Want to avoid the Perils of CRM?
So let’s take a look at the four chief pitfalls of CRM and how to avoid them.
Make no mistake – getting CRM right is important and urgent. It is popular and becoming even more so. In 1989, CRM was mentioned once in the media. By 2000, that figure rose to 14,000. Seventy-two percent of the executives who took our 2001 management tools survey expected to have CRM programs in place by the end of 2001. That’s more than double the previous year’s figure of 35%, making CRM the fastest-growing technique our firm had encountered in eight years of analysis. And, according to the research and consulting firm META Group, the CRM software market is expected to more than double from $20 billion in 2001 to $46 billion by 2003.
The numbers say it all: CRM has arrived. Now it’s up to you to make sure it pays its way by avoiding the following four perils of CRM / pitfalls of CRM.
Peril 1: Implementing CRM Before Creating a Customer Strategy
Any new management tool can be seductive, but there’s something particularly captivating about software that promises to make a perennial problem go away. Many CRM products do just that, claiming they will automate the delicate and sometimes mysterious process of repelling low-margin customers and luring high-margin ones. CRM can indeed do that, but only after – and we repeat, only after – a traditional customer-acquisition and retention strategy has been conceived of and implemented. (For more on how to begin the CRM process, see the sidebar “Start with Customer Strategy.”)
The reason? Effective customer relationship management is based on good old-fashioned segmentation analysis. Moreover, it is designed to achieve specific marketing goals. To implement CRM without conducting segmentation analyses and determining marketing goals would be like trying to build a house without engineering measures or an architectural plan. Still, most executives mistake CRM technology for a marketing strategy. That is, they allow software vendors to drive their approach to customer management. Or, just as often, they retrofit a customer strategy to match the CRM technology they’ve just purchased. To make matters worse, they then delegate customer relationship management to their CIOs. It’s mostly technology, isn’t it? It partly is-and therein lies the problem. Technology that affects customers must always be aligned with an overarching strategy if it is to work.
Peril 2: Rolling Out CRM Before Changing Your Organization to Match
Installing CRM technology before creating a customer-focused organization is perhaps the most dangerous pitfall. If a company wants to develop better relationships with its more profitable customers, it needs to first revamp the key business processes that relate to customers, from customer service to order fulfillment. Having a strategy is not enough: A CRM rollout will succeed only after the organization and its processes-job descriptions, performance measures, compensation systems, training programs, and so on-have been restructured in order to better meet customers’ needs.
It’s also important to evaluate existing departmental, product, or geographic structures. Believing that CRM affects only customer-facing processes, however, executives often do not see the need for changes to internal structures and systems before investing in CRM technology. But that’s like trying to repaint a house without sanding the walls first; it’s bound to look worse than before. Research reinforces our point. According to a survey conducted recently by on-line resource center CRM Forum, when asked what went wrong with their CRM projects, 4% of the managers cited software problems, 1% said they received bad advice, but 87% pinned the failure of their CRM programs on the lack of adequate change management.
Peril 3: Assuming that More CRM Technology Is Better
Many executives automatically assume that CRM has to be technology intensive. It doesn’t. Customer relationships can be managed in many ways, and the objectives of CRM can be fulfilled without huge investments in technology simply by, say, motivating employees to be more aware of customer needs. Merely relying on a technological solution, or assuming that a high-tech solution is better than a low-tech one, is a costly pitfall. In fact, companies with well-functioning CRM programs dot all points of the technology spectrum: low-tech, mid-tech, and high-tech.
Several companies have adopted a healthy hybrid approach to CRM. For example, Grand Expeditions, a Florida-based company that manages eight tour operators, started its CRM project by identifying the low-tech activities that were already working well and could be replicated across the company. Its senior executives, led by president Bob DeVries, discovered, for example, the effectiveness of handwritten thank-you notes that one of its tour operators was sending clients days after their excursions ended. Customers loved this personal touch, and DeVries realized that this was an effective-and simple-way that the whole company could strengthen relationships in an industry where customer-acquisition costs are high and clients are risk-averse. Only when the continuous study of such practices was under way did Grand Expeditions start evaluating software solutions that could bolster its ability to build relationships with customers.
Peril 4: Stalking, Not Wooing, Customers
If your best customers knew that you planned to invest $130 million to increase their loyalty to your products, how would they tell you to spend it? Would they want you to create a loyalty card or would they ask you to open more cash registers and keep enough milk in stock? The answers depend on the kind of company you are and the kinds of relationships you and your customers want to have with one another. Such relationships can vary across industries, across companies in an industry, and across customers in a company. Unfortunately, managers tend to ignore these considerations while using CRM, with disastrous consequences. They often end up trying to build relationships with the wrong customers, or trying to build relationships with the right customers the wrong way.
Learning from Failure
Even if you’ve been unsuccessful at implementing CRM, there’s hope: Companies do recover from their failures. Consider the case of BMC Software, a systems-management software provider based in Texas that was forced to abandon its entire CRM program and start over again and again. After two failed attempts at implementing a CRM system, the company finally succeeded the third time around.
Successful CRM depends more on strategy than on the amount you spend on technology. Strategy is about allocating scarce resources to create competitive advantage and superior performance. The only way you can make CRM work is by taking the time to calculate your customer strategy, which helps employees understand where they are going and why, and to align your business processes before implementing the technology.
Avoid these four perils of CRM and get your CRM strategy right.