pricing sometimes can be more appropriate for external parties. However, enterprises should realize that some vendors charge for the entire capacity of a system, even if the application runs on just one part of it. In these cases, enterprises should try to negotiate recognition of physical or logical partitioning.
14.1.5 New Licensing Models Tactical Guideline: Enterprises should establish license conversion metrics in all major software contracts, ensuring that the conversion occurs at their option and that they receive credit for 100 percent of the value of the converted licenses. Software vendors are experimenting with new pricing models and licensing terms and conditions to address:
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• The inappropriateness of some aspects of established models (such as the concurrent-user and named-user models) • Newer user populations, such as customers and business partners • Customer demand for the ability to buy in a more “payas-you-go” fashion New licensing models will render older versions and licensing arrangements obsolete more rapidly than such licensingmodel introductions did in the past. As a result, the concept of vendor conversion or trade-in programs will proliferate as a means to dynamically convert from one licensing model to another. This will create challenges for vendors — because of requirements related to booking traditional and new revenue — as well as enterprises, which will need to dynamically adjust their plans based on trade-in programs. Action Items: • Enterprises should negotiate clauses in agreements that give them the option to move to a new licensing model — if the vendor introduces one — but doesn’t oblige them to move to the new model.
211
Reaping Business Rewards From CRM
• To avoid doubt or confusion regarding vendor-proposed conversion metrics, enterprises should clearly document the basis of any conversion to a new model (such as list-to-list or net-to-net), and ensure they receive 100percent credit for investments converted to the new licensing model.
14.1.6 CRM License Model Evaluation Criteria Tactical Guideline: No perfect licensing model exists. Each has strengths and challenges, depending on the technology environment and how the enterprise uses the software. Determining the appropriateness of a proposed licensing model can be daunting. Gartner created an evaluation model to assist in this effort: • The licensing model should be easy to understand and administer by seller and buyer. • The enterprise should be able to forecast its costs, and measure usage according to defined terms, at least a year into the future.
14.1.7 Trends in Software Maintenance Strategic Planning Assumptions: • Through 2008, vendors will increasingly restrict software maintenance entitlements to lower their costs and increase revenue (0.8 probability). • Through 2006, although they will offer increased discounts for licenses, vendors will resist reducing the maintenance percentage during negotiations (0.8 probability). Software maintenance trends for enterprises include: • Increasing maintenance fees • Assessing maintenance fees starting the day the license is signed or delivered • Separating technical support from rights to new versions • Limiting technical-support calls to a few people who need vendor-provided training • Decreasing the level of service in standard offerings
• The license model should be measurable. Otherwise, the vendor will be unable to audit compliance and users will be unable to prove compliance.
Software maintenance trends for vendors include:
• Licenses shouldn’t be tied to a technology (for example, to a 32-bit HP-UX platform or an Oracle database). Enterprises should have the ability to move to any platform that the vendor supports at no additional licensing fee. If the license is based on a server tier, terms should allow for the migration to a comparable server without paying additional licensing fees.
• Not including selected versions and functionality in maintenance
• Ensure a reasonable price-to-value equation.
• Shortening support periods for prior versions
• Because the appropriateness of the licensing model depends on the manner in which software is used, the vendor should provide a choice between licensing models, such as named users or number of central processing units (CPUs). Action Item: Enterprises should incorporate into the licensing agreement the process by which the vendor can conduct a usage audit.
212
Gartner
• Disappearing ramped or stepped maintenance
• Issuing a maintenance policy that changes at the vendor’s whim (rather than having a maintenance agreement) • Eliminating partial termination of licenses
Enterprises must ensure support “entitlements” are guaranteed. A Gartner survey of 90 CRM vendors showed 80 percent had a variety of support programs. Increased maintenance fees can result from price increases, changes in agreement terms or vendor business practices. Although it’s hard to get vendors to reduce maintenance percentages, it’s possible to negotiate entitlements of more-expensive programs at no additional fee.
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
Maintenance contract issues that should be addressed include: • Establishing how long the vendor will guarantee product support. Some terms continue support for only one year after release of a new version. Vendors should guarantee support for the current version and two prior versions. • Determining maintenance and support entitlements, and whether the vendor can change them. Many contracts state the vendor can change its support terms and conditions with 30-day notice or at annual renewal. Although most vendors include updates to software in the maintenance and support, many differentiate between upgrades and what they consider “new products.” Software vendors will start to charge for new versions. Enterprises should ensure that entitlements are part of the contract and can’t be reduced. • Extending maintenance terms and price protection to additional licenses or products. • Signing multiyear agreements only when they have either: – A ramped maintenance payment schedule based on a conservative forecast of license rollout. – A requirement for additional discounting if the vendor won’t provide ramped maintenance. • Including service-level agreements with escalation procedures or penalties. • Allowing for renegotiation of maintenance agreements when the enterprise acquires additional licenses under more-favorable terms.
14.2
License Negotiation Best Practices That Protect Software Investments
Key Issue: How can enterprises negotiate best-in-class CRM deals and protect their investments?
14.2.1 Transfer Fees CRM vendors often support several database, hardware and operating-system platforms. The cost of the initial CRM
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
software license probably won’t depend on criteria such as which database the enterprise uses (for example, the cost of the CRM application license is likely to be the same regardless of whether the enterprise has an Oracle or IBM database). However, the CRM vendor will likely charge “transfer fees” if the enterprise decides to change one criterion — such as switching from an Oracle database to an IBM database — even if the vendor supports this other platform. The enterprise should incur no additional cost to move to another software vendor’s platform (for example, a new database) as long as the enterprise is complying with its license agreement. If a vendor won’t compromise on this point, an enterprise should request a written response from the vendor as to the reason behind such fees and examples of what such costs will be in the future.
14.2.2 Terminating Maintenance on Unused Licenses Strategic Planning Assumptions: • Through 2008, software vendors will make it increasingly difficult to terminate maintenance on unused licenses (0.7 probability). • By 2005, large enterprise CRM vendors that fail to offer license and maintenance contract flexibility will lose ground to rivals that do (0.7 probability). Continuous pressure to reduce costs is forcing many enterprises to examine contracts and licensing, and stringently re-evaluate software deployment and usage plans. In many cases, projects for which the enterprise purchased licenses have been postponed or abandoned. Because vendors won’t return money for unused licenses, many enterprises have considered temporarily terminating maintenance on the unused licenses. However, nothing in many business application vendors’ contracts allows termination of maintenance on just some licenses. Enterprises must negotiate for this ability. The inability to terminate maintenance on unused licenses can create a huge problem, particularly for enterprises that use suite vendors (such as Oracle, PeopleSoft and SAP). For example, although an enterprise may not use the CRM licenses from the suite vendor, it can’t risk
213
Reaping Business Rewards From CRM
suspending maintenance on its mission-critical ERP module. Furthermore, many contracts also contain an open-ended reinstatement clause that requires payment of an undisclosed reinstatement fee if an enterprise cancels and then reactivates maintenance. Triggering this clause could more than triple maintenance fees. Therefore, an enterprise should negotiate any reinstatement fee to a maximum of 100 percent of the fees that would have been due if the enterprise hadn’t dropped maintenance.
14.2.3 Caps and Maintenance Strategic Planning Assumption: Through 2008, enterprises that fail to fix maintenance entitlements and cap annual price increases will have their maintenance costs increase by up to 100 percent during the following five years (0.8 probability). When assessing the total impact of software costs, enterprises often overlook maintenance and support costs.
The example in Figure 14-3: • Assumes a 50 percent discount on a licensing deal of $4 million • Calculates maintenance at 18 percent, 20 percent and 22 percent (which are common ranges) • Includes no additional costs due to new licenses or increased revenue • Assumes a negotiated price increase cap of 8 percent for yearly maintenance, for five years (Although such terms aren’t standard, vendors often will agree to this during negotiation.) The example demonstrates the “Year 6” problem. After the cap period expires, Vendors often require that enterprises return to paying the current maintenance percentage of the current list price. If the enterprise received significant discounts on its license fees, reverting to a “then-current” maintenance fee can significantly and unexpectedly increase maintenance when the enterprise has little leverage. Because the cost of switching enterprise software is so expensive, an enterprise often has no
Figure 14-3: Increasing Maintenance Costs and the “Year 6” Problem Assume 50% Discount on $4 Million Software: $2 Million Initial License Cost Maintenance and Support at 18%
Maintenance and Support at 20%
Maintenance and Support at 22%
First Year: Second Year (+8%): Third Year (+8%): Fourth Year (+8%): Fifth Year (+8%):
$ 360,000 $ 388,800 $ 419,904 $ 453,496 $ 489,776
$ 400,000 $ 432,000 $ 466,560 $ 503,885 $ 544,196
$ 440,000 $ 475,200 $ 513,216 $ 554,273 $ 598,615
Total Maintenance:
$2,111,976
$2,346,641
$2,581,304
Year 6: Maintenance cap is over; now based on "then-current" list price of $4,862,025 Due Year 6:
$875,165
$972,405
$1,069,646
Source: Gartner
214
Gartner
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
alternative but to pay — even when faced with significant price increases for maintenance.
Assumptions:
With inflation low, most caps aren’t exceeding 5 percent per year. However, an enterprise should include terms to cap maintenance increases at a fixed rate (for example, 5 percent) or the actual increase in maintenance prices, whichever is lower. If possible, the enterprise should ensure these terms extend for as long as the enterprise licenses the software from the vendor.
• Planned rollout to 600 sales representatives
14.2.4 The Cost of Unused Licenses Strategic Planning Assumption: Through 2005, 80 percent of enterprises engaging in enterprisewide licensing agreements will pay at least 20 percent more for licenses and maintenance than they would for agreements based on actual usage (0.7 probability).
• Annual revenue of $500 million
• Goal is to increase revenue by 10 percent • Long-term plans: – Expansion into telesales and marketing – Replacement of contact center technology – Deployment timing (beyond the initial 600 licenses) is uncertain Scenario 1: • 600 known users • 600 licenses purchased • 600 licenses deployed
A recent Gartner survey of enterprises asked questions regarding the number of software licenses purchased and deployed. The 631 respondents purchased 251,626 licenses, of which 146,200 were deployed. Almost 42 percent of the purchased licenses were unused. Applying this percentage to the CRM market, Gartner estimates that enterprises have spent between $1.0 billion and $1.3 billion on unused CRM software. This estimate doesn’t include the maintenance fees enterprises pay in addition to the initial cost of the software. (CRM software maintenance fees range between 15 percent and 23 percent.) In most cases, enterprises are spending large amounts of money for unused licenses and their associated maintenance fees because they agreed to deals that they believed were too good to ignore. In the heat of fast-paced negotiations — often after the vendor’s “best and final” offer, and near a deadline — enterprises often accept the vendor’s offer without performing appropriate due diligence. Purchasing additional licenses for potential future users rarely works out for the buyer, even when such deals come with a higher discount. Consider the following example for licensing a sales force automation application.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Maintenance at 23 percent of net • Software list price of $5,000 per user • 600-user pricing of $2,250 per user (55 percent discount) Scenario 2: • 600 known users • 800 potential users • 1,000 licenses purchased • 600 licenses deployed • Maintenance at 23 percent of net • Software list price of $5,000 per user • 1,000-user pricing of $1,600 per user (68 percent discount) Because of the large number of unused purchased licenses — and maintenance payments on these unused licenses — the real cost per user is 19 percent higher in Scenario 2 than in Scenario 1, even though Scenario 2 involves a higher discount.
215
Reaping Business Rewards From CRM
14.2.5 Leveraging the Vendor Relationship After the Initial Purchase
14.2.6 Additional Tactics for Reducing the Cost of a Licensing Deal
Strategic Planning Assumption: Through 2006, at least 30 percent of business application deals originally signed between 1998 and 2000 will be significantly renegotiated (0.7 probability).
Tactical Guideline: An enterprise shouldn’t focus exclusively on the discount percentage — it can reduce the price of a deal many ways.
An enterprise has maximum leverage in software negotiations the day before it signs the initial deal. Thereafter, the vendor knows significant spending on software and hardware, implementation, customization, integration and training makes competitive replacement unlikely. Although an enterprise might spend millions of dollars on the initial deal, vendors often forget this in subsequent purchases. Many vendors have policies that treat subsequent licenses as separate business transactions and calculate discounts based only on the size of the new purchase. Although such policies make it imperative for enterprises to lock in multiyear discounts and entitlements, it also requires creative thinking about how to: • Retain the vendor’s interest in the long term • Keep the relationship with the vendor strategic In addition to thinking about vendor needs, an enterprise may need to revise the terms of deal. License reengineering — a long-established practice among mainframe software vendors — benefits both parties when revised prices include price/performance improvements in return for bringing forward license revenue. License re-engineering — which no longer occurs solely in stable and mature IT sectors — has become a hot issue as vendors look to their installed base to bolster revenue. Inducements offered to encourage enterprises to re-engineer license agreements include: • Transferring to the new license model • Licensing additional or new functionality • Converting to enterprisewide licenses • Providing opportunities to manage maintenance payments
Most CRM software vendors face extreme pressure to meet quarterly financial targets. An enterprise should maximize this opportunity to gain increased discounts and concessions. In most cases, competition remains the most-effective negotiating lever. An enterprise should consider at least two vendors until the final moments. CRM vendors effectively “work all levels” in a software license negotiation. Even if leaning toward one vendor, an enterprise shouldn’t disclose this inclination to end users or top executives. Leaked information could reach the vendor’s sales team, and end up significantly diminishing the enterprise’s bargaining position. An enterprise also should beware of the amount of information given at meetings with vendors. As vendors seek to understand an enterprise’s needs, they also will listen with a trained ear to determine weaknesses that can bolster their bargaining positions. Only specific individuals should be allowed to disclose predetermined information to vendors. Before conducting a software pilot, an enterprise should negotiate minimum discounts for the entire enterprise if the pilot proves successful. As business application vendors increasingly focus on vertical-industry capabilities, enterprises that share their vertical-industry process knowledge with business application vendors should receive additional discounts. However, enterprises shouldn’t focus exclusively on discounts to achieve a better price. With some vendors, other mechanisms will prove more effective, such as: • Introducing different user categories • Limiting functionality needs • Providing occasional access
216
Gartner
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
• Completing the deal at a specific time of the year
• What is the minimum term?
• Increasing discounts for new licenses but not the installed base
• What are the cancellation penalties?
• Using new products • Becoming a reference account
• Is the ASP obliged to provide all upgrades? • How will upgrades be integrated? • Are there set-up costs?
Many vendors that claim to be global providers actually have different policies in the regions in which they operate. An enterprise needs to understand these policies, and seek to maximize them when signing global deals.
• Have data privacy regulations been met?
14.2.7 Evaluating Hosted and ASP Software Models
• Setup — IBM can command a $100,000 fee for services related to Onyx OnDemand, including items such as integration, database installation, business planning and workflow setup.
Strategic Planning Assumption: Through 2008, enterprises that fail to evaluate the impact of a vendor’s licensing model over a minimum of five years will face increases in license and maintenance fees of at least 10 percent per year (0.8 probability). Many enterprises have evaluated hosted or ASP offerings for CRM software — such as Salesforce.com, RightNow Technologies, Onyx OnDemand and Siebel OnDemand — because of: • Reduced budgets • The desire for lower upfront costs • The requirement to add and subtract users on a flexible, as-needed basis When signing ASP deals for CRM software, enterprises need to consider a number of critical questions, which include: • Who holds the license rights? • What are the rights on termination? • Is there a buyout provision? • What is the pricing model? • How much will the enterprise pay for incremental users, or for customers? • Who provides support? • What are the support service levels?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
In addition, enterprises need to determine all potential costs, which can include:
• Software installation —Fees in this area aren’t justified in a hosted model, because the software already should be installed at the hosting vendor’s site. • Contract termination penalties — Some vendors charge two times the average of the two previous months’ charges to terminate; others charge nothing. Enterprises should seek to ensure that they can exit a contract in any month without penalty. • Updates and upgrades — Enterprises should ensure that updates and upgrades are included as part of the monthly fee, and aren’t an option provided at the vendor’s discretion. • Data privacy — If customer data is hosted outside of the country, the enterprise must ensure that the vendor complies with any data protection laws governing customer data.
14.3
Negotiating With the Major CRM Suite Vendors
Key Issue: How should enterprises negotiate with Siebel, SAP, Oracle and PeopleSoft?
14.3.1 Siebel Systems Siebel’s list pricing changed somewhat with Siebel 7. For Siebel eBusiness Applications — including sales, some
217
Reaping Business Rewards From CRM
elements of marketing, service and call center solutions — pricing is based on a named-user model. However, some products use other license models, such as perserver fees or the number of marketing records for e-mail marketing. Siebel maintenance costs average between 17 percent and 22 percent of the discounted price per year. Siebel differentiates the pricing of its generic software and industry-specific offerings. In early 2004, quotes for Siebel 7.5 base suite applications have ranged between $2,655 and $3,000 per named user. With Siebel 7, Siebel rebundled the sales and service applications, and now includes telesales in the service option. Siebel also bundled into Siebel 7 some additional modules called “options” — that is, sales, service, call center or vertical-industry options, which were previously priced separately — that had cost between $100 and $350 per user, depending on the module. To protect itself from further rebundling, an enterprise needs to detail carefully — using generic language — the functionality that the license includes, rather than just listing the Siebel product names. An enterprise normally has to license additional items, such as Siebel tools (list price of about $17,500 per user). If users require mobile capability, the enterprise also must license Siebel Synch, which costs about $75 per named user. Vertical-industry options usually cost $300 to $500 more than Siebel’s generic options. Siebel is discounting aggressively for new deals, and when it faces credible competition. In addition, Siebel has offered new customers locked-in discounts with improving price/ performance and without final commitments — basically, a usage-based model. The top five terms for an enterprise to negotiate with Siebel are: • Retaining rights to custom-developed code • Including all upgrades in maintenance • Lengthening prior-version support • Using a pooled-funds option on larger deals • Incurring no additional fees for lapsed maintenance
218
Gartner
14.3.2 SAP Tactical Guidelines: • Enterprises converting R/3 contracts to mySAP contracts should negotiate for 100 percent credit for their R/3 investments. • Because SAP selectively charges enterprises for outgoing interfaces from SAP applications (based on its indirect-access clauses), enterprises should seek to strike the indirect-access terms from their contracts to avoid the potential for significantly increased license fees. Gartner clients often cite SAP licensing and commercial practices as unsatisfactory, due to complex, confusing product bundles and licensing models. Key items to negotiate include: • Credits — R/3 users can obtain license credits when upgrading from older agreements to newer mySAP licenses. Although SAP’s policy states it doesn’t allow full credits for previous agreements — the standard is 70 percent to 75 percent credit — enterprises should negotiate for 100 percent credit. SAP may well concede this point because it wants to convert more R/3 licenses to mySAP licenses but hasn’t seen the conversion rates it originally hoped for. Only 25 percent of the R/3 user base has negotiated a mySAP.com agreement, and these were larger customers with the strongest rationale to upgrade. • Uplifts — SAP charges uplifts to its euro prices, which range from 50 percent uplifts in North America, South America, Southeast Asia, Australia, Russia and the former Soviet republics, to 100 percent in Arab states. SAP’s competitors don’t uplift prices to this extent. Multinational enterprises should ask SAP to justify such uplifts and, where possible, minimize or eliminate them. • Definition of additional user categories — Sometimes an enterprise can negotiate additional user categories at lower prices for specific functions or tasks. • Redistribution of users across categories — An enterprise can negotiate to redistribute its licenses across user categories, or even to apply the fees to other SAP licenses (such as the engines), after a year or two — even though this is not a standard SAP practice. Redistributing licenses can help an enterprise that’s uncertain how it will deploy its licenses, or which product bundles it will use first.
Strategic Planning Series
Best Practices for Negotiating CRM Software Deals
SAP’s main license terms and conditions include: • Choice of business suite that includes most SAP applications or CRM Solution as a single application • Fee for role-based, named users and software engines • Maintenance costs averaging between 17 percent and 23 percent of the discounted price per year The top five terms for an enterprise to negotiate with SAP are: • Receiving 100 percent credit on a license conversion to mySAP Business Suite • Minimizing uplifts for larger deals in countries that don’t use the euro • Retaining the right to annually adjust user percentage allocations, and reallocate license value across nameduser and software engine categories • Clarifying what SAP means by “indirect access” — that is, specifying exactly when SAP requires licenses for external systems accessing SAP software • Creating new user types
14.3.3 Oracle Tactical Guideline: Oracle’s e-business suite pricing represents an alternative to modular-based pricing — not a replacement for it. Therefore, enterprises using only one application, such as CRM, will likely to continue to find modular pricing more attractive. Oracle’s e-business licensing model — an alternative to its modular pricing system — allows an enterprise to license most e-business software in a potentially cost-effective and simple manner. This bundling strategy allows Oracle to leverage its installed base to gain market share in areas in which it has been less successful, such as CRM. With this new pricing model, Oracle appears to be pursuing a strategy of locking in customers with the full scope of the offering — initially giving away some software — because it believes that customers will “switch on” these modules when needed, rather than going through competitive-bid processes.
By licensing the suite, enterprises would have access to most of Oracle’s e-business suite applications. This license model has two components: • Named users, of which there are two types: – Professional ($3,995) – Employee ($395) • Add-ons, which include software components that automate business processes that don’t interact with people (such as orders received or transmitted through electronic data interchange) Oracle has a diversity of pricing models, based on factors such as: • Number of: – CPUs – Application users – Employees – Computers • Cost of goods sold Therefore, enterprises should compare established models to the new ones. However, enterprises using Oracle Financials or HR, and planning to use three or more Oracle applications (including sales and marketing), usually will find Oracle’s e-business licensing model more attractive. Recently, Oracle replaced the $100 charge per customer for Internet self-service, making the model more appropriate for those looking at Oracle’s support service applications. Maintenance costs average between 15 percent and 22 percent of the discounted price per year. The top five terms for an enterprise to negotiate with Oracle are: • Receiving full credit if moving to a new license model or changing user categories within a license model • Rebundling and renaming • Defining the licensee • Paying only for capacity used by the Oracle application • Receiving only software that the licensing agreement authorizes the enterprise to use
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
219
Reaping Business Rewards From CRM
14.3.4 PeopleSoft Tactical Guideline: Enterprises licensing PeopleSoft’s CRM software — or adding other PeopleSoft modules — should negotiate maintenance increases based on the Consumer Price Index, or cap them at a maximum of 5 percent throughout the life of the contract. PeopleSoft offers value-based licensing for its CRM applications. Enterprises pay PeopleSoft based on a percentage of annual revenue or number of employees. Because revenue is too broad a metric to accurately correlate the value of PeopleSoft CRM software, enterprises should seek alternative models and ensure that they can use their licenses according to the old pricing model — in perpetuity and regardless of the version of the PeopleSoft software they have. An enterprise should incorporate into its contract the schedule for fee increases, which, as the licensing metric used increases, should reflect a decreasing cost. PeopleSoft sometimes will agree to convert financial-based licenses to an employee-based metric that often varies less from year to year than financial-based ones. However, PeopleSoft’s standard contract contains no provisions to handle significant workforce reductions.
PeopleSoft also recently announced it was prepared to offer product support on its products forever, irrespective of the version of the software installed, for maintenancepaying customers. This promise does not appear in contracts we have seen, and we recommend users ensure their contracts include it. Users should note that Vantive seems to be excluded from this promise of unlimited support. The top five terms for an enterprise to negotiate with PeopleSoft are: • Protecting against the hostile bid by Oracle — or any other company — through merger-and-acquisition clauses • Retaining the right to stay with the established price model, regardless of version level • Receiving credits if revenue or employee numbers decrease (for example, due to a divestiture or downsizing) • Capping maintenance • Including all upgrades in maintenance
14.4 Some enterprises face huge increases in PeopleSoft maintenance. These customers generally pay less than the average maintenance cost of 20 percent to 25 percent of the discounted price — usually 17 percent or 18 percent of the discounted price — and have caps on increases. In 2004, these caps begin expiring. PeopleSoft is returning to the negotiating table, with increases based on 20 percent of list price. In some cases, this could double the previous year’s maintenance fees. When Gartner interviewed PeopleSoft’s CEO, Craig Conway, his response ran counter to what PeopleSoft’s sales representatives said. Conway indicated that PeopleSoft preferred a maintenance increase limit based on the Consumer Price Index to the use of a cap. However, if customers considered this too unpredictable, PeopleSoft would cap maintenance at 5 percent per year, in perpetuity. In some cases, PeopleSoft has frozen maintenance for five years, then continued with the 5 percent cap.
220
Gartner
Recommendations
• Difficult market conditions have forced business application vendors to discount more aggressively in competitive deals. An enterprise should use this factor to its advantage when negotiating a licensing agreement. It also must ensure any agreement protects its investments. • An enterprise has the greatest negotiating leverage when it initially acquires its licenses. Vendors treat new customers better than established, loyal ones, and tend to offer the latter less-attractive deals. An enterprise should ask its software vendor to articulate its CRM philosophy, and then relate that philosophy to the enterprise’s business practices. • License models will continue to change rapidly. Vendors are starting to offer ASP or pay-as-you-go models, as well as models that are theoretically more closely related to the business value received. An enterprise that moves to a new model should ensure that it receives full financial credit from its vendor. Furthermore, the enterprise must ensure that any transition occurs by its choice — not the vendor’s.
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
15.0 Getting Optimal Value From CRM Consultants and System Integrators T
he market for customer relationship management (CRM) services continues to change:
• The implementation of packaged CRM software applications, which is fast approaching the status of a commodity service, continues to diminish as a factor that differentiates external service providers (ESPs). • Enterprises are demanding that their CRM ESPs provide services that deliver business results — not merely implement CRM technology “on time and on budget.” • Buyers want lower prices for services, which requires delivery costs at much lower levels than ESPs historically have achieved. • New competitors are entering the market using lower-cost service delivery from India and other offshore locales. • Large ESPs have been forced to use a global delivery model that combines domestic, “nearshore” and offshore resources. • Smaller ESPs have been forced to reduce their costs by merging, or becoming more focused on an industry segment or geographic market. As a result of these changes, a gap has emerged among CRM ESPs: • Large players are becoming larger, bundling services into “solutions” and expanding their offshore delivery capabilities. • Smaller players are retreating and shrinking to specialize in specific industries, or delivering specific expertise in a particular CRM function. As CRM ESPs migrate implementation components of their delivery models offshore and nearshore, they introduce new risks that make evaluating CRM ESPs more complex and difficult. Enterprises buying CRM ESPs’ services must assess their competencies in domestic, nearshore and offshore delivery of services.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
221
Reaping Business Rewards From CRM
CRM ESPs, if used strategically, can help an enterprise develop its overall CRM strategy and implement tactical projects, as well as provide valuable program and project management insights. ESPs provide help along a continuum, which spans high-level business strategy (management consulting); consulting and system integration; and outsourcing. This chapter focuses on consulting and system integration.
15.1
Consulting services include issues related to:
Strategic Planning Assumption: Through 2009, projects undertaken using a proven methodology — such as those offered by the leading ESPs — will carry fewer risks and have a 30 percent greater chance of meeting their financial goals than unstructured projects (0.6 probability).
• Business processes (re-engineering) • Change management
How ESPs Can Deliver Value to CRM Initiatives
Key Issue: What is the value of using consultants or systems integrators on a CRM project?
15.1.1 Using ESPs
• Program and project management • Technology assessment • Custom and packaged application implementation • Project tuning System integration services include: • Designing or building a customized architecture or applications • Integrating architectures or applications with legacy solutions • Configuration of packaged applications Enterprises must understand the type of services they need for their CRM initiatives before selecting providers. Few ESPs operate across strategy, outsourcing, and consulting and system integration, and none is equally strong in all areas. Enterprises need to understand, and to consider using different suppliers for, these three different types of services. The following Key Issues frame the analysis in this chapter: • What is the value of using consultants or system integrators on a CRM project? • What is the truth behind consultants’ and system integrators’ claims about CRM expertise? • Which consultants or system integrators should an enterprise consider for CRM, and what approach should it use to evaluate them?
ESPs are hired to help. Using one shouldn’t mean abdicating authority. ESPs rarely know a business as well as the enterprise team that hired it. Therefore, handing over all responsibility for a CRM initiative to an ESP would be a mistake. A best practice in CRM implementations calls for using a blended team of internal and external resources. To be truly helpful, ESPs need to learn details about the business. Therefore, enterprises shouldn’t keep them at arm’s length without good reason. ESPs bring the benefit of wide experience from multiple projects with other enterprises, and often are more up-todate on the latest technology. Enterprises should leverage these capabilities to get the most from their ESPs. The best-run CRM initiative will be executed as part of an overall, enterprisewide CRM strategy. This plan — which the enterprise must start developing before it selects an ESP — shouldn’t come from an ESP’s template. However, for the ESP to provide good value, it needs to provide input into the plan. In addition to defining, designing and prioritizing the various tactical implementations, this plan needs to include organizational, change management and communications aspects. The same ESP that performs a technical implementation doesn’t necessarily have to handle the change management and communication work. ESPs that excel at technology change often don’t do the best change management work. Action Item: Inventory the enterprise’s internal business and technical expertise. After determining strengths,
222
Gartner
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
weaknesses and gaps, look to CRM ESPs to strengthen the weaknesses and fill the gaps.
15.1.2 Surveying CRM ESP Users Tactical Guideline: An enterprise should use CRM ESPs to help develop the enterprisewide CRM strategy and associated business cases, including total cost of ownership (TCO) and return on investment (ROI) calculations. After delivery of the strategy and business case, use a shortlist of two or three ESPs, and re-bid the implementation work so that the ESP that did the business case must re-bid as well. From October 2003 to December 2003, Gartner surveyed its clients that were using CRM ESPs. Comparing these survey results to a similar survey done in 2002 shows that enterprises now realize that overall program and project management represents a key strength that ESPs bring to CRM projects.
However, projects — such as project strategy, requirements definition, system design and configuration — have become increasingly common. Rather than viewing CRM enterprisewide — with multiple coordinated projects that support a larger CRM strategy — most enterprises are implementing front-office solutions for individual business units. Enterprises need to use ESPs more strategically. Implementing tactical projects without an overall strategy or road map won’t help the entire enterprise become more customer-centric. Enterprises least-often hire ESPs to perform (see Figure 15-1): • TCO and ROI work • Software product evaluation and selection • Integration with other CRM initiatives
Figure 15-1: Top 10 and Bottom Three CRM Services Provided
Program/Project Management
71.7
Requirements Definition
70.3
System Design and Configuration
68.4
Project Strategy
64.6
System Development
63.7
System Implementation/Rollout
62.3
Project Scope
58.0
Business Consulting
52.4
Training
44.3
Pilot
42.0
Integration With Other CRM Systems
26.4
Software Evaluation and Selection
23.1
TCO/ROI
19.3
0
10
20
Does not total 100% because multiple selections were allowed. Source: Gartner Survey, December 2003, 212 respondents
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
30
40
50
60
70
80%
CRM customer relationship management ROI return on investment TCO total cost of ownership
223
Reaping Business Rewards From CRM
One surprise from the survey results was that more enterprises aren’t focusing on TCO and ROI. Without a focus on planning, estimating, measuring and tracking the progress of CRM projects, a true understanding of CRM’s costs, benefits and ROI will remain elusive. Therefore, enterprises should consider adding TCO, ROI and integration to the services they source from ESPs.
15.2
ESPs’ CRM Knowledge and Capabilities
Key Issue: What is the truth behind consultants’ and system integrators’ claims about CRM expertise?
15.2.1 Cost and Staffing Levels Action Items: • Develop an overall, enterprisewide strategy — based on a phased implementation — that sets the stage for CRM. • Add TCO and ROI competency to the set of services purchased from ESPs. • Execute multiple tactical projects within the context of an overall CRM program — one that establishes a clear plan and articulates the associated costs, benefits and ROI.
The two most-common questions Gartner receives about CRM services concern cost and staffing levels. The survey of Gartner clients using CRM ESPs asked several questions about project costs and staffing. Of the 251 responses received, 74 percent overall answered these questions. Results indicate that costs vary widely, depending on the services provided and the type of CRM project pursued. To properly plan a CRM initiative, an enterprise should prepare, plan and budget for external service costs representing between 20 percent and 55 percent of the
Figure 15-2: Services Comprise 20 Percent to 55 Percent of Total Project Cost ESP Costs Year 1
Average $ 2,399,155
Minimum $ 25,000
Maximum $ 18,000,000
$
Median 872,000
Year 2 Year 3
$ 1,781,311 $ 1,046,793
$ $
15,000 50,000
$ 8,000,000 $ 3,200,000
$ 1,350,000 $ 1,000,000
Year 4
$
770,700
$
50,000
$ 3,100,000
$
500,000
Year 5
$
651,700
$
50,000
$ 1,500,000
$
500,000
Staffing ESP Business FTEs 17% Software Vendor FTEs 9%
Internal Technical FTEs 23%
Software Vendor Professional Services Costs
Year 1 Year 2 Year 3
Average $ 464,686 $ 324,125 $ 123,875
Minimum $ 5,000 $ 50,000 $ 50,000
Maximum $ 5,000,000 $ 1,000,000 $ 250,000
Median $ 150,000 $ 250,000 $ 100,000
Year 4 Year 5
$ $
$ $
$ $
$ $
100,000 100,000
Gartner Survey, December 2003
224
Internal Business FTEs 18%
Gartner
50,000 100,000
200,000 100,000
ESP Technical FTEs 33%
100,000 100,000 ESP external service provider FTE full-time equivalent
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
total project cost. Figure 15-2 shows the average, minimum, maximum and median costs by year. In addition to using services from ESPs, nearly 62 percent of 185 respondents indicated that they also enlist the services of their chosen software vendor’s professionalservice consultants. These costs were considered as being additional to CRM ESP costs. The survey results also indicated that most enterprises use a blended team of internal and external resources from business and technology roles. Survey results showed that, on average, respondents used 59 percent external resources and 41 percent internal resources (see Figure 15-2).
• Ensure that the work plan includes a reduction of external resources over the life of the plan as internal employees gain expertise from ESPs.
15.2.2 ESPs and CRM Project Types Strategic Planning Assumptions: • Through 2006, more than 75 percent of CRM projects will focus on field sales, call and contact center service management, and customer data management (0.9 probability). • Through 2006, more than half of enterprises will implement an average of seven CRM modules (0.6 probability).
Action Items: • Use a blended team to bring enterprise and ESP skills to the job.
Enterprises use ESPs on some types of CRM projects more than on others. The results of a Gartner survey of enterprises using ESPs for CRM (see Figure 15-3) indicate
Figure 15-3: CRM Implementations by Domain % Executing
System Integrator Performance Ratings
Sales 70% 60 50 40 30 20 10 0
Marketing 8.17
8.02 8.04 7.82 7.39
7.63 7.57
8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0
s s s e s d le ale id e le nd un s le ) l-S erc Sa bou ales tbo ale r Sa RM Sa il S l e b d In les Ou les tne (P e eta S m el m W R Fi Te Par Te Co N=148
8.4 8.2 8.0 7.84 7.90 7.84 40 7.8 7.70 30 7.50 7.6 7.49 20 7.4 10 7.2 7.0 0 O M cs gn t. alty er ng i i i R t R t n a t s y C e r ng y M p al m gm Lo ram ark Pa keti M) An g -M Ca M r R o a E Pr M (P N=148 60
Service and Support 70%
8.4 8.2 60 7.91 7.97 7.97 8.0 7.76 7.71 50 7.8 7.6 40 7.4 30 7.20 7.2 7.07 7.0 20 6.8 10 6.6 0 6.4 r r g eb t. mt. e ice ) te n te e se in c m i v n n n d r g v W io r g M e Ce vic po or M eM Se R at e ll C ct er es ec or E-S ner (P ice orc R b v Ca nta er S il R l l rt er rkf lla Ca Co tom -ma d S o Pa Co l W n=153 E s e Fi Cu 8.09 8.18
Does not total 100% because multiple selections allowed. Source: Gartner Survey, December 2003
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
8.21
50
Customer Data Repositories 80% 70 60 50 40 30 20 10 0
8.30
8.20
8.19 7.98 7.74
7.90
7.93
8.4 8.3 8.2 8.1 8.0 7.9 7.8 7.7 7.6 7.5 7.4
t ll g n ta W t di ap ra in tio Da nce Au ve tegy ng D ar a G ysis lec ns a g t M O a l a i t e n a a a Se r ld a oi e n Cl Da St Bui Dat D An ta ng aint ata a r O M D o D n=156
CRO customer relationship optimization
DW data warehouse PRM partner relationship mgmt.
225
Reaping Business Rewards From CRM
that the most commonly implemented aspects of CRM using a consultant or system integrator are:
Gartner’s ongoing research on CRM ESPs routinely tracks customer satisfaction in key areas such as:
• Field sales
• Business skills
• Call and contact centers
• Technical skills
• Analytics
• Program and project management skills
• Customer data strategy
• Knowledge transfer
Type B and Type C enterprises should feel confident when evaluating CRM ESPs to assist with the more-common aspects of CRM technology implementations — such as field sales, call centers or analytics — because of:
• Value of methodologies • Industry expertise • Understanding business processes in various industries
• The experience they can bring to these projects
• Overall value
• Their ability to help enterprises overcome implementation challenges
Gartner has developed a model incorporating all of these aspects of CRM ESP delivery to assess overall satisfaction with CRM ESPs. In addition, Gartner has used this model to gather information through client meetings as well as during reference checks on CRM ESPs. Figure 15-4 shows the results of overall satisfaction with CRM ESPs using the model we developed.
For Type A enterprises, the future of CRM is in multichannel contact and customer service centers, partner relationship management and marketing resource management. These enterprises should conduct detailed due diligence when considering ESP assistance in implementing these aspects of CRM. Survey respondents not relying heavily on ESPs to implement this functionality indicate that smaller, regional and boutique firms are providing these services. Enterprises use larger ESPs more when CRM initiatives span multiple departments or functions. The low number of respondents reporting that they used a large system integrator for a single or departmental project suggests that enterprises tend to use smaller, more focused firms for specialty work. Also, in these more-focused projects, enterprises tend to use more in-house expertise. Action Item: Be wary of ESP claims regarding the newer aspects of CRM. In most cases, ESPs will not be able do demonstrate depth in each component, as they prefer to offer a broader set of CRM capabilities.
15.2.3 CRM ESP Customer Satisfaction
In general, smaller, midtier CRM ESPs have the highest overall satisfaction scores. This isn’t surprising — these providers focus more on a particular industry or facet of CRM. Larger CRM ESPs have pockets of this same expertise. However, they tend to work on large “megaprojects” that span the entire enterprise. This broad scope makes it more difficult to provide consistent delivery throughout the enterprise and the many aspects of the megaproject. Action Item: Measure the enterprise’s satisfaction levels and regularly inform the CRM ESP of the results. Although the project manager and sponsors may feel satisfied, end users may not. If the enterprise doesn’t make the ESP aware of any dissatisfaction, the chance to rectify the problems will decrease and the risk of a relationship breakdown will rise.
15.2.4 ESP Pricing Tactical Guideline: On average, regional and boutique CRM ESPs tend to have higher customer satisfaction rates — albeit for smaller or more-focused projects.
226
Gartner
Strategic Planning Assumption: Although CRM ESPs will increasingly offer business-value-based contracts (such as revenue sharing) for consulting and system integration
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
Figure 15-4: CRM ESP Customer Satisfaction Zamba
72.6
eLoyalty
69.2
Accenture
67.4
Akibia
67.1
Hitachi Consulting
66.4
Inforte
65.3
Deloitte
65.1
PRG
64.9
CGE&Y
64.7
Survey Average
63.7
Headstrong
63.4
Unisys
62.4
BearingPoint
62.0
CSC
61.5 61.0
IBM BCS Cognizant
59.9 56.1
EDS
53.4
TCS 0
Source: Gartner Survey, December 2003
10
20
30
40
50
60
70
BCS Business Consulting Services CGE&Y Cap Gemini Ernst & Young CSC Computer Sciences Corp.
80
90
100 points
EDS Electronic Data Systems PRG Peppers & Rogers Group TCS Tata Consultancy Services
work, less than 10 percent of enterprises will take them up on these contracts by 2009 — up from less than 2 percent in 2003 (0.8 probability).
• Fifty-four percent of respondents used fixed-price contracts.
Once enterprises realize that CRM ESPs constitute the majority of costs in any CRM project, price becomes a key criterion. Because it’s a buyer’s market, enterprises must learn to negotiate.
• Eight percent used a combination of fixed-price and time-and-materials contracts, depending on phase and work being performed.
One way is to obtain a pricing breakdown by services and personnel to compare costs across bidders. Enterprises also have used newer pricing methods in some CRM projects. However, time-and-materials and fixed-price engagements remain the most common methods. In Gartner’s 2003 survey: • Less than 2 percent of CRM contracts were cost-plusbased. • No enterprise signed a business-benefit-based contract for CRM consulting and system integration.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Thirty-six percent had time-and-materials contracts.
• Twenty-four percent said they had incentive or penalty clauses built into their CRM service contracts. Many CRM ESPs use fixed-price quotations as loss leaders for upfront strategy and assessment projects. They discount these in the hope of winning work for implementation project phases, which generally require a larger number of consultants and are longer in duration. Value-based pricing remains in the discussion phase for many enterprises. The inability to accurately identify metrics and measure the benefits of CRM projects to the enterprise — both positive and negative — often stymies such deals.
227
Reaping Business Rewards From CRM
A key requirement for these types of contracts is welldefined, easily measured metrics, such as:
15.3
Assessing ESPs
Key Issue: Which consultants or system integrators should an enterprise consider for CRM, and what approach should it use to evaluate them?
• Customer retention • Turnover per customer segment • Campaign effectiveness Although value-based pricing for consulting and system integration services seems intuitive, the negotiation of such approaches often breaks down during the legal discussions concerning written contract, as businesses back away from putting “hard numbers” into the contract. Action Item: Begin to understand the risk and reward tradeoffs of business-benefit-based contracts, and be willing to commit to both upside and downside metrics to achieve true business value from CRM initiatives.
15.3.1 Gartner’s Magic Quadrant for Worldwide CRM ESPs Strategic Planning Assumption: Accenture and IBM Business Consulting Services will remain the leaders in delivering worldwide CRM consulting and system integration services through 2006 (0.7 probability). The worldwide CRM ESP Magic Quadrant depicts Gartner’s assessment of CRM ESPs’ ability to execute and the completeness of their vision (see Figure 15-5).
Figure 15-5: Magic Quadrant for Worldwide CRM ESPs, 2004 Challengers
CGE&Y Ability to Execute
Leaders
Deloitte
Accenture IBM BCS
BearingPoint
Unisys
Regional and local consultants and system integrators As of January 2004
Niche Players
Visionaries
Completeness of Vision
Source: Gartner
228
Gartner
BCS Business Consulting Services CGE&Y Cap Gemini Ernst & Young
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
Evaluation criteria include: • Overall practice vision
• Offer presence in all three major geographies, but are inconsistent in their coverage of at least one geography
• Geographic reach
Challengers may:
• Technology depth
• Dominate a large segment
• Application experience
• Have a less-mature understanding of market trends and directions
• Industry solutions • Not articulate their vision clearly • Proven results across sales, marketing and service in multiple channels • Feedback from Gartner clients ESPs positioned as “leaders” are financially stable, demonstrate long-term management commitment to their practices, and generally sell into senior-management levels. In addition, leaders have:
• Lack all the elements required for future success Generally, challengers represent solid choices for the specific segments in which their track record demonstrates success. ESPs positioned as “visionaries”: • Have great ideas for the future
• Strong prospects for the future • Mature CRM practices
• May struggle in specific areas with less-consistent execution
• Large numbers of CRM consultants that have delivered solutions across a number of industry sectors
• Understand business requirements
• Proven ability to execute across three major geographies — North and South America, Europe, and the Asia/Pacific region • Long-term relationships with enterprises, and experience serving in long-term, advisory roles • Solid and long-standing partnerships with the leading CRM suite vendors Enterprises should expect more than just basic services from leaders, given their vision and execution with regard to the ability to meet or exceed projected benefits. Although many leaders claim to provide everything enterprises need for their CRM initiatives, enterprises must dig below vendor claims and seek a deeper understanding of the vendors’ true capabilities, given that no vendor is without weaknesses.
• Demonstrate innovation in service offerings with a particular industry focus • Tend to have fewer resources focused on CRM than do leaders and challengers Niche players either focus on a smaller segment of the market (and do so well), or have modest horizons and possibilities due to an inability to innovate or outperform other providers. ESPs in this category tend to: • Deliver tactical implementations • Fail to demonstrate expertise in, or execute across, all CRM domains — or to do so with the same consistency as challengers • Serve a smaller part of the CRM market • Remain confined to a specific geography or vertical market
ESPs positioned as “challengers”: • Execute well • Have a solid track record of execution, financial resources and staying power
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Although many CRM ESPs claim global presence, only the six shown in the Magic Quadrant can prove their capabilities in all three major geographies. Many of the next-tier regional North American vendors (such as Akibia,
229
Reaping Business Rewards From CRM
Headstrong and Inforte) have local, industry or domain expertise (for example, in sales, marketing or service), and may fit better with enterprise goals than a larger provider. Many enterprises struggle to undertake large-scale CRM programs. In such cases, niche-player or visionary vendors might be the best option. Enterprises should such include vendors along with global providers on their shortlists. However, a global provider may not always represent the best choice. At times, enterprises will have to consider regional or local vendors from the extremely fragmented ESP landscape. Action Item: Conduct due diligence and check references to ensure that the enterprise’s culture fits with that of the service provider. All other things being equal, the most-critical criterion for success when choosing CRM ESPs often is the ability of providers to: • Work within an enterprise’s culture • Work with its people • Effect the kind of organizational change that a successful CRM program requires
15.3.2 CRM ESP MarketScope for the Americas Strategic Planning Assumption: By 2008, when competing for business from Type A or Type B enterprises in North and South America, CRM ESPs that have between 50 and 250 consultants, and that derive more than 60 percent of their business from three or fewer industries, will win more deals than they lose against large, global ESPs (0.7 probability). Although Accenture and IBM represent about 20 percent — and large, global vendors about half — of the worldwide CRM services market, it remains extremely fragmented. Beyond the large ESPs operating with significant scale, enterprises also need to consider smaller and midtier ESPs as viable options for CRM services. Many CRM ESP vendors in this category appear in Gartner’s CRM ESP MarketScope for the Americas (see Figure 15-6). More than 1,000 ESPs claim to provide CRM services in North and South America. Although most of these ESPs don’t meet the worldwide criteria associated with Gartner’s CRM ESP Magic Quadrant, all of the vendors appearing in this MarketScope have demonstrated positive business results for Fortune1000 customers in the Americas and should be considered viable options.
Figure 15-6: MarketScope for CRM ESPs in the Americas Strong Negative Akibia Consulting AMS C3i Cognizant Tech. Solutions Computer Sciences EDS eLoyalty HCL Technologies Headstrong Hitachi Consulting Inforte Peppers & Rogers Group Satyam Tata Consultancy Services Zamba Solutions
1.9 3.95 3.2 3 1.7 2.95 2 3.7 3 2.7 1.75 3.475 3.85 3.55 3
Caution
Promising
1.9 3.2 3 1.7 2.95 2 3 2.7 1.75
3
1.9 3.95
1.7 2 3.7 2.7 1.75 3.475 3.85 3.55
Strong Positive
Positive 3.95 3.2 3 1.7 2.95 3.7 3
1.9 3.95 3.2
2.95 3.7 2.7
1.75 3.475 3.85 3.55 3
3.475 3.85 3.55
Source: Gartner
230
Gartner
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
Many other ESPs were considered for this MarketScope. Given the criteria used, those ESPs not included would most likely be rated as “caution” or “strong negative.” (For information on MarketScope ratings, see Section 1.1.4.) Vendors in this MarketScope are evaluated using six criteria: • CRM practice viability — This includes: – Financial viability of the CRM practice – Strength of the leadership team – Overall market presence
In 2003, CRM ESPs’ consulting and system integration service revenue was approximately $8 billion worldwide — 55 percent of which came from the Americas, with North America accounting for nearly 93 percent of that (slightly more than half of total worldwide revenue). Between 75 percent and 85 percent of enterprises pursuing CRM initiatives enlist a third-party CRM ESP. Smaller local and regional ESPs that focus their expertise on key industry markets will continue to win business from large, global vendors. Enterprises that perceive themselves as more mature in CRM tend to buy more from smaller, regional CRM ESPs that have greater vertical-industry or domain experience.
• CRM domain expertise — ESPs must have: – Strength in at least two of the three CRM domains (sales, marketing, or customer service and support) – Demonstrated consulting and system integration capabilities (including capabilities in CRM vision and strategy; business consulting; business transformation; and development, configuration, and rollout of packaged and custom CRM software) • Industry expertise and focus — This includes: – A strong and focused presence in specific vertical industries – Demonstrated strength and success in CRM initiatives • CRM partnerships and alliances — This includes strategic and differentiated partnerships with critical CRM software vendors. • Market presence — Such presence is demonstrated by ESPs that: – Appear consistently on clients’ “long lists” of potential options for CRM consulting and system integration engagements – Have achieved a certain level of recognition (mind share) – Are routinely asked about in client inquiries received by Gartner analysts • References — Because ESPs’ successes correlate highly to their track records in previous engagements, direct client feedback represents one of the most important evaluation criteria to consider.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Action Items: • Assess the CRM ESPs appearing on the worldwide Magic Quadrant, as well as the regional ones appearing on the Americas MarketScope, based on the enterprise’s unique CRM needs. • When creating a shortlist of appropriate vendors, weight industry and domain expertise — along with the cultural fit of the ESP — highest among the evaluation criteria used.
15.3.3 Offshore CRM Service Providers Strategic Planning Assumption: By 2009, 40 percent of CRM implementation work will be performed offshore — up from 8 percent in 2003 (0.7 probability). Until recently, the vendor landscape for offshore CRM services featured few providers that could compete effectively against the leaders in Gartner’s CRM Magic Quadrant and MarketScope. This situation is changing rapidly. Large CRM service providers have begun to invest in their own offshore capabilities, while others are developing strategic alliances and joint ventures with offshore service providers in different countries. These cross-border collaborative firms seek to leverage the core capabilities and competitive advantages each service provider offers in its respective country.
231
Reaping Business Rewards From CRM
The offshore CRM business process outsourcing market has expanded and now contains five types of firms: • Large, global ESPs trying to establish capabilities overseas to support global clients • Captive centers of large enterprises, some of which are externalizing these capabilities • Alliances and joint ventures between U.S. and offshore companies • Independent contact center outsourcers that are funded by venture-capital firms • Outsourcing subsidiaries of leading offshore IT services vendors Interest in outsourcing overseas will likely continue unabated. However, challenges remain in understanding cultural and business practice nuances. Many vendors lack the ability to bridge the gap between process expertise and credibility in this market. Action Item: When deciding on an offshore provider for CRM services, do not limit the enterprise’s options to India and the high-profile offshore ESPs. Other equally viable ways exist to access lower-cost skills.
15.3.4 ESPs and Global Service Delivery Tactical Guideline: Although the operating model of global service delivery represents an attractive way to reduce costs, enterprises must evaluate their CRM service providers on functional skills, industry expertise and business process expertise in addition to their technology expertise. Some enterprises seek to lower CRM implementation costs by sourcing CRM ESPs based on the lower hourly rates offered by many offshore providers. By doing so, these enterprises potentially put their CRM initiatives at risk — many of these providers lack industry, business process and CRM expertise outside of the more-traditional technology implementations. An ESP’s ability to leverage a global pool of human resources is becoming a significant decision criterion. However, enterprises need to understand the value of the
232
Gartner
ESP’s capabilities by evaluating providers for their respective competency sets — and not just look at costs. The ability of an ESP to provide world-class CRM services is rooted in its capability to understand the client’s business, CRM domains and industry to assist in facilitating customercentric processes. These processes are then enabled by the implementation of the most-appropriate technologies, and by leveraging today’s complex delivery models (such as the global delivery model). Action Item: Rather than focusing too heavily on technology skills and hourly rates, create a decision framework that prioritizes: • Business process expertise • Functional skills in the core CRM domains of sales, marketing, and customer service and support • Industry expertise
15.3.5 Evaluating ESPs vs. Evaluating Products Strategic Planning Assumption: Through 2008, 65 percent of enterprises will continue to devote more time, resources and money to the CRM application selection process than to the ESP evaluation process, which will result in inappropriate choices or project delays (0.8 probability). An enterprise can evaluate products in terms of: • Functionality • Features • Scalability • Ease of integration with systems and architectures However, evaluating ESPs requires more-intricate analysis that depends on many factors. Essentially, evaluating service providers is more difficult than evaluating products because people — not software and systems — deliver services. Therefore, much of an enterprise’s ESP evaluation needs to concern human competencies, behaviors and culture.
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
When evaluating service providers, tangible attributes to consider include:
15.3.6 Using One or Many ESPs Strategic Planning Assumption: Through 2008, although multisourcing will remain the dominant sourcing strategy, 40 percent of large enterprises will adopt a prime or general contractor to manage CRM ESP complexity (0.7 probability).
• Cost • Contract terms and conditions • Methodologies used In addition, an enterprises needs to consider intangible attributes, such as: • Proven competency — where and how the service provider previously has completed similar work • How the ESP’s culture aligns with the enterprise’s culture • Behavioral attributes of the key ESP personnel Action Item: Create evaluation criteria that incorporate the intricate, human-performance-based nature of selecting a service provider.
As enterprises depend more on ESPs — and as they look to sign long-term agreements in a rapidly changing market — they face the challenge of building sourcing strategies around one vendor or multiple, integrated suppliers (see Figure 15-7). A single-vendor approach works well for enterprises that: • Have protracted procurement methods • Don’t want to undertake evaluation and selection with every project in a CRM program • Use a vendor that provides the necessary geographic and service coverage
Figure 15-7: Determining Whether to Use One or Multiple ESPs
Best of Breed
• Strong supplier management and integration capacity
Prime Contractor
• Understand supplier management
• Need top performance from selected suppliers
One-Stop Shop
• Lack the resources and infrastructures for multivendor integration
• Cannot attract a single large vendor
• Inexperienced in multivendor management
• Want to select key suppliers
• Protracted procurement process • Short of capital • Can attract a single large vendor
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
233
Reaping Business Rewards From CRM
• Can manage a single, complex contract well, but find it challenging to manage and integrate multiple suppliers
nevertheless should define it as one of the top five criteria they use when evaluating CRM ESPs.
However, inexperienced enterprises that look for partnership-style arrangements with single vendors are usually making a mistake, because they often lack sufficient contract management capabilities.
For a clearly defined engagement with limited scope, technical skill and price remain the top two selection criteria that enterprises use. However, when multiple providers can demonstrate equally competent levels of expertise, price becomes the key criterion.
Action Items: As enterprises expand the complexity of their CRM initiatives — including using multichannel contact centers, integrating business processes such as sales and marketing, and linking CRM systems with back-office functions — the criteria by which enterprises evaluate CRM ESPs take on added importance. Gartner’s most-recent survey indicates that clients are beginning to understand the importance of good program and project management capabilities. In 2003, this became the top criterion used for evaluating providers (see Figure 15-8).
• Use the multiple-supplier approach if your enterprise has strong supplier management and integration capabilities and wants top performance. • Use the prime-contractor approach if your enterprise has solid supplier management capabilities, but lacks the resources and infrastructure necessary for supplier integration.
15.3.7 CRM ESP Evaluation Criteria Technical and business skills also remain critical, and round out the top three criteria. Business process skills and expertise represent the knowledge of the business — its
Tactical Guideline: Although cultural fit represents a subjective and often ill-defined metric, enterprises
Figure 15-8: Most- and Least-Important CRM ESP Evaluation Criteria Project management skills
63.0
Technical skills
57.4
Business process consulting
51.7
Prior experience/relationship
49.8
CRM vision
45.5
Tenure of consultants
20.4
Individual reference checks
16.1
Product independence
13.3
Expertise in marketing, influence with senior management, and contracting practices
10.4
Expertise in sales
8.1
0
10
20
30
40
50
60
70%
Does not total 100% because multiple selections allowed. Source: Gartner Survey, December 2003, 211 respondents
234
Gartner
Strategic Planning Series
Getting Optimal Value From CRM Consultants and System Integrators
strategies, processes, rules and regulations, independent of technology. Action Item: Rely on the key criteria shown in Figure 15-8 to evaluate CRM ESPs; price should remain a lessimportant criterion. However, all other things being equal, the most-critical criterion often is the ability for providers to work within an enterprise’s culture to affect organizational change.
15.3.8 Using a Vendor Evaluation Framework Strategic Planning Assumption: Through 2009, enterprises that develop comprehensive, adaptable evaluation models will reduce the time needed to evaluate vendors by 20 percent (0.8 probability). An enterprise should implement a structured vendor evaluation framework when selecting ESPs. For each project in a CRM program, the enterprise determines criteria and assigns them a weight. The enterprise may change weightings, depending on:
• The internal assessment of skill sets • Whether the project is for sales technologies, or for customer service and support • The strategic importance of the project As it moves through the phases of the evaluation, an enterprise must score — and rescore — each vendor. An enterprise must update its initial scoring, which is based on proposal review, after direct interviews take place and again after completing due diligence. Figure 15-9 provides an example of a comprehensive evaluation framework. An enterprise should: • Use an unbiased framework (such as the one shown in Figure 15-9) to remove emotional, personal and political relationships that often prevent an enterprise from conducting an unbiased evaluation. • Apply its own set of criteria to ensure that it bases the evaluation on issues that are important to the enterprise. • Appropriately weight the criteria.
Figure 15-9: Sample Vendor Evaluation Framework
Weight 1. Past relationship 8 2. SI team business expertise, knowledge, style 10 3. Ability to effect knowledge transfer 5 4. Price 5 Technology 1. Business architect expertise 7 Factors 2. Technical knowledge and credibility 10 3. Project management expertise and methods 5 Subtotal 50 Weight Intangible Benefits Business 1. Similarity of values (cultural/personal style) 5 Factors 2. Solid performance on similar CRM projects 5 3. Adhere to RFP and presented guidelines/times 5 4. Industry expertise 4 Technology 1. Technical infrastructure expertise 6 2. Application expertise Factors 5 Subtotal 30 Weight Intangible Risks 1. Financial stability Business 5 2. Product independence Factors 5 3. Responses from references 5 Technology 1. Thorough and complete project plan 3 Factors 2. SI capability, viability and local support 2 Subtotal 20 Totals 100 Tangibles Business Factors
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Vendor 1
Vendor 2
Vendor 3
Rating Score 2.5 20.0 3.0 30.0 2.7 13.3 2.0 10.0 2.7 18.7 3.7 36.7 3.7 18.3 147.0 Rating Score 2.0 10.0 3.0 15.0 3.3 16.7 3.3 13.3 3.7 22.0 2.7 13.3 90.3 Rating Score 5.3 26.7 4.0 20.0 4.0 20.0 1.3 4.0 4.3 8.7 79.3 316.7
Rating Score 2.5 20.0 3.8 38.0 4.2 21.0 2.3 11.3 5.2 36.4 3.4 34.0 5.0 25.0 185.7 Rating Score 3.6 18.0 4.8 24.0 6.0 30.0 6.0 24.0 5.8 34.8 4.4 22.0 152.8 Rating Score 8.4 42.0 4.0 20.0 4.0 20.0 3.8 11.4 6.4 12.8 106.2 444.7
Rating Score 2.8 22.4 4.4 44.0 4.4 22.0 1.0 5.0 5.0 35.0 5.6 56.0 5.6 28.0 212.4 Rating Score 3.8 19.0 5.2 26.0 5.8 29.0 6.0 24.0 5.4 32.4 4.4 22.0 152.4 Rating Score 8.4 42.0 5.5 27.5 5.0 25.0 3.4 10.2 6.6 13.2 117.9 482.7
CRM customer relationship management RFP request for proposal SI system integration
235
Reaping Business Rewards From CRM
• Have each team member participating in the process score each vendor — then collect the scores, average them and multiply them by the weight to arrive at the average weighted score for each criterion, by vendor.
• Consider using ESPs to assess a CRM strategy and help build the business case.
Action Item: Apply a structured vendor evaluation model to facilitate objective analysis of the competencies and suitability of specific service providers. Using Gartner tools, an enterprise can make its selection in approximately eight to 12 weeks.
• Realize that smaller ESPs tend to have higher customer satisfaction levels.
15.4
• Supplement internal staff with CRM ESPs — but don’t abdicate control of the project to them.
• Understand that vendor neutrality doesn’t exist — CRM ESPs will tend to play to their strengths, whether they lie in specific project types, industries or preferred technologies.
• Ensure that knowledge transfer occurs so that the enterprise builds the skills its internal team needs.
• Smaller providers with specialized skills may represent a better fit in the long run.
236
Recommendations
Gartner
• Expect external services to cost two to three times the amount of the license fee in 2004.
• Evaluate credentials carefully — but don’t underestimate the need to have a good working relationship and cultural match.
Strategic Planning Series
Ensuring the Benefits of Improved Marketing Processes
16.0 Ensuring the Benefits of Improved Marketing Processes A
n enterprise defined by its customers remains a conceptual idea for most. Although the concept of customer-centricity was introduced to marketing 40 years ago, for the most part, it hasn’t yet been integrated into the strategic, organizational and tactical dimensions of the marketing function. From a technology perspective, marketing remains the last major business discipline to undertake systematic automation and infrastructure improvement. This chapter focuses on: • Critical issues that the marketing function must address • The technologies and applications that enable the practice of technology-enabled marketing • How marketing will evolve during this decade and next • What the marketing function can do to best prepare for tomorrow’s realities The following Key Issues frame the analysis in this chapter: • What does the future of marketing look like through 2010, and why should enterprises worry about it now? • What strategic, process and organizational issues must enterprises address to enable worldclass marketing? • What technologies, applications and vendors will best enable marketers to manage the increased complexity of their marketing operations?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
237
Reaping Business Rewards From CRM
16.1
The Future of Marketing
Key Issue: What does the future of marketing look like through 2010, and why should enterprises worry about it now?
16.1.1 Marketing Must Embrace Technology Despite annual marketing investments surpassing $1.2 trillion among Global 1000 enterprises, marketing remains the least-accountable business function. For years, marketers have battled for market share, focusing primarily on acquiring new customers. They used mass marketing to reach a large consumer population, generate awareness and build brand image. However, as brands proliferate, media choices multiply and audiences increasingly fragment, advertising spending becomes considerably less effective. Although discounts and promotions have become the norm for enticing new customers, they do little to create or sustain sources of competitive advantage, and have reduced margins — and, by extension, profits. Technology has empowered partners and customers by providing them with access to a tremendous amount of readily available information and more options for communications delivery. Consequently, customers receive marketing messages through increasingly fragmented channels. Furthermore, experiences with many enterprises across all touchpoints drive customer expectations. This makes managing communications and brand image considerably more challenging. The marketing function must embrace technology as a means to enable greater efficiency and effectiveness. Just as importantly, the marketing function must lead by example in the customer-centric transformation of the enterprise by:
16.1.2 Marketing Evolves Toward Just-in-Time Relationship Building Strategic Planning Assumption: Through 2007, enterprises that effectively deploy marketing processes and capabilities focused on the ability to sense and respond to customer-driven events will improve return on marketing investments by at least 70 percent compared with their current marketing efforts (0.8 probability). In stable environments, product- and customer-centric businesses differ little. The enterprise and the customer benefit directly in the short term from investments that enhance the efficiency and productivity associated with defined products and services — enabled by accurate demand forecasts in well-segmented markets. However, when change makes customer requests less predictable, strategic leverage shifts from efficiency to flexibility and responsiveness. As a result, the enterprise needs to make investments that enable it to sense change earlier and coordinate a targeted, often unique response more quickly. To accomplish this enormous feat, marketing must shift its mindset from waves of promotional programs toward the identification and implementation of life-event- and interaction-driven marketing strategies and tactics. Based on suitable, customer-value-based segmentation, such just-in-time marketing interactions will become necessary to establish more-meaningful customer relationships. An enterprise’s ability to measure combinations of interactions, communications and incentives becomes more important than the impact of single elements. Marketing measurement also must shift from attempting to evaluate the result of specific programs to: • Identifying the best timing, combination and sequence of targeted interactions
• Fostering and developing the skills and behaviors necessary to attain and leverage customer insight
• Evaluating the impact on of these interactions on customer value
• Becoming increasingly accountable for its performance
Action Item: Begin to identify the most relevant life-stageand event-driven interaction opportunities.
238
Gartner
Strategic Planning Series
Ensuring the Benefits of Improved Marketing Processes
16.1.3 Effectively Handling the Information Deluge Through Analytics Strategic Planning Assumption: By 2015, leading marketers will depend on sophisticated analytics and recommendation engines for more than 70 percent of their tactical marketing decisions (0.7 probability). The data available to marketers — and the rate at which that information arrives — continues to increase. Already, marketers have to automate some data collection and interpretation. The use of computer-based systems has started moving from analyzing information to drawing conclusions and making recommendations or decisions. In the future, automating responses — at least for tactical, repetitive decisions — will prove beneficial by allowing: • Marketers limited opportunities to intervene or overrule the system • Front-office personnel the chance to leverage systemdriven recommendations Such “black box” analytical systems will continue to evolve and mature, handling analysis and processes for which a person can’t follow the step-by-step logic or come to the same result by any other means. Action Item: Examine the possibilities and the potential impact of systems for advanced data analysis.
16.1.4 More Data From Microsensors and RFID Chips The widespread use of microsensors and radio frequency identification (RFID) chips will fuel the marketing data deluge. Costs have declined enough that many enterprises have started to experiment with this technology, developing pilot programs to better understand how to deploy and manage such capabilities. By 2014, RFID chip costs will be low enough that manufacturers likely will embed them in the individual units of most consumer goods. Sensors will move from being deployed for supply chain and inventory management to being included in consumer appliances. The use of such technologies likely will stir privacy concerns. However,
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
consumer appliances will offer enough added value to overcome these concerns, leading to broad adoption. Action Item: Examine the possibilities and the potential impact of advanced data collection technologies such as microsensors and RFID.
16.1.5 Broadcast and Targeted Communications Will Blend Together Strategic Planning Assumption: By 2020, more than 70 percent of marketing-driven communications delivered on behalf of Global 1000 enterprises will be customized to the customer or household (0.7 probability). Enterprises that understand one-to-one relationships already use technology to focus the Internet, direct mail, their call centers or their sales force on delivering communications that are targeted and relevant to a specific recipient. Already in pilot programs, the combination of interactive television, advanced editing tools and encrypted set-top data will soon enable advertisers to leverage television for targeted marketing purposes by enabling the creation of multiple versions of a single ad. Instead of creating just one version of a commercial, an advertiser can use additional versions of specific scenes, identify several different scores and emphasize different titling elements to produce multiple versions directed to targeted households. This “mass customization” of television commercials will bring together the broadcast-awareness and imagery-building capabilities of television with the precision of targeted communications. As these capabilities evolve, they increasingly will leverage repositories of customer information, business rules, customer models and marketing content. These capabilities will help an enterprise: • Customize real-time communications based on the context of the interaction • Optimize the outcome based on enterprise objectives and predictive models of customer behavior Action Item: Examine the possibilities and the potential impact of advanced, mass-customized communications
239
Reaping Business Rewards From CRM
and real-time customer interaction management, and begin to prepare for a future that includes these capabilities.
16.2
Bringing About World-Class Marketing
Key Issue: What strategic, process and organizational issues must enterprises address to enable world-class marketing?
simplistically represent more-complex real-world marketing ecosystems, in which many forces interact and typically affect each other. Marketers therefore must evolve the practice of marketing to: • Better understand such complexities • Carry out more effective strategies, programs and tactics • Become more accountable in terms of measuring and delivering value
16.2.1 From Customer and Product Segments to Marketing Ecosystems
Action Items:
Strategic Planning Assumption: Through 2005, more than 80 percent of Global 1000 enterprises will remain unable to accurately measure returns on their marketing investments (0.8 probability).
• Identify areas where oversimplification may hinder performance.
According to an Accenture survey of 175 U.S.- and U.K.based marketing executives, the top three challenges cited by marketers are: • Measuring and improving return on marketing investments • Establishing a meaningful view of the customer • Implementing technology in a timely manner These challenges are intertwined because an enterprise needs to: • Develop and maintain a meaningful view of the customer before it can truly measure an improved return on marketing investment • Use technology effectively before it can: – Organize the information necessary to develop a single view of the customer – Link and measure the impact of marketing efforts to specific changes in customer behavior
• Conduct brainstorming sessions to map the complex marketing ecosystems affecting the enterprise.
16.2.2 The Marketing Function Begins to Evolve to an Advanced State Strategic Planning Assumption: Through 2007, although more than 80 percent of Global 1000 enterprises will make some organizational changes to become more customercentric, less than 20 percent of these enterprises will transform themselves sufficiently to realize the associated benefits (0.9 probability). The marketing function can be characterized by its four evolutionary phases: • Embryonic — In this phase, the marketing function: – Tends to be considered a function that supports sales – Emphasizes generation of demand for an enterprise’s products – Focuses heavily on the pursuit of short-term financial objectives • Adolescent — In this phase, the marketing function:
Many enterprises have tried to align products with specific customer segments — even to the point where they’ve created or packaged products for distinct customer segments (for example, 18-to-24-year-old males) or consumer behavior types (for example, habitual buyers). Although common in practice, such segmentation schemes
240
Gartner
– Becomes a distinct organization separate from sales, with competencies that include strategy; segmentation and targeting; product development and positioning; advertising and promotion; pricing; and distribution channel management
Strategic Planning Series
Ensuring the Benefits of Improved Marketing Processes
– Tends to develop a “marketing ego” as top management points to the organization as a model of excellence – Has ongoing conflicts with the sales organization – Remains separate from, or barely integrated with, other functions, slowing the enterprise’s ability to respond to changing market conditions • Mature — In this phase, which will characterize successful enterprises in the future, the marketing organization integrates marketing competencies with:
– Focus marketing processes around customer data analysis, direct marketing and e-mail marketing • Functional effectiveness: – Develop a more-customer-centric focus – Base segmentation on customer value – Develop initiatives around the customer life cycle – Leverage marketing knowledge to support consistent customer experiences • Intra-enterprise integration:
– Other business functions – Extended-enterprise, value-enhancing partners that work together to execute customer-centric processes • Advanced — Marketing organizations that reach this state will: – Link increasingly with partners in their value network – Maintain a centralized organization responsible for high-level strategic planning and resource orchestration, while providing critical marketingoperations support through functional specialists
16.2.3 States of Value Development The five states of value development characterize the evolution of technology-enabled marketing (see Figure 16-1): • Product marketing: – Have campaign budgets controlled by product groups – Limit marketing efforts to mass marketing – Use little, if any, automation beyond officeproductivity software (such as e-mail and spreadsheets) • Initial productivity and visibility: – Recognize customer opportunities based on the lower cost of retaining established customers, instead of acquiring new ones
– Centralize marketing strategy around customer needs and customer value – Align targeted marketing, product development and brand management – Increase cross-functional coordination among marketing, sales, service/fulfillment and back-office systems • Value network collaboration: – Coordinate marketing, sales and service capabilities across the value network to enhance customer experiences – Emphasize collaborative marketing with partners, resellers and others (depending on supply and demand) Action Item: To develop the enterprise’s marketing capabilities, start by understanding and benchmarking the current state and capabilities of the marketing function. Then develop a high-level vision and road map for evolution to the desired state of development, and analyze gaps to identify priorities.
16.3
Technologies to Improve Management of Marketing Operations
Key Issue: What technologies, applications and vendors will best enable marketers to manage the increased complexity of their marketing operations?
– Emphasize easy opportunities to sell, cross-sell or up-sell products or services
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
241
Reaping Business Rewards From CRM
Figure 16-1: Value Development Framework for Technology-Enabled Marketing State Vision
Strategy
Technology
1st
2nd
3rd
4th
5th
None — product marketing
Initial productivity and visibility — product-tocustomer marketing
Functional effectiveness — Customer segment-driven marketing
Intra-enterprise Integration — Strategic customer-valuebased marketing
Value-Enabled Network — Customer-valuebased collaborative network marketing
Mass market based on sociographic/ demographic/ psychographic attributes
Target market based on past product purchase history
Target customer segments based on customer value
Centralized customer needs and value strategy; decentralized execution
Enhance customer experience through value network
• Office productivity software • Loosely related intranets or extranets
• Analytic BI or workbench • Campaign management • Operational e-marketing
• Predictive analytics • Multichannel CRO • MRM to plan, budget and develop
• Architecture for interaction management with event detection and triggers • Deeper MRM
• Coordinated MRM through CRM or PRM for distribution and tracking • Resource optimization
2004:
Type C
2008:
Type C
Type B
Type A Type B
BI CRM Source: Gartner
business intelligence customer relationship management
Type A
CRO MRM PRM
customer relationship optimization marketing resource management partner relationship management
Strategic Planning Assumption: By 2005, Global 1000 enterprises that can deploy customer-centric, enterprisewide marketing management processes will deliver a 30 percent higher return on their marketing investments than industry peers that fail to do so (0.7 probability).
• Analytics
Increasingly, enterprises capture and deliver key knowledge — of customers’ needs and requirements, enterprise and partner capabilities (what can be delivered to customers), and processes (how to get things done, internally as well as with partners) — using key technology-enabled components of marketing functionality, including:
The return on investment associated with the functional components of technology-enabled marketing (and the priority of component adoption) varies according to the business model — for example, business-to-consumer (B2C) or business-to-business (B2B) — and the resources available. For example:
• Customer relationship management (CRM)
• MRM is more critical for large, B2C enterprises that have to manage hundreds or thousands of concurrent marketing efforts.
• Marketing resource management (MRM) • Brand and product management • Demand network (channel) management
242
Gartner
Although some of these components overlap at the application level, no single prepackaged application — or vendor — yet delivers a complete enterprise marketing solution.
• Partner relationship management provides the highest return for large, B2B enterprises that depend highly on indirect distribution channels.
Strategic Planning Series
Ensuring the Benefits of Improved Marketing Processes
Action Item: Outline marketing capabilities relative to marketing functionality components, and determine areas that need improvement. Then prioritize technology implementation according to strategic value, likelihood of successful implementation, and potential impact on marketing efficiency and effectiveness.
16.3.1 Improving Efficiency and Effectiveness Through MRM Strategic Planning Assumption: By 2005, marketing organizations that have deployed MRM applications will develop their creative materials 70 percent faster than peer marketing organizations that aren’t using MRM applications (0.9 probability). As enterprises evolve from mass marketing to more market- and customer-driven efforts, the complexity of marketing activities has increased dramatically. Unfortunately, miscommunication, poor and untimely execution, and misspent marketing funds have become common. By one estimate, Global 1000 enterprises spend 22 percent of their marketing expenditures, or $270 billion, producing and managing marketing output, rather than making media and promotion investments (see Figure 16-2).
For all the spending that occurs in marketing operations, the marketing function remains inefficient and extremely isolated, with limited collaboration and knowledge management capabilities. Furthermore, as enterprises face increasing pressure to deliver short-term profits while fostering long-term growth, marketing expenditures are coming under increasing scrutiny. Marketers must do more with less — that is, manage increasingly complex marketing efforts, yet do so with greater efficiency and effectiveness. For the most part, however, marketing depends highly on the work of relatively few individuals — people often equipped with rudimentary office productivity tools and loosely integrated, custom-built or prepackaged point solutions. Most enterprises need to automate their marketing processes to make their marketing operations more efficient and effective. MRM provides the means through which these enterprises can start to technology-enable their marketing efforts. MRM in general: • Provides a set of processes and capabilities that can enhance an enterprise’s ability to orchestrate and optimize the use of internal and external marketing resources • Involves defining and adopting processes and applications that transform and enhance an
Figure 16-2: Increased Marketing Complexity Demands Efficient Operations Spending as Percent of Revenue for Global 1000 5.9% Produce and Manage 22%
3.4%
Media and Promotion 78%
IT
Marketing
Source: Accenture
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
243
Reaping Business Rewards From CRM
enterprise’s ability to plan, budget, execute and measure the impact of enterprisewide marketing efforts MRM applications support key marketing processes through a single interface, allowing a wide variety of marketing users to collaborate on different projects, and to manage project timelines and associated finances. MRM applications make it easier to bring together and gain access to the information necessary for strategic planning. They support multidirectional, collaborative planning processes that benefit from broader input from internal and external participants. MRM applications address processes such as marketing asset creation, collection, management, deployment and distribution through online decision making. They should also support integration and coordination with offline, often single-channel, solutions that may already be used by the marketing function. To date, MRM applications have helped:
• Web-based architecture • Security tools and schema • Integration with other repositories or enterprise applications • An MRM data model • Role- and process-based distribution of data, content and application functionality • Customization tools MRM deployments face key business process challenges that affect application architecture requirements. These include challenges related to: • Flexibility • Managing multiple tiers of organizations: – Administration — multiple people may need to set business models and workflows dynamically, often in real time
• Manage the development of marketing-related content – Security • Automate workflow related to associated approvals and project management • Offer some integration with front- and back-office applications Interest in and awareness of MRM among large enterprises continues to increase as MRM applications mature, and new and larger marketing automation and enterprise application vendors enter this emerging market.
– Workflow — often spans multiple organizations, making it necessary for attributes and rules to change for a given object in a given business process as it crosses organizational boundaries • Continually adapting throughout the expected application life span Most MRM applications now: • Support thin-client administration and customization
16.3.2 MRM Application Architecture Requirements Strategic Planning Assumption: By 2005, MRM applications that support distributed administration, application, business logic and workflow capabilities will provide enterprises with increased flexibility, enabling them to support increased marketing complexity that will drive at least 30 percent greater adoption and use (0.7 probability). Although functionality provides MRM application utility, sound architecture provides the foundation for MRM application flexibility. Key features of an MRM application include:
244
Gartner
• Rely on an MRM data model that serves as a common platform for interpreting, converting and normalizing data from disparate systems and processes • Vary greatly in their ability to distribute application access, business logic and workflows Ideally, an MRM application should support entity-, roleand context-based distribution of access, application functionality, content and processes. Administrative and customization tools vary greatly in their ability to support, facilitate and manage integration among forms, databases and output. Such constraints can: • Limit the flexibility and degree of customization possible
Strategic Planning Series
Ensuring the Benefits of Improved Marketing Processes
• Make customization associated with application upgrades difficult to maintain
enterprises increasingly will favor owning and hosting MRM applications as they become more strategic.
Action Item: Be careful not to overlook MRM application architecture requirements. Doing so will likely limit the overall potential benefit from the application by restricting flexibility and the ability to manage increasing complexity.
Action Item: Assess MRM-related custom-built applications relative to the enterprise’s detailed MRM requirements and the functionality available from prepackaged MRM applications.
16.3.3 Deciding Whether to Build or Buy MRM Applications
16.3.4 The 2004 MRM Magic Quadrant
Strategic Planning Assumption: By 2007, MRM will emerge as the dominant application serving the broad, day-to-day execution and coordination needs of the marketing function (0.7 probability). Gartner has noted that interest in MRM deloyments is growing rapidly among Global 1000 enterprises, as are actual deployments. Although the average size of deployments remains relatively modest, at around 90 users, this represents an 80 percent to 90 percent increase over 2000. During the same period, the number of substantially larger, enterprisewide and global deployments has roughly doubled, to some 30 enterprises. In addition, Gartner clients on average have purchased twice as many MRM licenses as they have deployed — another indication that deployment size is increasing. Of their per-enterprise average investment of $765,000, 65 percent represents the cost of software licenses. The remainder mostly consists of costs related to implementation services.
Strategic Planning Assumptions: • Through 2005, enterprise application suite and marketing suite vendors will focus primarily on MRMrelated deals as part of their direct-marketing application sales (0.8 probability). • By 2007, acquisition, consolidation and attrition will leave three or fewer viable, best-of-breed MRM vendors (0.8 probability). For enterprises evaluating MRM vendors, the MRM Magic Quadrant (see Figure 16-3) serves as a useful tool to: • Identify vendors worthy of further consideration, based on their ability to meet specific criteria • Provide insight into the evolving MRM vendor market The MRM Magic Quadrant evaluation criteria include: • Execution — ability to deliver and implement MRMrelated solutions • Functionality — breadth and depth of MRM functionality
As deployments of MRM applications provide further evidence of the associated benefits, investment in MRM applications will accelerate. The growth in sales of MRM applications will also gain momentum as larger software vendors from the marketing automation and enterprise application markets enter the MRM application space. Over time, MRM will become a competitive necessity for large enterprises that must deal with increased marketing complexity.
• Technology and architecture — openness and flexibility of the MRM application platform To be included in the 2004 MRM Magic Quadrant, a vendor must support MRM capabilities for at least three of the five following functions: • Plan and budget • Create and develop
As prepackaged MRM applications mature, they will gain favor over custom-built applications that provide MRMrelated capabilities. Although some enterprises will continue to pilot or conduct smaller, tactical deployments of MRM using an application service provider model, larger
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Collect and manage • Fulfill and distribute • Measure and report
245
Reaping Business Rewards From CRM
Figure 16-3: The 2004 MRM Magic Quadrant Challengers
Leaders
SAP
Aprimo
Oracle
Ability to Execute
Citat
SmartPath
PeopleSoft Unica
BrandWizard Technologies
Elateral Then
Brand Automation (Nvigorate) Arasys Technologies
Niche Players
Veridiem
As of February 2004
Visionaries
Completeness of Vision Source: Gartner
In addition, each vendor must have three or more customers that use its MRM software in a production environment, and that have a weekly average of at least 20 users (internal or external to the enterprise).
Enterprises should consider a leader when they need a vendor with: • Proven MRM functionality and capabilities • Experience with large or complex implementations
MRM Magic Quadrant criteria provide a starting point to assess vendors and inform enterprises regarding the tradeoffs associated with placing vendors in the respective quadrants. An enterprise should use the Magic Quadrant as part of its detailed vendor and application evaluations to align selection of vendors and their applications with:
They should consider a challenger when they’re willing to sacrifice additional functionality for: • Tighter integration with deployed enterprise applications • Superior vendor viability
• Their ability to meet specific business requirements (current and emerging)
A visionary should be considered when the enterprise:
• The organizational characteristics of the enterprise
• Wants to take advantage of underlying technologies, progressive architecture and integration capabilities
All MRM vendors can’t solve the same problems. Therefore, an enterprise may have to sacrifice less-certain viability for increased functionality — or, conversely, decreased functionality for more-certain viability.
246
Gartner
• Requires a powerful vision for leveraging analytics around marketing resource optimization
Strategic Planning Series
Ensuring the Benefits of Improved Marketing Processes
• Recognizes — and can accept — that vendor viability issues create additional risks when choosing a visionary vendor Niche players may be considered in cases where enterprises need strong, detailed functionality in a particular area of MRM.
To survive the onslaught of larger vendors, best-of-breed MRM vendors will have to deliver superior functionality and greater flexibility to support: • More detailed and diverse marketing processes • Standards-based integration to interact effectively with a variety of other best-of-breed, enterprise and legacy applications
The MRM market will continue to evolve as: • Large enterprise application vendors will sell more MRM applications to their customers. • A few best-of-breed MRM vendors will survive and thrive based on their ability to provide a more-flexible architecture, easy integration and deployment, and a rich set of advanced MRM functionality.
16.3.5 The Evolving MRM Vendor Environment Strategic Planning Assumption: By 2007, vendors of large-enterprise application suites will generate more than 30 percent of MRM license revenue (0.7 probability). To appeal to their substantial customer bases, vendors that provide application suites to large enterprises will eventually provide products that offer sufficient MRM functionality and tight integration with their application suites. However, these large-enterprise application vendors won’t deliver the detailed and flexible MRM functionality that many marketing functions will need to drive broad, enterprisewide adoption of MRM and ensure its ongoing use. As they seek to integrate with other marketing functionality and capitalize on established relationships with the marketing function, marketing automation vendors are expanding their functionality to include MRM.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
In addition, smart enterprise suites — which aggregate the functions now offered by portal, collaboration, and knowledge and content management applications — have started to emerge, offering marketing organizations a feature-rich alternative to MRM. Action Item: Evaluate the MRM offerings and development plans of the CRM, ERP or marketing automation vendors with which the enterprise has an established relationship — but continue to consider products from best-of-breed MRM vendors.
16.4
Recommendations
• Marketing strategies, processes and capabilities must evolve to support increasingly complex ecosystems. • Marketing investments must be prioritized based on their ability to: – Enhance operational efficiency – Anticipate customer behavior – Strengthen customer relationships • Marketing functions must increase the efficiency of their operations so they can devote more time to highervalue activities.
247
The Evolution of Relationship Marketing
17.0 The Evolution of Relationship Marketing
R
elationship marketing has five generations, each of which represents a progressively higher level of sophistication in the role customer data plays in the enterprise’s treatment of the customer. Each change in generation represents a fundamental shift in the scope of the enterprise’s marketing and customer relationship activities. An enterprise usually has elements of all generations in its marketing strategy. However, a dispassionate evaluation of the enterprise’s attitudes, typical campaign design and IT infrastructure will reveal the generation in which the enterprise primarily resides (see Figure 17-1). • The first generation represents the traditional view of campaign management, in which campaigns are: – Designed and executed through a predefined channel at a time of the enterprise’s choosing – Preplanned to minimize cross-campaign conflict – Designed to meet the marketing needs of the enterprise • The second generation takes advantage of the enterprise’s multichannel capabilities to allow multistage campaigns — and the “cascading” of customers — across these channels. • The third generation shifts the timing of campaigns from the enterprise to the customer. It accomplishes this through customer-initiated interactions, or by timing campaigns in response to changes in customers or in their relationships with the enterprise. • The fourth generation recognizes the impact that campaigns have on each other and addresses this (at least in part) by incorporating the customer’s need for “the right offer” into the campaigndesign process. • The fifth generation extends the concepts of customer analysis and segmentation — and of the refinement and communication of a value proposition to the customer — beyond the marketing organization and out to the broader enterprise.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
249
Reaping Business Rewards From CRM
Figure 17-1: The Five Generations of Relationship Marketing 1st
2nd
3rd
4th
Vision
Right Customer
Right Channel
Right Time
Right Offer
Strategic Evolution
Single Channel
Multiple Multiple Channels Channels Proactive Proactive Campaigns
Reactive Reactive Offers Offers Optimize Optimize Each Campaign
5th
Right Relationship
Optimize Optimize All All Campaigns Campaigns Marketing Marketing Centric Centric
Enterprisewide Enterprisewide Relationship Relationship Marketing Marketing
Source: Gartner
To achieve the most appropriate state for creating business value and better relationships, an enterprise needs to: • Understand the five generations of relationship marketing
17.1
The Early Generations of Relationship Marketing
Key Issue: How will relationship marketing evolve through different generations?
• Assess where it resides on the evolutionary scale • Build a road map for reaching its relationship-marketing goals The following Key Issues frame the analysis in this chapter: • How will relationship marketing evolve through different generations? • How will the “right time” generation of relationship marketing create business value? • How will the “right offer” and “right relationship” generations of relationship marketing create business value? • Which vendors can best support the different generations of relationship marketing?
17.1.1 The First Generation: The Right Customer Tactical Guideline: For mature database marketing organizations, process integration to run campaigns more quickly and frequently will yield higher return on investment (ROI) than increased investment in data-cleansing or datamining technologies. Campaign management has focused significantly on improving the accuracy of customer targeting. However, for many marketing organizations, frequency — not accuracy — limits the ROI generated from their campaigns. As a result, organizations in many industries are examining what a move to continuous campaigns, or to morefrequent “microcampaigns,” would require. This behavior is driving investments in campaign management that differ from, but complement, the typical focus on data and analytics. This new focus tends to concentrate on managing the marketing and campaign
250
Gartner
Strategic Planning Series
The Evolution of Relationship Marketing
management process. As a result, campaign management tools increasingly are broadening their scope to include things beyond segmentation and campaign design, such as:
• Broader integration with the applications that enable the actions • The ability to self-refine the paths that customers can follow through the application
• Content creation • Content management • Campaign design and approval with partners
Future enhancements will include applying intelligent estimation to the flow of customers through the workflow. This will enable more-intelligent constraint recognition for downstream elements, and better cost estimation.
• Distributed campaign management (which enables partners or local business units to run campaigns)
17.2 Action Item: Consider the extent to which a lack of integration of the larger campaign process is limiting the frequency or design of marketing campaigns. If this is proving to be a significant constraint to better ROI, consider investing in advanced capabilities offered by campaign management and best-of-breed marketing resource management (MRM) vendors to address this issue.
17.1.2 The Second Generation: The Right Channel Scenario manager systems supervise multistep customer interactions. Although campaign management tools commonly have this functionality, some lead management and opportunity management applications also do. Scenarios can start in several different ways. They tend to have common objectives or processes to create each scenario’s distinct role. Examples of typical scenarios include: • Dealing with a high-risk customer • Cross-selling a new product or service
The Third Generation of Relationship Marketing
Key Issue: How will the “right time” generation of relationship marketing create business value? Customers fail to accept many offers simply because the timing of the offer was wrong — not because it was unattractive or misdirected. The third generation of relationship marketing passes control of the timing of the offer to the customer. It attempts to resolve the timing problem in two different ways: • One element focuses on customer events, looking for changes in the customer’s situation (such as marriage or a change of address) or the customer relationship (such as declining spending or spending in a new category), and responding to changes with appropriate follow-up offers. • The other approach focuses on periods when the customer most likely will be receptive to an offer. This periods typically occur when the customer is interacting with the enterprise — for example, during an automated teller machine (ATM) transaction, Web site visit or call center interaction.
A key feature of scenario managers is their ability to manage different types of connections among interaction components as the scenario unfolds. These connections may be decision-tree branches, or steps that require more than automated handling from one action to the next.
Although enterprises can combine these two elements, most enterprises usually approach them separately, depending on the type of customer relationship they have.
As scenario managers evolve, they increasingly will move beyond their early focus on process management and toward enabling more-intelligent scenario design. Process management functionality will include:
The biggest challenge for many marketing organizations stems from accepting the degree of uncertainty that comes from passing campaign timing to the customer. Additional concerns that can significantly impede evolution to the third generation include the need to meet marketing targets, and to manage bandwidth and budgets.
• Embedded modeling to improve decisions
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
251
Reaping Business Rewards From CRM
Action Item: Consider whether the number of campaigns being run is beginning to cause serious channel, budget and customer conflicts. If so, it’s time to evaluate the fourth generation or relationship marketing.
17.2.1 The Three Styles of Customer Interactions Tactical Guideline: Driven by greater relevance and greater customer receptiveness to appropriately timed messages, time-sensitive marketing communications will have response rates several times higher than the equivalent traditional marketing campaign would have generated. Enterprises interact with customers in three ways. The first (and traditional) form of customer interaction (from the marketing perspective) is a proactive, outbound campaign initiated by the enterprise and driven by the marketing organization. These campaigns usually focus on customer acquisition or cross-selling opportunities. However, because enterprise requirements rather customer needs drive them, they have a relatively low success rate. Despite more-sophisticated use of analysis, marketing organizations recognize that accurate timing of the offer — one of the largest predictors of response — is beyond the scope of most of these campaigns. To resolve this issue of poor timing, enterprises are looking at customer events to provide a signal that the customer will likely be receptive to a particular offer. This represents the second form of customer interaction. Early results of these campaigns are very positive. For most marketing organizations, this represents the fastest-growing campaign category. The third style of interaction — which is customer-initiated and relationship-driven — leverages inbound contacts by the customer. However, it aims to make them more effective by adding a targeted message around the tactical response given to the customer.
17.2.2 The Five Stages of EventTriggered Marketing Tactical Guideline: The largest problem associated with scaling event-triggered marketing activities is defining the appropriate response once customer events are recognized. Event-triggered marketing requires consideration and investment in a five-stage process: • Identification of key events — This first stage is typically a business discussion to identify which key enterprise, customer and context events and activities will define the relationship between an enterprise and its customers. Events can take many forms, and the challenge is usually limiting the number of events used in early phases of the project. • Definition of key event triggers — This second stage translates first-stage events into something the enterprise can recognize. This means identifying what is available, how it can be used and how to calibrate the system so it detects events when they happen (but not tune the system so sensitively that it continually generates spurious leads). • Activity monitoring for event triggers — At this third stage, the actual detection process occurs. Operational or data-warehousing systems are monitored for the key event triggers defined in the second stage. • Definition and prioritization of response — Enterprises commonly have trouble with this fourth stage, because many customer events have similar indicators to which the enterprise must respond differently. • Execution of response — At this fifth stage, a response is communicated to the customer. In addition, this response must be integrated with operational systems for activity and feedback tracking. Action Item: Identify the roles that need to be involved in creating, maintaining and using event triggers.
Action Item: Leverage all customer interactions to optimize their value to the enterprise.
252
Gartner
Strategic Planning Series
The Evolution of Relationship Marketing
17.2.3 What Real-Time Analytics Means, and Whether Enterprises Need It Strategic Planning Assumption: Through the end of 2005, most deployments of real-time analysis will fail to include the required focus on the business logic needed to turn analysis into the appropriate business recommendations (0.7 probability). Tactical Guidelines: • The time needed for analysis will vary depending on the decision being made. • Enterprises can make most CRM decisions on a monthly, weekly or daily basis. The need for guidance at the point of customer interaction tends to drive an interest in real-time analytics. Arguably, real-time analytics doesn’t exist (at least right now). However, the term serves as useful shorthand for a collection of techniques that provides guidance in how to treat the customer (presented below in increasing order of sophistication):
• Real-time decisions — using pre-calculated values to decide, in real time, which offer is the best one to make to a particular customer • Real-time scoring — using already-obtained data to generate a score for a real-time recommendation • Dynamic scoring — combining already-obtained data with real-time sources to generate scores for data input into the recommendation process Most analysis done by enterprises occurs infrequently (for example, monthly, quarterly or seasonally). Most enterprises have at least one initiative under way to analyze more frequently. However, in most cases, the costs of moving toward real time are significant and the benefits don’t necessarily scale. Therefore, enterprises need to determine the appropriate level of real-time analysis, depending on the specific type of analysis being done and the context within which results will be used (see Figure 17-2). Action Item: Identify the level of real-time analysis that makes sense based on how quickly the data ages (that is, becomes too old to offer significant value).
• Real-time offering — applying a predefined offer (which may have been defined in a channel-independent format) to the customer interaction in real time
Figure 17-2: Determining The Need for Real-Time Analytics Monthly
Weekly
Daily
Immediate
Lifetime Value Market Basket Channel Preference Current Profitability Event Detection Product Preference Financial Risk Churn Risk
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
253
Reaping Business Rewards From CRM
17.2.4 Two Case Studies in Determining the Right Time for an Offer
of any real-time analytic deployment. However, successful implementation will be an organizational and technical challenge for most enterprises.
17.2.4.1 National Australia Bank’s EventDriven Lead Generation
Given its strong position as the largest cellular provider in the Canadian market, Bell Mobility recognized that maintenance and development of its relationship with its customer base are critical to its success.
National Australia Bank is one of Australia’s largest financial services providers, with about 7.8 million banking customers and more than 2.8 million wealth management customers. National has been extremely successful in using integrated, event-based lead generation to increase wallet share, bank deposits and profitability. For more than 15 years, an integrated approach has underpinned National’s relationship-marketing ethos. National’s CRM and database-marketing capabilities (it has a development partnership with Teradata) have helped provide an understanding of customer needs to better advise and deliver appropriate solutions. National generated more than 1 million targeted customer contacts in its last fiscal year and increased wallet share among key customer segments. From October 2002 to August 2003, its integrated database-marketing effort helped yield A$9.5 billion in deposits and loans. At the heart of National’s CRM process is National Leads, an engine that identifies and generates leads based on significant reactive changes and events in a customer’s transaction pattern. National also uses advanced analytics to recognize each customer’s propensity to buy a product and respond to an offer, as well as identify customers who may be switching to competitors or need proactive service. The National Leads engine prioritizes events and alerts the relevant relationship manager on a daily basis so that National takes quick and appropriate action. National Leads also serves as a communications gatekeeper, managing the frequency, content and channels used for customer interactions during marketing campaigns.
17.2.4.2 How Bell Mobility Leverages Inbound Interactions and Real-Time Analytics
The customer profile and usage data it has on its customers and the channel interactions it has with its customers gave Bell Mobility the opportunity to offer targeted offers to increase customer value and satisfaction. Working with KPMG, Bell Mobility created an operational data store housing profiles on 3.5 million customers extracted from the company’s marketing data mart. The system to manage the offer selection process was designed according to three principles: • Making the right offer to the customer — Each customer is evaluated against more than 40 different recommendations. Initial offers were arbitrated randomly; then E.piphany Real-Time Miner began to “learn” and adjust its offer model based on 90 customer attributes. • Easing the workload of creating and maintaining offers — Creation of a consolidated system reduced the time to market for new offers. • Ensuring minimal time delay in selecting the right offer for real-time delivery — To generate and present recommendations automatically, Bell Mobility integrated its computer-telephony integration application with E.piphany’s Real Time Platform. The time between customer identification and offer matching takes two seconds or less. Average lift per offer increased 18 percent. Representatives’ sales per hour increased by 50 percent.
17.3
Advanced Generations of Relationship Marketing
Key Issue: How will the “right offer” and “right relationship” generations of relationship marketing create business value?
Tactical Guideline: Strong collaboration between marketing and customer service is critical to the success
254
Gartner
Strategic Planning Series
The Evolution of Relationship Marketing
17.3.1 The Fourth Generation: The Right Offer Tactical Guideline: Reconciling enterprise and customer constraints will be increasingly critical functionality for providers of campaign management software.
– Budget for the campaign – Number of offers that can be made to a customer Growing sophistication for this generation incorporates concepts such as: • Likely future offers for different customers
The fourth generation of relationship marketing: • The level of detail in the constraints applied • Recognizes that all campaigns affect each other, and that the arbitration process therefore optimizes the campaign process • Seeks to resolve conflicts among different campaigns by identifying the optimal combination that will achieve specific enterprise objectives Campaigns are always in some degree of conflict with each other. At the very least, assigning funds to one campaign makes that money unavailable for others. Increasingly, enterprises are identifying other conflicts as well. The risk of oversaturating customers with messages has led to the implementation of contact constraints. At the same time, constraints in high-contact channels (such as field salespeople, branch agents or call center agents) limit the bandwidth of campaigns designed to run concurrently. To resolve these conflicts, enterprises are designing campaigns with a view toward enabling the customer’s preferences to act as the “tie breaker” between multiple competing offers that would benefit the enterprise. Given the number of customers, constraints, channels, products and messages that are part of the mix, this decision depends heavily on a combination of predictive modeling, cost-benefit assessments and optimization techniques.
• The number of constraints applied • The number of different combinations of offers and channels considered Action Items: • Consider how different campaigns interact with each other so that the enterprise can identify constraints for the optimization process. • Evaluate the potential benefits of taking the skills and technologies developed during the first four generations of relationship marketing, and deploying them across the enterprise.
17.3.1.1 Case Study: Scotiabank’s Offer Optimization Scotiabank, one of North America’s premier financial institutions and Canada’s most international bank, serves millions of customers in more than 50 countries. In Canada, the domestic banking division employs more than 23,000 people to serve 6 million customers through a national network of: • More than 1,100 branches • More than 2,100 proprietary ATMs
At a high level, optimization is a two-step process: • The first stage — removing the combinations of customers, channels and offers that shouldn’t be considered — deals with issues such as products the customer has already purchased and customer optouts. • The second stage applies the constraints that the enterprise wants to place on the optimization process, such as the: – Maximum or minimum number of offers to be made
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Four call centers • Telephone-, wireless- and Internet-banking capabilities Scotiabank plans using an integrated view of all its possible outbound campaigns to ensure the optimal result. Combining SAS data-mining tools with Unica’s campaign management software enables it to select the best combination of offers for customers. Customer value determines which channels Scotiabank uses in its campaigns. Future phases of the project will make the channel choice more dynamic and add e-mail as a channel for offer distribution.
255
Reaping Business Rewards From CRM
Scotiabank has been extremely successful in overcoming the organizational and analytical obstacles to reconciling the conflicts and constraints among multiple campaigns. With its solution, Scotiabank has saved CDN$3.5 million annually, and its response rates have increased to between 9 percent and 25 percent.
17.3.2 The Fifth Generation: The Right Relationship Strategic Planning Assumption: Robust functionality for continuous management of the right customer relationship won’t emerge before the end of 2005 (0.9 probability). Lifetime dialogues with customers will become more important as enterprises increasingly rely on long-lived scenarios to manage their customer interactions. The decision about which scenarios should have priority over others, and which can coexist, will change as the customer qualifies for (or engages in) multiple scenarios. The relative priorities of these scenarios will change according to the changing needs of the enterprise and the nature of the customer relationship — based on a variety of metrics, such as: • Customer value • Loyalty • The maturity of the relationship • The customer’s stage in the customer life cycle Lifetime management tools are similar to the real-time business prioritization component of real-time analytics. Although most vendors are developing scenario management functionality, few have outlined a distinctive lifetime management solution, which must represent more than just a superset of scenario managers. Lifetime management tools need business strategy, analytics and process integration capabilities — all of which make them complex to develop. Given the current lack of vendor focus on lifetime management tools, enterprises shouldn’t expect offerings from vendors before the end of 2005.
256
Gartner
17.4
Relationship-Marketing Vendors
Key Issue: Which vendors can best support the different generations of relationship marketing?
17.4.1 Gartner’s MarketScope on Relationship Marketing The outlook for investment in relationship-marketing technology is positive. Investments continue but they often are incremental as enterprises integrate this capability into established systems. Certain industries — especially in highvolume business-to-consumer environments — are aggressive and increasingly mature investors in relationship-marketing technology. However, investments in other industries remain opportunistic. Few of the solutions from large, global vendors have matured enough for relationship marketing to represent a strategic investment for all enterprises. The relationship-marketing vendor market is maturing, with the majority of the early vendors acquired by later, larger market entrants. The vendors in this market fall into five categories of similar value propositions: • Relationship-marketing vendors (such as AIMS Software and DoubleClick) specifically focus on the definition and execution of customer communications. Although they typically offer other benefits, such as customer data integration or specific types of domain expertise, their products or services link closely to best practices in relationship marketing. • Marketing suite vendors (including Aprimo and Unica) offer a broad solution targeted at the marketing organization. Relationship marketing is one set of offerings in their portfolio. However, other capabilities, such as MRM, may offer further ROI opportunities. • Analytic suite vendors (which include SAS Institute, SPSS and Teradata) offer solutions built on a strong foundation of data analysis. The creation of customer insights in a broad analytical environment drives the definition of appropriate treatment strategies. With the exception of some Web capabilities (such as e-mail or Web site personalization), these vendors don’t provide functionality to enable CRM channels; instead, they work with organizations’ established channel investments.
Strategic Planning Series
The Evolution of Relationship Marketing
• CRM suite vendors (such as Chordiant Software, E.piphany and Siebel Systems) offer a mix of campaign management and operational channel systems. Some analytic capabilities are often available. However, the amount varies, depending on the origins of the vendor. • Enterprise suite vendors (including Amdocs, Oracle, PeopleSoft and SAP) base their value propositions on the mix of front- and back-office capabilities they offer. They usually emphasize a more-complete view of customer data, particularly from the billing system. Figure 17-3 shows vendor ratings — grouped according to the above-mentioned categories — from Gartner’s 1Q04 Customer Relationship Marketing MarketScope. (For information on the MarketScope rating categories, see Section 1.1.4.) Since different constituencies within an organization (such as business users in marketing, business analysts and IT strategists) view relationship marketing in different ways, enterprises often reach a final shortlist of vendors from several different categories. At this point, the selection of the application depends on the role that relationship marketing will play, rather than a functional comparison
that pits one vendor’s product against another’s. Enterprises that rule out a particular vendor should consider whether the concern was with the vendor or the solution, or whether it was an inappropriate value proposition. Although relationship marketing is a single market, vendors approach it from several different perspectives. As this market continues to grow and vendor offerings mature, most vendors in the market are poised to improve their ratings, rather than struggle to maintain their current ones. Enterprise suite vendors will likely increase market share and presence as their customer bases’ interest grows. However, enterprise suite vendors should still be evaluated with caution. Most other categories have a best-incategory vendor, although none of these vendors is so strong that customers that find its category appealing should fail to consider the alternatives. Gartner’s conclusions concerning relationship marketing vendors include the following: • Enterprises seeking best-of-breed functionality should consider E.piphany or Unica.
Figure 17-3: Rating and Categorizing Vendors of Relationship Marketing Technology
Rating for CRO Capability Strong Negative Relationship Marketing Vendors
Caution
Promising
AIMS
Doubleclick
Marketing Suites
Aprimo
Analytic Suites
SPSS
CRM Suites
Chordiant Siebel
Enterprise Suites
Amdocs Oracle Peoplesoft SAP
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Positive
Strong Positive
Unica SAS Institute
Teradata E.piphany
As of February 2004
CRM CRO
customer relationship management customer relationship optimization
257
Reaping Business Rewards From CRM
• Teradata has best-of-breed functionality for enterprises willing to operate within a Teradata environment. • Although DoubleClick and SAS Institute have the potential to become market leaders, they aren’t appropriate for all enterprises. • Offerings from Oracle, PeopleSoft, SAP and Siebel Systems should be considered by enterprises that are already customers of these vendors.
Furthermore, vendor support for certain generations often is limited to a particular aspect of that generation, rather than all the necessary components. For example, for the third generation, Teradata is stronger at the event-triggered approach, while E.piphany is stronger for next-best-offer and real-time analytics. Action Item: Consider how sophisticated the enterprise’s requirements are likely to be within each generation of relationship marketing.
• AIMS Software or Chordiant Software may be the mostappropriate choice for European enterprises.
17.5 17.4.2 Vendor Functionality Supporting the Five Generations of Relationship Marketing Tactical Guideline: Enterprises should base vendor selection decisions on how quickly they expect to evolve through the five generations of relationship marketing. The main vendors in the market — as well as some others — often claim they can support all the different generations of relationship marketing. In reality, most leading vendors offer functionality that supports some aspects of most of the generations. However, no vendor will offer best-ofbreed products for more than one or two of the generations (see Figure 17-4).
Conclusions
• Moving from one generation of relationship marketing to the next requires more than a set of new applications or technologies — it requires a significant shift in the way the marketing organization defines its role and the meaning of relationship marketing. • Each generation has a range of sophistication inherent to its performance. Diminishing returns with growing the sophistication of an enterprise’s activity may drive marketing organizations to the next generation without “full” adoption of the current one. • Although many vendors offer components that support each generation, significant differences exist among their abilities to support sophisticated approaches to each generation.
Figure 17-4: Relationship Marketing Vendors Mature With the Market Right Customer
Right Channel
Right Time
Right Offer
Right Relationship
Elity, Ingeneo
Fair Isaac
?
DoubleClick E.piphany SAS Institute Teradata Unica Stand-Alone or Complements
Service Bureaus Data-Mining Engines
Best of Breed
Source: Gartner
258
Gartner
Robust
Capable
Usable
None
As of January 2004
Strategic Planning Series
Using E-Marketing to Build Online Relationships
18.0 Using E-Marketing to Build Online Relationships
A
s the Web evolved from an interesting curiosity to a business necessity, enterprises found that they had to deal with what would make them successful online — and what wouldn’t. Many enterprises hesitated to make the needed investments in their Web sites, fearing that they wouldn’t be able to achieve the results they expected. In most cases, these fears were unfounded. Many Web site failures occurred because enterprises viewed the Web as a medium that’s different from other media. As a result, they made mistakes that they never would have made with traditional media. Because they viewed the Web differently, enterprises treated it as a separate entity, with little attention paid to integrating the Web with other channel activity. Rather than focusing on a single channel as a solution to the overall buying process, enterprises must evaluate each step of the buying process against its available consumer channels, and maximize the effectiveness of delivering each step at the most appropriate channels. To improve customer interactions in all channels, enterprises must leverage the interaction and informationgathering efficiencies that e-channels offer. The following Key Issues frame the analysis in this chapter: • How can enterprises develop e-marketing strategies to move from mass marketing to relevant customer dialogues? • How will vendors evolve to deliver solutions that incorporate e-marketing and sell-side ecommerce as part of a multichannel offering?
18.1
Creating Effective E-Marketing Strategies
Key Issue: How can enterprises develop e-marketing strategies to move from mass marketing to relevant customer dialogues? Many enterprises looking at e-marketing initiatives focus on the operational side of e-marketing, or the processes involved in distributing, tracking and reporting a campaign’s execution. However, many enterprises struggle with what message to communicate — something that tracking and reporting don’t provide. The real value of e-marketing will come from relationship building, and
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
259
Reaping Business Rewards From CRM
from a focus on functionality such as segmentation, customer analysis and personalization (see Figure 18-1). Enterprises that focus heavily on execution and reporting want short-term, low-cost communication channels. Savvy enterprises will begin to look beyond the operational side of e-marketing and start seeking opportunities to develop more long-term relationships. Action Item: Shift the enterprise’s e-marketing focus from operational functionality to customer-relevant functionality.
18.1.1 Popularity Will Be E-Mail Marketing’s Demise Strategic Planning Assumptions: • By the end of 2004, more than 80 percent of enterprises engaged in direct marketing will conduct at least one e-mail marketing campaign (0.8 probability).
• By 2005, Internet service providers, content managers and software will “blacklist” 80 percent of permissionbased e-mail marketing campaigns (0.7 probability). • Through 2006, the majority of enterprises executing email marketing campaigns will achieve no customer value (0.8 probability). E-mail marketing — the practice by which an enterprise uses outbound e-mail to communicate its message to customers — represents an important component of emarketing. Used properly, e-mail provides a real-time data collection entry point and communication tool between the marketer and the customer. Research shows that response rates on e-mail campaigns significantly exceed those for traditional direct mail and online advertisements — 15 percent or more for well-crafted, permission-based e-mail, compared to less than 1 percent for banner ads. Used improperly, e-mail represents nothing more than spam, alienating those who receive it. Marketers must have a good idea that the content will appeal to the
Figure 18-1: Enterprise Priorities in E-Marketing Capabilities Will Change E-Marketing Focus Today Workflow Management
Integration 6
E-Marketing Focus Tomorrow
Personalization 4
2 Execution Management
0
Response Management
CustomerCentric Analysis
Segmentation
Reporting Source: Gartner
260
Gartner
Strategic Planning Series
Using E-Marketing to Build Online Relationships
recipients, and provide recipients with a way to opt out of receiving e-mail that doesn’t appeal to them. Marketers that send unsolicited mass e-mail still don’t understand the basics of building customer relationships. Action Item: Within the context of a customer relationship management (CRM) strategy, use information from a variety of sources to add context and personalization to e-mail messages to make them more relevant — and, therefore, more appealing — to the targeted audience.
18.1.2 Move From Mass E-Marketing to Relevant Loyalty Building Many enterprises share the goal of creating loyal customers. E-marketing can represent one tool that facilitates loyalty. The steps leading to customer loyalty involve business basics — such as providing and promising an item that a customer needs, and then delivering it (for example, an airline promising to take a customer from point A to point B, and then getting the customer there safely and on time).
As one moves up the loyalty hierarchy and heads toward true loyalty, the positive customer experiences lead to continued relationships (see Figure 18-2). Therefore, an enterprise must begin to develop a mutually beneficial relationship with its customers through data collection and communication. The point at which the enterprise enables the flow of valuable information between customer and enterprise represents the “sweet spot” for e-marketing. At this point, an enterprise can transform e-marketing from an awareness tool to a relationship-building tool, enabling it to become more in tune with its customers and anticipate customer needs.
18.1.3 Leverage Online Data for Offline Channels The Internet has become a key medium for enabling marketing. E-channels are developing into a powerful means by which to provide service to, and gather knowledge about, customers and prospects.
Figure 18-2: The Loyalty Hierarchy of Needs
Loyalty Hierarchy of Needs
Be attuned to my evolving needs Be in tune with my needs
E-Marketing “Sweet Spot”
Make it easier to satisfy my needs Entice me — get to know me Satisfy my needs
Relationship Building Data collecting ! Understanding ! Alignment ! Communicating ! Optimizing !
Promise me something that I need
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
261
Reaping Business Rewards From CRM
In a slow economy, budgets remain restricted. Tight finances increase the need for: • Good data about profitable customers and potential leads
18.1.4 E-Marketing Drives Sales to Physical Stores
• The use of e-channels to obtain efficiencies while driving customer loyalty and satisfaction
Tactical Guideline: E-marketing value transcends the echannel. Retailers are beginning to understand the effects of e-marketing in relation to other significant channels, such as the physical store.
As a result, now more than ever, enterprises need to leverage e-channel initiatives to bolster their offline channels and enhance their CRM strategies. Although many enterprises have focused on the transactional aspects of e-commerce, the greatest opportunity to leverage echannel interactions lies in developing and maintaining customer relationships.
A recent report from eMarketer provides strong evidence that e-marketing influences the use of other channels (see Figure 18-3). The report based its findings on at-home and at-work Internet use. Based on the collection of online and in-store or catalog traffic of U.S. retailers in 2002, the report’s statistics indicate that, compared to the average Internet user, customers who visit:
Action Item: Use e-channels to:
• The Coach Web site are 27 times more likely to go to a Coach store
• Make customer interactions more efficient • Gather customer data to develop richer customer profiles, which can be used to promote intimacy in customer interactions
• NeimanMarcus.com are 18 times more likely to visit a Neiman Marcus store • J.Crew’s and Bloomingdale’s Web sites are 10 times more likely to visit these brick-and-mortar stores
Figure 18-3: Top 10 Retail Web Sites Integrating Online and In-Store Traffic 1. Coach*
27*
2. Neiman Marcus
18
3. J.Crew
10 10
4. Bloomingdale’s 5. Williams-Sonoma
9
6. Pottery Barn
8
7. Nordstrom
5 5
8. Eddie Bauer 9. Macys.com 10. Victoria’s Secret
4 4
* Coach site visitors are 27 times more likely than average Internet users to visit a Coach store.
Source: Gartner
262
Gartner
Strategic Planning Series
Using E-Marketing to Build Online Relationships
Throughout 2001 and 2002, while many other industries significantly reduced their IT budgets, the retail industry maintained its spending on IT. In a recent Gartner Consulting study, 45 percent of respondents said that their enterprises’ Web sites were a priority. Point-of-sale systems, database systems and in-store technology devices were listed as priorities among 39 percent of the retailers surveyed.
18.1.5 Value Framework for E-Marketing and Sell-Side E-Commerce E-marketing collaborative processes and technologies must support customer interactions through all channels, including the Web. As an enterprise creates its Web site, it should view it in the context of its overall CRM plan. To assist in planning and benchmarking progress, an enterprise should use the following five-stage generational model (see Figure 18-4):
• Generation 1: Brochureware — This type of site establishes a basic Web presence that builds brand awareness but permits no transactions. • Generation 2: Transactions — Stand-alone interactive sites give customers the ability to conduct transactions, but they are separated from the enterprise, don’t share resources and are disconnected from other channels. • Generation 3: Online relationships — This type of Web presence aims to retain or extend customers by building relationships that benefit both the enterprise and the customer. • Generation 4: Multichannel — This type of site aims to optimize channels (including the Web) throughout the enterprise. • Generation 5: Multicompany — This generation focuses on collaboration among the enterprise, its partners and its suppliers.
Figure 18-4: Value Framework for E-Marketing and Sell-Side E-Commerce
First – None
Vision
Second – Initial Productivity
Third – Function/ Channel Effectiveness
Fourth – Intraenterprise Integration
Fifth – Value-Enabled Network
Multichannel
Multicompany
Brochureware
Transactions
Online Relationship
Strategy
Web presence with basic features for marketing, information, brochures, FAQ ...
Stand-alone site as unintegrated business silo with additional features, ability to purchase
Using the e-channel to establish/ improve relationship, two-way communication
E-marketing is fully integrated with CRM, increasing customer traffic and retention value
Marketing to customers’ customers, optimized marketing mix, demand creation in value network
Technology
Web publishing
E-commerce, clickstream analysis, order confirmation, limited personalization, outbound email, ad servers
Campaign management, customer analytics, online dialogue, loyalty schemes, e-mail marketing
Channel optimization, campaign optimization, multichannel customer database, loyalty management and “clienteling”
Real-time e-marketing, collaborative e-marketing, demand-chain e-commerce, device marketing, customer info sharing
Type B 2004
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Type B 2007
Type A 2004
CRM FAQ
Type A 2007
customer relationship management frequently asked questions
263
Reaping Business Rewards From CRM
18.1.6 Case Study: Finish Line E-Marketing Power Finish Line is an athletic retailer that specializes in brandname footwear, apparel and accessories. The company began operations in 1976 and now has more than 500 stores. Finish Line’s next-generation e-commerce CRM program demonstrates that retailers can implement multichannel programs, and integrate online and offline merchandising, marketing, sales and support programs. Finish Line developed an approach based on meeting quantifiable business needs, and it continuously analyzes results to improve performance.
18.1.6.1 Problem Although Finish Line’s original venture into online sales went live in 1999, it offered little functionality, which severely limited the online capabilities that Finish Line could offer to its customers. Problems included: • Competitors were implementing more-aggressive online strategies. • The addition of new features was expensive and timeconsuming. • The instability of the platform and its inability to scale resulted in lost sales opportunities. • The Web site offered limited ability to personalize online interactions, and no ability to integrate online and offline sales. Finish Line recognized the opportunity to increase revenue and improve the customer experience by re-architecting its Web site to better support multichannel retailing.
18.1.6.2 Objectives Finish Line identified several goals for its new online initiative. They included: • Create a new Web site to increase online and offline revenue • Integrate online and offline channels to support multichannel marketing, sales and service
264
Gartner
• Implement cross-channel loyalty programs to drive incremental sales • Develop a single view of the customer by creating common profiles across online and offline channels • Simplify customer interactions by enabling customers to communicate with Finish Line through the most convenient channel • Implement automated business process scenarios that would support targeted cross-selling and up-selling opportunities • Develop a standards-based, multitier online infrastructure that could scale to support more customers and transactions • Capture measurable data on online and offline customer interactions to continuously improve merchandising, marketing and sales efforts
18.1.6.3 Approach Finish Line revisited its initial Web site architecture, as well as its approach to its online presence, and decided to build the new Web site on a standards-based architecture — one that could: • Deliver the reliability and scalability needed to support future growth • Enable increased use of personalization to create an integrated customer experience across online and offline channels • Drive increased online and offline sales • Integrate closely with its brick-and-mortar retail chain It also decided to define a prioritized list of desired online features, and to accelerate the launch of its new Web site to occur in time to support the holiday shopping season. Finish Line also determined that is would need to select an e-commerce CRM vendor that offered scalable software solutions with advanced personalization capabilities. E-Commerce CRM Strategy: Finish Line determined that it needed one integrated customer profile. Its IT staff worked closely with senior management to carefully identify requirements, and ultimately selected Art Technology Group’s ATG Commerce and ATG Portal as its software solutions.
Strategic Planning Series
Using E-Marketing to Build Online Relationships
Finish Line wanted to focus management resources on selling products online and successfully managing an online profit-and-loss center, instead of just managing a Web site. Senior management defined metrics for measuring success. Online requirements were prioritized to ensure that the target launch date could be achieved, and that the most-critical features would be available as soon as possible. Customer Experience: Finish Line wanted to carry the same look and feel of its retail locations onto its new Web site. Thus, www.finishline.com carries 100 percent of the inventory that’s available in the company’s retail stores, and customers visiting the Web site see the same images and graphics that they see in a retail location. Cross-channel marketing, sales and support are important to the overall customer experience. For example, customers can purchase products online and return them at a Finish Line retail store. In addition, the company has integrated its “winners’ circle” loyalty program across channels. As part of this loyalty program, every $200 a spent with Finish Line — regardless of the channel used — entitles the customer to a $20 gift certificate, which the customer can use online or at a retail store. Each customer receives a unique number, which contains the customer’s purchasing history and profile information. Finish Line uses this information to create targeted e-mail and traditional direct-marketing campaigns to help drive sales. The Web site also provides inventory information. This capability lets a customer see if a specific retailer has the desired products in stock. The customer can then purchase online and pick up the purchase at that store. The ability to capture data on purchasing behaviors enables Finish Line to create and test integrated multichannel marketing and promotional programs. Organizational Collaboration: After the launch of the initial Web site, the company’s senior management saw that with a relatively minor investment, the site had almost achieved a profit in its first year. Senior management realized that with a more-robust architecture and increased personalization, the Web site could help drive online and offline sales. Planning sessions were held with the CEO and other top executives to develop the strategy. Retail sales managers
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
also were represented. This team established a strategy and developed an implementation timeline as well as metrics to measure success. Finish Line conducted outreach programs with retail channels so that field sales managers could understand the benefits that they’d receive from an enhanced ecommerce Web site. To encourage acceptance throughout the company, Finish Line executives drove this initiative. E-Commerce CRM Processes: A cross-departmental team evaluated business and technical requirements, as well as infrastructure demands and Web site requirements. Because marketing data from the original Web site was extremely limited, Finish Line developed internal metrics that it used to establish goals for the new site. Finish Line carefully evaluated potential software suppliers. It conducted visits to the headquarters of leading contenders to discuss product capabilities and corporate strategies. Fort Point Partners provided assistance with project management and integration, and helped establish policies and procedures. Realizing that change requests would require consideration throughout the development cycle, Finish Line wanted to maintain maximum flexibility. Information and Metrics: Finish Line’s senior management needed the Web site to provide measurable information on business performance and customer preferences. Among the metrics tracked are: • Revenue • Conversion rates • Gross margins • Order abandonment rates • Traffic volume • Number of daily transactions • Average number of items in a customer’s shopping cart • Number of daily shipping and handling sessions • Number of repeat sessions • Number of new sessions
265
Reaping Business Rewards From CRM
• Operational costs • A/B split testing of promotions
18.1.6.4 Results Finish Line launched its Web site in time for the holiday season. Today, the Web site is well on its way to profitability. The company has received the following benefits: • An online sales increase of 240 percent in 2002 • Conversion rate growth of nearly 100 percent • Significantly improved gross margins, derived from creating excitement for new products and limiting discounted merchandise for bargain shoppers • Lower shopping-cart abandonment rates • A Web-site traffic increase to over 700,000 page views per day, with no performance problems
18.2.1 The E-Commerce and E-Marketing Infusion During 2002, enterprises generally approached ecommerce as a way to save money. The best way they generally found to save money through the e-channel was to use it as a means of reducing staffing in customer service call centers. In most call centers, a substantial minority — or even a majority — of calls stem from questions such as determining the status of an order or whether a product is in stock. Therefore, enterprises look for the initial phases of their e-commerce projects to incorporate less-expensive ways to manage such routine interactions. Subsequent phases generally include two-way interaction, such as request-for-proposal submission, configuration and order placement. Only in the most-aggressive enterprises do initial e-commerce goals include multitier demand chain interactions. Few enterprises had installed e-commerce software in pursuit of strategies as of the fourth quarter of 2003.
• Consistent presentation of branding, inventory and promotions across online and offline channels
Action Item: Treat e-marketing as the foundation for more-complete e-commerce initiatives.
• Personalization of online and offline up-selling and crossselling promotions based on integrated customer-profile information
18.2.2 B2C Sell-Side E-Commerce Functionality
• Integration of online and offline customer loyalty programs to create targeted promotional opportunities and provide a complete view of customer buying behaviors • Requiring only one project manager and two developers to manage Web-site development, which no longer is outsourced • An in-place infrastructure that can support the integration of online and offline profiles, the measurement of multichannel retailing and the psychographic analysis of cross-channel buying behaviors
18.2
E-Marketing and Sell-Side E-Commerce Vendors and Offerings
Key Issue: How will vendors evolve to deliver solutions that incorporate e-marketing and sell-side e-commerce as part of a multichannel offering?
266
Gartner
Six components comprise the core of business-toconsumer (B2C) sell-side e-commerce functionality: • Catalog management — This component provides the ability to manage a catalog that originates from multiple repositories, is dynamic and includes customer-unique pricing and configurations. • Order management — This includes capturing, parsing and directing order information, exporting it into legacy systems, and communicating with those systems to send order status back to customers. • Interactive selling system — This component enables the enterprise to respond to customers richly, intelligently and without constant human interaction (although allowing for it, when required). • Legacy integration — Enterprises require up-to-date inventory and analytics because they make much of the information available to business partners for supply chain and partner relationship management.
Strategic Planning Series
Using E-Marketing to Build Online Relationships
• Commerce syndication — Manufacturing suppliers increasingly populate their interactive sales channels with product data and the underpinnings of other aspects of sell-side e-commerce. • E-commerce analytics — This provides the capability to measure and understand the circumstances that drive e-business, by discerning patterns from sales.
18.2.3 E-Marketing Functionality The functionality components required to support an emarketing effort are similar to those required for other marketing channels. They include: • Web campaign management — This is the traditional focus area for outbound marketing messages. The focus is the e-channel capabilities specifically, and there is significant overlap in the functionality requirements for e-mail marketing, customer analytics and Web analytics. • E-mail marketing — This is the practice of using outbound e-mail to make customers aware of an enterprise and the special promotions it is offering. Its effectiveness can be increased by combining segmentation, analytics and personalization techniques with e-mail offerings. • Web Analytics — These components use a variety of data and sources to evaluate Web site performance and visitor experiences, potentially including usage levels and patterns at an individual and an aggregate level. • Customer Analytics — Whereas Web analytics are about site data, customer analytics use customer data collected from online activity (ideally, in conjunction with data from other channels) to derive a more-complete view of the customer. • Personalization — Technologies have focused on delivering Web content to a PC; however, they will be most valuable when delivering a consistent personalized message to multiple channels, including the Web. • Web content management — This includes the management of Web publishing workflow, and of dynamic content. • Advertising management/affinity marketing — This focuses on enabling enterprises to manage and deliver consistent branding messages, determine advertising
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
effectiveness, and develop strong partnerships with enterprises that enhance customers’ overall buying processes. • B2C sell-side e-commerce — This enables enterprises to execute transactions via an e-channel, and provides visibility into the channel.
18.2.4 Sell-Side E-Commerce MarketScope Strategic Planning Assumption: By 2007, packaged applications will lower total cost of ownership by as much as 40 percent, and provide needed flexibility for expanding to new lines of business and business processes (0.7 probability). The sell-side e-commerce market is mature. Although improvement is needed overall, the market now has few new entrants, low consolidation and infrequent vendor changes. The sell-side e-commerce market increasingly is moving from development tools built on platforms to applications that facilitate transactions. This transition brings tremendous functional improvement compared to the long deployment times and high maintenance costs that plagued earlier e-commerce projects. Because of the availability of packaged applications, enterprises are also beginning to combine sell-side ecommerce systems with CRM application components, such as e-marketing, partner relationship management or e-service. These combined building blocks will provide the foundation for best-in-class business-to-business (B2B) and B2C Web sites. Overall, the outlook for investments in sell-side ecommerce applications is promising because: • Enterprises finally are realizing benefits from ecommerce after a rather difficult growth period. • Large, financially stable vendors provide solutions for sell-side e-commerce. The following four criteria determined the vendor ratings in Gartner’s Sell-Side E-Commerce MarketScope (see Figure 18-5):
267
Reaping Business Rewards From CRM
Figure 18-5: Sell-Side E-Commerce MarketScope Strong Negative
Caution
Promising
Positive
Strong Positive
ATG Blue Martini Software BroadVision Click Commerce Comergent Haht Commerce IBM Oracle PeopleSoft SAP Siebel Systems
Source: Gartner
As of January 2004
• Financial viability and market commitment — The vendor’s ability to generate sustainable revenue and profits, and demonstrate commitment to success in sell-side e-commerce • Targeted delivery — The ability to implement and partner with external service providers to deliver sellside e-commerce solutions • Functionality and vision — Breadth, depth and vision for sell-side e-commerce functionality to support B2B and B2C commerce models • Application agility — Openness and flexibility of the application platform to integrate with external applications (such as enterprise resource planning and CRM suites) inside or outside an enterprise firewall Within the sell-side e-commerce market, enterprises will find common operational functionality for B2B and B2C models. Although some vendors specialize in either B2B or B2C, most vendors need to provide more differentiation between the two. Enterprises should evaluate how each vendor conforms to their own relationship models.
268
Gartner
18.2.5 E-Marketing MarketScope Strategic Planning Assumption: By the end of 2005, 30 percent of Fortune 1000 companies will increase their investments in e-marketing and e-commerce, and shift e-marketing projects to more revenue-producing activities (0.7 probability). At the beginning of 2003, Gartner predicted that by the end of 2004, e-marketing would consolidate into the broader market of multichannel marketing automation. Gartner has been seeing this trend reinforced in the actions of enterprises that: • Recognize the importance of embedding e-marketing within the rest of their marketing and CRM capabilities • Want to strengthen their relationships with their customers However, the weak economy and lingering memories of dot-com failures have stifled many e-marketing investments. Many Web sites have stagnated. Others
Strategic Planning Series
Using E-Marketing to Build Online Relationships
Figure 18-6: E-Marketing MarketScope Strong Negative
Caution
Promising
Positive
Strong Positive
ATG Blue Martini Software BroadVision DoubleClick E.piphany Oracle PeopleSoft SAP Siebel Systems Teradata Unica Vignette Source: Gartner
have concentrated on self-service to reduce costs, rather than using the Web as an interactive, two-way communication tool between enterprise and customer to generate new business. As enterprises reduce their costs, they can undertake more revenue-enhancing projects. The success of e-commerce will help fuel this shift. For example, the U.S. Department of Commerce estimated 2003 retail online sales at more than $55 billion. Amazon.com reported its busiest holiday season ever in 2003, during which time it set a single-day record with more than 2.1 million units ordered — or 24 items per second. In 2004, many enterprises will view the Web site as a fundamental channel for their business, and e-marketing as the revenue enhancement piece of their ongoing multichannel relationship strategy. In a recent CRM survey: • 91 percent of respondents cited e-marketing as a way to improve the effectiveness of their overall CRM project. • 71 percent of respondents cited e-marketing as a way to create sources of competitive advantage.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
As of January 2004
E-marketing projects endured significant cost cutting in 2003. Many enterprises reported making Web site investments to stabilize their Web sites or try to unload calls from their call centers. Because of tight budget restrictions for many enterprises in 2003, e-marketing initiatives focused more on one-off solutions, such as lowcost e-mail blasts. Now that the era of Internet hype and dot-com crashes has ended, and enterprises have improved efforts in other channels (such as in the call center, and in stores and branches) during the past two years, many enterprises are ready to focus on and rethink their online relationship strategies. As marketing budgets begin to increase, enterprises will focus again on the Web — particularly Web campaign management and personalization — to strengthen customer relationships and drive or influence sales. The following six criteria determined the vendor ratings in Gartner’s E-Marketing MarketScope (see Figure 18-6): • Functionality and vision — see Section 18.2.3
269
Reaping Business Rewards From CRM
• Financial viability — The vendor’s ability to generate sustainable revenue and profits, and demonstrate commitment to success in e-marketing • Research and development (R&D) management — Factors that contribute to the criteria for R&D management include: – A history of timely product completions – Comparison of R&D capabilities to those of other vendors – A history of human capital management • Industry expertise — The tailoring of the application to the needs of specific major industries, or the flexibility of the application to serve different industries • Technology implementation — The difficulty involved in implementing the technology, with considerations including: – The ease of implementation on server and client devices – What’s required to integrate with other third-party applications • Service and support — The ability of a vendor (as well as its associated IT partners) to help enterprises install and maintain the product throughout its life cycle Suite players have been slow to complete their e-marketing functionality. Enterprises with a strong commitment to emarketing should focus on E.piphany and best-of-breed players in their shortlists. Type B and Type C enterprises that need only basic e-marketing functionality may also consider suite vendors for their basic e-marketing needs.
18.2.6 What’s Next for E-Marketing and E-Commerce Vendors E-marketing and e-commerce vendors will have to address the challenges associated with the following major trends: • The market will continue to consolidate, with many base capabilities added to broader suites. • Remaining best-of-breed e-marketing and e-commerce vendors will be used for low-cost or highly specialized implementations. • An enterprise marketing management suite, which will include e-marketing and e-commerce components, will emerge. • Vendors will begin to enable nontechnical designers and ad agencies to add creativity and polish to emarketing, without major customization or manual processes.
18.3
Recommendations
• Implement e-marketing efforts as part of an overall CRM strategy. • Understand how e-marketing relates to other significant channels (such as the physical store), and recognize that its value transcends the e-channel. • Shift e-mail marketing efforts way from cost-efficient e-mail “blasting” and toward relevant relationship building. • Use e-channel efficiencies and data collection capabilities to improve interactions throughout the customer life cycle. • When considering the complexities of interaction through e-channels, focus on scenarios driven by customer preferences, rather than enterprise needs.
270
Gartner
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
19.0 How Technology Can Boost the CRM Sales Effort
A
s sales organizations return to revenue growth in 2004, they will reprioritize their resource allocations to take advantage of sales technology advances, such as broadband, application service provider (ASP) models and sales analytics. Gartner has formulated the following predictions for these key sales technology areas in 2004: • ASPs will assume their rightful place for sales automation. Through 2005, however, acquired software will remain the solution of choice for complex sales models that require integration and customization (0.8 probability). • Broadband access, which can have a dramatic effect on reducing the total cost of ownership for field sales technology, will supersede remote synchronization for sales force automation. Through 2004, 80 percent of direct salespeople will use broadband to connect and synchronize with enterprise applications and data stores (0.8 probability). • Sales analytics will gain greater focus in 2004. By 2006, 25 percent of sales organizations will achieve measurable benefit from sales reporting and analytics (0.7 probability). None of these capabilities, however, will be a guaranteed solution for increasing revenue. Sales organizations should avoid the hype of these new capabilities by putting them in the context of improving revenue-enhancing processes and reducing expenses through improved efficiency. This chapter addresses a number of key factors to help enterprises develop effective sales technology deployment strategies. First, it introduces a sales technology value framework, which links business objectives, applications, architectural considerations and vendor categories through a progression of five sales deployment “value states.” This framework enables sales organizations to place themselves along a continuum of sales technology deployment maturity to help determine the approach that best suits their organization. In addition, this chapter examines implementation best practices for each of the five sales deployment value states in our framework. It also analyzes how the vendor landscape for sales applications will evolve through 2009.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
271
Reaping Business Rewards From CRM
(see Figure 19-1). Each state in the value framework is independent. Therefore, a sales organization that wants to improve sales channel effectiveness will focus on the third state in the value framework.
The following Key Issues frame the analysis in this chapter: • How will business drivers and technology affect the role of sales organizations? • How can enterprises best prioritize and deploy sales technologies?
As enterprises move through the sales value states — from individual productivity to organizational effectiveness to enterprise collaboration:
• How will vendors of sales applications evolve to meet changing sales organization requirements?
• Return on investment (ROI) potential grows.
19.1
• Benefits come more from revenue increases than from cost reduction.
Business and Technology Factors Affecting Sales Organizations
• Implementations shift from tactical deployments that solve particular problems to intraenterprise or interenterprise strategic deployments.
Key Issue: How will business drivers and technology affect the role of sales organizations?
However, enterprises that try to leap across steps will fail.
19.1.1 The Sales Technology Value Framework
Action Item: Before developing migration plans for future strategies, determine the sales organization’s status in the sales value framework, and the costs associated with people, process and technology change management.
When evaluating their sales technology maturity, enterprises should use Gartner’s sales technology value framework
Figure 19-1: Sales Technology Value Framework
Vision
1st
2nd
3rd
4th
5th
None
Individual Productivity
Function/Channel Effectiveness
Intraenterprise Integration
Value Network Enabled
Strategy
!
“You’re on your own”
!
Reduce the administrative burden
!
Improve organization consistency and productivity
!
Optimize revenue opportunities across multiple customer touchpoints
!
Multilevel collaboration with customers, business partners and suppliers
Technology
!
Paper-based
!
Individualized administrative applications
!
Organizational sales applications
!
!
!
Office productivity tools
!
Advanced mobile infrastructure
Shared customer data model and processes across the enterprise
Shared customer data model and processes among customers, business partners and suppliers
!
Evolution to analyticalbased selling
!
Analytical framework spans customers, business partners and suppliers
Type C
2003
Type C
2007
Type B
Type A Type B
Type A
Source: Gartner
272
Gartner
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
19.1.2 Functions Within the Sales Technology Value Framework
First- and second-state systems focus exclusively on individual productivity. In the third state, organizational collaboration deepens the process dependency required for success because sales teams must work within a defined structure, using common terminology. Evolving a sales culture from individual to organizational behaviors is the biggest obstacle to third-state success.
Strategic Planning Assumption: Through 2005, more than 80 percent of enterprises will continue to deploy sales applications that improve channel efficiency (0.7 probability). Tactical Guideline: Given that most enterprises will focus their sales technology initiatives on driving channel efficiencies, leaders should focus on enabling effectiveness across all channels.
Only after that cultural transition can an enterprise move to the fourth state. The sales team can now fluidly access and share knowledge within sales and with counterparts in customer service and marketing, helping to create enterprise customer relationship management (CRM).
As functionality evolves across the sales technology value framework, its value increases by leveraging technology’s power to improve access to information — and to accelerate the rate of information exchange — across and beyond the enterprise. Functionality also becomes more complex and, consequently, more processdependent (see Figure 19-2).
Including customers, suppliers and partners in the fifth state fulfills CRM’s destiny. The challenge isn’t in implementing a technology. Rather, the test is selecting a CRM strategy that aligns with the skills and culture of the enterprise, and then choosing the applications that empower that strategy.
Figure 19-2: A Functional View of the Sales Technology Value Framework
Sales Functionality Managing Opportunities
! ! ! !
Sales Execution
! ! ! ! !
Typed forms Laminated cards Face-to-face training Personal organizers
!
Brochures Three-ring binders Sales meetings Demo bags Faxed orders
!
! !
! ! !
Sales Infrastructure
! !
Internal systems Paper reports
3rd Channel Effectiveness
2nd Individual Productivity
1st None
! !
Excel forms System access Low-end contact management
!
Word templates CD marketing content Excel price lists Web content
!
Territory alignment Map information
!
! ! ! ! !
! ! ! !
! ! ! !
Sales Platform
! ! ! !
3x5 cards Post-it notes File folders Binders
! ! ! ! !
Source: Gartner
Base PC Office applications E-mail Web access 28.8 connections
CD OMS
! ! !
OMS Accounts Contacts Opportunities Team sales PRM
!
Marketing encyclopedia Guided selling Config./price Propose Electronic order submittal
!
Territory mgmt. Ad hoc teaming Incentive compensation Quota mgmt. Sales analytics
!
Broadband Wireless Self-service
!
compact disc opportunity management system
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
4th Intraenterprise Integration
!
! ! ! !
!
! !
5th Value Network Enabled
Crossdepartmental opportunity management Marketing campaign management
!
Interenterprise opportunity management
Marketing encyclopedia Guided selling Config./price Propose Electronic order submittal
!
Distributed order management Shared commerce
Crossdepartmental customer data model Customer analytics
!
Broadband Wireless Self-service
!
PC PRM
!
!
Shared customer data model Dynamic workflow Distributed architecture
personal computer partner relationship management
273
Reaping Business Rewards From CRM
19.1.3 Technology’s Impact on the Sales Technology Value Framework Strategic Planning Assumption: By the end of 2006, 35 percent of Type A sales organizations will adopt Web services (0.6 probability). As sales organizations move from one state to the next in the sales technology value framework, the impact of technology varies substantially (see Figure 19-3). For example, mobile synchronization begins to have an impact in the second state because salespeople need to have contact information and price lists when they are not connected to the enterprise’s systems. However, because the information they need doesn’t change often, salespeople can synchronize infrequently.
When the sales organization moves to the third state, mobile synchronization has more of an impact because team selling and opportunity management require morefrequent synchronization. As a sales organization moves to the fourth and fifth states, interdepartmental and interenterprise collaboration become important. In these states, technologies that support sharing data, business processes and knowledge to multiple customer touchpoints — for example, Web services and application integration technologies — have a much higher impact. Action Item: To optimize ROI, adopt technologies that match the enterprise’s sales value strategy. Type A enterprises are investing in fourth-generation sales technologies to ensure that their sales forces reap the benefits of greater sales effectiveness.
Figure 19-3: Technology Impact Varies by State
Generation
1st
2nd
Web Services
None
None
Mobile/Broadband
None
Wireless
None
None
BPM/Workflow
None
None
Analytical Report
None
EAI Tools
None
E-Learning
None
Knowledge Management
None
None
Collaborative Tools
None
None
Portal
None
3rd
4th
5th
Key Technology Enablers
Impact:
Source: Gartner
274
Gartner
Low
None
Medium
High BPM EIA
business process management enterprise application integration
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
19.1.4 Case Studies in Four States of the Sales Technology Value Framework 19.1.4.1 A Second-State Case Study: Mitsubishi Digital Electronics America Mitsubishi Digital Electronics America, a wholly owned subsidiary of Mitsubishi Electric of Japan, offers high-end audio and video products. Mitsubishi had several service-related problems that it was trying to address in its distribution channel: • Controlling dealers’ sales practices was difficult. • Dealers provided slow feedback on out-the-door sales. • The product allocation process was hard to manage. • Dealers relied on account executives and customer service agents for all order- and service-related issues. • Expenses were escalating, while service levels were declining. Faced with these concerns, Mitsubishi created a dealer extranet by using partner relationship management (PRM) software from Click Commerce. The extranet offloaded to the Internet several tasks (such as order management) that were formerly performed by salespeople, but for which salesperson involvement did not add significant value. As a result, the extranet: • Reduced call center expenses due to a 10 percent to 40 percent reduction in calls • Increased the time that account executives spent selling • Provided instant service bulletins (which used to take time and money to print and send to dealers)
19.1.4.2 A Third-State Case Study: ViewSonic ViewSonic, a global manufacturer and distributor of visual display technology equipment, had three primary business problems it needed to solve: • Streamlining its manual order management process — Orders placed at ViewSonic’s electronic storefront on Yahoo triggered an e-mail message to ViewSonic; the company then re-entered the information from the e-mail message into its order management system. • Increasing sales — ViewSonic wanted to sell refurbished products (a growing part of its business) to resellers, and directly to consumers and businesses. • Reversing declining margins in ViewSonic’s accessory business — Dealers didn’t want to stock these items because of their lower retail price and small package size. ViewSonic implemented Oracle iStore to increase its ecommerce presence. ViewSonic achieved a tenfold growth in revenue from 2001 to 2002 as part of its sell-side ecommerce efforts. ViewSonic considers the revenue incremental because there was no way to effectively sell accessories and low-margin products without ecommerce. This experience also taught ViewSonic the value associated with: • Proactively managing potential channel conflict • Automating manual tasks Action Item: If your enterprise is a manufacturer, seek opportunities to leverage e-commerce to sell products directly to the customers that resellers have no desire to sell to.
The extranet also was integrated with Mitsubishi’s enterprise resource planning system, and helped Mitsubishi build momentum with its dealers and service centers.
19.1.4.3 A Fourth-State Case Study: Combining Market Insight With Sales Execution
Action Item: Identify tasks that salespeople now perform but to which their involvement adds little or no value, and migrate these processes to the Web in a self-service environment.
Pioneer Investments, which provides a wide selection of mutual funds, employs more than 600 associates in the United States, and works with 50,000 brokers and dealers. Pioneer’s CRM objectives were to:
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
275
Reaping Business Rewards From CRM
• Leverage real-time customer information at the point of contact • Grow market share by expanding its customer base and sales • Increase the number of active brokers • Add to the amount of business it did with its brokers • Consolidate the view of the customer Pioneer’s telesales group is critical to maintaining an ongoing dialogue with brokers and dealers. To improve its effectiveness, Pioneer implemented E.piphany Insight, Campaign Management and Sales. E.piphany provides Pioneer’s inside and outside representatives with a consistent, consolidated view of customer information. With this system, sales representatives can access relevant, timely customer information — such as current sales, demographic data, competitive product information, relationship history and marketing activity — which empowers them with valuable insight for their calls with brokers. Pioneer also uses its E.piphany products to identify the best targets for various campaigns, and to push the targets to the relevant telesales representatives’ call lists. This step has led to better-focused telesales activities and significantly higher sales. The system gives Pioneer insight into which campaigns and activities work well and generate sales, so that it doesn’t spend time on activities that don’t deliver results. Representatives also actively use the system, and are asking for more capabilities.
19.1.4.4 A Fifth-State Case Study: Selling in a Value Network The Agfa-Gevaert Group, one of the leading imaging companies in the healthcare industry, has more than $5.2 billion in annual revenue. Agfa Healthcare needed to build an infrastructure to receive customer orders originating from medical supplies Internet marketplaces — notably Global Healthcare Exchange (GHX) — and to fulfill the orders with its many Agfa distribution partners. With Comergent Technologies, Agfa built an e-commerce infrastructure that provides visibility into the customer’s shopping experience while collaborating with — rather than
276
Gartner
competing with — its channel partners and GHX. Although the solution automates the selling process, it doesn’t require end customers to modify their established procurement processes. This aspect is critical to Agfa’s efforts to increase customer adoption. Agfa’s end customers include hospitals, medical clinics and group purchasing organizations (that is, groups of hospitals that have formed purchasing alliances). Agfa’s benefits from this solution include: • Receiving orders originating from Internet marketplaces • Lowering the quantity of costly order errors • Improving account reconciliation between Agfa and its buying groups, dealers and other channel partners • Gaining direct, real-time visibility into customer sales and order processes, behavior and preferences
19.2
Making the Right Decisions About Sales Technologies
Key Issue: How will enterprises prioritize and deploy sales technologies? Enterprises have many choices when selecting which sales applications to deploy. Figure 19-4 plots more than 30 sales applications — from simple contact managers to robust CRM suites — along two axes: • Ease of technology implementation — which includes deployment requirements related to architecture, customization and configurability • Ease of organizational implementation — which includes deployment requirements related to sales process changes, customer process changes and enduser acceptance These applications also were rated as “hot,” “warm,” “cool” or “cold” in terms of their adoption rates — that is, which sales applications Gartner clients are implementing. Hotand warm-rated sales applications are being asked about, purchased or implemented by Gartner clients. Cool or cold ratings usually result from many enterprises having already deployed these sales applications. Not all applications fit all enterprises. For example, although wireless applications for field sales and speech recognition
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
Figure 19-4: Most Sales Applications Are Difficult to Implement ISS for Face-to-Face Sales Portals
Difficult SCS Integrated w/ERP
Incentive Compensation Integrated With OMS
SCS for Inside Sales Wireless Applications for Field Sales
Speech Recognition Electronic Commerce Sales Analysis Sales Content ISS for Management Inside Sales Forecasting/ Order Mgt. Promotions Pipeline Mgt. Management ISS for E-Commerce Sales Training Presentation Lead Generation Applications Builder OMS Apps.
Ease of Technology Implementation
Incentive Compensation Queue and List Management Funds Management
Contact Management
CRM Suites PRM Suites SCS for Field Sales SCS for Electronic Commerce PRM for Sales OMS With Sales Methodology
Inside Sales Management Applications Call Scripting Key: User Adoption
Proposal Generation Quote Generation
Hot
Account Management
Warm Cool Cold
Ease of Organizational Implementation
Easy
Source: Gartner
CRM ERP ISS OMS
customer relationship management enterprise resource planning interactive selling systems opportunity management systems
Difficult PRM ROI SCS
partner relationship management return on investment sales configuration systems
are relatively easy to implement and have a high return, they may not be suitable for many enterprises. Prioritization of needs should always precede the selection of applications.
The Hype Cycle for Sales Technologies shows a progression of responses to sales technologies and applications, from overenthusiasm to an understanding of the technology’s relevance to sales objectives (see Figure 19-5).
Similarly, looking at how a given application will strengthen relationships with customers will keep aggressive technology-adopting enterprises from pursuing technologies for their own sake, instead of considering technologies that can strengthen customer relationships.
It also provides snapshots of the positions of specific types of sales technologies and applications at specific points in time:
19.2.1 The Hype Cycle for Sales Technologies Tactical Guideline: Enterprises should use Gartner’s hype cycle as a tool to help gain a realistic understanding of the capabilities and benefits that technology can provide, given its maturity and the organization’s style of IT adoption.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• At the Technology Trigger, public demonstrations, product launches or other activities generate industry interest • At the Peak of Inflated Expectations, unrealistic projections and well-publicized activity by sales technology leaders result in some successes, but more failures, as deployments push the technology to its limits. • In the Trough of Disillusionment, the sales technology fails to satisfy overinflated expectations.
277
Reaping Business Rewards From CRM
Figure 19-5: Hype Cycle for Sales Technologies, 2004 Visibility ASPs Incentive Compensation
Sales Portals Wireless
Broadband
Order Management
Speech Recognition
Proposal Generation
SCS
OMS Content Management
Interactive Selling
Sales Analysis
As of January 2004
Type B
Type A Technology Trigger
Peak of Inflated Expectations
Trough of Disillusionment
Type C Slope of Enlightenment
Plateau of Productivity
Maturity
Source: Gartner
• The Slope of Enlightenment indicates the period during which increasingly diverse sales organizations gain a true understanding of the technology’s applicability, risks and benefits, and when commercial methodologies and tools become available to ease development. • At the Plateau of Productivity, the sales technology demonstrates real-world benefits that enterprises commonly accept. Tools and methodologies become increasingly stable as they enter their second and third generations. The final height of the plateau varies depending on whether the sales technology is broadly applicable or benefits only a niche market. Action Item: Before adopting a particular sales application or technology, carefully map the enterprise’s user type (A, B or C) to the relevant position on the Hype Cycle for Sales Technologies.
19.3
Sales Application Vendors
Key Issue: How will sales application vendors evolve to meet changing sales organization requirements?
278
Gartner
ASP OMS SCS
application service provider sales configuration systems sales configuration systems
Four primary vendor types serve the sales application market (see Figure 19-6): • Business application suites (for example, Oracle, PeopleSoft and SAP) • CRM suites (for example, Siebel Systems, Onyx Software and Pivotal) • Minisuites focused on a particular sales channel, such as PRM (for example, Comergent and Click Commerce) • Best-of-breed vendors for specific functional domains, such as sales configuration (for example, Selectica) or incentive compensation (for example, Centiv and Callidus Software) Larger suite vendors are providing “good-enough” functionality for more of the market than they did in years past. This capability is pushing smaller suite vendors — and eventually best-of-breed vendors — to move up the complexity curve to solve more-difficult user problems that require more functionality.
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
Unfortunately, as complexity increases, the market opportunity for these vendors decreases, which affects their long-term viability. Ultimately, suites will raise their functionality level high enough to force most best-of-breed vendors out of the market through acquisitions or mergers. Action Item: Before researching best-of-breed alternatives, investigate whether a suite vendor whose products the enterprise already uses (such as Oracle or Siebel) can provide enough functionality to meet the enterprise’s requirements.
19.3.1 Mapping Sales Vendors to the Sales Technology Value Framework Using the sales technology value framework, Gartner has assessed and ranked sales technology vendors based on: • Each vendor’s installed base for newer implementations and current capabilities • When the vendor’s installed base and capabilities will mirror other, more advanced states of the framework (see Figure 19-7)
Sales organizations are encouraged to evaluate any of the vendors shown in Figure 19-7, but they should recognize that selecting any vendor poses some degree of risk. In addition, readers are cautioned that a vendor’s absence from being listed in an advanced value state does not necessarily mean that the vendor won’t deliver advanced sales solutions. It may mean that the vendor: • Hasn’t yet disclosed a compelling vision or strategy for delivering advanced value • Is a component provider that partners with other vendors to deliver a total solution Action Item: Consider a vendor’s ability not only to meet the requirements of the sales organization’s current value state, but also to keep pace with the organization’s migration through the value framework.
19.3.2 Direct Sales Vendors Strategic Planning Assumption: Through 2005, Siebel will remain the functional leader for supporting sales complexity for direct sales organizations (0.7 probability— see Figure 19-8).
Figure 19-6: Suites Are Closing the Functionality Gap
! ! ! !
Sales Configuration Incentive Compensation Proposal Generation Content Management
Best of Breed !
Depth of Functionality
!
Sales suites
!
Sell-Side Commerce Direct Field Sales PRM ! !
CRM Suites
B2B and B2C Vertical !
ERP
Business Application Suites
Number of Customers With Need
Source: Gartner
B2B B2C
business to business business to consumer
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
ERP PRM
enterprise resource planning partner relationship management
279
Reaping Business Rewards From CRM
Figure 19-7: Mapping Vendor Capabilities to the Sales Technology Value Framework
2nd 2003 ! Act! ! Maximizer ! Goldmine ! Microsoft (desktop products) ! Factiva ! One Source ! E-learning vendors
3rd
4th
2003 Microsoft (CRM) ! MEI Group ! CAS ! StayInfront ! SalesNet ! Direct sales vendors ! SCS vendors ! ICM vendors ! MES vendors ! PRM vendors ! E-commerce vendors
2003 ! Oracle ! PeopleSoft ! Pivotal ! Siebel ! Onyx ! SAP ! E.piphany ! Amdocs ! ASPs (Salesforce.com, Netledger, Upshot)
!
5th 2003 Comergent* ! Click Commerce* !
2006 ! Siebel (0.7 probability) 2007 ! PeopleSoft (0.7 probability) ! SAP (0.7 probability) ! Oracle (0.7 probability)
2005 ! Microsoft (CRM; 0.7 probability)
* The vendor lacks some earlier-state capabilities, but it has a proven fifth state in 10 live references. ASP CRM ICM
Source: Gartner
application service provider customer relationship management incentive compensation management
Direct sales technology vendors differentiate themselves based on their ability to support the varying degrees of complexity required by sales organizations. Transactional selling uses a less complex solution of contact and opportunity management, supported by a hierarchical territory structure. Multitiered, multirole sales organizations (for example, inside lead qualification, inside sales, field sales, and major-account and global-account selling with overlay specialists) that must manage complex sales cycles demand greater levels of sophistication. An enterprise must consider broader CRM requirements or integration with an enterprise business application suite in its vendor evaluation and selection. Complexity can also increase due to: • Mobile requirements for disconnected use • Wireless access for handheld devices
As of year-end 2003
MES PRM SCS
marketing encyclopedia system partner relationship management sales configuration system
• Alignment with unique sales methodologies
19.3.3 PRM Vendors Strategic Planning Assumption: By 2006, Oracle and SAP will increase their PRM MarketScope ratings (0.7 probability — see Figure 19-9). PRM enables enterprises to manage and foster profitable partner relationships through the use of technology. Enterprises will find value in adopting a PRM strategy — to properly orchestrate their indirect partner relationships to compete effectively — if they: • Depend on partners to provide value-added services (such as distribution, vertical marketing and sales reach) • Provide localized operations and customer service and support
• Industry-specific needs
280
Gartner
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
Figure 19-8: Direct Sales MarketScope Strong Negative
Caution
Promising
Positive
Strong Positive
Amdocs E.piphany Microsoft Onyx Software Oracle PeopleSoft Pivotal Salesforce.com SalesLogix Salesnet SAP Saratoga Systems Siebel Systems As of January 2004
Source: Gartner
A key PRM market trend has emerged, where user organizations want to purchase from one vendor both transaction-based functionality (sell-side e-commerce) and relationship-based functionality (for example, partner life cycle management or sales effectiveness). Driving this trend is the desire to combine e-commerce’s cost savings with the revenue-enhancement capabilities of relationship-based capabilities (such as lead management and campaign management). Action Item: When evaluating PRM technology, consider the enterprise’s technology adoption type and the complexity of its requirements: • Type A enterprises with complex requirements should continue to evaluate best-of-breed suite vendors. • Type B enterprises with basic requirements (for example, lead management and single-partner-tier needs) should evaluate large-enterprise business application suite vendors, such as Oracle, PeopleSoft and SAP. • Type B and Type C enterprises with complex requirements should wait until 2005 or reduce their
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
requirements so larger business suite vendors can handle the requirements.
19.3.4 Sell-Side E-Commerce Vendors Strategic Planning Assumption: Through 2005, Click Commerce and Comergent will remain the most-proven vendors for distributed order management (0.7 probability). A sell-side e-commerce system primarily enables sales and electronic transactions with a customer or partner over the Internet. Although improvement is needed overall, the sell-side e-commerce market has reached maturity, characterized by: • Few new entrants • Low consolidation • Infrequent vendor changes This market is moving increasingly from development tools built on platforms to applications that facilitate transactions. This transition means tremendous improvement compared
281
Reaping Business Rewards From CRM
Figure 19-9: PRM MarketScope Strong Negative
Caution
Promising
Positive
Strong Positive
Azerity Blue Martini Software ChannelWave Click Commerce Comergent Technologies InfoNow Onyx Software Oracle PeopleSoft Pivotal SAP Siebel Systems As Of January 2004
Source: Gartner
with the long deployment times and high maintenance costs that plagued e-commerce projects a few years ago. Enterprises are starting to combine sell-side e-commerce systems with CRM application building blocks, such as emarketing, PRM or e-service. These building blocks will provide the foundation for best-in-class Web sites. For information on Gartner’s Sell-Side E-Commerce MarketScope, see Figure 18-5 and Section 18.2.4. Action Item: In the sell-side e-commerce market, evaluate how each vendor conforms to the enterprise’s relationship models. Enterprises will find common operational functionality for both business-to-business and business-to-consumer models.
19.3.5 The CRM Sales Suite Magic Quadrant Strategic Planning Assumption: Through 2005, Siebel will remain the best starting point for an integrated multichannel sales application suite requiring deep functionality (0.8 probability).
282
Gartner
The CRM Sales Suite Magic Quadrant (see Figure 19-10) is a vendor evaluation framework for use by enterprises that: • Want to purchase an integrated suite of sales applications for multiple selling channels (for example, direct, partner and e-commerce) • Are in the process of purchasing a CRM solution to support the entire customer life cycle This Magic Quadrant measures each vendor’s ability to support: • Direct sales • Partner sales • Sell-side e-commerce • Other sales applications, such as sales configuration, incentive compensation and sales analytics To be included in the Magic Quadrant, the vendor has to be in the Direct Sales MarketScope and either the PRM or Sell-Side E-Commerce MarketScope, and it must demonstrate the ability to be deployed in a multichannel selling environment.
Strategic Planning Series
How Technology Can Boost the CRM Sales Effort
Figure 19-10: CRM Sales Suites Vendor Magic Quadrant Challengers
Leaders
Siebel Systems
SAP
Ability to Execute
Oracle
PeopleSoft
Onyx Software
Pivotal
As of January 2004
Niche Players
Visionaries
Completeness of Vision Source: Gartner
Siebel continues to lead the CRM sales suite market through its strong vision and implementation track record for multichannel sales organizations. Oracle and SAP have closed many functionality gaps with Siebel since early 2002 — so much so that both vendors represent viable alternatives that belong on the shortlists of their business application customers. During 2004, as it continues to absorb the J.D. Edwards acquisition, PeopleSoft will deliver new functionality at a slower rate than it previously did. Pivotal and Onyx continue to be pushed to specific industries or midsize organizations.
Suite vendors that can configure their products to solve specific sales problems — such as quoting and proposal generation — will deliver the most value to enterprises in 2004.
Although sales organizations should continue to invest in CRM sales suites, they should avoid buying the entire suite upfront. That way, they don’t pay for functionality they won’t immediately use. Successful suite deployments will target specific problems, such as pricing, quoting, proposal generation or incentive compensation. The CRM Sales Suite Magic Quadrant is a tool that enterprises should use in conjunction with consultation with Gartner during the vendor selection process.
• Type A sales organizations should focus on improving effectiveness, which will help increase revenue; however, doing so will require a leap of faith for many enterprises.
Action Item: Move away from the all-at-once deployment model and focus instead on installing specific modules.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
19.4
Recommendations
• Type B sales organizations should focus on improving sales efficiency in a specific channel — many have achieved a good return on their technology investments by doing so.
• Forget the all-at-once CRM implementation; instead, reduce risk and potential problems by doing the job in stages. • Don’t wait for suite vendors — if they don’t have the functionality the enterprise requires, look elsewhere to meet business needs.
283
Achieving World-Class Customer Service
20.0 Achieving World-Class Customer Service
A
s brand loyalty erodes and markets slow, retaining profitable customers through customer service becomes more important. Separate Gartner surveys show that CIOs and business strategists in Europe and North America view customer intimacy and customer service excellence as top business priorities and key differentiating factors. To turn customer service into a key business process that creates sources of competitive advantage, enterprises need to: • Transform customer service from a departmental objective into an enterprise technology and process framework. • Build and maintain a set of formal customer metrics to demonstrate the impact of improvements to customer service processes. • Re-engineer customer processes, using customer input and collaboration. • Apply analytics throughout the customer life cycle and develop a mechanism to analyze the experiences of key customer groups. • Base the phases of a customer service framework on the key business value of the customer interactions. • Secure executive buy-in before attempting to redesign customer service processes that will extend beyond the department, and beyond the enterprise. The following Key Issues frame the analysis in this chapter: • How will business drivers and technology impact the role of customer service organizations? • How will customer service organizations continually evolve their processes and solutions to meet changing expectations? • What technologies, applications and service models will best support customer service strategies?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
285
Reaping Business Rewards From CRM
20.1
How Business and Technology Will Affect Customer Service
Key Issue: How will business drivers and technology impact the role of customer service organizations? Strategic Planning Assumption: By the end of 2008, nonintegrated customer service initiatives will double the costs of coordinated application selection, deployment and maintenance (0.7 probability). Tactical Guideline: Customer service managers must coordinate with IT planners to prioritize applications that the enterprise can leverage across multiple interaction channels. Customer service is moving from an isolated business function to an essential business process. During 2004, the key components of world-class customer service processes will begin to come together. Enterprises need to understand the implications of this change — as well as how it affects their service solutions — as the first step toward planning a migration to the new, centralized model. By 2007, no customer service organization will be exempt from the implications of this migration. Customer service will remain the litmus test of an enterprise’s customer commitment, and, by extension, a key indicator of the integrity of the enterprise. This in turn will allow customer service to affect customer loyalty significantly and become nearly as central a predictor of business success as product quality and cost.
20.1.1 Enhancing Revenue Through Customer Service Many service organizations considering technology implementations historically focused on reducing costs. Typical measures included eliminating redundant IT resources, and reducing talk time or agent staffing. However, in a recent survey of enterprises implementing customer relationship management (CRM) customer service and support (CSS) applications worldwide, the vast majority of respondents cited the key benefits from technology deployment as: • Improving service effectiveness • Creating sources of competitive advantage • Gaining service efficiency This response is particularly impressive when considering the categories of service effectiveness and creating sources of competitive advantage, both of which have been traditionally difficult to measure. The majority also stated that they achieved measurable return on investment (ROI). Within the three aforementioned categories, service organizations cited the following metrics as key contributors to ROI: • Self service • Higher use of agents • Better lead capture • Upselling
In addition, as enterprises recognize the need to streamline spending and produce more value from their IT investments, they will expect customer service organizations to start generating revenue — not just reduce costs. This will be especially true in manufacturing, where service revenue often represents the most-profitable business opportunity. Action Item: Customer service managers should discuss with colleagues in the IS organization and other lines of business ways to align customer-facing strategies and identify underlying technologies such changes would affect.
286
Gartner
For example, Verizon Wireless increased agent productivity and efficiency — as measured by average handling time — to save between $1.1 million and $1.6 million in a short time. Verizon Wireless redirected eight full-time positions to higher-value activities through improved productivity. Action Item: Enterprises shouldn’t dismiss revenue enhancement as a benefit that results from deploying service technology.
Strategic Planning Series
Achieving World-Class Customer Service
20.1.2 Better Understanding of CSS Strategies Enterprises have gained a more-mature understanding of the complexities and opportunities involved in the deployment of CSS strategies: • The CRM “hangover” that they woke up to in 2003 has made the new strategy in 2004 a measured, sober approach that values and considers people. Before deploying software, enterprises will pay more attention to CSS processes — as well as the human and cultural changes that need to occur before software deployment — to ensure that their CSS implementations are effective. • Gone are the days of the enterprisewide, all-at-once CSS implementation. • Enterprises are re-evaluating customer service metrics and incentive compensation. • Understanding of CSS has broadened from being simply a call center that’s separate from the rest of the enterprise, to a holistic enterprisewide notion of customer service that permeates multiple functions. • Having spent more time, effort and money than they believed possible on integrating technologies and processes, enterprises increasingly want customer service solutions that link easily with other enterprise systems. • CSS organizations increasingly want preconfigured vertical-industry processes — and some software vendors are starting to offer them.
20.1.3 Trends in CSS Spending Tactical Guideline: Through 2005, CSS applications that reduce costs and improve productivity will receive the highest level of investment approval.
Spending has shifted toward applications that deliver a quick ROI, such as case and claims management and workflow, as well as some incentive and compensation management and e-service. Typically, ROI expectations have dropped from between 12 months and 24 months to between six months and 18 months. Investment has also returned to traditional, proven must-have applications, such as order management. However, some enterprises are making more-strategic investments in applications for measuring customer profitability or linking CSS with customer analytics. This spending often results from CRM projects that failed to meet initial expectations. During 2004, the most-common investments across all industries will be call center consolidation, call center outsourcing, integration and order management. However, each industry tends to invest in a different pattern of CRM applications. Some of the most common areas, and the industries investing in them, are shown in Figure 20-1. The arrows indicate those areas that are increasing in investment focus vs. those that are remaining relatively constant. Action Item: Enterprises must be aware of how CSS application spending patterns are changing in their industries.
20.1.4 Re-engineering Customer Processes Enterprisewide Strategic Planning Assumption: By 2007, enterprises that employ business process modeling across customer touchpoints will achieve 30 percent greater return than those that fail to do so (0.7 probability). Most enterprises need to coordinate multiple customer service channels and processes, such as: • Field dispatchers and technicians
CRM application spending has pulled out of its decline, and shifted to a strong focus on CSS. Instead of high-cost CSS applications, such as product suites, spending now focuses on what can enhance productivity and reduce costs. In addition, many enterprises are delaying spending on applications that might require substantial process redesign or disrupt the smooth workings of a customer service team.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Dealer partners • Outsourced service centers • Localized operations • Customer support
287
Reaping Business Rewards From CRM
Figure 20-1: Changing Priorities for CSS Initiatives in 2004 Call center consolidation
! !
ICM, quotes and analytics !
Telecom
Insurance Government
Web self-service Call center outsourcing Case, problem, claims management
! Pharmaceuticals ! Business
services
! Discrete
manufacturing
Knowledge management Retail High-tech ! Capital equipment ! Banking !
Field service management
!
Process modeling Partner/channel management Intelligent device management !
Utilities
Speech recognition, chat
! !
CTI: self-serve/escalation to call
Retail Medical equipment
Workforce management E-mail response management system CTI ICM
Source: Gartner
To compete effectively, an enterprise needs to orchestrate these multiple customer touchpoints effectively. The Internet and business process modeling tools are powerful catalysts in helping enterprises capitalize on new ways of delivering and optimizing customer service. To re-engineer customer processes, enterprises need to: • Design processes collaboratively, using customer input. • Set goals for customer loyalty and satisfaction. • Prioritize based on how the changed processes will affect customer satisfaction. • Measure how changed processes contribute to customer value. • Implement process changes in front- and back-office functions. • Ensure each cross-functional process has an owner.
288
Gartner
computer/telephony integration incentive compensation management
• Implement process changes with partners and customers to maximize benefits for all. Establishing increasingly collaborative service processes will require enterprises to develop key capabilities, including: • Collaborative workspaces that foster communication and knowledge sharing among partners. • Business process and rules integration — within the enterprise, as well as between the enterprise and its partners — to deliver a complete customer experience. • Distributed administration, application, content and data deployment. • Improved customer visibility to enable better planning and effective service resource allocation. Action Item: Enterprises must map their key customer processes and then model them for consistency — from the customer perspective.
Strategic Planning Series
Achieving World-Class Customer Service
20.2
CSS Processes and Solutions Need to Shift
Key Issue: How will customer service organizations continually evolve their processes and solutions to meet changing expectations?
No enterprises surveyed by Gartner can perform activitybased accounting around the fully loaded cost of service. In some of the more-advanced early cases of the realtime enterprise, process management and change become so central to competitiveness that the organizational structure institutionalizes them.
Real-time customer service can be compared to a machine that must detect early and respond quickly. A sequence of awareness, decision and action takes place in most key areas. Real-time customer service is set on a course of continuously improving its performance in all three of these phases as a source of competitive advantage.
Traditionally, enterprises have implemented reporting tools to let them know what has happened (for example, the number of phone calls received, time to answer or call abandon rate). This ensures optimal efficiency but doesn’t guarantee business effectiveness, which can only result from:
The sophistication of business environment sensors continues to improve, providing faster access to data about handling times and profitability. Asset location changes can be tracked via Global Positioning System technology, and transaction data is captured in point-of-sale equipment. However, to gain real-time customer service benefits from these improvements, IT strategists must follow the entire end-to-end customer sequence. A weakness in any of the following areas will obstruct progress and reduce the value of service improvements: • Is this information gained from business environment sensors relayed, or is it localized and wasted? Are data flows filtered and analyzed or simply allowed to fill up enormous data stores? • Are key events picked out and rapidly reported to decision makers and processes? When key events are spotted, how are decision makers empowered with tools to assimilate information from the full range of sources? • Can earlier notification give decision makers more time to deliberate? What tools do they have to remodel and formulate, and what mechanisms do they have to communicate — and to activate the response?
20.2.1 The Role of Service Analytics Strategic Planning Assumption: Through 2008, 30 percent of projects to change customer service processes end-to-end will fail due to the lack of a single leader (0.7 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Evaluating quality and quantity • Analyzing data to determine whether customers were satisfied across all key interactions • Predicting how customers might be better served Enterprises achieve this by implementing service analytics. Analytical CRM is more difficult to implement and requires more time to realize those returns. Accurately predicting the ROI of service analytics is difficult. However, unlike operational CRM, the potential ROI of analytical CRM continues to grow over time. The analytical process enables enterprises to optimize relationships continually, which leads to continuing growth and profitability. Action Item: Enterprises should determine which metrics accurately measure customer service effectiveness, and what data the enterprise must collect and analyze to reach those metrics. Then, they must ensure that a strong and dedicated leader is charged with seeing to it that the processes gain a foothold.
20.2.2 The Customer Interaction Hub Strategic Planning Assumption: Through 2005, 10 percent of new and upgraded customer service implementations will use a customer interaction hub as their framework (0.7 probability). Enterprises must consider how customer interaction initiatives planned and under way in one part of the enterprise (for example, building a customer self-service
289
Reaping Business Rewards From CRM
knowledge database) affect customers interacting with another department or division. The enterprise must map the specific touchpoints that customers have (such as sales or service) and examine whether those touchpoints deliver a consistent customer experience.
This hub will allow the enterprise to identify the inquiry from the client, determine for the customer or employee the best method for answering, and access the necessary content, business rules and customer information to provide the expected solution in the shortest time frame. The information delivered to the agent will be personalized to the agent’s role and information needs.
Leading enterprises that want to gain competitive differentiation during the next five years will invest in building a customer interaction hub that enables the business to learn and meet or exceed customer expectations across all communication channels (see Figure 20-2).
Action Item: Enterprises should define the core value proposition of the call center before evaluating the technologies required for it to achieve maximum effectiveness.
The customer interaction hub is an integrated customer interaction framework that provides a real-time, thorough view of the customer across channels to all relevant customer-facing employees. This view includes a segmented, analytical evaluation of the specific customer, along with a determination of the level of service resources to apply to the customer based on the customer’s profile.
20.2.3 Monitoring and Improving Agent Performance Strategic Planning Assumption: By 2007, 70 percent of Type A enterprises will have adopted all components of workforce optimization to monitor and improve
Figure 20-2: The Customer Service Value Framework
State
First — None
Second — Initial Productivity and Visibility
Vision
Able to Answer
Responsive
Siloed channels, answer calls, basic customer service
Efficiency, systemized routing of calls to best agent
Strategy
Beginning of CRM “Plain old telephone service,” PBX, automatic call distribution, call queuing, fax
Technology
Skills-based routing, interactive voice response, common database, customer service applications “log and flog”
Call Handling
2004:
290
Gartner
Fourth — Intraenterprise Integration
Personalized
Proactive
Collaborative
Effectiveness, multichannel inquiries, coordinated customer service, customer input
Customer memory, create repeatable experiences, stronger intimacy, communities
CEM, dynamically anticipate and provide customer service in real time, internal/ external collaboration
QM, CTI, workflow management, scripting, voice tools, back/frontoffice integration, reporting, feedback
KM, blended centers, analytics, collaboration, BPM, e-learning, consolidated reporting, alerts/triggers
Decision support, advanced KM, IM, advanced collaboration, corporate performance management, predictive analytics
Call Center
Type C
Type B
2007:
Source: Gartner
Third — Functional Effectiveness
BPM CEM CTI ICM
Type C
Fifth — Value Network Collaboration
Customer Interaction Hub
Contact Center Type A Type B
business process management customer experience management computer-telephony integration incentive compensation management
Type A
IM KM PBX QM
instant messaging knowledge management private branch exchange quality management
Strategic Planning Series
Achieving World-Class Customer Service
performance of call center and contact center agents (0.8 probability). Interaction center managers rely heavily on traditional service-level metrics (for example, average handling time and first-call resolution close). In the future, these metrics will be joined in many instances by business metrics (for example, customers saved and upsold), quality-monitoring recordings, visual tools and analytics. Quality-monitoring recordings can be tagged (based on rules and word spotting) and shared, so that departments throughout the enterprise can know about, and act on, customer feedback. This will give managers a more complete picture of agent quality, and a rich set of visual tools with which to manage the call center and the agents.
Although decision-making tends to focus on packaged application purchases, they play a small part in the overall spending on CSS (even ignoring labor costs). Spending on packaged CRM applications constitutes less then 15 percent of the overall budget for the customer service agent desktop — and only 1 percent to 3 percent of the budget for a CSS organization. IT and business managers often spend an inordinate amount of time evaluating these applications, when they should be paying closer attention to personnel costs, telephony and the network infrastructure — areas in which spending is on the rise. Worldwide, Gartner expects spending on CSS infrastructure components to grow to $3.5 billion by 2007, an increase of 25 percent over 2002 spending levels.
E-learning technology enables managers to push training to agents at convenient times of the day. Agent career paths can be crafted based on a demonstrated increase in competencies and performance.
Action Item: When planning CSS budgets, organizations must be realistic about the cost inputs, their relative weightings and their potential returns.
Workforce optimization applications gather history for forecasting and scheduling (such as typical call volumes experienced and staffing required for a promotion). They also can alert managers in real time when an agent isn’t adhering to a previously assigned schedule, which could negatively affect service-level goals and customer satisfaction. In addition, these applications can integrate with e-learning systems and help match agent skills with tasks.
20.3.2 Considering CSS Vendors
Action Item: Service managers must understand how their initiatives fit into the larger trends in corporate performance management, or risk losing their jobs by 2006.
20.3
Technologically Supporting CSS Strategies
Key Issue: What technologies, applications and service models will best support customer service strategies?
Tactical Guideline: Through 2005, a successful CSS approach must blend best-of-breed methodologies and products, as needed. CSS will draw on many technological aspects to deliver its benefits, each offering unique aspects of the CSS challenge. These technology areas include: • E-service • Unified communications systems • Field service automation • Partner relationship management • Business intelligence • Business process connectors • Application integration • Performance management
20.3.1 CSS Technology Spending Strategic Planning Assumption: Through 2007, packaged applications will account for less than 15 percent of the budget to enable a customer service agent desktop (0.8 probability).
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Analytics • E-learning warehouses Application integration vendors are helping enable CSS by making it easier to build real-time integration links between
291
Reaping Business Rewards From CRM
different applications. CSS also is attracting a wide range of technology suppliers, each seeking to capitalize on the intense interest that enterprises have in strengthening ties with customers and partners. These vendor efforts will enable the advance of CSS business strategy. However, as the market matures, CSS-related software vendors will continue to face pressure to merge, acquire or be acquired. Enterprises will find many roads to CSS, from many different vendors. Rather than worrying about convergence and finding one “right” answer, enterprises should focus on tangible uses of some CSS strategy to demonstrate the business impact. Although infrastructure will likely have to change, enterprises shouldn’t let that change hinder their CSS efforts.
80 percent through mergers, acquisitions or business failures (0.8 probability). The CSS market contains more than 120 vendors. From providers of point solutions to those offering infrastructure and CRM suites, the market will remain fragmented and unstable. Consolidation will continue through early 2006. Gartner has set out to better define this market and to examine the vendors, which fall into four camps (see Figure 20-3): • Self-service point solutions • E-service suites • CRM suites • Infrastructure vendors
20.3.3 Categorizing CSS Vendors Strategic Planning Assumption: By 2005, the number of vendors that make up the CSS market will decrease by
All these vendors can’t continue to create and support numerous solutions for self-service. In addition, they must be financially stable and have the appropriate level of
Figure 20-3: Vendors Come From Four Different Camps and Offer Different Value Self-Service
CRM Suite
Infrastructure
Best of Breed
Yes
Maybe
No
No
Implementation Costs
Lowest
Medium
Medium to High
Medium
Implementation Time
Low
Low to Medium
High
Medium
Integration Ability
Medium to High
High
Very High
Low to Medium
Vendors (Examples)
Mindfabric iPhrase Kanisa
RightNow Kana Primus
Siebel PeopleSoft Oracle SAP
Avaya Cisco Systems Genesys Siemens
Implementation Cost Implementation Time Integration Ability
Source: Gartner
292
E-Service Suite
Gartner
Low < $150,000 2 to 16 weeks API
Medium $300,000 8 to 32 weeks Native
API
High > $400,000 16 to 52 seeks Open standards
application programming interface
Strategic Planning Series
Achieving World-Class Customer Service
partnerships to complement their suites for other channels and applications.
a minimum of three vendors to create an enterprise CSS environment, whereas 80 percent of small and midsize businesses will prefer suites or single-vendor solutions (0.7 probability).
Vendors and enterprises must have good relationships, and great matches between requirements and functionality. Because relationships will continue for a long time, they must be based on more than technology.
CSS application suites are still relatively immature and incomplete, with no vendor offering a compelling crossindustry solution. The large-enterprise application vendors (SAP, PeopleSoft and Oracle) offer pieces of a solution — primarily to those that already have their software — whereas Onyx Software and E.piphany have chosen to offer more-general applications. Siebel Systems continues to have the broadest set of applications. Industry experts, such as Amdocs and Chordiant Software, will continue to excel within their industry domains. Enterprises should determine how much of a trade-off between superior functionality and vendor viability they’re willing to make when evaluating some of the vendors.
Action Item: Enterprises looking for a CSS vendor should partner with an experienced and visionary vendor that has demonstrated its financial and technical stability.
20.3.4 CSS Suite Magic Quadrant Strategic Planning Assumptions: • Through 2007, no general-purpose customer service suite will be available, which will result in continued custom integration of subcomponents (0.7 probability).
Gartner’s 2004 CSS Suite Magic Quadrant is shown in Figure 20-4.
• Through 2005, 70 percent of large enterprises will use
Figure 20-4: 2004 Magic Quadrant for CSS Suites Challengers
Leaders
Siebel Systems Amdocs*
Ability to Execute
SAP PeopleSoft Oracle Chordiant Software*
E.piphany
Onyx Software As of January 2004
Niche Players
Visionaries
Completeness of Vision Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
*For specific verticals only
293
Reaping Business Rewards From CRM
Fortune 1000 enterprises likely won’t find that CSS suite vendors offer all the required functionality, industry-specific features, or preconfigured integration with other legacy or enterprise applications that they’re seeking. The choice of CSS suite vendor therefore should depend on: • The extent to which the enterprise needs the full suite of CSS functionality • The enterprise’s industry • Whether the enterprise relies heavily on an in-place enterprise resource planning vendor • Whether the vendor has the support skills within its organization or a partner’s organization Enterprises should therefore use the Magic Quadrant carefully, weighting in the above-mentioned factors rather than choosing purely based on the vendor’s Magic Quadrant placement. They should also begin to identify CSS areas that can benefit from an integrated customer interaction hub, and work with vendors to see how they will deliver on this new architecture.
20.3.4.1 The Leaders’ Quadrant Siebel Systems: The only vendor in the Leaders’ quadrant of our CSS Magic Quadrant, Siebel sells and deploys more seats of customer service software than all competitors in the large-enterprise market combined. Siebel offers the broadest and best-integrated range of customer service applications, and a comprehensive set of horizontal and vertical business processes that are an effective starting point for many enterprises. Siebel’s challenges include the need for improvements in knowledge management, collaboration capabilities and real-time decision support for agents, as well as the relatively high cost and complexity of the basic software package.
20.3.4.2 The Visionaries’ Quadrant PeopleSoft: PeopleSoft CRM v.8.8 has an intuitive interface that gives a single view of the customer across systems, rolled into a single level. The customer service applications have a flexible customer data model that handles relationship and role information, as well as workflow for the aggregation of issue and transactional data. PeopleSoft CSS applications are most strongly
294
Gartner
recommended for enterprises familiar with PeopleTools, as well as those that already own other modules (such as Finance and HR) and eventually want to integrate these modules with CRM. E.piphany: E.piphany continues to best serve businessto-consumer enterprises, where personalized call center interactions and embedded analytics are in high demand. With the release of E.6.5, the customer service functionality has deepened further and the service-oriented architecture continues to improve. References praise the system because it doesn’t require data to be extracted and synchronized into an E.piphany customer master, serving instead as an overlay to coordinate the presentation of customer data. However, it isn’t widely used yet to build and enforce complex processes across channels. E.piphany represents a strong alternative to the enterprise application suite providers when deep industry processes aren’t required.
20.3.4.3 The Challengers’ Quadrant Amdocs: The only vendor in the Challengers’ quadrant, Amdocs continues to generate revenue mainly from billing systems. In its core vertical industries, ClarifyCRM provides a leading, highly scalable CSS solution integrated with its billing solution, supported by a good professional-services organization. However, alternative products, such as those from Siebel and PeopleSoft, coupled with some buyers wishing to avoid having the same supplier for billing and customer service, caused Amdocs not to be chosen in several vendor selections in 2003. Mobile field service management, collaboration and self-service are also key challenges.
20.3.4.4 The Niche Players’ Quadrant SAP: SAP’s strongest industries for CSS reference customers come from engineering and construction, electronics, and high tech. The largest call center users come from utilities. To date, references offer few compelling examples of complex call and contact center capabilities. SAP hasn’t been successful at building meaningful revenue-generating alliances with the CRM organizations of major integrators. This will limit its success in CSS through 2005 to enterprises that most highly value a CSS offering that is built, delivered and supported by SAP.
Strategic Planning Series
Achieving World-Class Customer Service
Oracle: Oracle has made major improvements to the look and feel of its CSS applications from the user perspective. Some references observed that the Oracle CSS application environment appears to be poorly integrated with the rest of the Oracle suite, and some of the modules appear as disparate applications. The products are best-suited for Oracle enterprise application customers that wish to integrate a manufactured parts database with the Customer and Employee databases, and that have a strong working relationship with Oracle professional services. Chordiant Software: Chordiant recently recast itself as a business process management vendor. This may reflect the early resistance to the concept of CRM in its core market of financial services, as well as its limited packaged functionality for customer service. Chordiant continues to offer a strong architecture, as well as a contact center offering and straightthrough processing capabilities. The business process management message will require more details if it is to gain “mind share” outside Chordiant’s core market.
Onyx Softwar e: Onyx’s Service product contains a strong Software: portal product and a good call center offering. The product, with good business execution, has the potential for a better position in the market if supported by more partners and larger customer references. Onyx is an important, though not significant, competitor in the large-enterprise CSS market.
20.3.5 The 2004 CSS Hype Cycle Strategic Planning Assumption: Through 2005, customer service architectures won’t change radically, even though they will evolve as technologies improve and mature (0.7 probability). The applications, technologies and processes tracked on Gartner’s CSS Hype Cycle (see Figure 20-5) must optimize one or more enterprise capabilities: • Customer access (speed and convenience)
Figure 20-5: The 2004 CSS Hype Cycle Visibility Key: Time to Plateau
Agent Performance Mgmt. Offshore Outsourcing
Less than two years
Service Analytics Partner Relationship Mgmt. Customer Interaction Hub
Outsourcing
Two to five years
KM Tools
Five to 10 years
Wireless Service
Obsolete before Plateau
Natural-Language Tools Intelligent Devices Speech Analytics Contact Center
Quality WFM Assurance
E-Service
IVR ComputerTelephony Integration
ERMS SpeechEnabled Web
Automatic Call Distribution
Call Center
Voice IVR
UQM Virtual Centers
Avatars/ Virtual Agents
Web Collaboration Self-Service
Global Positioning System Sensors
As of January 2004 Technology Trigger
Peak of Inflated Expectations
Trough of Disillusionment
Slope of Enlightenment
Plateau of Productivity
Maturity KM ERMS Source: Gartner
knowledge management e-mail response management systems
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
IVR interactive voice response UQM universal queue management WFM workforce management
295
Reaping Business Rewards From CRM
• Customer insight into the business
20.4
• Business insight on the customer
• Create a five-year plan for the migration of customer service from a departmental objective to an enterprise technology and process framework.
• Lowering costs • Improving revenue or profits When selecting technologies for enhancing CSS solutions, enterprises must consider four factors: • Fit with the enterprise strategy • Customer demand to provide the new technology — balanced by the expected potential benefits to the business • Viability of the vendor providing the technology • Enterprise tolerance for risk in trying new technologies — and having a back-up plan if these fail After considering those factors, enterprises can prioritize their technology adoption and implementation plans. Implementing leading technologies to create sources of competitive advantage works for leading-edge enterprises — but not for those uncomfortable with risk.
Recommendations
• Build and maintain a set of formal customer metrics to demonstrate the impact of improvements to customer service processes. • Re-engineer customer processes, using customer input and collaboration. • Apply analytics throughout the customer life cycle and develop a mechanism to analyze the experiences of key noncustomer groups. • Base the phases of a customer-service framework on the key business value of the customer interactions. • Consider a CSS suite as the core application environment on which to build a broader customer service solution. • Secure executive buy-in before attempting to redesign customer service processes that will extend beyond the department, and beyond the enterprise.
Action Item: When making the decision to implement a new, unproven technology, an enterprise should consider the risk it takes, and weigh that risk against needs and potential benefits.
296
Gartner
Strategic Planning Series
Getting the Most Out of Contact Center Investments
21.0 Getting the Most Out of Contact Center Investments
E
ffectively managing a customer service contact center requires understanding many costs. The bulk of these expenses stem from agent costs, which typically represent between 55 percent and 80 percent of total spending in a contact center. For this reason, savings in personnel costs have a large impact on overall contact center efficiency. An enterprise can make no better investment than developing the best agents it can find. Gartner research indicates that every hour agents spend in training reduces the per-contact cost for customer service by 3.1 cents. Moreover, every 1 percent increase in first contact resolution reduces the cost per handled contact by 7.8 cents. The high cost of agent time represents the most-important factor driving enterprises to consider use of alternate channels, such as interactive voice response (IVR), Web chat, Web-based selfhelp and e-mail. However, before choosing alternate channels in which to invest, an enterprise should first optimize its voice channel. Enhancement of the technologies and procedures required for voice optimization also benefits other channels. Therefore, the benefits received from investments in alternate channels will be limited if the enterprise fails to optimize its voice channel first. To better manage costs in the contact center, an enterprise should: • Baseline its performance and define clear targets before implementing any changes. • Quantify the results after making these changes. • Make a series of small improvements, rather than try to undertake one massive initiative. • Identify three best practices that improve cost, customer satisfaction, agent satisfaction or service levels, and focus on them for at least six months. • Cultivate agent buy-in on any changes made, because this buy-in is indispensable to success. The following Key Issues frame the analysis in this chapter: • What should the economic model of a customer service contact center contain? • How can enterprises prioritize their contact center investments?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
297
Reaping Business Rewards From CRM
• What key opportunities exist for optimizing cost and service?
21.1
About the Data Used in This Chapter
Most of the data cited in this chapter comes from the Gartner Measurement Contact Center benchmark database, which contains data on contact centers throughout the world that have participated in a Gartner Contact Center benchmark study within the past 18 months. In cases where technical-support centers are identified, the data comes from the Gartner Measurement Help Desk benchmark database. The accuracy and comparability of the data is ensured through the use of the Gartner chart of accounts and the on-site assistance of a Gartner analyst. All database members are compared against the standard chart of accounts, which has remained consistent over time for purposes of trend analysis. The number of observations in each of the past four years has remained approximately the same.
21.2
The Economics of the Customer Service Contact Center
Depending on the industry, between 30 percent and 70 percent of dissatisfied customers leave. This increases costs further because the enterprise must constantly acquire new customers, which costs more than retaining old ones. Therefore, enterprises that reduce the number of dissatisfied customers will significantly improve their profitability. Action Item: Start to track the percentage of repeat calls from customers, and attack the root cause of these repeated contacts.
21.2.2 The Basis for Determining Overall Performance Tactical Guideline: To improve customer service, an enterprise needs to understand the total cost of ownership (TCO) and service differences between its starting point and world-class contact centers. People represent the largest cost category in the contact center. Despite this, capital spending within the contact center is disproportionately large (see Figure 21-1). This affects the overall productivity of the agents and, largely, the resulting satisfaction of callers.
Key Issue: What should the economic model of a customer service contact center contain?
Gartner data indicates that, on average, capital spending on contact center automation and information technology directly improves overall center efficiency. Although data reliability drives the success of call-tracking systems, agent training and operational procedures drive data reliability.
21.2.1 The Cost of Unsatisfied Customers
Enterprises often struggle about which areas to focus on as the basis for determining overall performance. For example:
Enterprises should aim to minimize the cost of handling contacts while providing the highest practical quality. To do this, enterprises need to: • Understand the efficiencies achievable with a well-run contact center. • Match resources to business requirements properly. The cost of handling unsatisfied customers complicates this analysis. Costs associated with handling unsatisfied customers can include handling contacts multiple times. As a result, an unsatisfied customer costs two or more times the cost of a satisfied one.
298
Gartner
• Contact center managers need to balance their costs with quality and service levels. • Senior management may focus primarily on the unit cost competitiveness of the contact center. • Customers care about the amount of time they must wait for assistance, and how quickly agents answer their questions. • Employees are concerned with daily working conditions, reward and incentive programs, and career development.
Strategic Planning Series
Getting the Most Out of Contact Center Investments
Figure 21-1: Typical Customer Service Contact Center Spending Communications 14%
Capital 18%
Development 2% Administration 11%
Operations 55% Source: Gartner
Each constituency in this example could present a strong case in its favor. However, enterprises need to consider all of them. To base overall performance on any one of these groups would ignore the significance of the relationship that each has with the other. For example, reducing investment to insufficient levels solely in the interest of lowering unit cost will likely reduce employee and customer satisfaction, as well as agent productivity. Conversely, inappropriate investment may not provide desired results.
Costs include: • Fully loaded personnel costs for agents, managers, supervisors and trainers • Depreciation and maintenance for all hardware and software in the contact center • Occupancy and telecommunications charges The overall spending by category — capital, operations, administration and communications — tends not to vary significantly between the best performers and average performers.
21.2.3 Cost per Handled Contact Tactical Guideline: At least one-third of all U.S. contact centers have underinvested by 20 percent or more in critical enabling technologies. Enterprises must consider service levels along with cost when determining worldclass targets. The best 25 percent, average and worst 25 percent segments of the Gartner Measurement database were selected based on an evaluation of cost (weighted at 40 percent) and service levels (weighted at 60 percent). Figure 21-2 shows the average cost per handled contact for each of these categories.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
However, key differences exist in the technologies chosen for investment and the management practices employed. These differences can result in more than a 6-to-1 difference in cost performance and a significant improvement in each of the key service categories.
21.3
Choosing Where to Best Make Contact Center Investments
Key Issue: How can enterprises prioritize their contact center investments?
299
Reaping Business Rewards From CRM
Figure 21-2: Overall Cost per Handled Contact Across All Channels $10 $8 $6 $4 $2 $0 Total Cost
Best 25%
Average
Worst 25%
$1.47
$4.93
$9.32
Source: Gartner
21.3.1 Graduated Agent Salaries Based on Skills
customer service to your agents and developing and implementing scripts and other operational practices.
Agent costs typically represent between 55 percent and 80 percent of total spending in a contact center. For this reason, savings in personnel costs have a large impact on overall contact center efficiency.
21.3.2 Benefits and Best Practices of Agent Training
One successful strategy for controlling this cost graduates salaries based on skills: • Bring agents into the contact center and assign them to the simplest queue while they demonstrate their skills. • As they demonstrate competency in this queue, they can train and test for more demanding queues. • When they pass those tests, they receive a corresponding increase in pay. This strategy enables contact center management to eliminate underperforming agents while their salaries are relatively low and the training investment in these agents is relatively modest. It also provides a clear progression path for agents. Action Item: Recognize that agents are your largest asset and expense, and are also critical to successful contact center initiatives. Spend time “selling” the value of
300
Gartner
Strategic Planning Assumptions: • By 2006, agent training will become a greater factor in customer satisfaction than contact center tools, because the overall complexity of issues handled by contact centers will continue to rise (0.7 probability). • By 2007, individualized computer-based training will become the predominant method of ongoing agent training (0.7 probability). Enterprises can make no better investment than in developing the best agents it can find. On average: • Every 1 percent increase in agent satisfaction increases customer satisfaction by 0.53 percent. • Every hour agents spend in training reduces the cost per contact by 3.1 cents for customer service (but only by 0.7 cents in a technical environment). • Every 1 percent increase in first-contact resolution reduces the cost per handled contact by 7.8 cents.
Strategic Planning Series
Getting the Most Out of Contact Center Investments
Therefore, practices that ensure the most productive and positive agent investments contribute highly to the overall success of the contact center. Some best practices begin before new agents are on the payroll. Although enterprises need to screen agents for aptitude and disposition, they also should provide a realistic demonstration of the job. All contact centers take difficult calls. However, describing a difficult call differs significantly from having a new recruit experience one. Providing a prospective agent with a clear idea of what the contact center job entails — before the prospect goes through training — will help determine if a good match exists.
To successfully act on agent survey results, one must distinguish the relative importance of different areas to the agents being surveyed (see Figure 21-3). The customer and agent survey method Gartner uses asks: • How important each area is to the agent • How well the enterprise is doing in that area Enterprises should aim to do well in the areas agents deem most important. This data makes it possible to address important agent issues, and track the relative importance and performance in each area over time. Most enterprises should conduct surveys twice per year. This provides some time to implement changes that agents can evaluate, and doesn’t occur so frequently that agents perceive the process to be a nuisance.
21.3.3 The Importance of Agent Surveys Tactical Guideline: A measurable improvement in the top three agent concerns will increase agent productivity and customer satisfaction.
Action Item: Track the importance and performance of agent issues through anonymous surveys. Communicate progress on key initiatives to the agents regularly.
Figure 21-3: Survey Agents and Act on What They Say Importance
Score
30% 4.36
25% 20% 15%
Importance Score
3.44 14.9%
11.7%
10%
3.5 3.23
2.83 10.9%
10.6%
3
2.94
2.87 10.1%
9.8%
2.60 9.6%
8.7%
Morale Customer (19) Satisfaction (20) Career Path Incentives in the and Company Recognition (21) (22)
Benefits (21)
Salary (25) Ongoing Training (24)
2.5 2
3.6%
0%
2.43
7.1%
5%
4.5 4
3.62
3.39
3.37
5
3.2%
1.5
Career Path 1 Physical in the Working Center Environment Initial Stress (7) (16) Training Level (10) (16)
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
301
Reaping Business Rewards From CRM
21.3.4 Handling Dissatisfied Customers Strategic Planning Assumption: Through 2006, expectations of callers will continue to rise as Type A enterprises continue to raise standards for call handling, and for delivering relevant enterprise knowledge into the hands of their contact center agents (0.8 probability). Although up to two-thirds of callers may be ready to do additional business with an enterprise when they call, a high a percentage of callers report being disappointed after making that call. When surveyed about why they chose to take their business elsewhere, most (68 percent) indicated that they were upset with the treatment they received. Other factors cited included dissatisfaction with the product or service, dissatisfaction with its price, and the lack of any further need for it. Many times, enterprises never get the chance to fix the problem after it has occurred. Eighty-five percent of dissatisfied customers who don’t bother to complain “vote with their feet” and take their business elsewhere. However, 80 percent of dissatisfied customers will return if the enterprise quickly resolves their problem. Action Item: Provide an easy way for customers to offer complaints — and, by extension, for the enterprise to resolve complaints — by making the contact method obvious (for example, by providing a toll-free phone number on the Web site).
21.4
Optimizing Cost and Service
Key Issue: What key opportunities exist for optimizing cost and service?
21.4.1 Reducing Maintenance Contract Costs
levels. From an ongoing depreciation and maintenance perspective, the cost per agent seat for all contact center technologies combined averages $7,560 — 57 percent of which is for maintenance. Private branch exchanges (PBXs) represent a good place to look for opportunities to control maintenance costs, because they’ve generally remained in service much longer than anticipated. The large number of aging PBXs has created a large and relatively inexpensive source of used spare parts. Often, purchasing used spares to keep on hand can cost an enterprise less than what it would pay for an extensive ongoing hardware maintenance contract. As PC costs fall, enterprises need to consider revisiting PC maintenance agreements as well. A key to controlling overall hardware spending requires carefully matching the failure rate of PCs in the enterprise with the replacement rate. An enterprise that replaces its PCs at roughly the same time that major failures start to occur can avoid repairing these systems and paying for maintenance contracts that extend beyond these systems’ expected useful life. Action Item: Explore the availability of used components that can be used as spares for your PBX.
21.4.2 IVR Systems Tactical Guideline: Agent productivity will continue to fall as automation and self-help handle the simpler inquiries. Use of an IVR system represents a best practice for enterprises. On average, every 1 percent increase in the number of contacts handled by an IVR decreases customer satisfaction by only 0.09 percent, while bringing potentially significant savings. Good-performing enterprises have IVR-handled-contact costs of less than 90 cents per contact, compared to a cost of almost $5 per call for agent-handled contacts.
Tactical Guideline: Selecting agent support applications based on usability — rather than the greatest number of functions — generally yields superior results.
Nevertheless, the use of IVR systems has unintended consequences. One of these is an overall drop in agent productivity because an automated system now handles the quick and easy customer calls.
For many enterprises, maintenance contracts often provide an opportunity to save money without affecting service
Significant potential savings have driven IVR deployment since the early 1990s. However, once enterprises install
302
Gartner
Strategic Planning Series
Getting the Most Out of Contact Center Investments
IVR systems, they often ignore them. Over time, IVR systems become outdated, which causes decreased user satisfaction and use. To avoid this, an enterprise should perform a check-up on its IVR application and platform. Frequently, this simple task can result in dramatic savings. To perform a checkup, an enterprise should: • Gather statistics for at least a week. • Examine the averages for call flow paths. • Note the higher-volume call flow paths and the major termination points. • Consider updating the system if the calls aren’t flowing to the best or expected locations. Action Item: Perform a check-up on any IVR that has been in place for more than a year to validate and optimize its performance.
• Expert systems and knowledge-based tools — These tools help reduce diagnosis time and increase first-call resolution by providing agents with problem diagnosis or call-processing features, such as: – Scripting – Online text searches – Decision trees that bring agents to a recommended solution • IVR systems — These systems provide information to callers without the interaction of an agent. They work especially well for enterprises that receive a large volume of calls that require predictable information. • Workflow management — This automates the routing of back-office information, which speeds the processing of data gathered through the CRM system • Agent-scheduling software — This helps optimize the number of agents available to answer calls by aligning agent count with call volume.
21.4.3 CRM Building-Block Technologies for Contact Centers
21.4.4 Reducing Costs Through Alternative Channels
Tactical Guideline: Enterprises should identify and fill any significant gaps in their core customer relationship management (CRM) technologies.
The high cost of agent time represents the most-important factor driving enterprises to consider the use of alternative channels (see Figure 21-4).
As CRM strategies mature, enterprises will focus more on the capabilities of enterprisewide CRM. Too often, senior executives assume that the enterprise has most, if not all, of the basic building blocks needed to enable high-level CRM. For contact centers, these building-block technologies include:
The channels through which enterprises communicate with customers usually include:
• Computer-telephony integration (CTI) — The best contact centers use CTI technology to automatically look up customer account information (using automatic number identification, or information entered by the caller via a voice response unit) and present it to the agent’s screen.
• Voice — Although agent training and strong tools enable productivity, turnover remains the enemy of good service and contributes to higher hidden costs through lower productivity.
• Call and incident tracking — Most good help desks have systems to track calls by type, account history and problem resolution, even after service dispatch. Top customer service centers track calls at the aggregate level. A few have contact management systems that allow them to perform detailed statistical analysis and trending.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• IVR — As the acceptance of automation continues to grow, the opportunities for using IVR to control customer service costs are second only to Web self-help.
• Paper — In most circumstances, eliminating the paper channel — which is rapidly declining in prevalence — and replacing it with e-mail is the best option. • Web chat — This is an immature technology that sits in the Trough of Disillusionment on the Gartner Hype Cycle, because the costs of supporting it have been much higher than anticipated. Better Web page design
303
Reaping Business Rewards From CRM
often delivers better results than simply adding Web chat as another channel. As experience grows, however, costs will fall and implementations will improve. • E-mail — This is well-established as a business necessity. Productivity depends on a strong automatic suggestion and prescreening system. • Fax — In most circumstances, enterprises can eliminate faxes and replace them with communications through e-mail and Web channels.
Many technologies required for voice optimization also benefit other channels. These technologies include: • Expert systems • Contact-tracking software • Universal queuing (portals) Before incorporating alternate channels, enterprises should focus on improving voice operations procedures, including: • Agent monitoring and feedback
21.4.5 Optimize the Voice Channel First
• Exception handling
Strategic Planning Assumption: Through 2006, voice will remain the dominant communications channel (0.8 probability).
• Workflow optimization
• Incentive systems
Voice represents more than 90 percent of contacts for the average contact center (see Figure 21-5). At the same time, many contact centers are investing in Web chat and e-mail technology before implementing an IVR or other voice-specific technology. For most contact centers, prioritizing voice service and cost optimization before investing in alternate channels represents a better strategy.
Although the emergence of Web-based e-business is significant, the vast majority of retail sales still take place in physical stores. People increasingly window shop on the Internet before buying in a store or calling a toll-free number to place an order. Enterprises shouldn’t let the significance of Web-based e-business blind them to business realities when prioritizing their contact center investments.
Figure 21-4: Using Alternative Channels Can Reduce Costs
$40 $35 $30 $25 $20 $15 $10 $5 $0 IVR High Low Median
Voice
Paper
Web Chat
E-Mail
Fax
$20.35 $0.07
$13.27 $0.23
$48.71 $0.37
$17.33 $0.90
$63.17 $2.60
$60.10 $1.26
$1.35
$3.28
$5.31
$5.46
$6.98
$7.60
Source: Gartner
304
Gartner
IVR interactive voice response
Strategic Planning Series
Getting the Most Out of Contact Center Investments
Action Item: Invest first in technologies that principally will benefit the enterprise’s primary channel (presumably voice). Many of these investments will pay dividends when applied to alternative channels.
21.4.6 Telecommunications Costs Tactical Guideline: Although telecommunications costs have fallen dramatically, they still represent a significant cost to the contact center. When renegotiating rates, an enterprise should use benchmark data to determine the competitiveness of the deal. Although the average cost for inbound toll-free service has dropped from 9 cents per minute in 1995 to less than 5 cents per minute in 2004, many contact centers haven’t negotiated good rates (see Figure 21-6). Reasons for this include: • The negotiator representing the carrier (or outsourcer) negotiates dozens of deals every year, and specializes in the nuances of that industry.
• Most contract organizations in large enterprises don’t negotiate telecommunications deals frequently, and can be outmatched by the vendor. When negotiating telecommunications fees with a service provider, the best deals often go to the customers that are the best-informed regarding competitive pricing and are strong negotiators, rather than simply those enterprises with the highest volume of minutes to offer to the carrier. Action Item: When renegotiating telecommunications usage fees, consider using a consultant that specializes in negotiating telecommunications contracts.
21.4.7 Moving to a New Outsourcing Model Tactical Guideline: Unless the enterprise is uniquely qualified to provide an outstanding customer experience, outsourcing customer service provides a tremendous opportunity to increase enterprise flexibility and responsiveness as competition intensifies.
Figure 21-5: The Dominance of the Voice Channel Typical Channel Volume by Percentage E-Mail 1.2%
Fax 1.1%
Web Chat 0.9%
IVR 26.9%
Voice—Agent Handled 69.9%
Technologies and the Channels They Support IVR CTI Contact Tracking Expert Systems ERMS Portal Web Chat
Voice X X X X
Paper
Fax
E-Mail
Web Interactive
X X
X X
X X
X
X
X
X X X X
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
CTI ERMS IVR
X X
computer-telephony integration e-mail response management system interactive voice response
305
Reaping Business Rewards From CRM
Figure 21-6: Toll-Free Inbound Usage Average
4.5
4.4 4
Cents per Minute
Best 25% 3.5
3.7
3
Source: Gartner
In the historic outsourcing model, the combination of upfront infrastructure investment and competitive pricing results in a potential loss for the service provider. With renegotiation requests at year three, the deals go through a benchmark assessment or cost review at a critical time in the financial model (see Figure 21-7). The service provider doesn’t want a benchmarking clause in the contract to evaluate the deal at a time that would ignore its upfront investment and emphasize the potential margin in the future. However, new outsourcing engagements won’t follow the historical model, because benchmark clauses with price change adjustments will change management processes. The new outsourcing model will follow a traditional path of revenue and cost, delivering a profit margin to the service provider each year of the deal, instead of only in the later years (see Figure 21-8). This change will soon eliminate most renegotiation requests at the end of the third year of the agreement. This transition in the engagement approach — with a benchmark assessment or price review — is a critical element in sustaining long-term outsourced deals. Although the enterprise won’t benefit from lower upfront pricing of an engagement, using the new outsourcing model will allow it to gain better control of the ongoing price for the services it needs.
306
Gartner
21.4.8 Improving First-Contact Resolution Tactical Guideline: The quality of issue resolution remains the dominant factor in determining contact center customer satisfaction. Increasing first-contact resolution pays many dividends. From a customer satisfaction perspective, Gartner research indicates that: • First-contact resolution provides a good proxy for overall caller satisfaction. • If callers get the answers they need soon after agents answer their calls, relatively long queue times (more than one minute) aren’t a serious customer satisfaction problem. When asked, most satisfied callers could accurately gauge how long the queue was. Callers who didn’t receive the answers or service they sought thought the queue time was longer than it really was. Improving first-contact resolution also means fewer secondcontact calls, which results in direct, quantifiable savings. For example, improving the first-contact resolution percentage from the database average of 84 percent to the best performers’ level of approximately 90 percent
Strategic Planning Series
Getting the Most Out of Contact Center Investments
Figure 21-7: Service Provider Costs and Price in the Historic Outsourcing Model
Desire to renegotiate Service provider profits Service provider losses
Traditional deal renegotiations
Year
0
1
2
3
4
Price
5
6
7
8
9
10
Cost
Source: Gartner
Figure 21-8: Service Provider Costs and Price in the New Outsourcing Model
Price adjusted to steady state
Transition service pricing Benchmark clause impact Year
0
1
2
Price
3
4
5
Cost
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
307
Reaping Business Rewards From CRM
reduces overall contact volume by approximately 6 percent, because second contacts aren’t necessary. On average, every 1 percent increase in first-contact resolution results in a 0.64 percent increase in customer satisfaction. However, every one-second decrease in the average speed of answer improves customer satisfaction by an average of only 0.03 percent. Therefore, focusing on factors that drive first-contact resolution generally leads to greater customer satisfaction, and is often less costly than focusing on factors that improve the average speed of answer.
21.5
Recommendations
• Conduct baseline performance measurements and define clear targets before implementing changes, and quantify results after doing so. • Meaningful improvement comes from the culmination of making many small improvements, not from any single initiative — set expectations accordingly. • Identify three best practices that improve cost, customer satisfaction, agent satisfaction or service levels, and focus on them for at least six months. • Cultivate agent buy-in to change — it is indispensable to success.
308
Gartner
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
22.0 Rewards and Pitfalls of Outsourcing Customer Service and Support B
efore engaging in the outsourcing of customer service and support (CSS), enterprises need to determine what they want from outsourcing. A surprisingly large number of enterprises that already have outsourcing agreements don’t have a written statement that clearly identifies even their most basic objectives for outsourcing. Enterprises also need to map their customer-facing processes throughout the enterprise. Some processes may prove to be excellent candidates for outsourcing, while others may need to remain in-house. Many enterprises have problems in areas where retained processes intersect with outsourced ones. To overcome this challenge, enterprises must dedicate sufficient management resources to this issue. The cost savings associated with outsourcing can be compelling. However, as enterprises look to leverage global service delivery capabilities for process support, they must look beyond mere cost savings and carefully evaluate providers, paying particular attention to vendors’ depth of vertical business process understanding. Enterprises also should consider numerous factors — such as training, recruiting and additional management needs — that can add costs and decrease the potential savings enterprises can achieve. Enterprises also need well-defined metrics for vendor and process performance management. With these metrics in place, enterprises can effectively manage and measure their outsourcing relationships. The following Key Issues frame the analysis in this chapter: • How can an enterprise determine whether to outsource its customer service operations? • What are the costs and benefits of outsourcing CSS, and what lessons can be learned from the enterprises that have done so? • What are the options available to an enterprise considering CSS outsourcing?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
309
Reaping Business Rewards From CRM
22.1
Deciding Whether to Outsource Customer Service
Other drivers include enterprises’ increasingly global deployment needs, and the considerable hype surrounding offshore outsourcing.
Key Issue: How can an enterprise determine whether to outsource its customer service operations?
Factors inhibiting the market growth of CSS outsourcing include:
22.1.1 CSS Outsourcing Drivers and Inhibitors
• The perception that CSS must be a core business process — Many enterprises believe that customer relationships shouldn’t be outsourced.
Strategic Planning Assumption: The worldwide market for business process outsourcing (BPO) of CSS processes will grow from $7.6 billion in 2003 to $12.2 billion by 2007 (0.7 probability). BPO represents the delegation of one or more IT-intensive business processes to an external provider which, based on defined and measurable performance metrics, owns, administers and manages the processes. Factors driving the market growth of CSS outsourcing include: • Increased competition — Enterprises must focus on resources and capabilities to create and maintain sources of competitive advantage. For industries in which service doesn’t represent a core process, CSS outsourcing can free significant amounts of capital, eliminate operational distractions and allow funds and management attention to be focused on the areas that differentiate the enterprise. • Cost pressure — Because of their experience and economies of scale, outsourcers often can provide a service at a lower cost than the enterprise can.
• Fear of loss of control — Some senior executives, who usually aren’t comfortable with the concept of outsourcing in general, worry about an outsourcer “taking over” operations. • Market immaturity — The CSS outsourcing marketplace still faces significant consolidation. In addition, new firms are entering the market, including traditional system integration firms, as well as former telemarketing companies struggling to stay afloat in the face of do-not-call mandates. • Poor internal measurement of service costs — Many enterprises can’t benchmark their internal costs of service against what the outsourcer might offer, and therefore struggle to justify outsourcing decisions. • Risk of offshore failures — High-profile cases have made some enterprises hesitate to sign outsourcing contracts. • Lack of vertical expertise — Many vendors lack the required expertise in certain industry-specific processes.
22.1.2 Analyzing the Need for BPO
• Access to best-in-class processes and skills — Outsourcers can supply access to best-in-class customer service processes and skills.
Tactical Guideline: Enterprises that have no experience with outsourcing should start by outsourcing small processes instead of committing to large, multiprocess engagements.
• Challenges associated with integrating CSS technologies and processes — In deregulated or rapidly consolidating industries, CSS outsourcing can speed integration of processes and technologies.
Many of the factors driving the CSS outsourcing market (see Section 21.1.1) also are key CSS challenges. Outsourcing represents just one of several ways to address these challenges. Other options include:
• Contact center consolidation — Because many CSS technology markets are still consolidating, enterprises want to avoid making significant investments in potentially short-lived solutions.
• Re-engineering processes and investing in new technologies • Using an external consulting firm to address the challenges • Creating a joint venture
310
Gartner
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
• Eliminating the process or technology When considering outsourcing of any customer service business process, one needs to determine whether the enterprise: • If starting again from scratch, would build this process or buy it • Has enough process-related capabilities that another firm would hire the enterprise as an outsourcer to perform this process Part of this analysis requires measuring and benchmarking how much it costs to serve customers. After performing this analysis, as enterprises consider outsourcing certain customer service processes, they must look beyond cost considerations to issues such as:
22.1.3 What Enterprises Want From Contact Center Outsourcing Strategic Planning Assumption: By 2007, two of the top three objectives of contact center outsourcing initiatives will be vertical-process knowledge, and the ability to effectively cross-sell and up-sell from a customer service environment (0.7 probability). A Gartner survey conducted in mid-2003 asked 76 respondents to rate the importance of certain contact center outsourcing objectives using a seven-point scale (with 1 being “not at all important” and a 7 being “extremely important”).
• The purpose of operations
Respondents rated improvement of service quality as the highest-scored objective. Figure 22-1 shows the top five objectives. After the top five, the next most important objectives, in order of importance, were:
• Security
• Acquire new technology
• Time to market
• Integrate processes on a common platform (for example, the order-to-fulfillment process)
• Staffing • Technology procurement
• Improve sales productivity • Enable up-selling and cross-selling
Figure 22-1: Top Five Reasons for Outsourcing Contact Centers Average Score 6.3
• Improve service quality 1
2
3
4
5
6
7
6.17
• Improve customer care 1
2
3
4
5
6
7
5.67
• Reduce cost of service 1
2
3
4
5
6
7
6
7
6
7
5.32
• Acquire capacity on demand 1
2
3
4
5 4.87
• Leverage process expertise of outsourcer 1
Source: Gartner Survey, Mid-2003 (76 respondents)
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
2
3
4
5
1 = not important 7 = extremely important
311
Reaping Business Rewards From CRM
Many enterprises find implementing customer-oriented analytical capabilities extremely challenging, and are seeking help. As a result, this capability will become more important in coming years when evaluating customer service outsourcing decisions and suppliers. Since mid2003, enterprises have demonstrated increased interest in an outsourcer’s ability to leverage customer-oriented analytical capability, such as: • Real-time profitability analytics • Event-based analytics to drive scripting for up-selling and cross-selling opportunities Although many enterprises rate horizontal contact center process expertise highly, others have expressed interest in vertical customer service best practices. Enterprises that have determined that customer service doesn’t represent a core process tend to lack knowledge of bestin-class customer service processes for their industry. As a result, many of them want to outsource to acquire such best-in-class capabilities.
22.2
CSS Outsourcing Costs, Benefits and Lessons
Key Issue: What are the costs and benefits of outsourcing CSS, and what lessons can be learned from the enterprises that have done so?
22.2.1 Top Mistakes in CSS Outsourcing Although CSS outsourcing has many potential challenges and pitfalls, the following ones are most significant: • Expecting cost savings before measuring current operational performance — Most enterprises struggle to understand the total fully loaded cost to service customers internally. Therefore, comparing this figure to the costs and benefits of an outsourced relationship represents a significant challenge. Gartner Measurement has developed a return-on-investment and benchmarking tool that helps enterprises evaluate the total cost of operations (internal and outsourced) and understand the overall business benefit. • Proceeding without executive buy-in — Because it will impact the business significantly, the decision to undertake CSS BPO requires buy-in from top
312
Gartner
executives, as well as from all of the managers in affected organizations. • Process dilution and agent attrition exacerbating longterm contract lock-in — CSS outsourcing that includes agents can dilute process knowledge and reduce control over processes. These factors can reduce negotiation leverage when the time comes to renew contracts. • High churn rates among outsourced agents — Agent attrition rates in the contact center outsourcing industry run between 70 percent and 80 percent, even in toptier centers. This makes retention of process knowledge a significant challenge. • Inadequate processes for knowledge management — Agents hold in their minds much of the knowledge required to resolve customer issues. Not codifying this knowledge into a knowledge base, as well as the failure to create effective processes and systems for accessing this knowledge, can make outsourcing ineffective. • Not managing the customer experience appropriately — Enterprises commonly develop CSS outsourcing contracts that focus on operational metrics (such as the number of calls handled or average handling time) and are priced on a per-seat basis. This can create a direct conflict between the customer experience objectives of the enterprise and the goals of the outsourcer. For example, an outsourcer paid based on the number of calls handled maximizes its profit by increasing the number of agent-handled calls, not by fully satisfying customer needs during the first service call. Other pitfalls include inappropriate or unmeasurable service-level agreements (SLAs), poor management of overlapping outsourced and retained processes, and underestimating the cost and time required for the transition to, and management of, the offshore relationship.
22.2.2 Process Maps and Selective Outsourcing Strategic Planning Assumption: Through 2006, 60 percent of enterprises outsourcing parts of their customerfacing processes will encounter customer defection and hidden support costs that will exceed any outsourcingderived savings (0.8 probability).
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
Most enterprises elect to outsource only a portion of certain customer-facing processes. For example, although telecommunications firms might choose to outsource debt collection on late bills, they might not outsource the billing process itself. In principle, there is nothing wrong with this approach. However, when selectively outsourcing processes, most enterprises neglect to map all of the processes that comprise the entire customer process — particularly the intersection between outsourced and retained processes — which can create terrible customer experiences and result in customer defections. As a result, the cost savings of outsourcing may not prove to be as significant as originally believed. A large portion of the knowledge required to execute processes from end to end resides with people, rather than in documentation. To build successful solutions, enterprises and outsourcers must: • Understand the entire process • Articulate clearly where they enter and where they exit • Determine how they will integrate their solution • Ensure that nothing falls through the cracks
• A centralized customer management system — This stores customer information — such as account data, purchase information, entitlements, and customers’ needs and desires — and enables the enterprise to offer a consistent customer experience, independent of geography. This system must have the ability to store and use the data in multiple languages and functions across all locations. Depending on the number of people, speed of the system, privacy and security, the system may have to be distributed or replicated. • A centralized knowledge base — This requires a highly complex knowledge management system, as well as well-developed processes, to codify and manage knowledge in different languages. • SLAs — These agreements cover the need for 24hour-a-day, seven-day-a-week or critical support, determine the timeliness of the response and the coverage provided, and manage expectations. Although SLAs could vary across languages and the countries supported, they must do so explicitly. • Deep understanding of differences among the languages and cultures supported — Global support requires understanding how to support each customer segment, language and culture. Key factors in this area include:
Action Item: Carefully plan, integrate and manage outsourced channels, functions or processes that remain part of the enterprisewide strategy for customer service.
– Language — Dialects, even accents, can affect customer satisfaction. For example, cultural differences make providing support in French for North African customers very different from providing support to French-speaking Canadians.
22.2.3 Key Capabilities for Global Support
– Communications — The difference between what is said and what is understood, on both sides, remains the most significant issue.
Strategic Planning Assumption: Through 2007, the requirements to consolidate contact centers and to provide effective global support will remain two key factors driving enterprises to consider outsourcers (0.7 probability). Enterprises are increasingly being challenged to provide global customer support. For example, more than 20 million Americans speak a primary language other than English. To determine if they should provide global customer support services themselves or outsource this need, enterprises need to understand the four technical and process components associated with global customer support:
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
– Value systems — Such values include the place of technology in society. – Work ethic — Issues in this area are primarily related to work hours and expectations; however, even factors such as religion can affect schedules.
22.2.4 Case Study: Outsourced Call Center For an automotive manufacturer, customer relationship management (CRM) can pose a number of challenges. For example:
313
Reaping Business Rewards From CRM
• Multiple customer touchpoints must be addressed, such as direct-marketing channels, dealers and trade shows. • Customer contact is infrequent. Customers perceive their primary relationship as being with the dealer, not directly with the manufacturer, which makes ensuring a consistent customer experience difficult. In addition, contact between customer and manufacturer often stems from negative experiences, such as car breakdowns, repairs, maintenance and accidents. A major global automotive manufacturer wanted new ways to: • Improve and standardize its customer service processes throughout 19 European countries • Increase customer satisfaction • Reduce operating expenses Prior to consolidation, the company’s operating units in individual European countries managed customer support and dealer support services locally using country-specific processes — as well as country-specific systems — that didn’t interoperate. The lack of integration between the customer and dealer support networks led to: • A lack of coordination • Higher operating and IT costs • Inconsistent customer experiences This manufacturer selected EDS to create pan-European processes and consolidate its call centers using a new system architecture. EDS also integrated the CSS and dealer management systems, providing real-time data sharing and alerts between the two. As a result: • Customer satisfaction scores increased by 29 percent, because consolidating processes provided faster firstlevel process resolution and escalation for critical or sensitive cases. • More than 1 million vehicles in 19 countries were supported, with 90 percent of cases processed in less than 24 hours.
• Average operator handling skill increased by 41 percent.
22.2.5 Offshore Outsourcing Benefits Beyond the Costs Tactical Guideline: Although the operating model of global service delivery represents an attractive way to reduce costs, enterprises must use three key value factors — operational excellence, technology capabilities, and process and industry skills — to evaluate their sourcing options. In addition to deep discounts compared with domestic sourcing, the offshore provision of CSS capabilities offers several other potential advantages that can offer compelling value. These include: • Resource flexibility — The deployment of contact centers globally allows an enterprise to gain the benefits of labor arbitrage, by sourcing from the areas where labor costs the least. The ability to locate support structures around the world also offers redundancy and mitigates risk in case of disasters in certain geographies. • The direct cost advantage — Call center voice rates are $9 to $14 per agent per hour for Level 1. Level 2 rates are $30 to $35, depending on call complexity. Rates for nonvoice support are usually 10 percent to 15 percent lower. For transaction-processing BPO work — primarily basic form processing, such as loan applications — the rates are between $6 and $14 per agent per hour. For more-complex back-office jobs, such as accounting, finance or bills payable, the rates are higher (depending on factors such as the number of countries involved) — as high as $30 to $35 for higherend work, such as analytics. However, typically, U.S. rates are three to four times higher than those in India. • Time zone differences — These can be used to enable a shorter time to resolution, especially for transactionprocessing requirements associated with CRM solutions (for example, claims processing). They can also be used to create 24-hour-a-day “follow-the-sun” service capabilities. • Employee loyalty — In U.S. contact centers, especially those that are outsourced, staff turnover routinely reaches 80 percent. In offshore call centers, churn rates are closer to 30 percent.
• Operating costs dropped by 30 percent due to implementation of a common structure that required less staff (because of increased productivity).
314
Gartner
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
22.2.6 Challenges in CSS Offshore Outsourcing
22.2.7 Leveraging a Global Delivery Model
Strategic Planning Assumption: By the end of 2004, significant customer service failures will arise from the inappropriate application of the global delivery model (0.7 probability).
Tactical Guideline: First-time contact center outsourcers desiring the benefits of labor arbitrage should initially experiment with a phased approach to nearshore locations.
Simply calculating salary differences doesn’t determine the real cost savings associated with offshore outsourcing. Many enterprises — blinded by promises of 40 percent to 60 percent savings associated with outsourcing customer service offshore (often based on labor arbitrage) — fail to consider factors such as the costs associated with:
Figure 22-2 shows a number of countries that offer current and longer-term prospects for providing services to U.S. enterprises. When evaluating nearshore or offshore countries, enterprises need to look at a number of qualitative factors in each country, such as:
• Recruiting and training people
• Government support
• Setting up redundant power and data communication infrastructures
• Infrastructure
• Severance packages for laid off employees in the home country • Losing customers and diluting brand equity due to lower quality of service (if the offshore employees aren’t selected and trained carefully)
• The educational system • Software and hardware resources • Political stability • Marketing skills • Availability of skilled resources
In addition, many also fail to consider the higher risks of managing an offshore facility (whether in-house or outsourced). Enterprises investigating offshore or “nearshore” CSS strategies should not underestimate:
• Cultural issues For offshore CSS activity, U.S. enterprises have primarily used services located in India and the Philippines, with nearshore activity focused mostly in Canada and Mexico (the latter for the U.S. Hispanic population).
• The often-significant cultural training required • The lack of deep vertical-process expertise among offshore resources • A lack of middle management or supervisory-level staff • A lower level of program management capabilities • Data protection risks (in some countries) In addition, agent quality can become diluted over time. In the longer term, as entire infrastructures build up in offshore cities to support the call center industry, many talented agents choose day jobs with financial-services institutions instead of continuing to work nights in a call center.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
With approximately 80 percent to 95 percent of total BPO revenue, India dominates — and will continue to dominate — the offshore market. In terms of size and number of IT professionals, no other country comes close to India in potential (except China, which has only a nascent BPO market). However, other governments and foreign entrepreneurs are growing local offshore capabilities, recognizing the worldwide need for software professionals. For example, Mauritius is becoming a backup and recovery center for India, and can target the French-speaking market. In addition, Hungary, Poland and Russia are emerging as potential sources for customer support. To date, however, the level of interest and investments made by CSS outsourcing firms in these areas has been exploratory, and hasn’t yet demonstrated a real commitment.
315
Reaping Business Rewards From CRM
Figure 22-2: Global Delivery Options From a U.S. Enterprise Perspective Nearshore: Canada
Offshore: Ireland
Offshore: Eastern Europe
Domestic: Onsite/offsite Offshore: Philippines
Nearshore: Jamaica Nearshore: Mexico, Costa Rica Nearshore: • Easier travel • Cultural similarities • Time zone • Team integration
Source: Gartner
Offshore: India
Offshore: Argentina
Offshore: South Africa
Current Priorities
22.2.8 Structuring CSS Outsourcing Deals Strategic Planning Assumption: Through 2006, although 70 percent of enterprises will entertain the notion of business-value-based contracts (such as revenue sharing) for outsourcing of customer service processes, 50 percent of enterprises won’t be able to negotiate these contracts because they lack the measurements needed to determine success (0.8 probability). Contracting and pricing flexibility has become increasingly important to enterprises when structuring a CSS outsourcing deal (see Figure 22-3). Fixed fee and pertransaction fee deals (and some variations on these) — which remain the most-common pricing models — sit at one end of the spectrum. At the other end sit gain- or revenue-sharing deals, whereby the outsourcer is paid in proportion to the business value generated by the service provided. Gain- or revenue-sharing deals initially sound attractive to many enterprises because the outsourcer has more at stake (that is, if the outsourcer fails to generate business value, it won’t get paid as much). The vendor’s risk is high
316
Gartner
Offshore: • Lower costs • Round-the-clock service capability • Resources • Quality
Longer-Term Prospects
because it needs to understand the customer’s business intimately, and will recover its costs and make a profit only if the project’s benefits are achieved. However, if the gains are significantly higher than expected, an enterprise may feel that it has surrendered too much, and that the vendor has earned more than the fair value of its contribution. Despite claims to the contrary, most vendors and enterprises don’t venture far from traditional pricing methodologies. In a recent survey of BPO deals (including CSS), the newer equity payments and business benefit types of engagements constituted only 10 percent of deals. Transaction- and seat-based deals have become less popular with users, as they often do little to motivate the outsourcer to improve the enterprise’s business processes. In some cases, these metrics can even have the opposite of the desired effect because they motivate the outsourcer to make customers call multiple times to solve a problem, or to remain on the phone for a long time. More popular are contracts in which full or partial payment depends on performance against SLAs — including penalties for missing them. However, an enterprise needs to consider SLAs carefully. If an enterprise uses only
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
efficiency-based SLAs in contracts (such as call abandonment or first-call closure rates), customer satisfaction and customer profitability may suffer. Beyond efficiency-based measurements, enterprise should add metrics such as customer retention or profitability. However, the inability for most enterprises to measure customer satisfaction or profitability at the outset — that is, to set a benchmark — often poses a significant obstacle to this goal.
A properly constructed service-level framework, which addresses the following key factors, ensures the ongoing viability of the service arrangement:
22.2.9 The Right Way to Build an SLA
• Determine the proper frequency at which to measure to avoid potential problems. For example, for a “99 percent uptime” requirement, if six hours of consecutive downtime occurred during a single day — and no other downtime occurred during the month — a monthly frequency of measurement would show that SLA minimums were achieved.
Tactical Guideline: CSS outsourcing SLAs should consistently follow a formal structure that contains, at a minimum, the following elements: • A definition
• Define target metrics for ideal performance. • Identify minimum acceptable service levels. • Express — algebraically, if possible — the formula used to measure the service level (for input to a report program).
• Define service credit units in the framework, and weight them according to each service level’s importance to the enterprise.
• Minimum acceptable metrics • Measurement formulas • Measurement frequencies
22.3
• Credits and penalties • The tool or technique used for gathering the results
CSS Outsourcing Options
Key Issue: What are the options available to an enterprise considering CSS outsourcing?
Figure 22-3: CSS Outsourcing Contract Types Contract Type
Vendor Risk
User Risk
Payment Types
User Reward
User Survey Preference
TransactionBased
Low
High
Fixed fee per transaction
Low
3
Seat-Based
Low
High
Fee per agent per hour
Low
5
Fixed-Price
High
Low
Fixed rate
Low
2
Performance (Shared Risk and Reward)
High
Medium/ high
Fixed fee and component
Medium
1
High
High
Percentage of profit or revenue
High
4
Business Benefit-Based
Source: Gartner
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
317
Reaping Business Rewards From CRM
Complexities associated with technology implementation and the demand for process integration have led some enterprises to develop relationships that extend beyond traditional teleservices. Different types of service providers support different relationship approaches, which vary considerably and fall into four general categories (see Figure 22-4). The first structure is a utility-type relationship, based purely on efficiency and focused largely on cost savings. For these short-term assignments or temporary programs, enterprises should look primarily at small, Tier 2 regional providers. The second structure is also an efficiency-focused relationship, but is more enduring and allows for some operational performance improvement. Enterprises can leverage large Tier 2 and offshore providers for these assignments or programs. The third relationship category is based on performance enhancement, and requires a significant level of process and technology development. For these assignments or programs, enterprises should use large, well-established domestic outsourcers with demonstrable operational capabilities and best practices.
The market map for IT outsourcing can be plotted on three axes, representing the three primary factors that affect the business value of a relationship: • CSS and contact center process management capabilities • Depth of experience in the client’s industry and business processes • The vendor’s client base, brand equity and seniorexecutive relationships At different phases of their business cycles, enterprises prioritize these components differently in determining the most effective sourcing strategy. Currently, operational contact center management capability represents a significant decision criterion. However, enterprises need to understand the capabilities of the service provider on all three axes and evaluate the providers based on their respective competencies. The ability of an outsourcer to provide world-class CSS services lies in its understanding of the enterprise’s business and industry so it can facilitate customer-centric processes. These processes can then be enabled through the implementation of the most appropriate technologies.
The final structure is transformational in scope and supports end-to-end business processes. The vision stems from the desire to generate shareholder value. For these assignments or programs, enterprises should consider outsourcers with deep industry knowledge, multiprocess expertise and contract flexibility.
Results from a mid-2003 Gartner survey showed that the most important criteria for selecting outsourcers for CSS were:
Action Items:
• The potential to develop synergies between the enterprise and the outsourcer
• Avoid evaluating operational capabilities for transformational relationships, and vice versa.
• An established track record, proven through references • Supplier flexibility
• The ease with which the enterprise and outsourcer work together
• Prioritize operational depth over process expertise for efficiency-led service bureau models.
• Perceived trust
22.3.1 Evaluating Service Providers
Action Item: Create a decision framework that prioritizes business process expertise, functional skills and industry expertise over technology skills and hourly rates.
Strategic Planning Assumption: Through 2005, no single CSS outsourcing vendor will be able to demonstrate a combination of world-class operational excellence, valueadded services and vertical-market expertise (0.7 probability).
318
Gartner
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
Figure 22-4: Different Approaches for Different Enterprises Efficiency
Temporary Projects • Peak-period overflow • New customer registration • Ad hoc customer surveys • Telesales • Telemarketing
Value
Ongoing Programs • General inquiries • Account management • Recurring campaigns • Ongoing resource management • Access to infrastructure
Tier 2, Regional Provider
Source: Gartner
22.3.2 The Growing Importance of Process Capabilities Strategic Planning Assumption: Through 2006, verticalindustry process capabilities will differentiate CSS outsourcers (0.7 probability). The CSS outsourcing market has rapidly expanded since late 2002, thanks to the development of the offshore contact center outsourcing market, and the entrance into the market of several consulting and system integration firms (such as IBM and Accenture). These players entered the market through BPO and strategic business consulting work. Broadly speaking, the vendors can be categorized into: • One group that: – Gained experience prioritizing operational excellence (by driving inefficiencies out of infrastructures) – Has proven experience in managing large contact center environments with tens of thousands of agents
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Full-Process Outsourcing
Operations Outsourcing
• Enterprise asset transfer • CSS process/industry expertise • Comprehensive multiprocess management
• Integration of infrastructure, technology • Operational best practices
Tier 1, BPO, Consulting and System Integration
BPO CSS
business process outsourcing customer service and support
– Has global delivery capability • A second group that: – Focuses on industry process expertise – Has experience in BPO deals that are broader than just CSS – Often relies on partners or subcontractors to provide scale • Pure-play offshore vendors Enterprises that already have best-in-class customer service processes in their industry, and primarily need operational efficiency and proven ability to manage large contact centers, should consider vendors from the first group. Those unsure about what represents best-in-class processes for managing customers in their industry and want to buy that capability through an outsourcing arrangement should consider system integrators. Although system integrators clearly understand program management and best-in-class business processes in many industries, they don’t have years of experience in
319
Reaping Business Rewards From CRM
managing large contact center infrastructures. Therefore, they tend to use partnerships and co-sourcing arrangements with other vendors for this kind of work. As the market converges, enterprises should rate specific vendors on their expertise in specific vertical industries.
22.3.3 The CSS Contact Center Offshore Outsourcing Market Strategic Planning Assumption: Through 2004, to compete more effectively on a cost basis, most U.S.based CSS outsourcers will acquire smaller companies that have knowledge of local (offshore) resource pools, cultures and business practices (0.8 probability).
• Alliances and joint ventures between U.S. and offshore companies • Venture-capital-funded independent contact center outsourcers • Outsourcing subsidiaries of leading offshore IT services vendors Interest in CSS contact center outsourcing overseas will likely continue unabated. All types of service providers are rushing to claim a stake and tap into local resources around the world. However, challenges exist in understanding cultural and business practice nuances. Furthermore, many vendors lack the expertise to bridge the gap between process expertise and credibility.
The CSS contact center offshore outsourcing market now has five clear types of firms (see Figure 22-5):
22.4
• Large, global service providers trying to establish capabilities overseas to support global enterprises
• Clearly identify the enterprise’s objectives for outsourcing.
• Captive contact centers of large enterprises, some of which are externalizing capabilities (although scale is a prerequisite for success)
• Map all customer-facing processes, and dedicate sufficient management resources to the areas where retained processes intersect with outsourced ones.
Recommendations
Figure 22-5: Selected CSS and Contact Center Outsourcing Vendors U.S. Companies With Offshore Investments
Cross-Border Collaboration
Key Offshore Vendors TCS
Wipro
ClientLogic SR Teleperformance Intelligroup
EDS
Accenture PRC
CSC Sitel
IBM Sykes
Convergys Stream
Infosys Deloitte Keane
ICT SourceOne GE Capital Citibank American Express AOL
TeleTech
Mastek SignalTree
Source: Gartner
320
Gartner
Intelenet
Satyam
Nipuna MsourcE
Progeon
Tata International
WiproSpectramind
vCustomer C-Cubed
HCL (e-Serve)
Vocativ
Transworks E-telecare
SVI
AOL CSC PRC
MphasiS
America Online Computer Sciences Corp. Precision Response Corp.
Daksh
SVI TCS
PLDT
24/7
Software Ventures International Tata Consultancy Services
Strategic Planning Series
Rewards and Pitfalls of Outsourcing Customer Service and Support
• Develop contracts that require service delivery innovation to reduce the cost of ongoing operations. • Leverage global service delivery capabilities for process support. • Carefully evaluate providers, paying particular attention to vendors’ depth of vertical business process understanding.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Ensure that well-defined metrics are in place for both vendor and process performance management, so that the enterprise can effectively manage and measure the outsourcing relationship. • Don’t underestimate the management time required to make outsourcing work — particularly during the first year.
321
CRM Solutions for Midsize Businesses
23.0 CRM Solutions for Midsize Businesses
G
artner estimates that in North America, fewer than 20 percent of the estimated 90,000 midsize businesses (MSBs) — which have between 100 and 999 employees — adopted customer relationship management (CRM) early and have already deployed systems to support a CRM strategy. For the other 80 percent of MSBs, CRM remains an unfulfilled opportunity. In addition, only 2 percent of North America’s almost 5 million small businesses — which have 1 to 99 employees — have implemented CRM. Results from 2003 Gartner MSB IT surveys indicate that, although CRM remains a high priority, security and IT infrastructure improvements take higher precedence. As a result, many MSBs will continue to delay implementing CRM, or will consider partial or interim CRM projects. This chapter — which focuses on MSBs, as well as business units of larger enterprises or holding companies that operate independently from a parent company — analyzes and compares: • The most compelling options for CRM software investments, including solutions from: – Best Software (makers of SalesLogix) – Microsoft – Onyx Software – Pivotal – Salesforce.com – Siebel Systems • CRM solutions appropriate for organizations with: – Between 50 to 300 CRM users – CRM deployment budgets of less than $3,500 per user The following Key Issues frame the analysis in this chapter: • What kind of results are MSBs achieving by implementing CRM software suites?
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
323
Reaping Business Rewards From CRM
• How can MSBs best purchase, deploy and maintain CRM software? • Which CRM application vendors are best for MSBs?
23.1
What MSBs Are Doing With CRM
Key Issue: What kind of results are MSBs achieving by implementing CRM software suites?
23.1.1 Evidence of CRM Benefits for MSBs During the second half of 2003, Gartner surveyed 142 MSBs, small businesses and business units of larger enterprises — 97 percent of which were based in North America — that were using CRM software from 20 vendors. Respondents — from many industries and using a variety of business relationship models — cited the following main reasons for using CRM:
• Help desk • Insides sales • Lower-level and midlevel management • Marketing • Partners However, few respondents had deployed CRM outside their businesses — to customers or partners. In addition, many respondents provided little evidence of using their CRM software for marketing automation. Nevertheless, respondents provided overwhelming evidence of the benefits of CRM initiatives among MSBs. As Figure 23-1 shows, 95 percent of respondents indicated that CRM improved their businesses by improving efficiency and effectiveness. In addition, approximately two-thirds indicated that CRM had delivered benefits in the areas of return on investment (ROI), cost reduction and competitive advantage.
• Provide a complete view of the customer for customerfacing employees (50 percent of respondents)
23.1.2 Key Benefits Delivered by CRM
• Gain visibility into sales cycles and sales activities (29 percent of respondents)
MSBs can derive the following eight key benefits from using CRM software:
• Deliver customer service and support (10 percent of respondents)
• A single view of customer data, which provides customers with consistent and predictable information at every touchpoint, reduces redundancy and duplication, and provides shared information to help businesses provide better service
• Integrate sales and service activities (6 percent of respondents) • Consolidate systems (5 percent of respondents) On average, each business had deployed CRM to 126 users across functions that included: • Accounting • Application development • Customer service • Customers
• Real-time information availability, which allows sales and service representatives to provide customers with product availability information on a line-by-line basis, and makes up-to-date product and competitive information available at the point of sale • Better knowledge and understanding of customers, which can be used to tailor services more efficiently to customer needs and spending levels, and to target priority accounts • Knowledge retention, which decreases information loss due to staff turnover
• Engineering • Executives • Field sales
• Fewer lost leads and more intelligent leads, which reduces lost sales
• Field service
• Standardized best-practice enforcement
324
Gartner
Strategic Planning Series
CRM Solutions for Midsize Businesses
Figure 23-1: MSB Benefits Gained From CRM 64%
Achieved a measured ROI Improved efficiency
95%
Improved effectiveness
95% 68%
Lowered costs Provided a competitive advantage
66%
Increased revenue
46% 0
Source: Gartner survey of MSB CRM users, 125 respondents
• Automation of time-consuming tasks • Increased collaboration Action Item: When investing in CRM software, an MSB should aim to use customer data to: • Enhance customer interactions • Provide visibility into sales cycles • Improve customer service and support
25
50 CRM MSB ROI
75
100%
customer relationship management midsize business return on investment
with its order entry and accounting systems. It reported the following benefits: • Marketing efforts narrowed to reach specific target customers • More timely receipt of payments, because of the new capability to place credit holds on customers that haven’t paid aging invoices • Greater information for sales and service representatives, because the SalesLogix system contains total revenue data from the last three years
23.1.3 Case Study: Reported Benefits of an MSB CRM Implementation
• An integrated order entry system that allows each employee to process more orders, more easily than before
Strategic Planning Assumption: Through 2007, the topthree reasons that will successfully justify MSB CRM investments will be reducing service and sales channel costs, keeping track and maintaining a single view of customers, and acquiring new customers (0.7 probability).
• A reduction in the time required to develop production schedules from hours to minutes • Improvements in returns and warranty work • The ability to use returns and warranty tracking information for research and development opportunities
A small manufacturer using SalesLogix for 30 CRM users spent $76,000 for its CRM project, including integration
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
325
Reaping Business Rewards From CRM
• A new ability for sales and customer staff to take responsibility for ensuring 100 percent customer satisfaction with goods and services • Becoming better-equipped to excel in sales and support • An increase in repeat customers • Complete automation of lead referrals, to manage leads that come in over the phone or through the Web site • Better organization of workflow and communications among every department (which also cut costs by eliminating the need to hire more than a dozen employees)
23.2
Buying, Installing and Maintaining CRM Solutions
Key Issue: How can MSBs best purchase, deploy and maintain CRM software?
23.2.1 Using Licensed CRM Application Software Strategic Planning Assumption: Through 2006, purchasing packaged software will remain the most-popular approach for MSBs to acquire CRM applications (0.8 probability). Most MSBs acquiring CRM applications prefer to do so by licensing packaged software. The perception of the license purchase providing a measure of control over the application remains a significant factor in that preference. Other key factors for MSBs choosing licensed CRM application software include: • The functional depth and maturity of some CRM applications • Customization — that is, the ability to configure, extend and tailor the application so that it maps to business processes and requirements Strengths of licensed CRM application software include: • Depth of CRM functionality across the core CRM suite (customer service and support, sales, and marketing) • Robust support for disconnected use
326
Gartner
• Support for multiple underlying technologies • Industry-specific and sub-industry-specific functionality • The ability to extend and customize functionality • Tight management control • Lack of alternatives Challenges of licensed CRM application software include: • The relatively high cost of licensing, implementing and operating the software • The requirement for a large upfront capital expenditure • The need for skilled resources to maintain and upgrade the applications • Longer average implementation times compared to using software from an application service provider (ASP) MSBs should consider licensed CRM application software when their requirements include: • Broad, deep and integrated CRM functionality across a CRM suite • Industry, subindustry or other unique functionality • Full functionality for disconnected use Action Item: MSBs should: • Establish a cross-functional team at the inception of a CRM initiative. • Delegate any function associated with technology procurement evaluation, selection or negotiation to this cross-functional team. • Ensure that this team uses a managed procurement process to achieve technical, business, financial and contractual requirements.
23.2.2 Using ASPs for CRM Functionality Strategic Planning Assumption: By 2006, 25 percent of MSBs and small businesses investing in CRM software will choose an ASP for their CRM software needs (0.7 probability).
Strategic Planning Series
CRM Solutions for Midsize Businesses
Tactical Guideline: There is now enough evidence of Type A MSB success using ASPs for CRM functionality that Type B and Type C MSBs should consider using CRM ASPs.
MSBs should consider CRM ASPs when they:
As more evidence of their success becomes available, CRM ASPs continue to gain favor among MSBs due to the following strengths:
• Remain uncertain about their CRM needs
• Relatively low startup costs • Low monthly costs — typically about $65 to $125 per user per month • A “pay as you go” model, in which users spend only for the software services needed (rather than paying for unused or undeployed licenses)
• Have limited IT resources • Don’t have the ability to pay for licenses upfront
• Need a short-term solution • Want to upgrade to CRM from PC-based contact management or homegrown customer-tracking applications However, the software services provided by CRM ASPs don’t fit all MSBs’ needs, particularly those requiring: • Support for unique or industry-specific business processes
• The CRM-as-a-service model, which requires no software other than an Internet browser
• A high level of application integration
• Significantly reduced capital expenditures
Additional challenges related to CRM as a service include:
• Rapid deployment (about 50 days, on average)
• An MSB preference for application and data ownership
• Fewer IT resources needed for implementation and support
• Lack of robust support for disconnected use • A limited ability to customize
• Ease of use • Future growth plans • Functionality that meets the needs of many MSBs and divisions of large enterprises • ASPs supplementing, but not replacing, the IS organization — and doing so without loss of control Ease of use increasingly represents a critical factor in the rapid and broad adoption of CRM applications. Most users find CRM solutions delivered by ASPs easier to use. As ASPs deepen and broaden the CRM functionality they provide, more MSBs should consider the appropriateness of CRM ASPs. A CRM ASP also can provide an excellent short-term solution for those that want to: • Make their customer interactions more consistent • Centralize the collection of customer data • Discover longer-term CRM application requirements through actual use
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Potentially high three-year total cost of ownership (TCO) compared to some on-premises alternatives • Fear of losing control • Lack of security Moreover, CRM ASP solutions often can’t move an MSB past simple automation to a higher level of business intelligence. In addition, some MSBs find it difficult to determine whether a CRM ASP’s solution is really less expensive than licensed CRM application software.
23.2.3 A Three-Year TCO Scenario for CRM Tactical Guideline: For an organization with 170 users, Salesforce.com’s Enterprise Edition ASP offering will be the least-cost CRM solution during the first two years; however, by year three, it will cost more than licensing SalesLogix or Microsoft CRM.
327
Reaping Business Rewards From CRM
Gartner developed a scenario common to MSBs looking to deploy a simple CRM software solution. We targeted the high end of the market to assist some large enterprise clients with simple CRM needs, midsize divisions of some large enterprises and growing MSBs. We used the scenario to gather and compare cost data from key MSB CRM suppliers. This TCO scenario included the cost of CRM software for 170 CRM users and one system administrator, services (internal and external), support, maintenance, and any required server hardware. However, it excluded costs related to laptops, desktops, telecommunications and the internal help desk. Assumptions about the MSB and its CRM system requirements for our pricing scenario included:
• Any required application server hardware • A standard maintenance and support plan • Internal staff for deployment — including a project manager, business analyst and technical resource — at a fully burdened daily rate of $1,108 for three fulltime equivalents (This was multiplied by the average numbers of days users report it takes to deploy this vendor’s system.) • Minor and major software upgrades over the three years using internal staff or business partner • Internal CRM system administer or CRM developer salary to support, maintain and enhance the system over the three years
• 1,000 employees and $400 million in revenue
The three-year TCO estimate generated through this scenario (see Figure 23-2) showed that Salesforce.com’s Enterprise Edition cost more per user ($4,469) than:
• The following distribution of user types (and required features):
• Microsoft CRM ($4,088)
– 100 salespeople, 75 of which need mobile offline capabilities (features: simple sales tracking, forecasting and account management) – 50 customer service and support users (features: case/trouble ticket management) – 10 managers (features: management reporting and analysis) – Five executives (features: management reporting and analysis) – Five marketing users (features: campaign and list management) – One system administrator license • Developer tools • Integration — assume one connector to legacy system • Assume minor customization • Data conversion • End user, administrator and developer training
• SalesLogix ($3,868) However, Salesforce.com’s Enterprise Edition cost less than: • Siebel MidMarket Edition ($5,324) — a discontinued product, since replaced with Siebel Professional Edition • Pivotal ($4,786) • Onyx ($5,455) The depth of CRM features offered by each solution varies — these products do not have equal functionality. However, all meet our basic TCO model requirements. From our shortlist of vendors, Microsoft (with Microsoft CRM) and Best Software (with its SalesLogix product) offer the lowest-cost solutions for 170 CRM users over three years. Salesforce.com, however, can cost less than SalesLogix or Microsoft CRM over three years when lower numbers of users are involved (for example, approximately 40 CRM users). Moreover, Salesforce.com poses far fewer IT hassles, and can cost less for organizations that lack a good IT infrastructure in-house to deploy and maintain the system.
• Implementation/installation services • Any required application server software (such as database software), including support
328
Gartner
Onyx, Pivotal and Siebel offer broader and deeper functionality for MSBs, but at slightly higher price points. Clients should conduct their own cost/benefit analysis with
Strategic Planning Series
CRM Solutions for Midsize Businesses
Figure 23-2: A Three-Year TCO Scenario for CRM
Vendor Onyx Siebel MidMarket Edition Pivotal Salesforce.com Enterprise Edition Microsoft CRM Professional Edition SalesLogix
Year 1 $660,673 $548,232 $592,701 $290,451 $502,771 $447,990
Year 2 $126,102 $162,496 $117,764 $236,875 $98,150 $115,410
Year 3 $146,102 $199,660 $107,864 $236,875 $98,150 $98,010
Three-Year Total
Three-Year Cost per User
$932,877 $910,388 $818,329 $764,201 $699,071 $661,410
$5,455 $5,324 $4,786 $4,469 $4,088 $3,868
$1,000,000
Year 3: Salesforce.com more expensive than Microsoft CRM and SalesLogix
$800,000 $600,000
Year 2: Salesforce.com is still least-costly option
$400,000 $200,000 $0
Onyx
Siebel Pivotal MidMarket Edition
Salesforce.com Microsoft SalesLogix Enterprise CRM Edition Professional Edition
Source: Gartner
regard to this added functionality. Because the benefits of this functionality may outweigh the incremental costs, decisions shouldn’t be made on the basis of cost alone.
Year 1: Least-costly option — Salesforce.com Enterprise Edition
Key
Year 3 Year 2 Year 1
• TCO • Price (less than $3,500 per user to deploy) • Ease of use
Action Item: MSBs must recognize that, although an ASP solution may represent a solid short-term choice to meet CRM needs, it can become costly in the long term.
23.2.4 CRM Decision Criteria Critical to MSBs Strategic Planning Assumption: Since more than 50 percent of CRM vendors will be acquired, merge or go out of business by 2006, CRM vendor viability will remain a critical consideration (0.6 probability). In a 2003 Gartner survey of North American MSBs and small businesses that had implemented CRM solutions, the following criteria were cited as most important in deciding on a CRM solution: • Features • Ease of implementation
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Respondents generally considered pre-integrated CRM functionality to be more valuable than best-of-breed solutions. MSBs typically lack the resources to manage integration work themselves, and usually don’t need the extra functionality that best-of-breed solutions provide. Technology represents a relatively small portion of the overall CRM solution decision (see Figure 23-3). However, respondents indicated that the flexibility to configure the application — and later to reconfigure, extend and customize it to adapt to changes in customer demands — was an important criterion. Because MSBs recognize the business value of linking CRM with other operational applications, they want their CRM applications to support easy and low-cost integration. Gartner’s survey showed that 64 percent of respondents had integrated their CRM software with other front-office systems, such as their Web sites, or their back-office or
329
Reaping Business Rewards From CRM
enterprise resource planning (ERP) applications. Adherence to industry standards and open architectures is key to supporting greater application flexibility, adaptability and integration capability. Action Item: In their CRM application selection decisions, MSBs must increase the importance they assign to vendor viability and application integration.
businesses used external service providers (ESPs) on their CRM projects. The others relied on their chosen application vendors’ professional services (52 percent), and the remainder used their own resources or some combination of the three. Respondents indicated that factors changing their attitudes about using ESPs include: • A desire to reduce project risk
23.2.5 Using ESPs
• A lack of skilled, in-house resources
Strategic Planning Assumption: Through 2005, risk reduction, speed-to-benefits and shortages of in-house skilled resources will drive more than 50 percent of MSBs and small businesses to use implementation services from their CRM software vendors, and will drive more than 30 percent to use an integrator for implementation services (0.8 probability).
• An urgency to quickly realize the business benefits of CRM The top services for which MSB respondents said they plan to use ESPs in their CRM projects are: • Education and training • Application installation
Results from the same 2003 Gartner survey also showed that only 33 percent of North American MSBs and small
• Custom application development
Figure 23-3: MSB CRM Decision Drivers — More Than Technology Vision • Future market focus
Cost and ROI +++ • Contract price • Total cost of ownership • Bundles including services • Potential ROI
Viability ++ • MSB focus • References and market momentum • Cash in the bank and cash burn rate; debt • Trend in profits, revenue and new license fees • Revenue per headcount • Shareholders’ profit performance trend • Share-price movement in the past 90 days • Turnover of executives
Source: Gartner
330
Gartner
5% 20% 20%
25%
15% 15%
Service and Support + • Quick implementation • Low-hassle life cycle • Easy access to quality help Plus (+) symbols indicate higher importance to MSBs compared with large enterprises.
Functionality • Easy to learn/use • Broad for MSBs • Modular • Maps to the way you conduct business
Technology • Simple to maintain • Effective user interface • Adherence to standards • Open architecture • Extensible • Ease and low cost of integration
MSB midsize business ROI return on investment
Strategic Planning Series
CRM Solutions for Midsize Businesses
ESPs can bring much-needed, proven methodologies and strong project management capabilities to MSB CRM projects. They also can speed the time to project benefits through their experience with industry solutions and vendor applications. Strengths associated with using ESPs include: • Industry and subindustry expertise and experience • CRM application expertise • Expertise in extending, customizing and integrating the CRM application • Proven project management and methodologies for MSBs Challenges associated with using MSB-focused ESPs include: • They tend to have a bias toward known applications and vendors (and resellers often receive a percentage of the software sale, in addition to what they charge for the services provided). • They tend to be small and regional, and few provide national coverage. MSBs should consider using ESPs when their requirements include:
Action Item: An MSB should: • Maintain active involvement in its CRM projects by managing its ESP. • Take advantage of the opportunities for reduced project costs and knowledge transfer by involving in-house staff with a CRM project. • Treat the evaluation and selection of an ESP as a project in itself, because most MSB-focused ESPs tend to be small and regional firms.
23.3
Choosing CRM Application Vendors
Key Issue: Which CRM application vendors are best for MSBs?
23.3.1 Use Size and Complexity to Choose a CRM Solution MSBs need to see technology in the context of their size, because size often affects skills, budgets, requirements and agility. Figure 23-4 positions the various vendor offerings based on how well they meet the needs of small and midsize businesses. Each vendor has unique requirements at the product, channel, pricing, messaging and consumption model levels.
• Industry-specific expertise • Resources to address a lack of in-house skills or manpower
Factors that determine CRM complexity include the MSB’s:
• Extensive organizational and business-process change
• IT budget
• Rapid deployment of the CRM application
• IT staff (size and skills)
• Extensive tailoring or extension to align the CRM application with business needs
• IT adoption
The top criteria that MSBs should use to select ESPs for CRM are:
• Scope of needs (for example, back-office integration)
• Established track record • Verifiable references • Application expertise • Flexibility (that is, being easy to work with)
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Established infrastructure (or lack thereof)
• Industry requirements • The complexity of the sales or service model, the parameters of which can include: – The complexity of the product sold (because morecomplex products require a product and pricing configurator), and of the sales cycle (including the number of people involved, and whether team or individual selling is used)
331
Reaping Business Rewards From CRM
MarketScope’s rating advice provides specific guidance for:
– Support for e-commerce and sales partners – The number of sales channels, salespeople and opportunities processed annually
• MSBs that are deploying or have deployed CRM software
Action Item: An MSB should evaluate solutions that align with its size as well as the complexity of its CRM requirements.
• MSBs considering the purchase of CRM software Action Items: • An MSB that hasn’t invested in CRM software should evaluate the offerings analyzed in this MarketScope, because they can help develop CRM maturity by:
23.3.2 The 1H04 CRM Software MarketScope for MSBs
– Delivering a more consistent customer experience
Tactical Guideline: In 2004, Best Software, Salesforce.com, Siebel, Microsoft, Onyx and Pivotal are best positioned to meet MSB CRM software suite requirements.
– Enhancing organizational collaboration – Improving the quality of information available on customers
Because the CRM midmarket represents a focused market segment, Gartner retired the Magic Quadrant for analyzing this CRM market in favor of Gartner’s MarketScope (see Figure 23-5, as well as Section 1.1.4, which describes the MarketScope rating categories). This
• To remain competitive and achieve benefits from CRM, an MSB should expect to: – Pay, over three years, between $3,900 and $5,400
Figure 23-4: Determining a CRM Solution Based on Size and Complexity
Large Business 1,000 to 2,499 employees, average of 200 CRM users Midsize Business 100 to 999 Size employees, of Business average of 126 CRM users
Gartner Rating of CRM Vendor Suitability for Midsize Businesses Danger Zone: Unproven Scalability SalesLogix Onyx Salesforce.com ACCPAC Saratoga
Microsoft
Small Business 1 to 99 employees, average of 25 CRM users
332
Gartner
Epicor
PeopleSoft
Danger Zone: High Price Risk, Feature Overkill
NetSuite
Simple Needs • Lower Cost • Fewer Features Source: Gartner
Oncontact
Siebel Pivotal
Degree of CRM Complexity Depth of features, number of interaction channels, number of integration points, complexity of sales or service model, scope of needs
Complex Needs • Higher Costs • Deeper Features
Strategic Planning Series
CRM Solutions for Midsize Businesses
per key customer-facing employee for CRM software, services and support – Implement an ASP solution in 50 days, or licensed CRM application software in 70 to 140 days (on average)
23.3.2.1 Rating for the Overall Market The outlook for MSBs investing in CRM software is positive, because MSBs have demonstrated overwhelming evidence of the benefits of CRM initiatives (see Section 23.1.1). However, CRM vendor viability will remain a critical consideration because more than 50 percent of the vendors in this market likely will be acquired, merge or go out of business by 2005. A key factor driving this consolidation is the entrance of Microsoft (at the low end of the market) and of large enterprise vendors (such as Oracle, PeopleSoft, Siebel and SAP). MSBs should expect more compelling options by 2006 as offerings mature.
Gartner’s overall market rating is “positive.”
23.3.2.2 Evaluation Criteria Vendors in this MarketScope were evaluated based on the following criteria: • Product features, quality, usability, customization, integration and innovation — Delivery of new and innovative functionality that resonates with MSBs • TCO, price, time to deployment, ease of implementation, quality of service and support, and potential ROI and benefits — Aligned with MSBs’ resources and goals • Financial viability and market commitment to the CRM needs of MSBs — The ability of the vendor to: – Generate sustainable revenue and profits – Show commitment and investment to be successful with MSBs
Figure 23-5: CRM Suites for MSB — 1H04 MarketScope Strong Strong Negative Caution Promising Positive Positive Best Software (ACCPAC) Best Software (SalesLogix) Epicor Software (Clientele) Firstwave Technologies FrontRange Solutions Interface Software Microsoft (Microsoft CRM) NetSuite Oncontact Software Onyx Software PeopleSoft Pivotal Salesforce.com SAP Saratoga Systems Siebel Systems Soffront Software (As of December 2003)
Source: Gartner
Note: Some companies, although compelling enough to be included, are rated ”Caution” because we estimate that they produced less than $25 million in CRM revenue in 2003, or they couldn’t provide Gartner with 15 to 30 CRM midsize-enterprise references from June to October 2003.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
333
Reaping Business Rewards From CRM
– Produce more than $25 million in CRM revenue in 2003, based on Gartner estimates, to rate higher than “caution” • References — The number of high-quality MSB CRM references (15 to 30 references, to be rated higher than “caution”), which Gartner uses to corroborate vendors’ CRM product claims regarding: – Implementation – Marketing
The key challenge for Onyx is delivering consistent revenue growth and returning to profitability (Onyx hasn’t made a profit since 4Q99), which the company expects to do by 2Q04 when it finishes paying off debts for excess facilities. Other challenges include: • Best-of-breed sales functionality (for example, sales compensation, and sales and pricing configuration) • Less than 3 percent market share in CRM software for MSBs • Mobile sales capabilities (Onyx’s least-mature component; customers are just starting production use of Onyx’s new mobile Web client)
– Pricing – Support – TCO – Technical capabilities • Marketing momentum in CRM solutions for MSBs — As demonstrated by the vendor’s:
Onyx customers rate themselves as more mature in CRM than competitors’ users (including Siebel and Pivotal users). Users rated Onyx high in customer satisfaction, second only to the satisfaction levels reported by Salesforce.com users.
– Distribution channels
MSBs will find Onyx appealing if they need a tool to provide:
– Installed base
• Better customer support to improve customer relationships and retention
– New license revenue – Partnerships
• A closed-loop system to manage the customer — from prospect, to sale, to engagement, to support
– Sales effectiveness
23.3.2.3 Onyx Software Strategic Planning Assumption: By 2005, the competitive nature of the MSB CRM market will create viability issues that will constrain Onyx, even though it will remain independent (0.8 probability). Onyx Employee Portal offers an integrated CRM application across marketing, sales, and customer service and support for a fair price. MSBs using the product report spending about $3,500 per user to deploy the solution.
In addition, MSBs should consider Onyx when their requirements include: • Strong customer service functionality with contact center integration • Financial-service experience and expertise Although Gartner remains cautious about Onyx’s financial position, the MarketScope rating for Onyx is “positive.” Action Item: Although Onyx belongs on shortlists for more-complex CRM needs, MSBs need to monitor the company’s financial health closely.
Other Onyx strengths include: • Customer service functionality
23.3.2.4 Pivotal
• Solid Web services architecture
Strategic Planning Assumption: Chinadotcom’s (CDC’s) recent acquisition of Pivotal won’t relieve Pivotal of the increasing competitive pressure it will face after 2005 (0.9 probability).
• IBM application-hosting partnership • Embedded CRM strategy • 997 customers and 221,000 seats sold
334
Gartner
Strategic Planning Series
CRM Solutions for Midsize Businesses
Pivotal, with its Pivotal v.5, offers robust sales features including: • Improved call center features • Mobile sales functionality • Solid marketing campaign management Additional strengths include:
The infusion of capital from the CDC will help Pivotal improve its business, making the combined entity a more formidable competitor in the CRM midmarket by the first half of 2005 (0.6 probability). Gartner’s MarketScope rating for Pivotal is “promising.” Action Item: Although Pivotal belongs on shortlists for more-complex CRM needs, MSBs need to monitor the company’s support levels.
• A highly flexible and configurable offering • An infusion of capital from CDC
23.3.2.5 SalesLogix
• 1,600 customers and 167,000 seats sold
Strategic Planning Assumption: In 2004, Best Software will feel the impact of Microsoft CRM in the form of slowed revenue growth (0.9 probability).
In February 2004, CDC completed its acquisition of Pivotal (which was announced in December 2003). CDC will provide the financial backing Pivotal needs to become financially viable, improve its operations and expand its market presence. However, Pivotal has a number of challenges to address, which include: • Improving its level and quality of support (Pivotal has announced a 40 percent increase in technical-support head count to address this issue) • Helping its customers migrate to Pivotal 5 • Providing customers with a single platform and toolset to develop, deploy and administer Pivotal 5 • Having less than 3 percent market share in CRM software for MSBs • Delivering consistent revenue growth and regaining profitability (although it’s getting closer to breaking even, Pivotal hasn’t made a profit since the third quarter of 2000) MSBs should consider Pivotal when their requirements include: • Strong sales functionality with support for multiple customer interface channels (including supporting applications for e-commerce-like sales configurations) • Subindustry support for investment banking, healthcare insurance, or real estate and construction • A global solution, including support for the Asia/Pacific region
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
In 2002, Best Software tied with SAP for the No. 2 market share position (behind Siebel) in CRM software for MSBs. Although Best Software hasn’t yet leveraged its large reseller base well, it’s financially strong (and was also the fourth-largest ERP software vendor in terms of 2002 market share). SalesLogix and Best Software strengths include: • Solid options for mobile sales users • Its Dynalink product for simple and inexpensive (less than $2,000) integration to popular MSB back-office systems • A practical, flexible solution • Low solution cost ($3,868 estimated three-year TCO) and good adoption rates among salespeople • Financial stability — more than $815 million in annual revenue • The ability to offer a broad portfolio of business management solutions as clients’ needs grow • 5,400 SalesLogix customers and 230,000 users Most SalesLogix users consider SalesLogix their sales force support tool — which includes linking to their back-office systems for transaction histories and analysis — but not a full CRM solution. Best Software plans to offer a customer service module for handling customer inquiries with version 6.2 of SalesLogix, which is slated for release in the second half
335
Reaping Business Rewards From CRM
of 2004. Until SalesLogix 6.2 becomes generally available, Best Software offers SalesLogix Support for handling product support. SalesLogix users want: • To rely less on third-party applications to fill out the product’s missing CRM features, such as e-mail campaigns • More responsiveness from Best Software regarding their needs, rather than relying solely on SalesLogix’s value-added resellers (which sell to and service SalesLogix customers), whose quality can vary significantly Additional SalesLogix and Best Software challenges include: • Building a balanced CRM suite (or risking becoming a best-of-breed sales product) • Competition from Microsoft • Educating Best Software’s value-added resellers on CRM, and getting more presence with them to represent the product • More technical enhancements to support Web services better
23.3.2.6 Salesforce.com Strategic Planning Assumption: Through 2005, the number of Salesforce.com users and the company’s revenue will continue to grow by more than 100 percent annually (0.7 probability). The most high-profile and successful first-generation ASP is Salesforce.com. To many ASP skeptics, Salesforce.com has been the exception to the rule — it’s the one company with an ASP delivery model that’s hard to ignore. Although other ASPs are more important, Salesforce.com is the most influential — it’s recognized as a truly innovative company (with a “no software” model and message) that is forging a path into the next generation of software. Founded in 1999, Salesforce.com began offering sales automation as an online service in early 2000. It’s grown to 9,500 customers and 140,000 subscribers, broadened its service to include support for customer service and some marketing functionality, and filed for a public stock offering planned for sometime in 2004. In early 2002, Salesforce.com introduced its Enterprise Edition, with support for application integration. During the same year, it introduced improved support for offline or disconnected use (Offline Edition and Wireless Edition).
• Solid back-office application integration capabilities
In June 2003, it launched sforce, a hosted development platform that enables customers and software developers to develop and deploy custom applications to complement their CRM solutions hosted by Salesforce.com. A week later, it introduced S3, the next version of its software with dozens of enhancements. Most recently, in April 2004, Salesforce.com introduced Studio, a customization suite that enables the creation of custom tabs — as well as new applications with associated objects, pages and tabs — by business administrators.
Although SalesLogix is good for sales, its customer service and support and marketing capabilities are less robust. Gartner’s MarketScope rating for SalesLogix is “positive.”
Although its customers are primarily MSBs, Salesforce.com — which also targets large enterprises — now has a few customers with over 1,000 CRM users.
Action Item: For simple CRM needs focused mostly on the sales staff, MSBs should add SalesLogix to their evaluation shortlists — particularly those MSBs that already use Best Software back-office products.
Salesforce.com strengths include:
MSBs should consider SalesLogix when their requirements include: • Strong sales functionality • Proven support for disconnected use by hundreds of users • High configurability
336
Gartner
• Ease of use • Intuitive interfaces
Strategic Planning Series
CRM Solutions for Midsize Businesses
• Low monthly fee • Almost no capital costs • Rapid startup and deployment • The company’s status as a reliable, growing business with satisfied customers • The ability to integrate and customize the application, if desired Salesforce.com challenges include: • Maintaining ease of use while broadening and deepening CRM functionality (for example, sales compensation, robust quoting and contracts management)
23.3.2.7 Siebel Systems Strategic Planning Assumption: Through 2004, an upturn in revenue from Siebel CRM OnDemand will help Siebel remain the largest market share holder in CRM software for MSBs (0.8 probability). In 2002, Siebel held the top position in market share for CRM software for MSBs. It has an estimated 2,100 MSBs and small businesses as customers. MSBs and smaller enterprises evaluate Siebel more frequently than any other CRM vendor, mostly because of its leadership position in CRM software. Siebel offers two ASP solutions:
• Overcoming potential users’ concerns with a hosted solution (such as security and privacy issues)
• Siebel CRM OnDemand — UpShot Edition (1,000 customers)
• Remaining focused on MSB needs
• Siebel CRM OnDemand (300 customers)
• Meeting MSB requirements for broader hosted enterprise applications, including integrated accounting, inventory, order management and e-commerce
Siebel also offers many options for licensed application software, including:
• Alternatives that pose lower costs over three years, such as Microsoft CRM or SalesLogix • Managing potential customer churn — that is, stopping customers from considering hosting only as a shortterm option • The need for MSBs to incorporate the costs of this ASP solution into their yearly operating budgets MSBs should consider Salesforce.com when: • Their requirements include low startup costs and simple CRM needs
• Professional Edition • Enterprise Edition • 23 industry-specific offerings, including several for MSBs On March 2, 2004, Siebel announced it was repackaging, repricing and improving the usability of its midmarket offering to better meet the needs of MSBs. It has transformed Siebel Midmarket Edition (list-priced at $1,200 per user) into Siebel Professional Edition (priced at $995 per user). It is offering a fixed-price implementation, conducted in 6 weeks, of sales and service features for up to 200 users at a price of $54,000 (with no training or integration, and only minor customization, included).
• Sales automation represents the primary CRM need Gartner’s MarketScope rating for Salesforce.com is “positive.” Action Item: MSBs that are willing to consider an ASP for simple CRM needs should add Salesforce.com to their vendor shortlists.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Siebel Professional Edition includes a good set of base CRM features, 35 new or enhanced modules, and improvements in usability and system response time. Included in the $995 user fee is the ability to select six to eight modules in addition to the base product. In addition, users can license any additional Siebel modules for an additional cost. (In the past, Siebel MidMarket Edition users were unable to license some Siebel modules, such as handheld modules that were available only to Siebel Enterprise users.) Siebel also offers an integrated hybrid
337
Reaping Business Rewards From CRM
solution that uses hosted and licensed application software. For Siebel, 2004 will represent a critical year as it faces the following challenges: • Merging its two OnDemand alternatives into one offering • Attracting more MSBs to Siebel CRM OnDemand
• Although Siebel Professional Edition offers a compelling product feature set for a list price of $995, MSBs should be cautious about whether to move forward with the product because of potentially high overall costs. Siebel hasn’t proven its ability to deliver affordable, licensed CRM software and services to MSBs. However, because the benefits of the features may outweigh the costs for come businesses, MSBs should conduct their own cost/benefit analyses.
• Attracting MSBs to Siebel Professional Edition In addition, many of the businesses that have evaluated Siebel eliminated it from consideration due to the relatively high cost and complexity of its licensed applications relative to their requirements. Gartner surveyed nine Siebel customers that reported spending $12,000 on average per user — which included software, hardware, services, and first-year support and maintenance — to deploy Siebel MidMarket Edition (which is no longer being sold). While it appears that Siebel is lowering the pricing of its software for MSBs with Siebel Professional Edition and putting together competitively priced service packages, only time will tell if the implementation, hardware and other costs will decrease as well. With Siebel CRM OnDemand, Siebel now can deliver a lower-TCO offering (list-priced at $70 per user per month), or an integrated hybrid solution of hosted and licensed application software. MSBs should consider Siebel when their requirements include: • An ASP solution for CRM software • An integrated hybrid solution of hosted and licensed application software • Deep and broad features • Industry-specific needs Siebel continues to offer the most feature-rich options for MSBs. Gartner’s MarketScope rating for Siebel is “promising.”
23.3.2.8 Microsoft Strategic Planning Assumption: By the end of 2005, Microsoft will be the fifth-largest CRM application vendor worldwide (0.7 probability). Microsoft CRM is gaining momentum among Microsoftcentric MSBs that have never deployed CRM or sales automation software. Shipping since January 2003, Microsoft CRM has about 1,300 customers with an average of 24 users each, and about three-dozen customers with more than 200 users. (Gartner believes that 15 to 150 CRM users is a good fit for this product.) On average, MSBs report spending about $2,400 per user to deploy the solution. Microsoft shipped v.1.2 in December 2003, making it available in 47 countries and eight languages. However, most of the needed enhancements won’t come until v.2.0, which is expected at the end of 2004. Gartner’s 2003 survey of MSBs and small businesses included firms using Microsoft CRM. Respondents rated Microsoft above average in customer satisfaction, but low in product features, product quality and system response time. These businesses want Microsoft to include morerobust campaign management and better activity management features, rather than have these capabilities available only through third-party software. They also reported the following issues with Microsoft CRM: • The disconnected client for mobile salespeople is unstable.
Action Items: • MSBs and small businesses that have simple CRM needs, and that would consider using an ASP for CRM software, should add Siebel CRM OnDemand to their vendor shortlists.
338
Gartner
• The application doesn’t track the date and time stamp on notes. • It lacks flexibility — for example, you can’t add a table to the database or customize the activity view, and
Strategic Planning Series
CRM Solutions for Midsize Businesses
some functions don’t allow clean tracking of many-tomany relationships.
• Lack of integration with MSB back-office applications, such as Axapta and Navision
Microsoft CRM can meet the basic needs of MSBs that need to improve:
MSBs should consider Microsoft CRM when their requirements include:
• Forecasting accuracy
• Basic sales and customer service functionality, including basic forecasting, opportunity management, problem management and e-mail management
• Pipeline visibility • Opportunity management capabilities to: – Track customer accounts and contacts – Improve simple sales and service processes
• Seamless Microsoft Outlook integration • Strong vendor viability • Support for approximately 15 to 150 users
To appeal to MSBs with more complex, broader CRM needs, the product needs many feature improvements, such as better marketing campaign management and support for personal digital assistants.
• Strong integration with Microsoft back-office systems
Strengths of Microsoft CRM include:
Action Item: Most MSBs should wait for Microsoft CRM v.3, which will be a more mature offering.
• Designed specifically for MSB requirements • Microsoft .NET architecture and tight Microsoft Outlook integration • Microsoft brand, financial strength and unquestioned viability • Sell-side commerce platform • Low cost
Gartner’s CRM MarketScope rating for Microsoft is “promising.”
23.3.2.9 Other Players Although Gartner rated ACCPAC (recently purchased by Best Software), NetSuite and FrontRange Solutions (with its GoldMine FrontOffice product) as “positive” in CRM software suites for small businesses (less than 100 employees), it rates them as “caution” for MSBs.
• Lack of CRM expertise among resellers
Other vendors, although compelling enough to be included, received a “caution” rating because they produced less than $25 million in CRM revenue in 2002, including:
• Educating MSBs on the value of CRM
• Epicor Software (Clientele products)
• Establishing a track record of successful CRM projects with MSBs
• Firstwave Technologies (Firstwave and Connect-Care products)
• Incomplete functionality, such as:
• Interface Software (InterAction 5.1 for professionalservice firms and similar relationship-based businesses)
Challenges of Microsoft CRM include:
– Customer portal for self-service – Field service – Industry-specific functions – Interactive selling – Marketing automation – Natural-language searches
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Oncontact Software • Saratoga Systems (iAvenue products and services) • Soffront Software Although SAP and PeopleSoft were included because of their vision for MSB CRM solutions and the merits of their products, Gartner rated them “caution” because neither
339
Reaping Business Rewards From CRM
can produce enough MSB references to validate its vision, and MSBs have been concerned about the relatively high costs of these offerings. However, the compelling benefits of front-office to back-office process integration means that MSBs using PeopleSoft or SAP back-office accounting and ERP applications should add these vendors to their CRM vendor shortlists.
23.4
Recommendations
• Recognize that CRM works for MSBs. – Develop a CRM strategy.
– Enable the strategy and processes with technology. • Use TCO and ROI analyses to evaluate CRM software purchasing alternatives (such as ASPs vs. direct licensing). • In any CRM application selection decision, increase the importance assigned to vendor viability and application integration. • Consider the benefits of ESP involvement in a CRM initiative. • Evaluate solutions that align with the business’s size, as well as the complexity of the its CRM requirements.
– Create customer-focused sales and service processes.
340
Gartner
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards I
t has been said that experience is the best teacher. However, experience can be a difficult way to learn, with the test coming before the lesson. Whether an enterprise needs to segment customers, unearth business intelligence, enter new markets or overcome stagnation, it can circumvent some common challenges by studying the experiences of recent winners and finalists for Gartner’s Customer Relationship Management (CRM) Excellence Awards. These awards are presented by Gartner each year to organizations that have made outstanding achievements in CRM, as judged according to Gartner’s Eight Building Blocks of CRM (see Chapter 7.0). For the Fall 2003 awards, Gartner analysts selected six finalists out of 156 entrants, after evaluating extensive applications outlining the entrants’ CRM initiatives. During Gartner’s CRM Summit conference in September 2003, the finalists presented their case studies to attendees, who provided their feedback as to which they believed did the best job overall. Using this feedback as input, Gartner analysts then selected winners for each of the two categories. The CRM initiatives of the two winners — as well as three of the finalists — are detailed in the following sections. In these case studies, leaders from a broad range of industries reveal how they used CRM to better serve and manage communities of all sizes — from employees and customers in new markets to Web shoppers and citizens. • City of Baltimore (Winner, Large-Enterprise Category) — This city is emerging from crisis by applying practices honed in the private sector to government operations. In Baltimore, the citizen — rather than the customer — is king. • GSI Commerce (Winner, Small-to-Midsize Enterprise Category) — By blending far-flung data — and with new ways to target campaigns, measure success and build customer loyalty — GSI proves that innovation, teamwork and follow-through are keys to successful CRM. • AGF (Finalist) — By centering its CRM strategy on segmentation, AGF gained visibility into the value of its customer base and honed its approach to match the right advisor with the right investment opportunity. • Viewpoint Construction Software (Finalist) — Viewpoint tackled CRM’s invisible nemesis, internal resistance. Using teamwork, education, vision and strategic execution, Viewpoint unified behind CRM, emerging stronger and poised for expansion.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
341
Reaping Business Rewards From CRM
• YORK International (Finalist) — To increase the size of its business within a five-year window, YORK’s North American service business used CRM to open up new markets and expedite growth in commercial service.
• Prior attempts at standardization unsuccessful, partly because of sporadic executive sponsorship of crossdepartmental IT programs Objectives
A.1
The City of Baltimore Turns a Corner With CRM
Three years ago, the city of Baltimore, Maryland, found itself at a crossroads. Constant deterioration of the city’s processes and systems and increased demand for services by constituents created a quandary: Should the city continue business as usual and risk the alienation of its citizens, or should it try to change for the better? Aided by an innovative mayor, the city of Baltimore began to change for the best. In the past, citizens did not know whom to call, who was responsible, how things were done, how long to wait, or even how to obtain services from the city. Today, they can make one call to city hall for services, can rely on agencies to hit realistic deadlines, and are continually assured that citizen satisfaction is the city’s most significant benchmark. Baltimore’s ongoing recovery and transition is a story marked as much by technology as by tenacity, beginning with Mayor Martin O’Malley’s commitment to making Baltimore’s city government more responsible, accountable and cost-effective. To achieve these goals, the mayor led an initiative encompassing the innovative use of varied CRM solutions now running under the banner of Baltimore’s “One City ... One IT” program. Problem • Inconsistent customer service standards throughout city departments; no benchmarks in place to define desired improvements or track accountability • Citizens and commerce partners frustrated by the city’s problem-solving infrastructure or unaware of resources available • Callers repeatedly transferred between agencies, often requiring multiple calls for a single problem because of slow service response • Disparate internal information systems unable to support responses requiring input from multiple agencies
342
Gartner
• Set a “gold standard” for service and hold all departments accountable for meeting those standards, not only during annual budget reviews, but week to week and day to day. • Provide citizens with immediate assistance and maintain service levels through issue resolution, including coordination of input and resources from multiple agencies when needed. • Enable access to comprehensive, real-time information, so management can measure results and identify areas for improvement. Approach The “One City ... One IT” program is characterized by a combination of management techniques and technology, including CitiStat, CitiTrack, 311 telephone service (a nonemergency telephone number that streamlines citizen calls to city services) and executive leadership by the Mayor’s Office of Information Technology. At the outset, municipal leaders rigorously examined and re-engineered business processes ranging from call intake to road repair, reviewing the degree of overlap between departments, overdue or backlogged service requests, and other gaps leading to citizen frustration. With due diligence completed, the city envisioned a unified technological infrastructure that would enable Baltimore to treat its citizens as valued consumers, capable of shaping the city services that make Baltimore a better place to live and work. CitiStat — The first step toward the Baltimore’s new CRM vision was CitiStat, launched in 2000. Modeled after the New York City Police Department’s crime-fighting CompStat program, CitiStat is a management and accountability system that helps municipal leaders set performance benchmarks and holds departments and individuals accountable for real-life results. CitiStat uniquely blends interactive management techniques with digital technology, enabling a departmentwide view of issues and solutions from a single database. For example, agency or bureau heads now attend biweekly CitiStat meetings with the mayor, deputy mayors and key
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
cabinet members. Prior to these meetings, the bureau or agency submits data to the CitiStat team, outlining the group’s performance. The Solid Waste Bureau, for example, submits data on everything from dirty-alley and missed-trash-pickup complaints, to the number of sick days taken in a particular division and overtime rates charged. After receiving the data, the CitiStat operations team analyzes and confirms the bureau’s results by conducting field investigations and pulling cases at random. The operations team also analyzes new data against historical information, compares it to previous reports, and develops discussion points to put information into context or highlight problem areas. The technical team is responsible for preparing briefing books for the mayor and deputy mayors, and for geocoding any address data. This data is then plotted onto a computer pin map or agency “dashboard.” With this layout, the group can easily spot problem areas and allocate resources accordingly — a process that was nearly impossible when the information needed resided in multiple, disconnected data centers. Furthermore, because the top officials are at one table, decisions can be made more quickly, rather than working through an intricate bureaucratic system. CitiT rack — To gather and manage the accurate and CitiTrack timely data required to make CitiStat work, Baltimore deployed Motorola’s customer service request solution, known in Baltimore as CitiTrack. By deploying the technology through an application service provider, rather than developing it in-house, the city freed up its technical resources to focus on business process re-engineering rather than its technical infrastructure. This option consisted of high-availability multiprocessor Unix servers in a Sun Cluster, Solaris OS and enterprise virtual storage arrays to ensure reliable Oracle performance/ availability. The Motorola application is hosted on multiprocessor Windows 2000 servers in a load-balanced, high-availability Citrix “farm.” All systems are part of a highly secure, compartmentalized network located in Illinois and accessed by a private T1 network circuit. Also included is a near-identical configuration to provide a backup disaster recovery site in Arizona. The disaster recovery site maintains near-real-time copies of all critical information. Launched in 2001, CitiTrack not only serves as the intake mechanism for citizens’ requests via phone or the Web,
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
but also serves as Baltimore’s high-level work order management system. Typically, more than 1,000 city employees across all departments use CitiTrack daily to plan and deliver services ranging from medical and financial assistance programs to street repair and trash pickup. For example, the system flags duplicate requests and confirms that addresses provided by citizens are correct, reducing the likelihood of dispatching multiple crews to the same location or to a wrong address. As a result, the city pays less in overtime, and citizen complaints are resolved more quickly. CitiTrack also helped consolidate Baltimore’s multiple call centers and laid the foundation for Baltimore’s 311 service, enabling citizens to place one call to resolve issues that may involve multiple departments. In partnership with Verizon — and using Verizon technology such as automatic call distribution, interactive voice response and call center management systems — data gathered from callers in Baltimore is routed to Motorola’s consolidated data centers in Phoenix and Chicago. The call centers handle more than 5,000 nonemergency calls from Baltimore citizens each day. During the first 12 months of the 311 call center, the call taker error rate was reduced from 50 percent to 5 percent, and incoming calls were processed four times faster; call takers report being 90 percent more efficient using CitiTrack. Results Baltimore has become the model for local-government CRM. Baltimore has hosted visits from more than 200 cities, counties, states, countries and other jurisdictions. In July 2003, Baltimore took its one-millionth call to the 311 center, and the city logged its one-millionth service request in January 2004. After the first year of combined CitiStat and CitiTrack use, Baltimore realized $13.6 million in savings through overtime reduction, reduced operational costs, increased revenue streams, reduced absenteeism and accidents, and elimination of costly, low-priority procurements. After the second year of combined operations, these savings grew to $43.7 million, as numerous other agencies were added. In 2002, a return-on-investment study was performed on the Bureau of Solid Waste, accounting for 55 percent of CitiTrack call volume and 11.6 percent of the service requests processed in early 2002. Results of that study included:
343
Reaping Business Rewards From CRM
• Overtime for mixed-refuse pickup crews was reduced by more than 10,700 hours during the 12-month period, yielding a cost savings of nearly $250,000. • Overtime for bulk trash scheduled pickup crews was reduced by more than 2,400 hours during the same 12-month period, yielding savings of more than $56,000. • The sanitation department nearly doubled the number of illegal dumping citations issued, resulting in an extra $850,000 in revenue over a 36-month period. In addition to these significant “bottom line” results, the city’s more than 600,000 residents can make “one call to city hall” to reach multiple departments or can access the 311 system online — greatly decreasing the sense of distance or powerlessness citizens may feel when engaging the local government. More than 3,000 citizens call Baltimore’s 311 hotline daily, waiting an average of 10 seconds before finding the right person to handle the problem at hand. Furthermore, the data captured in CitiTrack has allowed the city to establish unprecedented performance benchmarks in operational departments and agencies, such as: • 21 days to clean a dirty alley • One-day pickup for missed bulk trash pickup • 72 hours to repair a broken street light By using these and other similar guidelines, the city can assure citizens that a resolution will occur within a specific time frame — reducing feelings of frustration among constituents and supporting a bona fide participatory community. Critical Success Factors/Lessons Learned • Ensure consistent executive sponsorship to support cross-departmental adoption of any management initiative. • Government should apply best practices from the private sector, treating citizens as valued customers. • Track accountability of employees and management, and use accurate and timely information to drive performance. • Remember that analyzing the return on investment is just one of the ways to evaluate the role of CRM in
344
Gartner
government. Value should also be measured through improved responsiveness to citizens and the community. Bottom Line The rules of engagement for the public sector mirror those used in business, with the citizen — rather than the customer — at the core of CRM initiatives. Local governments that focus on the satisfaction of their constituencies with at least the same amount of enthusiasm usually reserved for fiscal responsibilities can reap rewards well beyond the balance sheet.
A.2
GSI Commerce Uses CRM to Drive Online Sales
GSI Commerce may be among the best-kept secrets on the Internet. If you’ve shopped online at Kmart.com, checked out The Sports Authority online or skipped through the Nickelodeon Web site, you’ve spent time with GSI technology and probably didn’t know it — which is just what the company wants. GSI is a leading outsourcing solution for e-commerce, aiming to make the online experience as fast, fruitful and painless as possible. The company’s 50-plus clients, deemed “partners” by the company, include Palm, Reebok, Kmart, Ace Hardware, Nickelodeon, NASCAR, the Sports Authority and Gloss.com. GSI provides Web site design and development, e-commerce technology, customer service, fulfillment, buying and merchandising, content development and management, online and database marketing, and product development services. The company operates a 24/7 customer service center that provides service via e-mail and telephone, and also provides marketing services such as affiliate marking, database e-mail marketing and direct response. GSI has three business models. The first one allows GSI to leverage another company’s brand name and sell branded products to customers. GSI owns the entire inventory and gets a portion of the profit. The second is a consignment model. The third model is one where a partner owns the entire inventory but outsources the services to GSI. Aiming to increase the overall lifetime value per customer for GSI and its partners, GSI is using CRM to build longlasting, profitable relationships through effective one-to-
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
one marketing. GSI’s CRM strategy centers on customer intelligence and insight, and supports core relationship marketing functions such as customer loyalty, marketing dialogue and effective closed-loop marketing capabilities. Through innovation, collaboration and enthusiastic “topdown” support, GSI is achieving its ultimate goal of mastering the various life cycle stages of an online consumer — converting unique visitors to registered users of the site; converting users to purchasers; and, finally, converting one-time purchasers into long-term customers. Problem • The view of customer information available to customer service representatives (CSRs) and partners was incomplete; GSI needed to unify seven agent interfaces into a single view. • Underdeveloped training programs hindered education of CSRs and adoption of the new system by a broad base of employees. • Revenue targets required the company to address lagging purchase frequency. Objectives • Uncover new trends and patterns within each customer database. • Use all available demographic, transactional, promotional and clickstream data to develop new models that give greater depth and breadth to customer intelligence for both GSI and its partners. • Develop and deploy a sophisticated analytics model based on customer lifestyle and interests, profitability and lifetime value, as well as recency, frequency and monetary value (RFM) measures. • Determine how to reach prospective clients and partners most effectively and expand established relationships. • Improve cross-selling and up-selling capabilities and opportunities. • Analyze new market segments with greater precision, and execute targeted campaigns with greater proficiency and significantly increased velocity. • Provide partners with visibility into new market trends and lucrative opportunities.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Increase purchase rates of consumers. Approach To build customer loyalty, GSI needed to gain unprecedented intelligence and insight into customer behaviors and preferences, and share that information with its partners. What’s more, the company needed new ways for its partners to generate additional revenue and continue enhancing customer experiences. From a more technical perspective, GSI needed to construct, maintain and continually develop an architecture that could provide more than 54 partners with a unique view of every customer in every store — no small feat, considering the volume of information that flows through GSI’s mechanisms. GSI manages more than 15 million consumer records, handles 1.5 million service e-mails a year and sends out 2 million marketing e-mails per day. Prior to its CRM initiative, customer data resided in a variety of systems, including data from order management, e-mail and online registration systems, Web store transactional data, preference data collected through online stores, partners’ offline lists, promotional data, call center responses, survey data, and complex clickstream data. At a minimum, GSI needed to compile this data into a unified CRM system to support a 360-degree view of each customer. Furthermore, the CRM system needed to integrate with other systems, allowing GSI to leverage investments in its established infrastructure. Top-Down Support and T ir eless T raining — At the Tir ireless Training outset, GSI executives made CRM a priority for maintaining competitive advantage, and spread that enthusiasm throughout the entire organization. The marketing, IT, merchandising and customer service groups all allocated advocates to the CRM project team, to ensure that each group’s requirements were considered through the planning and discovery phases of the multichannel implementation. After conducting due diligence and building internal support, GSI selected the E.piphany CRM suite, citing key strengths such as strong integration capabilities and flexibility of the system to enable new partners to be brought on-board within a few days. Today, the company is using E.piphany Service, Campaign Management and Interaction Advisor for Web and call center — all supported by comprehensive customer information.
345
Reaping Business Rewards From CRM
After the project went live, the company spent significant time on training, including three weeks of training in the marketing department and three to four days of call center training per representative. In addition, the company conducted ongoing training for seasonal help to address internal user concerns, such as process changes involved in moving to one system. All users were trained on real data — running reports on actual business needs — and, most importantly, the CSR team received in-depth training on the call center application. Training efforts also focused on the use of real-time analytics for effective cross-selling operations, and its impact on the business.
transaction history, real-time clickstream patterns and other factors. GSI is also executing more targeted marketing campaigns, leading to higher acceptance rates and increased customer satisfaction and retention. GSI plans to add computer-telephony integration functionality to its CRM matrix, and it remains squarely focused on using the systems now in place to refine customer insight and continue delivering value to its partners in every instance of contact, using every channel of communication. Results
Putting Data to Work for Real Results — The flexibility of the new system enables CRM capabilities for new partners to be brought on board within just a few days, along with accomplishing a key goal of the CRM project — uncovering new trends and patterns within each partner’s customer database. Using all available demographic, transactional, promotional and clickstream data, GSI developed new models that provide deeper and broader customer intelligence. GSI now employs sophisticated analytic models based on customer lifestyle and interests, profitability and lifetime value, and RFM measures. These are used to determine the most effective way to reach prospective clients and expand relationships with existing ones. GSI has also gained the ability to analyze new market segments with great precision, and to execute targeted campaigns with greater proficiency and significantly increased velocity. These capabilities give GSI’s partners visibility into market trends and lucrative opportunities that would have otherwise “fallen under the radar.” GSI shares best-practice ideas gleaned from its partners. Specific data is not shared by the partners. GSI’s CSRs now have a complete view of customers, from order information to each e-mail received by the customer. E.piphany Service has enabled GSI to reduce the number of CSR screen interfaces from seven down to one. First-call resolution rates are now an impressive 91 percent. With Interaction Advisor, CSRs can make relevant cross-selling offers. Furthermore, the company is now able to offer personalized customer interactions via Web stores. When customers come to one of GSI’s partner sites, they are extended individualized offers based on their profile of interests,
346
Gartner
• Talk times reduced by 18 percent. • First-call resolution rates at 91 percent — they were not documented previously. • 125,000 cross-sell offers extended in the call center. Previously, there were no cross-selling offers. • Now sending 400 segmented, targeted e-mail campaigns per week; previously sending eight nonsegmented, nontargeted e-mail campaigns per week. • Increased click-through rates on targeted campaigns from 2.5 percent on average (nontargeted) to 8 percent on average. • Increased conversion rates on targeted campaigns from a range of 0.5 percent to 1.7 percent to a range of 1.7 percent to 2.5 percent. • Decreased abandoned shopping-cart purchases from 20 percent to 10 percent. Critical Success Factors/Lessons Learned • Moving from very little process to a high degree of bestpractice process is culturally difficult. • Introduce process but allow flexibility of ideas for improvement — many good ideas come from being flexible. • Invest in a technology solution that meets your requirements, not the vendor’s. • Metrics are important, and CRM projects can help sort out useful vs. meaningless ones.
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
Bottom Line The CRM path can be complex and challenging. GSI communicated a clear CRM vision while leveraging resources and facilitating collaboration, ultimately aligning itself with long-term success and improved bottom-line results. With the ability to reduce many systems to one, the company can now focus on fine-tuning its selling and marketing processes and effectively growing its customer base, rather than wasting time and money on operational inefficiencies and low-value initiatives.
• New nonfund products are attracting investors, but the company lacked the processes to support growth. • Costs to serve have become out of phase with new asset acquisitions. Objectives • Master a more-mature business cycle driven by shareof-wallet and market share. • Encourage growth through new product creation. • Deliver acceptable growth rates to shareholders.
A.3
AGF Gains Visibility Through Customer Segmentation
AGF’s CRM strategy applies newly developed market segmentation tools to marry customer needs to customer value. The company has deployed CRM to serve more than 1 million investors through its mutual fund division in Canada. AGF offers products and services encompassing the entire wealth continuum, including a diversified family of more than 50 mutual funds, the AGF Harmony tailored investment program, AGF Private Investment Management, and AGF Trust guaranteed investment certificates (GICs), loans and mortgages. From AGF’s perspective, such expansive offerings have necessitated individual customer views. As booming markets have started to flatten, investment advisors need to maximize revenue from every interaction. For each customer segment, AGF set objectives and strategies based on customer needs and segment profiles. Quality quickly replaced quantity, as relationship managers used CRM to delineate customer value vs. cost to serve, creating a perfect match between individual advisors and the right investment opportunities. Problem • The industry is transitioning from high growth to a moremature business cycle. • Gross sales are in decline, putting pressure on assets in normal redemption patterns. • Fund product categories are reaching saturation levels.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Be considered an integral business partner within the advisor and dealer community, and become viewed by investors as the solution to their quest to achieve financial goals. • Realign customer value with cost to serve. Approach AGF’s CRM program is a strategic five-year initiative that is expected to drive enhanced revenue from its newly segmented customer base. The company expects to gain market share by increasing “wallet share” from its primary customers, investment advisors and financial planners. AGF estimates that a 5 percent increase in these core supporters could result in an additional $1 billion in sales. To realize this objective, AGF first examined and refined the key performance requirements of its CRM project, including more-granular reporting on AGF’s share of wallet per investor; short-term sales and redemption momentum at the investor level; and ongoing calculation of the actual, potential and opportunity value of each advisor. The CRM program team also identified a number of business process improvements designed to transition the company from an account-centered organization to an enterprise focused on the investment advisor. For example, the mutual fund industry has traditionally used a dealer representative code to track sales and revenue. However, this code does not uniquely identify a customer, because many customers may share the same code, and any single customer could have many codes. As a result, information can only be captured for an individual dealer rep code, which doesn’t give a true picture of the advisor customer.
347
Reaping Business Rewards From CRM
AGF envisioned a tool that would aggregate these dealer rep codes into a single customer view that could then be segmented according to three aspects of customer value: actual value, opportunity value and potential value. AGF defined actual value as AGF’s share of advisor assets under management. A customer’s potential value was determined by the amount of an advisor’s business not controlled by AGF. Opportunity value represented the propensity of the advisor to convert potential value into actual value within a 12-month fiscal period. Cost to serve the customer would be considered as part of the customer’s actual value.
based on his or her needs and can match the advisor’s value to the enterprise with the associated costs.
When AGF viewed its business from the customer’s perspective, the company identified several process gaps between functional silos. As a result, AGF identified and prioritized additional business process improvements based on which processes were likely to deliver the biggest benefit to AGF and the customer. Special attention was given to functional changes that cut across business silos. Processes were designed to take advantage of the relative strengths of each department and eliminate redundancy. The result has led to streamlined business processes, which provide a united face to AGF’s customers.
• Reduce inbound and outbound call volumes
In addition, extensive cross-functional training was conducted to familiarize AGF personnel with the new processes, regardless of whether they directly affect their day-to-day jobs. To measure these new processes, AGF defined a number of metrics, reported on a weekly and monthly basis, to help measure and implement further changes, if necessary. These metrics are available to management and to field personnel, so that they can provide input into the change process as well. Results To date, AGF’s CRM deployment encompasses 600 users in the sales, marketing, call center and client administration departments. The company’s two major accomplishments in this area are the creation of a single view of the customer and the integration of the sales and marketing organizations. This single view of the customer has enabled AGF to understand an investment advisor’s true needs and value as an individual. Previously, it was difficult, if not impossible, to take this view, leading the company to allocate time to the wrong advisors. With the new customer data model (CDM), AGF can now understand how to serve an advisor
348
Gartner
AGF’s segmentation strategy should enable the company to realize broader enterprise goals: • Increase core support by 3 percent (2004 to 2006) • Increase sales by $700 million (2004 to 2006) • Increase revenue by $13 million (2004 to 2006) • Realize 5.8 percent ($1.4 million) cost savings (2004 to 2006)
• Reduce training time by two days • Improve process automation by converting some manual processes to automated processes • Reduce the number of errors • Reduce mailing costs by approximately 10 percent Critical Success Factors/Lessons Learned From a technical perspective, AGF was challenged to customize the CDM to meet its business requirements and to ensure that the 360-degree view of the customer could function with these changes. The company also needed to achieve an acceptable level of performance from the PeopleSoft application to meet the needs of a high-service-level call center and find the appropriate technical resources to support the program. Changing the CDM and configuring the 360-degree view challenged the flexibility of PeopleSoft’s technology to reproduce and repurpose established business objects. As a result, AGF faced considerable challenges in tuning the application to meet service levels. AGF engaged Mercury Interactive in several tuning engagements to meet appropriate service levels and the company also invested in monitoring software to ensure that ongoing service levels are maintained. Complicating the technical challenges, AGF was also in the midst of a major reorganization. While laying out the strategic objectives for the CRM program, AGF spun off its operations function into a separate entity named Unisen. Unisen would become an outsourcer for mutual fund operations, with a customer base that included some of
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
AGF’s competitors. As a result, its primary focus would not be to implement AGF’s process changes to support a customer-centric organization.
A.4
With CRM, Viewpoint Proves That Change Is Good
However, AGF and Unisen executives immediately began meeting to determine how to best meet AGF’s CRM vision. Unisen agreed to involve its operations users, along with AGF’s business users, in the process redesign. Unisen also agreed to supply dedicated call center and administrative personnel to AGF, enabling the CRM system to continue toward its goal of creating a single and common customer experience.
Combining a solid history and innovative spirit, Viewpoint Construction Software prides itself on designing products and conducting business with a focus on enduring quality and long-term partnerships. After more than 20 years of providing accounting, project management and estimating software and training to the construction industry, Viewpoint understands the advantages of building on top of a strong foundation, and it approached its CRM project with the company’s characteristic commitment.
In this context, AGF advises enterprises to: • Find the right technical skills to implement any CRM program, keeping in mind the role of legacy systems and integration. • Secure the best internal resources from the business and IT. • Get the best outside help available and use it wisely. • Ensure that the software vendor’s consulting group plays a key role in technical design and delivery. • Minimize customizations whenever and wherever possible, drawing a “line in the sand” to clearly mark what can and cannot be compromised. • If possible, let the business lead CRM efforts — the program’s success will depend on the ability to compromise where appropriate, and only the business can approve those compromises and ensure adoption. • Where required, get software vendor validation of any design changes and perform performance tuning as early as possible. Bottom Line By segmenting its customer base, AGF revitalized its business. The company is now better able to understand each customer’s needs and to match these needs with customer value and the cost to serve. With this information captured, rolled up and understood, AGF has gained the agility to serve customers based on their unique needs and on what they can contribute to AGF’s bottom line.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
With about 500 major highway and heavy-construction companies depending on Viewpoint software, however, unifying customer information involved not only implementing the right technology, but also inspiring unprecedented levels of teamwork. Through the combined efforts of managers and technical advisors, and with input from the company’s more than 70 employees — many of whom average 15 or more years of service — Viewpoint embraced change management and is now deploying a cohesive CRM strategy centered around the succinct flow of customer and product information from department to department, and from employee to employee. Problem • Information was stored in multiple in-house database programs, which were either homegrown, acquired or inherited. • Incomplete employee views slowed access to customer information across departments. • Disconnected databases hindered decision making in all areas — for example, product development, class offerings and phone staffing. • Response and resolution time for customer issues was substandard. • The tracking process was not supportive of acquiring additional business. • There was internal resistance to change; while the company struggled with multiple, disparate systems, installing the new solution meant that employees were required to relearn how to perform established job responsibilities using new rules.
349
Reaping Business Rewards From CRM
Objectives • Support superior customer service as a competitive differentiator. • Unite customer, product, call center, service and sales information into a common database, accessible by the entire company, without compromising proprietary data. • Customize the CRM technologies to mirror Viewpoint’s unique business processes. • Build on the value of shared information. • Execute the order of attack for the CRM initiative, including: – Customer information (overall) – Support (call tracking) – Services (billable projects, training) – Development (track issues, quality assurance) – Internal support (track PCs, printers, call logging) – Marketing (prospect tracking) – Sales (sales process, proposals, contracts) • Encourage adoption of new business processes throughout the organization to support the CRM vision and ongoing execution. Approach From a broader perspective, Viewpoint envisioned a threestage CRM strategy: 1. Uniting customer and product information into a common database 2. Customizing the CRM technologies to mirror Viewpoint’s unique business processes 3. Encouraging adoption of the new business processes throughout the organization At the outset, Viewpoint formed a committee charged with finding a single customer database CRM solution. The committee members’ tenure averaged 15 years with the company, so they understood Viewpoint’s informational
350
Gartner
needs. They also had firsthand experience with the frustration of not being able to share information, and with employee pushback resulting from prematurely replacing old habits with new technology. The committee sought a product that could consolidate various collections of data and support customization, and that could still grow to support Viewpoint’s anticipated expansion — all while remaining very user-friendly. After six months of reviewing and researching the customer database market, attending trade shows, and reviewing multiple demonstrations of various standard software packages, the committee selected Epicor CRM from Epicor Software. Viewpoint retained the best features of its homegrown legacy systems by importing critical data into Epicor and maintaining some of its business processes. For example, the company maintained its processes for collecting data — such as the processes related to logging support and service calls — but developed new ways to confirm and share information between departments. Salespeople now use the software to track release schedules, rather than contacting department leads for information, and have eradicated the “sticky note” from their arsenal of business reminders. New Ways to Work — According to Rob Humphreys, application development manager for Viewpoint and project leader, there was some resistance to the new CRM solution at first, particularly because all customer information had to be keyed into the system. “I tried to get people interested by showing them firsthand what a consolidated CRM system could really do,” Humphreys said. “The sales and support personnel loved the fact that they could see a complete picture of the customer with just a few clicks — all without a lapse in the interaction.” As the team lead, Humphreys positioned Epicor CRM as the hub of Viewpoint’s CRM strategy, encouraging the use of one universal information source and leading to increased efficiency in customer-facing processes. Viewpoint now uses Epicor CRM for everything from managing sales to scheduling customer training, tracing bug fixes, handling support calls, and even tracking office supplies and noting the capital equipment in each employee’s cubicle.
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
Using custom forms, Viewpoint manages all of its billable programming projects, showing project resources as well as an expected completion date in the CRM system. Viewpoint also installed Epicor CRM Conductor, a companion product used to automate workflow processes, from monitoring the database to sending e-mail, fax or pager notifications — all based on user-defined criteria. Viewpoint runs Epicor CRM in a Microsoft SQL Server environment, which will enable the company to scale its database usage upward to fit the growing demands of the CRM solution. Epicor was also customized to do more than track calls and manage product information. Viewpoint uses the system to register students and manage classroom interactions. Along with its software solutions, Viewpoint has a comprehensive program of classroom and on-site training to assist users with the implementation and ongoing operation of its products. The company sets up each occurrence of these classes through the system and then uses the application to register students for each class, track payments, and send class confirmations and reminders. Side-by-Side Success — Since installing Epicor CRM, Viewpoint no longer relies on disconnected departmentlevel pockets of information to service its customers. Now, every department has access to the same pool of information. Viewpoint is tracking more customers with better information in less time. Response to customer calls is quicker and more personalized. In addition, because critical information is captured conveniently in Epicor CRM, product planning is targeted and proactive.
repeat themselves or bring somebody new up-to-speed on an issue each time they call. Automated business rules have further enhanced the customer experience. Conductor notifies team leaders when a call has been in the call queue for 60 minutes, or when a call remains unresolved for seven days. Using Conductor’s workflow automation, Viewpoint saw call activity become more responsive almost immediately. Results Viewpoint’s most significant accomplishments to date include: • The change-averse attitude across the company gave way to acceptance of the new CRM technologies and processes. • Project leaders made it a priority to help employees understand how implementing a CRM initiative would improve overall business processes. • Employees across all departments now have a better understanding of customer data and can respond as needed. • Call activity became more responsive almost immediately. • Response from customers on project quotes is faster. • Class confirmation is quick, and there are fewer cancellations. • Development turnaround on priority projects is quicker. Critical Success Factors/Lessons Learned
Furthermore, current customer data is shared across the organization, resulting in better customer service. For example, the support team receives notification when a software issue generated from a call is completed; support then notifies customers; the sales team views the status of development projects; and dispatchers can easily determine whether a customer is on accounting hold. Customer suggestions for software enhancements may also be entered by sales, support or training staff, and are reviewed by development staff. Viewpoint’s sales, support and marketing professionals have complete access to product information, account notes, call records, training history and more. Perhaps most importantly, customers appreciate not having to
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• Never underestimate the capabilities of CRM. • When approaching a CRM project, evaluate the needs of the overall enterprise, not just the sales, support and marketing groups. • Continually evaluate internal processes and the use of CRM to find additional areas for improvement. Bottom Line Viewpoint’s experience proves that even companies that are deeply entrenched in idiosyncratic ways of doing business stand to gain through CRM, but adoption doesn’t come at the flick of a switch. It took time for employees to
351
Reaping Business Rewards From CRM
become loyal to legacy systems. Companies should set aside the time required for the education and change management needed to promote adoption of new — and, ultimately, more efficient and effective — ways to work.
A.5
YORK Uses CRM to Open New Market Segments
With $4 billion in revenue, YORK International designs, manufactures, sells and services heating, ventilating, air conditioning and refrigeration (HVAC&R) systems for residential, commercial and industrial markets. Founded in 1874 in York, Pennsylvania, the company grew its business by focusing on its customers — more than 85,000 schools, hospitals, governments and business sites globally. As a result of a strategic decision to expand its business and grow its revenue, YORK has moved into a new market — delivering service to multisite commercial retail facilities and other commercial accounts in various market segments. However, servicing commercial customers involved entering a more-demanding environment than that found in its traditional industrial/petrochemical, pharmaceutical, and large HVAC&R site businesses. Because the commercial segment uses less-complex equipment, less time is usually allocated to each job. As a result, enterprises are able to undertake more jobs each day. YORK needed to penetrate and grow this unfamiliar market segment, while delivering highly customized and differentiated service to exacting standards across thousands of locations for a single customer. At the same time, YORK needed to draw on the experience of its North American service employees to continue serving its established customer base, without jeopardizing its traditional clients’ customer satisfaction. To meet these challenges, YORK launched a CRM initiative called YORKConnect. Without the YORKConnect system, this change in procedures could lead to increased administration and management activity per dollar of revenue and lower margins. Problem York needed to accomplish the following: • Sustain growth and profitability, while expanding services for its customer base and entering new markets.
352
Gartner
• Reduce the number of disparate systems, which hinder end-to-end communications companywide. • Migrate from homegrown legacy applications and databases spread throughout 70 district offices, each with a separate view of the customer. • Deliver highly consistent service against very rigid requirements across 70 district offices. Objectives York had several major goals: • Double sales every five years by decreasing the cost of service and improving relationships and coordination among the company, its customers, its service technicians, and its sales and service administration. • Enter a new service market in which purchasing decisions are more financially motivated and don’t rely as heavily on traditional relationship makers, such as service technicians. • Automate the burdensome administration associated with managing national, multisite commercial service activities. • Revamp its North American field service processes and renew its technology infrastructure to create a 360degree view of the customer that is available at every level of the company, in every location. Approach CRM Vision and Strategy — In 1999, YORK decided to grow its business and achieve higher revenue by improving customer satisfaction. The company aimed to enhance its sales and service processes, improve field service delivery capabilities and boost employee productivity, while entering new business markets. From this decision, YORK devised its CRM vision: To create a sustainable business advantage that would delight its customers and leverage the enhanced competitive advantage of YORK service in the marketplace. To enable this vision, YORK consolidated more than 40 after-hours call centers into one; replaced legacy systems; implemented sales force automation (SFA); and invigorated its field service organization with a technology-enabled, end-to-end solution. The team selected BearingPoint as its system integrator because of the vendor’s strength in
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
YORK’s industry (industrial manufacturing), its service experience and its familiarity with the business. Working with BearingPoint, YORK examined its established and potential customer base. Its current customer base involved on-site customer personnel who understood the HVAC&R technology installed and frequently held state certifications, such as certifications as operating engineers. A competent maintenance staff that was on site 24/7 to respond to the slightest upset in the HVAC&R often supported these lead technical individuals. The new customer segments, however, were usually staffed on-site by employees with expertise in their companies’ core business, such as retail or telecommunications, rather than HVAC&R. These newly identified commercial customers sought responsive, lowcost service providers that could deliver consistently across thousands of locations. Customer Experience — When fully implemented in 2004, YORKConnect will improve the responsiveness-to-cost ratio in every business area. YORK defined and detailed customers’ technical and commercial needs to improve visibility into the service delivery process and enhance the overall customer experience. It consolidated multiple call centers into a single point of contact. In addition, process improvements involving the standardization of tasks to be performed during planned visits, as well as break-fix service calls, will result in a more-consistent customer experience. For example, technicians will be able to view customer technical and commercial requirements via handheld devices. Call center agents can apply response, servicelevel and entitlement requirements to all customer calls. Armed with real-time information, service assistants in every office will be able to discuss past service activities and communicate future service needs intelligently. Starting in 2003, district managers were able to see, at a click, detailed discussions between their technicians and product engineers about warranty issues. From the customer’s perspective, YORK is integrating the areas of field service and customer service. It has worked on the service processes concerned with handling calls, understanding the correct entitlements and dispatching the right person at the right time, with the appropriate skills.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Organizational Collaboration — From the start, YORK realized that organizational collaboration, change management and training were key to moving the company into a new way of doing business. It appointed a managing executive to head up the program and provide day-to-day connectivity between the business and the technology providers. The YORKConnect team involved more than 20 percent of the organization throughout the three-phase, four-year program. Participation ranged from two-year assignments to ad hoc support involving meetings and workshops of a few hours to several weeks. The business unit’s president attended all program board meetings and project updates, showing the high-level sponsorship required for program success. Systematic reviews and support from senior leadership fostered alignment across the organization. Change management — which began one-and-a-half years prior to the start of the implementation of the first of four releases, through newsletters, presentations, participation in regularly scheduled business meetings, videotapes and road shows — helped excite and manage the expectations of the entire enterprise. CRM Processes — YORK examined every opportunity to improve processes and factored desired improvements into the proposed overall solution. Before evaluating technology, it developed high-level business process views, which resulted in 250 detailed requirements, and conducted benchmarking, as it planned new processes to make the customer-facing processes more robust and the experience more rewarding. For customer service, after-hours call routing was streamlined, making interaction easier and more consistent for customers, while providing quicker response times. Service sales go beyond establishing and maintaining good customer relationships. Customers, especially in commercial services, bring a much broader scope of issues to be addressed during the sale. Multisite conditions, high levels of standardization, interaction with on-site employees who are not knowledgeable of the technology, and financial questions and needs require a more-businesssophisticated sales individual to work with them. Each customer and sale requires a custom fit to its exact needs, not just a straightforward technical answer to be presented.
353
Reaping Business Rewards From CRM
As a result of this more-detailed sales environment, improvements to YORK’s sales processes ensured that individualized solutions could be presented to its customers. In addition, the quoting processes will be digitized in 2004 to improve YORK’s accuracy, speed and pricing consistency, improving response time to customers.
enterprise resource planning system running back-office functions, such as finance and inventory transactions. Fiftyfive one- and two-way interfaces were developed to integrate Siebel and Lawson, using IBM’s MQ Series. Additionally, MQ Series Integrator carries out all data transformations.
For the field service organization, formerly inconsistent manual processes were transformed and technologyenabled through the use of wireless devices. Overall, by integrating service sales, customer service and field service, process improvements focused on the standardization of tasks performed during planned customer visits and breakfix service calls will lead to a more-consistent customer experience.
Several new technologies, such as Icare Mobility, Mercury Interactive and extensive, custom-developed monitoring tools, were needed to build, test and operate the architecture. The YORKConnect service execution and back-office integration phase being deployed in 2004 will support more than 350 users across 70 district offices over a Web browser.
Customer Information — Prior to YORKConnect, multiple, disparate systems stored customer data. Each of the 70 district offices used distributed homegrown applications and databases, reflecting their own view of the customer, in addition to a distributed financial reporting tool that resided on every office’s server. In 2004, YORK will be consolidating all of this information (more than 300,000 assets related to 85,000 customer sites) into the centralized YORKConnect system. Service sales, call center, quality, product service and customer service groups will use the system, as well as the individual district offices. The 2004 release will finish off YORKConnect’s real-time, two-way integration with more than 55 interfaces to backoffice systems that provide synchronization of critical data across the systems that support the business. For the first offices to go live in this third-phase release of YORKConnect program, some of the biggest challenges included: • High volumes of data, which required data loads lasting more than eight hours during the district office “golive” phase • Contact duplication and overall data cleanup • Driving consistency across districts to maintain accurate data, such as customer entitlement and pricing agreements Technology — YORK selected Siebel Systems’ eBusiness v.7.0 (which includes Siebel Call Center, Siebel Field Service, Siebel eService, Siebel Service Sales and Siebel Service Handheld) as the primary front-end application for YORKConnect. It integrates with a Lawson Software
354
Gartner
Metrics — YORK is measuring its progress by monitoring improvements in the accuracy, speed and pricing consistency of customer quotes, as well as response times to customers’ calls and the ability to satisfy their requests on a “one and done” basis. YORK ties these types of metrics to two key efforts: • The ability to remotely team with numerous levels of product expertise across multiple organizations • The ability to gather, analyze and take action on customers’ installed-base information New metrics, such as net new customers, competitive replacements, win ratios and opportunity cycle times, enable measurement of market share growth. Traditional measurements of installed-base equipment maintenance are used to manage the business. T h e Y O R K C o n n e c t P r o g r a m T i m e l i n e — The YORKConnect team spent 12 weeks developing a comprehensive program plan. The team mapped out an integration strategy, estimated hardware and software costs, determined resource requirements, and ultimately divided the program into three major projects: • Project 1 (2Q01 to 1Q02), which included developing the vision and strategy, culminated in the deployment of call center functionality using a Web browser, while consolidating more than 40 call centers into one. • Project 2 (2Q02 to 4Q02) included SFA and an implementation of Siebel remote capabilities to 400 sales and support personnel, along with e-service and service sales. A robust, high-availability solution was
Strategic Planning Series
Appendix A: Case Studies — Fall 2003 CRM Excellence Awards
put in place, involving clustering, network/software load balancing and single-point-of-failure elimination. • Project 3 (2Q03 to 2Q04) focuses on implementing and deploying field service execution and back-office integration capability to 2,000 service technicians using a wireless handheld device. In addition, a remote monitoring diagnostics system, YORKWatch, was implemented. Deployed during 3Q03, YORKWatch enables customer assets to call for service when operating parameters no longer fit within the asset’s statistical profile or engineered operating limits. It enables a proactive service approach to stave off competitive threats and reduce internal service costs. More importantly, it enables YORK to respond to customer needs faster and, in many cases, before the customer has actually experienced a loss of service. Beyond Project 3, the vision is to expand YORKConnect to the equipment sales sector of YORK and then abroad to meet the service needs of customers worldwide. Results • After-hours call processing in nearly 70 districts, with more than 40 separate processes and technologies, was consolidated into a single call center. • The call center is able to process more than 9,000 service calls a month at a 99.9 percent service level. • The service sales organization increased its sales productivity by approximately 20 percent within the first nine months, following implementation of the second phase. • The day service technicians close a job on their handhelds. Job details are available for review by sales, invoicing and other back-office personnel, as well as by the customer through an online e-customer portal. This process change collapses the time between the completion of the job and its visibility. • Salespeople and managers can see the quotas, backlogs and accomplishments across the business in real time. • Current return on investment exceeds the 20 percent anticipated for the service sales portion of the system already deployed and supports the payback period, which is less than the four years originally expected.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
• User adoption in the call center and sales is at 100 percent. Critical Success Factors/Lessons Learned • Empower a dedicated resource team from the business early in the process. • Ensure that team members have the skills and enthusiasm needed to champion the project in the user community. • Align the business team with the technical team so that decisions can be made in parallel with user, schedule and system considerations. • Establish clear expectations of roles and objectives within the team, and tie compensation directly to project achievements. • Develop an excellent working relationship with a worldclass system integrator that can provide intellectual capital, maximize speed-to-completion, use target benefit management tools, and respond to changing project staffing needs by rapidly identifying and briefing new resources. • Develop a realistic program with phased implementations. • Refrain from deploying a vendor “dot-zero” release. Early unexpected performance problems forced YORK to re-release the system to users within a three-month time frame. Bottom Line The YORKConnect initiative demonstrates that, with a clear vision, proper planning, attention to detail and a dedicated team, CRM can be successful. YORK’s realistic and pragmatic approach to its CRM initiative, driven through service functions, enabled the company to meet and, in many cases, exceed its own goals for the service sales portion already deployed. It realized solid return on investment and other impressive metrics that have enabled it to lower costs, increase top-line revenue, better respond to customer needs and, as a result of CRM, enter new markets with an advantage that will be hard for competitors to beat.
355
Appendix B: Glossary
Appendix B: Glossary
A/B test A test conducted using parallel trials to determine which of two approaches (“A” or “B”) proves to be more effective in an otherwise consistent environment.
ACD (automatic call distributor) A specialized phone system that automates the handling of multiple incoming calls. ACDs are used for a variety of order-taking functions, such as calls to help desks or the dispatching of service technicians. They are designed to distribute a large volume of incoming calls uniformly to operators or agents (for example, for airline reservations).
analytics (see CRM analytics) application service provider (see ASP) architecture 1. The overall design of a hardware, software or network system and the logical and physical relationships among its components. The architecture specifies the hardware, software, access methods and protocols used throughout the system. 2. A set of principles, guidelines and rules used by an enterprise to direct the process of acquiring, building, modifying and interfacing IT resources throughout the enterprise. These resources can include equipment, software, communications, development methodologies, modeling tools and organizational structures.
ASP (application service provider) A service provider that delivers pre-configured business applications over an Internet Protocol network via a subscription-based outsourcing contract. ASPs may host applications on their customers' sites, but most do so in their own data centers, where they are responsible for maintaining the applications and all associated hardware, software and network services to link the applications to the customer base.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
357
Reaping Business Rewards From CRM
automatic call distributor (see ACD)
business-to-business (see B2B)
B2B (business-to-business)
business-to-business-to-consumer B2B2C)
A form of commerce conducted among businesses, typically because of formal, contractual arrangements. In e-commerce, B2B functions include: • Sophisticated Web authorization and control for delivery of sensitive price, contract and content information for each partner • Catalogs that provide custom views based on access controls and parametric searches • Order entry functions such as standardized “ship to” locations, dynamic order recalculation and payment options
B2B2C (business-to-business-to-consumer) A form of commerce in which businesses sell products to consumers through other, “channel partner” businesses, such as distributors, retailers and brokers.
B2C (business-to-consumer) A form of commerce conducted between businesses and consumers. B2C commerce includes both formal relationships (for example, customers with subscriptionbased services or content) and ad hoc relationships (formed in real time to enable a new user to buy, sell or access information).
(see
business-to-consumer (see B2C) call center A group or department where employees receive and make high volumes of telephone calls. Call centers can have internal customers (for example, help desks) or external customers (for example, customer service and support centers). These centers use a variety of technologies to improve the management and servicing of calls. A center that use both phone- and non-phonebased communication channels (such as e-mail or the Web) is known as a “contact center.” See contact center.
CDI (customer data integration) The combination of technology, software, processes and services needed to achieve a single, accurate and complete view of the customer across multiple sources of customer data, databases and business lines. Bringing together the core data functions of data hygiene, linking (i.e., matching records), grouping (i.e., viewing records based on business rules) and customer recognition, CDI can reduce operational and marketing costs and enhance revenuegenerating opportunities through increased customer satisfaction and the identification of new customers.
balanced scorecard A measurement-based strategic management system — originated by Robert Kaplan and David Norton — that aligns business activities and strategy, and monitors performance in meeting strategic goals over time. Many enterprises use the balanced-scorecard approach to manage enterprise performance.
best-of-breed A category of applications that offer superior functionality to serve specific functions, as compared those that offer numerous functions bundled within an application suite. Enterprises often purchase software from different vendors to obtain the best-of-breed offering for each application area. For example, enterprises may purchase a sales force automation package from one vendor and a customer service package from another.
358
Gartner
change management A set of management disciplines and best practices to ensure a smooth transition and minimal disruption when system or process changes are introduced in an organization. In a traditional software development context, the term “change management” is used to refer to software version control or configuration management. In a broader business context, however, the term applies to the activities necessary to introduce change of all types to an organization. These include not only development activities, but also broader concerns such as process re-engineering and the impact of change on people, including: • Ensuring that employee communication needs are met • Reassuring people concerning the career impact of the change (both for those whose jobs have changed, and for those who will be forced into new jobs inside or outside of the organization)
Strategic Planning Series
Appendix B: Glossary
• Persuading key stakeholders to accept and embrace the change
clickstream analysis The tracking and analysis of visits to Web sites. Although there are other ways to collect this data, clickstream analysis typically uses Web server log files to monitor and measure Web site activity. This analysis can be used to report user behavior on a specific Web site, such as routing, “stickiness” (a user’s tendency to remain at the Web site), where users come from and where they go from the site.
CRM analytics A set of analyses that support CRM on both individualcustomer and aggregate levels, including the real-time monitoring of day-to-day customer operations. A significant aspect of performing true CRM analytics (as opposed to product or channel analytics) is the capability to integrate data and analyses across various distribution channels and business units, creating a holistic understanding of relationships.
CRM technologies Technologies that support CRM by enabling:
computer-telephony integration (see CTI)
• Greater customer insight • Increased customer access
consulting
• More effective interactions
Third-party advice and guidance on enterprise management or IT issues. Gartner has defined three categories of consulting services:
• Integration throughout customer channels and backoffice enterprise functions
• Management consulting, which includes Tier 1 (i.e., executive) assistance with the development or execution of corporate business strategy, and Tier 2 (i.e., business) assistance regarding business processes or change management.
CSS (customer service and support)
• IS consulting, which includes system architecture design or development, and IS organizational planning. • Application or technical consulting, which includes application project management and development, technology assessment, and product tuning.
contact center Also called a “customer contact center,” this is a center that uses multiple contact channels, including telephone, interactive voice response (IVR), speech recognition, email, Web and fax. It is an inbound and outbound servicebased environment in which customer service representatives handle all types of contacts regarding sales, customer service and support (CSS), marketing and other functions. See IVR and CSS.
CRM (customer relationship management) A business strategy designed to optimize profitability, revenue and customer satisfaction by organizing the enterprise around customer segments, fostering customercentric behaviors and implementing customer-centric processes.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
The CSS function is responsible for retaining and extending customer relationships once a product or service is sold. Due to the increasing complexity of customer interactions, customer service organizations need a complex technological infrastructure that is flexible, extensible and scalable, and that integrates front-office applications with back-end processes and data. The components of CSS include: • Call management — The core functionality of CSS applications. This component is used to log incoming telephone calls and transactions and to manage the transaction from initiation through closure. • Internet-based customer service suites — Also known as e-service suites, these applications and tools empower customers, partners and prospects for selfservice and interactions with the enterprise via the Web. • Field service and dispatch (FS/D) systems — FS/D software is evolving from solely back-office functionality to an enterprise system that tightly couples the back office with the front-office servicing systems. • Contact centers — Traditional call centers handle voice-only customer contact, whereas contact centers include all types of customer contact channels, including voice, the Web, fax and e-mail.
359
Reaping Business Rewards From CRM
CTI (computer-telephony integration) The intelligent linking of computers with switches, enabling coordinated voice and data transfers to the desktop.
recognition technologies, as well as statistical and mathematical techniques.
data warehouse customer data integration (see CDI) customer interaction hub The next evolution of the contact center. The creation of an integrated customer interaction hub will provide a realtime (and thorough) view of the customer across channels, to all relevant customer-facing employees. This framework will include: • A segmented, analytical evaluation of the specific customer • A determination of the service resources to apply to the customer, based on the customer’s profile A customer interaction hub involves many components; it takes advantage of knowledge management applications, natural-language processing (NLP) tools and knowledge repositories to create information once and use it throughout the enterprise. See contact center and knowledge management.
customer relationship management (see CRM) customer service and support (see CSS)
A storage architecture designed to hold data extracted from transaction systems, operational data stores and external sources. The warehouse then combines that data in an aggregate, summary form suitable for enterprisewide data analysis and reporting for predefined business needs. See operational data store.
DBMS (database management system) A system that enables end users or application programmers to share data. It provides a systematic method of creating, updating, retrieving and storing information in a database. DBMSs also typically perform data integrity, data access control, and automated rollback, restart and recovery functions. See database.
e-commerce The use of communication technologies (notably the Web) to transmit business information and transact business. Taking an order over the telephone is a simple form of e-commerce. Internet commerce is also ecommerce, but is only one of several advanced forms.
e-learning
database
Network-enabled learning that relies on digital content, experienced through a technology interface. Collaboration is a desirable feature but not a requirement.
An electronic filing system organized by fields, records and files. A field is a single piece of information, a record is a set of fields and a file is a collection of records.
e-mail response management system (see ERMS)
database management system (see DBMS)
enterprise
data mart A system that provides access to a limited number of data sources to aid in decision making for a specific organization or application — in contrast to the enterprisewide, strategic focus of the data warehouse. See data warehouse.
data mining The process of discovering meaningful correlations, patterns and trends by sifting through large amounts of data stored in repositories. Data mining employs pattern
360
Gartner
Any large, autonomous, private- or public-sector organization that uses information technology. Enterprises include not only corporations, but also large, noncorporate entities such as governments, nonprofit organizations and universities. The term is often used to distinguish large IT user organizations from IT vendors, or from small and midsize businesses. It is also used to distinguish technology that spans, supports or applies to the overall organization from that which is relevant only to an organizational subunit, such as a department.
Strategic Planning Series
Appendix B: Glossary
enterprise nervous system
FTE (full-time equivalent)
A middleware platform (sometimes called the “integration infrastructure” or “intelligent network”) that is emerging to coordinate and connect the heterogeneous applications of an enterprise and its relevant partners. The ENS helps systems communicate rapidly. This faster communication significantly increases the need to manage the interlocked business processes.
A staffing metric. An FTE is a unit of labor resources equivalent to one full-time employee, even if some or all of the staff comprising these resources work part-time.
information systems (see IS) information technology (see IT)
enterprise resource planning (see ERP) interactive voice response (see IVR) ERMS (e-mail response management system) A customer service and support (CSS) software feature for handling, managing and responding to e-mail messages from customers. See CSS.
ERP (enterprise resource planning) Business strategies and enabling software that integrate manufacturing, financial and distribution functions to dynamically balance and optimize enterprise resources. ERP software suites include integrated manufacturing, distribution and financial applications. ERP can enable enterprises to optimize their business processes and analysis capabilities for improved speed and efficiency.
IS (information systems) The principal or centralized organization formally charged with the responsibility for information technology in an enterprise. The IS organization is typically led by a chief information officer.
IT (information technology) The common term for the entire spectrum of technologies for information processing, including software, hardware, communications technologies and related services. In general, IT does not include embedded technologies that do not generate data for enterprise use.
ESP (external service provider)
IVR (interactive voice response)
A company that provides services such as consulting, outsourcing and software services (including system integration and application service provision). An ESP is a separate legal entity from the contracting company; it supplements the skills and resources of that company’s in-house IS department. See consulting and system integration.
A function whereby callers push buttons in response to voice prompts to receive recorded information, leave messages or have their calls routed to an appropriate party. IVR enables callers to access information quickly. Use of this option can offload call volume from call center agents, or improve load balancing by having agents respond to recorded messages during slow periods. A growing number of IVR developers are now using speech recognition in their applications.
ETL (extraction, transformation and loading) Tools for extracting data and its metadata from one data store, transforming the record structure and content of this data, and loading the transformed data to another data store. These tools are sometimes referred to as extraction/transformation/transport or ETT technology.
external service provider (see ESP)
knowledge management A business process that formalizes the management and use of an enterprise’s intellectual assets. Knowledge management promotes a collaborative and integrative approach to the creation, capture, organization, access and use of information assets, including the tacit, uncaptured knowledge of people.
extraction, transformation and loading (see ETL)
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
361
Reaping Business Rewards From CRM
marketing automation system A system that helps marketers execute multichannel marketing campaigns by providing a scripting environment for authoring business rules and interfaces to a variety of third-party applications.
marketing resource management (see MRM) midsize business (see MSB) MRM (marketing resource management) A set of processes and capabilities designed to enhance an enterprise's ability to orchestrate and optimize the use of internal and external marketing resources. MRM applications enable an enterprise to plan and budget marketing efforts, coordinate their execution, and measure their impact.
MSB (midsize business) By Gartner’s definition, a midsize business in North America is characterized by either of the following criteria:
production data. Different from a data warehouse, the ODS is an alternative to having operational decision support applications access data directly from the database that supports transaction processing. While both require a significant amount of planning, the ODS tends to focus on the operational requirements of a particular business process (for example, customer service), and on the need to allow updates and propagate those updates back to the source operational system from which the data elements were obtained. The data warehouse, on the other hand, provides an architecture for decision makers to access data to perform strategic analysis, which often involves historical and cross-functional data and the need to support many applications. See data warehouse.
PRM (partner relationship management) A CRM-related concept that extends sales, marketing, customer service and other customer-related enterprise functions to other enterprises to foster more-collaborative channel partner relationships.
radio frequency identification (see RFID)
• It has between 100 and 999 employees • It produces $50 million to $500 million in annual revenue
real-time enterprise
.NET
An enterprise that achieves competitive advantage by using up-to-date information to progressively remove delays in the management and execution of its critical business processes.
A Microsoft software initiative, originally announced in 2000. At its core, it represents Microsoft’s implementation of the Web services concept, which treats software as a set of services accessible over ubiquitous networks using Webbased standards and protocols — although Microsoft has broadly applied the “.NET” moniker to several independent technologies and initiatives that have little to do with Web services. See Web services.
portal A public portal is high-traffic Web site with a wide range of content, services and vendor links. Within an enterprise, portals are often used as a Web-based presentation and interaction interface for users of enterprise applications and resources, typically assembled in a simple-to-navigate, customizable interface for presentation to the end user. Enterprise portals provide windows into enterprise information, applications and processes.
operational data store A new articulation of the perennial concept of shared
362
Gartner
relationship marketing A term describing the practices and tools designed to build lifelong relationships with customers by building on each customer contact, enabling new returns from earlier investments. Relationship marketing goes beyond selecting the right customer to focus on delivering each customer the right offer, through the right channel and at the right time.
request for proposal (see RFP) return on investment (see ROI) RFID (radio frequency identification) An analog-to-digital conversion technology that uses radio frequency (RF) waves to transfer data between a movable item and a reader for identification, tracking or location
Strategic Planning Series
Appendix B: Glossary
purposes. It does not require physical contact or a line of sight between the reader or scanner and the tagged item. This is one advantage over a bar code system, while another is that RFID tags can be read over a longer range (100 feet or more).
RFP (request for proposal) An invitation for vendors to bid on supplying goods and services.
smart enterprise suite (see SES ) system integration The process of creating a complex information system. This may include designing or building a customized architecture or application, and integrating it with new or established hardware, packaged and custom software, and communications. Most enterprises rely on an external contractor for program management of most or all phases of system development (see system integrator).
ROI (return on investment) Financial gain expressed as a percentage of the funds invested to generate that gain.
system integrator
service-level agreement (see SLA)
An organization or an individual that performs system integration. Major system integration projects often require the assistance of a specialty firm that has the resources and expertise to manage a project plan that could last over several months, or even years. This external vendor generally also assumes a high degree of the project’s risks.
SES (smart enterprise suite)
TCO (total cost of ownership)
An integrated suite of products – offering content management, collaboration and other functionality — that complements a portal. Although this suite may be a simple bundle with some integration and single-vendor support, it can offer deep integration through a common core of services on which all components in the SES rely. The SES will become the evolutionary path of most of "pure player" and midtier portal product vendors. See portal.
A comprehensive assessment of information technology (IT) or other costs across enterprise boundaries over time. For IT, TCO includes hardware and software acquisition, management, support and communications costs; enduser expenses; and the opportunity cost of downtime, training and other productivity losses.
sales force automation (see SFA)
SFA (sales force automation) The use of technology to automate the sales process. Technologies used in SFA include laptop computers, personal digital assistants, contact databases and interactive selling systems.
touchpoint A contact point between an enterprise and its customers. Touchpoints may occur in any channel (for example, via phone, the Web or direct contact with a salesperson).
wallet share The share of an individual customer’s spending devoted to a company’s products or services.
SLA (service-level agreement) An agreement that sets expectations between the service provider and the customer and describes the products or services to be delivered, the single point of contact for end-user problems and the metrics by which the effectiveness of the process is monitored and approved.
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
Web services A software concept and infrastructure for program-toprogram communication and application component delivery. The Web services concept treats software as a set of services accessible over ubiquitous networks using Web-based standards and protocols.
363
Vendor Index
Vendor Index Accenture ACCPAC ActiveWebParts AIMS Software Akibia Amdocs Aprimo Art Technology Group Autonomy
228, 230, 240, 319 339 87 256, 258 229 73, 74, 85, 257, 293, 294 256 264 201
BearingPoint Best Software BroadVision
352, 353 47, 48, 49, 323, 328, 332, 335, 336, 339 101, 102
Callidus Software CAS Centiv Chinadotcom Chordiant Software Cisco Systems Citrix Systems Click Commerce Comergent Technologies Cramer Systems CustomerSat
278 103, 104 278 334 74, 103, 257, 258, 293, 295 202 343 41, 275, 278, 281 41, 88, 89, 101, 102, 103, 276, 278, 281 87 143
Dendrite DoubleClick
103 256, 258
E.piphany EDS ePeople Epicor Software
74, 103, 132, 254, 257, 258, 276, 293, 294, 345, 346 314 200 339, 350
Firstwave Technologies Fort Point Partners FrontRange Solutions
339 265 339
Headstrong
230
IBM Inforte Inktomi Interface Software
34, 180, 213, 217, 228, 230, 319, 354 230 201 339
Kana Knowledge Extraction Engines KPMG
75 87 254
© 2004 Gartner, Inc. and/or its affiliates. All rights reserved.
365
Reaping Business Rewards From CRM
Lawson Software
354
MEI Group Mercury Interactive Microsoft Motorola
103, 104 90, 348, 354 47, 48, 49, 71, 143, 323, 328, 332, 333, 336, 338, 339, 362 343
NetSuite Nice Systems
339 143
Oncontact Software Onyx Software Openwave Systems Oracle
339 47, 48, 49, 75, 85, 87, 103, 217, 278, 283, 293, 295, 323, 328, 332, 334 199, 200 32, 41, 71, 73, 74, 85, 86, 103, 185, 201, 207, 209, 212, 213, 217, 219, 220, 257, 258, 275, 278, 279, 280, 281, 283, 293, 295, 333, 343
Participate Systems PeopleSoft Pivotal Primus Knowledge Solutions
90, 202 32, 41, 71, 73, 74, 85, 87, 103, 185, 220, 257, 258, 278, 281, 283, 293, 294, 333, 339, 340, 348 47, 48, 49, 202, 278, 283, 323, 328, 332, 334, 335 202
ResponseTek Networks RightNow Technologies
143 217
Salesforce.com 47, 48, 49, 217, 323, 327, 328, 332, 334, 336, 337 SalesLogix (div. of Best Software) 47, 48, 49, 323, 325, 327, 328, 335, 336, 337 SAP 32, 41, 71, 73, 74, 85, 86, 87, 103, 104, 207, 213, 217, 218, 219, 257, 258, 278, 280, 281, 283, 293, 294, 333, 335, 339, 340 Saratoga Systems 339 SAS Institute 255, 256, 258 Seagate Technology 89 Selectica 278 ServiceWare Technologies 202 Siebel Systems 8, 32, 41, 47, 48, 49, 70, 71, 73, 74, 85, 86, 87, 103, 104, 207, 217, 218, 257, 258, 278, 279, 282, 283, 293, 294, 323, 328, 332, 333, 334, 335, 337, 354, 338 Soffront Software 339 SPSS 256 StayinFront 103 Sun Microsystems 201, 343 Teradata (div. of NCR)
254, 256, 258
Unica
255, 256, 257
Verity Verizon ViewsCast
201 343 143
Watchfire
180
Yantra
87
366
Gartner
Strategic Planning Series
Gartner Strategic Planning Series Inquiry Form Please send me information on the following Gartner Strategic Planning Reports: ❏
Creating a Best-in-Class Data Center: Server and Storage Management Technologies and Best Practices (ISBN 0-9741571-5-5) Publication Date: February 2004
❏
Using Business Intelligence to Gain a Competitive Edge: Unleashing the Power of Data Analysis to Boost Corporate Performance (ISBN 0-9741571-6-3) Publication Date: April 2004
❏
Winning in the Mobile and Wireless World: How to Exploit Key Trends and Technologies for Business Success (ISBN 0-9741571-7-1) Publication Date: May 2004
❏
Reaping Business Rewards From CRM: From Charting the Vision to Measuring the Benefits (ISBN 0-9741571-8-X) Publication Date: May 2004
❏
Web Services, Application Integration and the Software Revolution: The Critical Application Foundation for the Agile Enterprise (ISBN 0-9741571-9-8) Publication Date: July 2004
❏
Outsourcing Strategies, Markets and Best Practices: Getting the Most out of Business Process and IT Service Providers (ISBN 1-932876-00-6) Publication Date: July 2004
❏
Building a Sound Security Infrastructure: New Defenses for a New World of Threats (ISBN 1-932876-01-4) Publication Date: August 2004
❏
Managing IT Assets and Costs for a Better Bottom Line: Taming Total Cost of Ownership While Mastering Asset Management (ISBN 1-932876-02-2) Publication Date: November 2004
❏
Eight Report Strategic Planning Series (ISBN 1-932876-03-0)
For more information, please either e-mail
[email protected], or fax us at +1 203-316-6093. Name ______________________________ Title _____________________________________________________ Company_______________________________________________________________________________________ Mail Stop ___________________ Department_____________________________________________________ Street Address____________________________________________________________________________________ City ___________________________ State _______ Zip______________________________________________ Telephone: __________________________________ Fax: _______________________________________________ E-mail address: ___________________________________________________________________________________ How do you prefer to be contacted? ❏ Phone ❏ E-Mail I’m not sure which reports/services best meet my needs. Please contact me. ❏
❏ Fax
❏ Mail
